SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 1, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 28, 2000, was approximately $44,821,000.
As of January 28, 2000, the Registrant had 20,665,391 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
January 1, 2000, are incorporated by reference into Parts I and II.
The information required by Part III of Form 10-K will be filed as part of an
amendment to this Form 10-K no later than 120 days after January 1, 2000, and
such information is incorporated by reference from such filing.
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PART I
Item 1. Business
(a) General Development of Business
Thermo BioAnalysis Corporation (the Company or the Registrant) operates 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 a broad
range of instruments, such as microplate-based handling and reading equipment,
optical biosensors, polymerase chain reaction (PCR) thermal cyclers for
deoxyribonucleic acid (DNA) amplification, MALDI-TOF mass spectrometers, and
capillary electrophoresis (CE). The Company's Clinical Equipment and Supplies
segment includes sample preparation materials to highlight abnormal cells, blood
gas and ion-selective electrolyte (ISE) consumables, chemistry reagents and
accessories, rapid diagnostic tests for use in physician offices, and clinical
biochemistry instrumentation and automation equipment. The Company's Information
Management Systems segment manufactures systems which facilitate the monitoring
and analysis of samples as well as information storage and organization in
laboratories, industrial settings, and clinical testing sites.
The Company's strategy is to develop and market a portfolio of
instruments, consumables, diagnostics, and information management systems for
biochemistry, healthcare, and other applications through research and
development of innovative products and the acquisition of complementary
businesses and technologies. Effective in March 1997, the Company acquired
Labsystems Oy, Hybaid Limited, and Labsystems Japan divisions of Life Sciences
International PLC (LSI) and the Clinical Products Group of LSI, comprised of
Shandon Inc., and its related businesses, including ALKO Diagnostic Corporation,
from Thermo Instrument Systems Inc. In 1998*, the Company acquired Data Medical
Associates, Inc. (DMA) in July; Trace Scientific Limited in August; BioStar,
Inc. in November; and Angewandte Gentechnologie Systeme GmbH (AGS) in December.
During 1999, the Company acquired Konelab Oy, Clids Oy, and Bio-Orbit Oy in
March and Interactiva Biotechnologie GmbH (Interactiva) in October.
Labsystems Oy, based in Finland, manufactures microplate-based immunoassay
instruments and liquid-handling equipment. Hybaid, based in the U.K.,
manufactures thermal cyclers and consumables for DNA amplification. Labsystems
Japan distributes products manufactured by Labsystems Oy and Hybaid. Shandon is
a leader in the manufacture of cytology and histology equipment and consumables
used to prepare microscope slides to diagnose diseases, as well as equipment
used in autopsies and forensics. ALKO Diagnostic supplies consumables for blood
gas and ISE analyzers, DMA and Trace Scientific manufacture chemistry reagents
used in hospital and clinical laboratories. BioStar manufactures rapid
diagnostic tests used in the physician's office to detect infectious diseases
such as influenza, strep throat, or mononucleosis. AGS, based in Germany,
manufactures molecular biology reagents for the life sciences market. 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. Bio-Orbit manufactures
luminometers and reagent kits for research, industrial, and environmental
applications. Konelab, Clids, and Bio-Orbit are all based in Finland.
Interactiva, based in Germany, synthesizes customized biomolecules for gene
research and clinical diagnostic applications.
As of July 5, 1998, the Company contributed the assets and liabilities of
its Eberline health physics division to a joint venture the Company formed with
Thermo Instrument. The joint venture was established to address the nuclear
instrumentation market. The Company received a 49% equity interest in the joint
venture, and initially receives 67% of the profit and losses of the joint
venture until the later of the achievement of certain earnings targets by the
joint venture or July 2000. The Company's health physics division had revenues
of $7,133,000 through July 4, 1998. As a result of the formation of the joint
venture, the Company has not consolidated the results of this business since
July 5, 1998, but instead records its share of the income as equity in earnings
of unconsolidated subsidiaries.
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* References to 1999, 1998, and 1997 herein are for the fiscal years ended
January 1, 2000, January 2, 1999, and January 3, 1998, respectively.
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The Company was incorporated in February 1995 as a wholly owned subsidiary
of Thermo Instrument. In September and October 1996, the Company conducted an
initial public offering of 1,670,000 shares of its common stock at $14.00 per
share for net proceeds of $20,782,000. 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. As of January 1, 2000, Thermo Instrument owned
13,891,582 shares of the common stock of the Company, representing 67% of such
stock outstanding. Thermo Instrument is an 88%-owned subsidiary of Thermo
Electron. As of January 1, 2000, Thermo Electron owned 4,299,104 shares of the
common stock of the Company, representing 21% of such stock outstanding. During
1999, Thermo Electron purchased 491,700 shares in the open market, for a total
purchase price of $8,298,000. Thermo Instrument and Thermo Electron develop,
manufacture, and sell measurement and detection instruments used in virtually
every industry to monitor, collect, and analyze data that provide knowledge for
the user. For example, Thermo Instrument's and Thermo Electron's powerful
analysis technologies help researchers sift through data to unlock the mysteries
of DNA or develop new drugs; allow manufacturers to fabricate ever-smaller
components required to carry greater amounts of information, faster; or monitor
and control industrial processes on-line to ensure that critical quality
standards are met efficiently.
