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 January 3, 1998
[ ] 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.)
2215 Grand Avenue Parkway
Austin, Texas 78728-3812
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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 30, 1998, was approximately $85,279,000.
As of January 30, 1998, the Registrant had 51,186,737 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 3, 1998, 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 1, 1998, are incorporated by
reference into Part III.
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PART I
Item 1. Business
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(a) General Development of Business
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ThermoQuest Corporation (the Company or the Registrant) develops,
manufactures, sells, and services analytical instruments, including mass
spectrometers, liquid chromatographs, and gas chromatographs. These
analytical instruments are used in the quantitative and qualitative
chemical analysis of chemical compounds at ultratrace levels of
detection. In addition, the Company develops, manufactures, sells, and
services scientific equipment for the preparation and preservation of
chemical samples; and consumables for the chromatography industry. 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 is a publicly traded, majority-owned subsidiary of
Thermo Electron Corporation. 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. 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.
Effective March 12, 1997, the Company acquired three business units
within the Laboratory Products Group of Thermo Instrument's Life Sciences
International PLC subsidiary, as well as Life Sciences' Hypersil
operations, for approximately $156.9 million, net of a purchase price
adjustment of $3.5 million to be received from Thermo Instrument in the
first quarter of 1998. The purchase price consisted of: (i) $103.8
million in cash, (ii) 1,000 shares of the Company's common stock valued
at $15,750, and (iii) the assumption of $53.1 million of debt payable to
Thermo Instrument. The Laboratory Products businesses develop,
manufacture, sell, and service scientific equipment for the preparation
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and preservation of chemical samples. Hypersil develops, manufactures,
and sells liquid chromatography media and columns used in
high-performance liquid chromatography.
In March 1997, the Company sold 1,768,500 shares of its common stock
for net proceeds of $24.8 million. 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 January 3,
1998, Thermo Instrument owned 44,999,100 shares of the Company's common
stock, representing 88% of such stock outstanding. Thermo Instrument
intends, for the foreseeable future, to maintain at least 80% ownership
of the Company. Thermo Instrument develops, manufactures, markets, and
services instruments and software used for the identification and
quantification of complex molecular compounds and elements in gases,
liquids, and solids. Uses include pharmaceutical drug research and
clinical diagnostics, monitoring and measuring environmental pollutants,
industrial inspection, and test and control for quality assurance and
productivity improvement. In addition, Thermo Instrument develops,
manufactures, markets, and services equipment for the measurement,
preparation, storage, and automation of sample materials and photonics
and vacuum components for original equipment manufacturers (OEMs). As of
January 3, 1998, Thermo Electron owned 59,300 shares of the Company's
common stock, representing 0.12% of such stock outstanding. Thermo
Electron provides analytical and monitoring instruments; biomedical
products including heart-assist devices, respiratory-care equipment, and
mammography systems; paper recycling and papermaking equipment;
alternative-energy systems; industrial process equipment; and other
specialized products. Thermo Electron also provides industrial
outsourcing, particularly in environmental-liability management,
laboratory analysis, and metallurgical processing, and conducts
advanced-technology research and development.
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 heading "Forward-looking
Statements" in the Registrant's 1997* Annual Report to Shareholders,
which statements are incorporated herein by reference.
* References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
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(b) Financial Information About Industry Segments
---------------------------------------------
The Company operates in one business segment: developing,
manufacturing, selling, and servicing analytical instruments, including
mass spectrometers, liquid chromatographs, and gas chromatographs; and
scientific equipment for the preparation and preservation of chemical
samples, as well as chromatography consumables.
(c) Description of Business
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(i) Principal Products and Services
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The Company develops, manufactures, sells, and services analytical
instruments, including mass spectrometers, liquid chromatographs, and gas
chromatographs; and scientific equipment for the preparation and
preservation of chemical samples, as well as chromatography consumables.
The Company's products are sold to a wide range of customers primarily in
the pharmaceutical, environmental, industrial/chemical, food and
beverage, and forensic sciences industries. 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, and by introducing
customers to the sample preparation and preservation equipment and
chromatography consumables produced by the businesses acquired by the
Company this year.
Markets
The major markets in which the Company sells its products are:
Pharmaceutical. In the pharmaceutical industry, the Company's
products 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 products
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. Industrial and chemical customers typically
utilize the Company's products 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.
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Forensic Sciences. The Company's products 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
Analytical Instruments
Mass Spectrometers. A mass spectrometer is an instrument in which the
chemical compound to be analyzed is broken down into electrically-charged
fragments (ions), and 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
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 numerous U.S. and international 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 FTMS, Inc., 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 multisource 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 Analytical Technology, Inc., 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
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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 Instruments, 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 plc, 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
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 mass spectrometer. 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
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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
a relatively small percentage of compounds can be converted to gaseous
form for analysis in 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
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Fisons, a substantial portion of which was acquired by Thermo Instrument
on March 29, 1996.
Sample Preparation Equipment
Biological Safety Cabinet. This cabinet protects the researcher, the
sample being examined, and the laboratory environment, by providing a
partially enclosed work space that uses a combination of fans to
circulate air and filters to trap harmful biological substances.
Cell Culture Incubator. This device controls temperature, relative
humidity, and carbon dioxide and oxygen levels to provide the perfect
in-vitro environment for cell growth. Cell culture incubators are used in
research and clinical laboratories throughout the world for growing
mammalian cells, bacteria, and viruses.
Centrifugal Vacuum Concentrator. This equipment uses a rotational
spinning concentrator, refrigerated vapor trap, and vacuum source to dry
multiple samples for analysis, without losing portions of them, or
cross-contaminating them.
Centrifuge. This equipment is used to prepare laboratory samples for
analysis by spinning them around a central axis to separate materials of
different specific gravities.
Electrophoresis System. This system prepares a biological sample for
analysis by using electricity to separate DNA/RNA and protein molecules
based upon electrophoretic mobility.
Orbital Shaker. This equipment, used in research and fermentation
laboratories, provides a controlled orbital motion for biological
cultures in glass flasks. The orbital agitation of the culture provides
increased oxygen for optimal cell growth. Combination incubators/orbital
shakers provide precise conditions of temperature and orbital agitation.
Sample Preservation Equipment
Ultra-low Temperature Freezer. This specially designed cascade
refrigeration system is designed to store all types of biological
material, providing storage temperatures down to -86 degrees Celsius.
Cryopreservation System. This vacuum-insulated equipment controls
liquid nitrogen to produce extremely low temperatures, as low as -196
degrees Celsius, in order to store biological material, such as bone
marrow, cornea, heart valves, spermatozoa, bacteria, and viruses, for
very long periods of time.
Chromatography Consumables
High-performance Liquid Chromatography Columns. These tubes are
packed with materials that have the ability to separate complex mixtures
into their individual ingredients.
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Sales and Marketing
The Company markets its products 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 $28.2 million, $21.8 million,
and $17.5 million in 1997, 1996, and 1995, 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.
(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.
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(viii) Backlog
The Company's backlog of firm orders was $52.6 million and $63.3
million as of January 3, 1998, and December 28, 1996, 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. Certain of such firm orders are cancelable by
the customer upon payment of a cancellation charge. The Company believes
that substantially all of the backlog at January 3, 1998, will be shipped
or completed during 1998. 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 Company, the MicroMass Group of Waters
Technologies Corporation, Shimadzu Corporation, and Perkin-Elmer
Corporation. The Company's principal competitors in the liquid
chromatography market include Waters, Hewlett-Packard, Shimadzu, and
Perkin-Elmer. In the gas chromatography market, the Company competes with
numerous companies including Hewlett-Packard, Varian Associates,
Perkin-Elmer, and Shimadzu.
The Company's principal competitors in the sample preparation and
preservation markets include Jouan S.A., NuAire, Sanyo Electric, and
Labconco.
The Company's principal competitors in the chromatography consumables
market include Waters, Merck, Phenomenex, and numerous regional
suppliers.
(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 January 3, 1998, the Company employed approximately 2,090
people.
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(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 1997 Annual Report to Shareholders, which
information 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 53 Chief Executive Officer and
President (1995)
John N. Hatsopoulos * 63 Chief Financial Officer and
Senior Vice President (1995)
Philip L. Warren 54 Vice President (1995)
Paul F. Kelleher 55 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. Messrs. Hatsopoulos and Kelleher have
held comparable positions for at least five years with Thermo Instrument
and Thermo Electron. Dr. Chapman and Mr. Warren have held their
respective positions in the Company since its inception in June 1995. Dr.
Chapman served as President of Finnigan Corporation, a subsidiary of the
Company, 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 and certain of its subsidiaries,
but devote such time to the affairs of the Company as the Company's needs
reasonably require.
Item 2. Properties
The Company owns approximately 1,038,000 square feet of office,
engineering, laboratory, and production space, principally in Ohio,
California, Texas, Massachusetts, Germany, and Italy and leases
approximately 291,000 square feet of office space under leases expiring
from 1998 through 2014, principally in New York, England, Germany,
France, Japan, and the Netherlands. As of January 3, 1998, the Company
had an $8.3 million mortgage loan that is secured by 200,000 square feet
of property in California with a net book value of $15.8 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. With respect
to leases expiring in the near future, in the event the Company does not
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renew such leases, the Company believes suitable alternate space is
available for lease on acceptable terms.
