SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended March 29, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11757
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 April 25, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 48,450,000
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO OPTEK CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 61,500 $ 63,641
Accounts receivable, less allowances of
$4,526 and $4,436 81,901 79,568
Inventories:
Raw materials and supplies 29,907 27,865
Work in process 11,673 10,353
Finished goods 21,900 24,466
Prepaid expenses 7,467 5,961
Prepaid income taxes 15,223 15,254
Due from affiliated companies 1,376 11,919
-------- --------
230,947 239,027
-------- --------
Property, Plant, and Equipment, at Cost 75,306 75,607
Less: Accumulated depreciation and
amortization 23,236 22,021
-------- --------
52,070 53,586
-------- --------
Patents and Other Assets 9,825 10,232
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 199,979 195,513
-------- --------
$492,821 $498,358
======== ========
2PAGE
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THERMO OPTEK CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 20,116 $ 27,736
Accounts payable 21,606 23,101
Accrued payroll and employee benefits 11,038 11,494
Accrued commissions 5,965 6,377
Accrued installation and warranty expenses 12,828 11,953
Accrued income taxes 10,929 12,425
Deferred revenue 19,362 14,568
Other accrued expenses (Note 2) 26,423 27,484
-------- --------
128,267 135,138
-------- --------
Deferred Income Taxes 13,741 13,865
-------- --------
Other Deferred Items 3,323 3,413
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 96,250 96,250
Other 495 528
-------- --------
96,745 96,778
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 48,450,000 shares
issued and outstanding 485 485
Capital in excess of par value 222,123 222,123
Retained earnings 35,412 28,663
Cumulative translation adjustment (7,275) (2,107)
-------- --------
250,745 249,164
-------- --------
$492,821 $498,358
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $ 88,754 $ 69,668
-------- --------
Costs and Operating Expenses:
Cost of revenues 46,483 35,760
Selling, general, and administrative
expenses 24,406 21,326
Research and development expenses 5,433 4,934
-------- --------
76,322 62,020
-------- --------
Operating Income 12,432 7,648
Interest Income 888 1,541
Interest Expense (1,683) (1,591)
-------- --------
Income Before Provision for Income Taxes 11,637 7,598
Provision for Income Taxes 4,888 3,302
-------- --------
Net Income $ 6,749 $ 4,296
======== ========
Earnings per Share $ .14 $ .10
======== ========
Weighted Average Shares 48,450 45,157
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 6,749 $ 4,296
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,191 2,239
Provision for losses on accounts
receivable 77 642
Other noncash expenses 415 501
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (3,579) 2,128
Inventories (5,547) (1,388)
Other current assets 7,629 334
Accounts payable (1,470) (4,182)
Other current liabilities 2,563 6,171
Other 89 110
-------- --------
Net cash provided by operating activities 10,117 10,851
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (2,571) (15,477)
Purchases of property, plant, and equipment (1,828) (1,595)
Other 94 91
-------- --------
Net cash used in investing activities (4,305) (16,981)
-------- --------
Financing Activities:
Decrease in short-term obligations, net (7,452) (693)
Repayment of long-term obligations (115) (90)
-------- --------
Net cash used in financing activities (7,567) (783)
-------- --------
Exchange Rate Effect on Cash (386) (188)
-------- --------
Decrease in Cash and Cash Equivalents (2,141) (7,101)
Cash and Cash Equivalents at Beginning
of Period 63,641 116,890
-------- --------
Cash and Cash Equivalents at End of Period $ 61,500 $109,789
======== ========
5PAGE
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THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ 6,067 $133,312
Cash paid for acquired companies (3,017) (16,869)
Amount due to parent company for
acquisitions - (55,196)
-------- --------
Liabilities assumed of acquired companies $ 3,050 $ 61,247
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 March
29, 1997, the results of operations for the three-month periods ended
March 29, 1997, and March 30, 1996, and the cash flows for the
three-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 28,
1996, filed with the Securities and Exchange Commission.
2. Restructuring Activities
In connection with the acquisitions of A.R.L. Applied Research
Laboratories S.A. (ARL) and VG Elemental, effective March 1996, and the
Mattson Instruments and Unicam divisions of ATI, effective December 1995,
the Company had undertaken a restructuring of the acquired businesses.
