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 29, 1997.
[ ] 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 April 25, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 50,218,500
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOQUEST CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $199,821 $174,978
Available-for-sale investments, at quoted
market value (amortized cost of $7,470
and $7,430) 7,477 7,452
Accounts receivable, less allowances of
$4,210 and $4,459 84,646 73,669
Inventories:
Raw materials and supplies 12,021 10,923
Work in process and finished goods 38,470 43,089
Prepaid expenses 1,045 1,003
Prepaid income taxes 11,582 11,469
-------- --------
355,062 322,583
-------- --------
Property, Plant, and Equipment, at Cost 65,677 67,225
Less: Accumulated depreciation and
amortization 16,923 16,297
-------- --------
48,754 50,928
-------- --------
Patents and Other Assets 3,917 4,368
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 155,586 157,191
-------- --------
$563,319 $535,070
======== ========
2PAGE
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THERMOQUEST CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 22,230 $ 16,732
Accounts payable 20,305 18,249
Accrued payroll and employee benefits 14,037 15,339
Accrued installation and warranty expenses 10,626 9,899
Deferred revenue 11,082 9,353
Customer deposits 5,467 6,542
Accrued income taxes 10,050 14,290
Other accrued expenses 11,031 14,475
Due to parent company 4,169 839
-------- --------
108,997 105,718
-------- --------
Deferred Income Taxes 5,405 5,405
-------- --------
Accrued Pension and Other Deferred Items 15,017 16,340
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 96,250 96,250
Other 8,094 8,343
-------- --------
104,344 104,593
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 100,000,000
shares authorized; 50,218,500 and
48,450,000 shares issued and outstanding 502 485
Capital in excess of par value 286,738 261,921
Retained earnings 48,063 39,787
Cumulative translation adjustment (5,751) 807
Net unrealized gain on available-for-sale
investments 4 14
-------- --------
329,556 303,014
-------- --------
$563,319 $535,070
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
THERMOQUEST CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $ 78,198 $ 67,299
-------- --------
Costs and Operating Expenses:
Cost of revenues 39,005 35,410
Selling, general, and administrative
expenses 19,553 17,075
Research and development expenses 5,938 4,695
-------- --------
64,496 57,180
-------- --------
Operating Income 13,702 10,119
Interest Income 2,538 1,619
Interest Expense (1,847) (1,699)
-------- --------
Income Before Provision for Income Taxes 14,393 10,039
Provision for Income Taxes 6,117 4,197
-------- --------
Net Income $ 8,276 $ 5,842
======== ========
Earnings per Share:
Primary $ .17 $ .13
======== ========
Fully diluted $ .16 $ .13
======== ========
Weighted Average Shares:
Primary 48,586 45,396
======== ========
Fully diluted 54,602 45,396
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 8,276 $ 5,842
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,402 1,823
Provision for losses on accounts
receivable 177 5
Other noncash expenses 361 381
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (15,179) 1,060
Inventories (1,856) (4,028)
Other current assets (302) 284
Accounts payable 6,147 1,885
Other current liabilities (5,254) 4,892
Other 271 385
-------- --------
Net cash provided by (used in) operating
activities (4,957) 12,529
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (1,587)
Purchases of property, plant, and equipment (544) (1,079)
Other (12) 75
-------- --------
Net cash used in investing activities (556) (2,591)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 24,834 41,566
Increase in short-term obligations 6,865 5,038
Repayment of long-term obligations (629) (229)
-------- --------
Net cash provided by financing activities 31,070 46,375
-------- --------
Exchange Rate Effect on Cash (714) 2
-------- --------
Increase in Cash and Cash Equivalents 24,843 56,315
Cash and Cash Equivalents at Beginning
of Period 174,978 120,354
-------- --------
Cash and Cash Equivalents at End of Period $199,821 $176,669
======== ========
5PAGE
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THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
--------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ - $ 69,741
Due to parent company for acquisitions - (31,425)
Cash paid for acquired companies - (1,723)
-------- --------
Liabilities assumed of acquired companies $ - $ 36,593
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 March
29, 1997, the results of operations for the three-month periods ended
March 29, 1997, and March 30, 1996, and the cash flows for the
three-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, 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, as amended, for the fiscal year ended December 28,
1996, filed with the Securities and Exchange Commission.
