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 October 3, 1998.
[ ] 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: (781) 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 30, 1998
---------------------------- -------------------------------
Common Stock, $.10 par value 13,355,459 Actual
19,316,684 Pro Forma
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS DETECTION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
October 3, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $23,429
and $40,043 under repurchase agreement
with affiliated company) $ 33,814 $ 46,352
Accounts receivable, less allowances of
$1,016 and $1,127 15,991 18,223
Inventories:
Raw materials 10,209 9,698
Work in process and finished goods 6,662 7,957
Prepaid and refundable income taxes 4,964 3,595
Prepaid expenses 1,347 1,439
-------- --------
72,987 87,264
-------- --------
Property, Plant, and Equipment, at Cost 12,241 10,697
Less: Accumulated depreciation and
amortization 7,834 6,686
-------- --------
4,407 4,011
-------- --------
Other Assets 1,187 1,198
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 55,029 55,792
-------- --------
$133,610 $148,265
======== ========
2
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THERMEDICS DETECTION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 3, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Promissory note to parent company $ - $ 21,200
Accounts payable 3,636 3,868
Accrued payroll and employee benefits 3,359 3,852
Accrued income taxes 3,379 2,331
Accrued installation and warranty expenses 1,187 1,154
Deferred revenue 1,069 1,689
Other accrued expenses 4,892 5,410
Due to parent company and affiliated companies 80 1,415
-------- --------
17,602 40,919
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 19,316,684 pro forma
shares issued and outstanding 1,932 1,932
Capital in excess of par value 94,781 93,755
Retained earnings 20,158 13,206
Accumulated other comprehensive items
(Note 3) (863) (1,547)
-------- --------
116,008 107,346
-------- --------
$133,610 $148,265
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMEDICS DETECTION INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues:
Product revenues $18,575 $22,836
Service revenues 4,994 3,396
------- -------
23,569 26,232
------- -------
Costs and Operating Expenses:
Cost of product revenues 8,268 9,701
Cost of service revenues 2,240 1,941
Selling, general, and administrative expenses 6,615 6,483
Research and development expenses 2,360 2,537
------- -------
19,483 20,662
------- -------
Operating Income 4,086 5,570
Interest Income 328 602
Interest Expense, Related Party - (311)
Other Income (Expense), Net (6) 16
------- -------
Income Before Provision for Income Taxes 4,408 5,877
Provision for Income Taxes 1,741 2,351
------- -------
Net Income $ 2,667 $ 3,526
======= =======
Basic and Diluted Earnings Per Share (Note 2) $ .14 $ .18
======= =======
Weighted Average Shares (Note 2):
Basic 19,317 19,316
======= =======
Diluted 19,325 19,322
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMEDICS DETECTION INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues:
Product revenues $57,942 $66,273
Service revenues 13,292 11,130
------- -------
71,234 77,403
------- -------
Costs and Operating Expenses:
Cost of product revenues 25,881 28,848
Cost of service revenues 6,366 5,596
Selling, general, and administrative expenses 20,972 21,515
Research and development expenses 7,426 7,325
------- -------
60,645 63,284
------- -------
Operating Income 10,589 14,119
Interest Income 1,206 1,461
Interest Expense, Related Party (303) (934)
Other Income (Expense), Net (1) 9
------- -------
Income Before Provision for Income Taxes 11,491 14,655
Provision for Income Taxes 4,539 5,862
------- -------
Net Income $ 6,952 $ 8,793
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .36 $ .47
======= =======
Weighted Average Shares (Note 2):
Basic 19,317 18,523
======= =======
Diluted 19,323 18,534
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMEDICS DETECTION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 6,952 $ 8,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,477 2,385
Provision for losses on accounts receivable 201 154
Other noncash expenses 967 530
Changes in current accounts:
Accounts receivable 2,112 (1,245)
Inventories (1,237) (4,442)
Other current assets 63 (195)
Accounts payable (248) 57
Other current liabilities (2,288) 1,631
-------- --------
Net cash provided by operating activities 8,999 7,668
-------- --------
Investing Activities:
Purchases of property, plant, and equipment (1,771) (1,330)
Proceeds from sale of property, plant, and
equipment 117 -
Other 51 89
-------- --------
Net cash used in investing activities (1,603) (1,241)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock - 28,122
Repayment of promissory note to parent company (21,200) -
Orion Research net transfers (to) from parent
company 1,026 (3,992)
Other - (48)
-------- --------
Net cash provided by (used in) financing
activities (20,174) 24,082
-------- --------
Exchange Rate Effect on Cash 240 (93)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (12,538) 30,416
Cash and Cash Equivalents at Beginning of Period 46,352 14,264
-------- --------
Cash and Cash Equivalents at End of Period $ 33,814 $ 44,680
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
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 October 3, 1998, the results of
operations for the three- and nine-month periods ended October 3, 1998, and
September 27, 1997, and the cash flows for the nine-month periods ended October
3, 1998, and September 27, 1997. Interim results are not necessarily indicative
of results for a full year.
