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 July 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-12179
THERMO BIOANALYSIS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 85-0429899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
504 Airport Road
Santa Fe, New Mexico 87504-2108
(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 July 31, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 15,086,418 Actual
18,094,348 Pro forma
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $86,629
and $10,158 under repurchase agreement with
affiliated company) $105,622 $ 39,704
Accounts receivable, less allowances of
$6,110 and $6,232 44,604 47,210
Inventories:
Raw materials and supplies 13,443 12,818
Work in process 3,840 3,238
Finished goods 24,206 22,579
Prepaid income taxes 8,587 8,484
Prepaid expenses and other current assets 5,480 4,221
-------- --------
205,782 138,254
-------- --------
Property, Plant, and Equipment, at Cost 37,250 34,405
Less: Accumulated depreciation and
amortization 14,609 11,438
-------- --------
22,641 22,967
-------- --------
Other Assets 3,450 2,712
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 160,456 158,506
-------- --------
$392,329 $322,439
======== ========
2
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Borrowings under overdraft facility $ 4,202 $ 2,465
Accounts payable 10,615 12,596
Accrued payroll and employee benefits 5,864 8,482
Accrued income taxes 5,207 6,097
Accrued acquisition expenses (Note 2) 3,816 5,110
Other accrued expenses 13,206 13,482
Deferred revenue 5,204 3,675
Due to parent company and affiliated companies
(Note 2) 34,078 35,846
-------- --------
82,192 87,753
-------- --------
Deferred Income Taxes 139 139
-------- --------
Long-term Obligations:
Note payable to parent company 50,000 50,000
Subordinated convertible note, due to parent
company 50,000 50,000
Other 202 204
-------- --------
100,202 100,204
-------- --------
Shareholders' Investment (Notes 2 and 5):
Common stock, $.01 par value, 25,000,000
shares authorized; 18,094,370 and 14,081,448
pro forma shares issued 181 141
Capital in excess of par value 200,599 131,483
Retained earnings 15,595 9,633
Treasury stock at cost, 522 shares in 1998 (10) -
Accumulated other comprehensive items (Note 3) (6,569) (6,914)
-------- --------
209,796 134,343
-------- --------
$392,329 $322,439
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues (includes $2,128 and $10,251 from
affiliated companies) $55,345 $58,790
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $1,365 and $6,920
for revenues from affiliated companies) 25,829 30,660
Selling, general, and administrative expenses 18,393 17,098
Research and development expenses 3,689 4,180
------- -------
47,911 51,938
------- -------
Operating Income 7,434 6,852
Interest Income 681 793
Interest Expense (includes $1,837 and $2,540 to
related party) (1,975) (2,634)
------- -------
Income Before Provision for Income Taxes 6,140 5,011
Provision for Income Taxes 2,333 1,824
------- -------
Net Income $ 3,807 $ 3,187
======= =======
Earnings per Share (Note 4):
Basic $ .26 $ .23
======= =======
Diluted $ .23 $ .21
======= =======
Weighted Average Shares (Note 4):
Basic 14,797 14,080
======= =======
Diluted 18,049 17,244
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
--------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues (includes $2,826 and $11,213 from
affiliated companies) $109,779 $ 85,591
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $1,791 and $7,299
for revenues from affiliated companies) 52,412 44,508
Selling, general, and administrative expenses 36,292 25,083
Research and development expenses 7,612 6,532
-------- --------
96,316 76,123
-------- --------
Operating Income 13,463 9,468
Interest Income 1,679 1,518
Interest Expense (includes $3,702 and $3,311 to
related party) (3,978) (3,490)
-------- --------
Income Before Provision for Income Taxes 11,164 7,496
Provision for Income Taxes 4,155 2,727
-------- --------
Net Income $ 7,009 $ 4,769
======== ========
Earnings per Share (Note 4):
Basic $ .49 $ .39
======== ========
Diluted $ .44 $ .36
======== ========
Weighted Average Shares (Note 4):
Basic 14,442 12,352
======== ========
Diluted 17,674 15,439
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
---------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 7,009 $ 4,769
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,453 3,734
Provision for losses on accounts
receivable 200 234
Other - (50)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 3,444 (6,515)
Inventories (4,335) 1,963
Other current assets (1,109) (366)
Accounts payable (2,716) (1,417)
Due to parent company and affiliated
companies (5,801) 867
Other current liabilities (555) (832)
