-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0kkF6yM2Ab7MltD8TUbj761qkF5gSJ7aC44wpTiqu5SZMfvGlZnJ+nbyAo+4WwU DUECwdE90++kUg/qnbocTA== 0000721356-98-000004.txt : 19980513 0000721356-98-000004.hdr.sgml : 19980513 ACCESSION NUMBER: 0000721356-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980512 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMEDICS INC CENTRAL INDEX KEY: 0000721356 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 042788806 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09567 FILM NUMBER: 98616912 BUSINESS ADDRESS: STREET 1: 470 WILDWOOD ST STREET 2: P O BOX 2697 CITY: WOBURN STATE: MA ZIP: 01888-1799 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P.O. BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 10-Q 1 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 4, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number 1-9567 THERMEDICS INC. (Exact name of Registrant as specified in its charter) Massachusetts 04-2788806 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 470 Wildwood Street, P.O. Box 2999 Woburn, Massachusetts 01888-1799 (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 (or for such shorter period that the Registrant was required to file such reports), 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 May 1, 1998 ---------------------------- -------------------------- Common Stock, $.10 par value 36,775,239 Actual 41,655,772 Pro Forma PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements ----------------------------- THERMEDICS INC. Consolidated Balance Sheet (Unaudited) Assets April 4, January 3, (In thousands) 1998 1998 ---------------------------------------------------------------------- Current Assets: Cash and cash equivalents (includes $111,401 and $175,101 under repurchase agreement with affiliated company) $151,403 $187,012 Short-term available-for-sale investments, at quoted market value (amortized cost of $78,989 and $58,144) 79,133 58,317 Accounts receivable, less allowances of $4,094 and $4,207 57,602 61,488 Inventories: Raw materials and supplies 23,960 23,857 Work in process 18,656 18,218 Finished goods 18,337 17,499 Prepaid income taxes and expenses 12,749 12,769 -------- -------- 361,840 379,160 -------- -------- Property, Plant, and Equipment, at Cost 56,913 55,597 Less: Accumulated depreciation and amortization 35,552 33,986 -------- -------- 21,361 21,611 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $26,455 and $12,655) 26,456 12,665 -------- -------- Other Assets 11,747 12,139 -------- -------- Cost in Excess of Net Assets of Acquired Companies 110,414 110,977 -------- -------- $531,818 $536,552 ======== ======== 2PAGE THERMEDICS INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment April 4, January 3, (In thousands except share amounts) 1998 1998 ------------------------------------------------------------------------ Current Liabilities: Notes payable and current maturity of long-term obligation $ 7,638 $ 7,498 Accounts payable 18,349 18,020 Accrued payroll and employee benefits 9,055 12,576 Accrued commissions 3,452 3,389 Accrued income taxes 9,953 6,815 Accrued warranty costs 3,764 3,784 Other accrued expenses 14,379 15,449 Due to parent company and affiliated companies 2,901 2,266 -------- -------- 69,491 69,797 -------- -------- Deferred Income Taxes and Other Deferred Items 175 177 -------- -------- Long-term Obligations: Subordinated convertible obligations (Note 4) 131,239 142,750 Other 13 21 -------- -------- 131,252 142,771 -------- -------- Minority Interest 89,302 96,461 -------- -------- Shareholders' Investment (Note 2): Common stock, $.10 par value, 100,000,000 shares authorized; 41,738,108 and 36,846,175 shares issued 4,174 3,685 Capital in excess of par value 119,655 113,913 Retained earnings 122,607 116,034 Treasury stock at cost, 83,086 and 134,172 shares (1,818) (3,449) Accumulated other comprehensive items (Note 6) (3,020) (2,837) -------- -------- 241,598 227,346 -------- -------- $531,818 $536,552 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMEDICS INC. Consolidated Statement of Income (Unaudited) Three Months Ended ---------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ------------------------------------------------------------------------ Revenues $75,661 $72,057 ------- ------- Costs and Operating Expenses: Cost of revenues 38,661 36,961 Selling, general, and administrative expenses 21,061 21,964 Research and development expenses 6,629 5,584 ------- ------- 66,351 64,509 ------- ------- Operating Income 9,310 7,548 Interest Income 3,665 2,637 Interest Expense (1,206) (269) Gain on Issuance of Stock by Subsidiary - 17,075 Gain on Sale of Investments, Net 18 - ------- ------- Income Before Provision for Income Taxes, Minority Interest, and Extraordinary Item 11,787 26,991 Provision for Income Taxes 4,769 3,764 Minority Interest Expense 1,650 1,261 ------- ------- Income Before Extraordinary Item 5,368 21,966 Extraordinary Item, Net of Provision for Income Taxes of $780 (Note 4) 1,205 - ------- ------- Net Income $ 6,573 $21,966 ======= ======= Earnings per Share Before Extraordinary Item (Note 5): Basic $ .13 $ .60 ======= ======= Diluted $ .13 $ .56 ======= ======= Earnings per Share (Note 5): Basic $ .16 $ .60 ======= ======= Diluted $ .16 $ .56 ======= ======= Weighted Average Shares (Note 5): Basic 39,857 36,683 ======= ======= Diluted 41,925 38,956 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMEDICS INC. Consolidated Statement of Cash Flows (Unaudited) Three Months Ended --------------------- April 4, March 29, (In thousands) 1998 1997 ---------------------------------------------------------------------- Operating Activities: Net income $ 6,573 $ 21,966 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,629 2,563 Provision for losses on accounts receivable 111 202 Gain on issuance of stock by subsidiary - (17,075) Gain on sale of investments, net (18) - Gain on repurchase of subordinated convertible debentures (Note 4) (1,985) - Minority interest expense 1,650 1,261 Other noncash expenses 232 16 Changes in current accounts, excluding the effects of acquisition: Accounts receivable 3,553 2,906 Inventories (1,520) (2,389) Prepaid income taxes and expenses 10 (443) Accounts payable 530 (225) Other current liabilities (770) 2,142 Other (161) - -------- -------- Net cash provided by operating activities 10,834 10,924 -------- -------- Investing Activities: Acquisition, net of cash acquired - (1,059) Purchases of available-for-sale investments (80,950) (18,596) Proceeds from sale and maturities of available-for-sale investments 46,456 32,008 Purchases of property, plant, and equipment (1,701) (2,163) Other (364) 147 -------- -------- Net cash provided by (used in) investing activities $(36,559) $ 10,337 -------- -------- 5PAGE THERMEDICS INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Three Months Ended --------------------- April 4, March 29, (In thousands) 1998 1997 ---------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of Company and subsidiaries' common stock $ 107 $ 28,446 Purchases of Company and subsidiaries' common stock (1,054) (3,911) Repurchase of subordinated convertible debentures (Note 4) (9,337) - Net increase in short-term borrowings 166 773 International Technidyne transfer from parent company - 384 -------- -------- Net cash provided by (used in) financing activities (10,118) 25,692 -------- -------- Exchange Rate Effect on Cash 234 499 -------- -------- Increase (Decrease) in Cash and Cash Equivalents (35,609) 47,452 Cash and Cash Equivalents at Beginning of Period 187,012 82,800 -------- -------- Cash and Cash Equivalents at End of Period $151,403 $130,252 ======== ======== Noncash Activities: Fair value of assets of acquired company $ - $ 1,433 Cash paid for acquired company - (1,059) -------- -------- Liabilities assumed of acquired company $ - $ 374 ======== ======== Conversions of subsidiaries' convertible obligations $ - $ 4,650 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 6PAGE THERMEDICS INC. Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements presented have been prepared by Thermedics Inc. (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 4, 1998, the results of operations for the three-month periods ended April 4, 1998, and March 29, 1997, and the cash flows for the three-month periods ended April 4, 1998, and March 29, 1997. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of January 3, 1998, 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 January 3, 1998, filed with the Securities and Exchange Commission. 2. Common Stock On February 5, 1998, the Company's Board of Directors voted to issue 4,880,533 shares of its common stock to Thermo Electron Corporation in exchange for 100% of the stock of TMO TCA Holdings Inc., which is the beneficial owner of 3,355,705 shares of common stock of the Company's Thermo Cardiosystems Inc. subsidiary. The Company's issuance of the 4,880,533 shares of its common stock to Thermo Electron is subject to approval by the Company's shareholders. However, because Thermo Electron is the majority shareholder and intends to vote its shares in favor of the transaction, approval is assured and, therefore, the shares are considered to be outstanding as of February 5, 1998, for purposes of computing weighted average shares. The shares of common stock will be exchanged at their respective fair market values as of February 5, 1998. 3. Offer to Acquire the Outstanding Common Stock of Thermo Voltek Corp. On March 31, 1998, the Company proposed to acquire, through a merger, all of the outstanding shares of common stock of Thermo Voltek Corp. (a publicly traded, majority-owned subsidiary) that the Company does not own, at a price of $7.00 per share in cash. In addition, the proposal contemplates the redemption of Thermo Voltek's $5.3 million principal amount of 3 3/4% subordinated convertible debentures due 2000. As of April 4, 1998, the Company owned 67% of the outstanding common stock of Thermo Voltek. In addition, Thermo Electron owns approximately 3% of the outstanding common stock of Thermo Voltek. 