On March 17, 2000, Thermo Instrument commenced a cash tender offer for any
and all of the outstanding shares of the Company's common stock at $28.00 per
share. This action is part of a major reorganization plan under which Thermo
Electron will spin in, spin off, and sell various businesses to focus solely on
its core measurement and detection instruments businesses. The completion of
this transaction is subject to certain conditions, as outlined in Note 15 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 12 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Biomolecular Instruments and Consumables
The Company's proprietary immunoassay instruments and laboratory
consumables are offered through its DYNEX and Labsystems Oy businesses. The
Company also manufactures and markets a variety of proprietary products based on
emerging technologies, which include optical biosensors, PCR for DNA
amplification, mass spectrometers, and CE technologies. These products are
offered through the Company's Affinity Sensors, MALDI-TOF, Hybaid, Interactiva,
and CE businesses.
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Immunoassay. The Company designs, manufactures, and supports products for
immunoassay testing. Immunoassays are studies performed for the qualitative and
quantitative analysis of the molecular interaction between biological and other
molecules. Immunoassay products are used in medical and pharmaceutical research;
clinical diagnostics including tests for pregnancy, hepatitis, and HIV;
veterinary medicine; agricultural diagnostics; water quality testing; and food
and beverage testing.
In 1999, the Company signed an exclusive licensing agreement to
manufacture and market Vitotox(TM), a high-speed, high-through put, low-cost
toxicity test designed primarily for pharmaceutical customers conducting
drug-discovery research. In addition, the Company introduced the OpSys MR(TM),
an economical microplate reader sold to research and clinical laboratories. In
1998, the Company introduced the Multiskan Ascent(R), an upgrade to the
Company's optical photometer, and the Assist, an automated system to load
microplates into immunoassay dispensers and readers. The Company also introduced
microplates for tissue and cell cultures, as well as improved microplates
designed to eliminate "crosstalk" or interference between sample wells. In 1997,
the Company introduced a combination luminescence and fluorescence microplate,
the Fluoroskan Ascent(R) FL. The Fluoroskan offers on-board dispensers for
kinetic analysis, precise temperature control, orbital shaking, and robotic
integration capabilities.
The Company has focused its sales efforts on the research and clinical
diagnostic markets, including chemical and pharmaceutical manufacturers,
healthcare and hospital facilities, universities, medical and pharmaceutical
research laboratories, veterinary and agricultural research laboratories, and
government institutions. The Company's products are used principally by large
clinical and research laboratories and manufacturers, including pharmaceutical
companies, where large-batch, high-volume testing methods are required.
Laboratory Consumables. The Company designs, manufactures, and markets a
wide range of laboratory consumables. The Company's products include a variety
of hand-held, single and multi-channel pipettes, as well as tips which, combined
with pipettes, are used to transport and deposit precise amounts of fluids and
reagents during tests in clinical and research laboratories. The Company's
Labsystems Oy business produced the world's first continuously adjustable
micropipette and the first multi-channel pipette for microplates. The Company's
comprehensive range of Finnpipette liquid handling equipment includes the
Finnpipette Digital and the Finnpipette BioControl, and electronically assisted
trigger-action pipettes available in single channel and multi-channel versions.
In addition, the Company offers a manual 16-channel pipette for use when
laboratory testing does not need automation. The Company also manufactures
disposable plastic pipette tips that are designed to be used once and then
discarded, as well as a variety of other specialty, high precision plastic
products, including microplates and microstrips in which laboratory tests are
carried out.
Genetic Analysis. The Company offers automated products for the analysis,
purification, and amplification of genetic materials. The Company designs,
manufactures, and markets PCR thermal cyclers, which amplify - or duplicate -
DNA. PCR is used by research laboratories to diagnose and treat genetically
based diseases, and in connection with drug discovery efforts. The technology
automates various research procedures. The Company also manufactures
hybridization ovens, which enable the identification of a DNA sequence. Products
include the PCR Sprint, a high-throughput thermal cycler, and the PCR Express
Gradient System, a temperature-control system that allows researchers to
simultaneously test a collection of samples at various temperatures, rather than
at a single temperature, saving valuable research time.
In 1999, the Company introduced DASH, an automated screening system for
the detection of defects in genes, and King Fisher, a magnetic particle
processor for automated DNA purification. Both products automate and accelerate
basic, yet critical, steps in preparing DNA for research and identifying small
variations within the complex DNA sequence. In addition, the Company introduced
AutoPrep(R) for plasmid purification, a submarket of the DNA purification
market.
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Optical Biosensors. Optical biosensor systems are a relatively new
technology used to quantify biomolecules and characterize their functional
properties. Unlike competing technologies, which statically measure only the
presence and quantity of a biomolecule, optical biosensors dynamically measure
the speed and strength of the molecular interaction. The result is an analytical
instrument that provides previously unavailable information regarding molecular
activity in real time without the need for chemical or radioactive labels,
thereby reducing the time associated with the testing process. Researchers use
the Company's optical biosensors to assist them in understanding molecular
interaction and how molecules bind relative to one another.
The Company's multi-analyte biosensor, IAsys Auto+ Advantage, offers
improved sensitivity, and the availability of prewritten scripts provides
researchers with a high degree of flexibility when designing experiments.
MALDI-TOF Mass Spectrometry. Mass spectrometry measures the molecular
weight of a sample's components, thereby enabling identification and measurement
of organic chemical compounds, inorganic elements, or both, contained in the
sample. The Company offers an easy to use benchtop MALDI-TOF mass spectrometer.
Capillary Electrophoresis. CE is a purification and separation technique.
CE systems separate molecules as they move through an extremely narrow tube, or
capillary, that is charged with an electric field. The largest market for CE
systems and related supplies are pharmaceutical companies. One of the principal
applications for CE systems is the analysis and separation of biomolecules such
as proteins, peptides, and nucleic acids, including DNA. Applications of DNA
separation by CE include the identification of specific individuals through DNA
"fingerprinting" and the diagnosis of diseases and specific genetic disorders
such as leukemia, hepatitis, and sickle cell anemia.
