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 1-12745
THERMEDICS DETECTION INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3106698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Mill Road
Chelmsford, Massachusetts 01824-4178
(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 [ ] No [ X ]
The Registrant became subject to the filing requirements of the
Securities Exchange Act of 1934 on February 21, 1997, the date
its Registration Statement on Form 8-A became effective, and
has filed all reports required to be filed thereunder since
such date.
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, $.10 par value 13,354,792
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS DETECTION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 47,265 $ 13,484
Accounts receivable, less allowances
of $1,172 and $1,215 7,958 9,387
Inventories:
Raw materials 6,209 6,135
Work in process and finished goods 3,204 2,965
Prepaid and refundable income taxes 2,169 2,173
Prepaid expenses 556 547
-------- --------
67,361 34,691
-------- --------
Property, Plant, and Equipment, at Cost 5,757 5,683
Less: Accumulated depreciation
and amortization 4,108 3,899
-------- --------
1,649 1,784
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 16,088 16,694
-------- --------
Other Assets 314 314
-------- --------
$ 85,412 $ 53,483
======== ========
2PAGE
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THERMEDICS DETECTION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Current Liabilities:
Promissory note to parent company $ 21,200 $ -
Accounts payable 2,480 3,030
Accrued payroll and employee benefits 1,187 1,375
Accrued installation and warranty expenses 1,256 1,413
Deferred revenue 1,471 1,281
Customer deposits 1,413 637
Accrued income taxes 993 334
Other accrued expenses 5,300 3,102
Due to parent company and Thermo
Electron Corporation 632 161
-------- --------
35,932 11,333
-------- --------
Deferred Income Taxes 40 40
-------- --------
Promissory Note to Parent Company - 21,200
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.10 par value, 50,000,000
shares authorized; 13,354,792 and
10,683,500 shares issued and outstanding 1,335 1,068
Capital in excess of par value 40,984 13,130
Retained earnings 8,160 7,136
Cumulative translation adjustment (1,039) (424)
-------- --------
49,440 20,910
-------- --------
$ 85,412 $ 53,483
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMEDICS DETECTION INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues:
Product $ 9,073 $ 6,557
Service 3,356 2,788
------- -------
12,429 9,345
------- -------
Costs and Operating Expenses:
Cost of product revenues 4,614 3,553
Cost of service revenues 1,482 1,629
Selling, general, and administrative
expenses 3,449 3,558
Research and development expenses 1,071 1,176
------- -------
10,616 9,916
------- -------
Operating Income (Loss) 1,813 (571)
Interest Income 203 -
Interest Expense, Related Party (306) (221)
Other Expense, Net (4) (45)
------- -------
Income (Loss) Before Income Taxes 1,706 (837)
Income Tax (Provision) Benefit (682) 313
------- -------
Net Income (Loss) $ 1,024 $ (524)
======= =======
Earnings (Loss) per Share $ .09 $ (.05)
======= =======
Weighted Average Shares 10,976 10,099
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMEDICS DETECTION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 1,024 $ (524)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 349 674
Provision for losses on accounts
receivable 18 30
Other noncash expenses 135 313
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 1,423 (1,284)
Inventories (346) 604
Other current assets (14) (306)
Accounts payable (550) (540)
Other current liabilities 3,923 2,092
-------- --------
Net cash provided by operating activities 5,962 1,059
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (21,668)
Purchases of property, plant, and equipment (131) (186)
Other 82 6
-------- --------
Net cash used in investing activities (49) (21,848)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 28,121 3,000
Proceeds from issuance of promissory note
to parent company - 21,200
Transfers to parent company and additional
capital contributions, net - 120
Other (18) (13)
-------- --------
Net cash provided by financing activities 28,103 24,307
-------- --------
Exchange Rate Effect on Cash (235) 58
-------- --------
Increase in Cash and Cash Equivalents 33,781 3,576
Cash and Cash Equivalents at Beginning
of Period 13,484 1,282
-------- --------
Cash and Cash Equivalents at End of Period $ 47,265 $ 4,858
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ - $ 24,328
Cash paid for acquired companies - (21,668)
-------- --------
Liabilities assumed of acquired companies $ - $ 2,660
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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THERMEDICS DETECTION INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermedics Detection Inc. (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
consolidated financial statements and notes of the Company. The
consolidated financial statements and notes included herein should be
read in conjunction with the consolidated financial statements and notes
included in the Company's Registration Statement on Form S-1 (File No.
