-----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, J5cCLvFNnrhJ+s7yloMGQB6xNlSm4FaefkJM+ZEtjm+R54BCk15nE9pakHUElfim JKlIxL9EuQ4e4RRBBR6NxA== 0000913771-97-000017.txt : 19970806 0000913771-97-000017.hdr.sgml : 19970806 ACCESSION NUMBER: 0000913771-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970805 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: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09567 FILM NUMBER: 97651781 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 June 28, 1997. [ ] 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: (617) 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 July 25, 1997 ---------------------------- ---------------------------- Common Stock, $.10 par value 36,701,779 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMEDICS INC. Consolidated Balance Sheet (Unaudited) Assets June 28, December 28, (In thousands) 1997 1996 ----------------------------------------------------------------------- Current Assets: Cash and cash equivalents $168,344 $ 82,800 Short-term available-for-sale investments, at quoted market value (amortized cost of $57,391 and $64,950; includes $1,847 and $1,937 of related- party investments) 57,576 65,054 Accounts receivable, less allowances of $4,851 and $4,641 60,575 62,783 Inventories: Raw materials and supplies 24,485 28,210 Work in process 18,508 10,719 Finished goods 16,912 15,301 Prepaid income taxes and expenses 15,176 14,713 -------- -------- 361,576 279,580 -------- -------- Property, Plant, and Equipment, at Cost 52,220 48,892 Less: Accumulated depreciation and amortization 30,643 27,342 -------- -------- 21,577 21,550 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $25,782 and $33,929) 25,796 33,920 -------- -------- Other Assets 10,065 7,885 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 2) 114,889 113,764 -------- -------- $533,903 $456,699 ======== ======== 2PAGE THERMEDICS INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment June 28, December 28, (In thousands except share amounts) 1997 1996 ------------------------------------------------------------------------ Current Liabilities: Notes payable and current maturities of long-term obligations $ 5,956 $ 9,017 Accounts payable 18,940 19,615 Accrued payroll and employee benefits 10,285 11,951 Deferred revenue 2,070 1,397 Accrued income taxes 8,438 5,438 Payable for repurchase of subsidiary common stock 7,835 - Accrued warranty costs 3,857 3,971 Other accrued expenses 18,519 18,421 Due to parent company and affiliated companies 3,111 1,600 -------- -------- 79,011 71,410 -------- -------- Deferred Income Taxes and Other Deferred Items 1,418 1,382 -------- -------- Long-term Obligations: Subordinated convertible obligations (Note 4) 143,450 74,345 Other 14 14 -------- -------- 143,464 74,359 -------- -------- Minority Interest 94,240 97,966 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 100,000,000 shares authorized; 36,846,175 and 36,842,500 shares issued 3,685 3,684 Capital in excess of par value 116,026 138,433 Retained earnings 102,014 74,542 Treasury stock at cost, 145,346 and 166,144 shares (4,033) (4,729) Cumulative translation adjustment (2,049) (409) Net unrealized gain on available-for-sale investments 127 61 -------- -------- 215,770 211,582 -------- -------- $533,903 $456,699 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMEDICS INC. Consolidated Statement of Income (Unaudited) Three Months Ended ----------------------- June 28, June 29, (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Revenues $75,996 $71,094 ------- ------- Costs and Operating Expenses: Cost of revenues 38,140 36,973 Selling, general, and administrative expenses 21,552 21,454 Research and development expenses 6,227 5,388 Nonrecurring costs - 12,728 ------- ------- 65,919 76,543 ------- ------- Operating Income (Loss) 10,077 (5,449) Interest Income 3,305 2,855 Interest Expense (714) (1,259) Gain on Issuance of Stock by Subsidiaries - 17,969 ------- ------- Income Before Provision for Income Taxes and Minority Interest 12,668 14,116 Provision for Income Taxes 5,174 1,728 Minority Interest Expense 1,988 2,634 ------- ------- Net Income $ 5,506 $ 9,754 ======= ======= Earnings per Share $ .14 $ .26 ======= ======= Weighted Average Shares 38,884 38,166 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMEDICS INC. Consolidated Statement of Income (Unaudited) Six Months Ended ---------------------- June 28, June 29, (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Revenues $148,053 $140,088 -------- -------- Costs and Operating Expenses: Cost of revenues 75,101 72,782 Selling, general, and administrative