SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 24, 1997, was approximately $53,336,000.
As of January 24, 1997, the Registrant had 48,450,000 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 28, 1996, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 2, 1997, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
ThermoQuest Corporation (the Company or the Registrant) 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 was incorporated in June 1995 as a
wholly owned subsidiary of Thermo Instrument Systems Inc. (Thermo
Instrument). Thermo Instrument is a publicly traded, majority-owned
subsidiary of Thermo Electron Corporation (Thermo Electron). Where the
context requires, references herein to the Company refer to ThermoQuest
Corporation and its subsidiaries and to its predecessor businesses as
conducted by Thermo Instrument, the Company's parent, including acquired
businesses from their dates of acquisition.
The Company is a leading manufacturer of mass spectrometers and
liquid chromatographs. In addition, the Company has recently entered the
market for gas chromatographs. Many of the major developments in modern
mass spectrometry were pioneered by the Company. The ion trap mass
spectrometer, which utilizes the latest mass spectrometer technology, was
first commercialized by the Company, and the Company holds significant
patents relating to this technology. In 1995, the Company introduced two
instruments that integrate a highly sensitive yet affordable ion trap
mass spectrometer with a liquid chromatograph or a gas chromatograph to
form the industry's most powerful benchtop liquid chromatograph/mass
spectrometer (LC/MS) and gas chromatograph/mass spectrometer (GC/MS)
instruments.
An element of the Company's strategy is to combine its internal
growth with the acquisition of complementary products and technologies.
On January 19, 1996, the Company acquired Extrel FTMS, Inc. (Extrel), a
manufacturer of Fourier transform mass spectrometers, from Waters
Technologies Corporation for $1.7 million in cash, and, effective January
1, 1996, the Company acquired the Automass division of Analytical
Technology, Inc. (ATI), a manufacturer of benchtop mass spectrometers,
from Thermo Instrument for $4.1 million in cash. In addition, effective
March 29, 1996, the Company acquired CE Instruments, a manufacturer of
gas chromatographs, and MassLab Instruments (MassLab), a manufacturer of
mass spectrometers, from Thermo Instrument for an aggregate purchase
price of $27.3 million in cash and the assumption of approximately $8.9
million in debt, subject to a post-closing adjustment. CE Instruments and
MassLab were originally part of the Scientific Instruments Division of
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Fisons plc (Fisons), a substantial portion of which was acquired by
Thermo Instrument on March 29, 1996.
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 $47.8 million. As of December 28, 1996, Thermo Instrument
owned 45,000,000 shares of the Company's common stock, representing 93%
of such stock outstanding. Thermo Instrument intends, for the foreseeable
future, to maintain at least 80% ownership of the Company. Thermo
Instrument develops, manufactures, and markets instruments used to detect
and measure air pollution, radioactivity, complex chemical compounds,
toxic metals, and other elements in a broad range of liquids and solids,
as well as to control and monitor various industrial processes. As of
December 28, 1996, Thermo Electron owned 60,000 shares of the Company's
common stock, representing .12% of such stock outstanding. Thermo
Electron is a world leader in environmental monitoring and analysis
instruments, biomedical products such as heart-assist devices and
mammography systems, paper-recycling and papermaking equipment, biomass
electric power generation, and other specialized products and
technologies. Thermo Electron also provides a range of services related
to environmental quality.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. 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 the Registrant's 1996* Annual Report to Shareholders
incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company operates in one business segment: developing,
manufacturing, and selling mass spectrometers, liquid chromatographs, and
gas chromatographs.
(c) Description of Business
(i) Principal Products and Services
The Company develops, manufactures, and sells mass spectrometers,
liquid chromatographs, and gas chromatographs to a wide range of
customers primarily in the pharmaceutical, environmental,
industrial/chemical, food and beverage, and forensic sciences industries.
* References to 1996, 1995, and 1994 herein are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
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The market for the Company's products is highly specialized as a result
of the differing needs of the industries in which they are used. The
Company actively seeks to cross-sell its products among the various
industries it serves, particularly by adding its liquid chromatograph or
gas chromatograph input devices to its mass spectrometer products.
Markets
The major markets in which the Company sells its products are:
Pharmaceutical. In the pharmaceutical industry, the Company's
instruments are used in the identification of newly synthesized or
discovered drug candidates, to measure drugs and metabolites in clinical
studies, and for quality assurance of production drugs.
Environmental. A second major market for the Company's analytical
instruments is in environmental analysis. This market is driven to a
great degree by federal, state, local, and foreign environmental
regulations, which provide specific methods with respect to the testing
of air, water, and soil for contaminants.
Industrial/Chemical. Customers that purchase analytical instruments
for industrial and chemical applications typically utilize the
instruments for quality control and to test for contaminants in
substances used in a particular manufacturing application.
Food and Beverage. Customers in the food and beverage industry use
the Company's products for quality control to test for contaminants.
Customers in this industry must respond both to environmental and health
regulations and to societal concerns regarding product contamination.
Forensic Sciences. Analytical instruments are used in a variety of
forensic applications, including testing for illicit drug use by
employees or athletes; testing body fluids to determine causes of death;
testing to determine the identity of substances suspected to be illegal;
and testing for the presence of substances of evidentiary significance
for use in criminal investigations.
Technology
Mass Spectrometers. A mass spectrometer is an instrument in which the
chemical compound to be analyzed is broken down into electrically-charged
fragments (ions), which are then sorted according to their mass-to-charge
ratios. All mass spectrometers consist of a device to introduce samples,
an ionization source, a mass analyzer that separates ions according to
mass ratios, a detector that converts the ions into an electrical signal,
a signal processor that amplifies the electrical signal, and a computer
that organizes and displays information in a convenient and useful
manner. The resulting data creates a "fingerprint" that is then compared
to a database for identification. Mass spectrometers are the most
powerful tools for the identification and quantification of chemical
substances. A gas or liquid chromatograph is used to separate complex
mixtures of chemicals into discrete components, which can then be
analyzed based on the chromatograph results alone or can be introduced
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into a mass spectrometer to give additional information and to
specifically identify unknown components.
The Company has pioneered many of the significant developments in
mass spectrometry and holds approximately 60 U.S. patents relating to
mass spectrometry, with additional patents pending. The Company has a
distinguished record of being the first to commercialize new technologies
coming from its own laboratories as well as from an extensive worldwide
network of university collaborators. Examples include the first
computerized GC/MS quadrupole system, the first commercial chemical
ionization ion source, the first commercial triple quadrupole MS/MS
system, the first commercial ion trap system, and the first commercial
ion trap MS/MS system.
On January 19, 1996, the Company acquired Extrel, a leading
manufacturer of Fourier transform mass spectrometry (FT/MS) instruments.
Extrel introduced the first commercial FT/MS product in 1981 and today
offers a unique multi-source mass spectrometer with a range of ionization
techniques. This research-grade analytical instrument has the advantage
of both high resolution and high mass range and is particularly useful in
pharmaceutical and polymer research applications where large molecules in
complex solutions need to be precisely identified.
Effective January 1, 1996, the Company acquired the Automass division
of ATI, a manufacturer of benchtop mass spectrometers, from Thermo
Instrument. Manufactured near Paris, France, these mass spectrometers
incorporate a quadrupole design that provides enhanced sensitivity and
can accommodate gas chromatographs as well as liquid chromatographs.
These products complement the Company's existing GCQ(R) and LCQ(R) line
of benchtop ion trap mass spectrometers.
Effective March 29, 1996, the Company acquired MassLab, a
manufacturer of mass spectrometry instruments, from Thermo Instrument.
Located near Manchester, U.K., MassLab manufactures a line of mass
spectrometers for both gas chromatography and liquid chromatography
applications. MassLab was originally part of the Scientific Instruments
Division of Fisons, a substantial portion of which was acquired by Thermo
Instrument on March 29, 1996.
The Company currently manufactures three types of mass spectrometers:
Magnetic Sector Mass Spectrometers. Magnetic sector mass
spectrometers are generally used in high resolution applications where an
accurate analysis of molecular weight is required to determine the
elemental composition of unknown samples. Magnetic sector instruments are
typically purchased by universities and pharmaceutical and chemical
companies for use in research applications.
Quadrupole Mass Spectrometers. Single quadrupole mass spectrometers
are typically utilized in environmental and forensic laboratories, which
require dependable, routine analyses that meet applicable regulatory
requirements, such as those promulgated by the U.S. Environmental
Protection Agency. Although lacking the resolution of some types of
magnetic sector mass spectrometers, these instruments provide reliable
performance at a relatively low price. Single quadrupoles are frequently
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combined to form MS/MS spectrometers for use in more complex analyses
such as molecular structure analysis. Together with the Company's triple
stage quadrupoles, the most powerful type of quadrupole mass
spectrometer, single quadrupoles comprise a complete family of quadrupole
mass spectrometers.
