SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
AMENDMENT NO. 1 ON FORM 10-Q/A
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11757
THERMO OPTEK CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3283973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8E Forge Parkway
Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the Registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the
latest practicable date.
Class Outstanding at October 25, 1996
---------------------------- -------------------------------
Common Stock, $.01 par value 48,450,000
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO OPTEK CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $114,166 $116,890
Accounts receivable, less allowances of
$5,781 and $5,669 72,716 62,250
Unbilled contract costs and fees 2,101 1,130
Inventories:
Raw materials and supplies 31,943 29,523
Work in process and finished goods 28,851 13,463
Prepaid expenses 6,089 4,221
Prepaid income taxes 12,012 11,955
Due from Thermo Instrument and
affiliated companies 9,029 -
-------- --------
276,907 239,432
-------- --------
Property, Plant and Equipment, at Cost 73,365 58,646
Less: Accumulated depreciation and
amortization 20,347 16,645
-------- --------
53,018 42,001
-------- --------
Patents and Other Assets 10,532 11,400
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 196,999 140,049
-------- --------
$537,456 $432,882
======== ========
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THERMO OPTEK CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 27,820 $ 18,041
Accounts payable 21,569 19,657
Accrued payroll and employee benefits 9,754 7,551
Accrued commissions 6,332 5,301
Accrued installation and warranty expenses 11,172 4,194
Accrued income taxes 6,419 5,401
Deferred revenue 11,164 8,858
Other accrued expenses 31,708 25,833
Due to Thermo Instrument (Note 2) 55,197 55
-------- --------
181,135 94,891
-------- --------
Deferred Income Taxes 14,765 12,293
-------- --------
Other Deferred Items 3,369 3,631
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 96,250 96,250
Other 569 4,829
-------- --------
96,819 101,079
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 100,000,000
shares authorized; 48,450,000 and
45,000,000 shares issued and outstanding 485 450
Capital in excess of par value 221,686 215,342
Retained earnings 21,408 5,262
Cumulative translation adjustment (2,211) (66)
-------- --------
241,368 220,988
-------- --------
$537,456 $432,882
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $ 90,693 $ 45,932
-------- --------
Costs and Operating Expenses:
Cost of revenues 47,918 21,035
Selling, general and administrative
expenses 25,703 14,626
Research and development expenses 5,571 3,361
-------- --------
79,192 39,022
-------- --------
Operating Income 11,501 6,910
Interest Income 1,570 36
Interest Expense (1,676) (253)
-------- --------
Income Before Provision for Income Taxes 11,395 6,693
Provision for Income Taxes 4,969 2,777
-------- --------
Net Income $ 6,426 $ 3,916
======== ========
Earnings per Share $ .13 $ .09
======== ========
Weighted Average Shares 48,410 45,157
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $253,682 $148,574
-------- --------
Costs and Operating Expenses:
Cost of revenues 134,987 72,677
Selling, general and administrative
expenses 73,175 43,822
Research and development expenses 16,644 9,892
-------- --------
224,806 126,391
-------- --------
Operating Income 28,876 22,183
Interest Income 4,255 72
Interest Expense (4,974) (982)
-------- --------
Income Before Provision for Income Taxes 28,157 21,273
Provision for Income Taxes 12,011 8,828
-------- --------
Net Income $ 16,146 $ 12,445
======== ========
Earnings per Share $ .35 $ .28
======== ========
Weighted Average Shares 46,442 45,157
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 16,146 $ 12,445
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,401 4,978
Provision for losses on accounts
receivable 1,483 552
Other noncash expenses 1,372 841
Increase (decrease) in deferred
income taxes (174) 552
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 5,721 (4,066)
Inventories and unbilled contract
costs and fees 931 (1,094)
Other current assets (683) 927
Accounts payable (10,175) (1,839)
Other current liabilities (2,859) (6,083)
Other 792 -
-------- --------
Net cash provided by operating
activities 20,955 7,213
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (15,527) (12,593)
Cash payment to parent company for
acquisition of Mattson and Unicam (Note 2) (36,558) -
Purchases of property, plant and equipment (4,133) (1,860)
Other (66) (127)
-------- --------
Net cash used in investing
activities (56,284) (14,580)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 42,937 -
Increase (decrease) in short-term obligations (5,816) 519
Repayment of long-term obligations (4,166) (412)
Transfer from parent company to fund
acquisition of Baird - 12,926
Net transfer from parent company - 1,099
-------- --------
Net cash provided by financing
activities $ 32,955 $ 14,132
-------- --------
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THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (350) $ 149
-------- --------
Increase (Decrease) in Cash and
Cash Equivalents (2,724) 6,914
Cash and Cash Equivalents at Beginning
of Period 116,890 3,258
-------- --------
Cash and Cash Equivalents at End of Period $114,166 $ 10,172
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired companies $131,470 $ 20,901
Due to parent company for acquisition (55,197) -
Cash paid for acquired companies (16,869) (12,926)
-------- --------
Liabilities assumed of acquired companies $ 59,404 $ 7,975
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO OPTEK CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Optek Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at
September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 30, 1995,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Registration
Statement on Form S-1 (Reg. No. 333-03630), filed with the Securities and
Exchange Commission.