expenses 43,516 42,418 Research and development expenses 11,811 10,362 Nonrecurring costs - 12,728 -------- -------- 130,428 138,290 -------- -------- Operating Income 17,625 1,798 Interest Income 5,942 4,961 Interest Expense (983) (2,537) Gain on Issuance of Stock by Subsidiaries (Note 3) 17,075 20,485 Gain on Sale of Investments - 68 -------- -------- Income Before Provision for Income Taxes and Minority Interest 39,659 24,775 Provision for Income Taxes 8,938 5,060 Minority Interest Expense 3,249 4,704 -------- -------- Net Income $ 27,472 $ 15,011 ======== ======== Earnings per Share $ .71 $ .41 ======== ======== Weighted Average Shares 38,920 36,177 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE THERMEDICS INC. Consolidated Statement of Cash Flows (Unaudited) Six Months Ended ----------------------- June 28, June 29, (In thousands) 1997 1996 ------------------------------------------------------------------------ Operating Activities: Net income $ 27,472 $ 15,011 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,411 6,415 Provision for losses on accounts receivable 285 606 Nonrecurring costs - 12,728 Gain on issuance of stock by subsidiaries (Note 3) (17,075) (20,485) Gain on sale of investments - (68) Minority interest expense 3,249 4,704 Other noncash expenses 738 523 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 1,293 (6,252) Inventories (5,897) (2,453) Prepaid income taxes and expenses (568) (67) Accounts payable (518) 321 Other current liabilities 2,098 (5,220) -------- -------- Net cash provided by operating activities 16,488 5,763 -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 2) (3,880) (26,432) Acquisition of product line - (2,621) Proceeds from sale and maturities of available-for-sale investments 66,920 64,595 Purchases of available-for-sale investments (51,900) (62,300) Purchases of property, plant, and equipment (3,573) (3,915) Other 97 (109) -------- -------- Net cash provided by (used in) investing activities $ 7,664 $(30,782) -------- -------- 6PAGE THERMEDICS INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Six Months Ended ----------------------- June 28, June 29, (In thousands) 1997 1996 ------------------------------------------------------------------------ Financing Activities: Net proceeds from issuance of Company and subsidiary common stock (Note 3) $ 28,674 $ 46,793 Net proceeds from issuance of subordinated convertible debentures (Note 4) 68,139 63,250 Purchases of Company and subsidiaries' common stock (37,429) (2,648) International Technidyne transfer (to) from parent company 350 (3,012) Proceeds from issuance of note payable to parent company - 15,000 Repayment and repurchase of long-term obligations - (257) Net increase in short-term borrowings 853 - -------- -------- Net cash provided by financing activities 60,587 119,126 -------- -------- Exchange Rate Effect on Cash 805 (104) -------- -------- Increase in Cash and Cash Equivalents 85,544 94,003 Cash and Cash Equivalents at Beginning of Period 82,800 37,413 -------- -------- Cash and Cash Equivalents at End of Period $168,344 $131,416 ======== ======== Noncash Activities: Fair value of assets of acquired companies $ 6,240 $ 31,546 Cash paid for acquired companies (4,307) (27,215) -------- -------- Liabilities assumed of acquired companies $ 1,933 $ 4,331 ======== ======== Conversions of the Company's and subsidiaries' subordinated convertible obligations $ 895 $ 21,920 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 7PAGE 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 June 28, 1997, the results of operations for the three- and six-month periods ended June 28, 1997, and June 29, 1996, and the cash flows for the six-month periods ended June 28, 1997, and June 29, 1996. Interim results are not necessarily indicative of results for a full year. Historical financial results have been restated to include International Technidyne Corporation (International Technidyne), which was acquired by the Company's majority-owned subsidiary, Thermo Cardiosystems Inc. (Thermo Cardiosystems), in a transaction accounted for in a manner similar to a pooling of interests (Note 2). 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, as amended, for the fiscal year ended December 28, 1996, filed with the Securities and Exchange Commission. 