-------- --------
Net cash provided by operating activities 1,590 2,387
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (6,602) (11,588)
Adjustment to acquisition purchase price 9,459 205
Purchases of property, plant, and equipment (3,214) (1,305)
Other 234 531
-------- --------
Net cash used in investing activities (123) (12,157)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock (Note 5) 69,146 6
Repayment of indebtedness to parent company (6,342) -
Increase in bank overdraft facility 1,737 725
-------- --------
Net cash provided by financing activities $ 64,541 $ 731
-------- --------
6
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
--------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (90) $ (2,362)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 65,918 (11,401)
Cash and Cash Equivalents at Beginning of
Period 39,704 45,476
-------- --------
Cash and Cash Equivalents at End of Period $105,622 $ 34,075
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired companies,
including cash acquired of $13 in 1998 and
$23,995 in 1997 $ 7,790 $242,374
Issuance of Company common stock for
acquired companies - (83,533)
Promissory note payable to parent company for
acquired companies - (50,000)
Debt payable to parent company for acquired
companies - (43,331)
Cash paid for acquired companies (6,615) (35,583)
Adjustments to purchase price due from parent
company for acquired companies - 9,075
-------- --------
Liabilities assumed of acquired companies $ 1,175 $ 39,002
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
THERMO BIOANALYSIS CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo BioAnalysis 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 July 4, 1998, the
results of operations for the three- and six-month periods ended July 4, 1998,
and June 28, 1997, and the cash flows for the six-month periods ended July 4,
1998, and June 28, 1997. Interim results are not necessarily indicative of
results for a full year.
Historical financial results have been restated to include the Clinical
Products Group of Life Sciences International (LSI), which was acquired in a
transaction accounted for in a manner similar to a pooling of interests (Note
2). 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. 333-52445) filed with the Securities and Exchange
Commission in June 1998.
2. Acquisitions
In May 1998, the Company acquired all of the outstanding stock of Data
Medical Associates, Inc. (DMA), which develops, manufactures, and distributes
chemistry reagents and related accessories, for $5.2 million in cash and the
repayment of $0.5 million of debt, subject to a post-closing adjustment. To
date, no information has been gathered that would cause the Company to believe
that the post-closing adjustment will be material. In addition, in June 1998,
the Company completed one other acquisition for $0.9 million in cash.
These acquisitions have been accounted for using the purchase method of
accounting, and their results of operations have been included in the
accompanying financial statements from the respective dates of acquisition. The
cost of these acquisitions exceeded the estimated fair value of the acquired net
assets by $4.5 million, which is being amortized over 40 years. Allocation of
the purchase price was based on an estimate of the fair value of the net assets
acquired and is subject to adjustment upon finalization of the purchase price
allocations. The Company has gathered no information that indicates the final
allocations will differ materially from the preliminary estimates. Pro forma
data is not presented as these acquisitions were not material to the Company's
results of operations.
In March 1997, Thermo Instrument Systems Inc. acquired LSI. In May
1998, the Company agreed to acquire the Clinical Products Group of LSI,
which is comprised of Shandon Inc. and its related businesses, including
ALKO Diagnostic Corporation, from Thermo Instrument. The Clinical Products
Group provides equipment and consumables for cytology,
8
<PAGE>
2. Acquisitions (continued)
histology, and pathology applications. It also supplies consumables for blood
gas and ion-selective electrolyte analyzers. The net purchase price for the
Clinical Products Group is $66.7 million, which represents the sum of the net
book value of the businesses as of April 4, 1998, plus a percentage of Thermo
Instrument's total cost in excess of net assets acquired associated with its
acquisition of LSI, based on the 1996 revenues of the Clinical Products Group
relative to LSI's 1996 consolidated revenues. The Company believes that this
allocation methodology is reasonable and in accordance with the guidance
provided by Staff Accounting Bulletin 55 (Topic 1:B).