Item 3. Legal Proceedings
-----------------
The Company's Finnigan subsidiary has filed complaints against
Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard,
for alleged violation of two U.S. patents owned by Finnigan. The patents
pertain to methods used in ion-trap mass spectrometers.
One of Finnigan's complaints was filed in the United States District
Court for the District of Massachusetts, and the other was filed with the
United States International Trade Commission (ITC) in Washington, DC.
Finnigan has asked for damages to compensate for the infringements, for
injunctions against further infringement, and for an order excluding
further imports into the U.S. of ion-trap mass spectrometers that use the
patented methods.
The District Court action has, at the request of Hewlett-Packard and
Bruker, been stayed pending completion of an investigation by the ITC. In
February 1998, an administrative law judge at the ITC issued an initial
determination to the effect that, although one of Finnigan's patents was
infringed, the patents were invalid for purposes of this case. The ITC's
jurisdiction in this matter is limited to the issue of whether or not the
defendant's products can be imported into the U.S. The judge's initial
determination will be considered by the full commission during the second
quarter of 1998.
Bruker presented counterclaims in the ITC investigation. The
counterclaims, which have been removed to the District Court in
Massachusetts, allege that the Finnigan patents are invalid and
unenforceable and are not infringed by the mass spectrometers co-marketed
by Bruker. They also allege that Finnigan has violated U.S. and
Massachusetts antitrust laws and engaged in unfair competition by
attempting to maintain a monopoly position and restrain trade through
enforcement of allegedly fraudulently obtained patents. Bruker has asked
for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
There can be no assurance as to the outcome of these matters or that
an unfavorable resolution would not have a material adverse effect on the
Company's future results of operations and financial position.
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 1997 Annual Report to Shareholders
and is incorporated herein by reference.
On March 24, 1997, the Company sold 1,768,500 shares of its common
stock, at a price of $15.00 per share, in a private placement to
accredited investors in reliance on Regulation D promulgated under the
Securities Act of 1933. Lehman Brothers Inc. and Goldman, Sachs & Co.
acted as placement agents in connection with the private placement. The
aggregate fees paid to the placement agents for introducing prospective
investors to the Company were $1,592,000, or 6% of the gross proceeds of
the private placement.
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 1997 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 1997 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 January 3,
1998, and Supplementary Data are included in the Registrant's 1997 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 caption "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.
14PAGE
<PAGE>
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.
15PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 17, 1998 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 March 17,
1998.
Signature Title
--------- -----
By: Richard W.K. Chapman President, Chief Executive Officer,
------------------------- and Director
Richard W.K. Chapman
By: John N. Hatsopoulos Chief Financial Officer and Senior
------------------------- Vice President
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
-------------------------
Paul F. Kelleher
By: Earl R. Lewis Chairman of the Board and Director
-------------------------
Earl R. Lewis
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
By: Arvin H. Smith Director
-------------------------
Arvin H. Smith
16PAGE
<PAGE>
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 17,
1998. 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 15 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 17, 1998
17PAGE
<PAGE>
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
---------- --------- --------- -------- --------- --------
Allowance for
Doubtful Accounts
Year Ended
January 3, 1998 $4,459 $ 549 $ 33 $ (760) $ 80 $4,361
Year Ended
December 28, 1996 $2,341 $ 220 $ 43 $ (351) $2,206 $4,459
Year Ended
December 30, 1995 $2,366 $ 213 $ 68 $ (333) $ 27 $2,341
- ------------
(a) Includes allowance of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's 1997 Annual
Report to Shareholders and the effect of foreign currency translation.
18PAGE
<PAGE>
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).
2.3 Asset and Share Purchase Agreement dated as of July 30,
1997, between the Registrant and Thermo Instrument (filed
as Exhibit 2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 28, 1997 [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 Amended and Restated Master Repurchase Agreement dated as
of June 30, 1995, between Thermo Electron and the
Registrant.
19PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.5 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated December 2, 1997, by and among Thermo
Electron and the Registrant (filed as Exhibit 10.7 to
Thermo Instrument's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 [File No. 1-9786] and
incorporated herein by reference).
10.6 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated December 2, 1997, by and among Thermo
Instrument and the Registrant.
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. The
terms of such plans are substantially the same as those of
the Registrant's Equity Incentive Plan.
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).
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).
20PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
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 Amended and Restated Stock Holdings Assistance Plan and
Form of Promissory Note.
13 Annual Report to Shareholders for the Year Ended
January 3, 1998 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the Year Ended January 3,
1998.
27.2 Financial Data Schedule for the Quarter Ended
September 27, 1997 (restated for the adoption of SFAS
No. 128).
Exhibit 10.4
AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
AGREEMENT dated as of the 30th day of June, 1995 between
Thermo Electron Corporation, a Delaware corporation ("Seller"),
and ThermoQuest Corporation, a Delaware corporation (the
"Buyer").
1. Applicability
From time to time Buyer and Seller may enter into
transactions in which Seller agrees to transfer to Buyer certain
securities and/or financial instruments ("Securities") against
the transfer of funds by Buyer, with a simultaneous agreement by
Buyer to transfer to Seller such Securities on demand, against
the transfer of funds by Seller. Each such transaction shall be
referred to herein as a "Transaction" and shall be governed by
this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i)
the commencement by such party as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar
official for such party or any substantial part of its property;
or (ii) the commencement of any such case or proceeding against
such party, or another seeking such an appointment, which (A) is
consented to or not timely contested by such party, (B) results
in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not
dismissed within 15 days; or (iii) the making by a party of a
general assignment for the benefit of creditors; or (iv) the
admission in writing by a party of such party's inability to pay
such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or
other distributions thereon;
(d) "Market Value", with respect to any Securities as of
any date, the price for such Securities on such date obtained
from a generally recognized source agreed to by the parties or
the most recent closing bid quotation from such a source, plus
accrued Income to the extent not included therein (other than any
Income transferred to Seller pursuant to Paragraph 6 hereof) as
of such date (unless contrary to market practice for such
Securities);
PAGE
<PAGE>
Exhibit 10.4
(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this
Agreement;
2PAGE
<PAGE>
(f) "Pricing Rate", a rate equal to the Commercial Paper
Composite rate for 90-day maturities provided by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (or, if such rate is not
available, a substantially equivalent rate agreed to by Buyer and
Seller) plus 25 basis points, which rate shall be adjusted on
the first business day of each fiscal quarter and shall be in
effect for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased
Securities are transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by
Seller to Buyer in a Transaction hereunder, and any Securities
substituted therefor in accordance with Paragraph 9 hereof. The
term "Purchased Securities" with respect to any Transaction at
any time also shall include Additional Purchase Securities
transferred pursuant to Paragraph 4(a) and shall exclude
Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account
maintained by Seller containing, among other Securities, the
Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an
amount equal to the Purchase Price paid by Buyer to Seller for
such Purchased Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the
transfer of the Purchase Price to Seller's account. Upon such
transfer, Seller shall transfer to Buyer Purchased Securities
having a Market Value equal to 103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer
by Seller in the Repurchase Collateral Account. Seller shall
indicate on its books for such account Buyer's ownership of the
Purchased Securities. Upon reasonable request from Buyer, Seller
shall provide Buyer with a complete list of Purchased Securities
owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase
from Buyer, and Buyer shall sell to Seller, for the Repurchase
Price all or any part of the Purchased Securities then owned by
Buyer.
4. Margin Maintenance
(a) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer is less than 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller shall transfer to Buyer additional Securities ("Additional
Purchased Securities"), so that the aggregate Market Value of
such Purchased Securities, including any such Additional
PAGE
<PAGE>
Purchased Securities, will thereupon equal or exceed 103% of
such aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer exceeds 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller may transfer Purchased Securities to Seller, so that the
aggregate Market Value of such Purchased Securities will
thereupon not exceed 103% of such aggregate Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities,
then on the first day of the next following fiscal month Seller
shall pay to Buyer an amount equal to the sum of the aggregate
Repurchase Prices of the Purchased Securities owned by Buyer at
the close of each day during the preceding fiscal month divided
by the number of days in such month and the product multiplied by
the Pricing Rate times the number of days in such month divided
by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income
payment date on the Purchased Securities subject to that
Transaction, Buyer shall, on the date such Income is payable,
transfer to Seller an amount equal to such Income payment or
payments with respect to any Purchased Securities subject to such
Transaction. Seller shall retain all voting rights with respect
to Purchased Securities sold to Buyer under this Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such
Transactions are deemed to be loans, Seller shall be deemed to
have pledged to Buyer as security for the performance by Seller
of its obligations under each such Transaction and this
Agreement, and shall be deemed to have granted to Buyer a
security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds
hereunder shall be in immediately available funds. As used
herein with respect to Securities, "transfer" is intended to have
the same meaning as when used in Section 8-313 of the
Massachusetts Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
9. Substitution
4PAGE
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Buyer hereby grants Seller the authority to manage, in
Seller's sole discretion, the Purchased Securities held in
custody for Buyer by Seller in the Repurchase Collateral Account.
