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 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-14262
THERMOQUEST CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0407461
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 River Oaks Parkway
San Jose, California 95134
(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 26, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 48,450,000
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOQUEST CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, December 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $182,316 $120,354
Available-for-sale investments, at quoted
market value (amortized cost of $1,749) 1,752 -
Accounts receivable, less allowances of
$2,443 and $2,341 56,455 65,729
Inventories:
Raw materials and supplies 20,887 17,970
Work in process and finished goods 30,449 29,050
Prepaid expenses 2,055 1,258
Prepaid income taxes 8,503 8,695
-------- --------
302,417 243,056
-------- --------
Property, Plant and Equipment, at Cost 59,559 60,665
Less: Accumulated depreciation and
amortization 17,013 17,134
-------- --------
42,546 43,531
-------- --------
Patents and Other Assets 4,979 5,627
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 138,574 135,828
-------- --------
$488,516 $428,042
======== ========
2PAGE
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THERMOQUEST CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, December 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 10,237 $ 11,755
Accounts payable 12,790 13,144
Accrued payroll and employee benefits 9,872 10,533
Accrued installation and warranty expenses 7,628 7,079
Deferred revenue 8,730 8,417
Customer deposits 6,490 6,403
Accrued income taxes 9,245 4,118
Other accrued expenses 11,120 12,077
Due to parent company 3,730 2,628
-------- --------
79,842 76,154
-------- --------
Deferred Income Taxes 5,767 5,767
-------- --------
Accrued Pension and Other Deferred Items 11,760 11,925
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 96,250 96,250
Other 8,813 10,206
-------- --------
105,063 106,456
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 100,000,000
shares authorized; 48,450,000 and 45,000,000
shares issued and outstanding 485 450
Capital in excess of par value 261,121 213,378
Retained earnings 24,194 11,764
Cumulative translation adjustment 282 2,148
Net unrealized gain on available-for-sale
investments 2 -
-------- --------
286,084 227,740
-------- --------
$488,516 $428,042
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 66,716 $ 57,729
-------- --------
Costs and Operating Expenses:
Cost of revenues 34,128 28,429
Selling, general and administrative expenses 16,944 16,253
Research and development expenses 4,897 4,411
-------- --------
55,969 49,093
-------- --------
Operating Income 10,747 8,636
Interest Income 2,370 54
Interest Expense (1,656) (390)
-------- --------
Income Before Provision for Income Taxes 11,461 8,300
Provision for Income Taxes 4,873 3,446
-------- --------
Net Income $ 6,588 $ 4,854
======== ========
Earnings per Share $ .14 $ .11
======== ========
Weighted Average Shares 48,410 45,187
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $134,015 $114,234
-------- --------
Costs and Operating Expenses:
Cost of revenues 69,538 56,901
Selling, general and administrative expenses 34,019 32,086
Research and development expenses 9,592 8,788
-------- --------
113,149 97,775
-------- --------
Operating Income 20,866 16,459
Interest Income 3,989 126
Interest Expense (3,355) (791)
-------- --------
Income Before Provision for Income Taxes 21,500 15,794
Provision for Income Taxes 9,070 6,556
-------- --------
Net Income $ 12,430 $ 9,238
======== ========
Earnings per Share $ .27 $ .20
======== ========
Weighted Average Shares 46,903 45,187
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Operating Activities:
Net income $ 12,430 $ 9,238
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,808 4,208
Provision for losses on accounts receivable 29 12
Other noncash expenses 722 492
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 10,946 3,606
Inventories (2,510) (2,600)
Other current assets (359) (372)
Accounts payable (2,350) (356)
Other current liabilities 3,223 (5,867)
Other 597 703
-------- --------
Net cash provided by operating
activities 26,536 9,064
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (5,643) -
Purchases of available-for-sale investments (1,650) -
Purchases of property, plant and equipment (1,908) (1,055)
Other 54 237
-------- --------
Net cash used in investing
activities (9,147) (818)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 47,778 -
Decrease in short-term obligations (2,320) (908)
Repayment of long-term obligations (416) (409)
Net transfer to parent company - (4,086)
Other (95) -
-------- --------
Net cash provided by (used in)
financing activities $ 44,947 $ (5,403)
-------- --------
6PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (374) $ 1,653
-------- --------
Increase in Cash and Cash Equivalents 61,962 4,496
Cash and Cash Equivalents at Beginning of Period 120,354 13,050
-------- --------
Cash and Cash Equivalents at End of Period $182,316 $ 17,546
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 11,553 $ -
Cash paid for acquired companies (5,852) -
-------- --------
Liabilities assumed of acquired companies $ 5,701 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
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THERMOQUEST CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoQuest Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at June 29, 1996,
the results of operations for the three- and six-month periods ended June
29, 1996 and July 1, 1995, and the cash flows for the six-month periods
ended June 29, 1996 and July 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 Registration Statement on
Form S-1 (Reg. No. 333-00276), filed with the Securities and Exchange
Commission.