2. Acquisitions
On December 1, 1995, Thermo Instrument Systems Inc. (Thermo
Instrument) acquired the assets of the analytical instruments division of
Analytical Technology, Inc. (ATI). On April 11, 1996, the Company
acquired the Mattson Instruments (Mattson) and Unicam divisions of ATI
from Thermo Instrument for $36.6 million in cash. Mattson is a
manufacturer of Fourier transform infrared (FT-IR) spectroscopy
instruments and Unicam is a manufacturer of atomic absorption and
ultraviolet/visable spectroscopy instruments. Because, as of
December 30, 1995, the Company, Mattson, and Unicam were deemed for
accounting purposes to be under control of their common majority owner,
Thermo Instrument, the accompanying 1995 historical financial information
includes the results of Mattson and Unicam from December 1, 1995, the
date these businesses were acquired by Thermo Instrument. Because the
Company had not disbursed the funds in connection with the acquisitions
of Mattson and Unicam as of December 30, 1995, the transfer of these
businesses was recorded as a contribution of capital in excess of par
value as of December 1, 1995. The $36.6 million payment from the Company
to Thermo Instrument was accounted for as a reduction of capital in
excess of par value as of April 11, 1996.
On March 29, 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer,
Inc. On November 4, 1996, the Company acquired two businesses formerly
part of Fisons, Applied Research Laboratories (ARL) and VG Elemental,
from Thermo Instrument for an aggregate $55.2 million in cash and the
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THERMO OPTEK CORPORATION
2. Acquisitions (continued)
assumption of $16.6 million in debt, subject to a post-closing adjustment
to be negotiated with Fisons by Thermo Instrument. ARL is a manufacturer
of wavelength-dispersive X-ray fluorescence instruments and arc/spark
atomic emission spectrometers and VG Elemental is a manufacturer of
inductively coupled plasma/mass spectrometers. The purchase price was
determined based on the net book value of ARL and VG Elemental at
March 29, 1996, and a pro rata allocation of Thermo Instrument's total
cost in excess of net assets of acquired companies recorded in connection
with the acquisition of the Fisons businesses. Because, as of March 30,
1996, the Company, ARL, and VG Elemental were deemed for accounting
purposes to be under control of their common majority owner, Thermo
Instrument, the accompanying 1996 historical financial information
includes the results of ARL and VG Elemental from March 29, 1996, the
date these businesses were acquired by Thermo Instrument. Because the
Company had not disbursed the funds in connection with the acquisition of
ARL and VG Elemental as of September 28, 1996, the purchase price for
these businesses has been recorded as a payable in the accompanying 1996
balance sheet.
In February 1996, the Company acquired Oriel Corporation (Oriel) and
Corion Corporation (Corion) for an aggregate $16.9 million in cash. Oriel
is a manufacturer and distributor of electro-optical instruments and
components and Corion is a manufacturer of commercial optical filters.
The acquisitions of Oriel and Corion have been accounted for using the
purchase method of accounting and their results of operations have been
included in the accompanying financial statements from their respective
dates of acquisition.
