SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 1, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-13104
THERMOLASE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1360302
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
2055-C Luna Road
Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 28, 2000
Common Stock, $.01 par value 39,631,938
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
April 1, October 2,
<S> <C> <C>
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Assets:
Cash and cash equivalents $ 1,224 $ 1,358
Advance to affiliate 7,745 15,387
Accounts receivable, less allowances of $810 and $2,080 3,548 3,959
Inventories:
Raw materials and supplies 4,217 3,240
Work in process and finished goods 927 1,134
Other current assets 4,000 4,000
Prepaid expenses 200 85
Due from parent company and affiliated companies 334 486
------- -------
22,195 29,649
------- -------
Property, Plant, and Equipment, at Cost 6,118 6,004
Less: Accumulated depreciation and amortization 3,508 3,115
------- -------
2,610 2,889
------- -------
Other Assets 5,650 5,817
------- -------
Cost in Excess of Net Assets of Acquired Companies 7,505 7,623
------- -------
$37,960 $45,978
======= =======
2
<PAGE>
THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 1, October 2,
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 2,178 $ 932
Accrued payroll and employee benefits 487 741
Accrued restructuring costs (Note 5) 16,417 18,841
Accrued interest 559 559
Other accrued expenses 1,799 3,414
--------- --------
21,440 24,487
--------- --------
4 3/8% Subordinated Convertible Debentures (includes $16,690 115,000 115,000
and $8,225 of related-party debt) --------- --------
Deferred Lease Liability 194 195
--------- --------
Common Stock Subject to Redemption 40,500 40,500
--------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000 shares authorized; 409 408
40,857,932 and 40,829,132 shares issued
Capital in excess of par value 32,698 36,360
Accumulated deficit (155,897) (150,438)
Treasury stock at cost, 1,225,994 and 1,481,136 shares (16,384) (20,534)
--------- --------
(139,174) (134,204)
--------- --------
$ 37,960 $ 45,978
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Revenues:
Product revenues $ 4,819 $ 5,820
Service revenues - 3,995
------- -------
4,819 9,815
------- -------
Costs and Operating Expenses:
Cost of product revenues (Note 3) 4,389 3,898
Cost of service revenues - 7,977
Selling, general, and administrative expenses 1,972 3,674
Research and development expenses 93 484
Restructuring and unusual costs (Note 5) 99 -
------- -------
6,553 16,033
------- -------
Operating Loss (1,734) (6,218)
Interest Income 171 577
Interest Expense (includes $136 and $50 to related party) (1,341) (1,340)
------- -------
Loss Before Provision for Income Taxes (2,904) (6,981)
Provision for Income Taxes - 52
------- -------
Net Loss $(2,904) $(7,033)
======= =======
Basic and Diluted Loss per Share (Note 2) $ (.07) $ (.18)
======= =======
Basic and Diluted Weighted Average Shares (Note 2) 39,607 39,344
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Revenues:
Product revenues $ 9,726 $ 12,610
Service revenues 19 6,751
-------- --------
9,745 19,361
-------- --------
Costs and Operating Expenses:
Cost of product revenues (Note 3) 8,491 8,594
Cost of service revenues 121 14,671
Selling, general, and administrative expenses 3,717 8,527
Research and development expenses 192 973
Restructuring and unusual costs (Note 5) 385 -
-------- --------
12,906 32,765
-------- --------
Operating Loss (3,161) (13,404)
Interest Income 384 1,243
Interest Expense (includes $225 and $99 to related party) (2,682) (2,680)
Equity in Losses of Joint Ventures - (200)
-------- --------
Loss Before Provision for Income Taxes (5,459) (15,041)
Provision for Income Taxes - 96
-------- --------
Net Loss $ (5,459) $(15,137)
======== ========
Basic and Diluted Loss per Share (Note 2) $ (.14) $ (.38)
======== ========
Basic and Diluted Weighted Average Shares (Note 2) 39,481 39,332
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Operating Activities:
Net loss $ (5,459) $(15,137)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 510 3,824
Provision for losses on accounts receivable 150 12
Increase (decrease) in deferred lease liability (1) 34
Equity in losses of joint ventures - 200