Ion Trap Mass Spectrometers. The Company developed the first
commercial ion trap and holds a significant patent relating to ion trap
technology. The ability to trap and integrate the intensities of ions has
made the ion trap the most sensitive method of mass analysis for certain
applications. Ion traps are smaller, mechanically simpler, and therefore
easier to maintain than other types of mass spectrometers. While other
types of mass spectrometers separate and analyze a continuous stream of
ions, ion trap mass spectrometers trap ions in a confined space using an
electric field, which can be adjusted to eject ions as a function of
their mass-to-charge ratio. An advantage of ion trap mass spectrometers
is that, through software, MS/MS analysis can be performed in a single
ion trap mass spectrometer, theoretically to an infinite number of stages
(MS(n)). The Company has recently introduced ion traps that incorporate
an external ion source, such as those found in quadrupole and magnetic
sector mass spectrometers, which use sophisticated ionization techniques
to increase the specificity and detection limits of the instrument.
Due to their relative mechanical simplicity and small size, ion traps
are well suited for coupling with chromatographs to form benchtop LC/MS
and GC/MS instruments. Benchtop LC/MS(n) instruments were not
commercially available until the Company introduced the first such
instrument in June 1995. Through significant advancements in integration
techniques and information technology, the Company has developed the
benchtop GCQ (GC/MS(n)) and LCQ (LC/MS(n)) instruments, which combine ion
trap mass spectrometers with chromatographs. These instruments are the
first to allow users to combine GC and LC with MS(n) in a benchtop
format, and offer high performance at a competitive price for appropriate
applications.
Liquid Chromatographs. High performance liquid chromatography (HPLC)
is an analytical technique used to separate, identify, and quantify
complex mixtures of primarily organic chemicals. In HPLC, the sample is
introduced into a solvent stream that is being pumped at a high pressure
through a liquid chromatography column. The column, both through physical
and chemical properties, separates the complex mixtures into discrete
bands, allowing identification. The separated sample is then passed
through a detector that measures the sample by various technologies,
including ultraviolet and visible light absorption, changes in refractive
index, fluorescence, and conductivity. The data produced by the detector
is converted to an electronic form and transmitted for display and
manipulation on a personal computer. For complex mixtures, the HPLC may
be coupled with a mass spectrometer to give additional information and
specifically identify unknown components.
Gas Chromatographs. Like HPLC, gas chromatography is an analytical
technique used to separate, identify, and quantify complex mixtures of
primarily organic chemicals. Although gas chromatographs are generally
easier to use and have higher resolution than liquid chromatographs, only
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a relatively small percentage of compounds can be converted to gaseous
form for analysis on a gas chromatograph. In gas chromatographs, samples
are introduced typically by syringe injection and are converted into the
gas phase by heating. The sample passes through an analytical column and
the various components of the sample mixture are separated into discrete
bands which are suitable for analysis by detectors. Detectors can be
assembled in various configurations to facilitate analysis of different
chemical and physical properties in a sample mixture. The data produced
by the detector is converted to electronic form and transmitted for
display and manipulation on a personal computer. For complex mixtures,
where compounds cannot be adequately separated and identified by gas
chromatography, the gas chromatograph can be coupled with a mass
spectrometer to give additional information and specifically identify
unknown components.
Effective March 29, 1996, the Company acquired CE Instruments, a
manufacturer of gas chromatography instruments, from Thermo Instrument.
Located near Milan, Italy, CE Instruments has a long history of
technological innovation in gas chromatography. In 1956, CE Instruments
produced the first commercial gas chromatograph manufactured in Europe,
and, in 1976, introduced the first commercially available high-resolution
gas chromatograph. In addition to gas chromatography instruments, CE
Instruments produces a line of organic elemental analysis, mercury
porosimetry, and gas absorption instruments for use in research and
quality control laboratories in a number of application fields. CE
Instruments was originally part of the Scientific Instruments Division of
Fisons, a substantial portion of which was acquired by Thermo Instrument
on March 29, 1996.
Sales and Marketing
The Company markets its instruments in larger international markets
through its own worldwide sales force of direct salespeople, and in
smaller markets through a network of dealers and distributors. In
addition, the Company sells certain of its liquid and gas chromatographs
pursuant to OEM arrangements under which third parties purchase and
resell the Company's products. The Company's sales force is supported
throughout the world by a customer support group which provides training,
instrument servicing, and parts replacements.
(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development of new
technologies and the enhancement of existing products. Research and
development expenses for the Company were $21.8 million, $17.5 million,
and $14.7 million in 1996, 1995, and 1994, respectively.
(iii) Raw Materials
Raw materials, components, and supplies purchased by the Company are
either available from a number of different suppliers or from alternative
sources that could be developed without a material adverse effect on the
Company. To date, the Company has experienced no difficulties in
obtaining these materials.
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(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights,
including applying for and obtaining patents when appropriate. The
Company holds numerous patents related to its technologies, with
additional patents pending. The Company also enters into licensing
agreements with other companies in which it grants or receives rights to
specific patents and technical know-how. The Company also considers
technical know-how, trade secrets, and trademarks to be important to its
business.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales
of its products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
No single customer accounted for 10% or more of the Company's total
revenues in any of the past three years.
(viii) Backlog
The Company's backlog of firm orders was $63.3 million and $65.1
million as of December 28, 1996, and December 30, 1995, respectively. The
Company includes in its backlog only orders confirmed with a purchase
order for products and related services scheduled to be shipped or
rendered within one year. The Company believes that substantially all of
the backlog at December 28, 1996, will be shipped or completed during
1997. The Company does not believe that the level of, or changes in the
level of, its backlog is necessarily a meaningful indicator of future
results of operations.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company competes in each of its markets primarily on technical
performance, customer service and support and, to a lesser extent, price.
The Company's principal competitors in the mass spectrometry market
include Hewlett-Packard Co. (Hewlett-Packard), MicroMass, Japan Electro
Optical Laboratories, Hitachi Ltd. (Hitachi), Shimadzu Corporation
(Shimadzu), and the Sciex Division of Perkin-Elmer Corporation
(Perkin-Elmer). The Company's principal competitors in the liquid
chromatography market include Waters Technologies Corporation,
Hewlett-Packard, Shimadzu, Beckman Instruments, Hitachi, Perkin-Elmer,
Varian Associates (Varian), and Dionex Corporation. In the gas
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chromatography market, the Company competes with numerous companies
including Hewlett-Packard, Varian, Perkin-Elmer, and Shimadzu.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal,
state, and local environmental protection regulations will not have a
material adverse effect on its capital expenditures, earnings, or
competitive position.
(xiii) Number of Employees
As of December 28, 1996, the Company employed approximately 1,270
people.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 11 to Consolidated Financial
Statements in the Registrant's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
------------------------ --- --------------------------------
Dr. Richard W.K. Chapman 52 Chief Executive Officer and
President (1995)
John N. Hatsopoulos * 62 Vice President and Chief
Financial Officer (1995)
Philip L. Warren 53 Vice President (1995)
Paul F. Kelleher 54 Chief Accounting Officer (1995)
* John N. Hatsopoulos and George N. Hatsopoulos, a director of the
Company, are brothers.
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until his earlier
resignation, death, or removal. Dr. Chapman and Mr. Warren have held
their respective positions in the Company since its inception in June
1995. Dr. Chapman served as Marketing Manager of Finnigan Corporation
(Finnigan), a subsidiary of the Company, from 1989 to 1992 and as
President of Finnigan from 1992 to 1995. Mr. Warren was named President
of Finnigan in September 1995, and served as Finnigan's Vice President,
Field Operations from 1985 to May 1994 and as its Vice President, General
Manager from May 1994 until he was named President. Messrs. Hatsopoulos
and Kelleher are full-time employees of Thermo Electron, but devote such
time to the affairs of the Company as the Company's needs reasonably
require.
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Item 2. Properties
The Company owns approximately 704,000 square feet of office,
engineering, laboratory, and production space, principally in California,
Texas, Florida, Germany, Italy, and England and leases approximately
105,000 square feet of office space under leases expiring from 1997
through 2002, principally in France, Germany, Italy, Japan, and The
Netherlands. As of December 28, 1996, the Company had a $9.3 million
mortgage loan that is secured by 200,000 square feet of property in
California with a net book value of $16.0 million. The Company believes
that its facilities are in good condition and are suitable and adequate
for its present operations and that suitable space is readily available
if any of such leases are not extended.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's common stock, $.01 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 28,
1996, and Supplementary Data are included in the Registrant's 1996 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a),(d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: February 27, 1997 THERMOQUEST CORPORATION
By: Richard W.K. Chapman
--------------------
Richard W.K. Chapman
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated below, as of February 27,
1997.