2. Acquisitions
On December 1, 1995, Thermo Instrument Systems Inc. (Thermo
Instrument) acquired the assets of the analytical instruments division of
Analytical Technology, Inc. (ATI). In June 1996, the Company acquired the
Automass division of ATI from Thermo Instrument for $4.1 million in cash.
The Automass division of ATI is a manufacturer of mass spectometers.
Because the Company and the Automass division of ATI were deemed for
accounting purposes to be under control of their common majority owner,
Thermo Instrument, the transaction has been accounted for in a manner
similar to a pooling of interests. As the results of the Automass division
of ATI for December 1995 were not material to the Company's results of
operations, the Company's 1995 historical financial information has not
been restated. The Company's 1996 historical financial information has been
restated to include the results of operations of the Automass division of
ATI from January 1, 1996.
In January 1996, the Company acquired Extrel FTMS, Inc. (Extrel) for
$1.7 million in cash. The acquisition of Extrel has been accounted for
using the purchase method of accounting and its results of operations have
been included in the accompanying financial statements from the date of
acquisition.
The cost of these acquisitions exceeded the estimated fair value of
the acquired net assets by $4.5 million, which is being amortized over 40
years. Allocation of the purchase price for these acquisitions were 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.
8PAGE
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THERMOQUEST CORPORATION
3. Initial Public Offering
In March and April 1996, the Company sold 3,450,000 shares of its
common stock in an initial public offering at $15.00 per share for net
proceeds of approximately $47.8 million. Following the offering, Thermo
Instrument owned 93% of the Company's outstanding common stock.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company develops, manufactures, and sells mass spectrometers,
liquid chromatographs, and gas chromatographs. These analytical instruments
are used in the quantitative and qualitative chemical analysis of organic
and inorganic compounds at ultra-trace levels of detection. The Company's
products are used primarily by pharmaceutical companies for drug research,
testing, and quality control; by environmental laboratories for testing
water, air, and soil samples for compliance with environmental regulations;
by chemical companies for research and quality control; by manufacturers
for testing in certain industrial applications, such as the manufacture of
semiconductor wafers, and for quality control; by food and beverage
companies for quality control and to test for product contamination; and in
forensic applications.
The Company's strategy is to supplement its internal growth with the
acquisition of complementary products and technologies. In January 1996,
the Company acquired Extrel FTMS, Inc., a manufacturer of Fourier transform
mass spectrometers, from Waters Technologies Corporation, and in June 1996,
the Company acquired the Automass division of Analytical Technology, Inc.
(ATI) from Thermo Instrument Systems Inc. (Thermo Instrument) (Note 2). The
Automass division of ATI is a manufacturer of mass spectrometers.