Other noncash items 167 -
Changes in current accounts:
Accounts receivable 261 (638)
Inventories (770) 204
Other current assets 37 (324)
Accounts payable 1,246 (907)
Other current liabilities (4,294) (892)
-------- --------
Net cash used in operating activities (8,153) (13,624)
-------- --------
Investing Activities:
Advances to affiliate, net 7,642 -
Proceeds from maturities of available-for-sale investments - 3,072
Purchases of property and equipment (113) (1,746)
Proceeds from sale of equipment - 436
Increase in other assets - (250)
Other - 15
-------- --------
Net cash provided by investing activities 7,529 1,527
-------- --------
Financing Activities:
Net proceeds from issuance of Company common stock 594 123
Payment of withholding taxes related to stock option exercises (104) (25)
Other - (12)
-------- --------
Net cash provided by financing activities 490 86
-------- --------
Decrease in Cash and Cash Equivalents (134) (12,011)
Cash and Cash Equivalents at Beginning of Period 1,358 52,831
-------- --------
Cash and Cash Equivalents at End of Period $ 1,224 $ 40,820
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMOLASE CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ThermoLase Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at April 1, 2000, the results of
operations for the three- and six-month periods ended April 1, 2000, and April
3, 1999, and the cash flows for the six-month periods ended April 1, 2000, and
April 3, 1999. Certain prior period amounts have been reclassified to conform to
the presentation in the current financial statements. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of October 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K, for the fiscal year ended October 2, 1999,
filed with the Securities and Exchange Commission.
2. Loss per Share
Basic loss per share has been computed by dividing the net loss by the
weighted average number of shares outstanding during the period. Diluted loss
per share does not differ from basic loss per share because the effect of
assuming the conversion of convertible debentures and the elimination of the
related interest expense, the exercise of stock options, and the effect of
redeemable common stock would be antidilutive, due to the Company's net loss in
the periods presented. Options to purchase 1,602,000 and 2,145,000 shares of
common stock for the second quarter of fiscal 2000 and 1999, respectively, and
1,176,000 and 2,154,000 shares of common stock for the first six months of
fiscal 2000 and 1999, respectively, were not included in the computation of
diluted loss per share due to the Company's net loss position. In addition, the
computation of diluted loss per share for each period excludes the effect of
assuming the conversion of the Company's $115,000,000 principal amount of 4 3/8%
subordinated convertible debentures, convertible at $17.385 per share, due to
the Company's net loss position.
3. Related-party Transactions
During the second quarter of fiscal 1999, and the six-month periods ended
April 1, 2000, and April 3, 1999, the Company purchased laser systems,
components, and related services from Trex Medical Corporation, a majority-owned
subsidiary of ThermoTrex Corporation (the Company's parent), at an aggregate
cost of $1,022,000, $717,000, and $1,655,000, respectively. There were no
related party purchases during the second quarter of fiscal 2000.
</TABLE>
7
<PAGE>
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
<S> <C> <C> <C> <C>
(In thousands) 2000 1999 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Health and Beauty Products $ 4,819 $ 4,952 $ 9,710 $ 11,038
Hair-removal and Related Activities (a) - 4,863 35 8,323
------- -------- ------- --------
$ 4,819 $ 9,815 $ 9,745 $ 19,361
======= ======== ======= ========
Loss Before Provision for Income Taxes:
Health and Beauty Products $(1,302) $ (674) $(1,780) $ (1,646)
Hair-removal and Related Activities (a) (246) (5,383) (833) (11,476)
Corporate (b) (186) (161) (548) (282)
------- -------- ------- --------
Total operating loss (1,734) (6,218) (3,161) (13,404)
Interest and other expense, net (1,170) (763) (2,298) (1,637)
------- -------- ------- --------
$(2,904) $ (6,981) $(5,459) $(15,041)
======= ======== ======= ========
(a) Reflects the June 1999 sale of spas and the termination of various licensing agreements.