The Company's line of CE systems includes a low-cost, manually controlled
CE system and a fully automated CE system with multiple wavelength detectors.
The Company's CE systems offer high sensitivity, as well as advanced data
handling, control, and automation features. The Company also offers a line of CE
capillaries, buffers, and other consumables.
The Company sells its immunoassay and optical biosensor products
principally through its direct sales force, original equipment manufacturers
(OEMs), dealerships, and distributors throughout the world. The Company
maintains direct sales offices in several European countries, Japan, and the
United States. The Company also sells through manufacturers' representatives.
The Company distributes its laboratory consumables through regional and
national distributor sales channels in over 100 countries worldwide. The
Company's microplates are also sold to OEMs, which then incorporate the
microplates into kits sold to diagnostic laboratories.
The Company sells its genetic analysis products through its direct sales
force in the United States, the United Kingdom, Germany, and France, as well as
through distributors throughout the world. Interactiva's genetic analysis
products are sold principally over the Internet at www.interactiva.de.
The Company plans to increase its Web-based distribution during 2000.
The Company distributes its MALDI-TOF mass spectrometry products through
dealers and distributors throughout the world.
Clinical Equipment and Supplies
The Company addresses the clinical laboratory and healthcare markets with
equipment and supplies for the histology and cytology laboratories; chemistry
reagents for clinical chemistry laboratories; rapid diagnostic tests for use in
physician offices, health clinics, and hospitals; clinical chemistry analyzers
for use in laboratories; and laboratory automation systems for use in clinical
labs. Equipment and consumables for cytology, histology, and pathology
applications are manufactured by Shandon. These businesses also supply
consumables for blood gas and ISE analyzers worldwide. Chemistry reagents are
manufactured by Trace Scientific and DMA, and clinical chemistry
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analyzers are manufactured by Konelab. Blood gas and ISE reagents and
consumables are manufactured by ALKO Diagnostic. Rapid diagnostic test kits are
manufactured by BioStar and modular laboratory automation systems are
manufactured by Clids.
Cytology and Histology Equipment. The Company is a leader in the
manufacture of cytology and histology equipment used to prepare slides
containing thin layers of specially stained cells from patient samples, which
enable medical professionals to detect and diagnose diseases. Slide preparation
is a multi-step process, which, in most cases, requires a specimen to be
stabilized, mounted, sectioned, stained, and coverslipped. The Company offers a
complete line of equipment, accessories, and consumables to perform each step in
the slide preparation process. The Company's equipment is designed to enhance
operator safety by limiting contact with body fluid and tissue samples, as well
as by preventing fumes from reagents used in the slide preparation process from
being released into the laboratory. These products are used primarily by
hospitals and medical laboratories.
The Company also manufactures and markets cytology and histology
consumables. The Company's Cytofunnels are patented disposable specimen
containers that are used in conjunction with its Cytospin. Other consumables
offered by the Company include biopsy bags, disposable cutting blades, knife
holders, reagents used by tissue processors, cell stains and fixatives, glass
slides, and slide racks. In addition, the Company manufactures and markets
immunohistochemistry kits, which are used to provide specific information about
a disease. For example, they are used to determine the primary location of a
malignancy based on the antibodies present in a secondary tumor specimen. The
Company's products include the Finesse Microtome (TM), an instrument that
prepares patient samples by slicing thin layers of sample for more accurate
detection and diagnosis, and Netmon, a service to test the performance of its
Pathcenter tissue processors from a remote location in advance of a service
call, enabling service personnel to arrive equipped with the necessary
replacement parts to repair the instrument. In 1999, the Company introduced
Varistain(R) Gemini, a new automated slide stainer for more efficient detection
of cancerous cells.
Pathology Equipment. The Company is also a leading provider of vented
dissection equipment and refrigerated storage facilities used in autopsies and
forensic evaluations. The Company's products, which are sold under the Shandon
brand name, are used by laboratories, morgues, medical schools, medical
examiners, and research and veterinary facilities worldwide. The Company also
designs, manufactures, and installs complete autopsy/mortuary facilities based
upon customers' specific space, function, and budget requirements. In 1999, the
Company began to manufacture its own line of modular cabinetry for use in
pathology labs.
The Company manufactures and markets a series of stationary tables,
ranging from a standard autopsy table to an elevating, rotating autopsy table.
These tables are equipped with several safety features including a down-draft
ventilation system to ensure that fumes are exhausted away from the work surface
and a built-in continuous table rinse to flush waste away from the table
surface. The Company's other principal pathology products include dissecting
sinks, cadaver lifts, transportable tables and carts, refrigerators, storage
facilities, and workstations. In addition to being used for autopsies, the
Company's workstations are used by medical laboratories for many types of gross
examinations and sectioning of specimens. In addition, the Company also markets
numerous pathology-related consumables including fume hoods and filters,
dissecting tools, instrument trays, and disposable boots and gloves.
Blood Gas and ISE Consumables. The Company's ALKO Diagnostic business
supplies consumables for blood gas and ISE analyzers. Blood gas analyzers are
used to diagnosis the type and stage of certain diseases, such as coronary
artery disease, by measuring the levels of gases in blood samples. ISE analyzers
perform the same function by measuring the levels of electrolytes in blood,
plasma, serum, and urine samples. The Company's products are used to calibrate,
clean, and maintain these analyzers. The Company's products are compatible with
most major brands of blood gas and ISE analyzers, and are used by hospitals and
medical laboratories. The Company's principal products include electrodes,
buffers, calibrators, cartridges, and tubing.