7PAGE THERMEDICS INC. 3. Offer to Acquire the Outstanding Common Stock of Thermo Voltek Corp. (continued) On March 31, 1998, complaints were filed by certain shareholders of Thermo Voltek, each attempting to act on behalf of Thermo Voltek's public shareholders. The complaints allege, among other things, that the proposed price of $7.00 per share to be paid to the shareholders of Thermo Voltek is unfair and grossly inadequate. Thermo Voltek has appointed a special committee, comprised of its independent directors, to evaluate the proposal with the assistance of a financial advisor, to be selected. The merger is contingent upon, among other things, the negotiation and execution of a definitive merger agreement; receipt by Thermo Voltek's Board of Directors of an opinion by an investment banking firm that the Company's offer is fair to Thermo Voltek's shareholders (other than the Company and Thermo Electron) from a financial point of view; the approval of Thermo Voltek's Board of Directors upon recommendation of its special committee; and clearance by the Securities and Exchange Commission of the proxy materials regarding the proposed transaction. 4. Repurchase of Subordinated Convertible Debentures During the first quarter of 1998, the Company and a majority-owned subsidiary repurchased $11.5 million principal amount of subordinated convertible debentures for $9.3 million in cash, resulting in an extraordinary gain of $1.2 million, net of taxes of $0.8 million. 8PAGE THERMEDICS INC. 5. Earnings per Share Basic and diluted earnings per share were calculated as follows: Three Months Ended --------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ----------------------------------------------------------------------- Basic Income before extraordinary item $ 5,368 $21,966 Extraordinary item, net of tax 1,205 - -------- ------- Net income $ 6,573 $21,966 ======== ======= Weighted average shares 36,746 36,683 Effect of shares issuable in exchange for Thermo Cardiosystems common stock 3,111 - -------- ------- Basic weighted average shares 39,857 36,683 -------- ------- Basic earnings per share: Before extraordinary item $ .13 $ .60 Extraordinary item, net of tax .03 - -------- ------- $ .16 $ .60 ======== ======= Diluted Income before extraordinary item $ 5,368 $21,966 Effect of majority-owned subsidiaries' dilutive securities (16) (9) -------- ------- Income available to common shareholders, before extraordinary item, as adjusted 5,352 21,957 Extraordinary item, net of tax 1,205 - -------- ------- Income available to common shareholders, as adjusted $ 6,557 $21,957 ======== ======= Basic weighted average shares 39,857 36,683 Effect of: Convertible obligations 1,933 1,989 Stock options 135 284 -------- ------- Weighted average shares, as adjusted 41,925 38,956 -------- ------- Diluted earnings per share: Before extraordinary item $ .13 $ .56 Extraordinary item, net of tax .03 - -------- ------- $ .16 $ .56 ======== ======= 9PAGE THERMEDICS INC. 5. Earnings per Share (continued) The computation of diluted earnings per share excludes the effect of assuming the exercise of certain outstanding stock options because the effect would be antidilutive. As of January 3, 1998, there were 1,044,000 of such options outstanding, with exercise prices ranging from $16.05 to $29.08 per share. 6. Comprehensive Income During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This pronouncement sets forth requirements for disclosure of the Company's comprehensive income and accumulated other comprehensive items. In general, comprehensive income combines net income and "other comprehensive items," which represent certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses from available-for-sale investments. During the first quarter of 1998 and 1997, the Company's comprehensive income totaled $6.4 million and $20.2 million, respectively. 7. Proposed Acquisition In March 1998, the Company's Thermo Sentron Inc. subsidiary agreed to acquire the three businesses that constitute the product-monitoring group of Smiths Industries plc's Graseby plc division (the product-monitoring businesses) for approximately 26.4 British pounds sterling (approximately $44 million). The product-monitoring businesses design, manufacture, and distribute specialized packaged-goods equipment, including checkweighers and metal detectors, for the food and pharmaceutical industries. The product-monitoring businesses are based in the United Kingdom and had combined revenues in calendar 1997 of approximately $46.0 million. The acquisition is subject to the satisfaction of certain closing conditions and receipt of regulatory approvals, including antitrust clearance from the Department of Justice. 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 January 3, 1998, filed with the Securities and Exchange Commission. 