Buyer expressly agrees that Seller may (i) substitute other
Securities for any Purchased Securities and (ii) commingle
Purchased Securities with other Securities held in the Repurchase
Collateral Account. Substitutions shall be made by transfer to
Buyer of such other Securities and transfer to Seller of the
Purchased Securities for which substitution is being made. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities. Securities which are substituted for
Purchased Securities shall have a Market Value at the time of
substitution equal to or greater than the Market Value of the
Purchase Securities for which such Securities were substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the
other that (i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder
and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and
performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so on its behalf, (iii) it has obtained
all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and
such authorizations are in full force and effect and (iv) the
execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by
which it is bound or by which any of its assets are affected. On
the date for any Transaction Buyer and Seller shall each be
deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer
fails to transfer Purchased Securities upon demand for repurchase
from either Buyer or Seller, (ii) Seller or Buyer fails, after
one business day's notice, to comply with Paragraph 4 hereof,
(iii) Buyer fails to make payment to Seller pursuant to
Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5
hereof, (v) an Act of Insolvency occurs with respect to Seller
or Buyer, (vi) any representation made by Seller or Buyer shall
have been incorrect or untrue in any material respect when made
or repeated or deemed to have been made or repeated, or (vii)
Seller or Buyer shall admit to the other its inability to, or its
intention not to, perform any of its obligations hereunder (each
an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by
written notice to the defaulting party (which option shall be
deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of any Act of Insolvency), Seller
5PAGE
<PAGE>
shall become obligated to repurchase, and Buyer shall become
obligated to sell, all Purchased Securities then owned by Buyer
for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises
or is deemed to have exercised the option referred to in
subparagraph (a) of this Paragraph, (i) the Seller's obligations
hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable,
(ii) all Income paid after such exercise or deemed exercise shall
be retained by Buyer and applied to the aggregate unpaid
Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to
such Transactions then in Seller's possession.
(c) In all Transactions in which Buyer is the defaulting
party, upon tender by Seller of payment of the aggregate
Repurchase Prices for all such Transactions, Buyer's right, title
and interest in all Purchased Securities subject to such
Transactions shall be deemed transferred to Seller, and Buyer
shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party
(which notice need not be given if an Act of Insolvency shall
have occurred, and which may be the notice given under
subparagraph (a) of this Paragraph or the notice referred to in
clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which Seller is the
defaulting party, (A) immediately sell, in a recognized market at
such price or prices as Buyer may reasonably deem satisfactory,
any or all Purchased Securities subject to such Transactions and
apply the proceeds thereof to the aggregate unpaid Repurchase
Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of
such Purchased Securities, to give Seller credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder; and
(ii) as to Transactions in which Buyer is the
defaulting party, (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased
Securities that are not delivered by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
6PAGE
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(e) As to Transactions in which Buyer is the defaulting
party , Buyer shall be liable to Seller (i) with respect to
Purchased Securities (other than Additional Purchased
Securities), for any excess of the price paid (or deemed paid) by
Seller for Replacement Securities therefor over the Repurchase
Price for such Purchased Securities and (ii) with respect to
Additional Purchased Securities, for the price paid (or deemed
paid) by Seller for the Replacement Securities therefor.
(f) The defaulting party shall be liable to the
nondefaulting party for the amount of all reasonable legal or
other expenses incurred by the nondefaulting party in connection
with or as a consequence of an Event of Default.
(g) The nondefaulting party shall have, in addition to its
rights hereunder, any rights otherwise available to it under any
other agreement or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto
and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder
constitute a single business and contractual relationship and
have been made in consideration of each other. Accordingly, each
of Buyer and Seller agrees (i) to perform all of its obligations
in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that
each of them shall be entitled to set off claims and apply
property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers
made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries
and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other
and netted.
13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for
repurchase transactions. Each provision and agreement and
agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such
other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this
Agreement and under any Transactions shall not be assigned by
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either party without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. This
Agreement may be canceled by either party upon giving written
notice to the other, except that this Agreement shall,
notwithstanding such notice, remain applicable to any
Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without giving effect to the
conflict of law principles thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by
either party shall constitute a waiver of any other Event of
Default and no exercise of any remedy hereunder by any party
shall constitute a wavier of its right to exercise any other
remedy hereunder. No modification or waiver of any provision of
this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
17. Intent
(a) The parties recognize that each Transaction is a
"repurchase agreement" as that term is defined in Section 101 of
Title 11 of the United States Code, as amended (except insofar as
the type of Securities subject to such Transaction or the term of
such Transaction would render such definition inapplicable), and
a "securities contract" as that term is defined in Section 741 of
Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions
hereunder or to exercise any other remedies pursuant to Paragraph
11 hereof, is a contractual right to liquidate such Transaction
as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THERMO ELECTRON CORPORATION THERMOQUEST CORPORATION
By: /s/ Melissa F. Riordan By: /s/ Richard W.K. Chapman
Melissa F. Riordan Richard W.K. Chapman
Treasurer President
8PAGE
<PAGE>
Exhibit 10.6
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 2nd day of
December, 1997, by and among Thermo Instrument Systems Inc. (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
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<PAGE>
Exhibit 10.6
Parent as a result of the Parent Guarantee. If a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof
provides a Credit Support Obligation for any subsidiary of
the Parent, other than a subsidiary of such Majority Owned
Subsidiary, and the
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beneficiary(ies) of the Credit Support Obligation enforce
the Credit Support Obligation, or the Majority Owned
Subsidiary or its wholly-owned subsidiary performs under
the Credit Support Obligation for any other reason, then the
Parent shall indemnify and save harmless the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable,
from any liability, cost, expense or damage (including
reasonable attorneys' fees) suffered by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, as
a result of the Credit Support Obligation. Without limiting
the foregoing, Credit Support Obligations include the
deposit of funds by a Majority Owned Subsidiary or a
wholly-owned subsidiary thereof in a credit arrangement with
a banking facility whereby such funds are available to the
banking facility as collateral for overdraft obligations of
other Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
3PAGE
<PAGE>
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
4PAGE
<PAGE>
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
6. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO INSTRUMENT SYSTEMS INC.
By: /s/ Melissa F. Riordan
Title: Treaurer
THERMOQUEST CORPORATION
By: /s/ Richard W. K. Chapman
Title: President
5PAGE
<PAGE>
EXHIBIT 10.14
THERMOQUEST CORPORATION
RESTATED STOCK HOLDING 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
PAGE
<PAGE>
Stock Holding Policy and such rules and regulations as may be
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 on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
PAGE
<PAGE>
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.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<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 to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), 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 occurring prior to the Maturity Date, such
amount as may be designated by the Company. Any amount remaining
unpaid under this Note 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;
PAGE
<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 13
THERMOQUEST CORPORATION
Consolidated Financial Statements
1997
PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Notes 8 and 11) $438,863 $313,793 $241,909
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 229,960 167,438 120,724
Selling, general, and administrative
expenses (Note 8) 107,770 77,371 66,557
Research and development expenses 28,152 21,821 17,453
-------- -------- --------
365,882 266,630 204,734
-------- -------- --------
Operating Income 72,981 47,163 37,175
Interest Income (includes $679 from
related parties in 1997) 10,121 8,905 2,715
Interest Expense (includes $3,126 to
related parties in 1997; Note 3) (10,081) (7,328) (3,725)
-------- -------- --------
Income Before Provision for Income Taxes 73,021 48,740 36,165
Provision for Income Taxes (Note 5) 31,216 20,717 15,163
-------- -------- --------
Net Income $ 41,805 $ 28,023 $ 21,002
======== ======== ========
Earnings per Share (Note 12):
Basic $ .83 $ .59 $ .47
======== ======== ========
Diluted $ .80 $ .57 $ .47
======== ======== ========
Weighted Average Shares (Note 12):
Basic 50,120 47,677 45,000
======== ======== ========
Diluted 55,891 53,697 45,000
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 91,898 $174,978
Available-for-sale investments, at quoted market
value (amortized cost of $7,430 in 1996; Note 2) - 7,452
Accounts receivable, less allowances of $4,361
and $4,459 96,541 73,669
Inventories 66,389 54,012
Prepaid expenses 2,490 1,003
Prepaid income taxes (Note 5) 12,542 11,469
Due from parent company and affiliated
companies (Note 3) 750 -
-------- --------
270,610 322,583
-------- --------
Property, Plant, and Equipment, at Cost, Net 66,736 50,928
-------- --------