Chemistry Reagents. The Company's clinical chemistry reagents are
developed as a low-cost, high-quality alternative to OEM products, as well as to
provide advanced stabilization technology for, as an example, longer shelf life.
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Rapid Diagnostics. The Company manufactures rapid diagnostic tests for
certain infectious diseases based on a unique, patented thin-film optical
immunoassay technology. The Company provides test kits for influenza A and B,
strep throat, group B strep, chlamydia, infectious mononucleosis, and pregnancy.
FLU OIA(R), an optical immunoassay diagnostic test kit cleared by the U.S. Food
and Drug Administration (FDA) to detect influenza, detects both influenza A and
B in 15 minutes. In 1999, the Company introduced new diagnostic test kits for
vaginitis and received FDA clearance for CdTox A OIA(R), a rapid diagnostic test
to detect toxin A of colstridium difficile bacteria, which causes intestinal
illness.
Clinical Chemistry Analyzers. The Company manufactures clinical chemistry
analyzers and reagents consumed in the analytical process. Coupled with the
Company's modular laboratory automation systems, discussed below, the analyzers
serve the routine clinical chemistry needs of small, medium, and large clinical
laboratories.
Laboratory Automation Systems. The Company manufactures modular laboratory
automation systems that yield cost-efficiencies for clinical labs. The Company's
patented sample-collection and identification systems contain a microchip that
stores such pertinent data as patient identity and laboratory tests to be
performed.
The Company sells its cytology, histology, and pathology products to its
customers through its direct sales force in France, Germany, the United Kingdom,
and the United States, as well as through distributors.
The Company's blood gas and ISE analyzers are sold through its direct
sales force in the United States, distributors and OEM arrangements.
The Company's chemistry reagents and rapid diagnostics are sold through
its direct sales force, distributors, and OEM arrangements.
The Company's clinical chemistry analyzers and laboratory automation
systems are sold through OEM arrangements in the United States and through its
direct sales force in Europe. In addition, the Company plans to develop OEM
arrangements in Europe for distribution of these products.
Information Management Systems
The Company offers laboratory information management systems and
chromatography data systems for use in laboratories, industrial settings, and
clinical testing facilities, through its LabSystems business. The Company's
information management systems are designed to facilitate the monitoring and
analysis of samples throughout the laboratory or clinical lifecycle, as well as
store and organize data.
Laboratory Information Management Systems (LIMS). The Company is
recognized as one of the world's leading LIMS suppliers. The Company also
maintains an implementation support group that provides software customization
and project management services for its customers. A substantial majority of the
Company's customers are Fortune 500 companies in the process chemical,
aerospace, pharmaceutical, environmental, oil and gas, petrochemical,
automotive, food and beverage, agricultural, and medical products industries.
The Company's products are used primarily for research and development, quality
assurance and quality control, and processing facilities.
In 1999, the Company introduced upgrades to Nautilus, a new PC-based LIMS
product, featuring a built-in instrument interface, which integrates laboratory
instruments into the LIMS. The integration is fully automated, eliminates
transcription errors, and allows data to be automatically imported from
instruments into the LIMS.
Chromatography Data Systems (CDS). The Company's CDS products are open
system analytical tools that assist users in analyzing chromatographic data
obtained via gas and liquid chromatography and CE. In 1999, the Company
introduced upgrades to Atlas, a CDS designed in joint development with
chromatographers from some of the Company's clients to ensure the new system met
the needs of customers.
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The Company's LIMS and CDS products serve a variety of geographic markets.
The Company maintains direct sales and service offices in the United States, the
United Kingdom, Germany, Holland, France, Spain, Australia, Singapore, and
Japan. Distribution agents are located in Austria, Bahrain, Brazil, China,
Chili, Czech Republic, Sweden, Ireland, Israel, Italy, Mexico, Saudi Arabia,
Slovak Republic, South Africa, Switzerland, and Taiwan.
(ii) and (xi) New Products; Research and Development
The Company's business includes the research and development of new
products. (See "Principal Products and Services.") The Company expended
$24,241,000, $15,559,000, and $14,057,000, respectively, on internally sponsored
research and development programs in 1999, 1998, and 1997, respectively.
(iii)Raw Materials
Raw materials, components, and supplies purchased by the Company are
either available from a number of different suppliers or from alternative
sources that could be developed without a material adverse effect on the
Company. To date, the Company has experienced no difficulties in obtaining these
materials.
(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights and to
apply for patent protection when appropriate. The Company currently holds
several issued United States patents. The Company also has applications pending
for additional United States patents and a number of foreign counterparts for
its patents in various foreign countries. In addition, the Company has
registered, or other, trademarks. Patent protection provides the Company with
competitive advantages with respect to certain systems. The Company believes,
however, that technical know-how and trade secrets are more important to its
business than patent protection.
The Company seeks to maintain the confidentiality of its proprietary
technology that is not covered by patent protection by requiring employees who
work with proprietary information to sign confidentiality agreements and by
limiting access by parties outside the Company to such confidential information.
There can be no assurance, however, that these measures will prevent the
unauthorized disclosure or use of this information, or that others will not be
able to independently develop such information. Moreover, as is the case with
the Company's patent rights, the enforcement by the Company of its trade secret
rights can be lengthy and costly, with no guarantee of success.