Historical financial results have been restated to include Orion Research,
Inc., which was acquired in a transaction accounted for in a manner similar to a
pooling of interests (Note 4). 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 consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998,
and with the Company's Current Report on Form 8-K/A, dated July 20, 1998, filed
with the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Nine Months Ended
------------------- -------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Basic
Net Income $ 2,667 $ 3,526 $ 6,952 $ 8,793
------- ------- ------- -------
Weighted Average Shares 13,356 13,355 13,356 12,562
Shares Issuable in Connection
With the Acquisition of
Orion Research, Inc. 5,961 5,961 5,961 5,961
------- ------- ------- -------
Pro Forma Weighted Average
Shares, as Adjusted 19,317 19,316 19,317 18,523
------- ------- ------- -------
Basic Earnings per Share $ .14 $ .18 $ .36 $ .47
======= ======= ======= =======
Diluted
Net Income $ 2,667 $ 3,526 $ 6,952 $ 8,793
------- ------- ------- -------
Pro Forma Basic Weighted
Average Shares 19,317 19,316 19,317 18,523
Effect of Stock Options 8 6 6 11
------- ------- ------- -------
Pro Forma Weighted Average
Shares, as Adjusted 19,325 19,322 19,323 18,534
------- ------- ------- -------
Diluted Earnings per Share $ .14 $ .18 $ .36 $ .47
======= ======= ======= =======
7
<PAGE>
2. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of October 3, 1998, there were 618,759 of such options
outstanding, with exercise prices ranging from $9.55 to $12.46 per share.
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items", which
represents foreign currency translation adjustments, reported as a component of
shareholders' investment in the accompanying balance sheet. During the third
quarter of 1998 and 1997, the Company's comprehensive income totaled $3,351,000
and $3,374,000, respectively. During the first nine months of 1998 and 1997, the
Company's comprehensive income totaled $7,636,000 and $7,734,000, respectively.
4. Acquisition
On April 14, 1998, the Company announced its intention to acquire Orion
Research, Inc., a wholly owned subsidiary of Thermedics Inc., in a merger in
which 5,961,225 shares of the Company's common stock would be issued in exchange
for all of the outstanding shares of Orion Research. On May 6, 1998, the
transaction was completed, subject to shareholder approval of the issuance of
the shares of Company common stock to Thermedics in the merger. Orion Research
manufactures electrochemistry products that determine the quality of a wide
variety of substances by measuring components, such as pH, specific ion content,
dissolved oxygen, and conductivity. These products are used in the
environmental, biomedical research, food, chemical, pharmaceutical, and many
other industries. In 1997, Orion Research's revenues and net income were
$53,054,000 and $6,437,000, respectively.