The cost of these acquisitions exceeded the estimated fair value of
the acquired net assets by $62.7 million, which is being amortized over
40 years. Allocation of the purchase price for these acquisitions was
based on estimates of the fair value of the net assets acquired and is
subject to adjustment upon finalization of the purchase price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company, Mattson, Unicam, ARL, and VG
Elemental on a pro forma basis, assuming the companies had been combined
since the beginning of 1995. The effect of the acquisitions of Oriel and
Corion are not included in the pro forma data since these acquisitions
were not material to the Company's results of operations and financial
position.
Three Nine
Months Ended Months Ended
------------- ------------------------------
(In thousands except September 30, September 28, September 30,
per share amounts) 1995 1996 1995
------------------------------------------------------------------------
Revenues $ 82,007 $271,210 $255,685
Net income 2,905 12,304 4,061
Earnings per share .06 .26 .09
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THERMO OPTEK CORPORATION
2. Acquisitions (continued)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions of Mattson, Unicam, ARL, and VG Elemental been made at the
beginning of 1995.
In connection with the acquisitions of Mattson, Unicam, ARL, and VG
Elemental, the Company has undertaken a restructuring of the acquired
businesses. In accordance with the requirements of Emerging Issues Task
Force Pronouncement 95-3 (EITF 95-3), the Company is in the process of
developing a plan that is expected to include reductions in staffing
levels, abandonment of excess facilities, and possible other costs
associated with exiting certain activities of the acquired businesses. As
part of the cost of the acquisitions, the Company established reserves
totaling $11.6 million and $4.7 million for estimated severance, excess
facilities, and other exit costs associated with the acquisition of
Mattson and Unicam and the acquisition of ARL and VG Elemental,
respectively. During the first nine months of 1996, $5.8 million and $1.8
million of the reserves of Mattson and Unicam and ARL and VG Elemental,
respectively, were expended. Unresolved issues existing at September 28,
1996, included identifying specific employees for termination and
locations to be abandoned or consolidated, among other decisions
concerning the integration of the acquired businesses into the Company.
In accordance with EITF 95-3, finalization of the Company's plan for
restructuring the acquired businesses will not occur beyond one year from
the respective dates of acquisition. Any changes in estimates of these
costs prior to such finalization will be recorded as adjustments to cost
in excess of net assets of acquired companies. These reserves are
included in other accrued expenses in the accompanying balance sheet.
3. Initial Public Offering
In June and July 1996, the Company sold 3,450,000 shares of its
common stock in an initial public offering at $13.50 per share for net
proceeds of approximately $42.9 million. Following the offering, Thermo
Instrument, a majority-owned subsidiary of Thermo Electron Corporation,
owned 93% of the Company's outstanding common stock.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
10PAGE
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THERMO OPTEK CORPORATION
Overview
The Company's principal operating units include Thermo Jarrell Ash
Corporation (TJA), a manufacturer and distributor of atomic absorption
(AA) and atomic emission spectrometry products, and Nicolet Instrument
Corporation (Nicolet), a manufacturer and distributor of Fourier
transform infrared (FT-IR) and FT-Raman spectrometry products. Both TJA
and Nicolet have worldwide sales and service organizations with a strong
overseas presence in Europe, Japan, and China.
The Company also has a subsidiary, Thermo Vision Corporation (Thermo
Vision), which pursues applications of the Company's technologies for
cost-effective, application-specific instruments and for optical
components, systems, and subassemblies for analytical instrumentation and
other applications. In September 1996, the Company announced its intent
to spin out Thermo Vision through a distribution of 100 percent of its
outstanding capital stock in the form of a dividend to the Company's
shareholders. The Company anticipates completing the spinout by the
second quarter of 1997. The Company intends to seek a Letter Ruling from
the Internal Revenue Service stating that this proposed spinout would
have no current tax effect on the Company or its shareholders. There can
be no assurance that a favorable Letter Ruling will be obtained. The
Company would distribute the shares upon receipt of the Letter Ruling and
satisfaction of other conditions, including listing of the Thermo Vision
shares on the American Stock Exchange. Thermo Vision had revenues of $8.4
million and $22.6 million for the three- and nine-month periods ended
September 28, 1996, respectively.
