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 April 3, 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 April 30, 1999
Common Stock, $.01 par value 17,572,836
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
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April 3, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Assets:
Cash and cash equivalents (includes $42,432 and $40,861 under $ 70,350 $62,957
repurchase agreements with affiliated company)
Accounts receivable, less allowances of $6,329 and $5,571 58,745 54,718
Inventories:
Raw materials and supplies 12,324 11,370
Work in process 5,279 3,532
Finished goods 28,126 27,142
Prepaid and refundable income taxes 12,739 11,459
Prepaid expenses and other current assets 7,272 5,253
-------- --------
194,835 176,431
-------- --------
Property, Plant, and Equipment, at Cost 37,191 36,955
Less: Accumulated depreciation and amortization 12,266 11,462
-------- --------
24,925 25,493
-------- --------
Patents and Other Assets 24,821 24,204
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 182,292 175,153
-------- --------
$426,873 $401,281
======== ========
2
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THERMO BIOANALYSIS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 3, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Liabilities:
Current maturities of long-term obligations (includes $50,000 due $ 53,719 $52,569
to parent company)
Notes payable and borrowings under overdraft facilities 12,242 11,255
Accounts payable 16,232 16,384
Accrued payroll and employee benefits 8,507 9,543
Accrued income taxes 12,653 11,545
Accrued acquisition expenses (Note 5) 4,298 3,604
Other accrued expenses (Note 6) 25,361 18,700
Due to parent company and affiliated companies 7,075 4,756
-------- --------
140,087 128,356
-------- --------
Deferred Income Taxes 1,686 1,679
-------- --------
Long-term Obligations:
Subordinated convertible note, due to parent company 50,000 50,000
Other 28,039 10,181
-------- --------
78,039 60,181
-------- --------
Minority Interest 31 460
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 75,000,000 shares authorized; 18,120,790 181 181
and 18,096,950 shares issued
Capital in excess of par value 201,024 200,736
Retained earnings 24,458 20,595
Treasury stock at cost, 550,254 and 550,522 shares (10,059) (10,064)
Deferred compensation (99) -
Accumulated other comprehensive items (Note 2) (8,475) (843)
-------- --------
207,030 210,605
-------- --------
$426,873 $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 Income
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues (includes $1,302 and $698 to affiliated companies) $65,774 $54,434
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $580 and $426 for affiliated company 30,968 26,583
revenues)
Selling, general, and administrative expenses 23,107 17,899
Research and development expenses 5,551 3,923
Gain on sale of equipment (259) -
------- ------
59,367 48,405
------- -------
Operating Income 6,407 6,029
Interest Income 750 998
Interest Expense (includes $1,234 and $1,865 to related party) (1,608) (2,003)
Equity in Earnings of Unconsolidated Subsidiaries 710 -
Other Income 74 -
------- ------
Income Before Provision for Income Taxes and Minority Interest 6,333 5,024
Provision for Income Taxes 2,469 1,822
Minority Interest Expense 1 -
------- ------
Net Income $ 3,863 $3,202
======= ======
Earnings per Share (Note 3):
Basic $ .22 $ .23
======= ======
Diluted $ .21 $ .21
======= ======
Weighted Average Shares (Note 3):
Basic 17,556 14,086
======= ======
Diluted 20,730 17,299
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 3,863 $ 3,202
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,330 2,760
Provision for losses on accounts receivable 239 5
Gain on sale of equipment (259) -
Equity in earnings of unconsolidated subsidiaries (710) -
Other noncash items 12 -
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable (1,171) 2,062
Inventories 1,117 (1,407)
Other current assets (1,019) (1,136)
Accounts payable 2,222 29
Other current liabilities 741 (9,614)
-------- -------
Net cash provided by (used in) operating activities 8,365 (4,099)
-------- -------
Investing Activities:
Acquisitions, net of cash acquired (Note 5) (12,865) -
Adjustment to acquisition purchase price - 9,075
Purchases of property, plant, and equipment (1,454) (1,851)
Proceeds from sale of property, plant, and equipment 1,278 -
Other - 220
-------- -------
Net cash provided by (used in) investing activities (13,041) 7,444
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock 185 95
Issuance of long-term obligations (Note 5) 14,528 -
Repayment of long-term obligations (2,181) -
Increase in short-term obligations, net 1,569 725
-------- -------
Net cash provided by financing activities 14,101 820
-------- -------
Exchange Rate Effect on Cash (2,032) (343)
-------- -------