10PAGE THERMEDICS INC. Overview The Company's business is divided into two segments: Instruments and Other Equipment, and Biomedical Products. The Instruments and Other Equipment segment includes the Company's Thermo Sentron Inc. subsidiary, which designs, develops, manufactures, and sells high-speed precision-weighing and inspection equipment for industrial production and packaging lines; its Thermedics Detection Inc. subsidiary, which develops, manufactures, and markets high-speed detection instruments used in a variety of on-line industrial process applications, security applications, and laboratory analysis, as well as electrode-based, chemical-measurement products; and its Thermo Voltek Corp. subsidiary, which manufactures electronic-test instruments and a range of products related to power amplification, conversion, and quality. As part of its Biomedical Products segment, the Company's Thermo Cardiosystems Inc. subsidiary manufactures two implantable left ventricular-assist systems (LVAS): a pneumatic, or air-driven, system and an electric version. Thermo Cardiosystems' electric LVAS is being used in Europe as a bridge to transplant and as an alternative to medical therapy. According to terms set by the U.S. Food and Drug Administration (FDA), no profit can be earned from the sale of an LVAS in the U.S. until the FDA has approved the device for commercial sale. With the FDA's approval, the Company began earning a profit on the sale of its air-driven LVAS in 1994. Until FDA approval has been obtained, the Company may not earn a profit on the sale in the U.S. of other products, such as the electric LVAS, currently used in clinical studies. Thermo Cardiosystems' International Technidyne Corporation subsidiary is a leading manufacturer of near-patient, whole-blood coagulation testing equipment and related disposables and also manufactures premium-quality, single-use skin-incision devices. The Company also develops and manufactures enteral nutrition-delivery systems and a line of medical-grade polymers used in medical disposables and nonmedical, industrial applications, including safety glass and automotive coatings. A significant amount of the Company's revenues is derived from sales of products outside of the U.S., through export sales and sales by the Company's foreign subsidiaries. The Company expects an increase in the percentage of revenues derived from international operations. Although the Company seeks to charge its customers in the same currency as its operating costs, the Company's financial performance and competitive position can be affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. Where appropriate, the Company uses forward contracts to reduce its exposure to currency fluctuations. Results of Operations First Quarter 1998 Compared With First Quarter 1997 --------------------------------------------------- Total revenues were $75.7 million in the first quarter of 1998, compared with $72.1 million in the first quarter of 1997. Instruments and Other Equipment segment revenues increased to $54.1 million in 1998 from $53.2 million in 1997, primarily due to increases in revenues of $1.7 11PAGE THERMEDICS INC. First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- million and $0.9 million at Thermo Voltek and Thermo Sentron, respectively, offset in part by a decrease in revenues of $1.8 million at Thermedics Detection. Revenues from Thermo Voltek increased to $11.4 million in 1998 from $9.7 million in 1997, primarily due to $1.0 million in revenues from the acquisition of Milmega Ltd. in April 1997, as well as an increase in revenues from electromagnetic compatibility test instruments in 1998 as compared to 1997. Revenues from Thermo Sentron increased to $18.9 million in 1998 from $18.0 million in 1997, primarily due to increased product demand and revenues of $0.9 million from acquired businesses. These increases were offset in part by a decrease of $0.9 million due to the impact of a stronger U.S. dollar relative to currencies in foreign countries in which Thermo Sentron operates. Revenues at Thermedics Detection decreased to $23.7 million in 1998 from $25.5 million in 1997. Revenues from Thermedics Detection's industrial process instruments and related services decreased to $7.1 million in 1998 from $10.6 million in 1997, primarily as a result of the fulfillment in 1997 of a mandated product-line upgrade for The Coca-Cola Company to its existing installed base and a $0.5 million decrease in revenues from moisture analyzers, primarily due to a slowdown in product demand in North America. These decreases in revenues were offset in part by an increase in revenues from Thermedics Detection's EGIS(R) explosives-detection systems and related services to $2.4 million in 1998 from $1.0 million in 1997, primarily due to $1.1 million of shipments under a contract with the U.S. Federal Aviation Administration (FAA), which was awarded to Thermedics Detection in May 1997. Product shipments under this contract were completed in the first quarter of 1998. Biomedical Products segment revenues increased to $21.6 million in the first quarter of 1998 from $18.8 million in the first quarter of 1997. Revenues from Thermo Cardiosystems increased to $16.5 million in 1998 from $14.9 million in 1997, primarily due to an increase in revenues from its air-driven LVAS, offset