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 March 30, 1996.
[ ] 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 April 26, 1996
---------------------------- -----------------------------
Common Stock, $.10 par value 36,475,336
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
March 30, December 30,
(In thousands) 1996 1995
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Current Assets:
Cash and cash equivalents $ 48,645 $ 37,370
Short-term available-for-sale
investments, at quoted market
value (amortized cost of $74,363 and
$76,682) (includes $2,322 and $2,052
of related party investments) 75,850 77,916
Accounts receivable, less allowances
of $4,493 and $3,982 50,892 41,327
Unbilled contract costs and fees 1,178 1,582
Inventories:
Raw materials and supplies 21,368 21,517
Work in process and finished goods 26,926 21,162
Prepaid income taxes and expenses 8,701 8,645
-------- --------
233,560 209,519
-------- --------
Property, Plant and Equipment, at Cost 32,886 30,302
Less: Accumulated depreciation and
amortization 19,017 17,369
-------- --------
13,869 12,933
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $29,515 and $39,795) 29,325 39,953
-------- --------
Other Assets 6,472 4,171
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 4) 121,852 101,574
-------- --------
$405,078 $368,150
======== ========
2PAGE
THERMEDICS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 30, December 30,
(In thousands except share amounts) 1996 1995
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Current Liabilities:
Notes payable and current maturities
of long-term obligations (includes $53,000
and $38,000 due to parent company) (Note 4) $ 66,477 $ 47,420
Accounts payable 18,476 16,336
Accrued payroll and employee benefits 7,784 8,893
Deferred revenue 1,734 1,705
Customer deposits 2,546 2,162
Accrued income taxes 5,126 2,340
Accrued warranty costs 3,880 3,637
Other accrued expenses 17,697 15,307
Due to parent company 6,626 1,606
-------- --------
130,346 99,406
-------- --------
Deferred Income Taxes and Other Deferred Items 2,173 2,173
-------- --------
Long-term Obligations:
Subordinated convertible obligations (Note 3) 32,372 44,919
Other 334 282
-------- --------
32,706 45,201
-------- --------
Minority Interest 55,560 54,360
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 36,471,885 and
33,986,050 shares issued 3,647 3,399
Capital in excess of par value 133,020 120,665
Retained earnings 46,940 42,187
Treasury stock at cost, 987 and
2,146 shares (30) (42)
Cumulative translation adjustment (101) (88)
Net unrealized gain on available-
for-sale investments 817 889
-------- --------
184,293 167,010
-------- --------
$405,078 $368,150
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
THERMEDICS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-----------------------
March 30, April 1,
(In thousands except per share amounts) 1996 1995
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Revenues $60,282 $43,858
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Costs and Operating Expenses:
Cost of revenues 31,719 24,286
Selling, general and administrative expenses 18,949 12,195
Expenses for research and development 4,023 2,381
------- -------
54,691 38,862
------- -------
Operating Income 5,591 4,996
Interest Income 2,106 2,197
Interest Expense (1,278) (938)
Gain on Issuance of Stock by Subsidiary (Note 5) 2,516 -
Gain on Sale of Investments 68 -
Other Income - 14
------- -------
Income Before Provision for Income Taxes
and Minority Interest 9,003 6,269
Provision for Income Taxes 2,696 2,320
Minority Interest Expense 1,554 687
------- -------
Net Income $ 4,753 $ 3,262
======= =======
Earnings per Share $ .13 $ .10
======= =======
Weighted Average Shares 35,597 33,306
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
THERMEDICS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-----------------------
March 30, April 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 4,753 $ 3,262
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,489 1,365
Provision for losses on accounts receivable 254 290
Gain on issuance of stock by subsidiary
(Note 5) (2,516) -
Gain on sale of investments (68) -
Minority interest expense 1,554 687
Other noncash expenses 159 418
Decrease in deferred income taxes - (45)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (5,742) (2,445)
Inventories and unbilled contract
costs and fees (1,772) (2,969)
Prepaid income taxes and expenses 198 167
Accounts payable 1,154 3,583
Other current liabilities 5,214 (1,285)
Other (153) 16
-------- --------
Net cash provided by operating
activities 5,524 3,044
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 4) (25,797) (4,000)
Proceeds from sale and maturities of
available-for-sale investments 38,914 26,275
Purchases of property, plant and equipment (1,682) (1,059)
Purchases of available-for-sale investments (26,247) (28,309)
(Increase) decrease in other assets (2,645) 34
-------- --------
Net cash used in investing
activities $(17,457) $ (7,059)
-------- --------
5PAGE
THERMEDICS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-----------------------
March 30, April 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Financing Activities:
Purchases of subsidiary common stock $ (442) $ (179)
Net proceeds from issuance of Company
and subsidiary common stock (Note 5) 4,340 514
Proceeds from issuance of note payable to
parent company (Note 4) 15,000 -
Net increase in short-term borrowings 4,668 -
Repayment and repurchase of long-term obligations (257) (132)
-------- --------
Net cash provided by financing
activities 23,309 203
-------- --------
Exchange Rate Effect on Cash (101) (102)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 11,275 (3,914)
Cash and Cash Equivalents at Beginning
of Period 37,370 37,043
-------- --------
Cash and Cash Equivalents at End of Period $ 48,645 $ 33,129
======== ========
Cash Paid For:
Interest $ 758 $ 622
Income taxes $ 1,401 $ 915
Noncash Activities:
Conversions of Company and subsidiaries'
convertible obligations $ 12,290 $ 1,160
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 (a) the results of operations for the
three-month periods ended March 30, 1996 and April 1, 1995, (b) the
financial position at March 30, 1996, and (c) the cash flows for the
three-month periods ended March 30, 1996 and April 1, 1995. Interim results
are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 30, 1995, 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 December 30, 1995, filed with the Securities and
Exchange Commission.
