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 2, 1999
[ ] 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 Identification No.)
incorporation or organization)
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 October 29, 1999
Common Stock, $.01 par value 20,627,761
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet
(Unaudited)
<S> <C> <C>
Assets
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Assets:
Cash and cash equivalents (includes $40,861 under $ 29,655 $62,957
repurchase agreements with affiliated company in 1998)
Advance to affiliate (Note 6) 10,278 -
Accounts receivable, less allowances of $5,591 and $5,571 60,706 54,718
Inventories:
Raw materials and supplies 16,275 11,370
Work in process 5,254 3,532
Finished goods 24,402 27,142
Prepaid and refundable income taxes 12,161 11,459
Other current assets 8,024 5,253
-------- --------
166,755 176,431
-------- --------
Property, Plant, and Equipment, at Cost 39,130 36,955
Less: Accumulated depreciation and amortization 15,064 11,462
-------- --------
24,066 25,493
-------- --------
Patents and Other Assets 24,318 24,204
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 184,426 175,153
-------- --------
$399,565 $401,281
======== ========
2
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THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Short-term obligations and current maturities of long-term $ 24,851 $63,824
obligations (includes advance from affiliate of $1,980 in 1999;
Note 6 and $50,000 due to parent company in 1998; Note 7)
Accounts payable 16,261 16,384
Accrued payroll and employee benefits 8,108 9,543
Accrued income taxes 10,106 11,545
Accrued acquisition expenses (Note 5) 4,181 3,604
Deferred revenue 4,860 4,641
Other accrued expenses 18,738 14,059
Due to parent company and affiliated companies 3,033 4,756
-------- --------
90,138 128,356
-------- --------
Deferred Income Taxes 1,687 1,679
-------- --------
Long-term Obligations:
Subordinated convertible note, due to parent company (Note 8) 50,000 50,000
Other (in 1999 includes $16,602 due to affiliated company; Notes 5 and 7) 42,309 10,181
-------- --------
92,309 60,181
-------- --------
Minority Interest 28 460
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 75,000,000 shares authorized; 18,148,772 181 181
and 18,096,950 shares issued
Capital in excess of par value 201,284 200,736
Retained earnings 32,268 20,595
Treasury stock at cost, 551,314 and 550,522 shares (10,081) (10,064)
Deferred compensation (81) -
Accumulated other comprehensive items (Note 2) (8,168) (843)
-------- --------
215,403 210,605
-------- --------
$399,565 $401,281
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues (includes $344 and $704 to affiliated companies) $66,468 $51,110
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $154 and $325 for affiliated company 29,877 27,930
revenues)
Selling, general, and administrative expenses 25,114 18,189
Research and development expenses 5,598 3,274
Restructuring costs - 1,300
Loss on sale of equipment, net 36 -
------- -------
60,625 50,693
------- -------
Operating Income 5,843 417
Interest Income 436 1,413
Interest Expense (includes $603 and $1,795 to related party) (1,183) (2,004)
Equity in Earnings of Unconsolidated Subsidiaries 627 409
Other Income 5 -
------- -------
Income Before Provision for Income Taxes and Minority Interest 5,728 235
Provision for Income Taxes 2,235 420
Minority Interest Expense 2 -
------- -------
Net Income (Loss) $ 3,491 $ (185)
======= =======
Earnings (Loss) per Share (Note 3):
Basic $ .20 $ (.01)
======= =======
Diluted $ .19 $ (.01)
======= =======
Weighted Average Shares (Note 3):
Basic 17,590 18,065
======= =======
Diluted 20,783 18,065
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues (includes $2,097 and $2,832 to affiliated companies) $205,088 $160,889
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $741 and $1,690 for affiliated company 95,499 80,342
revenues)
Selling, general, and administrative expenses 73,058 54,481
Research and development expenses 17,162 10,886
Restructuring costs - 1,300
Gain on sale of equipment, net (435) -
-------- --------
185,284 147,009
-------- --------
Operating Income 19,804 13,880
Interest Income 1,945 3,092
Interest Expense (includes $3,073 and $5,497 to related party) (4,402) (5,982)
Equity in Earnings of Unconsolidated Subsidiaries 1,789 409
Other Income 112 -
-------- --------
Income Before Provision for Income Taxes and Minority Interest 19,248 11,399
Provision for Income Taxes 7,579 4,575
Minority Interest Income (4) -
-------- --------
Net Income $ 11,673 $ 6,824
======== ========
Earnings per Share (Note 3):
Basic $ .66 $ .44
======== ========
Diluted $ .62 $ .42
======== ========
Weighted Average Shares (Note 3):
Basic 17,574 15,649
======== ========
Diluted 20,765 18,879