The Company's strategy is to supplement its internal growth with the
acquisition of businesses and technologies that complement and augment
its existing product lines. On December 1, 1995, Thermo Instrument
Systems Inc. (Thermo Instrument) acquired the assets of the analytical
instruments division of Analytical Technology, Inc. (ATI). In April 1996,
the Company acquired the Mattson Instruments (Mattson) and Unicam
divisions of ATI from Thermo Instrument. For accounting purposes, the
Company's acquisition of Mattson and Unicam is deemed to have occurred on
December 1, 1995 (Note 2). Mattson is a manufacturer of FT-IR
spectroscopy instruments, and Unicam is a manufacturer of AA and
ultraviolet/visible spectroscopy instruments. In February 1996, the
Company acquired Oriel Corporation (Oriel), a manufacturer and
distributor of electro-optical instruments and components and Corion
Corporation (Corion), a manufacturer of commercial optical filters.
On March 29, 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc (Fisons). On November 4, 1996, the Company acquired two
businesses formerly part of Fisons, Applied Research Laboratories (ARL)
and VG Elemental, from Thermo Instrument for an aggregate $55.2 million
in cash and the assumption of $16.6 million in debt, subject to a
post-closing adjustment. For accounting purposes, the Company's
acquisition of ARL and VG Elemental is deemed to have occurred on March
29, 1996 (Note 2). ARL is a manufacturer of wavelength-dispersive X-ray
fluorescence instruments and arc/spark atomic emission spectrometers and
VG Elemental is a manufacturer of inductively coupled plasma/mass
spectrometers. ARL and VG Elemental had revenues of $55.7 million and
11PAGE
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THERMO OPTEK CORPORATION
Overview (continued)
$16.2 million in 1995, respectively. In addition to ARL and VG Elemental,
the Company also acquired four sales and service organizations of these
two businesses located in South Africa, Austria, Sweden, and Canada. The
Company anticipates distributing ARL's and VG Elemental's products
elsewhere through the Company's existing distribution companies.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Revenues increased $44.8 million, or 97%, to $90.7 million in the
third quarter of 1996 from $45.9 million in the third quarter of 1995
primarily due to the acquisitions of ARL and VG Elemental, effective
March 29, 1996, Mattson and Unicam, effective December 1, 1995, and Oriel
and Corion in February 1996. Acquisitions added revenues of $40 million
in the third quarter of 1996. To a lesser extent, revenues increased due
to greater product demand. In addition, revenues in the third quarter of
1995 were low as a result of a disruption caused by the relocation of
certain TJA operations into a new facility. These increases were offset
in part by a decrease of $1.4 million in revenues due to the unfavorable
effects of currency translation as a result of the strengthening of the
U.S. dollar relative to foreign currencies in countries where the Company
operates.
The gross profit margin decreased to 47% in the third quarter of
1996 from 54% in the third quarter of 1995 primarily due to the inclusion
of lower-margin revenues from ARL and VG Elemental. In addition, the
gross profit margin was unusually high in the third quarter of 1995 as a
result of a decrease in lower-margin revenues from TJA due to the plant
relocation discussed above.
Selling, general and administrative expenses as a percentage of
revenues decreased to 28% in the third quarter of 1996 from 32% in the
third quarter of 1995 primarily due to an increase in total revenues.
Research and development expenses as a percentage of revenues decreased
to 6.1% in 1996 from 7.3% in 1995 primarily due to decreased spending at
TJA and lower research and development expenses as a percentage of
revenues at acquired businesses.
Prior to their acquisition by the Company, ARL and VG Elemental sold
products to other business units of the Scientific Instruments Division
of Fisons for marketing and ultimate resale to the customer. The Company
plans to distribute the products of ARL and VG Elemental primarily
through its existing distribution channels. As a result of this strategy,
the Company expects to increase selling, general and administrative
expenses as a percentage of revenues at these businesses while improving
the gross profit margin to cover these additional costs. The Company's
goal is to improve the gross profit margin at ARL and VG Elemental
through this change in distribution channels as well as through improving
product mix and manufacturing efficiencies, although there can be no
assurance that the Company will be successful in these efforts.