(b) Primarily general and administrative expenses as well as restructuring and unusual costs in the
fiscal 2000 periods.
5. Restructuring and Unusual Costs
During fiscal 1999 and 1998, the Company recorded restructuring and
unusual costs, primarily in connection with the Company's decision to exit the
spa business and, to a lesser extent, to terminate certain obligations related
to the hair-removal business. The restructuring and unusual costs were primarily
for the sale and closure of the Company's spas; the write-off of leasehold
improvements and equipment; costs for ongoing lease obligations, net of assumed
sublease income; and payments to licensees and joint venture partners to sever
relationships and terminate arrangements. The fiscal 1999 restructuring costs
included severance for 26 employees across all functions, 23 of whom were
terminated during fiscal 1999. One additional employee was terminated during the
first six months of fiscal 2000.
During the first six months of fiscal 2000, in connection with the
Company's proposed reorganization (Note 6), the Company incurred and recorded
costs of $385,000, primarily for investment banker and legal fees.
</TABLE>
8
<PAGE>
5. Restructuring and Unusual Costs (continued)
A summary of activity in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hair-removal and Related Activities Segment Corporate
Abandonment Other Exit Other
of Excess Obligations
(In thousands) Severance Facilities Total
- --------------------------------- -------------- -------------- ------------- -------------- -------------
Fiscal 1998 Restructuring Plan
Balance at October 2, 1999 $ - $ - $ 50 $ - $ 50
Fiscal 2000 usage - - (50) - (50)
------- ------- ------ ------- -------
Balance at January 1, 2000 $ - $ - $ - $ - $ -
======= ======= ====== ======= =======
Fiscal 1999 Restructuring Plan
Balance at October 2, 1999 $ 99 $10,999 $7,693 $ - $18,791
Provision charged to expense - - - 385 385
in fiscal 2000
Fiscal 2000 usage (74) (174) (2,259) (252) (2,759)
------- ------- ------ ------- -------
Balance at April 1, 2000 $ 25 $10,825 $5,434 $ 133 $16,417
======= ======= ====== ======= =======
Of the total restructuring costs accrued as of April 1, 2000, the Company
expects to pay $7.6 million in the remainder of calendar 2000 and $8.8 million
in calendar 2001 and thereafter, through the expiration of various leases in
fiscal 2014. The timing of these cash payments will be affected by the terms of
any subleases or settlement arrangements with landlords.
6. Proposed Reorganization
Thermo Electron Corporation has announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company.
Under this plan, the Company would be merged into Thermo Electron. As a result,
the Company would become a wholly owned subsidiary of Thermo Electron. The
public shareholders of the Company would receive common stock in Thermo Electron
in exchange for their shares. In December 1999, the boards of directors of the
Company and Thermo Electron approved a definitive agreement and plan of merger
pursuant to which Thermo Electron would acquire all of the outstanding shares of
Company common stock held by shareholders other than Thermo Electron and
ThermoTrex in exchange for shares of Thermo Electron's common stock. The
Company's board of directors approved the merger agreement based on a
recommendation of its special committee, which was charged with representing the
interests of the Company's public shareholders. Under the agreement, the number
of shares of Thermo Electron common stock to be issued to the Company's
shareholders will be determined using an exchange ratio of between 0.132 and
0.198, depending on the price of Thermo Electron's common stock. The exchange of
common stock will be a taxable transaction to the shareholders.
In addition, under the agreement, units of the Company (currently
consisting of one share of Company common stock coupled with the right to have
the Company redeem that share for $20.25 in April 2001) would be modified so
that, following the merger, each unit would consist of a fractional share of
Thermo Electron common stock, which would be redeemable in April 2001 for
$20.25.
This proposal is subject to certain conditions including the filing with
and review by the Securities and Exchange Commission of certain required filings
regarding the proposed transaction and listing on the New York Stock Exchange of
the shares of Thermo Electron common stock to be issued in connection with the
merger.