Because the Company and Orion Research were deemed for accounting purposes
to be under control of their common majority owner, Thermedics, the transaction
has been accounted for at historical cost in a manner similar to a pooling of
interests. Accordingly, all historical financial information presented has been
restated to include the acquisition of Orion Research. The 5,961,225 shares of
the Company's common stock issuable in the merger will not be issued until the
listing of such shares for trading upon the American Stock Exchange has been
approved by the Company's shareholders. Because Thermedics is the majority
shareholder and intends to vote its shares in favor of such listing, the
approval is assured and, therefore, the shares are considered to be outstanding
as of December 29, 1996, for purposes of computing weighted average shares.
Revenues and net income as previously reported for the
8
<PAGE>
4. Acquisition (continued)
separate entities prior to the acquisition and as restated for the
combined Company are as follows:
Three Months Ended Nine Months Ended
(In thousands) September 27, 1997 September 27, 1997
- ---------------------------------------------------------------------------
Revenues:
Historical $12,632 $37,458
Orion Research 13,600 39,945
------- -------
$26,232 $77,403
======= =======
Net Income:
Historical $ 1,686 $ 4,125
Orion Research 1,840 4,668
------- -------
$ 3,526 $ 8,793
======= =======
5. Proposed Reorganization
On August 12, 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. As part of this reorganization, Thermo Electron announced that
Thermedics' equity interest in the Company may be transferred to Thermo Electron
in exchange for shares of Thermedics common stock. Thermo Electron may in turn
transfer such equity interest in the Company to Thermo Instrument Systems Inc.
for cash. Subsequently, the Company may be taken private and become a wholly
owned subsidiary of Thermo Instrument. Shareholders of the Company would receive
cash or shares of Thermo Instrument common stock in exchange for their shares of
the Company's common stock. The completion of these transactions is subject to
numerous conditions, including the establishment of prices or exchange ratios;
confirmation of anticipated tax consequences; the approval of the Board of
Directors of the Company, Thermedics, and Thermo Instrument, including their
respective independent directors; the negotiation and execution of definitive
agreements; the receipt of fairness opinions from one or more investment banking
firms on certain financial aspects of the transactions; the approval of Thermo
Electron's Board of Directors; and clearance by the Securities and Exchange
Commission of any necessary documents regarding the proposed transactions.
9
<PAGE>
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 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" included in the Company's Current Report on Form
8-K/A relating to the events of May 6, 1998, filed with the Securities and
Exchange Commission on July 20, 1998.
Overview
The Company develops, manufactures, and markets high-speed detection and
measurement systems used for on-line industrial process and quality control
applications, laboratory analyses, and security and public safety measures.
The Company's industrial process instruments use ultratrace chemical
detectors, X-ray imaging, near-infrared spectroscopy, and other technologies for
quality assurance of in-process or finished products, primarily in the food,
beverage, pharmaceutical, forest products, chemical, and other consumer products
industries. The Company's Alexus(R) systems detect trace amounts of substances
that would affect product quality in refillable beverage containers. The
Company's InScan(R) systems use high-speed X-ray imaging to determine accurate
fill volume, net volume, package integrity, and other quality measures for a
variety of products in cans, bottles, boxes, and other containers. In addition,
the Company's near-infrared analyzers measure moisture and other product
constituents, such as fats, proteins, oils, flavorings, solvents, adhesives, and
coatings, in a broad range of products as they move along manufacturing lines.
The Company's laboratory products use high-speed gas chromatography,
electrochemistry, and other technologies for quality assurance and regulatory
compliance, primarily in the environmental, food, beverage, chemical,
pharmaceutical, and biomedical research industries. The Company's Flash-GC(TM)
gas chromatograph provides -- at speeds 20 to 50 times faster -- the same
information that conventional gas chromatographs provide on the chemical
composition of a wide range of substances, including pharmaceuticals, chemicals,
food, beverages, soil, and water. An offshoot of the Flash-GC, the Company's EZ
Flash(TM) system is an upgrade kit that can be integrated with almost any
conventional gas chromatograph to enable it to conduct chemical analysis up to
30 times faster. The Company's recently acquired Orion Research, Inc. subsidiary
(Note 4) is a worldwide leading manufacturer of electrochemistry products that
determine the quality of various substances, from food and
10
<PAGE>
Overview (continued)
pharmaceuticals to water and wastewater, by measuring their pH, specific ion
content, dissolved oxygen, and conductivity.