The Company sells its products on a worldwide basis. 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 affecting the relationship
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 1996 Compared With Second Quarter 1995
Revenues increased 16% to $66.7 million in the second quarter of 1996
from $57.7 million in the second quarter of 1995 primarily as a result of
an increase of $11.2 million in revenues from the Company's existing mass
spectrometry business and the inclusion of $1.9 million in revenues due to
the acquisition of the Automass division of ATI effective January 1, 1996
(Note 2). The increase in revenues from the Company's existing mass
9PAGE
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THERMOQUEST CORPORATION
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
spectrometry business was primarily due to the introduction of two new
products, one in the third quarter of 1995 and another in the first quarter
of 1996. These increases were offset by a decrease of $3.6 million in
revenues due to the strengthening of the U.S. dollar in relation to the
Japanese yen and the German mark.
The gross profit margin decreased to 48.8% in the second quarter of
1996 from 50.8% in the second quarter of 1995 primarily due to a shift in
product mix in the Company's mass spectrometry business.
Selling, general and administrative expenses as a percentage of
revenues decreased to 25.4% in the second quarter of 1996 from 28.2% in the
second quarter of 1995 primarily due to an increase in total revenues.
Research and development expenses as a percentage of revenues decreased to
7.3% in 1996 from 7.6% in 1995 primarily due to an increase in total
revenues.
Interest income increased to $2.4 million in the second quarter of
1996 from $0.1 million in the second quarter of 1995 primarily as a result
of interest income earned on invested proceeds from the Company's issuance
of 5% subordinated convertible debentures in August 1995 and, to a lesser
extent, from the Company's initial public offering of common stock in March
and April 1996. Interest expense increased to $1.7 million in 1996 from
$0.4 million in 1995 primarily due to interest on the Company's 5%
subordinated convertible debentures.
The effective tax rate was 43% in the second quarter of 1996, compared
with 42% in the second quarter of 1995. The effective tax rates exceeded
the statutory federal income tax rate primarily due to the impact of state
income taxes and the nondeductible amortization of cost in excess of net
assets of acquired companies.
First Six Months 1996 Compared With First Six Months 1995
Revenues increased 17% to $134.0 million in the first six months of
1996 from $114.2 million in the first six months of 1995 primarily as a
result of an increase of $17.1 million in revenues from the Company's
existing mass spectrometry business, the inclusion of $3.7 million in
revenues due to the acquisition of the Automass division of ATI, and the
inclusion in the first quarter of 1996 of $2.6 million in revenues from the
sale of products manufactured by third parties. The increase in revenues
from the Company's existing mass spectrometry business was primarily due to
the introduction of two new products as discussed in the results of
operations for the second quarter. These increases were offset by a
decrease of $4.7 million in revenues due to the strengthening of the U.S.
dollar in relation to the Japanese yen and the German mark.
The gross profit margin decreased to 48.1% in the first six months of
1996 from 50.2% in the first six months of 1995. This decline is primarily
due to a shift in product mix and, to a lesser extent, the inclusion in the
first quarter of 1996 of lower-margin sales of products manufactured by
third parties. The gross profit margin for the third-party product sales
was 7%.
10PAGE
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THERMOQUEST CORPORATION
First Six Months 1996 Compared With First Six Months 1995 (continued)
Selling, general and administrative expenses as a percentage of
revenues decreased to 25.4% in the first six months of 1996 from 28.1% in
the first six months of 1995 primarily due to an increase in total
revenues. Research and development expenses as a percentage of revenues
decreased to 7.2% in 1996 from 7.7% in 1995 primarily due to an increase in
total revenues.
Interest income increased to $4.0 million in the first six months of
1996 from $0.1 million in the first six months of 1995 primarily as a
result of interest income earned on invested proceeds from the Company's
issuance of 5% subordinated convertible debentures in August 1995. Interest
expense increased to $3.4 million in 1996 from $0.8 million in 1995
primarily due to interest on the Company's 5% subordinated convertible
debentures.
The effective tax rate was 42% in the first six months of 1996 and
1995. The effective tax rate exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes and the nondeductible
amortization of cost in excess of net assets of acquired companies.