2. Transfer of Common Stock
In January 1996, the Company issued 1,688,161 shares of its common
stock to Thermo Electron Corporation (Thermo Electron) in exchange for
315,199 shares of its Thermo Voltek Corp. (Thermo Voltek) subsidiary common
stock and 529,965 shares of its Thermo Cardiosystems Inc. (Thermo
Cardiosystems) subsidiary common stock. The shares of common stock were
exchanged at their respective fair market values on the date of the
transaction.
3. Redemption of Convertible Debentures
In February 1996, the Company called for redemption on March 11, 1996,
all of the outstanding principal amount of its 6 1/2% subordinated
convertible debentures due 1998. During the three months ended March 30,
1996, approximately $7,780,000 of the outstanding principal amount of the
debentures was converted into the Company's common stock.
4. Acquisitions
In January 1996, the Company's Thermedics Detection Inc. (Thermedics
Detection) subsidiary acquired the assets of Moisture Systems Corporation,
based in Hopkington, Massachusetts, and certain affiliated companies
(collectively, Moisture Systems), and the stock of Netherlands-based Rutter
& Co. (Rutter) for a total purchase price of $22.3 million in cash, which
included the repayment of $2.0 million of debt. In connection with these
acquisitions, the Company borrowed $15.0 million from Thermo Electron
pursuant to a promissory note due February 1997, and bearing interest at
the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
7PAGE
THERMEDICS INC.
4. Acquisitions (continued)
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 $16.0 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 and financial
position.
5. Issuance of Stock by Subsidiary
In March 1996, Thermedics Detection issued 300,000 shares of its
common stock in a private placement for net proceeds of $3,000,000,
resulting in a gain of $2,516,000. Following the private placement, the
Company owned 97% of Thermedics Detection's outstanding common stock.
6. Subsequent Events
Issuance of Stock by Subsidiary
In May 1996, the Company's Thermo Sentron Inc. (Thermo Sentron)
subsidiary issued 2,875,000 shares of its common stock in an initial public
offering for net proceeds of approximately $42.3 million. Following the
initial public offering, the Company owned 71% of Thermo Sentron's
outstanding common stock.
Transfer of Common Stock
In April 1996, the Company issued 299,112 shares of its common stock
to Thermo Electron in exchange for 107,500 shares of Thermo Voltek common
stock and 90,000 shares of Thermo Cardiosystems common stock. The shares of
common stock were exchanged at their respective fair market values on the
date of the transaction.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 Thermo Sentron Inc. (Thermo Sentron) which
designs, develops, manufactures, and sells high-speed precision-weighing
and inspection equipment for industrial production and packaging lines. The
Instruments and Other Equipment segment also includes the former Orion
laboratory products division (Orion) of Analytical Technology, Inc., which
was acquired in December 1995. Orion is a manufacturer of electrochemistry,
microweighing, process, and other instruments used to analyze the chemical
compositions of foods, beverages, and pharmaceuticals, and to detect
contaminants in environmental and high-purity water samples. The
Instruments and Other Equipment segment, through the Company's Thermedics
8PAGE
THERMEDICS INC.