In addition, the Company makes explosives-detection equipment that uses
simultaneous trace particle- and vapor-detection techniques based on its
proprietary chemiluminescence and high-speed gas chromatography technologies.
Customers use these explosives-detection systems to detect plastic and other
explosives at airports and border crossings, for other high-security screening
applications, and for forensics and search applications.
The Company also performs contract research and development services for
government and industry customers and earns service revenues through long-term
contracts.
Results of Operations
Third Quarter 1998 Compared With Third Quarter 1997
Revenues in the third quarter of 1998 decreased to $23.6 million from $26.2
million in the third quarter of 1997. Product revenues decreased to $18.6
million in 1998 from $22.8 million in 1997, and service revenues increased to
$5.0 million in 1998 from $3.4 million in 1997. Revenues from the Company's
industrial process instruments and related services decreased to $7.9 million in
1998 from $9.0 million in 1997, primarily due to a decrease in large corporate
orders for near-infrared analyzers and related products. Revenues from the
Company's laboratory products instruments and related services decreased to
$13.0 million in 1998 from $14.1 million in 1997, due to a decrease in worldwide
demand. Revenues from the Company's EGIS(R) explosives-detection systems and
related services decreased to $2.4 million in 1998 from $2.8 million in 1997,
primarily due to a decline in international demand.
The gross profit margin decreased slightly to 55% in the third quarter of
1998 from 56% in the third quarter of 1997. The gross profit margin on product
revenues decreased to 55% in 1998 from 58% in 1997, primarily due to an increase
in warranty costs relating to the deployment of certain explosives-detection
instruments in the third quarter of 1998. The gross profit margin on service
revenues increased to 55% in 1998 from 43% in 1997, primarily due to an increase
in higher-margin Alexus service revenues.
Selling, general, and administrative expenses as a percentage of revenues
increased to 28% in the third quarter of 1998 from 25% in the third quarter of
1997, primarily due to a decrease in revenues. Research and development expenses
were relatively unchanged at $2.4 million in 1998 and $2.5 million in 1997.
Interest income decreased to $0.3 million in the third quarter of 1998 from
$0.6 million in the third quarter of 1997, primarily due to lower average
invested balances as a result of the repayment of the
11
<PAGE>
Third Quarter 1998 Compared With Third Quarter 1997 (continued)
Company's promissory note to Thermedics in March 1998. Interest expense, related
party, of $0.3 million in the third quarter of 1997 relates to the promissory
note to Thermedics.
The effective tax rates were 39% and 40% in the third quarter of 1998 and
1997, respectively. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes.
First Nine Months 1998 Compared With First Nine Months 1997
Revenues in the first nine months of 1998 decreased to $71.2 million from
$77.4 million in the first nine months of 1997. Product revenues decreased to
$57.9 million in 1998 from $66.3 million in 1997, while service revenues
increased to $13.3 million in 1998 from $11.1 million in 1997. Revenues from the
Company's industrial process instruments and related services decreased to $23.1
million in 1998 from $28.1 million in 1997, primarily due to a decrease in
Alexus-related revenues, offset in part by an increase in InScan product sales.
Revenues in the first nine months of 1997 included $5.4 million from a mandated
Alexus product-line upgrade of The Coca-Cola Company's existing installed base.
Revenues from the Company's laboratory products instruments and related services
decreased to $40.5 million in 1998 from $41.0 million in 1997. Revenues from the
Company's EGIS explosives-detection systems and related services remained
relatively unchanged at $6.9 million in 1998 from $7.0 million in 1997.