2. Acquisitions In March 1997, Thermo Cardiosystems announced its intention to acquire International Technidyne from Thermo Electron Corporation (Thermo Electron), the Company's parent company, in a merger in which approximately 3,356,000 shares of Thermo Cardiosystems' common stock would be issued in exchange for all of the outstanding shares of International Technidyne. On May 2, 1997, the transaction was completed, subject to Thermo Cardiosystems' shareholder approval of the issuance of the 3,355,705 Thermo Cardiosystems' shares issued to Thermo Electron in the merger. International Technidyne is a leading manufacturer of near-patient, whole-blood, coagulation-testing equipment and related disposables, and also manufactures single-use, premium-quality, single-use skin-incision devices. In 1996, International Technidyne's revenues and net income were $34.0 million and $4.7 million, respectively. Because Thermo Cardiosystems and International Technidyne were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to a pooling of interests. Accordingly, all historical financial information presented has been restated to reflect the acquisition of International Technidyne. The 3,355,705 shares of Thermo Cardiosystems' common stock issuable in exchange for International Technidyne will not be issued until the listing of such shares for trading upon the American Stock Exchange has been approved by Thermo Cardiosystems' shareholders. Because the Company is the majority shareholder and intends to vote its shares in favor of such listing, the approval is assured and, therefore, the acquisition is considered to be complete as of January 1, 1996. Revenues and net 8PAGE THERMEDICS INC. 2. Acquisitions (continued) income as previously reported for the separate entities prior to the acquisition and as restated for the combined company are as follows: Three Months Ended Six Months Ended (In thousands) June 29, 1996 June 29, 1996 ---------------------------------------------------------------------- Revenues: Historical $ 62,630 $122,912 International Technidyne 8,464 17,176 -------- -------- $ 71,094 $140,088 ======== ======== Net Income: Historical $ 9,174 $ 13,927 International Technidyne 1,174 2,194 Minority interest expense (594) (1,110) -------- -------- $ 9,754 $ 15,011 ======== ======== During the first six months of 1997, two of the Company's majority-owned subsidiaries made other acquisitions for an aggregate cost of approximately $4.3 million in cash. These acquisitions have been accounted for using the purchase method of accounting and their results of operations have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $3.4 million, which is being amortized over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and is subject to adjustment upon finalization of the purchase price allocation. Pro forma data is not presented since these acquisitions were not material to the Company's results of operations. 3. Issuance of Stock by Subsidiary In March 1997, the Company's Thermedics Detection Inc. (Thermedics Detection) subsidiary issued 2,671,292 shares of its common stock in an initial public offering at $11.50 per share, for net proceeds of approximately $28.1 million, resulting in a gain of $17.1 million. Following the initial public offering, the Company owned 75% of Thermedics Detection's outstanding common stock. 4. Subsidiary Subordinated Convertible Debenture Offering In May 1997, Thermo Cardiosystems issued and sold at par $70.0 million principal amount of 4 3/4% subordinated convertible debentures due 2004 for net proceeds of $68.1 million. The debentures are convertible into shares of Thermo Cardiosystems common stock at a conversion price of $31.415 per share and are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. 9PAGE THERMEDICS INC. 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 caption "Forward-looking Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended December 28, 1996, filed with the Securities and Exchange Commission. Overview The Company's business can be divided into two segments: Instruments and Other Equipment, and Biomedical Products. The Instruments and Other Equipment segment includes the Company's Thermo Sentron Inc. (Thermo Sentron) subsidiary, which designs, develops, manufactures, and sells high-speed precision-weighing and inspection equipment for industrial production and packaging lines; its Orion laboratory products division (Orion), which manufactures electrochemistry, microweighing, process, and other instruments used to analyze the chemical compositions of foods, beverages, and pharmaceuticals, and to detect contaminants in high-purity water; its Thermedics Detection Inc. (Thermedics Detection) subsidiary, which develops, manufactures, and markets high-speed detection instruments used in on-line industrial process applications, explosives detection, and laboratory analysis; and its Thermo Voltek Corp. (Thermo Voltek) subsidiary, which manufactures electromagnetic compatibility (EMC) testing instruments, high-voltage power-conversion systems, programmable power amplifiers, and radio frequency power amplifiers. As part of its Biomedical Products segment, the Company's Thermo Cardiosystems Inc. (Thermo Cardiosystems) subsidiary manufactures implantable left ventricular-assist systems (LVAS). 