Increase in Cash and Cash Equivalents 7,393 3,822
Cash and Cash Equivalents at Beginning of Period 62,957 39,704
-------- -------
Cash and Cash Equivalents at End of Period $ 70,350 $43,526
======== =======
5
<PAGE>
THERMO BIOANALYSIS CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Noncash Activities (Note 5):
Fair value of assets of acquired companies $ 30,786 $ -
Assumption of debt for acquired companies (7,570) -
Cash paid for acquired companies (14,293) -
-------- -------
Liabilities assumed of acquired companies $ 8,923 $ -
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
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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 April 3, 1999, and
the results of operations and cash flows for the three-month periods ended April
3, 1999, and April 4, 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 represent foreign currency translation adjustments, reported as a
component of shareholders' investment in the accompanying balance sheet. During
the first quarter of 1999 and 1998, the Company had a comprehensive loss of $3.8
million and comprehensive income of $2.2 million, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ---------
Basic
Net Income $ 3,863 $3,202
------- ------
Weighted Average Shares 17,556 14,086
------- ------
Basic Earnings per Share $ .22 $ .23
======= ======
Diluted
Net Income $ 3,863 $3,202
Effect of Convertible Note 390 390
------- ------
Income Available to Common Shareholders, as Adjusted $ 4,253 $3,592
------- ------
Basic Weighted Average Shares 17,556 14,086
Effect of:
Convertible note 3,030 3,030
Stock options 144 183
------- ------
Weighted Average Shares, as Adjusted 20,730 17,299
------- ------
Diluted Earnings per Share $ .21 $ .21
======= ======
7
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3. Earnings per Share (continued)
The computation of diluted earnings per share for each period excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of April 3, 1999, there were 388,000 of such
options outstanding, with exercise prices ranging from $16.94 to $21.93 per
share.
4. Business Segment Information
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues:
Biomolecular Instruments and Consumables $28,372 $28,771
Clinical Equipment and Supplies 28,767 16,524
Information Management Systems 8,635 5,836
Other - 3,303
------- ------
$65,774 $54,434
------- -------
Income Before Provision for Income Taxes and Minority Interest:
Biomolecular Instruments and Consumables $ 2,775 $3,282
Clinical Equipment and Supplies 2,180 1,969
Information Management Systems 2,081 643
Other - 662
Corporate (a) (629) (527)
------- ------
Total operating income 6,407 6,029
Interest and other expense, net (74) (1,005)
------- ------
$ 6,333 $5,024
======= ======
(a) 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 by $29.0 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 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 carries an interest rate at the 6-month Euribor rate plus 0.4%, which
was 3.415% at April 3, 1999.
8
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5. Acquisitions (continued)
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 $14.0 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 termination of certain joint venture
arrangements and relocation of certain employees. 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 April 3, 1999, primarily included completion
of planned severances and abandonment of excess facilities for acquisitions
completed during the last twelve 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
- ----------------------------------------------- -------------- -------------- -------------- --------------
Balance at January 2, 1999 $ 1,633 $1,630 $ 341 $3,604
Reserves established 1,173 - 100 1,273
Usage (365) (31) (71) (467)
Currency translation adjustment (51) (39) (22) (112)
------- ------ ------- ------
Balance at April 3, 1999 $ 2,390 $1,560 $ 348 $4,298
======= ====== ======= ======
(a) Includes reserve established for termination of certain joint venture
arrangements and relocation of certain employees at acquired companies.
6. Restructuring Costs
During 1998, the Company recorded restructuring costs, which were
accounted for in accordance with EITF 94-3, for severance of 69 employees and
facility closing costs. As of January 2, 1999, the Company had terminated 54
employees and had $0.2 million accrued for severance and abandoned-facility
payments. During the first quarter of 1999, the Company terminated one
additional employee and expended $0.1 million of the established reserve,
primarily for excess facilities. As of April 3, 1999, the remaining liability
for severance and excess facilities of $0.1 million is included in other accrued
expenses in the accompanying balance sheet. The Company expects to complete the
implementation of its restructuring plan during the second quarter of 1999.