The gross profit margin decreased slightly to 55% in the first nine months
of 1998 from 56% in the first nine months of 1997. The gross profit margin on
product revenues decreased to 55% in 1998 from 56% in 1997, primarily due to a
change in product mix. The gross profit margin on service revenues increased to
52% in 1998 from 50% in 1997, primarily due to an increase in higher-margin
service revenues for near-infrared-related products, as well as decreased
European field service costs.
Selling, general, and administrative expenses as a percentage of revenues
increased slightly to 29% in the first nine months of 1998 from 28% in the first
nine months of 1997, primarily due to a decrease in revenues. Research and
development expenses remained relatively unchanged at $7.4 million in 1998 and
$7.3 million in 1997.
Interest income decreased to $1.2 million in the first nine months of 1998
from $1.5 million in the first nine months of 1997, primarily due to lower
average invested balances as a result of the repayment of the Company's
promissory note to Thermedics in March 1998. Interest expense, related party, of
$0.3 million and $0.9 million in the first nine months of 1998 and 1997,
respectively, relates to a promissory note issued to Thermedics and repaid in
March 1998.
The effective tax rate was 40% in the first nine months of 1998 and 1997.
The effective tax rate exceeded the statutory federal income tax rate primarily
due to the impact of state income taxes.
12
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $55.4 million at October 3, 1998, compared
with $46.3 million at January 3, 1998. Included in working capital are cash and
cash equivalents of $33.8 million at October 3, 1998, compared with $46.4
million at January 3, 1998.
During the first nine months of 1998, $9.0 million of cash was provided by
operating activities. During this period, $2.1 million of cash was provided by a
decrease in accounts receivable due to lower revenues. This source of cash was
offset by $2.3 million of cash used to reduce other current liabilities,
including $1.3 million due to parent company and affiliated companies. In
addition, cash of $1.2 million was used to fund an increase in inventories,
primarily relating to purchases for the production of the EZ Flash, which began
in May 1998.
During the first nine months of 1998, the Company expended $1.8 million on
purchases of property, plant, and equipment and expects to make capital
expenditures of approximately $0.6 million during the remainder of 1998.
In March 1998, the Company repaid its $21.2 million promissory note to
Thermedics.
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. While
the Company currently has no agreement to make an acquisition, except as
discussed in Note 4 to the consolidated financial statements, it expects that it
would finance any acquisition through a combination of internal funds and/or
short-term borrowings from Thermedics or Thermo Electron, 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.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading internal business
systems and facilities; (ii) testing and developing necessary upgrades for the
Company's current products and certain discontinued products; (iii) contacting
key suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.
13
<PAGE>
Year 2000 (continued)
The Company's State of Readiness
The Company has tested and evaluated its critical information technology
systems for year 2000 compliance, including its significant computer systems,
software applications, and related equipment. The Company is currently in the
process of upgrading or replacing its noncompliant systems. In most cases, such
upgrades or replacements are being made in the ordinary course of business. The
Company expects that all of its material information technology systems will be
year 2000 compliant by the end of 1999. The Company is also evaluating the
potential year 2000 impact on its facilities, including its buildings and
utility systems. Any problems that are identified will be prioritized and
remediated based on their assigned priority. The Company will continue periodic
testing of its critical internal business systems and facilities in an effort to
minimize operating disruptions due to year 2000 issues.
The Company believes that all of the material products that it currently
manufactures and sells are year 2000 compliant. However, as many of the
Company's products are complex, interact with third-party products, and operate
on computer systems that are not under the Company's control, there can be no
assurance that the Company has identified all of the year 2000 problems with its
current products. The Company believes that certain of its older products, which
it no longer manufactures or sells, may not be year 2000 compliant. The Company
is continuing to test and evaluate such products and may offer upgrades or
alternative products where reasonably practicable.