Signature Title
--------- -----
By: Richard W.K. Chapman President, Chief Executive Officer,
---------------------
Richard W.K. Chapman and Director
By: John N. Hatsopoulos Vice President and Chief Financial
---------------------
John N. Hatsopoulos Officer
By: Paul F. Kelleher Chief Accounting Officer
---------------------
Paul F. Kelleher
By: Arvin H. Smith Chairman of the Board and Director
---------------------
Arvin H. Smith
By: George N. Hatsopoulos Director
---------------------
George N. Hatsopoulos
By: Frank Jungers Director
---------------------
Frank Jungers
By: Anthony J. Pellegrino Director
---------------------
Anthony J. Pellegrino
By: Michael E. Porter Director
---------------------
Michael E. Porter
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Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of ThermoQuest Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in ThermoQuest
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 11,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14 on page 13 is
the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1997
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SCHEDULE II
THERMOQUEST CORPORATION
Valuation and Qualifying Accounts
(In thousands)
Balance at Provision Accounts Balance
Beginning Charged to Bad Debts Written at End
of Year Expense Recovered Off Other (a) of Year
---------- --------- --------- -------- --------- --------
Year Ended
December 28, 1996
Allowance for
Doubtful
Accounts $2,341 $ 220 $ 43 $ (351) $2,206 $4,459
Year Ended
December 30, 1995
Allowance for
Doubtful
Accounts $2,366 $ 213 $ 68 $ (333) $ 27 $2,341
Year Ended
December 31, 1994
Allowance for
Doubtful
Accounts $2,616 $ (265) $ - $ (868) $ 883 $2,366
(a) Includes allowance of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's 1996 Annual
Report to Shareholders and the effect of foreign currency translation.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Stock Purchase Agreement dated as of November 4, 1996,
between SID Instruments Inc. and the Registrant (filed as
Exhibit 2.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 28, 1996 [File No.
1-14262] and incorporated herein by reference).
2.2 Stock Purchase Agreement dated as of November 4, 1996,
among SID Instruments Inc., Thermo Instrument, and Finnigan
MAT (Nevada) Inc. (filed as Exhibit 2.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 28, 1996 [File No. 1-14262] and incorporated
herein by reference).
3.1 Certificate of Incorporation, as amended, of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-00276] and incorporated
herein by reference).
3.2 By-laws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-00276] and incorporated herein by reference).
10.1 Corporate Services Agreement dated as of June 30, 1995,
between Thermo Electron and the Registrant (filed as
Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-00276] and incorporated herein by
reference).
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
10.3 Tax Allocation Agreement dated as of June 30, 1995, between
Thermo Electron and the Registrant (filed as Exhibit 10.3
to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-00276] and incorporated herein by reference).
10.4 Master Repurchase Agreement dated as of June 30, 1995,
between Thermo Electron and the Registrant (filed as
Exhibit 10.4 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-00276] and incorporated herein by
reference).
10.5 Master Guarantee Reimbursement Agreement dated as of June
30, 1995, between Thermo Electron and the Registrant (filed
as Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 333-00276] and incorporated herein by
reference).
17PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.6 Master Guarantee Reimbursement Agreement dated as of June
30, 1995, between Thermo Instrument and the Registrant
(filed as Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-00276] and incorporated
herein by reference).
10.7 Equity Incentive Plan of the Registrant (filed as Exhibit
10.7 to the Company's Registration Statement on Form S-1
[Reg. No. 333-00276] and incorporated herein by reference).
10.8 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-00276] and incorporated
herein by reference).
10.9 Directors Stock Option Plan of the Registrant (filed as
Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-00276] and incorporated herein by
reference).
10.10 Form of Indemnification Agreement for Officers and
Directors (filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-00276] and
incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of
Thermo Electron and Thermo Instrument for services rendered
to the Registrant or to such affiliated corporations.
Thermo Electron's plans were filed as Exhibits 10.21
through 10.44 to the Annual Report on Form 10-K of Thermo
Electron for the year ended December 30, 1995 [File No.
1-8002] and as Exhibit 10.19 to the Annual Report on Form
10-K of Trex Medical Corporation for the fiscal year ended
September 28, 1996 [File No. 1-11827] and Thermo
Instrument's plans were filed as Exhibits 10.61 through
10.68 to the Annual Report on Form 10-K of Thermo Electron
for the year ended December 30, 1995 [File No. 1-8002] and
are incorporated herein by reference.
10.11 Fiscal Agency Agreement dated as of August 3, 1995, among
the Registrant, Thermo Electron, and The Chase Manhatten
Bank (formerly Chemical Bank) (filed as Exhibit 10.12 to
the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-00276] and incorporated herein by reference).
18PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.12 Deed of Trust and Security Agreement dated February 22,
1989, between the Company (as successor-in-interest to
Finnigan Properties, Inc.) and the Northwestern Mutual Life
Insurance Company (filed as Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-00276] and incorporated herein by reference).
10.13 Indemnification Agreement dated as of November 4, 1996,
between Thermo Instrument and the Registrant (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 28, 1996 [File No.
1-14262] and incorporated herein by reference).
10.14 Restated Stock Holdings Assistance Plan and Form of
Promissory Note.
11 Computation of Earnings per Share.
13 Annual Report to Shareholders for the year ended
December 28, 1996 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
EXHIBIT 10.14
THERMOQUEST CORPORATION
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit ThermoQuest
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the Stock
Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: ThermoQuest Corporation, a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The ThermoQuest Corporation Stock Holding Assistance
Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
PAGE
<PAGE>
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments from the
payment of annual cash incentive compensation (referred to as
bonus) to the Key Employee by the Company, beginning with the
2PAGE
<PAGE>
first such bonus payment to occur after the date of the Note
evidencing the Loan, and on each of the next four bonus payment
dates, provided that the Committee may, in its sole and absolute
discretion, authorize such other maturity and repayment schedule
as the Committee may determine. Each Loan shall also become
immediately due and payable in full, without demand, upon the
occurrence of any of the events set forth in the Note; provided
that the Committee may, in its sole and absolute discretion,
authorize an extension of the time for repayment of a Loan upon
such terms and conditions as the Committee may determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
3PAGE
<PAGE>
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMOQUEST CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to ThermoQuest Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company an
amount equal to 20% of the initial principal amount of the Note
from the payment of annual cash incentive compensation (referred
to as bonus) to the Employee by the Company, beginning with the
first such bonus payment to occur after the date of this Note,
and on each of the next four bonus payment dates. Any amount
remaining unpaid under this Note, if no demand has been made by
the Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
5PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMOQUEST CORPORATION
Computation of Earnings per Share
1996 1995 1994
--------------------------------------------------------------------------
Computation of Primary Earnings
per Share:
Net Income (a) $28,023,000 $21,002,000 $18,526,000
----------- ----------- -----------
Shares:
Weighted average shares
outstanding 47,676,511 45,000,000 45,000,000
Add: Shares issuable from
assumed exercise of
options (as determined
by the application of the
treasury stock method) - 187,320 187,320
----------- ----------- -----------
Weighted average shares
outstanding, as adjusted (b) 47,676,511 45,187,320 45,187,320
----------- ----------- -----------
Primary Earnings per Share
(a) / (b) $ .59 $ .46 $ .41
=========== =========== ===========
Exhibit 13
THERMOQUEST CORPORATION
Consolidated Financial Statements
1996
PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues (Notes 8 and 11) $313,793 $241,909 $223,396
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 167,438 120,724 112,597
Selling, general, and administrative
expenses (Note 8) 77,371 66,557 62,605
Research and development expenses 21,821 17,453 14,712
-------- -------- --------
266,630 204,734 189,914
-------- -------- --------
Operating Income 47,163 37,175 33,482
Interest Income 8,905 2,715 343
Interest Expense (7,328) (3,725) (1,715)
-------- -------- --------
Income Before Provision for Income Taxes 48,740 36,165 32,110
Provision for Income Taxes (Note 5) 20,717 15,163 13,584
-------- -------- --------
Net Income $ 28,023 $ 21,002 $ 18,526
======== ======== ========
Earnings per Share $ .59 $ .46 $ .41
======== ======== ========
Weighted Average Shares 47,677 45,187 45,187
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
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ThermoQuest Corporation 1996 Financial Statements
Consolidated Balance Sheet
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $174,978 $120,354
Available-for-sale investments, at quoted market
value (amortized cost of $7,430; Note 2) 7,452 -
Accounts receivable, less allowances of
$4,459 and $2,341 73,669 65,729
Inventories 54,012 47,020
Prepaid expenses 1,003 1,258
Prepaid income taxes (Note 5) 11,469 8,695
-------- --------
322,583 243,056
-------- --------
Property, Plant, and Equipment, at Cost, Net 50,928 43,531
-------- --------
Patents and Other Assets 4,368 5,627
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 5) 157,191 135,828
-------- --------
$535,070 $428,042
======== ========
3PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (Note 6) $ 16,732 $ 11,755
Accounts payable 18,249 13,144
Accrued payroll and employee benefits 15,339 10,533
Accrued installation and warranty expenses 9,899 7,079
Accrued income taxes (includes $6,892 and $2,565
due to parent company) 14,290 4,118
Deferred revenue 9,353 8,417
Customer deposits 6,542 6,403