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 the fourth quarter of 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, which is currently being used in clinical studies. Thermo Cardiosystems' International Technidyne Corporation (International Technidyne) subsidiary (Note 2) is a leading manufacturer of near-patient, whole-blood, coagulation-testing equipment and related disposables and also manufactures single-use, premium-quality, single-use, skin-incision 10PAGE THERMEDICS INC. Overview (continued) 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 are 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 Second Quarter 1997 Compared With Second Quarter 1996 Total revenues in the second quarter of 1997 were $76.0 million, compared with $71.1 million in the second quarter of 1996. Instruments and Other Equipment segment revenues increased to $56.0 million in 1997 from $51.6 million in 1996, primarily due to an increase in revenues of $2.3 million, $1.2 million, and $1.0 million at Thermedics Detection, Thermo Sentron, and Orion, respectively. Revenues at Thermedics Detection increased to $12.4 million in 1997 from $10.1 million in 1996. Revenues from Thermedics Detection's process detection instruments and related services increased to $4.9 million in 1997 from $3.7 million in 1996, primarily as a result of Alexus revenues from the continued fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base and, to a lesser extent, increased shipments of its InScan systems, introduced in early 1996. Revenues from the mandated product-line upgrade are expected to continue through the third quarter of 1997. These increases were offset in part by a decrease in international plant expansions and, in turn, demand for the Alexus line of products by customers other than The Coca-Cola Company. Revenues from Thermedics Detection's EGIS(R) explosives-detection systems and related services increased to $3.1 million in 1997 from $1.4 million in 1996, primarily due to continued international shipments of the EGIS systems. In May 1997, Thermedics Detection was awarded a $5.8 million contract for its EGIS systems from the Federal Aviation Administration (FAA). No revenues were recognized under this contract during the second quarter of 1997. Revenues from Thermedics Detection's Moisture Systems subsidiary, acquired in the first quarter of 1996, decreased $0.8 million, primarily due to a slowdown in product demand in Europe. Revenues from Thermo Sentron increased to $18.5 million in 1997 from $17.3 million in 1996, primarily due to increased demand for its bulk-materials product line in Europe and Canada and, to a lesser extent, increased demand for its packaged goods product line in the U.S. In addition, revenues increased due to the inclusion of $0.4 million of revenues from RCC Industrial Pty. Limited, acquired in February 1997. These increases were offset in part by the impact of a stronger U.S. dollar relative to foreign currencies in which Thermo Sentron operates. Revenues from Thermo Voltek remained unchanged at $11.9 11PAGE THERMEDICS INC. Second Quarter 1997 Compared With Second Quarter 1996 (continued) million in 1997 and 1996. Revenues in 1997 reflect the inclusion of $2.4 million from Pacific Power Source Corporation (Pacific Power), acquired in July 1996, and Milmega Ltd. (Milmega), acquired in April 1997, offset by lower demand for EMC test products at Comtest, Kalmus and, to a lesser extent, KeyTek. Biomedical Products segment revenues increased slightly to $20.0 million in the second quarter of 1997 from $19.5 million in the second quarter of 1996. Revenues from Thermo Cardiosystems remained unchanged at $15.9 million in 1997 and 1996, primarily due to a $1.2 million increase in revenues from its electric LVAS, offset in part by a $1.0 million decrease in revenues from its air-driven LVAS. The Company expects that revenues from Thermo Cardiosystems' LVAS will stabilize at current levels until the electric system is approved in the U.S. for commercial sale. The Company believes that this approval could occur during 1997; however, there can be no assurance that Thermo Cardiosystems will receive this approval within the expected time period, or at all. The increase in revenues in 1997 was also due to the inclusion of $0.5 