Patents and Other Assets 2,845 4,368
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 5) 255,435 157,191
-------- --------
$595,626 $535,070
======== ========
3PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (Note 6) $ 7,147 $ 16,732
Accounts payable 24,151 18,249
Accrued payroll and employee benefits 19,541 15,339
Accrued installation and warranty expenses 9,991 9,899
Accrued income taxes (includes $10,600 and
$6,892 due to parent company) 21,331 14,290
Deferred revenue 9,939 9,353
Customer deposits 5,193 6,542
Other accrued expenses 16,907 14,475
Due to parent company and affiliated companies - 839
-------- --------
114,200 105,718
-------- --------
Deferred Income Taxes (Note 5) 7,503 5,405
-------- --------
Accrued Pension and Other Deferred Items (Note 4) 15,064 16,340
-------- --------
Long-term Obligations (Note 6) 88,080 104,593
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.01 par value, 100,000,000 shares
authorized; 51,185,127 and 48,450,000 shares
issued 512 485
Capital in excess of par value 302,881 261,921
Retained earnings 78,229 39,787
Treasury stock at cost, 340 shares in 1997 (6) -
Cumulative translation adjustment (10,837) 807
Net unrealized gain on available-for-sale
investments (Note 2) - 14
-------- --------
370,779 303,014
-------- --------
$595,626 $535,070
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
-------------------------------------------------------------------------
Operating Activities:
Net income $ 41,805 $ 28,023 $ 21,002
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 14,285 9,603 8,397
Provision for losses on
accounts receivable 549 220 213
Other noncash expenses 1,136 1,417 1,192
Increase (decrease) in
deferred income taxes 2,098 (362) (45)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (11,805) 8,179 (13,135)
Inventories 1,111 4,748 (7,523)
Other current assets (1,425) (3,013) 1,027
Accounts payable 306 (5,763) 2,649
Other current liabilities 3,758 13,515 782
Other 1,223 1,451 1,216
--------- --------- ---------
Net cash provided by operating
activities 53,041 58,018 15,775
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) (154,304) (32,408) -
Purchases of available-for-sale
investments - (7,250) -
Proceeds from sale and maturities
of available-for-sale investments 7,250 - -
Purchases of property, plant,
and equipment (6,261) (3,761) (2,761)
Proceeds from sale of property,
plant, and equipment 2,624 432 316
Other 175 (225) (73)
--------- --------- ---------
Net cash used in investing
activities $(150,516) $ (43,212) $ (2,518)
--------- --------- ---------
5PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
Company common stock (Note 9) $ 25,050 $ 47,778 $ -
Net proceeds from issuance of
subordinated convertible
debentures (Note 6) - - 93,912
Increase (decrease) in short-term
obligations (7,926) (5,389) 5,927
Repayment of long-term obligations (2,791) (1,906) (1,135)
Net transfer to parent company - - (5,590)
Other 194 (153) 281
--------- --------- ---------
Net cash provided by financing
activities 14,527 40,330 93,395
--------- --------- ---------
Exchange Rate Effect on Cash (132) (512) 652
--------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents (83,080) 54,624 107,304
Cash and Cash Equivalents at
Beginning of Year 174,978 120,354 13,050
--------- --------- ---------
Cash and Cash Equivalents at End
of Year $ 91,898 $ 174,978 $ 120,354
========= ========= =========
Cash Paid For:
Interest $ 9,851 $ 7,010 $ 1,701
Income taxes $ 25,207 $ 11,337 $ 6,826
Noncash Activities (Note 3):
Fair value of assets of acquired
companies $ 183,050 $ 69,741 $ -
Cash paid for acquired companies (160,411) (33,148) -
Stock issued to parent company
for acquired companies (16) - -
Adjustment of purchase price due
from parent company for acquired
companies 3,498 - -
--------- --------- ---------
Liabilities assumed of
acquired companies $ 26,121 $ 36,593 $ -
========= ========= =========
Adjustment of purchase price due
from parent company for companies
acquired in 1996 (Note 3) $ 2,455 $ - $ -
========= ========= =========
Conversions of convertible
debentures $ 15,659 $ - $ -
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 485 $ 450 $ -
Net proceeds from issuance of
Company common stock (Note 9) 18 35 -
Conversions of convertible
debentures 9 - -
Capitalization of Company - - 300
Effect of three-for-two stock split - - 150
--------- --------- ---------
Balance at end of year 512 485 450
--------- --------- ---------
Capital in Excess of Par Value
Balance at beginning of year 261,921 213,378 -
Net proceeds from issuance of
Company common stock (Note 9) 24,818 47,743 -
Conversions of convertible
debentures 15,414 - -
Stock issued to parent company for
acquired companies (Note 3) 16 - -
Issuance of stock under employees'
and directors' stock plans 220 - -
Tax benefit related to employees'
and directors' stock plans 492 800 -
Capitalization of Company - - 213,528
Effect of three-for-two stock split - - (150)
--------- --------- ---------
Balance at end of year 302,881 261,921 213,378
--------- --------- ---------
Retained Earnings
Balance at beginning of year 39,787 11,764 -
Net income 41,805 28,023 -
Deemed distribution to parent
company for acquired companies
(Note 3) (3,363) - -
Net income after capitalization
of Company - - 11,764
--------- --------- ---------
Balance at end of year 78,229 39,787 11,764
--------- --------- ---------
Treasury Stock
Balance at beginning of year - - -
Activity under employees'
and directors' stock plans (6) - -
--------- --------- ---------
Balance at end of year $ (6) $ - $ -
--------- --------- ---------
7PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Cumulative Translation Adjustment
Balance at beginning of year $ 807 $ 2,148 $ 1,453
Translation adjustment (11,644) (1,341) 695
--------- --------- ---------
Balance at end of year (10,837) 807 2,148
--------- --------- ---------
Net Unrealized Gain on Available-
for-sale Investments
Balance at beginning of year 14 - -
Change in net unrealized gain on
available-for-sale investments (14) 14 -
--------- --------- ---------
Balance at end of year - 14 -
--------- --------- ---------
Net Parent Company Investment
Balance at beginning of year - - 210,180
Net income prior to capitalization
of Company - - 9,238
Net transfer to parent company - - (5,590)
Capitalization of Company - - (213,828)
--------- --------- ---------
Balance at end of year - - -
--------- --------- ---------
Total Shareholders' Investment $ 370,779 $ 303,014 $ 227,740
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
ThermoQuest Corporation 1997 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, sells,
and services analytical instruments, including mass spectrometers, liquid
chromatographs, and gas chromatographs; and scientific equipment for the
preparation and preservation of chemical samples, as well as consumables
for the chromatography industry. The Company's products are used
primarily by the pharmaceutical, environmental, and industrial
marketplaces.
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. As part of the formation of
the Company, Thermo Instrument transferred to the Company the assets,
liabilities, and businesses of Finnigan Corporation and Thermo Separation
Products Inc. in exchange for 45,000,000 shares of the Company's common
stock. As of January 3, 1998, Thermo Instrument owned 44,999,100 shares
of the Company's common stock, representing 88% of such stock
outstanding. Thermo Instrument is an 82%-owned subsidiary of Thermo
Electron Corporation. As of January 3, 1998, Thermo Electron owned 59,300
shares of the Company's common stock, representing 0.12% 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 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
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 1997 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
9PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
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 and Thermo Electron's combined 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
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 12). As a result, all previously reported
earnings per share have been restated. Basic earnings per share have been
computed by dividing net income by the weighted average number of shares
outstanding during the year. For periods prior to the Company's June 1995
capitalization, shares issued in connection with such capitalization have
been shown as outstanding for purposes of computing earnings per share.
Diluted earnings per share have been computed assuming the conversion of
the Company's convertible obligations and the elimination of the related
interest expense, and the exercise of stock options, as well as their
related income tax effects.
Stock Split
All share and per share information was restated in 1996 to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
which was distributed in January 1996.
Cash and Cash Equivalents
At year-end 1997 and 1996, $60,376,000 and $152,063,000,
respectively, 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
corporate notes, commercial paper, U.S. government-agency securities,
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 points, set at the beginning of each
10PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
quarter. At year-end 1997 and 1996, the Company's cash equivalents also
include investments in commercial paper and short-term certificates of
deposit held by 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) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $17,174 $10,923
Work in process 17,736 14,987
Finished goods 31,479 28,102
------- -------
$66,389 $54,012
======= =======
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, 1 to 12 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) 1997 1996
-----------------------------------------------------------------------
Land $17,428 $15,782
Buildings 39,875 31,447
Machinery, equipment, and leasehold improvements 32,013 19,996
------- -------
89,316 67,225
Less: Accumulated depreciation and amortization 22,580 16,297
------- -------
$66,736 $50,928
======= =======
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
$1,112,000 and $1,751,000, net of accumulated amortization of $6,986,000
and $6,470,000, at year-end 1997 and 1996, respectively. Patents and
other assets in the accompanying balance sheet also includes deferred
debt costs of $1,250,000 and $2,008,000, net of accumulated amortization
11PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
of $1,385,000 and $863,000, at year-end 1997 and 1996, respectively.
These 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 $28,166,000 and $20,386,000 at year-end 1997
and 1996, 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.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to
manage certain exposures to foreign currencies. The Company enters into
forward foreign exchange contracts to hedge firm purchase and sale
commitments denominated in currencies other than its subsidiaries' local
currencies. These contracts principally hedge transactions denominated in
U.S. dollars and British pounds sterling. 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. Gains and losses arising from forward foreign
exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter
into speculative foreign currency agreements.
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.
12PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Presentation
Certain amounts in 1996 and 1995 have been reclassified to conform to
the presentation in the 1997 financial statements.
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt 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. 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.