During 1997, the Company expended $681,000 at its Mattson and Unicam
subsidiaries and $1,654,000 at its ARL and VG Elemental subsidiaries for
restructuring costs. These expenditures consisted primarily of severance
and abandoned facility payments. The Company finalized its restructuring
plans for Mattson and Unicam in 1996 and for ARL and VG Elemental in
1997. In connection with finalizing its restructuring plan for ARL and VG
Elemental, the Company recorded an additional $1,396,000 of acquisition
reserves in 1997, primarily for severance, termination fees to former
distribution agents, and abandonment of excess facilities. This amount
was recorded as an increase in cost in excess of net assets of acquired
companies. The remaining reserve balance of $5,267,000 for all of these
acquired businesses is for ongoing severance and abandoned facility
payments. As of March 29, 1997, the Company had accrued a total of
$6,787,000 for restructuring costs for all of its acquisitions, including
those discussed above. These reserves are included in other accrued
expenses in the accompanying balance sheet.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
7PAGE
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THERMO OPTEK CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended,
for the fiscal year ended December 28, 1996, filed with the Securities
and Exchange Commission.
Overview
Prior to 1996, the Company's principal operating units included
Thermo Jarrell Ash Corporation (TJA), a manufacturer and distributor of
atomic absorption (AA) and atomic emission (AE) spectrometry products
based in Franklin, Massachusetts, and Nicolet Instrument Corporation
(Nicolet), a manufacturer and distributor of Fourier Transform Infrared
(FT-IR) and FT-Raman spectrometry products based in Madison, Wisconsin.
During 1996, the Company acquired five additional companies, summarized
below, significantly increasing its operations.
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. Effective December 1, 1995, the Company
acquired Mattson Instruments, a manufacturer of FT-IR spectroscopy
instruments, and Unicam, a manufacturer of AA and ultraviolet/visible
spectroscopy instruments, from Thermo Instrument Systems Inc., the
majority owner of the Company. In February 1996, the Company acquired
Oriel Corporation, a manufacturer and distributor of electro-optical
instruments and components, and Corion Corporation, a manufacturer of
commercial optical filters. Effective March 29, 1996, the Company
acquired A.R.L. Applied Research Laboratories S.A., a manufacturer of
wavelength-dispersive X-ray fluorescence instruments and arc/spark atomic
emission spectrometers, and VG Elemental, a manufacturer of inductively
coupled plasma/mass spectrometers, from Thermo Instrument.
Through its Thermo Vision Corporation subsidiary, the Company
addresses the photonics marketplace for optical components, imaging
systems, analytical instruments, and lasers. Thermo Vision is pursuing
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 in 1997. The Company is
seeking 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. The Company would distribute the shares upon receipt of
the Letter Ruling and satisfaction of other conditions, including the
listing of the Thermo Vision shares on the American Stock Exchange.
8PAGE
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THERMO OPTEK CORPORATION
Overview (continued)
Thermo Vision, which includes Oriel and Corion, had revenues of $30.5
million in 1996.
The Company sells its products on a worldwide basis. Although the
Company seeks to charge its customers in the same currency as its
operating costs, the Company's financial performance and competitive
position can be affected by currency exchange rate fluctuations. Where
appropriate, the Company uses forward contracts to reduce its exposure to
currency fluctuations.
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Revenues increased 27% to $88.8 million in the first quarter of 1997
from $69.7 million in the first quarter of 1996 due to the acquisitions
of ARL and VG Elemental, effective March 29, 1996, and Oriel and Corion
in February 1996. Acquisitions added revenues of $25.5 million in 1997.
This increase was offset in part by the inclusion in 1996 of several
large non-recurring sales to the Chinese and Japanese governments and the
elimination of certain unprofitable Unicam product lines. In addition,
revenues decreased $1.4 million due to the unfavorable effects of
currency translation as a result of the strengthening in value of the
U.S. dollar relative to currencies in foreign countries in which the
Company operates.
The gross profit margin decreased to 48% in the first quarter of 1997
from 49% in the first quarter of 1996, primarily due to the inclusion of
lower-margin revenues from ARL and VG Elemental.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 27% in the first quarter of 1997 from 31% in the
first quarter of 1996, primarily due to efforts to reduce selling and
administrative costs at Mattson and Unicam and the integration of ARL and
VG Elemental products into the Company's existing North American and
European distribution channels.