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
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THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Operating Activities:
Net income $ 11,673 $ 6,824
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 9,983 8,155
Provision for losses on accounts receivable 1,008 382
Gain on sale of equipment, net (435) -
Equity in earnings of unconsolidated subsidiaries (1,789) (409)
Other noncash items 80 2,893
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable (5,201) 3,668
Inventories (533) (1,592)
Other current assets (1,109) (1,777)
Accounts payable (3,242) (3,804)
Other current liabilities (4,988) (9,480)
-------- -------
Net cash provided by operating activities 5,447 4,860
-------- -------
Investing Activities:
Advances to affiliate, net (Note 6) (10,278) -
Acquisitions, net of cash acquired (Note 5) (12,903) (16,109)
Adjustment to acquisition purchase price - 9,459
Purchases of property, plant, and equipment (4,545) (4,653)
Proceeds from sale of property, plant, and equipment 1,643 848
Issuance of note receivable - (2,000)
Other 255 (86)
-------- -------
Net cash used in investing activities (25,828) (12,541)
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock 423 69,184
Issuance of long-term obligations (Note 5) 14,528 -
Issuance of long-term obligation to affiliated company (Note 7) 15,958 -
Repayment of indebtedness to parent company (Note 7) (50,000) (6,342)
Repayment of long-term obligations (8,318) -
Increase in short-term obligations, net 14,145 295
Purchases of Company common stock - (10,064)
Other - 28
-------- -------
Net cash provided by (used in) financing activities $(13,264) $53,101
-------- -------
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THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Exchange Rate Effect on Cash $ 343 $ 2,470
-------- -------
Increase (Decrease) in Cash and Cash Equivalents (33,302) 47,890
Cash and Cash Equivalents at Beginning of Period 62,957 39,704
-------- -------
Cash and Cash Equivalents at End of Period $ 29,655 $87,594
======== =======
Noncash Activities:
Fair value of assets of acquired companies $ 32,871 $24,130
Cash paid for acquired companies (14,406) (16,109)
Assumption of debt for acquired companies (7,570) -
-------- -------
Liabilities assumed of acquired companies $ 10,895 $ 8,021
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
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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 October 2, 1999, the
results of operations for the three- and nine-month periods ended October 2,
1999, and October 3, 1998, and the cash flows for the nine-month periods ended
October 2, 1999, and October 3, 1998. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended January 2, 1999, filed
with the Securities and Exchange Commission.
2. Comprehensive Income
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 1999 and 1998, the Company had comprehensive income of
$7,563,000 and $6,878,000, respectively. During the first nine months of 1999
and 1998, the Company had comprehensive income of $4,348,000 and $14,232,000,
respectively.
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3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------ ---------- ----------- ---------- ----------
Basic
<S> <C> <C> <C> <C>
Net Income (Loss) $3,491 $ (185) $11,673 $ 6,824
------ ------- ------- -------
Weighted Average Shares 17,590 18,065 17,574 15,649
------ ------- ------- -------
Basic Earnings (Loss) per Share $ .20 $ (.01) $ .66 $ .44
====== ======= ======= =======
Diluted
Net Income (Loss) $3,491 $ (185) $11,673 $ 6,824
Effect of Convertible Note 390 - 1,170 1,170
------ ------- ------- -------
Income (Loss) Available to Common Shareholders, as Adjusted $3,881 $ (185) $12,843 $ 7,994
------ ------- ------- -------
Basic Weighted Average Shares 17,590 18,065 17,574 15,649
Effect of:
Convertible note 3,030 - 3,030 3,030
Stock options 163 - 161 200
------ ------- ------ -------
Weighted Average Shares, as Adjusted 20,783 18,065 20,765 18,879
------ ------- ------ -------
Diluted Earnings (Loss) per Share $ .19 $ (.01) $ .62 $ .42
====== ====== ====== =======
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3. Earnings (Loss) per Share (continued)
The computation of diluted earnings (loss) per share for all periods
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of October 2, 1999, there
were 362,000 of such options outstanding, with exercise prices ranging from
$18.16 to $22.88 per share. In addition, the computation for diluted loss per
share for the three-month period ended October 3, 1998, excludes the effect of
assuming the conversion of the Company's $50,000,000 principal amount 4.875%
subordinated convertible note, convertible at $16.50 per share, because the
effect would be antidilutive.