million in revenues from Nimbus Medical Inc. (Nimbus), acquired in December 1996, offset in part by a $0.4 million decrease in revenues from International Technidyne. In addition, revenues from the Company's Polymer Products division increased $0.4 million due to an increase in demand. The gross profit margin was 50% in the second quarter of 1997, compared with 48% in the second quarter of 1996. The gross profit margin for the Instruments and Other Equipment segment increased to 49% in 1997 from 46% in 1996, primarily due to an increase in the gross profit margin at Thermedics Detection as a result of a charge for inventory obsolescence in the 1996 period due to planned product changes, and, to a lesser extent, field service efficiencies, and a change in product mix to higher-margin revenues at Moisture Systems. These increases were offset in part by a decrease in the gross profit margin at Thermo Voltek, primarily due to a decrease in the sale of certain higher-margin products at Comtest, offset in part by the inclusion of higher-margin revenues at Pacific Power. The gross profit margin for the Biomedical Products segment decreased to 52% in the second quarter of 1997 from 53% in the second quarter of 1996. This decrease was primarily due to a decline in the gross profit margin at Thermo Cardiosystems as a result of increased revenues from lower-margin electric LVAS systems and, to a lesser extent, the inclusion of low-margin revenues from Nimbus. Thermo Cardiosystems announced an overall price increase of approximately 10% in the electric LVAS product line, effective June 28, 1997, to help offset increased production costs. This decrease was offset in part by improved gross profit margins at the Company's Polymer Products division due in part to the effect of establishing certain inventory and related reserves in the 1996 period. Selling, general, and administrative expenses as a percentage of revenues decreased to 28% in the second quarter of 1997 from 30% in the second quarter of 1996. Higher marketing expenses as a result of an increase in the sales force at Thermo Cardiosystems and, to a lesser extent, increased expenses as a percentage of revenues at Thermo Voltek due to severance and related costs associated with reductions in 12PAGE THERMEDICS INC. Second Quarter 1997 Compared With Second Quarter 1996 (continued) personnel, were more than offset by lower general and administrative expenses at Thermedics Detection as a result of certain charges in the 1996 period and an increase in revenues in 1997. The charges in 1996 related to a reduction in personnel, leased space, and other adjustments. Research and development expenses as a percentage of revenues increased to 8.2% in the second quarter of 1997 from 7.6% in the second quarter of 1996, primarily due to increased expenses at Orion. Interest income increased to $3.3 million in the second quarter of 1997 from $2.9 million in the second quarter of 1996, primarily due to higher average invested balances, primarily at Thermedics Detection as a result of its March 1997 initial public offering of common stock. Interest expense decreased to $0.7 million in the second quarter of 1997 from $1.3 million in the second quarter of 1996, as a result of the repayment of $53.0 million of notes payable to Thermo Electron Corporation (Thermo Electron) in September 1996, conversions of subordinated convertible obligations, and a reduction in short-term borrowings at Thermo Sentron. These decreases were offset in part by Thermo Cardiosystems' issuance of 4 3/4% subordinated convertible debentures in May 1997 (Note 4). The effective tax rate in the second quarter of 1997 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 the second quarter of 1996 was below the statutory federal income tax rate primarily due to nontaxable gains on issuance of stock by subsidiaries, offset in part by a nondeductible write-off of intangible assets, the impact of state income taxes, and nondeductible amortization of cost in excess of net assets of acquired companies. Minority interest expense decreased to $2.0 million in the second quarter of 1997 from $2.6 million in the second quarter of 1996, primarily due to lower profits at Thermo Cardiosystems and Thermo Voltek, offset in part by the minority interest expense associated with Thermedics Detection (Note 3). First Six Months 1997 Compared With First Six Months 1996 Total revenues in the first six months of 1997 were $148.1 million, compared with $140.1 million in the first six months of 1996. Instruments and Other Equipment segment revenues increased to $109.2 million in 1997 from $101.4 million in 