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,"
9
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
(continued)
"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. 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; and rapid diagnostic
tests for use in physician offices. 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.
Effective 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. During the first quarter
of 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. Through year-end 1998, the Company's sales to Asia 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
First Quarter 1999 Compared With First Quarter 1998
Total revenues increased to $65.8 million in the first quarter of 1999
from $54.4 million in the first quarter of 1998. Revenues at the Clinical
Equipment and Supplies segment increased to $28.8 million in the first quarter
of 1999 from $16.5 million in the first quarter of 1998, primarily due to an
increase in revenues of $11.9 million from acquisitions and, to a lesser extent,
higher demand for certain of the segment's products. These increases were offset
in part by a decrease of $0.6 million due to a change in the distribution
relationship with certain affiliated companies that switched to direct sales.
10
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First Quarter 1999 Compared With First Quarter 1998 (continued)
Revenues at the Information Management Systems segment increased to $8.6
million in the first quarter of 1999 from $5.8 million in the first quarter of
1998, due to higher demand for the segment's products and the expansion of sales
and distribution channels into new markets.
Revenues at the Biomolecular Instruments and Consumables segment decreased
to $28.4 million in the first quarter of 1999 from $28.8 million in the first
quarter of 1998, primarily due to a decrease of $0.8 million as a result of
lower demand for MRX readers and a decrease of $0.8 million due to a change in
distribution channels in China from distributors to a direct salesforce. To a
lesser extent, revenues decreased due to lower sales of the segment's DIAS
immunoassay system to original equipment manufacturer customers and lower demand
for the segment's MALDI-TOF products. These decreases were offset in part by an
increase in revenues of $1.0 million due to favorable effects of currency
translation due to the weakening in value of the U.S. dollar relative to foreign
currencies in countries in which the Company operates and an increase in
revenues of $0.8 million due to acquisitions.
Revenues at the Company's Eberline health physics division were $3.3
million in the first quarter of 1998. The Eberline health physics division is
excluded from the Company's results in the first quarter of 1999, due to the
Company contributing this business to a joint venture formed with Thermo
Instrument Systems Inc. in July 1998.
The gross profit margin increased to 53% in the first quarter of 1999 from
51% in the first quarter of 1998, primarily due to the introduction of certain
higher-margin products and manufacturing efficiencies at the Biomolecular
Instruments and Consumables segment and the Information Management Systems
segment. To a lesser extent, the gross profit margin increased due to the
exclusion of the results in the first quarter of 1999 of the Company's former
Eberline health physics division, which had lower gross margins. These increases
were offset in part by the inclusion of $0.5 million of nonrecurring expense at
the Clinical Equipment and Supplies segment relating to the sale of inventories
that were revalued in connection with the acquisition of Konelab Oy and Clids Oy
(Note 5). In connection with the acquisitions completed during the first quarter
of 1999, the Company expects an additional charge of approximately $0.8 million
for the sale of revalued inventories during the remainder of 1999.
Selling, general, and administrative expenses as a percentage of revenues
increased to 35% in the first quarter of 1999 from 33% in the first quarter of
1998, primarily due to the opening of four direct sales and service offices and
the expansion of the U.S. direct sales and service office at the Biomolecular
Instruments and Consumables segment and, to a lesser extent, the exclusion of
the results in the first quarter of 1999 of the Company's former Eberline health
physics division, which had lower selling, general, and administrative expenses
as a percentage of revenues.
Research and development expenses increased to $5.6 million in the first
quarter of 1999 from $3.9 million in the first quarter of 1998, primarily due to
the inclusion of expenses from acquired businesses.
During the first quarter of 1999, the Company sold equipment and realized
a gain of $0.3 million.
Interest income decreased to $0.8 million in the first quarter of 1999
from $1.0 million in the first quarter of 1998, primarily due to the inclusion
in the first quarter of 1998 of interest income received from Thermo Instrument
on a $9.1 million adjustment to the aggregate purchase price for certain
acquisitions. Interest expense decreased to $1.6 million in the first quarter of
1999 from $2.0 million in the first quarter of 1998, primarily due to the
repayment in the fourth quarter of 1998 of $37.9 million of debt payable to
Thermo Instrument associated with the acquisition of the Clinical Products Group
of Life Sciences International.