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THERMO OPTEK CORPORATION
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
Interest income increased to $1.6 million in the third quarter of
1996 from $36,000 in the third quarter of 1995 primarily as a result of
interest income earned on invested proceeds from the Company's October
1995 issuance of $96.3 million principal amount of 5% subordinated
convertible debentures. Interest expense increased to $1.7 million in
1996 from $0.3 million in 1995 primarily due to interest on the Company's
5% subordinated convertible debentures.
The effective tax rate was 43.6% in the third quarter of 1996,
compared with 41.5% in the third quarter of 1995. The effective tax rates
exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired
companies and the impact of state income taxes. The effective tax rate
increased in 1996 from 1995 primarily due to higher nondeductible
amortization of cost in excess of net assets of acquired companies in
1996.
First Nine Months 1996 Compared With First Nine Months 1995
Revenues increased $105.1 million, or 71%, to $253.7 million in the
first nine months of 1996 from $148.6 million in the first nine months of
1995 primarily due to the acquisitions discussed in the results of
operations for the third quarter and, to a lesser extent, greater product
demand, primarily at Nicolet as a result of two recently introduced
products. Acquisitions added revenues of $97.1 million in the first nine
months of 1996. In addition, revenues in the third quarter of 1995 were
low as a result of a relocation at TJA as discussed in the results of
operations for the third quarter. These increases were offset in part by
a decrease of $5.0 million in revenues due to the unfavorable effects of
currency translation as a result of the strengthening of the U.S. dollar
relative to foreign currencies in countries where the Company operates.
The gross profit margin decreased to 47% in the first nine months of
1996 from 51% in the first nine months of 1995 primarily due to the
reasons discussed in the results of operations for the third quarter.
Selling, general and administrative expenses as a percentage of
revenues were unchanged at 29% in the first nine months of 1996 and 1995.
Research and development expenses as a percentage of revenues remained
relatively unchanged at 6.6% in 1996, compared with 6.7% in 1995.
Interest income increased to $4.3 million in the first nine months
of 1996 from $72,000 in the first nine months of 1995. Interest expense
increased to $5.0 million in 1996 from $1.0 million in 1995. These
increases are due to the reasons discussed in the results of operations
for the third quarter.
The effective tax rate was 42.7% in the first nine months of 1996,
compared with 41.5% in the first nine months of 1995. The effective tax
rates exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired
companies and the impact of state income taxes.
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THERMO OPTEK CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $95.8 million at September 28,
1996, compared with $144.5 million at December 30, 1995. Included in
working capital are cash and cash equivalents of $114.2 million at
September 28, 1996, compared with $116.9 million at December 30, 1995.
Cash provided by operating activities was $21.0 million for the first
nine months of 1996. Accounts receivable decreased by $5.7 million
primarily as a result of a reduction in receivables at ARL and VG
Elemental from the date of their acquisition. Accounts payable decreased
$10.2 million due to a payment for inventories received in the fourth
quarter of 1995 and a reduction in payables at ARL and VG Elemental from
the date of their acquisition. Other current liabilities decreased $2.9
million primarily due to restructuring expenditures at Mattson, Unicam,
ARL, and VG Elemental.
On November 4, 1996, the Company acquired ARL and VG Elemental from
Thermo Instrument (Note 2) for $55.2 million in cash and the assumption
of $16.6 million in debt, subject to a post-closing adjustment to be
negotiated with Fisons by Thermo Instrument in connection with the
negotiations for the settlement of the final purchase price for all of
the businesses of Fisons acquired by Thermo Instrument in March 1996. The
Company has recorded a payable of $55.2 million for the acquisition of
ARL and VG Elemental in the accompanying 1996 balance sheet. The Company
paid the liability described above to Thermo Instrument on November 4,
1996.