in part by a decrease in revenues from its electric LVAS. In April 1998, Thermo Cardiosystems received conditional approval from the FDA for engineering advancements made to the electric LVAS. The conditional approval of these advancements is contingent upon the Company responding to a series of additional questions relating to the submission. The Company anticipates that its response will be completed within several weeks of receipt of the conditional approval. In addition, revenues from the Company's Polymer Products division increased $0.9 million due to an increase in demand for its polymer film product line. The gross profit margin was unchanged at 49% in the first quarter of 1998 and 1997. The gross profit margin for the Instruments and Other Equipment segment remained unchanged at 47% in the first quarter of 1998 and 1997. The gross profit margin increased at Thermo Voltek, primarily due to an increase in the sale of certain higher-margin products, as well as the effect of an increase in Thermo Voltek's total revenues. This increase was offset by a decline in the gross profit margin at Thermedics 12PAGE THERMEDICS INC. First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Detection, primarily due to a decrease in higher-margin service revenues, as well as higher costs relating to Thermedics Detection's contract with the FAA. The gross profit margin for the Biomedical Products segment increased to 54% in the first quarter of 1998 from 53% in the first quarter of 1997. The gross profit margin at Thermo Cardiosystems increased as a result of a shift in the sales mix to higher-margin air-driven LVAS and, to a lesser extent, an increase in revenues from higher-margin International Technidyne products. These increases were offset in part by a decrease in the gross profit margin at the Company's Polymer Products division due to increased sales of its lower-margin polymer film product line. Selling, general, and administrative expenses as a percentage of revenues decreased to 28% in the first quarter of 1998 from 30% in the first quarter of 1997. The decrease was primarily due to a decrease in Thermo Voltek's selling, general, and administrative expenses as a percentage of revenues due to efficiencies gained from operational, organizational, and personnel changes implemented in 1997. Research and development expenses increased to $6.6 million in the first quarter of 1998 from $5.6 million in the first quarter of 1997. The increase was primarily due to increased expenses at Thermedics Detection to develop new products and, to a lesser extent, increased expenses at Thermo Cardiosystems primarily due to expenses incurred in association with a clinical trial being conducted by Thermo Cardiosystems to evaluate the electric LVAS as an alternative to medical therapy. Interest income increased to $3.7 million in the first quarter of 1998 from $2.6 million in the first quarter of 1997, primarily due to higher average invested balances at Thermo Cardiosystems as a result of its May 1997 issuance of $70.0 million principal amount of 4 3/4% subordinated convertible debentures, and at Thermedics Detection as a result of its March 1997 initial public offering of common stock. Interest expense increased to $1.2 million in 1998 from $0.3 million in 1997, primarily as a result of Thermo Cardiosystems' issuance of the 4 3/4% subordinated convertible debentures. The effective tax rates were 40% and 14% in the first quarter of 1998 and 1997, respectively. The effective tax rate in 1998 exceeded the statutory federal income tax rate primarily due to the impact of state income taxes and nondeductible amortization of cost in excess of net assets of acquired companies. The effective tax rate in 1997 was below the statutory federal income tax rate primarily due to the nontaxable gain on issuance of stock by subsidiary, offset in part by the impact of state income taxes and nondeductible amortization of cost in excess of net assets of acquired companies. 13PAGE THERMEDICS INC. First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Minority interest expense increased to $1.7 million in the first quarter of 1998 from $1.3 million in the first quarter of 1997, primarily due to higher profits at Thermo Cardiosystems and Thermo Voltek, offset in part by lower profits at Thermedics Detection. In the first quarter of 1998, the Company and a majority-owned subsidiary repurchased $11.5 million principal amount of subordinated convertible debentures for $9.3 million in cash, resulting in an extraordinary gain of $1.2 million, net of related income taxes of $0.8 million (Note 4). Liquidity and Capital Resources Consolidated working capital was $292.3 million at April 4, 1998, compared with $309.4 million at January 3, 1998. Cash, cash equivalents, and short- and long-term available-for-sale investments were $257.0 million at April 4, 1998, compared with $258.0 million at January 3, 1998. Of the $257.0 million balance at April 4, 1998, $218.6 million was held by the Company's majority-owned subsidiaries, and the remainder by the