The net purchase price for the Clinical Products Group will be paid with
3,007,930 shares of Company common stock valued at $22.16 per share,
representing the five-day average for the period preceding the date the parties
reached agreement in principle on the material terms of the transaction.
Issuance of the common stock to Thermo Instrument will occur immediately after
the listing upon the American Stock Exchange of the 3,007,930 shares of Company
common stock, which will require approval by the Company's shareholders. Because
Thermo Instrument is the Company's majority shareholder and intends to vote its
shares in favor of such listing, the approval is assured. In addition to the
shares of Company common stock to be issued to Thermo Instrument, the Company
assumed $37.9 million of existing indebtedness owed by the Clinical Products
Group to Thermo Instrument, making the gross purchase price $104.5 million. This
amount includes $12.0 million for an equivalent amount of cash acquired. The
existing indebtedness owed to Thermo Instrument is due January 2, 1999, and
bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. The Company expects to have repaid
this indebtedness prior to its maturity.
Because the Company and the Clinical Products Group were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Instrument, the transaction has been accounted for in a manner similar to a
pooling of interests. Accordingly, the accompanying financial statements include
the results of the Clinical Products Group from March 12, 1997, the date these
businesses were acquired by Thermo Instrument, and the 3,007,930 shares issuable
to Thermo Instrument have been deemed outstanding from that date and are
therefore included in the computation of earnings per share. The purchase price
for the Clinical Products Group included $4.5 million for the increase in net
book value from the date the Clinical Products Group was acquired by Thermo
Instrument (including $1.0 million for earnings during the first quarter of
1998). This amount was recorded as a deemed distribution from retained earnings,
reflecting consideration to Thermo Instrument for the earnings of the Clinical
Products Group from the date of the acquisition by Thermo Instrument.
9
<PAGE>
2. Acquisitions (continued)
In connection with the acquisitions of the Clinical Products Group of LSI
and the Labsystems OY and Hybaid divisions of LSI, the Company is in the process
of restructuring the acquired businesses. This restructuring is expected to
primarily include reductions in staffing levels and, to a lesser extent, costs
for the termination of certain joint venture arrangements. In accordance with
the requirements of EITF 95-3, as part of the cost of the acquisition, the
Company has established reserves of approximately $8,536,000, of which the
Company expended $3,426,000 during 1997 and $1,480,000 in the first six months
of 1998, primarily for severance payments. Finalization of the Company's plan
for restructuring the acquired businesses occurred during the first quarter of
1998. Unresolved matters at July 4, 1998, included completing termination of
joint ventures and planned severances. As of July 4, 1998, the Company had
accrued $3,816,000 of restructuring costs for all of its acquisitions, including
those described above.
Following a vote of the Company's shareholders in April 1998, the Company
issued to Thermo Instrument 1,300,000 shares of its common stock in connection
with its 1997 acquisition of the Labsystems OY and Hybaid divisions of LSI.
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
represent foreign currency translation adjustments, reported as a component of
shareholders' investment in the accompanying balance sheet. During the second
quarter of 1998 and 1997, the Company had comprehensive income of $5,119,000 and
$496,000, respectively. During the first six months of 1998 and 1997, the
Company had comprehensive income of $7,354,000 and $2,319,000, respectively.