4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Biomolecular Instruments and Consumables $28,888 $ 25,483 $86,776 $ 82,482
Clinical Equipment and Supplies 29,007 18,364 91,428 50,600
Information Management Systems 8,573 7,263 26,884 20,674
Other (a) - - - 7,133
------- -------- ------- --------
$66,468 $ 51,110 $205,088 $160,889
======= ======== ======== ========
Income (Loss) Before Provision for Income Taxes
and Minority Interest:
Biomolecular Instruments and Consumables (b) $ 2,916 $ (1,317) $ 8,402 $ 5,343
Clinical Equipment and Supplies (c) 2,115 685 7,253 4,762
Information Management Systems 1,549 1,890 6,436 4,143
Other (a) - - - 1,486
Corporate (d) (737) (841) (2,287) (1,854)
------- -------- ------- --------
Total operating income 5,843 417 19,804 13,880
Interest and other expense, net (115) (182) (556) (2,481)
------- -------- ------- --------
$ 5,728 $ 235 $19,248 $ 11,399
======= ======== ======= ========
(a) Represents Eberline health physics division, which was contributed to a
joint venture formed with Thermo Instrument Systems Inc. in July 1998.
(b) Includes restructuring and nonrecurring costs of $3.6 million in 1998.
(c) Includes restructuring costs of $0.5 million in 1998.
(d) Primarily general and administrative expenses.
During the first quarter of 1999, the Company acquired Konelab Oy and
Clids Oy (Note 5), which increased total assets at the Clinical Equipment and
Supplies segment as of October 2, 1999, by $30.9 million.
5. Acquisitions
In March 1999, the Company acquired the stock of Konelab Oy and
substantially all of the assets of Clids Oy, both based in Finland, for a
combined total purchase price, including related transaction costs, of $11.3
million in cash, net of cash acquired, and the assumption of $7.5 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. Konelab manufactures clinical chemistry analyzers
and a variety of reagents consumed in the analytical process. Clids manufactures
modular laboratory automation systems that yield cost-efficiencies for clinical
labs. Also in March 1999, the Company acquired substantially all of the assets
of Bio-Orbit Oy, based in Finland, for $0.6 million in cash and the assumption
of $0.1 million of debt. Bio-Orbit manufactures luminometers and reagent kits
for
9
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5. Acquisitions (continued)
research, industrial, and environmental applications. To finance these
acquisitions, the Company borrowed $12.5 million in Finland, which is guaranteed
by Thermo Electron Corporation. The debt is payable semiannually through March
2004 and bears interest at the 6-month Euribor rate plus 0.4%, which was 3.4% at
October 2, 1999.
In addition, during the first quarter of 1999, the Company purchased an
additional interest in its 67%-owned joint venture in China for $1.0 million in
cash, which increased the Company's ownership to 90%.
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
aggregate cost of these acquisitions exceeded the estimated fair value of the
acquired net assets by $17.0 million, which is being amortized over 20 to 40
years. Allocation of the purchase price was based on estimates 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 the results of the acquired
businesses were not material to the Company's results of operations.
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels, abandonment of excess facilities
and, to a lesser extent, costs for the relocation of certain employees and for
termination of certain joint venture arrangements. In connection with these
restructuring activities, as part of the cost of acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Unresolved matters at October 2, 1999, primarily included
completion of planned severances and abandonment of excess facilities for
acquisitions completed during the last 12 months. A summary of the changes in
accrued acquisition expenses is:
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Abandonment
of Excess
(In thousands) Severance Facilities Other (a) Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at January 2, 1999 $1,633 $1,630 $ 341 $3,604
Reserves established 1,608 145 397 2,150
Usage (1,096) (138) (168) (1,402)
Decrease due to finalization of (10) - (19) (29)
restructuring plan, recorded as a
decrease to cost in excess of net assets
of acquired companies
Currency translation (84) (24) (34) (142)
------ ------ ------ ------
Balance at October 2, 1999 $2,051 $1,613 $ 517 $4,181
====== ====== ====== ======
(a) Includes reserve established for relocation of certain employees at acquired
companies and for termination of certain joint venture arrangements.