(v) Seasonal Influences
Revenues from rapid diagnostics are higher during the winter months. The
Company's revenues across all segments generally are lower in the third quarter
of each calendar year, primarily because many of its European operations and
customers are on holiday during part of the summer months. In addition, revenues
at the Company's Labsystems Oy subsidiary are generally higher in the second and
fourth quarter of each calendar year, due to the timing of budgets for
government and nonprofit organizations.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii)Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
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(viii)Backlog
The Company's backlog of firm orders was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
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Biomolecular Instruments and Consumables $ 7,748 $ 9,820
Clinical Equipment and Supplies 11,628 8,497
Information Management Systems 12,398 13,866
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$31,774 $32,183
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Certain of these orders are cancelable by the customer upon payment of a
cancellation charge. The Company anticipates that substantially all of the
backlog at January 1, 2000, will be shipped or completed during the next twelve
months. The Company does not believe the size of its backlog is necessarily
indicative of intermediate or long-term trends in its business.
(ix) Government Contracts
Not applicable.
(x) Competition
The markets for the Company's products are highly competitive. In each of
the markets it serves, the Company competes with a number of companies, many of
which have greater engineering, manufacturing, and marketing resources than the
Company.
Biomolecular Instruments and Consumables
Immunoassay. The Company competes in the immunoassay market primarily on
the basis of technological innovation, performance (including throughput and
sensitivity), flexibility, and price. In the detection-systems market, the
Company competes primarily with Bio-Tek Instruments, Inc., Molecular Devices
Corporation, and PerkinElmer Inc. In the automated-systems market, the Company's
main competitors include Packard Biosciences, BioChem Pharma Inc., Hamilton
Bonaduz AG, and Tecan AG.
Laboratory Consumables. The Company competes in the laboratory consumables
market primarily on the basis of price, performance, and ease of use. The
Company's principal competitors in the consumables or plastics market include
Nalge Nunc Inc., Corning-Costar Corporation, Rainin Instruments, Greiner GmbH,
and Eppendorf GmbH.
Genetic Analysis. The Company competes in the analysis, purification, and
amplification of DNA on the basis of technological innovation and performance.
In the mutation-detection market, the Company competes primarily with Promega
Corporation and Third Wave Technologies, Inc. In the purification market, the
Company competes with Quiagen Corporation. The Company's thermal cyclers compete
in the DNA amplification market primarily on the basis of performance, ease of
use, and, to a lesser extent, price. Major competitors include PerkinElmer and
MJ Research Inc.
Optical Biosensors. In the optical biosensors market, the Company
competes primarily on the basis of technological innovation, performance, and
price. The Company's main competitor is Biacore International, Inc.
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MALDI-TOF Mass Spectrometry. The Company competes in the MALDI-TOF mass
spectrometry market primarily on the basis of the technical performance of its
MALDI-TOF mass spectrometers, as well as on the demand in the analytical
biochemistry community for highly automated mass spectrometers. To a lesser
degree, the Company also competes on the basis of price. Principal competitors
in the mass spectrometry market include PerSeptive Biosystems, Inc., a
subsidiary of PE BioSystems Group; Shimadzu Corporation; Bruker Instruments
Inc.; and Micromass Ltd.
Capillary Electrophoresis. The Company competes in the market for CE
systems primarily on the basis of technical performance and automation features,
and, to a lesser extent, price. The Company's principal competitors in the CE
market include Beckman Instruments, Inc. (Beckman), Bio-Rad Laboratories, Inc.,
and Hewlett-Packard.
Clinical Equipment and Supplies
Cytology, Histology, and Pathology Equipment. The Company competes in the
histology, cytology, and pathology laboratory equipment and supplies market,
primarily on the basis of quality, price, and service. In the histology market,
the Company's main competitors include Leica Microsystems Inc., Sakura Finetek
U.S.A. Inc., Carl Zeiss, Inc., and Ventana Corporation. In the cytology market,
the main competitors are Wescor Inc. and Cytyc Corporation, and in the pathology
market, competitors include Jewett Inc., Mopec Inc., and Mortech Manufacturing
Company.
Blood Gas and ISE Consumables. The Company competes primarily on the basis
of price, customer relationships, and product quality in the blood gas and ISE
analyzers market. The Company's competitors include Chiron Corporation,
Radiometer, Instrumentation Laboratory S.p.A., AVL List GmbH, Beckman Coulter,
Inc., Dade-Behring, Inc., and Nova Biomedical.
Chemistry Reagents. In the clinical chemistry reagent market, the
Company's competitors include Abbott Laboratories, BioChem Pharma, Chiron
Corporation, and Sigma-Aldrich Corporation.
Rapid Diagnostics. In the diagnostic test kits market, the Company's main
competitors are Abbott Laboratories, Becton, Dickinson and Company,
Roche-Boeringher Manheim, and Quidel Corporation.
Clinical Chemistry Analyzers and Laboratory Automation Systems. The
Company's clinical chemistry analyzers and laboratory automation systems compete
primarily with the Diagnostic Division of Abbott Laboratories, Roche-Boeringer
Manheim Diagnostics, Bayer-Chiron Diagnostics, and Beckman Coulter.
Information Management Systems
The Company competes in the high-end LIMS and CDS markets primarily on the
basis of the functionality, flexibility, and technical sophistication of its
systems; its ability to tailor its software packages to a customer's specific
laboratory protocols and to provide superior customer service and technical
support; and price. Significant competitors in the LIMS and CDS markets include
PerkinElmer; PE Biosystems; Beckman Coulter, Inc.; Agilent Technologies, Inc.;
LabVantage Solutions; Scientific Software Inc.; Laboratory MicroSystems, Inc.
subsidiary of Instron Corporation; and Waters Corporation.
(xii)Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii)Number of Employees
As of January 1, 2000, the Company employed approximately 1,900 people.
10
<PAGE>
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 12 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, which information is incorporated herein by reference.