10
<PAGE>
4. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
------------------- ------------------
(In thousands except July 4, June 28, July 4, June 28,
per share amounts) 1998 1997 1998 1997
- ----------------------------------------------------------------------------
Basic
Net income $ 3,807 $ 3,187 $ 7,009 $ 4,769
------- ------- ------- -------
Weighted average shares 11,789 11,072 11,434 10,551
Shares issuable for
acquisition of Clinical
Products Group of LSI
(Note 2) 3,008 3,008 3,008 1,801
------- ------- ------- -------
Pro forma weighted average
shares, as adjusted 14,797 14,080 14,442 12,352
------- ------- ------- -------
Basic earnings per share $ .26 $ .23 $ .49 $ .39
======= ======= ======= =======
Diluted
Net income $ 3,807 $ 3,187 $ 7,009 $ 4,769
Effect of convertible
debentures 390 390 780 780
------- ------- ------- -------
Income available to common
shareholders, as adjusted $ 4,197 $ 3,577 $ 7,789 $ 5,549
------- ------- ------- -------
Basic weighted average shares 14,797 14,080 14,442 12,352
Effect of:
Convertible debentures 3,030 3,030 3,030 3,030
Stock options 222 134 202 57
------- ------- ------- -------
Pro forma weighted average
shares, as adjusted 18,049 17,244 17,674 15,439
------- ------- ------- -------
Diluted earnings per share $ .23 $ .21 $ .44 $ .36
======= ======= ======= =======
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 July 4, 1998, there were 75,000 of such options
outstanding, with an exercise price of $21.93 per share.
5. Sale of Common Stock
In June 1998, the Company sold 4,000,000 shares of its common stock in a
public offering at $18.125 per share, for net proceeds of $69,028,000. Of this
amount, 1,000,000 shares were purchased by Thermo Electron Corporation.
11
<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 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 (Reg. No. 333-52445).
Overview
The Company has three principal product lines: biomolecular instruments and
consumables, clinical laboratory equipment and supplies, and information
management systems. The Company's biomolecular instruments and consumables are
based on proprietary immunoassay, optical biosensor, polymerase chain reaction
(PCR), MALDI-TOF mass spectometry (MALDI-TOF), DNA amplification, and capillary
electrophoresis (CE) technologies, and are used in pharmaceutical and
biopharmaceutical research, as well as for clinical laboratory testing and
diagnosis of patient samples. The Company's clinical laboratory products
business supplies a range of equipment and consumables with applications in
cytology, histology, and pathology. The Company's information management systems
business designs, implements, and supports laboratory information management
systems (LIMS), and chromatography data systems (CDS) for use in laboratories,
industrial applications, and clinical testing facilities.
The Company was incorporated in February 1995 and on February 7, 1996,
acquired the Dynex Technologies division of Dynatech Corporation. Since then,
the Company has acquired from Thermo Instrument the LabSystems and Affinity
Sensors divisions of Fisons, the Labsystems OY, Hybaid and Labsystems Japan
divisions of LSI, and the Clinical Products Group of LSI. The Company's
financial statements include the results of operations of the acquired divisions
of Fisons and LSI from March 29, 1996 and March 12, 1997, respectively, the date
these businesses were acquired by Thermo Instrument.
As of July 5, 1998, the Company will contribute the assets and liabilities
of its health physics division to a joint venture the Company formed with Thermo
Instrument. The Company will receive a 49% equity interest in the joint venture,
and will initially receive 67% of the profit and losses of the joint venture.
The Company's health physics business had revenues of $13.4 million in 1997.
12
<PAGE>
Overview (continued)
A significant percentage of the Company's revenues are derived from sales of
products and services outside the U.S., including certain Asian countries,
through export sales and sales by the Company's foreign operations. Asia is
experiencing a severe economic crisis, which has been characterized by sharply
reduced economic activity and liquidity, highly volatile
foreign-currency-exchange and interest rates, and unstable stock markets. The
Company's sales to Asia have been adversely affected by the unstable economic
conditions there.
The Company anticipates that a significant portion of its revenues will
continue to be from sales to customers outside the U.S. As a result, the
Company's financial performance and competitive position can be affected by
currency exchange rate fluctuations. The Company may use forward contracts to
reduce its exposure to currency fluctuations.
Results of Operations
Second Quarter 1998 Compared With Second Quarter 1997
Revenues decreased to $55.3 million in the second quarter of 1998 from $58.8
million in the second quarter of 1997. Revenues decreased due to a change in the
Company's distribution relationship with certain affiliated companies that
switched to direct sales, and due to lower sales of the Company's DIAS(TM)
immunoassay system, as a result of increased competition. These decreases were
offset in part by an increase in sales of LIMS, due to continued market
acceptance of products introduced in late 1997, and the inclusion of $0.5
million of revenues from acquisitions (Note 2). Revenues decreased $1.2 million
due to the strengthening of the U.S. dollar relative to foreign currencies in
countries where the Company operates. In addition, a decrease of $3.3 million in
sales to Asia related to the economic crisis there was offset in part by an
increase in sales in North America and Europe.