Research and development expenses as a percentage of revenues
decreased to 6% in the first quarter of 1997 from 7% in the first quarter
of 1996 primarily due to the completion of certain research projects at
TJA and Unicam.
Interest income decreased to $0.9 million in the first quarter of
1997 from $1.5 million in the first quarter of 1996 due to lower invested
cash balances as a result of cash used to fund acquisitions. Interest
expense was $1.7 million in 1997, compared with $1.6 million in 1996, and
primarily represents interest on the Company's 5% subordinated
convertible debentures.
The effective tax rate was 42% in the first quarter of 1997, compared
with 43% in the first quarter of 1996. The effective tax rates exceeded
the statutory federal income tax rate primarily due to the impact of
9PAGE
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THERMO OPTEK CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
state income taxes, the nondeductible amortization of cost in excess of
net assets of acquired companies, and the inability to provide a tax
benefit on foreign losses, offset in part by the tax benefit associated
with a foreign sales corporation.
Liquidity and Capital Resources
Consolidated working capital was $102.7 million at March 29, 1997,
compared with $103.9 million at December 28, 1996. Included in working
capital are cash and cash equivalents of $61.5 million at March 29, 1997,
compared with $63.6 million at December 28, 1996. Cash provided by
operating activities was $10.1 million for the first three months of
1997. During this period, the Company used $5.5 million of cash to fund
an increase in inventories, primarily to support the distribution of ARL
and VG Elemental products through certain of the Company's existing
distribution channels. This change in distribution channels also
contributed to a reduction in amounts due from affiliated companies of
$7.6 million and an increase in accounts receivable of $3.6 million.
The Company's investing activities used $4.3 million of cash in the
first three months of 1997. During this period, the Company used $2.6
million of cash for acquisitions, net of cash acquired. The Company
expended $1.8 million for the purchase of property, plant, and equipment
and plans to expend an additional $4.0 million for such purchases in the
remainder of 1997.
The Company used $7.6 million of cash in the first three months of
1997 for the repayment of short- and long-term borrowings.
Although the Company expects to have positive cash flow from its
existing operations, the Company may require significant amounts of cash
for any acquisition of complementary businesses. The Company expects that
it will finance any such acquisitions through a combination of internal
funds, additional debt or equity financing from capital markets, or
short-term borrowings from Thermo Instrument or Thermo Electron
Corporation, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all. The Company
believes its existing resources are sufficient to meet the capital
requirements of its existing operations for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
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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 6th day of May 1997.
THERMO OPTEK CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
11PAGE
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THERMO OPTEK CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
Exhibit 11
THERMO OPTEK CORPORATION
Computation of Earnings per Share
Three Months Ended
-------------------------------
March 29, March 30,
1997 1996
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 6,749,000 $ 4,296,000
----------- -----------
Shares:
Weighted average shares outstanding 48,450,000 45,000,000
Add: Shares issuable from
assumed exercise of options
(as determined by the
application of the treasury
stock method) - 157,040
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 48,450,000 45,157,040
----------- -----------
Primary Earnings per Share (a) / (b) $ .14 $ .10
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO OPTEK
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 61,500
<SECURITIES> 0
<RECEIVABLES> 86,427
<ALLOWANCES> 4,526
<INVENTORY> 63,480
<CURRENT-ASSETS> 230,947
<PP&E> 75,306
<DEPRECIATION> 23,236
<TOTAL-ASSETS> 492,821
<CURRENT-LIABILITIES> 128,267
<BONDS> 96,745
0
0
<COMMON> 485
<OTHER-SE> 250,260
<TOTAL-LIABILITY-AND-EQUITY> 492,821
<SALES> 88,754
<TOTAL-REVENUES> 88,754
<CGS> 46,483
<TOTAL-COSTS> 46,483
<OTHER-EXPENSES> 5,433
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 1,683
<INCOME-PRETAX> 11,637
<INCOME-TAX> 4,888
<INCOME-CONTINUING> 6,749
<DISCONTINUED> 0
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</TABLE>