2. Presentation
Certain amounts in 1996 have been reclassified to conform to the
presentation in the 1997 financial statements.
3. Sale of Shares
In March 1997, the Company sold 1,768,500 shares of its common stock
for net proceeds of approximately $24.8 million. Following the sale,
Thermo Instrument Systems Inc. owned 90% of the Company's outstanding
common stock.
4. Litigation
The Company's Finnigan Corporation (Finnigan) subsidiary has filed
complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate
(Bruker), and Hewlett-Packard Company (Hewlett-Packard), for alleged
violation of two key U.S. patents owned by Finnigan. The patents pertain
to methods used in ion trap mass spectrometers.
One of Finnigan's complaints was filed in the United States District
Court for the District of Massachusetts, and the other was filed with the
United States International Trade Commission (ITC) in Washington, DC.
Finnigan has asked for damages to compensate for the infringements, for
injunctions against further infringement, and for an order excluding
further imports into the U.S. of ion trap mass spectrometers that use the
patented methods.
The ITC has instituted an investigation in response to Finnigan's
complaint, and is expected to complete that investigation by April 1998.
The District Court action has, at the request of Hewlett-Packard and
Bruker, been stayed pending completion of the ITC investigation.
7PAGE
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THERMOQUEST CORPORATION
4. Litigation (continued)
Bruker has presented counterclaims in the ITC investigation. The
counterclaims, which Bruker has indicated it will seek to remove to the
District Court in Massachusetts, allege that the Finnigan patents are
invalid and unenforceable and are not infringed by the mass spectrometers
co-marketed by Bruker. They also allege that Finnigan has violated U.S.
and Massachusetts antitrust laws and engaged in unfair competition by
attempting to maintain a monopoly position and restrain trade through
enforcement of allegedly fraudulently obtained patents. Bruker has asked
for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
There can be no assurance as to the outcome of these matters.
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 year ended December 28, 1996, filed with the Securities and
Exchange Commission.
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 silicon chips, and
for quality control; by food and beverage companies for quality control
and to test for product contamination; and in forensic applications.
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. Where
appropriate, the Company uses forward contracts to reduce its exposure to
currency fluctuations.
8PAGE
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THERMOQUEST CORPORATION
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Revenues increased 16% to $78.2 million in the first quarter of 1997
from $67.3 million in the first quarter of 1996, primarily as a result of
an increase of $10.7 million of revenues from the Company's existing mass
spectrometry business, principally due to the continued success of a
liquid chromatograph/ion trap mass spectrometer instrument introduced in
the first quarter of 1996, and the inclusion of $9.2 million of revenues
due to the acquisition of CE Instruments and MassLab Instruments
(MassLab) from Thermo Instrument Systems Inc. (Thermo Instrument),
effective March 29, 1996. These increases were offset by a decrease of
$4.8 million in revenues due to the strengthening of the U.S. dollar in
relation to the Japanese yen and the German mark. In addition, revenues
in the first quarter of 1996 included $2.6 million from the sale of
products manufactured by third parties.
The gross profit margin increased to 50.1% in the first quarter of
1997 from 47.4% in the first quarter of 1996. The increase in the gross
profit margin was primarily due to the increase in sales of higher-margin
mass spectrometry products. In addition, the gross profit margin in 1996
reflected the inclusion of sales of lower-margin products manufactured by
third parties, which had a gross profit margin of 7%. The increase in the
gross profit margin was offset in part by the inclusion of lower-margin
revenues from CE Instruments and MassLab.