9
<PAGE>
6. Proposed Reorganization (continued)
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron, the
Company expects that its shares will continue to be listed through the
completion of the merger transaction. Accordingly, the Company has classified
the debentures as long-term in the accompanying balance sheet.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, for the
fiscal year ended October 2, 1999, filed with the Securities and Exchange
Commission.
Overview
The Company's businesses operate in two segments: Hair-removal and Related
Activities (Hair Removal) and Health and Beauty Products. The Company's Hair
Removal segment has developed a laser-based system called SoftLight(R) for the
removal of unwanted hair. The SoftLight system uses a low-energy, dermatology
laser in combination with a lotion that absorbs the laser's energy to disable
hair follicles. In April 1995, the Company received clearance from the U.S. Food
and Drug Administration (FDA) to commercially market hair-removal services using
the SoftLight system, and in May 1998, the Company received clearance from the
FDA to market its SoftLight Laser Peel for skin resurfacing. To provide the
laser-based hair removal and skin-resurfacing services, the Company developed a
network of 14 high-end day spas, originally called Spa Thira.
In June 1996, the Company commenced a program to license to physicians and
others the right to perform the Company's patented SoftLight hair-removal and
skin-resurfacing procedures. Through these arrangements, the Company received a
per procedure or minimum royalty and/or flat periodic fee. The Company also
entered into joint venture and other licensing agreements to bring the
technology to international markets. In fiscal 1999, the Company began offering
licensees the opportunity to purchase or lease SoftLight lasers in lieu of
paying ongoing license fees.
In connection with its June 1998 acquisition of The Greenhouse Spa, Inc.,
a full-service, luxury, destination spa, the Company converted 11 of its
domestic Spa Thiras to Greenhouse day spas. In addition to hair-removal and
skin-resurfacing services, these facilities offered more traditional day-spa
services, such as massages and facials. Following conversion of the facilities
to Greenhouse day spas, significant losses continued and, during fiscal 1998,
the Company initiated certain restructuring actions, including the announced
closure of three of its domestic day spas and the termination of a joint venture
that operated its spa in France. The Company closed two of the domestic day spas
in November 1998 and the third spa, as well as two additional spas, were closed
in the third quarter of fiscal 1999. In May 1999, the Company announced
additional plans to undertake a broad-scale restructuring of its business. As
part of the restructuring plan, the Company decided to exit the spa business
and, as a result, sold The Greenhouse Spa, Inc., located in Arlington, Texas,
and the remaining nine Greenhouse day spas. In addition, the Company has
terminated
10
<PAGE>
Overview (continued)
the physician-licensing program and has terminated or renegotiated the terms of
its international joint venture arrangements as well as discontinued certain
branded product lines at the Company's Creative Beauty Innovations, Inc. (CBI)
subsidiary. The Company expects to complete its restructuring plan by the middle
of calendar 2000.
The Company's CBI subsidiary represents the Health and Beauty Products
segment, which manufactures and markets skin-care, bath, and body products and
markets dietary supplements. This business represents the Company's principal
operations following the sale of the spas and the termination of various
licensing agreements.
Results of Operations
Second Quarter Fiscal 2000 Compared With Second Quarter Fiscal 1999
Revenues were $4.8 million and $9.8 million in the second quarter of
fiscal 2000 and 1999, respectively. The Company earned product revenues of $4.8
million in fiscal 2000, compared with $5.8 million in fiscal 1999. Product
revenues include sales in the Health and Beauty Products segment and, in the
fiscal 1999 period, lasers sold in international and domestic markets by the
Company's Hair Removal segment and beauty product sales at the Company's spas.
Product revenues in the Health and Beauty Products segment decreased to $4.8
million in the second quarter of fiscal 2000 from $5.0 million in the second
quarter of fiscal 1999, primarily due to the discontinuation of certain branded
product lines. There were no product revenues in the Hair Removal segment in
fiscal 2000, compared with $0.8 million in fiscal 1999, due to a decision to
exit this segment.