3. Acquisitions
In March 1997, Thermo Instrument acquired approximately 95% of the
outstanding shares of Life Sciences International PLC, a London Stock
Exchange-listed company. Subsequently, Thermo Instrument acquired the
remaining shares of Life Sciences' capital stock. In July 1997, the
Company agreed to acquire three business units within Life Sciences'
Laboratory Products Group, as well as Life Sciences' Hypersil operations,
from Thermo Instrument. The Laboratory Products businesses manufacture
scientific equipment for the preparation and preservation of chemical
samples, and Hypersil manufactures columns used in high-performance
liquid chromatography. The aggregate purchase price for the Laboratory
Products businesses was approximately $160.4 million and consisted of:
(i) $107.3 million in cash, (ii) 1,000 shares of the Company's common
stock valued at $15,750, and (iii) the assumption of $53.1 million of
debt payable to Thermo Instrument. The purchase price represents the sum
of the net tangible book value of the Laboratory Products businesses and
Hypersil as of June 28, 1997, plus a percentage of Thermo Instrument's
total cost in excess of net assets acquired associated with its
acquisition of Life Sciences, based on the aggregate 1996 revenues of the
Laboratory Products businesses and Hypersil relative to Life Sciences'
1996 consolidated revenues. In December 1997, the Company was notified by
Thermo Instrument that it would receive an adjustment to the purchase
price of $3.5 million in the first quarter of 1998 in connection with its
acquisition of the Laboratory Products businesses and Hypersil based on
Thermo Instrument's final determination of the net tangible book value of
the acquired businesses and a final calculation of Thermo Instrument's
total cost in excess of net assets acquired associated with its
acquisition of Life Sciences. The receivable from Thermo Instrument is
included in due from parent company and affiliated companies in the
13PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
accompanying balance sheet. The cash portion of the purchase price was
paid in September 1997 together with interest calculated at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter, from June 28, 1997. The 1,000 shares of common
stock to be issued to Thermo Instrument will be issued as soon as they
are listed for trading on the American Stock Exchange.
Because the Company, the Laboratory Products businesses, and Hypersil
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
1997 historical financial information has been restated to include the
results of the Laboratory Products businesses and Hypersil from March 12,
1997, the date these businesses were acquired by Thermo Instrument, and
the shares issuable to Thermo Instrument have been deemed outstanding
from that date. The purchase price included $3.4 million for the increase
in the net book value from the date the businesses were acquired by
Thermo Instrument to June 28, 1997. This amount was recorded as a deemed
distribution from retained earnings, reflecting payment by the Company to
Thermo Instrument for the earnings of the transferred businesses from the
date of the acquisition by Thermo Instrument until the date of transfer
to the Company.
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. 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 constituting the Scientific Instruments Division of
Fisons plc (the Fisons businesses), a wholly owned subsidiary of
Rhone-Poulenc Rorer Inc (RPR). In September 1996, the Company acquired
two businesses formerly part of Fisons, CE Instruments and MassLab
Instruments, from Thermo Instrument for an aggregate $27.3 million in
cash and the assumption of approximately $8.9 million in debt. 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,
14PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
1996, plus a pro rata allocation of Thermo Instrument's total cost in
excess of net assets acquired associated with its 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.
In December 1997, Thermo Instrument and RPR negotiated a post-closing
adjustment under the terms of the purchase agreement for the Fisons
acquisition pertaining to determination of the net assets of the Fisons
businesses at the date of acquisition. This negotiation resulted in a
refund to Thermo Instrument that included interest from the date of
acquisition. The Company has recorded a receivable from Thermo Instrument
totaling $2.7 million at January 3, 1998, which represents the Company's
share of the refund received by Thermo Instrument. The Company has
recorded $2.2 million of the refund as a reduction of cost in excess of
net assets of acquired companies. Of the remainder, $272,000 represents
payment for uncollected accounts receivable acquired by the Company that
were guaranteed by RPR, and $259,000 represents interest income on the
refund from the date of acquisition. The receivable from Thermo
Instrument is included in due from parent company and affiliated
companies in the accompanying balance sheet.
The aggregate cost of these acquisitions exceeded the estimated fair
value of the acquired net assets by $134.0 million, which is being
amortized over 40 years. Allocation of the purchase price for these
acquisitions was based on estimates of the fair value of the net assets
acquired and, for the Laboratory Products businesses and Hypersil, is
subject to adjustment upon finalization of the purchase price allocation.
The Company has gathered no information that indicates the final purchase
price allocation will differ materially from the preliminary estimate.
Based on unaudited data, the following table presents selected
financial information of the Company, the Laboratory Products businesses,
and Hypersil on a pro forma basis, assuming the companies had been
combined since the beginning of 1996. The effect of the acquisitions not
included in the pro forma data was not material to the Company's results
of operations.
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $462,166 $462,421
Net income 36,427 34,471
Earnings per share:
Basic .73 .72
Diluted .70 .69
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
15PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
acquisition of the Laboratory Products businesses and Hypersil been made
at the beginning of 1996.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has two stock-based compensation plans for its key
employees, directors, and others. These plans, adopted in 1995 and 1997,
permit 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 these plans. The
option recipients and the terms of options granted under the plans are
determined by the Board Committee. Generally, options granted 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
seven 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 plans 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.
16PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is as follows:
1997 1996
---------------- ----------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price
------------------------------------------------------------------------
Options outstanding, beginning
of year 2,330 $13.12 - $ -
Granted 873 16.90 2,425 13.12
Exercised (16) 13.30 - -
Forfeited (140) 13.02 (95) 13.00
------ ------
Options outstanding, end of year 3,047 $14.21 2,330 $13.12
====== ====== ====== ======
Options exercisable 3,047 $14.21 2,330 $13.12
====== ====== ====== ======
Options available for grant 862 595
====== ======
As of January 3, 1998, the options outstanding were exercisable at
prices ranging from $13.00 to $17.01 and had a weighted average remaining
contractual life of 8.5 years.
Employee Stock Purchase Program
-------------------------------
Effective November 1, 1997, substantially all of the Company's
full-time U.S. employees are eligible to participate in an employee stock
purchase program sponsored by the Company and Thermo Electron, under
which employees can purchase shares of the Company's and Thermo
Electron's common stock. Prior to November 1, 1997, the program was
sponsored by Thermo Instrument and Thermo Electron. Under this program,
the applicable shares of 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.
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 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
17PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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) 1997 1996
-----------------------------------------------------------------------
Net income:
As reported $41,805 $28,023
Pro forma 40,703 26,902
Basic earnings per share:
As reported .83 .59
Pro forma .81 .56
Diluted earnings per share:
As reported .80 .57
Pro forma .78 .55
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 weighted average fair value per share of options granted was
$5.75 and $5.93 in 1997 and 1996, respectively. 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:
1997 1996
-----------------------------------------------------------------------
Volatility 28% 26%
Risk-free interest rate 5.7% 5.9%
Expected life of options 4.7 years 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.
401(k) Savings Plans
Substantially all of the Company's full-time U.S. employees are
eligible to participate in Thermo Electron's or the Company's Finnigan
subsidiary'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 $1,301,000,
$1,118,000, and $1,007,000 in 1997, 1996, and 1995, respectively.
18PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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. The Company's
expense related to this plan was $306,000 and $448,000 in 1997 and 1996,
respectively. The Company's liability for this plan is included in
accrued pension and other deferred items in the accompanying balance
sheet.
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 include the following components:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Service cost $ 235 $ 305 $ 386
Interest cost on projected benefit
obligation 954 1,059 1,087
Return on plan assets (167) (220) (234)
Amortization of unrecognized prior
service and obligation, net (23) (43) -
------- ------- -------
$ 999 $ 1,101 $ 1,239
======= ======= =======
19PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
The funded status of the Company's defined benefit pension plan is as
follows:
(In thousands) 1997 1996
-------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefits $12,289 $13,494
Nonvested benefits 91 96
------- -------
Accumulated benefit obligation 12,380 13,590
Effect of projected future salary
increases 989 1,294
------- -------
Projected benefit obligation 13,369 14,884
Plan assets at fair value 4,969 5,842
------- -------
Plan assets less than projected
benefit obligation 8,400 9,042
Unrecognized net gain 2,077 2,550
Initial unrecognized net obligation (253) (340)
------- -------
Accrued pension costs $10,224 $11,252
======= =======
Actuarial assumptions used to determine the net periodic pension
costs in 1997, 1996, and 1995 were as follows: discount rate - 7.5%; rate
of increase in salary levels - 3.5%; and expected long-term rate of
return on assets - 6.0%.
5. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Domestic $52,240 $28,795 $24,583
Foreign 20,781 19,945 11,582
------- ------- -------
$73,021 $48,740 $36,165
======= ======= =======
20PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $17,653 $11,224 $ 7,852
State 3,640 2,340 1,523
Foreign 9,434 10,281 4,600
------- ------- -------
30,727 23,845 13,975
------- ------- -------
Net deferred (prepaid):
Federal 574 (1,529) 683
State 122 (324) 145
Foreign (207) (1,275) 360
------- ------- -------
489 (3,128) 1,188
------- ------- -------
$31,216 $20,717 $15,163
======= ======= =======
The provision for income taxes that is currently payable does not
reflect $1,099,000, $1,840,000, and $2,000,000 of tax benefits used to
reduce cost in excess of net assets of acquired companies in 1997, 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
underlying common stock on the date of exercise. The provision for income
taxes that is currently payable does not reflect $492,000 and $800,000 of
such benefits that have been allocated to capital in excess of par value
in 1997 and 1996, respectively.
21PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
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) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $25,557 $17,059 $12,658
Increases (decreases) resulting from:
State income taxes, net of federal
tax 2,445 1,310 1,084
Foreign tax rate and tax law
differential 1,954 2,024 906
Tax benefit of foreign sales
corporation (984) (755) (659)
Amortization of cost in excess of net
assets of acquired companies 1,715 905 1,012
Other, net 529 174 162
------- ------- -------
$31,216 $20,717 $15,163
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid income taxes:
Foreign tax loss carryforwards $10,041 $20,451
Reserves and accruals 8,961 7,067
Inventory basis difference 1,876 2,820
Accrued compensation 1,705 1,574
Other, net - 8
------- -------
22,583 31,920
Less: Valuation allowance 10,041 20,451
------- -------
$12,542 $11,469
======= =======
Deferred income taxes:
Depreciation $ 7,503 $ 5,405
======= =======
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
January 3, 1998, the Company had $25,642,000 of foreign tax loss
carryforwards, $17,293,000 of which expires from 1998 through 2005. The
remainder of the Company's foreign tax loss carryforwards do not expire.
22PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The decrease in the valuation allowance in 1997 results from the decrease
in foreign tax loss carryforwards, primarily due to a change in foreign
tax rates, expiration, currency fluctuations, and utilization. Any tax
benefit resulting from use of the loss carryforwards has been 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
$47,600,000 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.
6. Short- and Long-term Obligations
Short-term Obligations
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $6,076,000 and $15,241,000 at
year-end 1997 and 1996, 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
1.63% and 6.45% at year-end 1997 and 1996, respectively. Unused lines of
credit were $18,553,000 at year-end 1997.
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
5% Subordinated convertible debentures, due 2000,
convertible at $16.50 per share $ 80,591 $ 96,250
10.23% Mortgage loan secured by property with a
net book value of $15,780, payable in monthly
installments with final payments in 2004 8,343 9,267
6% Note payable, paid in 1997 - 567
Other 217 -
-------- --------
89,151 106,084
Less: Current maturities of long-term obligations 1,071 1,491
-------- --------
$ 88,080 $104,593
======== ========
The 5% subordinated convertible debentures are guaranteed on a
subordinated basis by Thermo Electron. Thermo Instrument has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee.
During 1997, $15,659,000 principal amount of the 5% subordinated
convertible debentures were converted into 949,027 shares of the
Company's common stock.
23PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Short- and Long-term Obligations (continued)
The annual requirements of long-term obligations as of January 3,
1998, are $1,071,000 in 1998; $1,200,000 in 1999; $81,898,000 in 2000;
$1,438,000 in 2001; $1,538,000 in 2002; and $2,006,000 in 2003 and
thereafter. Total future requirements of long-term obligations are
$89,151,000.
See Note 10 for the fair value information pertaining to the
Company's long-term obligations.
7. Commitments and Contingencies
Operating Leases
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 $5,239,000, $3,041,000,
and $3,046,000 in 1997, 1996, and 1995, respectively. Future minimum
payments due under noncancellable operating leases at January 3, 1998,
are $3,045,000 in 1998; $1,947,000 in 1999; $1,257,000 in 2000; $786,000
in 2001; $505,000 in 2002; and $1,039,000 in 2003 and thereafter. Total
future minimum lease payments are $8,579,000.
Contingencies
The Company's Finnigan subsidiary has filed complaints against
Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard
Company, for alleged violation of two U.S. patents owned by Finnigan. The
patents pertain to methods used in ion-trap mass spectrometers.
One of Finnigan's complaints was filed in the United States District
Court for the District of Massachusetts and the other was filed with the
United States International Trade Commission (ITC) in Washington, DC.
Finnigan has asked for damages to compensate for the infringements, for
injunctions against further infringement, and for an order excluding
further imports into the U.S. of ion-trap mass spectrometers that use the
patented methods.
The District Court action has, at the request of Hewlett-Packard and
Bruker, been stayed pending completion of an investigation by the ITC. In
February 1998, an administrative law judge at the ITC issued an initial
determination to the effect that, although one of Finnigan's patents was
infringed, the patents were invalid for purposes of this case. The ITC's
jurisdiction in this matter is limited to the issue of whether or not the
defendant's products can be imported into the U.S. The judge's initial
determination will be considered by the full commission during the second
quarter of 1998.
Bruker presented counterclaims in the ITC investigation. The
counterclaims, which have been removed to the District Court in
Massachusetts, allege that the Finnigan patents are invalid and
unenforceable and are not infringed by the mass spectrometers co-marketed
by Bruker. They also allege that Finnigan has violated U.S. and
Massachusetts antitrust laws and engaged in unfair competition by
attempting to maintain a monopoly position and restrain trade through
enforcement of allegedly fraudulently obtained patents. Bruker has asked
for judgment consistent with its counterclaims, and for three times the
24PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Commitments and Contingencies (continued)
antitrust damages (including attorneys' fees) it has sustained.
There can be no assurance as to the outcome of these matters or that
an unfavorable resolution would not have a material adverse effect on the
Company's future results of operations and financial position.
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 has paid Thermo
Electron annually an amount equal to 1.0% of the Company's revenues in
1997 and 1996 and 1.2% of the Company's revenues in 1995. For these
services, the Company was charged $4,389,000, $3,138,000, and $2,903,000
in 1997, 1996, and 1995, respectively. Beginning in 1998, the Company
will pay an annual fee equal to 0.8% of the Company's revenues. The
annual fee is reviewed and adjusted annually by mutual agreement of the
parties. 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.
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 $23,791,000,
$10,527,000, and $4,974,000 in 1997, 1996, and 1995, respectively. Sales
of products to such affiliated companies totaled $7,090,000, $11,987,000,
and $940,000 in 1997, 1996, and 1995, 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 1997, the Company sold 1,768,500 shares of its common stock
at $15.00 per share for net proceeds of $24,836,000.
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.
25PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Common Stock (continued)
At January 3, 1998, the Company had reserved 8,967,706 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,
due from parent company and affiliated companies, notes payable and
current maturities of long-term obligations, accounts payable, due to
parent company and affiliated companies, 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 carrying amount and fair value of the Company's long-term
obligations and off-balance-sheet financial instruments are as follows:
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
----------------------------------------------------------------------
Long-term obligations:
Subordinated convertible
debentures $ 80,591 $ 88,650 $ 96,250 $ 96,250
Other 7,489 9,319 8,343 9,177
-------- -------- -------- --------
$ 88,080 $ 97,969 $104,593 $105,427
======== ======== ======== ========
Off-balance-sheet financial
instruments:
Forward exchange contracts
receivable $ 19 $ 12
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 Company had forward foreign exchange contracts of $1,200,000 and
$550,000 at year-end 1997 and 1996, respectively. The fair value of such
contracts is the estimated amount that the Company would receive upon
termination of the contract, taking into account the change in foreign
exchange rates.
26PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Geographical Information
The Company is engaged in one business segment: developing,
manufacturing, selling, and servicing analytical instruments, including
mass spectrometers, liquid chromatographs, and gas chromatographs; and
scientific equipment for the preparation and preservation of chemical
samples, as well as chromatography consumables. The following table shows
data for the Company by geographical area.
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Revenues:
United States $ 289,836 $ 171,100 $ 145,430
Germany 64,116 66,228 64,368
United Kingdom 60,609 29,597 21,627
Italy 35,142 41,546 5,517
Other Europe 49,039 45,839 35,340
Asia 39,432 41,993 36,966
Other 2,032 3,503 3,776
Transfers among geographical
areas (a) (101,343) (86,013) (71,115)
--------- --------- ---------
$ 438,863 $ 313,793 $ 241,909
========= ========= =========
Income before provision for
income taxes:
United States (b) $ 50,904 $ 25,425 $ 20,867
Germany 2,193 3,971 3,421
United Kingdom 9,690 4,443 2,025
Italy 1,858 742 (50)
Other Europe 3,140 5,392 4,742
Asia 5,250 6,912 5,820
Other (54) 278 350
--------- --------- ---------
Total operating income 72,981 47,163 37,175
Interest income (expense), net 40 1,577 (1,010)
--------- --------- ---------
$ 73,021 $ 48,740 $ 36,165
========= ========= =========
27PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Geographical Information (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Identifiable assets:
United States (c) $ 426,812 $ 348,271 $ 288,095
Germany 47,537 55,470 61,468
United Kingdom 48,136 31,198 15,753
Italy 30,770 49,760 4,834
Other Europe 24,270 29,614 22,022
Asia 17,227 19,363 33,760
Other 874 1,394 2,110
--------- --------- ---------
$ 595,626 $ 535,070 $ 428,042
========= ========= =========
Export revenues included in United
States revenues above (d):
Europe $ 57,755 $ 44,051 $ 36,943
Other 51,009 33,905 26,578
--------- --------- ---------
$ 108,764 $ 77,956 $ 63,521
========= ========= =========
____________
(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 corporate cash, cash equivalents, and available-for-sale
investments.