Selling, general, and administrative expenses as a percentage of
revenues remained relatively unchanged at 25.0% in the first quarter of
1997, compared with 25.4% in the first quarter of 1996. Research and
development expenses as a percentage of revenues increased to 7.6% in
1997 from 7.0% in 1996, primarily due to higher research and development
expenditures as a percentage of revenue at acquired businesses.
Interest income increased to $2.5 million in the first quarter of
1997 from $1.6 million in the first quarter of 1996, primarily as a
result of interest income earned on invested proceeds from the Company's
initial public offering of common stock in March and April 1996, offset
in part by a reduction in cash as a result of the acquisition of CE
Instruments and MassLab. Interest expense remained relatively unchanged
at $1.8 million in 1997, compared with $1.7 million in 1996.
The effective tax rate was 42.5% in the first quarter of 1997,
compared with 41.8% in the first quarter of 1996. 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.
The Company is involved in a patent infringement proceeding relating
to its ion trap mass spectrometers (Note 4).
9PAGE
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THERMOQUEST CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $246.1 million at March 29, 1997,
compared with $216.9 million at December 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$207.3 million at March 29, 1997, compared with $182.4 million at
December 28, 1996. Cash used in operating activities was $5.0 million in
the first quarter of 1997. Accounts receivable increased $15.2 million
primarily due to increased shipments by one of the Company's foreign
subsidiaries in the first quarter of 1997, compared with the fourth
quarter of 1996.
At March 29, 1997, $17.0 million of the Company's cash and cash
equivalents were held by its foreign subsidiaries. While this cash can be
used outside of the United States, including for acquisitions,
repatriation of this cash into the United States would be subject to
foreign withholding taxes and could also be subject to a United States
tax.
The Company's investing activities used $0.6 million of cash in the
first quarter of 1997. The Company expended $0.5 million for purchases of
property, plant, and equipment. During the remainder of 1997, the Company
plans to expend approximately $4.4 million for property, plant, and
equipment.
The Company's financing activities provided $31.1 million of cash in
the first quarter of 1997. In March 1997, the Company sold 1,768,500
shares of its common stock for net proceeds of approximately $24.8
million (Note 3). During the first three months of 1997, the Company's
short-term borrowings increased $6.9 million primarily due to borrowings
by one of the Company's foreign subsidiaries.
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.
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, although there is no agreement with these
companies to ensure that funds will be available on acceptable terms or
at all. The Company believes that its existing resources are sufficient
to meet the capital requirements of its existing businesses for the
foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
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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 May 1997.
THERMOQUEST CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
11PAGE
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THERMOQUEST CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
Exhibit 11
THERMOQUEST CORPORATION
Computation of Earnings per Share
Three Months Ended
-----------------------------
March 29, March 30,
1997 1996
------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 8,276,000 $ 5,842,000
Add: Convertible obligation interest,
net of tax 710,000 -
----------- -----------
Income applicable to common stock
assuming full dilution (a) $ 8,986,000 $ 5,842,000
----------- -----------
Shares:
Weighted average shares outstanding 48,586,038 45,395,604
Add: Shares issuable from assumed
conversion of convertible
obligations 5,833,333 -
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 182,895 -
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 54,602,266 45,395,604
----------- -----------
Fully Diluted Earnings per Share (a)/(b) $ .16 $ .13
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOQUEST
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 199,821
<SECURITIES> 7,477
<RECEIVABLES> 88,856
<ALLOWANCES> 4,210
<INVENTORY> 50,491
<CURRENT-ASSETS> 355,062
<PP&E> 65,677
<DEPRECIATION> 16,923
<TOTAL-ASSETS> 563,319
<CURRENT-LIABILITIES> 108,997
<BONDS> 104,344
0
0
<COMMON> 502
<OTHER-SE> 329,054
<TOTAL-LIABILITY-AND-EQUITY> 563,319
<SALES> 78,198
<TOTAL-REVENUES> 78,198
<CGS> 39,005
<TOTAL-COSTS> 39,005
<OTHER-EXPENSES> 5,938
<LOSS-PROVISION> 177
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</TABLE>