The gross profit margin increased to 53% in the second quarter of 1998 from
48% in the second quarter of 1997, primarily due to an increase in the gross
profit margin at the liquid-handling and PCR businesses as a result of the
introduction of certain higher-margin products and manufacturing efficiencies.
The gross profit margin also increased due to an increase in revenues from the
LIMS business, which has a relatively high gross profit margin.
Selling, general, and administrative expenses as a percentage of revenues
increased to 33% in the second quarter of 1998 from 29% in the second quarter of
1997, primarily due to increased costs at the liquid-handling and PCR
businesses, related to the opening of four direct sales and service offices in
1998. Research and development expenses decreased to $3.7 million in the second
quarter of 1998 from $4.2 million in the second quarter of 1997, primarily due
to reduced spending at the PCR business as a result of the completed development
of certain new products in the fourth quarter of 1997 and first quarter of 1998.
13
<PAGE>
Second Quarter 1998 Compared With Second Quarter 1997 (continued)
Interest income decreased to $0.7 million in the second quarter of 1998 from
$0.8 million in the second quarter of 1997, primarily due to lower average
invested balances, prior to the Company's June 1998 public offering of common
stock (Note 5). Interest expense decreased to $2.0 million in the second quarter
of 1998 from $2.6 million in the second quarter of 1997, primarily due to the
June 1997 repayment of a $35.6 million debt payable to Thermo Instrument related
to the acquisition of the Labsystems OY and Hybaid divisions of LSI.
The effective tax rate was 38% in the second quarter of 1998 compared with
36% in the second quarter of 1997. The effective tax rates exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes and nondeductible amortization of cost in excess of net assets of acquired
companies, offset in part by the impact of relatively low tax rates in certain
countries in which the Company operates. The effective tax rate increased in
1998 due to a greater percentage of the Company's income being generated in
countries with higher tax rates than in 1997.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased by the
Company. The Company believes that its internal information systems and current
products are either year 2000 compliant or will be so prior to the year 2000
without incurring material costs. There can be no assurance, however, that the
Company will not experience unexpected costs and delays in achieving year 2000
compliance for its internal information systems and current products, which
could result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the effect that the year 2000 issue may
have on its previously sold products. The Company is also assessing whether its
key suppliers are adequately addressing this issue and the effect this might
have on the Company. The Company has not completed its analysis and is unable to
conclude at this time that the year 2000 issue as it relates to its previously
sold products and products purchased from key suppliers is not reasonably likely
to have a material adverse effect on the Company's future results of operations.
First Six Months 1998 Compared With First Six Months 1997
Revenues increased to $109.8 million in the first six months of 1998 from
$85.6 million in the first six months of 1997, primarily due to the reasons
discussed in the results of operations for the second quarter, including an
increase of $28.5 million due to acquisitions (Note 2) and a decrease of $1.4
million due to the strengthening of the U.S. dollar relative to foreign
currencies in countries where the Company operates.
The gross profit margin increased to 52% in the first six months of 1998
from 48% in the first six months of 1997. The gross profit margin increased due
to the inclusion of a full period of revenues from businesses acquired March 12,
1997 as a result of the impact of higher-
14
<PAGE>
First Six Months 1998 Compared With First Six Months 1997 (continued)
margin revenues from the liquid-handling and PCR businesses, offset in part by
lower-margin revenues from the clinical laboratory products business. In
addition, the gross profit margin increased due to the introduction of certain
higher-margin products and manufacturing efficiencies at the liquid-handling and
PCR businesses, an increase in the sale of certain higher-margin products at
Dynex, and an increase in revenues from the LIMS business, which has a
relatively high gross profit margin.