Company and its wholly owned subsidiaries. During the first quarter of 1998, $10.8 million of cash was provided by operating activities. Cash of $3.6 million was provided by a decrease in accounts receivable, primarily at Thermedics Detection due to decreased revenues. This increase in cash was partially offset by cash of $1.5 million used to fund an increase in inventories, primarily due to purchases for the production of Thermedics Detection's EZ Flash, expected to begin in May 1998. Excluding available-for-sale investment activity, the Company's primary investing activity during the first quarter of 1998 was the purchase of property, plant, and equipment for $1.7 million. During the remainder of 1998, the Company expects to make capital expenditures of approximately $8.4 million. During the first quarter of 1998, the Company's financing activities used cash of $10.1 million. The Company and a majority-owned subsidiary expended $9.3 million for the repurchase of subordinated convertible debentures (Note 4). The Company intends, for the foreseeable future, to maintain at least 50% ownership of its majority-owned subsidiaries. This may require the Company to purchase additional shares of common stock or, if applicable, convertible debentures (which are then converted) of these companies from time to time, as the number of these companies' outstanding shares increases, whether as a result of conversion of convertible notes or exercise of stock options issued by them, or otherwise. These or any other purchases may be made (i) in the open market or in negotiated transactions, (ii) directly from Thermo Electron or the relevant subsidiary, or (iii) in the case of Thermo Voltek, pursuant to the conversion of all or part of its subordinated convertible notes held by the Company. 14PAGE THERMEDICS INC. Liquidity and Capital Resources (continued) During the first quarter of 1998, the Company and certain of its majority-owned subsidiaries expended $6.9 million and $3.5 million, respectively, to purchase securities of the Company and certain of its majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company and the applicable majority-owned subsidiaries' Boards of Directors. In March 1998, the Company's Board of Directors authorized the repurchase, through March 5, 1999, of up to an additional $10.0 million of its own securities and those of its majority-owned subsidiaries in the open market, or in negotiated transactions. As of April 4, 1998, $3.8 million and $17.8 million remained under the Company's and its majority-owned subsidiaries' authorizations, respectively. Any such purchases are funded from working capital. The Company expects to continue to pursue its strategy of expanding its business both through the continued development, manufacture, and sale of new products, and through the possible acquisition of companies that will provide additional marketing or manufacturing capabilities and new products. In March 1998, the Company proposed to acquire, through a merger, all of the outstanding shares of Thermo Voltek's common stock that the Company does not own, as well as redeem Thermo Voltek's $5.3 million principal amount of 3 3/4% subordinated convertible debentures due 2000. The total transaction cost is estimated to be approximately $27 million, which would be paid from internal funds. In March 1998, the Company's Thermo Sentron subsidiary agreed to acquire the three businesses that constitute the product-monitoring group of Smith Industries plc's Graseby plc division for approximately 26.4 million British pounds sterling (approximately $44 million) (Note 3). The purchase price would be paid by a combination of internal funds and short-term borrowings from Thermo Electron. While the Company currently has no other agreements to make any acquisitions, it expects that it would finance any acquisitions through a combination of internal funds, additional debt or equity financing from the capital markets, or short-term borrowings from Thermo Electron, although its has no agreement with Thermo Electron that assures funds will be available on acceptable terms or at all. The Company believes that its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future. PART II - OTHER INFORMATION Item 6 - Exhibits ----------------- See Exhibit Index on the page immediately preceding exhibits. 15PAGE THERMEDICS INC. 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 12th day of May 1998. THERMEDICS INC. Paul F. Kelleher --------------------------- Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos --------------------------- John N. Hatsopoulos Chief Financial Officer and Senior Vice President 16PAGE THERMEDICS INC. EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 27 Financial Data Schedule. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-02-1999 APR-04-1998 151,403 79,133 61,696 4,094 60,953 361,840 56,913 35,552 531,818 69,491 131,252 0 0 4,174 237,424 531,818 75,661 75,661 38,661 38,661 6,629 111 1,206 11,787 4,769 5,368 0 1,205 0 6,573 .13 .16
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