333-19199), filed with the Securities and Exchange Commission.
2. Presentation
Certain amounts in 1996 have been reclassified to conform to the
presentation in the 1997 financial statements.
3. Initial Public Offering
In March 1997, the Company sold 2,671,292 shares of common stock in
an initial public offering at $11.50 per share for net proceeds of $28.1
million. Following the offering, Thermedics Inc. (Thermedics) owned 75%
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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Risk Factors" included in the
Company's Registration Statement on Form S-1 (File No. 333-19199).
6PAGE
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THERMEDICS DETECTION INC.
Overview
The Company develops, manufactures, and markets high-speed detection
and measurement systems used in on-line industrial process applications,
explosives detection, and laboratory analysis. The Company's industrial
process systems use ultratrace chemical detectors, high-speed gas
chromatography, X-ray imaging, near-infrared spectroscopy, and other
technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products,
chemical, and other consumer products industries. The Company's
explosives-detection equipment uses simultaneous trace particle- and
vapor-detection techniques based on its proprietary chemiluminescence and
high-speed gas chromatography technologies. Customers use the Company's
explosives-detection equipment to detect plastic and other explosives at
airports and border crossings, for other high-security screening
applications, and for forensics and search applications.
Historically, the Company's principal product lines were process
detection systems, including Alexus(R) systems used to assure the quality
of refillable plastic containers, and EGIS(R) explosives detectors. The
Company expanded its product lines to include moisture analysis equipment
through its acquisition of Moisture Systems Corporation and Rutter & Co.
B.V. (collectively, Moisture Systems) in January 1996, and also
introduced its InScan(TM) high-speed X-ray imaging systems (InScan
systems) and Flash-GC(TM) gas chromatography systems (Flash-GC systems)
in 1996. The Company also performs contract research and development
services for government and industry customers and generates service
revenues through long-term contracts.
A substantial portion of the Company's sales are derived from sales
of products outside the United States, through export sales and sales by
the Company's foreign subsidiaries. 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. The Company expects an increase in
the percentage of its revenues derived from international operations.
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Revenues in the first quarter of 1997 increased 33% to $12.4 million
from $9.3 million in the first quarter of 1996. Product revenues
increased 38% to $9.1 million in 1997 from $6.6 million in 1996, while
service revenues increased 20% to $3.3 million in 1997 from $2.8 million
in 1996. Revenues from the Company's process detection instruments
increased to $4.7 million in 1997 from $1.3 million in 1996, primarily
due to $2.2 million from the continued fulfillment of a mandated product-
line upgrade from The Coca-Cola Company to its existing installed base
and, to a lesser extent, increased shipments of the Company's InScan
systems, which were introduced in 1996. Revenues from the mandated
product-line upgrade are expected to continue through the third quarter
of 1997. Revenues from the Company's EGIS explosives-detection systems
and related services decreased to $1.0 million in 1997 from $2.9 million
7PAGE
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THERMEDICS DETECTION INC.
First Quarter 1997 Compared With First Quarter 1996 (continued)
in 1996, primarily due to reduced demand in 1997 when compared with the
sale in 1996 of eight EGIS systems to the U.S. government to provide
counter-terrorism support in Israel. In May 1997, the Company was awarded
a $6.2 million contract for its EGIS systems from the Federal Aviation
Administration. Revenues from the Company's Moisture Systems subsidiary
increased to $4.0 million in 1997 from $2.9 million in 1996, primarily
due to the inclusion of revenues for the full quarter in 1997.