Selling, general, and administrative expenses as a percentage of revenues
increased to 33% in the first six months of 1998 from 29% in the first six
months of 1997. The increase relates primarily to the inclusion of a full period
of operations at businesses acquired March 12, 1997 as a result of the impact of
higher costs at the liquid-handling and PCR businesses, offset in part by lower
costs at the clinical laboratory products business. In addition, selling,
general, and administrative expenses as a percentage of revenues increased due
to the opening in 1998 of four direct sales and service offices for the
liquid-handling and PCR businesses. Research and development expenses increased
to $7.6 million in the first six months of 1998 from $6.5 million in the first
six months of 1997, primarily due to the inclusion of a full period of expenses
at acquired businesses, offset in part by reduced spending at the PCR business
in the second quarter of 1998, due to the reason described in the results of
operations for the second quarter.
Interest income increased to $1.7 million in the first six months of 1998
from $1.5 million in the first six months of 1997, primarily due to interest
income received from Thermo Instrument on a $9.1 million adjustment to the
aggregate purchase price for the acquisitions of the Labsystems OY, Hybaid, and
Labsystems Japan divisions of LSI, offset in part by the effect of lower average
invested balances in 1998, prior to the Company's June 1998 public offering of
common stock (Note 5). Interest expense increased to $4.0 million in the first
six months of 1998 from $3.5 million in the first six months of 1997, primarily
due to the inclusion of a full period of interest expense on the Company's $50.0
million promissory note payable to Thermo Instrument, offset in part by the June
1997 repayment of the $35.6 million debt to Thermo Instrument related to the
acquisition of the Labsystems OY and Hybaid divisions of LSI.
The effective tax rate was 37% in the first six months of 1998, compared
with 36% in the first six months of 1997, and exceeded the statutory federal
income tax rate primarily due to the reasons described in the results of
operations for the second quarter. The effective tax rate increased in 1998 due
to a greater percentage of the Company's income being generated in countries
with higher tax rates than in 1997.
15
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $123.6 million at July 4, 1998, compared
with $50.5 million at January 3, 1998. Included in working capital are cash and
cash equivalents of $105.6 million at July 4, 1998, compared with $39.7 million
at January 3, 1998. Of the Company's total cash and cash equivalents at July 4,
1998, $86.6 million was invested in a repurchase agreement with Thermo Electron
Corporation. During the first six months of 1998, operating activities provided
$1.6 million of cash. An increase in inventories used $4.3 million in cash,
primarily related to an increase in finished goods inventories at the Company's
clinical laboratory products business due in part to a decrease in sales in
Asia. A decrease in due to parent company and affiliated companies used $5.8
million of cash, primarily due to the timing of repayments of certain trade and
other operating balances payable to other Thermo Instrument companies.
The Company's investing activities used $0.1 million in cash during the
first six months of 1998. The Company made expenditures of $3.2 million for
purchases of property, plant, and equipment, and expects to make capital
expenditures of approximately $4.0 million during the remainder of 1998. During
the first six months of 1998, the Company completed acquisitions for aggregate
consideration of $6.6 million of cash, net of cash acquired, and received
acquisition purchase price adjustments aggregating $9.5 million, including $9.1
million from Thermo Instrument related to the 1997 acquisitions of the
Labsystems OY, Hybaid, and Labsystems Japan divisions of LSI. In addition, in
May 1998, the Company agreed to acquire the Clinical Products Group of LSI from
Thermo Instrument (Note 2).
The Company has undertaken a restructuring of certain acquired businesses
(Note 2). Amounts accrued for such activities totaled $3.8 million at July 4,
1998. The payments will primarily occur during the remainder of 1998. The
Company expects that such expenditures will not change materially from amounts
accrued at July 4, 1998.
The Company's financing activities provided $64.5 million of cash during the
first six months of 1998. In June 1998, the Company sold 4,000,000 shares of its
common stock in a public offering at $18.125 per share, for net proceeds of
$69.0 million. During the second quarter of 1998, the Company repaid $6.3
million of indebtedness associated with the acquisition of the Clinical Products
Group (Note 2). A net increase in the Company's bank overdraft facility provided
$1.7 million.