1996, primarily due to an increase in revenues of $5.4 million, $2.4 million, and $1.2 million at Thermedics Detection, Thermo Sentron, and Orion, respectively, offset in part by a $0.9 million decline in revenues at Thermo Voltek. Revenues at Thermedics Detection increased to $24.8 million in 1997 from $19.4 million in 1996. Revenues from Thermedics Detection's process detection instruments and related services increased to $11.5 million in 1997 from $6.7 million in 1996, primarily as a result of the continued fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base and, to a lesser extent, increased shipments of its InScan systems, introduced in early 1996. Revenues from 13PAGE THERMEDICS INC. First Six Months 1997 Compared With First Six Months 1996 (continued) Thermedics Detection's EGIS explosives-detection systems and related services were relatively unchanged at $4.2 million in 1997 and $4.4 million in 1996. Revenues from Thermo Sentron increased 7% to $36.5 million in 1997, primarily due to the reasons discussed in the results of operations for the second quarter, including $1.4 million from acquisitions. Revenues from Thermo Voltek decreased to $21.6 million in 1997 from $22.5 million in 1996, primarily due to a decline in revenues at Comtest and Keytek, offset in part by the inclusion of $4.2 million in revenues from Pacific Power Source and Milmega, acquired in July 1996 and April 1997, respectively. The decline in revenues at Comtest and Keytek resulted primarily from lower demand for EMC test products and, to a lesser extent, a decline in the component-reliability market for electrostatic discharge test equipment caused by a slowdown in capital expenditures by the semiconductor industry. Biomedical Products segment revenues remained relatively unchanged at $38.8 million in the first six months of 1997 and $38.7 million in the first six months of 1996. Revenues from Thermo Cardiosystems decreased to $30.8 million in 1997 from $31.3 million in 1996, primarily due to a $2.7 million decrease in revenues from its air-driven LVAS, offset in part by a $1.8 million increase in revenues from its electric LVAS. The decrease in revenues in 1997 was also offset in part by the inclusion of $1.1 million in revenues from Nimbus, acquired in December 1996. In addition, other revenues at Thermo Cardiosystems, including revenues from International Technidyne, decreased during the first six months of 1997. Revenues from the Company's Polymer Products division increased $0.6 million due to an increase in demand. The gross profit margin was 49% in the first six months of 1997, compared with 48% in the first six months of 1996. The gross profit margin for the Instruments and Other Equipment segment increased to 48% in 1997 from 46% in 1996, as a result of improvements at Thermedics Detection due to the reasons discussed in the results of operations for the second quarter and, to a lesser extent, improved gross profit margins at Orion. These increases were offset in part by a decrease in the gross profit margin at Thermo Voltek, primarily due to the sale of lower-margin products at Comtest, offset in part by the inclusion of higher-margin revenues at Pacific Power. The gross profit margin for the Biomedical Products segment remained unchanged at 53% in the first six months of 1997 and 1996. A decline in the gross profit margin at Thermo Cardiosystems due to the reasons discussed in the results of operations for the second quarter and increased warranty costs due to a company-initiated modification of certain of its systems, completed in the first quarter of 1997, were offset by an increase in the gross profit margin at the Company's Polymer Products division due to the reason discussed in the results of operations for the second quarter. Selling, general, and administrative expenses as a percentage of revenues decreased to 29% in the first six months of 1997 from 30% in the first six months of 1996, primarily due to the reasons discussed in the results of operations for the second quarter. Research and development 14PAGE THERMEDICS INC. First Six Months 1997 Compared With First Six Months 1996 (continued) expenses as a percentage of revenues increased to 8.0% in the first six months of 1997 from 7.4% in the first six months of 1996, primarily due to increased research and development expenses at Orion, Thermo Cardiosystems and, to a lesser extent, at Thermo Voltek due to the inclusion of expenses at Pacific Power and Milmega. Interest income increased to $5.9 million in the first six months of 1997 from $5.0 million in the first six months of 1996, due to higher average invested balances, primarily at Thermedics Detection and Thermo Sentron as a result of their initial public offerings of common stock in March 1997 and April 1996, respectively. Interest expense decreased to $1.0 million in the first six months of 1997 from $2.5 million in the first six months of 1996, due to the reasons discussed in the results of operations for the second quarter. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries, the Company recorded gains of approximately $17.1 million and $20.5 million in the first six months of 1997 and 1996, respectively (Note 3). The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to realize gains from such transactions in the future. The effective tax rates in the first six months of 1997 and 1996 were below the statutory federal income tax rate primarily due to nontaxable gains on issuance of stock by subsidiaries, offset in part by the impact of state income taxes and nondeductible amortization of cost in excess of net assets of acquired companies. Minority interest expense decreased to $3.2 million in the first six months of 1997 from $4.7 million in the first six months of 1996, primarily due to lower profits at Thermo Cardiosystems and a net loss at Thermo Voltek, offset in part by the minority interest associated with Thermedics Detection (Note 3) and Thermo Sentron. Liquidity and Capital Resources Consolidated working capital was $282.6 million at June 28, 1997, compared with $208.2 million at December 28, 1996. Cash, cash equivalents, and short- and long-term available-for-sale investments were $251.7 million at June 28, 1997, compared with $181.8 million at December 28, 1996. Of the $251.7 million balance at June 28, 1997, $128.4 million was held by Thermo Cardiosystems, $45.7 million by Thermedics Detection, $34.8 million by Thermo Sentron, $20.1 million by Thermo Voltek, and the remainder by the Company and its wholly owned subsidiaries. 15PAGE THERMEDICS INC. Liquidity and Capital Resources (continued) During the first six months of 1997, $16.5 million of cash was provided by operating activities. Cash of $3.4 million, provided by a decrease in accounts receivable and an increase in other current liabilities, was more than offset by cash of $5.9 million used to fund an increase in inventories. The increase in inventories occurred primarily due to expected future shipments for an order received from the FAA at Thermedics Detection. Excluding purchases, sales, and maturities of available-for-sale investments, the Company's primary investing activities during the first six months of 1997 included $3.9 million for acquisitions (Note 2) and $3.6 million of expenditures for purchases of property, plant, and equipment. During the remainder of 1997, the Company expects to make capital expenditures of approximately $4.4 million. During the first six months of 1997, the Company's financing activities provided $60.6 million in cash. In March 1997, Thermedics Detection issued shares of its common stock in an initial public offering for net proceeds of approximately $28.1 million (Note 3). In addition, in May 1997, Thermo Cardiosystems issued and sold $70.0 million principal amount of 4 3/4% subordinated convertible debentures due 2004 for net proceeds of $68.1 million (Note 4). The Company intends, for the foreseeable future, to maintain at least 50% ownership of Thermo Cardiosystems, Thermo Voltek, Thermo Sentron, and Thermedics Detection. 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 the companies' outstanding shares increase, 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 either in the open market, directly from Thermo Electron, or the relevant subsidiary, or, in the case of Thermo Voltek, pursuant to the conversion of all or part of its subordinated convertible notes held by the Company. The Company's Board of Directors authorized the repurchase, through June 1, 1997, of up to $10.0 million of its own securities. The Company's authorization also includes the purchase of securities of Thermo Cardiosystems, Thermo Voltek, and Thermo Sentron. In addition, the Company's Board of Directors authorized the purchase, through January 28, 1998, of up to an additional $5.0 million of securities of Thermo Voltek. Through June 28, 1997, the Company had fully expended the amount of authorized repurchases, including $5.0 million expended in 1997. Any repurchases under the Company's authorizations are funded from working capital. Through a series of actions commencing in August 1996, Thermo Cardiosystems' Board of Directors has authorized the repurchase, through various dates, of up to $50.0 million of its own securities in the open