Overview (continued)
Detection Inc. (Thermedics Detection) subsidiary, also develops,
manufactures, and markets high-speed detection instruments, including the
Alexus (R) system, a process-detection instrument used in product quality
assurance applications in the beverage industry, and the EGIS (R) system, a
security instrument used to detect explosives at airports and other
locations. As a result of the January 1996 acquisition of Moisture Systems
Corporation and certain affiliated companies (collectively, Moisture
Systems) and Rutter & Co. (Rutter) by Thermedics Detection, the Company now
offers a full range of infrared moisture analyzers for the food, forest,
paper, pharmaceutical, and chemical industries. Through the Company's
Thermo Voltek Corp. (Thermo Voltek) subsidiary, the Instruments and Other
Equipment segment also includes a line of electronic test instruments and
high-voltage power conversion systems.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. (Thermo Cardiosystems) subsidiary has developed two
implantable left ventricular-assist systems (LVAS), a pneumatic, or
air-driven, system and an electric version. In October 1994, the Company
announced that the U.S. Food and Drug Administration (FDA) granted approval
for the commercial sale in the U.S. of the air-driven LVAS for use as a
bridge to heart transplant. With this approval, the air-driven system is
available for sale to cardiac centers throughout the U.S. The electric
version of the LVAS, which is currently being used in clinical trials in
the U.S. for patients awaiting heart transplants, received the European
Conformity Mark (CE Mark)in August 1995, allowing commercial sale in all
European Community countries. The air-driven LVAS was granted the CE Mark
in early 1994. In late 1995, the FDA approved the protocol for conducting
clinical trials of the electric LVAS as an alternative to heart transplant
in the U.S. In April 1996, the first implant under this clinical trial was
performed using the LVAS as an alternative for nontransplant candidates.
Until the Company's electric LVAS receives FDA commercial approval, sales
of the electric LVAS will fluctuate depending upon the number of implants
performed in ongoing studies at approved clinical sites and the number of
implementation programs sold. The Company also develops, manufactures, and
markets enteral nutrition-delivery systems and a line of polymers used in
medical disposables and nonmedical, industrial applications, including
safety glass and automotive coatings.
Results of Operations
First Quarter 1996 Compared With First Quarter 1995
Total revenues in the first quarter of 1996 were $60.3 million,
compared with $43.9 million in the first quarter of 1995. Instruments and
Other Equipment segment revenues increased to $49.8 million in 1996 from
$32.8 million in 1995 due to the inclusion of $17.1 million in revenues
from acquired businesses, primarily Orion, which was acquired in December
1995, and Moisture Systems and Rutter, which were acquired in January 1996.
Thermedics Detection process-detection instrument sales to the beverage
industry declined to $2.9 million in 1996 from $6.4 million in 1995. This
decline is primarily due to a decrease in demand from Thermedics
Detection's principal customer, which has substantially completed its
deployment of Alexus product quality assurance systems. The decrease in
revenues was offset in part by an increase in revenues from Thermedics
Detection's EGIS system to $2.9 million in the first quarter of 1996, from
9PAGE
THERMEDICS INC.
First Quarter 1996 Compared With First Quarter 1995 (continued)
$1.5 million in 1995, due primarily to an order received in 1996 from the
U.S. government to provide Israel with counterterrorism support. Revenues
from Thermo Voltek increased $3.3 million due to an increase of $1.7
million in revenue at its Comtest subsidiary, primarily as a result of
greater overseas demand and the introduction of a new product line in 1995.
Thermo Voltek revenues also increased $1.1 million due to the inclusion of
revenues for the full quarter of 1996 from Kalmus Engineering Incorporated
(Kalmus), which was acquired in March 1995.
Biomedical Products segment revenues decreased slightly to $10.5
million in the first quarter of 1996 from $11.0 million in 1995 primarily
due to a decline of $2.9 million in revenues from Scent Seal fragrance
samplers. In June 1995, the Company entered into an agreement with a third
party granting an exclusive license to all of its patents and know-how
relating to the Scent Seal fragrance samplers. The Company recorded royalty
income of $72,000 in the first quarter of 1996 related to this agreement.
This decrease in revenues was offset in part by an increase of $2.3 million
in revenues from Thermo Cardiosystems primarily due to a 49% increase in
the number of air-driven and electric LVAS units shipped during the first
quarter of 1996.
The gross profit margin was 47% in the first quarter of 1996, compared
with 45% in the first quarter of 1995. The gross profit margin for the
Instruments and Other Equipment segment increased to 46% in 1996 from 44%
in 1995 primarily due to the inclusion of higher-margin revenues at Orion,
Moisture Systems, and Rutter, offset in part by a decrease in the gross
profit margin due to declining sales volume of process-detection
instruments to the beverage industry.
The gross profit margin for the Biomedical Products segment increased
to 55% in the first quarter 1996 from 46% in 1995, reflecting higher
margins at Thermo Cardiosystems resulting from the increase in sales
volume, improvements in manufacturing efficiencies and, to a lesser extent,
the LVAS price increase that was phased in through the first half of 1995.
In addition, the first quarter of 1995 included low-margin revenues from
Scent Seal fragrance samplers.
Selling, general and administrative expenses as a percentage of
revenues increased to 31% in the first quarter of 1996 from 28% in the
first quarter of 1995. The increase was primarily a result of higher
expenses as a percentage of revenues due to lower sales volume of
Thermedics Detection's process-detection instruments to the beverage
industry in the first quarter of 1996, and higher expenses as a percentage
of revenues at Orion, Moisture Systems, and Rutter. Research and
development expenses as a percentage of revenues increased to 6.7% in first
quarter of 1996 from 5.4% in 1995 primarily due to increased research and
development expenses at Thermedics Detection.