The Company has signed non-binding letters of intent relating to the
purchase of two businesses for aggregate consideration of approximately $36.0
million in cash. These proposed acquisitions are subject to certain conditions,
including completion of due diligence and negotiation of definitive agreements.
There can be no assurance that these acquisitions will be completed.
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
16
<PAGE>
Liquidity and Capital Resources (continued)
and technologies. The Company expects that it will finance these acquisitions
through a combination of internal funds and/or short-term borrowings from Thermo
Instrument or Thermo Electron, although there is no agreement with these
companies to ensure that funds will be available on acceptable terms or at all.
The Company has a $50.0 million promissory note payable to Thermo Instrument due
in July 1999, which it expects to repay through a combination of internal funds
and/or short term borrowings from Thermo Instrument or Thermo Electron, although
there is no agreement with these companies to ensure that funds will be
available on acceptable terms or at all. Thermo Instrument, however, has stated
its intention to require repayment of such indebtedness only to the extent that
the Company's resources permit. Accordingly, the Company believes that its
existing cash and cash equivalents are sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
PART II - OTHER INFORMATION
Item 2 - Recent Sales of Unregistered Securities
On April 30, 1998, the Company issued 1,300,000 shares of its common stock
to Thermo Instrument in connection with the Company's acquisition of the
Labsystems OY and Hybaid divisions of LSI from Thermo Instrument. In addition,
on June 8, 1998, in connection with the Company's acquisition of the businesses
comprising the Clinical Products Group of LSI from Thermo Instrument, the
Company issued an instrument to Thermo Instrument evidencing the Company's
obligation to issue 3,007,930 shares of its common stock to Thermo Instrument at
such time as such shares have been approved for listing on the American Stock
Exchange, Inc. Exemption from registration for these transactions is claimed
under Section 4(2) of the Securities Act of 1933, as amended.
Item 4 - Submission of Matters to a Vote of Security Holders
On June 1, 1998, at the Annual Meeting of Shareholders, the
shareholders elected seven directors to a one-year term expiring in 1999.
The directors elected at the meeting were: Dr. Elias P. Gyftopoulos, Mr.
Barry S. Howe, Mr. Earl R. Lewis, Mr. Colin Maddix, Mr. Jonathan W.
Painter, Mr. Arvin H. Smith, and Dr. Arnold N. Weinberg. Each director
received 8,276,648 shares voted in favor of his election and 16,600 shares
voted against. No abstentions or broker nonvotes were recorded on the
election of directors.
17
<PAGE>
Item 5 - Other Information
Pursuant to recent amendments to the rules relating to proxy statements
under the Securities Exchange Act of 1934, as amended (the Exchange Act),
shareholders of the Company are hereby notified that any shareholder proposal
not included in the Company's proxy materials for its 1999 Annual Meeting of
Shareholders (the Annual Meeting) in accordance with Rule 14a-8 under the
Exchange Act will be considered untimely for the purposes of Rules 14a-4 and
14a-5 under the Exchange Act if notice thereof is received by the Company after
March 15, 1999. Management proxies will be authorized to exercise discretionary
voting authority with respect to any shareholder proposal not included in the
Company's proxy materials for the Annual Meeting unless (a) the Company receives
notice of such proposal by March 15, 1999, and (b) the conditions set forth in
Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act are met.
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 May 21, 1998, the Company filed a Current Report on Form 8-K, dated May
20, 1998, with respect to the acquisition of the Clinical Products Group of LSI
from Thermo Instrument (Items 2, 7).
18
<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 14th day of August 1998.
THERMO BIOANALYSIS CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
19
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------------
27.1 Financial Data Schedule for the Six Months Ended July 4,
1998.
27.2 Financial Data Schedule for the Three Months Ended March 29,
1997 (restated for the acquisition of the Clinical Products
Group, effective March 12, 1997).
27.3 Financial Data Schedule for the Six Months Ended June 28, 1997
(restated for the acquisition of the Clinical Products Group,
effective March 12, 1997).