market, or in negotiated transactions. Through June 28, 1997, Thermo Cardiosystems had committed $37.4 million under these authorizations. Of this amount, $23.9 million was paid during the first six months of 1997, and $7.8 million was payable on June 28, 1997, in settlement of trades 16PAGE THERMEDICS INC. Liquidity and Capital Resources (continued) executed prior to that date. Any repurchases under the Thermo Cardiosystems' authorizations are funded from working capital. Thermo Voltek's Board of Directors has authorized the repurchase, through April 17, 1998, of up to $10.0 million of its own securities. Through June 28, 1997, Thermo Voltek had expended $8.5 million under its authorization. Any repurchases under Thermo Voltek's authorization 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. While the Company currently has no 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 its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders On June 2, 1997, at the Annual Meeting of Shareholders, the shareholders reelected eight incumbent directors to a one-year term expiring in 1998. The directors elected at the meeting were: Peter O. Crisp, Paul F. Ferrari, Dr. George N. Hatsopoulos, John N. Hatsopoulos, Robert C. Howard, John T. Keiser, John W. Wood Jr., and Dr. Nicholas T. Zervas. Mr. Crisp received 33,896,141 shares voted in favor of election and 93,458 shares voted against; Mr. Ferrari and Mr. Howard received 33,892,941 shares voted in favor of election and 96,658 shares voted against; Dr. Hatsopoulos received 33,894,641 shares voted in favor of election and 94,958 shares voted against; and Mr. J. Hatsopoulos, Mr. Keiser, Mr. Wood, and Dr. Zervas each received 33,894,841 shares in favor of election and 94,758 shares voted against. No abstentions or broker nonvotes were recorded on the election of directors. Item 6 - Exhibits See Exhibit Index on the page immediately preceding exhibits. 17PAGE 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 5th day of August 1997. THERMEDICS INC. Paul F. Kelleher -------------------- Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos -------------------- John N. Hatsopoulos Vice President and Chief Financial Officer 18PAGE THERMEDICS INC. EXHIBIT INDEX Exhibit Number Document ------------------------------------------------------------------------ 4.0 Fiscal Agency Agreement dated as of May 14, 1997, among Thermo Cardiosystems Inc., Thermo Electron Corporation, and Bankers Trust Company as fiscal agent relating to $70 million principal amount of 4 3/4% Convertible Subordinated Debentures due 2004 (filed as Exhibit 4 to Thermo Cardiosystems Inc. Quarterly Report on Form 10-Q for the quarter ended June 28, 1997 [File No. 1-10114] and incorporated herein by reference). 11 Statement re: Computation of Earnings per Share. 27 Financial Data Schedule. EX-11 2 Exhibit 11 THERMEDICS INC. Computation of Earnings per Share Three Months Ended -------------------------- June 28, June 29, 1997 1996 -------------------------------------------------------------------------- Computation of Primary Earnings per Share: Net Income (a) $ 5,506,000 $ 9,754,000 ----------- ----------- Shares: Weighted average shares outstanding 36,697,375 36,757,308 Add: Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 198,069 491,069 Shares issuable from assumed conversion of subordinated convertible debentures 1,988,984 917,993 ----------- ----------- Weighted average shares outstanding, as adjusted (b) 38,884,428 38,166,370 ----------- ----------- Primary Earnings per Share (a) / (b) $ .14 $ .26 =========== =========== PAGE Exhibit 11 THERMEDICS INC. Computation of Earnings per Share Six Months Ended -------------------------- June 28, June 29, 1997 1996 -------------------------------------------------------------------------- Computation of Primary Earnings per Share: Net Income (a) $27,472,000 $15,011,000 ----------- ----------- Shares: Weighted average shares outstanding 36,690,365 36,177,374 Add: Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 241,047 - Shares issuable from assumed conversion of subordinated convertible debentures 1,988,984 - ----------- ----------- Weighted average shares outstanding, as adjusted (b) 38,920,396 36,177,374 ----------- ----------- Primary Earnings per Share (a) / (b) $ .71 $ .41 =========== =========== EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-03-1998 JUN-28-1997 168,344 57,576 65,426 4,851 59,905 361,576 52,220 30,643 533,903 79,011 143,464 0 0 3,685 212,085 533,903 148,053 148,053 75,101 75,101 11,811 285 983 39,659 8,938 27,472 0 0 0 27,472 .71 0
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