There were no service revenues in the Hair Removal segment in the second
quarter of fiscal 2000, compared with $4.0 million in the second quarter of
fiscal 1999. This decrease is due to the sale and closure of the Company's
Greenhouse day spas and the termination of its physician-licensing program and
certain international licensing arrangements (Note 5).
The gross profit margin was $0.4 million in the second quarter of fiscal
2000, compared with a negative gross profit margin of $2.1 million in the second
quarter of fiscal 1999. This increase in gross profit margin was primarily due
to the sale of the spa business, offset in part by a decrease in gross profit
margin in the Health and Beauty Products segment due to changes in product mix
and, to a lesser extent, $0.7 million of higher provisions for excess and
obsolete inventories. The gross profit margin in the Health and Beauty Products
segment was 9% in the second quarter of fiscal 2000 compared with 32% in the
second quarter of fiscal 1999.
Selling, general, and administrative expenses decreased to $2.0 million in
the second quarter of fiscal 2000 from $3.7 million in the second quarter of
fiscal 1999, primarily due to $1.1 million of lower costs following the sale of
the spa business and the termination of various licensing agreements and, to a
lesser extent, reductions in personnel in the Health and Beauty Products
segment, as a result of cost reduction measures.
Research and development expenses decreased to $0.1 million in the second
quarter of fiscal 2000 from $0.5 million in the second quarter of fiscal 1999,
primarily due to the Company's decision to substantially exit the SoftLight
business.
During the second quarter of fiscal 2000, the Company recorded costs of
$0.1 million in connection with its proposed reorganization (Note 5).
Interest income decreased to $0.2 million in the second quarter of fiscal
2000 from $0.6 million in the second quarter of fiscal 1999, primarily due to
lower average invested balances. Interest expense was unchanged at $1.3 million
in both periods.
11
<PAGE>
First Six Months Fiscal 2000 Compared with First Six Months Fiscal 1999
Revenues were $9.7 million and $19.4 million in the first six months of
fiscal 2000 and 1999, respectively. The Company earned product revenues of $9.7
million in fiscal 2000, compared with $12.6 million in fiscal 1999. Product
revenues include sales in the Health and Beauty Products segment and, in the
fiscal 1999 period, lasers sold in international and domestic markets by the
Company's Hair Removal segment and beauty product sales at the Company's spas.
Product revenues in the Health and Beauty Products segment decreased to $9.7
million in the first six months of fiscal 2000 from $11.0 million in the first
six months of fiscal 1999, primarily due to the discontinuation of certain
branded product lines. Product revenues in the Hair Removal segment decreased to
$16,000 in fiscal 2000 from $1.5 million in fiscal 1999, primarily due to a
decrease in laser sales.
Service revenues in the Hair Removal segment decreased to $19,000 in the
first six months of fiscal 2000 from $6.8 million in the first six months of
fiscal 1999. This decrease is due to the sale and closure of the Company's
Greenhouse day spas and the termination of its physician-licensing program and
certain international licensing arrangements (Note 5). Service revenues for the
fiscal 2000 period represent licensing fees from the remaining
physician-licensing agreements, which have been terminated as of April 1, 2000.
The gross profit margin was $1.1 million in the first six months of fiscal
2000, compared with a negative gross profit margin of $3.9 million in the first
six months of fiscal 1999. This increase in gross profit margin was primarily
due to the sale of the spa business, offset in part by a decrease in gross
profit margin in the Health and Beauty Products segment due to changes in
product mix, $0.5 million of higher provisions for excess and obsolete
inventories, as well as the discontinuation of certain branded product lines,
which had higher gross profit margins. The gross profit margin in the Health and
Beauty Products segment was 3% in the first six months of fiscal 2000, compared
with 29% in the first six months of fiscal 1999.