Other accrued expenses 14,475 12,077
Due to parent company 839 2,628
-------- --------
105,718 76,154
-------- --------
Deferred Income Taxes (Note 5) 5,405 5,767
-------- --------
Accrued Pension and Other Deferred Items (Note 4) 16,340 11,925
-------- --------
Long-term Obligations (Note 6) 104,593 106,456
-------- --------
Commitments (Note 7)
Shareholders' Investment (Notes 4 and 9):
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 261,921 213,378
Retained earnings 39,787 11,764
Cumulative translation adjustment 807 2,148
Net unrealized gain on available-for-sale
investments (Note 2) 14 -
-------- --------
303,014 227,740
-------- --------
$535,070 $428,042
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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ThermoQuest Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Operating Activities:
Net income $ 28,023 $ 21,002 $ 18,526
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 9,603 8,397 8,390
Provision for losses on accounts
receivable 220 213 (265)
Other noncash expenses 1,417 1,192 1,085
Decrease in deferred
income taxes (362) (45) (181)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable 8,179 (13,135) 4,220
Inventories 4,748 (7,523) 1,596
Other current assets (3,013) 1,027 3,512
Accounts payable (5,763) 2,649 696
Other current liabilities 13,515 782 (8,250)
Other 1,451 1,532 1,252
-------- -------- --------
Net cash provided by operating activities 58,018 16,091 30,581
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (32,408) - -
Purchases of available-for-sale
investments (7,250) - -
Purchases of property, plant, and
equipment (3,761) (2,761) (2,260)
Other 207 (73) 287
-------- -------- --------
Net cash used in investing activities $(43,212) $ (2,834) $ (1,973)
-------- -------- --------
5PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Financing Activities:
Net proceeds from initial public offering
of Company common stock (Note 9) $ 47,778 $ - $ -
Net proceeds from issuance of
subordinated convertible
debentures (Note 6) - 93,912 -
Increase (decrease) in short-term
obligations (5,389) 5,927 (2,724)
Repayment of long-term obligations (1,906) (1,135) (681)
Net transfer to parent company - (5,590) (25,486)
Other (153) 281 -
-------- -------- --------
Net cash provided by (used in)
financing activities 40,330 93,395 (28,891)
-------- -------- --------
Exchange Rate Effect on Cash (512) 652 1,131
-------- -------- --------
Increase in Cash and Cash Equivalents 54,624 107,304 848
Cash and Cash Equivalents at Beginning
of Year 120,354 13,050 12,202
-------- -------- --------
Cash and Cash Equivalents at End of Year $174,978 $120,354 $ 13,050
======== ======== ========
Cash Paid For:
Interest $ 7,010 $ 1,701 $ 1,715
======== ======== ========
Income taxes $ 11,337 $ 6,826 $ 5,003
======== ======== ========
Noncash Activities:
Fair value of assets of acquired
companies $ 69,741 $ - $ -
Cash paid for acquired companies (33,148) - -
-------- -------- --------
Liabilities assumed of acquired
companies $ 36,593 $ - $ -
======== ======== ========
Transfer of acquired business from
parent company $ - $ - $ 13,492
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 450 $ - $ -
Net proceeds from initial public
offering of Company common stock
(Note 9) 35 - -
Capitalization of Company - 300 -
Effect of three-for-two stock split - 150 -
--------- --------- ---------
Balance at end of year 485 450 -
--------- --------- ---------
Capital in Excess of Par Value
Balance at beginning of year 213,378 - -
Net proceeds from initial public
offering of Company common stock
(Note 9) 47,743 - -
Tax benefit related to employees' and
directors' stock plans 800 - -
Capitalization of Company - 213,528 -
Effect of three-for-two stock split - (150) -
--------- --------- ---------
Balance at end of year 261,921 213,378 -
--------- --------- ---------
Retained Earnings
Balance at beginning of year 11,764 - -
Net income 28,023 - -
Net income after capitalization
of Company - 11,764 -
--------- --------- ---------
Balance at end of year 39,787 11,764 -
--------- --------- ---------
Cumulative Translation Adjustment
Balance at beginning of year 2,148 1,453 (2,060)
Translation adjustment (1,341) 695 3,513
--------- --------- ---------
Balance at end of year 807 2,148 1,453
--------- --------- ---------
Net Unrealized Gain on Available-
for-sale Investments
Balance at beginning of year - - -
Change in net unrealized gain on
available-for-sale investments 14 - -
--------- --------- ---------
Balance at end of year $ 14 $ - $ -
--------- --------- ---------
7PAGE
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ThermoQuest Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Net Parent Company Investment
Balance at beginning of year $ - $ 210,180 $ 203,648
Net income prior to capitalization
of Company - 9,238 18,526
Transfer of acquired business from
parent company - - 13,492
Net transfer to parent company - (5,590) (25,486)
Capitalization of Company - (213,828) -
--------- --------- ---------
Balance at end of year - - 210,180
--------- --------- ---------
Total Shareholders' Investment $ 303,014 $ 227,740 $ 211,633
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
ThermoQuest Corporation (the Company) develops, manufactures, and
sells mass spectrometers, liquid chromatographs, and gas chromatographs.
The Company's products are used primarily by pharmaceutical, chemical,
and food and beverage companies; environmental laboratories; and in
industrial and forensic applications.
Relationship with Thermo Instrument Systems Inc. and Thermo Electron
Corporation
The Company was incorporated in June 1995 as a wholly owned
subsidiary of Thermo Instrument Systems Inc. (Thermo Instrument). As part
of the formation of the Company, Thermo Instrument transferred to the
Company the assets, liabilities, and businesses of Finnigan Corporation
(Finnigan) and Thermo Separation Products Inc. (TSP) in exchange for
45,000,000 shares of the Company's common stock. As of December 28, 1996,
Thermo Instrument owned 45,000,000 shares of the Company's common stock,
representing 93% of such stock outstanding. Thermo Instrument is an
82%-owned subsidiary of Thermo Electron Corporation (Thermo Electron). As
of December 28, 1996, Thermo Electron owned 60,000 shares of the
Company's common stock, representing .12% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1996, 1995, and 1994 are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
Revenue Recognition
The Company recognizes product revenues upon shipment of its products
and recognizes service contract revenues ratably over the term of the
contract. The Company provides a reserve for its estimate of warranty and
installation costs at the time of shipment. Deferred revenue in the
accompanying balance sheet consists primarily of unearned revenue on
service contracts. Substantially all of the deferred revenue included in
the accompanying 1996 balance sheet will be recognized within one year.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
9PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Income Taxes
The Company and Thermo Instrument have a tax allocation agreement
under which both the Company and Thermo Instrument are included in Thermo
Electron's consolidated federal and certain state income tax returns. The
agreement provides that in years in which the Company has taxable income,
it will pay to Thermo Electron amounts comparable to the taxes the
Company would have paid if it had filed separate tax returns. If Thermo
Instrument's equity ownership of the Company were to drop below 80%, the
Company would be required to file its own income tax returns.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the year. Pursuant to Securities and
Exchange Commission requirements, earnings per share have been presented
for all periods. Weighted average shares for all periods include the
45,000,000 shares issued to Thermo Instrument in connection with the
initial capitalization of the Company and, for periods prior to the
Company's initial public offering, the effect of the assumed exercise of
stock options issued within one year prior to the Company's initial
public offering. Because the effect of the assumed exercise of stock
options would be immaterial, they have been excluded from weighted
average shares subsequent to the Company's initial public offering. Fully
diluted earnings per share have been computed, where dilutive, assuming
the conversion of the Company's subordinated convertible debentures and
elimination of the related interest expense, as well as the exercise of
stock options and their related income tax effects (Note 12).
Stock Split
All share and per share information has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
distributed in January 1996.
Cash and Cash Equivalents
As of December 28, 1996, $152,063,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government agency securities, corporate
notes, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
10PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
points, set at the beginning of each quarter. As of December 28, 1996,
the Company's cash equivalents also include investments in commercial
paper and short-term certificates of deposit of the Company's foreign
operations, which have an original maturity of three months or less. Cash
equivalents are carried at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
or weighted average basis) or market value and include materials, labor,
and manufacturing overhead. The components of inventories are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Raw materials and supplies $23,500 $17,970
Work-in-process and finished goods 30,512 29,050
------- -------
$54,012 $47,020
======= =======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property as follows: buildings and
improvements, 5 to 40 years; machinery and equipment, 3 to 10 years; and
leasehold improvements, the shorter of the term of the lease or the life
of the asset. Property, plant, and equipment consists of the following:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Land $15,782 $13,463
Buildings 31,447 27,414
Machinery, equipment and leasehold improvements 19,996 19,788
------- -------
67,225 60,665
Less: Accumulated depreciation and amortization 16,297 17,134
------- -------
$50,928 $43,531
======= =======
Patents and Other Assets
Patents and other assets in the accompanying balance sheet includes
the costs of acquired patents that are amortized using the straight-line
method over an estimated useful life of 12 years. These assets were
$1,751,000 and $2,547,000, net of accumulated amortization of $6,470,000
and $5,669,000, at year-end 1996 and 1995, respectively. Patents and
other assets in the accompanying balance sheet also includes deferred
debt costs of $2,008,000 and $2,348,000, net of accumulated amortization
of $863,000 and $370,000, at year-end 1996 and 1995, respectively. These
11PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
costs are being amortized through the maturities of the related debt. The
debt matures in 2000 and 2004.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over 40 years.