</TABLE>
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive Officer)
------------------- --- ---------------------------------------------------------
Colin Maddix 54 President and Chief Executive Officer (1998)
Timo H. Lasola 43 Vice President (1999)
Gordon W. Logan 38 Vice President (1999)
Theo Melas-Kyriazi 40 Chief Financial Officer (1998)
Paul F. Kelleher 57 Chief Accounting Officer (1995)
Each executive officer serves until his successor is chosen or appointed by the Board of Directors
and qualified or until earlier resignation, death, or removal. Mr. Maddix has been Chief Executive
Officer, President, and a Director of the Company since March 1998. Since 1992, Mr. Maddix has been
President and Chief Executive Officer of the Clinical Products Group of LSI, which includes Shandon Inc.
and ALKO Diagnostic Corporation. Since 1991, Mr. Lasola has held various positions at Labsystems Oy
where he served most recently as President and was appointed Vice President of the Company in 1999. Mr.
Logan is the Managing Director of Thermo LabSystems Limited, a wholly owned subsidiary of the Company,
and was appointed Vice President of the Company in 1999. Mr. Melas-Kyriazi was appointed Chief
Financial Officer of the Company and Thermo Electron on January 1, 1999. He joined Thermo Electron in
1986 as Assistant Treasurer, and became Treasurer in 1988. In 1994, he was named President and Chief
Executive Officer of ThermoSpectra Corporation, a subsidiary of Thermo Instrument. In 1998, he became
Vice President of Corporate Strategy for Thermo Electron. Mr. Kelleher has held comparable positions
for at least five years with Thermo Instrument or Thermo Electron. Messrs. Melas-Kyriazi and Kelleher
are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the
Company's needs reasonably require.
Item 2. Properties
The Company believes that its facilities are in good condition and are
adequate to meet its current needs and that other suitable space is readily
available if any leases are not extended. The Company also believes that none of
its manufacturing facilities are currently fully utilized and that the
additional manufacturing capacity available at such facilities will be
sufficient to satisfy its manufacturing requirements for at least the next 12
months. With respect to leases expiring in the near future, in the event that
the Company does not renew such leases, the Company believes that suitable
alternative space is available for lease on acceptable terms. The location and
general character of the Company's properties by industry segment as of January
1, 2000, are as follows:
Biomolecular Instruments and Consumables
The Company leases approximately 208,000 square feet of office,
manufacturing, engineering, and laboratory space in Finland under leases
expiring through 2005; approximately 65,000 square feet of office,
manufacturing, engineering, laboratory, and warehouse space in Virginia,
Massachusetts, and New Mexico, under leases expiring through 2001; approximately
41,000 square feet of office, manufacturing, engineering, laboratory, and
warehouse space in Germany, under leases expiring through 2003; approximately
38,000 square feet of office, manufacturing, engineering, and laboratory space
in England, under a leases expiring through 2009; approximately 28,000 square
feet of office, manufacturing, and laboratory space in Belgium, under a lease
expiring in 2001; and approximately 59,000 square feet of office, manufacturing,
and warehouse space in Belgium, China, Japan, Russia, Spain, France, Sweden,
India, the United Kingdom, and the Czech Republic under leases expiring through
2015.
11
<PAGE>
Clinical Equipment and Supplies
The Company owns approximately 95,000 square feet of office,
manufacturing, engineering, and laboratory space in Pennsylvania. The Company
leases approximately 135,000 square feet of office, manufacturing, engineering,
and laboratory space in Texas, Colorado, and Massachusetts, under leases
expiring through 2004; approximately 51,000 square feet of office,
manufacturing, and engineering space in England, under a lease expiring in 2014;
approximately 34,000 square feet of office, manufacturing, and laboratory space
in Australia, under a lease expiring in 2002; approximately 19,000 square feet
of office, manufacturing, and laboratory space in Croatia under a lease expiring
in 2000; and 22,000 square feet of office, manufacturing, and laboratory space
in France, Germany, and New Zealand, under leases expiring through 2004.
Information Management Systems
The Company leases approximately 30,000 square feet of office space in
England, under a lease expiring in 2016; approximately 7,000 square feet of
office space in Massachusetts, under a lease expiring in 2001; approximately
14,000 square feet of office space in France, Germany, Spain, Australia, the
Netherlands, Japan, and Singapore, including 2,500 square feet subleased from
ThermoQuest and 2,000 square feet subleased from Thermo Optek, under leases
expiring through 2003.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $.01 par value, and dividend policy is included under the sections
labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
On October 26, 1999, the Company issued 3,030,303 shares of its common
stock to Thermo Instrument Systems Inc. in connection with Thermo Instrument's
conversion of the Company's $50,000,000 principal amount 4.875% convertible
subordinated note due 2001. The note was convertible into shares of the
Company's common stock at $16.50 per share. Exemption from registration for this
transaction is claimed under Section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of January 1, 2000,
and Supplementary Data are included in the Registrant's 1999 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
PART III
The information required under Items 10, 11, 12, and 13 of Form 10-K will
be filed as part of an amendment to this Form 10-K no later than 120 days after
January 1, 2000, the end of the Registrant's fiscal year covered by this Form
10-K.
13
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list below
are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in the
list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference are
set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and
Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 22, 2000 THERMO BIOANALYSIS CORPORATION
By: /s/ Colin Maddix
Colin Maddix
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 22, 2000.