6. Cash Management Arrangements
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
10
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6. Cash Management Arrangements (continued)
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
Effective August 1999, the Company's Germany-based subsidiaries commenced
use of a new cash management arrangement with a wholly owned subsidiary of
Thermo Electron. Under the new arrangement, amounts advanced to or borrowed from
the subsidiary of Thermo Electron bear interest at prevailing German market
rates, set at the beginning of each month. Thermo Electron's subsidiary
maintains cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 100% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries. The Company can withdraw its
funds invested in this arrangement with no prior notice. Amounts invested or
borrowed under this arrangement are included in "advance to affiliate" or
"advance from affiliate" in the accompanying balance sheet.
7. Long-term Obligations
On July 9, 1999, in satisfaction of a $50,000,000 obligation to Thermo
Instrument, the Company repaid $27,602,000 to Thermo Instrument with internal
funds and refinanced $22,398,000 of the obligation. Of the $22,398,000 that was
refinanced, $6,440,000 is expected to be repaid within the next twelve months
and is included in short-term obligations and current maturities of long-term
obligations in the accompanying balance sheet. This amount bears interest at a
variable rate, which was 5.45% at October 2, 1999. The balance of $15,958,000
was borrowed from a wholly owned subsidiary of Thermo Instrument, has a maturity
date of July 15, 2001, bears interest at a fixed rate of 6.05%, and is included
in other long-term obligations in the accompanying balance sheet.
8. Subsequent Event
On October 26, 1999, the Company's $50,000,000 principal amount 4.875%
subordinated convertible note, convertible at $16.50 per share, was converted by
Thermo Instrument into 3,030,303 shares of Company 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 heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
year ended January 2, 1999, filed with the Securities and Exchange Commission.
Overview
The Company's businesses operate in three segments: Biomolecular
Instruments and Consumables, Clinical Equipment and Supplies, and Information
Management Systems. The Company's Biomolecular Instruments and Consumables
segment designs, manufactures, and markets products for immunoassay testing as
well as a variety of proprietary products based on emerging technologies,
including optical biosensor, polymerase chain reaction for DNA amplification,
MALDI-TOF mass spectrometry, and capillary electrophoresis. These products are
used in pharmaceutical and biochemical research, as well as for clinical
laboratory testing and diagnosis of patient samples.
11
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Overview (continued)
The Company's Clinical Equipment and Supplies segment designs, manufactures, and
markets clinical equipment and consumables, including cytology, histology, and
pathology equipment and consumables; consumables for blood gas and ion-selective
electrolyte analyzers; chemical reagents and accessories; rapid diagnostic tests
for use in physician offices; and clinical biochemistry testing,
instrumentation, and automation equipment. The Company's Information Management
Systems segment designs, develops, and supports laboratory information
management systems and chromatography data systems for use in laboratories,
industrial applications, and clinical testing facilities, which are designed to
facilitate the monitoring and analysis of samples and the organization of
storage data throughout the laboratory or clinical life cycle.
In 1998, the Company acquired Data Medical Associates, Inc. in May; Trace
Scientific Limited in August; BioStar, Inc. in November; and Angewandte
Gentechnologie Systeme GmbH in December. In March 1999, the Company acquired
Konelab Oy, Clids Oy, and Bio-Orbit Oy (Note 5).
A significant percentage of the Company's revenues is derived from the
sale of products and services outside the U.S., including certain Asian
countries and Russia, through export sales and sales by the Company's foreign
operations. Asia and Russia have been 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 in 1998 were adversely affected by the
unstable economic conditions there, and there can be no assurance that future
periods will not also be adversely affected. To date, sales to Russia have not
been adversely affected by the unstable economic conditions there; however, no
assurances concerning future sales and trends can be given.
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
Third Quarter 1999 Compared With Third Quarter 1998
Total revenues increased to $66.5 million in the third quarter of 1999
from $51.1 million in the third quarter of 1998. Revenues at the Clinical
Equipment and Supplies segment increased to $29.0 million in 1999 from $18.4
million in 1998, primarily due to an increase in revenues of $10.8 million due
to acquisitions. This increase in revenues was offset in part by a decrease in
revenues of $0.3 million due to the unfavorable effects of currency translation
as a result of the strengthening in value of the U.S. dollar relative to foreign
currencies in countries in which the Company operates.