(d) In general, export sales are denominated in U.S. dollars.
28PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Basic
Net income $ 41,805 $ 28,023 $ 21,002
-------- -------- --------
Weighted average shares 50,120 47,677 45,000
-------- -------- --------
Basic earnings per share $ .83 $ .59 $ .47
======== ======== ========
Diluted
Net income $ 41,805 $ 28,023 $ 21,002
Effect of:
Convertible obligations 2,691 2,839 -
-------- -------- --------
Income available to common
shareholders, as adjusted $ 44,496 $ 30,862 $ 21,002
-------- -------- --------
Weighted average shares 50,120 47,677 45,000
Effect of:
Convertible obligations 5,529 5,833 -
Stock options 242 187 -
-------- -------- --------
Weighted average shares, as adjusted 55,891 53,697 45,000
-------- -------- --------
Diluted earnings per share $ .80 $ .57 $ .47
======== ======== ========
The computation of diluted earnings per share for 1996 excludes the
effect of assuming the exercise of certain outstanding stock options
because the effect would be antidilutive. As of January 3, 1998, no such
options were outstanding.
In addition, the computation of diluted earnings per share for 1995
excludes the effect of assuming the conversion of the Company's 5%
subordinated convertible debentures because the effect would be
antidilutive.
29PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First(a) Second Third Fourth
------------------------------------------------------------------------
Revenues $ 89,353 $116,542 $109,303 $123,665
Gross profit 42,390 55,605 52,587 58,321
Net income 8,883 10,633 9,911 12,378
Earnings per share:
Basic .18 .21 .20 .24
Diluted .18 .20 .19 .23
1996 First(b) Second(c) 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:
Basic .13 .14 .14 .18
Diluted .13 .14 .14 .17
------------
(a) Reflects the acquisition of the Laboratory Products businesses and
Hypersil, effective March 12, 1997.
(b) Reflects the acquisition of the Automass division of ATI, effective
January 1, 1996.
(c) Reflects the acquisition of CE Instruments and MassLab, effective
March 29, 1996.
30PAGE
<PAGE>
ThermoQuest Corporation 1997 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 88%-owned subsidiary
of Thermo Instrument Systems Inc.) and subsidiaries as of January 3,
1998, and December 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three
years in the period ended January 3, 1998. 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 January 3, 1998, and
December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 1998
31PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
heading "Forward-looking Statements."
Overview
The Company develops, manufactures, sells, and services analytical
products, including mass spectrometers, liquid chromatographs, and gas
chromatographs. These analytical instruments are used in the quantitative
and qualitative chemical analysis of chemical compounds at ultratrace
levels of detection. In addition, the Company develops, manufactures,
sells, and services scientific equipment for the preparation and
preservation of chemical samples; and consumables for the chromatography
industry. 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.
Effective March 12, 1997, the Company acquired three business units
within the Laboratory Products Group of Thermo Instrument's Life Sciences
International PLC subsidiary, as well as Life Sciences' Hypersil
operations (Note 3). The Laboratory Products businesses develop,
manufacture, sell, and service scientific equipment including
centrifuges, ultra low-temperature freezers, incubators, orbital shakers,
vacuum concentrators, and electrophoresis equipment. These products are
used in a variety of laboratories, including pharmaceutical, medical,
industrial, and environmental laboratories worldwide. Hypersil develops,
manufactures, and sells liquid chromatography media and columns used in
high-performance liquid chromatography. On January 19, 1996, the Company
acquired Extrel FTMS, Inc., 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 (Note 3). In addition, effective March 29, 1996,
the Company acquired CE Instruments, a manufacturer of gas
chromatographs, and MassLab Instruments, a manufacturer of mass
32PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
spectrometers, from Thermo Instrument (Note 3).
The Company sells its products on a worldwide basis. During 1997, the
Company's U.S. and foreign operations had revenues to customers in Asia
of approximately 16% of total revenues. Certain countries in Asia are
experiencing a severe economic crisis, which has been characterized by
sharply reduced economic activity and liquidity, highly volatile
foreign-currency-exchange and interest rates, and unstable stock markets.
Revenues to customers in South Korea, Taiwan, Singapore, Malaysia, and
Indonesia represented approximately 3% of the Company's total revenues.
The Company's sales to Asia could be adversely affected by the unstable
economic conditions there. 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.
Results of Operations
1997 Compared With 1996
Revenues increased 40% to $438.9 million in 1997 from $313.8 million
in 1996. Revenues increased $137.6 million due to the acquisition of
three business units within Life Sciences' Laboratory Products Group, as
well as Life Sciences' Hypersil operations, from Thermo Instrument,
effective March 12, 1997, and the inclusion for the full twelve months of
1997 of CE Instruments and MassLab, which were acquired from Thermo
Instrument, effective March 29, 1996 (Note 3). In addition, revenues
increased $11.6 million at the Company's existing mass spectrometry
business, due in part to the continued success of a liquid
chromatograph/ion-trap mass spectrometer instrument introduced in the
first quarter of 1996. These increases were offset in part by a decrease
of $21.3 million in revenues due to the strengthening of the U.S. dollar
relative to foreign currencies in countries in which the Company operates
and, to a lesser extent, a decrease in revenues at certain of the
Company's existing operations due to increased competition. In addition,
revenues in the first quarter of 1996 included $2.6 million from the sale
of products manufactured by third parties. The Company's backlog
decreased by $10.7 million during 1997. The Company believes that its
backlog in 1996 was higher than in 1997, due to high demand at the end of
1996 for new products, the release of which had been anticipated by the
market. The Company does not believe that the amount of backlog at any
date is necessarily indicative of future demand for its products.
The gross profit margin increased to 47.6% in 1997 from 46.6% in
1996. The increase in the gross profit margin was primarily due to the
increase in sales of higher-margin mass spectrometry products, offset in
part by the inclusion of lower-margin revenues from the Laboratory
Products businesses, which recorded an adjustment to expense of $1.0
million in the first quarter of 1997 relating to the sale of inventories
revalued at the date of acquisition. The gross profit margin for the
Laboratory Products businesses was 40.3% in 1997.
33PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
Selling, general, and administrative expenses as a percentage of
revenues remained relatively unchanged at 24.6% in 1997, compared with
24.7% in 1996. Research and development expenses as a percentage of
revenues decreased to 6.4% in 1997 from 7.0% in 1996, primarily due to
lower research and development expenditures as a percentage of revenues
at the Laboratory Products businesses.
Interest income increased to $10.1 million in 1997 from $8.9 million
in 1996, primarily as a result of interest income earned on invested
proceeds from the Company's initial public offering of common stock in
March and April 1996 and sale of common stock in March 1997 (Note 9) and,
to a lesser extent, the inclusion of interest income from the Laboratory
Products businesses. The increase in interest income was offset in part
by a reduction in cash as a result of the cash payment of $160.4 million
to Thermo Instrument in September 1997 for the acquisition of the
Laboratory Products businesses and Hypersil (Note 3) and, to a lesser
extent, the acquisition of CE Instruments and MassLab in 1996. In
December 1997, the Company was notified that it would receive an
aggregate refund of $6.0 million in the first quarter of 1998 from Thermo
Instrument in connection with the acquisition of the Laboratory Products
businesses, Hypersil, CE Instruments, and MassLab (Note 3). Interest
expense increased to $10.1 million in 1997 from $7.3 million in 1996,
primarily due to the inclusion of interest expense on debt assumed in
connection with the acquisition of the Laboratory Products businesses and
Hypersil, which was repaid to Thermo Instrument in September 1997
(Note 3).
The effective tax rate was 43% in 1997 and 1996. The effective tax
rates exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes, foreign tax rate and tax law differentials,
and nondeductible amortization of cost in excess of net assets of
acquired companies.
The Company is involved in a patent infringement proceeding relating
to its ion-trap mass spectrometers (Note 7).
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal
information systems and current products are either year 2000 compliant
or will be so prior to the year 2000 without incurring material costs.
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its
internal information systems and current products, which could result in
a material adverse effect on the Company's future results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
34PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and 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 relative to foreign
currencies in countries in which the Company operates, primarily the
Japanese yen and the German deutsche 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 43% in 1996, compared with 42% in 1995.
The effective tax rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, foreign tax rate and
tax law differentials, and nondeductible amortization of cost in excess
of net assets of acquired companies.
Liquidity and Capital Resources
Consolidated working capital was $156.4 million at January 3, 1998,
compared with $216.9 million at December 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$91.9 million at January 3, 1998, compared with $182.4 million at
December 28, 1996. Cash provided by operating activities was $53.0
million in 1997. Accounts receivable increased $11.8 million primarily
due to increased shipments in the fourth quarter of 1997 and a
competitive trend to commercial terms of 30 days from the Company's past
practice of generally obtaining deposits on certain systems.