Accumulated amortization was $20,386,000 and $16,524,000 at year-end 1996
and 1995, respectively. The Company assesses the future useful life of
this asset whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of
carrying value over fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for the three years presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt and marketable equity
securities are considered available-for-sale investments in the
accompanying balance sheet and are carried at market value, with the
difference between cost and market value, net of related tax effects,
recorded currently as a component of shareholders' investment titled "Net
unrealized gain on available-for-sale investments."
Available-for-sale investments in the accompanying 1996 balance sheet
represents investments in corporate bonds with contractual maturities of
one year or less. The difference between the market value and the cost
basis of available-for-sale investments at December 28, 1996, was
$22,000, which represents gross unrealized gains on those investments.
12PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions
On December 1, 1995, 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 benchtop mass spectrometers. 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. The results of the Automass division of ATI for December 1995
were not material to the Company's results, therefore the Company's 1995
historical financial information has not been restated. The Company's
1996 historical financial information includes the results of the
Automass division of ATI from January 1, 1996.
On January 19, 1996, the Company acquired Extrel FTMS, Inc. (Extrel)
from Waters Technologies Corporation for $1.7 million in cash. Extrel is
a manufacturer of Fourier transform mass spectrometers. The acquisition
of Extrel has been accounted for using the purchase method of accounting
and its results have been included in the accompanying financial
statements from the date of acquisition.
On March 29, 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer,
Inc. In September 1996, the Company acquired two businesses formerly part
of Fisons, CE Instruments and MassLab Instruments (MassLab), from Thermo
Instrument for an aggregate $27.3 million in cash and the assumption of
approximately $8.9 million in debt, subject to a post-closing adjustment
to be negotiated with Fisons by Thermo Instrument. CE Instruments is a
manufacturer of gas chromatographs and MassLab is a manufacturer of mass
spectrometers. The purchase price was determined based on the net book
value of CE Instruments and MassLab at March 29, 1996, and a pro rata
allocation of Thermo Instrument's total cost in excess of net assets of
acquired companies recorded in connection with the acquisition of the
Fisons businesses. Because the Company, CE Instruments, and MassLab 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. Accordingly, the Company's
1996 historical financial information includes the results of CE
Instruments and MassLab from March 29, 1996, the date these businesses
were acquired by Thermo Instrument.
The aggregate cost of these acquisitions exceeded the estimated fair
value of the acquired net assets by $26.6 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, for CE Instruments and MassLab, 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.
13PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
In November 1995, the Company adopted a stock-based compensation plan
for its key employees, directors, and others, which permits the grant of
a variety of stock and stock-based awards as determined by the human
resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. To date, only nonqualified stock
options have been awarded under this plan. The option recipients and the
terms of options granted under this plan are determined by the Board
Committee. Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the
right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over a five to ten year period,
depending on the term of the option, which generally ranges from ten to
twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock
on the date of grant. To date, all options have been granted at fair
market value. The Company also has a directors' stock option plan,
adopted in November 1995, that provides for the grant of stock options to
outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms
as options granted under the stock-based compensation plan described
above, except that the restrictions and repurchase rights generally lapse
ratably over a four-year period and the option term is five years. In
addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermo Electron and Thermo Instrument.
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time U.S. employees are
eligible to participate in an employee stock purchase program sponsored
by Thermo Instrument and Thermo Electron. Under this program, shares of
Thermo Instrument's and Thermo Electron's common stock can be purchased
at the end of a 12-month period at 95% of the fair market value at the
beginning of the period, and the shares purchased are subject to a
six-month resale restriction. Prior to November 1, 1995, the applicable
shares of common stock could be purchased at 85% of the fair market value
at the beginning of the period, and the shares purchased were subject to
a one-year resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
14PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards granted in 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1996
-----------------------------------------------------------------------
Net income:
As reported $28,023
Pro forma 26,902
Earnings per share:
As reported .59
Pro forma .56
Pro forma compensation expense for options granted is reflected over
the vesting period; therefore, future pro forma compensation expense may
be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1996
-----------------------------------------------------------------------
Volatility 26.0%
Risk-free interest rate 5.9%
Expected life of options 7.8 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
15PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's stock option activity is as follows:
1996
----------------
Weighted
Number Average
of Exercise
(Shares in thousands) Shares Price
--------------------------------------------------------------------------
Options outstanding, beginning of year - $ -
Granted 2,425 13.12
Forfeited (95) 13.00
-----
Options outstanding, end of year 2,330 $13.12
===== ======
Options exercisable 2,330 $13.12
===== ======
Options available for grant 595
=====
Weighted average fair value per share of
options granted during year $ 5.93
======
As of December 28, 1996, the options outstanding were exercisable at
prices ranging from $13.00 to $16.60 and had a weighted-average remaining
contractual life of 10.1 years.
401(k) Savings Plans
Substantially all of the Company's full-time U.S. employees are
eligible to participate in Thermo Electron's or Finnigan's 401(k) savings
plans. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions. For these plans, the Company contributed and
charged to expense $1,118,000, $1,007,000, and $1,191,000 in 1996, 1995,
and 1994, respectively.
Deferred Compensation Plan
CE Instruments has an unfunded state mandated deferred compensation
plan, the cost of which the Company accrues based on a fixed percentage of
each employee's salary, adjusted for inflation. Benefits are paid at the
time an employee leaves the employ of the Company. During 1996, the
Company's expense related to this plan was $448,000. The Company's
liability for this plan is included in "Accrued pension and other deferred
items" in the accompanying 1996 balance sheet.
16PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Defined Benefit Pension Plan
The Company's Bremen, Germany, subsidiary has a defined benefit
pension plan covering substantially all of its full-time employees.
Benefits are based on a percentage of eligible earnings for each year of
service in excess of ten years. The Company's funding policy is to make
contributions within a range required by applicable regulations. Net
periodic pension costs included the following components:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Service cost $ 305 $ 386 $ 303
Interest cost on projected benefit
obligation 1,059 1,087 981
Return on plan assets (220) (234) (286)
Amortization of unrecognized prior
service and obligation, net (43) - 47
------- ------- -------
$ 1,101 $ 1,239 $ 1,045
======= ======= =======
The funded status of the Company's defined benefit pension plan is as
follows:
(In thousands) 1996 1995
-------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefits $13,494 $14,040
Nonvested benefits 96 196
------- -------
Accumulated benefit obligation 13,590 14,236
Effect of projected future salary
increases 1,294 1,618
------- -------
Projected benefit obligation 14,884 15,854
Plan assets at fair value 5,842 6,048
------- -------
Plan assets less than projected
benefit obligation 9,042 9,806
Unrecognized net gain 2,550 2,151
Initial unrecognized net obligation (340) (421)
------- -------
Accrued pension costs $11,252 $11,536
======= =======
17PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Actuarial assumptions used to determine the net periodic pension
costs were:
1996 1995 1994
-----------------------------------------------------------------------
Discount rate 7.5% 7.5% 7.0%
Rate of increase in salary levels 3.5% 3.5% 4.5%
Expected long-term rate of return on assets 6.0% 6.0% 6.0%
5. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Domestic $28,795 $24,583 $30,372
Foreign 19,945 11,582 1,738
------- ------- -------
$48,740 $36,165 $32,110
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable:
Federal $11,224 $ 7,852 $ 8,141
State 2,340 1,523 1,201
Foreign 10,281 4,600 1,652
------- ------- -------
23,845 13,975 10,994
------- ------- -------
Net deferred (prepaid):
Federal (1,529) 683 2,072
State (324) 145 518
Foreign (1,275) 360 -
------- ------- -------
(3,128) 1,188 2,590
------- ------- -------
$20,717 $15,163 $13,584
======= ======= =======
The provision for income taxes that is currently payable does not
reflect $1,840,000 and $2,000,000 of tax benefits used to reduce cost in
excess of net assets of acquired companies in 1996 and 1995,
respectively. In addition, the Company receives a tax deduction upon
exercise of nonqualified stock options by employees for the difference
between the exercise price and the market price of the Company's common
stock on the date of exercise. The provision for income taxes that is
18PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
currently payable does not reflect $800,000 of such benefits that have
been allocated to capital in excess of par value in 1996.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% to income before provision for income
taxes due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes at statutory
rate $17,059 $12,658 $11,239
Increases (decreases) resulting from:
State income taxes, net of federal
tax 1,310 1,084 1,117
Foreign tax rate and tax law
differential 2,024 906 1,044
Tax benefit of foreign sales
corporation (755) (659) (770)
Amortization of cost in excess of net
assets of acquired companies 905 1,012 848
Other, net 174 162 106
------- ------- -------
$20,717 $15,163 $13,584
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
-------------------------------------------------------------
Prepaid income taxes:
Foreign tax loss carryforwards $20,451 $ 7,404
Reserves and accruals 7,067 2,408
Inventory basis difference 2,820 2,528
Accrued compensation 1,574 1,788
Other, net 8 1,971
------- -------
31,920 16,099
Less: Valuation allowance 20,451 7,404
------- -------
$11,469 $ 8,695
======= =======
Deferred income taxes:
Depreciation $ 5,405 $ 5,767
======= =======
The valuation allowance relates to uncertainty surrounding the
realization of foreign net operating losses, which is dependent on the
future income of certain foreign subsidiaries of the Company. As of
December 28, 1996, the Company had $40,923,000 of foreign tax loss
19PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
carryforwards, $29,083,000 of which expires from 1997 through 2001. The
remainder of the Company's foreign tax loss carryforwards do not expire.