27.4 Financial Data Schedule for the Nine Months Ended September 27,
1997 (restated for the acquisition of the Clinical Products
Group, effective March 12, 1997).
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
BIOANALYSIS CORPORATION'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 4, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 105,622
<SECURITIES> 0
<RECEIVABLES> 50,714
<ALLOWANCES> 6,110
<INVENTORY> 41,489
<CURRENT-ASSETS> 205,782
<PP&E> 37,250
<DEPRECIATION> 14,609
<TOTAL-ASSETS> 392,329
<CURRENT-LIABILITIES> 82,192
<BONDS> 202
0
0
<COMMON> 181
<OTHER-SE> 209,615
<TOTAL-LIABILITY-AND-EQUITY> 392,329
<SALES> 109,779
<TOTAL-REVENUES> 109,779
<CGS> 52,412
<TOTAL-COSTS> 52,412
<OTHER-EXPENSES> 7,612
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 3,978
<INCOME-PRETAX> 11,164
<INCOME-TAX> 4,155
<INCOME-CONTINUING> 7,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,099
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR
THERMO BIOANALYSIS CORPORATION FOR THE PERIOD ENDED MARCH 29, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 70,079
<SECURITIES> 0
<RECEIVABLES> 40,249
<ALLOWANCES> 2,868
<INVENTORY> 44,818
<CURRENT-ASSETS> 164,395
<PP&E> 32,629
<DEPRECIATION> 6,969
<TOTAL-ASSETS> 289,570
<CURRENT-LIABILITIES> 52,556
<BONDS> 222
0
0
<COMMON> 0
<OTHER-SE> 141
<TOTAL-LIABILITY-AND-EQUITY> 136,455
<SALES> 289,570
<TOTAL-REVENUES> 26,801
<CGS> 26,801
<TOTAL-COSTS> 13,848
<OTHER-EXPENSES> 13,848
<LOSS-PROVISION> 2,352
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 856
<INCOME-TAX> 2,485
<INCOME-CONTINUING> 903
<DISCONTINUED> 1,582
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,582
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR
THERMO BIOANALYSIS CORPORATION FOR THE PERIOD ENDED JUNE 28, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 34,075
<SECURITIES> 0
<RECEIVABLES> 46,497
<ALLOWANCES> 3,869
<INVENTORY> 39,926
<CURRENT-ASSETS> 125,191
<PP&E> 32,008
<DEPRECIATION> 8,328
<TOTAL-ASSETS> 284,429
<CURRENT-LIABILITIES> 48,072
<BONDS> 266
0
0
<COMMON> 141
<OTHER-SE> 135,804
<TOTAL-LIABILITY-AND-EQUITY> 284,429
<SALES> 85,591
<TOTAL-REVENUES> 85,591
<CGS> 44,508
<TOTAL-COSTS> 44,508
<OTHER-EXPENSES> 6,532
<LOSS-PROVISION> 234
<INTEREST-EXPENSE> 3,490
<INCOME-PRETAX> 7,496
<INCOME-TAX> 2,727
<INCOME-CONTINUING> 4,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,769
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR
THERMO BIOANALYSIS CORPORATION FOR THE PERIOD ENDED SEPTEMBER 27, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 40,516
<SECURITIES> 0
<RECEIVABLES> 47,302
<ALLOWANCES> 5,356
<INVENTORY> 38,682
<CURRENT-ASSETS> 132,077
<PP&E> 33,571
<DEPRECIATION> 9,982
<TOTAL-ASSETS> 280,228
<CURRENT-LIABILITIES> 47,269
<BONDS> 251
0
0
<COMMON> 141
<OTHER-SE> 132,425
<TOTAL-LIABILITY-AND-EQUITY> 280,228
<SALES> 138,945
<TOTAL-REVENUES> 138,945
<CGS> 72,341
<TOTAL-COSTS> 72,341
<OTHER-EXPENSES> 10,268
<LOSS-PROVISION> 116
<INTEREST-EXPENSE> 5,734
<INCOME-PRETAX> 11,310
<INCOME-TAX> 4,116
<INCOME-CONTINUING> 7,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,194
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.52
</TABLE>