At January 3, 1998, $26.7 million of the Company's cash and cash
equivalents were held by its foreign subsidiaries. While this cash can be
used outside of the United States, including for acquisitions,
repatriation of this cash into the United States would be subject to
35PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
foreign withholding taxes and could also be subject to a United States
tax.
The Company's investing activities used $150.5 million of cash in
1997. The Company expended $154.3 million, net of cash acquired, for
acquisitions (Note 3) and $6.3 million for purchases of property, plant,
and equipment. In December 1997, the Company was notified that it would
receive an aggregate refund of $6.0 million in the first quarter of 1998
from Thermo Instrument in connection with the acquisition of the
Laboratory Products businesses, Hypersil, CE Instruments, and MassLab
(Note 3). The Company recorded $2.6 million in proceeds from the sale of
property, plant, and equipment, primarily from the sale of a building
acquired in connection with the acquisition of the Laboratory Products
businesses. During 1998, the Company plans to expend approximately $8.0
million for property, plant, and equipment.
The Company's financing activities provided $14.5 million of cash in
1997. In March 1997, the Company sold 1,768,500 shares of its common
stock for net proceeds of $24.8 million (Note 9). The Company used $10.7
million of cash in 1997 to reduce short- and long-term borrowings.
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 January 3, 1998, the accrued pension
costs for this plan were $10.2 million (Note 4). In addition, as of
January 3, 1998, the Company has a deferred compensation plan with an
unfunded liability of $3.5 million (Note 4). As of January 3, 1998, the
Company's foreign subsidiaries had available short-term credit facilities
of $18.6 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.
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, 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.
36PAGE
<PAGE>
ThermoQuest Corporation 1997 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 1998 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
significant patents relating to ion trap mass spectrometers, discussed
below. 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.
The Company's Finnigan subsidiary has filed complaints against
Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard
Company, for alleged violation of two U.S. patents owned by Finnigan. The
patents pertain to methods used in ion-trap mass spectrometers.
One of Finnigan's complaints was filed in the United States District
Court for the District of Massachusetts and the other was filed with the
37PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Forward-looking Statements
United States International Trade Commission (ITC) in Washington, DC.
Finnigan has asked for damages to compensate for the infringements, for
injunctions against further infringement, and for an order excluding
further imports into the U.S. of ion-trap mass spectrometers that use the
patented methods.
The District Court action has, at the request of Hewlett-Packard and
Bruker, been stayed pending completion of an investigation by the ITC. In
February 1998, an administrative law judge at the ITC issued an initial
determination to the effect that, although one of Finnigan's patents was
infringed, the patents were invalid for purposes of this case. The ITC's
jurisdiction in this matter is limited to the issue of whether or not the
defendant's products can be imported into the U.S. The judge's initial
determination will be considered by the full commission during the second
quarter of 1998.
Bruker presented counterclaims in the ITC investigation. The
counterclaims, which have been removed to the District Court in
Massachusetts, allege that the Finnigan patents are invalid and
unenforceable and are not infringed by the mass spectrometers co-marketed
by Bruker. They also allege that Finnigan has violated U.S. and
Massachusetts antitrust laws and engaged in unfair competition by
attempting to maintain a monopoly position and restrain trade through
enforcement of allegedly fraudulently obtained patents. Bruker has asked
for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
There can be no assurance as to the outcome of these matters or that
an unfavorable resolution would not have a material adverse effect on the
Company's future results of operations and financial position.
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, the
Company's parent, 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 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.
38PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Forward-looking Statements
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 59% of the Company's
revenues in 1997, 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,
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.
During 1997, the Company's U.S. and foreign operations had revenues
to customers in Asia of approximately 16% of total revenues. Certain
countries in Asia are experiencing a severe economic crisis, which has
been characterized by sharply reduced economic activity and liquidity,
39PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Forward-looking Statements
highly volatile foreign-currency-exchange and interest rates, and
unstable stock markets. Revenues to customers in South Korea, Taiwan,
Singapore, Malaysia, and Indonesia represented approximately 3% of the
Company's total revenues. The Company's sales to Asia could be adversely
affected by the unstable economic conditions there.
Potential Impact of Year 2000 on Processing Date-sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems and on products sold as well
as products purchased by the Company. The Company believes that its
internal information systems and current products are either year 2000
compliant or will be so prior to the year 2000 without incurring material
costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance
for its internal information systems and current products, which could
result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
40PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993
--------------------------------------------------------------------------
Statement of Income Data:
Revenues $438,863 $313,793 $241,909 $223,396 $204,757
Net income 41,805 28,023 21,002 18,526 14,280
Earnings per share:
Basic .83 .59 .47 .41 .32
Diluted .80 .57 .47 .41 .32
Balance Sheet Data:
Working capital $156,410 $216,865 $166,902 $ 47,955 $ 44,866
Total assets 595,626 535,070 428,042 306,284 297,969
Long-term obligations 88,080 104,593 106,456 11,322 12,263
Shareholders'
investment 370,779 303,014 227,740 211,633 201,588
------------
(a) Reflects the acquisition of three business units within the Laboratory
Products Group of Life Sciences International PLC and Life Sciences'
Hypersil operations, effective March 12, 1997, the net proceeds of the
Company's issuance of common stock in March 1997, and conversion of
$15.7 million principal amount of 5% subordinated convertible
debentures.
(b) Reflects the acquisition of the Automass division of Analytical
Technology, Inc., effective January 1, 1996, CE Instruments and MassLab
Instruments, effective March 29, 1996, and the net proceeds of the
Company's initial public offering in March and April 1996.
(c) Reflects the issuance in August 1995 of $96.3 million principal amount
of 5% subordinated convertible debentures due 2000.
(d) Reflects the acquisition of Tremetrics Inc., effective March 16, 1994.
41PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol TMQ. The following table sets forth the high and low
sale prices since March 19, 1996, the date the Company's common stock
began trading on the exchange, as reported in the consolidated
transaction reporting system.
1997 1996
---------------- -----------------
Quarter High Low High Low
------------------------------------------------------------------------
First $16 3/8 $12 1/2 $20 $16 1/4
Second 16 5/8 11 1/2 17 7/8 13 3/4
Third 19 1/8 15 1/8 15 3/4 13 1/4
Fourth 20 1/2 16 1/8 15 3/8 12 1/2
As of January 30, 1998, the Company had 241 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 30, 1998, was $14 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, (781) 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. Distribution of
printed quarterly reports is limited to the second quarter only. All
material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/tmq1.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, the Company's earnings, capital requirements,
and financial condition.
42PAGE
<PAGE>
ThermoQuest Corporation 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, 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 1,
1998, at 10:45 a.m., at the Hyatt Regency Hotel, Scottsdale, Arizona.
43PAGE
<PAGE>
Exhibit 21
THERMOQUEST CORPORATION
Susidiaries of the Registrant
As of February 20, 1998, ThermoQuest Corporation owned the following
susidiaries:
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Denley Instruments Limited England 100
E-C Apparatus Limited England 100
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,Inc. California 100
Finnigan MAT (Nevada), Inc. Nevada 100
Finnigan MAT Canada, Ltd. Canada 100
Finnigan MAT GmbH Germany 100
Finnigan MAT S.R.L. Italy 100
Thermo Separation Products S.R.L. Italy 100
Masslab Limited United
Kingdom 100
Thermo Instruments Australia Pty. Limited Australia 100
ThermoQuest Ltd. United
Kingdom 100
Finnigan MAT Ltd. United
Kingdom 100
Finnigan MAT AB Sweden 100
Thermo Separation Products Ltd. United
Kingdom 100
Finnigan Properties, Inc. California 100
Forma Scientific, Inc. Delaware 100
Forma Ohio Inc. Ohio 100
International Equipment Company Delaware 100
International Equipment Company Limited England 100
Savant Instruments, Inc. New York 100
Forma Scientific Limited England 100
Hypersil Inc. Delaware 100
Hypersil Limited England 100
Life Sciences International (Hong Kong) Limited Hong Kong 100
Life Sciences International, Inc. Pennsylvania 100
Life Sciences International (Europe) Limited England 100
PAGE
<PAGE>
Exhibit 21
THERMOQUEST CORPORATION
Susidiaries of the Registrant
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Life Sciences International (UK) Limited England 100
Kenbury Limited England 100
Savant Instruments Limited England 100
ThermoQuest B.V. Netherlands 100
Thermo Separation Products B.V. Netherlands 100
Thermo Separation Products B.V. B. A. Belgium 100
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 GmbH Austria 100
Thermo Separation Products AG Switzerland 100
Thermo Separation Products Inc. Delaware 100
ThermoQuest GmbH Germany 100
Thermo Separation Products GmbH Germany 100
ThermoQuest K.K. Japan 100
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 17, 1998,
included in or incorporated by reference into ThermoQuest Corporation's
Annual Report on Form 10-K for the year ended January 3, 1998, 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, Registration Statement No. 333-08799 on Form
S-8, Registration Statement No. 333-24321 on Form S-3, and Registration
Statement No. 333-10055 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOQUEST
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<RECEIVABLES> 100,902
<ALLOWANCES> 4,361
<INVENTORY> 66,389
<CURRENT-ASSETS> 270,610
<PP&E> 89,316
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<LOSS-PROVISION> 549
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