The Company is in the process of identifying and contacting suppliers,
vendors, and customers that are believed to be significant to the Company's
business operations in order to assess their year 2000 readiness. As part of
this effort, the Company has developed and is distributing questionnaires
relating to year 2000 compliance to its significant suppliers, vendors, and
customers. The Company intends to follow-up and monitor the year 2000 compliant
progress of significant suppliers, vendors, and customers that indicate that
they are not year 2000 compliant or that do not respond to the Company's
questionnaires.
Contingency Plan
The Company intends to develop a contingency plan that will allow its
primary business operations to continue despite disruptions due to year 2000
problems. This plan may include identifying and securing other suppliers,
increasing inventories, and modifying production facilities and schedules. As
the Company continues to evaluate the year 2000 readiness of its business
systems and facilities, products and significant suppliers, vendors, and
customers, it will modify and adjust its contingency plan as may be required.
14
<PAGE>
Year 2000 (continued)
Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. If any of the Company's
material suppliers, vendors, or customers experience business disruptions due to
year 2000 issues, the Company might also be materially adversely affected. The
Company's research and development, production, distribution, financial,
administrative, and communications operations might be disrupted. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. Any unexpected costs or delays arising
from the year 2000 issue could have a significant adverse impact on the
Company's business, operations, and financial condition.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On July 20, 1998, the Company filed a Current Report on Form 8-K/A amending
the Form 8-K filed on May 6, 1998, by providing the required financial
information related to the Orion Research, Inc. acquisition.
On August 13, 1998, the Company filed a Current Report on Form 8-K dated
August 12, 1998, with respect to a proposed reorganization by the Company's
ultimate parent corporation, Thermo Electron Corporation, involving certain of
Thermo Electron's subsidiaries, including the Company.
<PAGE>
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 10th day of November 1998.
THERMEDICS DETECTION INC.
Paul F. Kelleher
-----------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
-----------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
16
<PAGE>
THERMEDICS DETECTION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------------------------------------------------------------------------------
27.1 Financial Data Schedule for the Quarter Ended October 3, 1998.
27.2 Financial Data Schedule for the Quarter Ended September 27, 1997
(restated for the acquisition of Orion Research, Inc.).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
DETECTION INC.'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 3, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 33,814
<SECURITIES> 0
<RECEIVABLES> 17,007
<ALLOWANCES> 1,016
<INVENTORY> 16,871
<CURRENT-ASSETS> 72,987
<PP&E> 12,241
<DEPRECIATION> 7,834
<TOTAL-ASSETS> 133,610
<CURRENT-LIABILITIES> 17,602
<BONDS> 0
0
0
<COMMON> 1,932
<OTHER-SE> 114,076
<TOTAL-LIABILITY-AND-EQUITY> 133,610
<SALES> 57,942
<TOTAL-REVENUES> 71,234
<CGS> 25,881
<TOTAL-COSTS> 32,247
<OTHER-EXPENSES> 7,426
<LOSS-PROVISION> 201
<INTEREST-EXPENSE> 303
<INCOME-PRETAX> 11,491
<INCOME-TAX> 4,539
<INCOME-CONTINUING> 6,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,952
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
DETECTION INC.'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 27,1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 46,352
<SECURITIES> 0
<RECEIVABLES> 19,350
<ALLOWANCES> 1,127
<INVENTORY> 17,655
<CURRENT-ASSETS> 87,264
<PP&E> 10,697
<DEPRECIATION> 6,686
<TOTAL-ASSETS> 148,265
<CURRENT-LIABILITIES> 40,919
<BONDS> 0
0
0
<COMMON> 1,932
<OTHER-SE> 105,414
<TOTAL-LIABILITY-AND-EQUITY> 148,265
<SALES> 66,273
<TOTAL-REVENUES> 77,403
<CGS> 28,848
<TOTAL-COSTS> 34,444
<OTHER-EXPENSES> 7,325
<LOSS-PROVISION> 154
<INTEREST-EXPENSE> 934
<INCOME-PRETAX> 14,655
<INCOME-TAX> 5,862
<INCOME-CONTINUING> 8,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,793
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