Revenues at the Biomolecular Instruments and Consumables segment increased
to $28.9 million in the third quarter of 1999 from $25.5 million in the third
quarter of 1998, primarily due to higher demand and, to a lesser extent, an
increase in revenues of $1.2 million due to acquisitions. These increases in
revenues were offset in part by a decrease in revenues of $0.7 million due to
the unfavorable effects of currency translation as a result of the strengthening
in value of the U.S. dollar relative to foreign currencies in countries in which
the Company operates.
Revenues at the Information Management Systems segment increased to $8.6
million in the third quarter of 1999 from $7.3 million in the third quarter of
1998, due to higher demand and the expansion of sales and distribution channels
into new markets. These increases in revenues were offset in part by a decrease
in revenues of $0.3 million due to the unfavorable effects of currency
translation as a result of the strengthening in value of the U.S. dollar
relative to foreign currencies in countries in which the Company operates.
12
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Third Quarter 1999 Compared With Third Quarter 1998 (continued)
The gross profit margin increased to 55% in the third quarter of 1999 from
45% in the third quarter of 1998, primarily due to a $2.8 million inventory
write-down recorded during the third quarter of 1998 that related to
discontinuing several low-margin product lines and closing the Company's
bioinstrumentation manufacturing operation in Guernsey. To a lesser extent, the
gross profit margin increased due to the inclusion of higher-margin revenues at
acquired businesses and changes in the sales mix at the Biomolecular Instruments
and Consumables segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 38% in the third quarter of 1999 from 36% in the third quarter of
1998, primarily due to the inclusion of the results of acquired businesses,
which have higher costs as a percentage of revenues and, to a lesser extent, an
increase in costs at the Biomolecular Instruments and Consumables segment due to
the opening of a sales and service office in India and the expansion of the
Company's joint venture in China.
Research and development expenses increased to $5.6 million in the third
quarter of 1999 from $3.3 million in the third quarter of 1998, primarily due to
the inclusion of expenses from acquired businesses.
Interest income decreased to $0.4 million in the third quarter of 1999
from $1.4 million in the third quarter of 1998, primarily due to lower average
invested balances as a result of the repayment of debt discussed below. Interest
expense decreased to $1.2 million in the third quarter of 1999 from $2.0 million
in the third quarter of 1998, primarily due to the repayment in the fourth
quarter of 1998 of $37.9 million of debt to Thermo Instrument Systems Inc.
associated with the acquisition of the Clinical Products Group of Life Sciences
International and the repayment of $27.6 million of debt to Thermo Instrument in
July 1999 (Note 7).
Equity in earnings of unconsolidated subsidiaries in the accompanying
statement of operations represents the Company's proportionate share of earnings
from its joint ventures.
The effective tax rates in both periods 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. The effective tax rate was higher in the third quarter of 1998
primarily due to the larger relative effect of nondeductible costs.
First Nine Months 1999 Compared With First Nine Months 1998
Total revenues increased to $205.1 million in the first nine months of
1999 from $160.9 million in the first nine months of 1998. Revenues at the
Clinical Equipment and Supplies segment increased to $91.4 million in 1999 from
$50.6 million in 1998, primarily due to an increase in revenues of $39.6 million
due to acquisitions and, to a lesser extent, higher demand for certain of the
segment's products. These increases in revenues were offset in part by a
decrease in revenues due to a change in the distribution relationship with
certain affiliated companies that switched to direct sales and, to a lesser
extent, due to the unfavorable effects of currency translation which resulted in
$0.5 million of lower revenues in the 1999 period.
Revenues at the Information Management Systems segment increased to $26.9
million in the first nine months of 1999 from $20.7 million in the first nine
months of 1998, due to the reasons discussed in the results of operations for
the third quarter. These increases in revenues were offset in part by a decrease
in revenues of $0.5 million due to the unfavorable effects of currency
translation.
Revenues at the Biomolecular Instruments and Consumables segment increased
to $86.8 million in the first nine months of 1999 from $82.5 million in the
first nine months of 1998, primarily due to an increase in revenues of $3.8
million due to acquisitions. This increase in revenues was offset in part by a
decrease in revenues due to lower demand for the segment's MRX Readers and
MALDI-TOF products and a change in distribution channels in China from
distributors to a direct sales force.