Signature Title
By: /s/ Colin Maddix President, Chief Executive Officer, and
Colin Maddix Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ Elias P. Gyftopoulos Director
Elias P. Gyftopoulos
By: /s/ Earl R. Lewis Chairman of the Board and Director
Earl R. Lewis
By: /s/ Jonathan W. Painter Director
Jonathan W. Painter
By: /s/ Arnold N. Weinberg Director
Arnold N. Weinberg
15
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo BioAnalysis Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Thermo BioAnalysis
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 15, 2000 (except
with respect to the matter discussed in Note 15, as to which the date is March
17, 2000). Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14 on page 14 is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. The schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the consolidated financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000
</TABLE>
16
<PAGE>
SCHEDULE II
THERMO BIOANALYSIS CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Description Provision Accounts Accounts Other (a) Balance
Balance at Charged to Recovered Written at End
Beginning Expense Off of Year
of Year
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------
Allowance for Doubtful Accounts
Year Ended January 1, 2000 $ 5,571 $ 1,408 $ - $(1,593) $ - $ 5,386
Year Ended January 2, 1999 $ 6,232 $ 648 $ 27 $(1,039) $ (297) $ 5,571
Year Ended January 3, 1998 $ 991 $ 606 $ - $ (369) $ 5,004 $ 6,232
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Description Balance at Established Activity Other (c) Balance
Beginning as Cost of Charged to at End
of Year Acquisitions Reserve of Year
- ----------------------------------- ------------- -------------- ------------- -------------- ------------
Accrued Acquisition Expenses (b)
Year Ended January 1, 2000 $3,537 $ 3,222 $(1,803) $(1,073) $3,883
Year Ended January 2, 1999 $4,604 $ 2,525 $(2,219) $(1,373) $3,537
Year Ended January 3, 1998 $1,857 $ 7,677 $(3,665) $(1,265) $4,604
Description Balance at Provision Activity Currency Balance
Beginning Charged to Charged to Translation at End
of Year Expense (e) Reserve of Year
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
Restructuring Reserves (d)
Year Ended January 1, 2000 $ 209 $ - $ (180) $ (29) $ -
Year Ended January 2, 1999 $ - $ 1,102 $ (913) $ 20 $ 209
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders and the effect of foreign currency translation.
(b) The nature of activity in this account is described in Note 2 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(c) Represents reversal of accrued acquisition expenses and corresponding
reduction in cost in excess of net assets of acquired companies resulting
from finalization of restructuring plans and the effect of foreign currency
translation.
(d) The nature of activity in this account is described in Note 10 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(e) Excludes provision of $0.2 million for asset write-downs in 1998.
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1* Purchase Agreement dated as of February 5, 1996, by and among the
Company, Dynatech Corporation, and certain of their respective
affiliates.
2.2 Share Purchase Agreement dated as of May 6, 1997, between the
Company and Thermo Instrument Systems Inc., with respect to
Labsystems Oy and Hybaid Limited (incorporated by reference
herein from Exhibit 2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 29, 1997).
2.3 Share Purchase Agreement dated as of July 30, 1997, between the Company
and Thermo Instrument Systems Inc., with respect to Labsystems
Japan (incorporated by reference herein from Exhibit 2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997).
2.4 Share Purchase Agreement dated as of May 11, 1998, between the Company and Thermo Instrument Systems
Inc. (incorporated by reference herein from Exhibit 2.4 to the Company's Registration
Statement on Form S-1 [Reg. No. 333-52445]).
2.5 Share Purchase Agreement dated as of May 11, 1998, between the Company and ThermoQuest
Corporation (incorporated by reference herein from Exhibit 2.5 to the Company's
Registration Statement on Form S-1 [Reg. No. 333-52445]).
3.1* Certificate of Incorporation of the Registrant.
3.2* By-Laws of the Company.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant (incorporated
by reference herein from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 3, 1998).
4* Form of Common Stock Certificate.
10.1* Corporate Services Agreement dated as of February 27, 1995,
between Thermo Electron and the Company.
10.2 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993
(incorporated by reference herein from Exhibit 10.1 to Thermo Electron's Annual Report on
Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002]).
10.3* Tax Allocation Agreement dated as of February 27, 1995, between
Thermo Electron and the Company.
10.4 Master Cash Management, Guarantee Reimbursement and Loan
Agreement dated as of June 1, 1999, between the Registrant and
Thermo Electron Corporation (incorporated by reference herein
from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999).
18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.5 [Reserved.]
10.6 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of
December 2, 1997, between Thermo Instrument and the Company (incorporated by reference
herein from Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998).
10.7 Amended and Restated Equity Incentive Plan of the Registrant (incorporated by reference
herein from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999).
In addition to the stock-based compensation plans of the Company,
the executive officers of the Company may be granted awards under
stock-based compensation plans of Thermo Electron and Thermo
Instrument for services rendered to the Company or such
affiliated corporations. The terms of such plans are
substantially the same as those of the Company's Amended and
Restated Equity Incentive Plan.
10.8 Amended and Restated Deferred Compensation Plan for Directors of the Registrant
(incorporated by reference herein from Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999).
10.9 Amended and Restated Directors Stock Option Plan of the Registrant (incorporated by
reference herein from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999).
10.10* Form of Indemnification Agreement for Officers and Directors.
10.11* Asset Transfer Agreement dated as of February 27, 1995, between
Thermo Instrument and the Company.
10.12* Asset Transfer Agreement dated as of February 27, 1995, between Thermo Separation
Products Inc. and the Company.
10.13* Exclusive License Agreement dated as of February 27, 1995, between Thermo Separation
Products Inc. and the Company.
10.14* Exclusive License Agreement dated as of February 27, 1995,
between the Company and Thermo Separation Products Inc.
10.15* Manufacturing Agreement dated as of February 27, 1995, between Thermo Separation Products
Inc. and the Company.