Liquidity and Capital Resources
Consolidated working capital was $222.6 million at June 29, 1996,
compared with $166.9 million at December 30, 1995, an increase of $55.7
million. Included in working capital are cash, cash equivalents, and
available-for-sale investments of $184.1 million at June 29, 1996, compared
with $120.4 million at December 30, 1995. Cash provided by operating
activities was $26.5 million in the first six months of 1996. Accounts
receivable decreased $10.9 million in the first six months of 1996,
primarily due to improved collections at one of the Company's foreign
subsidiaries.
During the first six months of 1996, the Company expended $5.6 million
for acquisitions.
In March and April 1996, the Company sold 3,450,000 shares of its
common stock in an initial public offering at $15.00 per share for net
proceeds of approximately $47.8 million.
During the first six months of 1996, the Company expended $1.9 million
for purchases of property, plant and equipment. During the remainder of
1996, the Company plans to expend approximately $1.3 million for property,
plant and equipment. Although the Company expects to have positive cash
flow from its existing operations, the Company anticipates it will require
significant amounts of cash to pursue the acquisition of complementary
businesses. In March 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of Fisons
plc (Fisons). The Company has had discussions with Thermo Instrument
regarding the acquisition of the CE Instruments and Mass Lab divisions of
Fisons, which manufacture gas chromatographs and benchtop quadrupole mass
spectrometers, respectively. The CE Instruments and Mass Lab divisions had
11PAGE
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THERMOQUEST CORPORATION
Liquidity and Capital Resources (continued)
revenues of approximately $38 million and $10 million, respectively, in
1995. No assurance can be given that the Company will ultimately acquire
these businesses, and the timing and terms of the acquisitions, including
price, would be subject to negotiation between the Company and Thermo
Instrument. The Company expects that it will finance acquisitions through a
combination of internal funds, additional debt or equity financing from the
capital markets, or short-term borrowings from Thermo Instrument or Thermo
Electron Corporation (Thermo Electron), although there is no agreement with
Thermo Instrument or Thermo Electron under which such parties are obligated
to lend funds to the Company. The Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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THERMOQUEST CORPORATION
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 August 1996.
THERMOQUEST CORPORATION
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Chief Financial Officer
13PAGE
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THERMOQUEST CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
---------------------------------------------------------------------------
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMOQUEST CORPORATION
Computation of Earnings per Share
Three Months Ended
--------------------------
June 29, July 1,
1996 1995
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 6,588,000 $ 4,854,000
----------- -----------
Shares:
Weighted average shares outstanding 48,410,440 45,000,000
Add: Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) - 187,320
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 48,410,440 45,187,320
----------- -----------
Primary Earnings per Share (a) / (b) $ .14 $ .11
=========== ===========
PAGE
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Exhibit 11
THERMOQUEST CORPORATION
Computation of Earnings per Share (continued)
Six Months Ended
--------------------------
June 29, July 1,
1996 1995
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $12,430,000 $ 9,238,000
----------- -----------
Shares:
Weighted average shares outstanding 46,903,022 45,000,000
Add: Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) - 187,320
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 46,903,022 45,187,320
----------- -----------
Primary Earnings per Share (a) / (b) $ .27 $ .20
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOQUEST
CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 182,316
<SECURITIES> 1,752
<RECEIVABLES> 58,898
<ALLOWANCES> 2,443
<INVENTORY> 51,336
<CURRENT-ASSETS> 302,417
<PP&E> 59,559
<DEPRECIATION> 17,013
<TOTAL-ASSETS> 488,516
<CURRENT-LIABILITIES> 79,842
<BONDS> 105,063
0
0
<COMMON> 485
<OTHER-SE> 285,599
<TOTAL-LIABILITY-AND-EQUITY> 488,516
<SALES> 134,015
<TOTAL-REVENUES> 134,015
<CGS> 69,538
<TOTAL-COSTS> 69,538
<OTHER-EXPENSES> 9,592
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 3,355
<INCOME-PRETAX> 21,500
<INCOME-TAX> 9,070
<INCOME-CONTINUING> 12,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,430
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