13
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Revenues at the Company's Eberline health physics division were $7.1
million in the first nine months of 1998. The Company no longer consolidates the
results of the Eberline health physics division with its results due to the
Company contributing this business to a joint venture formed with Thermo
Instrument in July 1998. As a result, the Company records its proportionate
share of earnings from this joint venture as equity in earnings of
unconsolidated subsidiaries in the accompanying statement of operations.
The gross profit margin increased to 53% in the first nine months of 1999
from 50% in the first nine months of 1998, primarily due to a $2.8 million
inventory write-down recorded during 1998 that related to discontinuing several
low-margin product lines and closing the Company's bioinstrumentation
manufacturing operation in Guernsey. To a lesser extent, the gross profit margin
increased due to changes in the sales mix at the Biomolecular Instrument and
Consumables segment and the exclusion of the results in the 1999 period of the
Company's former Eberline health physics division, which had lower gross
margins.
Selling, general, and administrative expenses as a percentage of revenues
increased to 36% in the first nine months of 1999 from 34% in the first nine
months of 1998, primarily due to the exclusion of the results in the 1999 period
of the Company's former Eberline health physics division, which had lower
selling, general, and administrative expenses as a percentage of revenues. To a
lesser extent, selling, general, and administrative expenses as a percentage of
revenues increased due to the reasons discussed in the results of operations for
the third quarter.
Research and development expenses increased to $17.2 million in the first
nine months of 1999 from $10.9 million in the first nine months of 1998,
primarily due to the inclusion of expenses from acquired businesses.
During the first nine months of 1999, the Company sold equipment and
realized a gain of $0.4 million.
Interest income decreased to $1.9 million in the first nine months of 1999
from $3.1 million in the first nine months of 1998, primarily due to the
inclusion in the 1998 period of interest income received from Thermo Instrument
on a $9.5 million adjustment to the aggregate purchase price for certain
acquisitions. Interest expense decreased to $4.4 million in the first nine
months of 1999 from $6.0 million in the first nine months of 1998, primarily due
to the reasons discussed in the results of operations for the third quarter.
Equity in earnings of unconsolidated subsidiaries in the accompanying
statement of operations represents the Company's proportionate share of earnings
from its joint ventures.
The effective tax rate was 39% and 40% in the first nine months of 1999
and 1998, respectively. 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.
Liquidity and Capital Resources
Consolidated working capital was $76.6 million as of October 2, 1999,
compared with $48.1 million as of January 2, 1999. Included in working capital
are cash and cash equivalents of $29.7 million as of October 2, 1999, compared
with $63.0 million as of January 2, 1999. In addition, as of October 2, 1999,
the Company had $10.3 million invested in an advance to affiliate. Prior to the
use of new cash management arrangements between the Company and Thermo Electron
Corporation (Note 6), which became effective in 1999, such amounts were included
in cash and cash equivalents. During the first nine months of 1999, $5.4 million
of cash was provided by operating activities. A decrease in accounts payable and
other current liabilities used $8.2 million of cash, primarily due to the timing
of payments and expenditures of accrued acquisition costs. An increase in
accounts receivable used $5.2 million of cash, primarily due to the timing of
customer payments and shipments, as well as an increase in revenues at the
Information Management Systems segment.
14
<PAGE>
Liquidity and Capital Resources (continued)
Excluding advance to affiliate activity, the Company's primary investing
activity consisted of acquisitions for aggregate consideration of $12.9 million
in cash, net of cash acquired. In addition, the Company expended $4.5 million
for purchases of property, plant, and equipment during the first nine months of
1999, and expects to make capital expenditures of approximately $3.0 million
during the remainder of 1999. During the first nine months of 1999, the Company
received proceeds from the sale of property, plant, and equipment of $1.6
million.
The Company's financing activities used $13.3 million of cash during the
first nine months of 1999. During this period, the Company repaid a $50.0
million obligation to Thermo Instrument through the use of internal funds and
borrowing from affiliates (Note 7) and used $8.3 million of cash to repay
long-term obligations. In addition, certain divisions of the Company borrowed
$14.5 million of debt denominated in the currencies of countries where the
divisions operate, primarily to fund the acquisition of three Finnish companies
(Note 5).
The Company has undertaken a restructuring of certain acquired businesses
(Note 5). Amounts accrued for such activities totaled $4.2 million at October 2,
1999. The Company expects that such expenditures will not change materially from
amounts accrued at October 2, 1999.