The increase in the valuation allowance in 1996 results from an increase
in acquired foreign tax loss carryforwards. Any tax benefit resulting
from use of the loss carryforwards is recorded as a reduction of cost in
excess of net assets of acquired companies.
A provision has not been made for U.S. or additional foreign taxes on
$34,257,000 of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company plans
to keep these amounts permanently reinvested overseas. The Company
believes that any additional U.S. tax liability due upon remittance of
such earnings would be immaterial due to available U.S. foreign tax
credits.
6. Short- and Long-term Obligations
Short-term Obligations
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $15,241,000 and $10,545,000 in 1996
and 1995, respectively, of short-term bank borrowings and amounts
borrowed under lines of credit at the Company's foreign subsidiaries. The
weighted average interest rate for these borrowings was 6.45% and 2.44%
at year-end 1996 and 1995, respectively. Unused lines of credit were
$13,041,000 at year-end 1996.
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands) 1996 1995
------------------------------------------------------------------------
5% Subordinated convertible debentures, due 2000,
convertible at $16.50 per share $ 96,250 $ 96,250
10.23% Mortgage loan secured by property with a
net book value of $16,042, payable in monthly
installments with final payments in 2004 9,267 10,101
6% Note payable, payable in annual installments
with final payment in 1997 567 -
6.25% Notes payable, paid in 1996 - 1,215
5.75% Note payable, paid in 1996 - 100
-------- --------
106,084 107,666
Less: Current maturities of long-term obligations 1,491 1,210
-------- --------
$104,593 $106,456
======== ========
The $96,250,000 principal amount 5% subordinated convertible
debentures are guaranteed on a subordinated basis by Thermo Electron.
Thermo Instrument and the Company have agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under
20PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
6. Short- and Long-term Obligations (continued)
the guarantee. In addition, the Company has agreed to reimburse Thermo
Instrument in the event Thermo Instrument is required to make a payment
under the guarantee.
The annual requirements of long-term obligations as of December 28,
1996, are $1,491,000 in 1997; $1,023,000 in 1998; $1,133,000 in 1999;
$97,504,000 in 2000; $1,389,000 in 2001; and $3,544,000 in 2002 and
thereafter. Total future requirements of long-term obligations are
$106,084,000.
See Note 10 for the fair value information pertaining to the
Company's long-term obligations.
7. Commitments
The Company leases portions of its office and operating facilities
under various operating lease arrangements. The accompanying statement of
income includes expenses from operating leases of $3,041,000, $3,046,000,
and $2,596,000 in 1996, 1995, and 1994, respectively. Future minimum
payments due under noncancellable operating leases at December 28, 1996,
are $1,734,000 in 1997; $1,149,000 in 1998; $801,000 in 1999; $615,000 in
2000; and $206,000 in 2001. Total future minimum lease payments are
$4,505,000.
8. Related Party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
1995 and 1994, respectively. The annual fee is reviewed and adjusted
annually by mutual agreement of the parties. For these services, the
Company was charged $3,138,000, $2,903,000, and $2,792,000 in 1996, 1995,
and 1994, respectively. The corporate services agreement is renewed
annually but can be terminated upon 30 days' prior notice by the Company
or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationship
among Thermo Electron and its majority-owned subsidiaries). Management
believes that the service fee charged by Thermo Electron is reasonable
and that such fees are representative of the expenses the Company would
have incurred on a stand-alone basis. For additional items such as
employee benefit plans, insurance coverage, and other identifiable costs,
Thermo Electron charges the Company based upon costs attributable to the
Company.
21PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Related Party Transactions (continued)
Other Related Party Transactions
The Company purchases and sells products in the ordinary course of
business with other companies affiliated with Thermo Instrument.
Purchases of products from such affiliated companies totaled $10,527,000,
$4,974,000, and $2,828,000 in 1996, 1995, and 1994, respectively. Sales
of products to such affiliated companies totaled $11,987,000, $940,000,
and $931,000 in 1996, 1995, and 1994, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
9. Common Stock
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 $47,778,000.
At December 28, 1996, the Company had reserved 8,833,333 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and for issuance upon possible conversion of the
Company's subordinated convertible debentures.
10. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
notes payable and current maturities of long-term obligations, accounts
payable, due to parent company, long-term obligations, and forward
exchange contracts. The carrying amount of these financial instruments,
with the exception of available-for-sale investments, long-term
obligations, and forward exchange contracts, approximate fair value due
to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying 1996 balance sheet. The fair values were determined based on
quoted market prices (Note 2).
The Company enters into forward exchange contracts to hedge certain
firm purchase and sale commitments denominated in currencies other than
its subsidiaries' local currencies, principally U.S. dollars, British
pounds sterling, French francs, and Japanese yen. The purpose of the
Company's foreign currency hedging activities is to protect the Company's
local currency cash flows related to these commitments from fluctuations
in foreign exchange rates. The amounts of such forward exchange contracts
at year-end 1996 and 1995 were $550,000 and $6,237,000, respectively.
22PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
10. Fair Value of Financial Instruments (continued)
The carrying amount and fair value of the Company's long-term
obligations and off-balance-sheet financial instruments are as follows:
1996 1995
-------------------- ------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------------------------------------------------------
Long-term obligations:
Subordinated convertible
debentures $ 96,250 $ 96,250 $ 96,250 $100,100
Other 8,343 9,177 10,206 10,669
-------- -------- -------- --------
$104,593 $105,427 $106,456 $110,769
======== ======== ======== ========
Off-balance-sheet financial
instruments:
Forward exchange contracts
receivable $ 12 $ 397
The fair value of long-term obligations was determined based on
quoted market prices and on borrowing rates available to the Company at
the respective year-ends.
The fair value of forward exchange contracts is the estimated amount
that the Company would receive upon termination of the contract, taking
into account the change in foreign exchange rates.
11. Geographical Information
The Company is engaged in one business segment: developing,
manufacturing, and selling mass spectrometers, liquid chromatographs, and
gas chromatographs. The following table shows data for the Company by
geographical area.
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Revenues:
United States $171,100 $145,430 $145,281
Germany 66,228 64,368 51,333
Italy 41,546 5,517 4,425
Other Europe 75,242 56,639 52,199
Japan 41,993 36,966 28,919
Other 3,503 3,776 1,157
Transfers among geographical
areas (a) (85,819) (70,787) (59,918)
-------- -------- --------
$313,793 $241,909 $223,396
======== ======== ========
23PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
11. Geographical Information (continued)
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Income before provision for
income taxes:
United States (b) $ 25,425 $ 20,867 $ 24,431
Germany 3,971 3,421 (1,398)
Italy 742 (50) (208)
Other Europe 9,835 6,767 4,201
Japan 6,912 5,820 6,433
Other 278 350 23
-------- -------- --------
Total operating income 47,163 37,175 33,482
Interest income (expense), net 1,577 (1,010) (1,372)
-------- -------- --------
$ 48,740 $ 36,165 $ 32,110
======== ======== ========
Identifiable assets:
United States (c) $348,271 $288,095 $186,153
Germany 55,470 61,468 63,726
Italy 49,760 4,834 4,240
Other Europe 60,812 37,775 32,915
Japan 19,363 33,760 18,369
Other 1,394 2,110 881
-------- -------- --------
$535,070 $428,042 $306,284
======== ======== ========
Export revenues included in United
States revenues above (d):
Europe $ 44,051 $ 36,943 $ 34,341
Other 33,905 26,578 19,305
-------- -------- --------
$ 77,956 $ 63,521 $ 53,646
======== ======== ========
____________________
(a) Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(b) Includes corporate general and administrative expenses.
(c) Includes $47.8 million in net proceeds from the 1996 initial public
offering of Company common stock and $93.9 million in net proceeds
from the 1995 issuance of 5% subordinated convertible debentures.
(d) In general, export sales are denominated in U.S. dollars.
24PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1996 First(a) Second(b) Third Fourth
Revenues $67,299 $81,692 $78,155 $86,647
Gross profit 31,889 36,968 37,760 39,738
Net income 5,842 6,687 6,728 8,766
Earnings per share:
Primary .13 .14 .14 .18
Fully diluted .13 .14 .14 .17
1995 First Second Third Fourth
Revenues $56,505 $57,729 $58,492 $69,183
Gross profit 28,033 29,300 28,437 35,415
Net income 4,384 4,854 4,632 7,132
Earnings per share:
Primary .10 .11 .10 .16
Fully diluted .10 .11 .10 .16
(a) Includes the results of the Automass division of ATI, effective
January 1, 1996 (Note 3).
(b) Includes the results of CE Instruments and MassLab since their
acquisition by Thermo Instrument on March 29, 1996 (Note 3).
25PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoQuest Corporation:
We have audited the accompanying consolidated balance sheet of
ThermoQuest Corporation (a Delaware corporation and 93%-owned subsidiary
of Thermo Instrument Systems Inc.) and subsidiaries as of December 28,
1996, and December 30, 1995, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three
years in the period ended December 28, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
ThermoQuest Corporation and subsidiaries as of December 28, 1996, and
December 30, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1997
26PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results 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 immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
caption "Forward-looking Statements."
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.
An element of the Company's strategy is to combine its internal
growth with the acquisition of complementary products and technologies.
On January 19, 1996, the Company acquired Extrel FTMS, Inc. (Extrel), a
manufacturer of Fourier transform mass spectrometers, from Waters
Technologies Corporation and effective January 1, 1996, the Company
acquired the Automass division of Analytical Technology, Inc. (ATI), a
manufacturer of benchtop mass spectrometers, from Thermo Instrument
Systems Inc. (Thermo Instrument) (Note 3). In addition, effective March
29, 1996, the Company acquired CE Instruments, a manufacturer of gas
chromatographs, and MassLab Instruments (MassLab), a manufacturer of mass
spectrometers, from Thermo Instrument (Note 3).
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.
27PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results Operations
Results of Operations
1996 Compared With 1995
Revenues increased 30% to $313.8 million in 1996 from $241.9 million
in 1995, primarily as a result of the inclusion of $47.3 million of
revenues from acquisitions (Note 3) and an increase of $33.2 million of
revenues from the Company's existing mass spectrometry business. The
increase in revenues from the Company's existing mass 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 $10.9 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 46.6% in 1996 from 50.1% in
1995. This decline is primarily due to the inclusion of lower-margin
revenues from CE Instruments and MassLab. The combined gross profit
margin at CE Instruments and MassLab was 31% from March 29, 1996, through
December 28, 1996.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 24.7% in 1996 from 27.5% in 1995, primarily due to
an increase in total revenues. Research and development expenses as a
percentage of revenues decreased to 7.0% in 1996 from 7.2% in 1995,
primarily due to an increase in total revenues.
Interest income increased to $8.9 million in 1996 from $2.7 million
in 1995, primarily as a result of interest income earned on invested
proceeds from the Company's issuance of $96.3 million principal amount of
5% subordinated convertible debentures in August 1995 and, to a lesser
extent, the Company's initial public offering of common stock in March
and April 1996 (Note 9). Interest expense increased to $7.3 million in
1996 from $3.7 million in 1995, primarily due to interest on the
Company's 5% subordinated convertible debentures.
The effective tax rate was 42.5% in 1996, compared with 41.9% in
1995. The effective tax rates exceeded the statutory federal income tax
rate primarily due to the impact of foreign and state income taxes and
the nondeductible amortization of cost in excess of net assets of
acquired companies.
1995 Compared With 1994
Revenues increased 8% to $241.9 million in 1995 from $223.4 million
in 1994, primarily due to an increase of $11.2 million in revenues as a
result of the weakness of the U.S. dollar in relation to foreign
currencies, particularly the Japanese yen and the German mark. The
remaining increase in revenues was primarily due to the introduction of a
new product in the third quarter of 1995.
The gross profit margin was relatively unchanged at 50.1% in 1995,
compared with 49.6% in 1994.
Selling, general, and administrative expenses as a percentage of
revenues remained relatively unchanged at 27.5% in 1995, compared with
28.0% in 1994. Research and development expenses as a percentage of
revenues increased to 7.2% in 1995 from 6.6% in 1994, primarily due to
increased expenditures in connection with a line of mass spectrometry
products that was introduced in 1995.
28PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results Operations
1995 Compared With 1994 (continued)
Interest income increased to $2.7 million in 1995 from $0.3 million
in 1994 as a result of interest income earned on invested proceeds from
the Company's issuance of $96.3 million principal amount of 5%
subordinated convertible debentures in August 1995. Interest expense
increased to $3.7 million in 1995 from $1.7 million in 1994, primarily
due to interest on the Company's 5% subordinated convertible debentures.
The effective tax rate was 41.9% in 1995 and 42.3% in 1994. The
effective tax rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, the inability to
provide a tax benefit for losses incurred at certain of the Company's
foreign operations, and the nondeductible amortization of cost in excess
of net assets of acquired companies.
Liquidity and Capital Resources
Consolidated working capital was $216.9 million at December 28, 1996,
compared with $166.9 million at December 30, 1995, an increase of $50.0
million. Included in working capital are cash, cash equivalents, and
available-for-sale investments of $182.4 million at December 28, 1996,
compared with $120.4 million at December 30, 1995. Cash provided by
operating activities was $58.0 million in 1996. Accounts receivable
decreased $8.2 million in 1996, primarily due to improved collections at
one of the Company's foreign subsidiaries. Other current liabilities
increased $13.5 million in 1996, primarily due to higher income taxes
payable.
At December 28, 1996, $19.9 million of the Company's cash and cash
equivalents were held by its foreign subsidiaries. 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 $43.2 million of cash in
1996. The Company expended $32.4 million, net of cash acquired, for
acquisitions (Note 3) and $3.8 million for purchases of property, plant,
and equipment.
The Company's financing activities provided $40.3 million of cash in
1996. 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 $47.8 million. The Company used $7.3 million of cash in 1996
to reduce short- and long-term obligations.
During 1997, the Company plans to expend approximately $5 million for
property, plant, and equipment. The Company has an underfunded defined
benefit pension plan covering employees of its manufacturing subsidiary
in Bremen, Germany. The Company's policy is to fund the plan at a level
within the range required by applicable regulations. As of December 28,
1996, the unfunded liabilities for this plan were $11.3 million. In
addition, as of December 28, 1996, the Company has a deferred
compensation plan with an unfunded liability of $4.6 million. As of
December 28, 1996, the Company's foreign subsidiaries had available
short-term credit facilities of $13.0 million.
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.
29PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results Operations
Liquidity and Capital Resources (continued)
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.
30PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1997 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Competition, Technological Change, and Industry Acceptance. The
Company encounters, and expects to continue to encounter, intense
competition in the sale of its current and future products. Some of the
Company's competitors and potential competitors have greater resources,
manufacturing and marketing capabilities, research and development staff,
and production facilities than those of the Company. No assurance can be
given that the Company's competitors will not develop products that will
be superior to the Company's products. In addition, industry acceptance
of new technologies developed by the Company may be slow to develop due
to, among other things, existing regulations written specifically for
older technologies and general unfamiliarity of users with new
technologies.
Risks Associated with Intellectual Property. The Company holds many
patents relating to various aspects of its products, including a
significant patent relating to ion trap mass spectrometers. In addition,
the Company believes that proprietary technical know-how is critical to
many of its products. Proprietary rights relating to the Company's
products are protected from unauthorized use by third parties only to the
extent that they are covered by valid and enforceable patents or are
maintained in confidence as trade secrets. There can be no assurance that
any patents now or hereafter owned by the Company will afford protection
against competitors and, in the absence of patent protection, the Company
may be vulnerable to competitors who attempt to copy the Company's
products or gain access to its trade secrets and know-how. Proceedings
initiated by the Company to protect its proprietary rights could result
in substantial costs to the Company. There can be no assurance that
competitors of the Company will not initiate litigation to challenge the
validity of the Company's patents, or that they will not use their
resources to design comparable products that do not infringe the
Company's patents. There may also be pending or issued patents of which
the Company is not aware held by parties not affiliated with the Company
that relate to the Company's products or technologies. The Company may
need to acquire licenses to, or contest the validity of, any such
patents. It is likely that significant funds would be required to contest
the validity of any such patents. There can be no assurance that any
license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
Risks Associated with Acquisition Strategy. The Company's growth
strategy is to supplement its internal growth with the acquisition of
businesses and technologies that complement or augment the Company's
existing product lines. The Company has acquired certain portions of
several businesses that have been acquired by Thermo Instrument Systems
Inc., the Company's parent (Thermo Instrument), and may acquire
additional businesses from Thermo Instrument in the future. Certain of
the businesses acquired from Thermo Instrument have low levels of
profitability and businesses that the Company may seek to acquire in the
31PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Forward-looking Statements
future may also be marginally profitable or unprofitable. In order for
any acquired businesses to achieve the level of profitability desired by
the Company, the Company must successfully reduce expenses and improve
operations. No assurance can be given that the Company will be successful
in this regard. In addition, promising acquisitions are difficult to
identify and complete for a number of reasons, including competition
among prospective buyers and the need for regulatory approvals, including
antitrust approvals. There can be no assurance that the Company or Thermo
Instrument will be able to complete pending or future acquisitions. In
order to finance any such acquisitions, it may be necessary for the
Company to raise additional funds either through public or private
financings. Any equity or debt financing, if available at all, may be on
terms which are not favorable to the Company.