The gross profit margin increased to 51% in the first quarter of 1997
from 45% in the first quarter of 1996. The gross profit margin on product
revenues increased to 49% in 1997 from 46% in 1996 as a result of a
change in product mix in 1997. The gross profit margin on service
revenues increased to 56% in 1997 from 42% in 1996, primarily due to
increased field service efficiencies and the inclusion of higher-margin
service revenues from Moisture Systems for the full quarter in 1997.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 28% in the first quarter of 1997 from 38% in the
first quarter of 1996 as a result of an increase in revenues and
nonrecurring costs in the 1996 period related to a reduction in personnel
and other adjustments. This decrease was offset in part by increased
selling expense as the Company develops a sales force for its InScan and
Flash-GC systems. Research and development expenses as a percentage of
revenues declined to 8.6% in the first quarter of 1997 from 12.6% in the
first quarter of 1996, primarily due to an increase in revenues and the
substantial completion of research and development relating to the
Company's InScan systems.
Interest expense, related party, of $0.3 million in the first quarter
of 1997 reflects the issuance of a $21.2 million promissory note to
Thermedics Inc. (Thermedics) in connection with the January 1996
acquisition of Moisture Systems. This note is due March 1998, and bears
interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
The effective tax rates were 40% and 37% in the first quarter of 1997
and 1996, respectively. The effective tax rates in both periods exceeded
the statutory federal income tax rate primarily due to the impact of
state income taxes. The effective tax rate increased in 1997 due to
higher state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $31.4 million at March 29, 1997,
compared with $23.4 million at December 28, 1996. Cash and cash
equivalents were $47.3 million at March 29, 1997, compared with $13.5
million at December 28, 1996.
During the first quarter of 1997, $6.0 million of cash was provided
by operating activities. During the first quarter of 1997, cash was
provided by an increase in current liabilities of $3.9 million, including
$2.2 million of other accrued expenses, primarily related to costs
incurred in the initial public offering.
8PAGE
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THERMEDICS DETECTION INC.
Liquidity and Capital Resources (continued)
During the first quarter of 1997, the Company expended $0.1 million
on purchases of property, plant, and equipment. During the remainder of
1997, the Company expects to make capital expenditures of approximately
$0.4 million.
In March 1997, the Company sold 2,671,292 shares of its common stock
in an initial public offering at $11.50 per share for net proceeds of
$28.1 million.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant
amounts of cash for the possible acquisition of complementary businesses
and technologies. The Company expects that it will finance these
acquisitions through a combination of internal funds, additional debt or
equity financing, and/or short-term borrowings from Thermedics 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 that its existing resources are sufficient to meet the
capital requirements of its existing businesses for the foreseeable
future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
9PAGE
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THERMEDICS DETECTION INC.
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 5th day of May 1997.
THERMEDICS DETECTION INC.
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
10PAGE
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THERMEDICS DETECTION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of Earnings (Loss) per Share.
27 Financial Data Schedule.
Exhibit 11
THERMEDICS DETECTION INC.
Computation of Earnings (Loss) per Share
Three Months Ended
--------------------------
March 29, March 30,
1997 1996
-----------------------------------------------------------------------
Computation of Primary Earnings (Loss)
per Share:
Net Income (Loss) (a) $ 1,024,000 $ (524,000)
----------- -----------
Shares:
Weighted average shares outstanding 10,975,926 10,032,967
Add: Shares issuable from assumed exercise
of options (as determined by the
application of the treasury stock
method) - 65,889
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 10,975,926 10,098,856
----------- -----------
Primary Earnings (Loss) per Share (a) / (b) $ .09 $ (.05)
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
DETECTION INC.'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>
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<S> <C>
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<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 47,265
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<RECEIVABLES> 9,130
<ALLOWANCES> 1,172
<INVENTORY> 9,413
<CURRENT-ASSETS> 67,361
<PP&E> 5,757
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<TOTAL-ASSETS> 85,412
<CURRENT-LIABILITIES> 35,932
<BONDS> 0
0
0
<COMMON> 1,335
<OTHER-SE> 48,105
<TOTAL-LIABILITY-AND-EQUITY> 85,412
<SALES> 9,073
<TOTAL-REVENUES> 12,429
<CGS> 4,614
<TOTAL-COSTS> 6,096
<OTHER-EXPENSES> 1,071
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