In October 1999, the Company's $50.0 million subordinated convertible note
was converted into 3,030,303 shares of Company common stock (Note 8).
In October 1999, the Company acquired Interactiva Biotechnologie GmbH for
approximately $2.1 million in cash and the assumption of $1.2 million of debt.
Interactiva, based in Germany, synthesizes customized biomolecules for gene
research and clinical diagnostic applications.
The Company expects to have positive cash flow from its existing
operations. The Company expects that it will finance any future acquisitions
through a combination of internal funds and/or borrowings, which may include
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 believes that its existing cash and cash
equivalents are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date-recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information-technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors to determine their year 2000 compliance status; and (iv)
developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical non-information technology systems, which efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material noncompliant information
15
<PAGE>
Year 2000 (continued)
technology systems or non-information technology systems that were identified
during phase one are prioritized and remediated. Based on its evaluations of its
critical non-information technology systems, the Company does not believe any
material upgrades or modifications are required. The Company is currently
upgrading or replacing its material noncompliant information technology systems,
and this process was approximately 92% complete as of October 2, 1999. In many
cases, such upgrades or replacements are being made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
The Company expects that its remaining material information technology systems
will be year 2000 compliant by the end of November 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate 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. The Company is focusing its efforts on products that are
still under warranty, early in their expected life, and/or subject to U.S. Food
and Drug Administration considerations related to the year 2000. The Company is
offering upgrades and/or identifying potential solutions where reasonably
practicable.
The Company has also of identified and assessed the year 2000 readiness of
key suppliers and vendors that are believed to be significant to the Company's
business operations. As part of this effort, the Company developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. To date, no significant supplier or vendor has indicated
that it believes its business operations will be materially disrupted by the
year 2000 issue. The Company followed up with its significant suppliers and
vendors that did not respond to the Company's questionnaires. The Company has
substantially completed its assessment of third-party risk.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes 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 and vendors, it will modify and
adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had incurred expenses to third parties (external costs)
related to year 2000 issues of approximately $1.6 million as of October 2, 1999,
and the total external costs of year 2000 remediation are expected to be
approximately $2.1 million. Of the external costs incurred as of October 2,
1999, approximately $1.3 million was spent on testing and upgrading information
technology systems, which represents approximately 60% of the Company's total
information technology budget. In addition, as of October 2, 1999, $0.1 million
had been spent on testing and upgrading products and $0.2 million had been spent
to test and upgrade facilities. Year 2000 costs relating to products and
facilities were, and will continue to be, funded from working capital. All
internal costs and related external costs, other than capital additions, related
to year 2000 remediation have been and will continue to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
16
<PAGE>
Year 2000 (continued)
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will identify and secure other suppliers or vendors as part of its
contingency plan.
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. As discussed above, if any of
the Company's significant suppliers or vendors experience business disruptions
due to year 2000 issues, the Company might also be materially adversely
affected. If any countries in which the Company operates experience significant
year 2000 disruption, the Company could also be materially adversely affected.
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. In addition, if any year 2000
issues are identified, there can be no assurance that the Company will be able
to retain qualified personnel to remedy such issues. Any unexpected costs or
delays arising from the year 2000 issue could have a material adverse impact on
the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates, equity prices, and interest rates has not changed materially
from its exposure at year-end 1998.
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
None.
17
<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 9th day of November 1999.
THERMO BIOANALYSIS CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
BIOANALYSIS CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
OCTOBER 2, 1999 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-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 29,655
<SECURITIES> 0
<RECEIVABLES> 66,297
<ALLOWANCES> 0
<INVENTORY> 45,931
<CURRENT-ASSETS> 166,755
<PP&E> 39,130
<DEPRECIATION> 15,064
<TOTAL-ASSETS> 399,565
<CURRENT-LIABILITIES> 90,138
<BONDS> 25,707
0
0
<COMMON> 181
<OTHER-SE> 215,222
<TOTAL-LIABILITY-AND-EQUITY> 399,565
<SALES> 205,088
<TOTAL-REVENUES> 205,088
<CGS> 95,499
<TOTAL-COSTS> 95,499
<OTHER-EXPENSES> 17,162
<LOSS-PROVISION> 1,008
<INTEREST-EXPENSE> 4,402
<INCOME-PRETAX> 19,248
<INCOME-TAX> 7,579
<INCOME-CONTINUING> 11,673
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<EPS-BASIC> 0.66
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