Dependence on the Pharmaceutical Industry. The largest single market
for the Company's mass spectrometers and liquid chromatographs is the
pharmaceutical industry. Although the Company's existing products are not
subject to regulation by the U.S. Food and Drug Administration (the FDA),
FDA regulations apply to the processes and production facilities used to
manufacture pharmaceutical products. Any material change by a
pharmaceutical company in its manufacturing process or equipment could
necessitate additional FDA review and approval. Such requirements may
make it more difficult for the Company to sell its products to
pharmaceutical customers that have already applied for or obtained
approval for production processes using different equipment and supplies.
Any changes in the regulations that apply to the processes and production
facilities used to manufacture pharmaceutical products may adversely
affect the market for the Company's products. In addition, from time to
time as a result of industry consolidation and other factors, the
pharmaceutical industry has reduced its capital expenditures for
equipment such as that manufactured by the Company, and there can be no
assurance that further changes in the pharmaceutical industry will not
adversely affect demand for the Company's products.
Possible Adverse Effect from Changes in Environmental Regulations.
One of the largest markets for the Company's products is environmental
analysis. Most air, water, and soil analysis is conducted to comply with
federal, state, local, and foreign environmental regulations. These
regulations are frequently specific as to the type of technology required
for a particular analysis and the level of detection required for that
analysis. The Company develops, configures, and markets its products to
meet customer needs created by existing and anticipated environmental
regulations. These regulations may be amended or eliminated in response
to new scientific evidence or political or economic considerations. Any
significant change in environmental regulations could result in a
reduction in demand for the Company's products.
Possible Adverse Impact of Significant International Operations.
International sales accounted for approximately 70% of the Company's
revenues in 1996, and the Company expects that international sales will
continue to account for a significant portion of the Company's revenues
in the future. Sales to customers in foreign countries are subject to a
number of risks, including the following: agreements may be difficult to
enforce, and receivables difficult to collect through a foreign country's
legal system; foreign customers may have longer payment cycles; and
foreign countries could impose withholding taxes or otherwise tax the
Company's foreign income, impose tariffs, embargoes or exchange controls,
32PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Forward-looking Statements
or adopt other restrictions on foreign trade. Additionally, the U.S.
dollar value of the Company's net sales varies with currency exchange
rate fluctuations. Significant increases in the value of the U.S. dollar
relative to certain foreign currencies could have a material adverse
effect on the Company's competitive position and results of operations.
33PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1996(a) 1995(b) 1994(c) 1993(d) 1992
---------------------------------------------------------------------------
Statement of Income Data:
Revenues $313,793 $241,909 $223,396 $204,757 $150,423
Net income 28,023 21,002 18,526 14,280 11,527
Earnings per share .59 .46 .41 .32 .26
Balance Sheet Data:
Working capital $216,865 $166,902 $ 47,955 $ 44,866 $ 25,624
Total assets 535,070 428,042 306,284 297,969 206,111
Long-term obligations 104,593 106,456 11,322 12,263 17,971
Shareholders'
investment 303,014 227,740 211,633 201,588 123,185
(a) Includes the results of the Automass division of Analytical Technology,
Inc. effective January 1, 1996, the results of CE Instruments and
MassLab Instruments since their acquisition by Thermo Instrument on
March 29, 1996, and the net proceeds of the Company's initial public
offering in March and April 1996.
(b) Reflects the issuance in August 1995 of $96.3 million principal amount
of 5% subordinated convertible debentures due 2000.
(c) Includes the results of Tremetrics Inc. since its acquisition by Thermo
Instrument in March 1994.
(d) Includes the results of Spectra-Physics Analytical, Inc. since its
acquisition by Thermo Instrument in February 1993.
34PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sale prices on the American Stock Exchange
(symbol TMQ) since March 19, 1996, the date the Company's common stock
began trading on the exchange.
1996
------------------
Quarter High Low
-------------------------------
First $ 20 $ 16 1/4
Second 17 7/8 13 3/4
Third 15 3/4 13 1/4
Fourth 15 3/8 12 1/2
As of January 24, 1997, the Company had 260 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 24, 1997, was $15 7/8 per share.
Shareholder Services
Shareholders of ThermoQuest Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, ThermoQuest Corporation, 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046, (617) 622-1111. A mailing list is
maintained to enable shareholders whose stock is held in street name, and
other interested individuals, to receive quarterly reports, annual
reports, and press releases as quickly as possible. Beginning in 1997,
quarterly distribution will be limited to the second quarter only. All
quarterly reports and press releases are available through the Internet
from Thermo Electron's home page on the World Wide Web
(http://www.thermo.com/subsid/tmq.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, earnings, capital requirements, and financial
condition.
35PAGE
<PAGE>
ThermoQuest Corporation 1996 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, ThermoQuest Corporation, 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 2,
1997, at 10:00 a.m. at the Hyatt Regency Hotel, Hilton Head, South
Carolina.
36PAGE
<PAGE>
Exhibit 21
THERMOQUEST CORPORATION
Subsidiaries of the Registrant
As of February 21, 1997, ThermoQuest Corporation owned the following
subsidiaries:
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
ThermoQuest Corporation Delaware 92.88**
(50% of which shares are owned
directly by Quest-Finnigan Holdings Inc.)
Finnigan FT/MS Inc. Delaware 100
Finnigan Corporation Delaware 100
Finnigan Instruments, Inc. New York 100
Finnigan International Sales, Inc. California 100
Finnigan MAT China, Inc. California 100
Finnigan MAT (Delaware), Inc. Delaware 100
Finnigan MAT Instruments, Inc. Nevada 100
Finnigan MAT International Sales, California 100
Inc.
Finnigan MAT (Nevada), Inc. Nevada 100
Finnigan MAT AG Switzerland 100
Finnigan MAT Canada, Ltd. Canada 100
Finnigan MAT GmbH Germany 100
Finnigan MAT S.R.L. Italy 100
Thermo Separation Products Italy 100
S.R.L.
Thermo Instruments Australia Pty. Australia 100
Limited
ThermoQuest Ltd. United 100
Kingdom
Finnigan MAT Ltd. United 100
Kingdom
Finnigan MAT AB Sweden 100
Thermo Separation Products Ltd. United 100
Kingdom
Finnigan Properties, Inc. California 100
Masslab Limited United 100
Kingdom
ThermoQuest B.V. Netherlands 100
Thermo Separation Products B.V. Netherlands 100
Thermo Separation Products B.V. Belgium 100
B.A.
ThermoQuest France S.A. France 100
Finnigan Automass S.A. France 100
Finnigan MAT S.A.R.L. France 100
Thermo Separation Products S.A. France 100
ThermoQuest Italia S.p.A. Italy 100
ThermoQuest Spain S.A. Spain 100
ThermoQuest Wissenschaftliche Gerate Austria 100
GmbH
Thermo Separation Products AG Switzerland 100
PAGE
<PAGE>
Exhibit 21
THERMOQUEST CORPORATION
Subsidiaries of the Registrant
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Thermo Separation Products Inc. Delaware 100
ThermoQuest GmbH Germany 100
Thermo Separation Products GmbH Germany 100
ThermoQuest K.K. Japan 100
** As of 12/28/96
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 11, 1997,
included in or incorporated by reference into ThermoQuest Corporation's
Annual Report on Form 10-K for the year ended December 28, 1996, into the
Company's previously filed Registration Statements as follows:
Registration Statement No. 333-08795 on Form S-8, Registration Statement
No. 333-08797 on Form S-8, and Registration Statement No. 333-08799 on
Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
February 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOQUEST
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 174,978
<SECURITIES> 7,452
<RECEIVABLES> 78,128
<ALLOWANCES> 4,459
<INVENTORY> 54,012
<CURRENT-ASSETS> 322,583
<PP&E> 67,225
<DEPRECIATION> 16,297
<TOTAL-ASSETS> 535,070
<CURRENT-LIABILITIES> 105,718
<BONDS> 104,593
0
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<COMMON> 485
<OTHER-SE> 302,529
<TOTAL-LIABILITY-AND-EQUITY> 535,070
<SALES> 313,793
<TOTAL-REVENUES> 313,793
<CGS> 167,438
<TOTAL-COSTS> 167,438
<OTHER-EXPENSES> 21,821
<LOSS-PROVISION> 220
<INTEREST-EXPENSE> 7,328
<INCOME-PRETAX> 48,740
<INCOME-TAX> 20,717
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