The Company's investing activities used $56.3 million of cash in the
first nine months of 1996. The Company expended an aggregate $52.1
million, net of cash acquired, for acquisitions, including the
acquisitions of Mattson and Unicam, and $4.1 million for the purchase of
property, plant and equipment.
The Company's financing activities provided $33.0 million of cash in
the first nine months of 1996. In June and July 1996, the Company sold
3,450,000 shares of its common stock in an initial public offering for
net proceeds of approximately $42.9 million (Note 3). During the first
nine months of 1996, the Company repaid $10.0 million of short- and
long-term borrowings.
During the remainder of 1996, the Company plans to make expenditures
of approximately $1.5 million for property, plant and equipment. Although
the Company expects positive cash flow from its existing operations, the
Company anticipates it will require significant amounts of cash to pursue
the acquisition of complementary businesses. The Company expects that it
will finance acquisitions through a combination of internal funds,
additional debt or equity financing from the capital markets, or
short-term borrowings from Thermo Instrument or Thermo Electron
Corporation (Thermo Electron), although there is no agreement with Thermo
Instrument or Thermo Electron under which such parties are obligated to
lend funds to the Company. The Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
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THERMO OPTEK CORPORATION
PART II - OTHER INFORMATION
Item 5 - Other Information
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 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Risks Associated with Technological Change, Obsolescence and the
Development and Acceptance of New Products. The market for the Company's
products is characterized by rapid and significant technological change
and evolving industry standards. New product introductions responsive to
these factors require significant planning, design, development, and
testing at the technological, product, and manufacturing process levels,
and may render existing products and technologies uncompetitive or
obsolete. There can be no assurance that the Company's products will not
become uncompetitive or obsolete. 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 Acquisition Strategy; No Assurance of a
Successful 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 recently acquired certain businesses within the
former analytical instruments division of ATI and the former Scientific
Instruments Division of Fisons plc that were initially acquired by Thermo
Instrument in December 1995 and March 1996, respectively. Certain of
these businesses 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 market penetration. 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 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.
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THERMO OPTEK CORPORATION
Item 5 - Other Information (continued)
Possible Adverse Effect From Consolidation in the Environmental
Market and Changes in Environmental Regulations. One of the largest
markets for the Company's products is environmental analysis. During the
past three years, there has been a contraction in the market for
analytical instruments used for environmental analysis. This contraction
has caused consolidation in the businesses serving this market. Such
consolidation may have an adverse impact on certain of the Company's
businesses. In addition, 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.
Sales outside the United States accounted for approximately 60% of the
Company's revenues in 1995, 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; foreign countries could impose withholding taxes or otherwise tax
the Company's foreign income, impose tariffs, or adopt other restrictions
on foreign trade; fluctuations in exchange rates may affect product
demand and adversely affect the profitability in U.S. dollars of products
and services provided by the Company in foreign markets where payment for
the Company's products and services is made in the local currency; U.S.
export licenses may be difficult to obtain and the protection of
intellectual property in foreign countries may be more difficult to
enforce. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business and results of
operations.
Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company
believes that the principal competitive factors affecting the market for
its products include product performance, price, reliability, and
customer service. The Company's competitors include large multinational
corporations and their operating units, including Perkin-Elmer and
Varian. These companies and certain of the Company's other competitors
have substantially greater financial, marketing, and other resources than
those of the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the promotion and sale of their products
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THERMO OPTEK CORPORATION
Item 5 - Other Information (continued)
than the Company. In addition, competition could increase if new
companies enter the market or if existing competitors expand their
product lines or intensify efforts within existing product lines. There
can be no assurance that the Company's current products, products under
development, or ability to discover new technologies will be sufficient
to enable it to compete effectively with its competitors.
Risks Associated with Protection, Defense and Use of Intellectual
Property. The Company holds many patents relating to various aspects of
its products, and 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 patents will issue from any pending or future patent
applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect
the Company's technology 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 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. 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 could incur substantial costs in defending itself in suits
brought against it or in suits in which the Company may assert its patent
rights against others. If the outcome of any such litigation is
unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its
collaborators, employees, and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
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THERMO OPTEK CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 13th day of November
1996.
THERMO OPTEK CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