Selling, general, and administrative expenses decreased to $3.7 million in
the first six months of fiscal 2000 from $8.5 million in the first six months of
fiscal 1999, primarily due to $3.1 million of lower costs following the sale of
the spa business and the termination of various licensing agreements. In
addition, Health and Beauty Products segment advertising costs decreased $0.8
million as a result of the discontinuation of certain branded product lines,
management efforts to reduce overall marketing costs, and reductions in
personnel.
Research and development expenses decreased to $0.2 million in the first
six months of fiscal 2000 from $1.0 million in the first six months of fiscal
1999, primarily due to the Company's decision to substantially exit the
SoftLight business.
During the first six months of fiscal 2000, the Company recorded costs of
$0.4 million in connection with its proposed reorganization (Note 5).
Interest income decreased to $0.4 million in the first six months of
fiscal 2000 from $1.2 million in the first six months of fiscal 1999, primarily
due to lower average invested balances. Interest expense was unchanged at $2.7
million in both periods.
Equity in losses of joint ventures in the fiscal 1999 period represents
the Company's proportionate share of losses from its international joint
ventures, which have been substantially terminated with the exception of the
Company's continued ownership of a 46% equity interest in ThermoLase England
LLC, which continues to pursue the SoftLight business in the United Kingdom,
Ireland, Spain, and South Africa.
12
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $0.8 million at April 1, 2000, compared
with $5.2 million at October 2, 1999. Included in working capital are cash, cash
equivalents, and advance to affiliate of $9.0 million at April 1, 2000, compared
with $16.7 million at October 2, 1999. Operating activities used $8.2 million of
cash during the first six months of fiscal 2000. Cash was used primarily to fund
the Company's loss, excluding noncash items, as well as a decrease in other
current liabilities, which used $4.3 million of cash, primarily due to payments
for accrued restructuring costs. Of the total restructuring costs accrued as of
April 1, 2000, the Company expects to pay $7.6 million in the remainder of
calendar 2000 and $8.8 million in calendar 2001 and thereafter, through the
expiration of various leases in fiscal 2014. The timing of these cash payments
will be affected by the terms of any subleases or settlement arrangements with
landlords.
Excluding advance to affiliate activity, the Company's primary investing
activity during the first six months of fiscal 2000 consisted of $0.1 million
for purchases of property and equipment.
The Company has an obligation to pay $40.5 million, in the aggregate, to
the holders of redemption rights if all of the holders thereof exercise their
redemption rights in April 2001 when such rights become exercisable. The Company
does not have sufficient funds to satisfy these obligations and the exercise of
the redemption rights would have a material adverse effect on the Company's
liquidity and financial position. Thermo Electron Corporation has guaranteed
such obligation (Note 6). In addition, Thermo Electron has expressed its
willingness to lend the Company up to $10.0 million for short-term liquidity
should the need arise.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into and become a wholly owned subsidiary of Thermo
Electron (Note 6).
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron, the
Company expects that its shares will continue to be listed through the
completion of the merger transaction. Accordingly, the Company has classified
the debentures as long-term in the accompanying balance sheet.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at fiscal year-end
1999.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 10th day of May 2000.
THERMOLASE CORPORATION
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -----------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOLASE CORPORATION'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> APR-01-2000
<CASH> 1,224
<SECURITIES> 0
<RECEIVABLES> 4,358
<ALLOWANCES> 810
<INVENTORY> 5,144
<CURRENT-ASSETS> 22,195
<PP&E> 6,118
<DEPRECIATION> 3,508
<TOTAL-ASSETS> 37,960
<CURRENT-LIABILITIES> 21,440
<BONDS> 98,310
0
0
<COMMON> 408
<OTHER-SE> (139,582)
<TOTAL-LIABILITY-AND-EQUITY> 37,960
<SALES> 9,726
<TOTAL-REVENUES> 9,745
<CGS> 8,491
<TOTAL-COSTS> 8,612
<OTHER-EXPENSES> 577
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 2,682
<INCOME-PRETAX> (5,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,459)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