Interest income was $2.1 million and $2.2 million in the first quarter
of 1996 and 1995, respectively. Interest expense increased to $1.3 million
in 1996 from $0.9 million in 1995 as a result of additional borrowings by
the Company to fund acquisitions, offset in part by a decrease in interest
expense due to conversions of subordinated convertible obligations.
10PAGE
THERMEDICS INC.
First Quarter 1996 Compared With First Quarter 1995 (continued)
Gain on the issuance of stock by subsidiary of $2.5 million in the
first quarter of 1996 resulted from Thermedics Detection's March 1996
private placement of 300,000 shares of Thermedics Detection common stock
(Note 5).
The effective tax rate in the first quarter of 1996 was below the
statutory federal income tax rate due primarily to the nontaxable gain on
the issuance of stock by subsidiary, offset in part by state income taxes
and nondeductible amortization of cost in excess of net assets of acquired
companies.
Minority interest expense increased to $1.6 million in the first
quarter of 1996 from $0.7 million in the first quarter of 1995 due to
higher profits at the Company's 54%-owned Thermo Cardiosystems subsidiary
and, to a lesser extent, the Company's 53%-owned Thermo Voltek subsidiary.
Liquidity and Capital Resources
Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, was $103.2 million at
March 30, 1996, compared with $110.1 million at December 30, 1995. Cash,
cash equivalents, and short- and long-term available-for-sale investments
were $153.8 million at March 30, 1996, compared with $155.2 million at
December 30, 1995. Of the $153.8 million balance at March 30, 1996, $91.2
million was held by Thermo Cardiosystems, $33.7 million by Thermo Voltek,
$4.9 million by Thermedics Detection, and the remainder by the Company and
its wholly owned subsidiaries. During the first quarter of 1996, $5.5
million of cash was provided by operating activities and the Company
expended $1.7 million on purchases of property, plant and equipment.
In January 1996, the Company acquired the assets of Moisture Systems
Corporation and certain affiliated companies, and the stock of Rutter &
Co., for a total purchase price of $22.3 million in cash, which included
the repayment of $2.0 million of debt. In connection with these
acquisitions, the Company borrowed $15.0 million from Thermo Electron
Corporation (Thermo Electron) pursuant to a promissory note due February
1997 (Note 4). Thermo Electron has indicated its intention to require the
Company's indebtedness to Thermo Electron be repaid to the extent that the
Company's liquidity and cash flow permit.
In March 1996, Thermedics Detection issued shares of its common stock
in a private placement for net proceeds of $3.0 million (Note 5).
In April 1996, Thermo Sentron issued 2,875,000 shares of its common
stock in an initial public offering for net proceeds of approximately $42.3
million. Thermo Sentron used part of the proceeds from the offering to
repay $12.6 million in short-term borrowings from Thermo Electron and third
parties.
The Company intends, for the foreseeable future, to maintain at least
50% ownership of Thermo Cardiosystems, Thermo Voltek, and Thermo Sentron.
This may require the purchase by the Company of additional shares of common
stock or, if applicable, convertible debentures (which are then converted)
of these companies from time to time, if the number of the companies'
outstanding shares increases, whether as a result of conversion of
11PAGE
THERMEDICS INC.
Liquidity and Capital Resources (continued)
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 or directly from Thermo Cardiosystems, Thermo Voltek, Thermo
Sentron, or Thermo Electron, or pursuant to the conversion of all or part
of Thermo Voltek's subordinated convertible notes held by the Company. In
January 1996, the Company issued 1,688,161 shares of its common stock to
Thermo Electron in exchange for 315,199 shares of Thermo Voltek common
stock and 529,965 shares of Thermo Cardiosystems common stock. In April
1996, the Company issued 299,112 shares of its common stock to Thermo
Electron in exchange for 107,500 shares of Thermo Voltek common stock and
90,000 shares of Thermo Cardiosystems common stock. The shares of common
stock were exchanged at their respective fair market values on the dates of
the transactions.
During the remainder of 1996, the Company expects to make capital
expenditures of approximately $5.0 million. 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. The Company expects that it
will finance these acquisitions through a combination of internal funds,
additional debt or equity financing from the capital markets, or short-term
borrowings from Thermo Electron. 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 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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 6th day of May 1996.
THERMEDICS INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
13PAGE
THERMEDICS INC.
EXHIBIT INDEX
Exhibit
Number Document Page
------- ----------------------------------------------------- ----
10 $15,000,000 Promissory Note dated as of February 13,
1996 issued by the Company to Thermo Electron Corporation.
27 Financial Data Schedule.