Equity in earnings of unconsolidated subsidiaries in the accompanying
statement of income represents the Company's proportionate share of earnings
from its joint ventures.
The effective tax rate was 39% in the first quarter of 1999, compared with
36% in the first quarter of 1998. 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. The effective tax rate increased in the first quarter of 1999
primarily due to an increase in nondeductible expenses, primarily amortization
of cost in excess of net assets of acquired companies.
11
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Liquidity and Capital Resources
Consolidated working capital was $54.7 million as of April 3, 1999,
compared with $48.1 million as of January 2, 1999. Included in working capital
are cash and cash equivalents of $70.4 million as of April 3, 1999, compared
with $63.0 million as of January 2, 1999. During the first quarter of 1999, $8.4
million of cash was provided by operating activities. An increase in accounts
payable and other current liabilities provided $3.0 million of cash, primarily
due to the timing of payments. Cash of $1.2 million was used to fund an increase
in accounts receivable, primarily due to an increase in revenues.
Investing activities used $13.0 million of cash during the first quarter
of 1999. During 1999, the Company completed acquisitions for aggregate
consideration of $12.9 million in cash, net of cash acquired. The Company
expended $1.5 million for purchases of property, plant, and equipment during the
first quarter of 1999, and expects to make capital expenditures of approximately
$8.0 million during the remainder of 1999. During the first quarter of 1999, the
Company received proceeds from the sale of equipment of $1.3 million.
The Company's financing activities provided $14.1 million of cash during
the first quarter of 1999. In the first quarter of 1999, 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 Finish companies (Note 5). The Company used $2.2 million of cash to repay
long-term obligations.
The Company has undertaken a restructuring of certain acquired and
existing businesses (Notes 5 and 6). Amounts accrued for such activities totaled
$4.4 million at April 3, 1999. The Company expects that such expenditures will
not change materially from amounts accrued at April 3, 1999.
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
borrowings from Thermo Instrument or Thermo Electron Corporation, 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 July 1999, which it expects to repay through
internal funds. 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.
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; 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 facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information-technology systems and facilities 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 facilities. The Company's 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 systems or facilities that were
identified during phase one are prioritized and
12
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Year 2000 (continued)
remediated. Based on its evaluations of its critical facilities, 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 85% complete
as of April 3, 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 all of its material
information-technology systems and critical facilities will be year 2000
compliant by October 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 is in the process of identifying and assessing 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 has
developed and is distributing 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 is now following-up with its
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has completed its assessment of third-party risk,
and expects that its significant suppliers and vendors will be year 2000
compliant before the end of 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products, and significant suppliers 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 $1.2 million as of April 3, 1999,
and the total external costs of year 2000 remediation are expected to be
approximately $1.9 million. Of the external costs incurred as of April 3, 1999,
approximately $1.0 million was spent on testing and upgrading
information-technology systems. In fiscal 1998, approximately 56% of the
Company's total information-technology budget was spent on year 2000 issues. In
addition, as of April 3, 1999, $0.1 million had been spent on testing and
upgrading products and $0.1 million had been spent to test and upgrade
facilities. Year 2000 costs relating to products and facilities were 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.
13
<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 impacted.
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.
14
<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 11th day of May 1999.
THERMO BIOANALYSIS CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
15
<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 QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL
3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 70,350
<SECURITIES> 0
<RECEIVABLES> 65,074
<ALLOWANCES> 6,329
<INVENTORY> 45,729
<CURRENT-ASSETS> 194,835
<PP&E> 37,171
<DEPRECIATION> 12,266
<TOTAL-ASSETS> 426,873
<CURRENT-LIABILITIES> 140,087
<BONDS> 28,039
0
0
<COMMON> 181
<OTHER-SE> 206,849
<TOTAL-LIABILITY-AND-EQUITY> 426,873
<SALES> 65,774
<TOTAL-REVENUES> 65,774
<CGS> 30,968
<TOTAL-COSTS> 30,968
<OTHER-EXPENSES> 5,551
<LOSS-PROVISION> 239
<INTEREST-EXPENSE> 1,608
<INCOME-PRETAX> 6,333
<INCOME-TAX> 2,469
<INCOME-CONTINUING> 3,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,863
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