10.16 Restated Stock Holding Assistance Plan and Form of Promissory Note (incorporated by
reference herein from Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996).
10.17 10,100,000 British pounds sterling Principal Amount Promissory
Note, due July 15, 2001.
10.18* Asset and Share Purchase Agreement dated as of July 22, 1996,
among SID Instruments Inc., HB Instruments Inc., the Company, and
Thermo Instrument.
19
<PAGE>
Exhibit
Number Description of Exhibit
10.19* Asset Purchase Agreement dated as of July 22, 1996, among Thermo
LabSystems Limited, FI Instruments Inc., Thermo FAST U.K.
Limited, the Company, and Thermo Instrument.
13 Annual Report to Shareholders for the year ended January 1, 2000
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
Each exhibit above which is marked with an asterisk (*) is incorporated by
reference to the correspondingly numbered exhibit to the Company's Registration
Statement on Form S-1 [File No. 333-08697].
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT, AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE SECURITIES OR (2)
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
SHANDON SCIENTIFIC LIMITED
Promissory Note Due July 15, 2001
Runcorn, Cheshire, United Kingdom
As of July 15, 1999
For value received, Shandon Scientific Limited, a corporation organized
under the laws of England and Wales (the "Company"), hereby promises to pay to
Life Sciences International Limited (hereinafter referred to as the "Payee"), or
its registered assigns, on July 15, 2001, as described below, the principal sum
of ten million one hundred thousand GBP ((pound)10,100,000) or such part thereof
as then remains unpaid, to pay interest from the date hereof on the whole amount
of said principal sum remaining from time to time unpaid at a rate per annum
equal to 6.05%, such interest is payable in arrears on the first business day of
each fiscal quarter of the Company, until all amounts outstanding are paid in
full. Overdue principal and interest shall bear interest at a rate per annum
equal to the rate of interest announced from time to time by BankBoston, N.A. at
its head office in Boston, Massachusetts as its "base rate" plus one percent
(1%). Principal and all accrued but unpaid interest shall be repaid on July 15,
2001. Principal and interest shall be payable in lawful money of England, in
immediately available funds, at the principal office of the Payee or at such
other place as the legal holder may designate from time to time in writing to
the Company. Interest shall be computed on an actual 360-day basis.
This Note may be prepaid at any time or from time to time, in whole or
in part, without any premium or penalty. All prepayments shall be applied first
to accrued interest and then to principal.
The then unpaid principal amount of, and interest outstanding on, this
Note shall be and become immediately due and payable without notice or demand,
at the option of the holder hereof, upon the occurrence of any of the following
events:
(a) the failure of the Company to pay any amount due hereunder
within ten (10) days of the date when due;
(b) any representation, warranty or statement made or
furnished to the Payee by the Company in connection with this Note or
the transaction from which it arises shall prove to have been false or
misleading in any material respect as of the date when made or
furnished;
<PAGE>
(c) the failure of the Company to pay its debts as they become
due, the insolvency of the Company, the filing by or against the
Company of any petition under the insolvency laws of any jurisdiction,
or the making by the Company of an assignment or trust mortgage for the
benefit of creditors or the appointment of a receiver, custodian or
similar agent with respect to, or the taking by any such person of
possession of, any property of the Company;
(d) the sale by the Company of all or substantially all of its
assets;
(e) the merger or consolidation of the Company with or into
any other corporation in a transaction in which the Company is not the
surviving entity;
(f) the issuance of any writ of attachment, by trustee process
or otherwise, or any restraining order or injunction not removed,
repealed or dismissed within thirty (30) days of issuance, against or
affecting the person or property of the Company or any liability or
obligation of the Company to the holder hereof; and
(g) the suspension of the transaction of the usual business of
the Company.
Upon surrender of this Note for transfer or exchange, a new Note or new
Notes of the same tenor dated the date to which interest has been paid on the
surrendered Note and in an aggregate principal amount equal to the unpaid
principal amount of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all reasonable
attorneys' fees.
No delay or omission on the part of the Payee in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Payee, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Company hereby waives presentment, demand, notice of prepayment, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note. The undersigned hereby assents
to any indulgence and any extension of time for payment of any indebtedness
evidenced hereby granted or permitted by the Payee.
This Note shall be governed by and construed in accordance with, the
laws of England.
Executed and delivered as a deed )
By SHANDON SCIENTIFIC LIMITED Colin Maddix ) /s/ Colin Maddix
Acting by one director and a second ) -----------------
director or the company secretary Damian Hickey ) /s/ Damian Hickey
-----------------
2
Exhibit 13
Thermo BioAnalysis Corporation
Consolidated Financial Statements
1999
<PAGE>
<TABLE>
<CAPTION>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Statement of Income
<S> <C> <C> <C>
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ---------- ----------
Revenues (includes $4,448, $4,269, and $16,667 to affiliated $290,582 $227,082 $201,998
companies; Notes 8 and 12) -------- -------- --------
Costs and Operating Expenses:
Cost of revenues (includes $1,628, $2,134, and $9,272 for 135,788 112,677 102,826
affiliated company revenues; Notes 8 and 10)
Selling, general, and administrative expenses (Note 8) 100,249 76,133 61,946
Research and development expenses 24,241 15,559 14,057
Restructuring costs (Note 10) - 1,300 -
Gain on sale of equipment, net (434) - -
-------- -------- -------
259,844 205,669 178,829
-------- -------- -------
Operating Income 30,738 21,413 23,169
Interest Income 2,405 4,254 2,431
Interest Expense (includes $3,706, $6,651, and $7,624 to (5,443) (7,903) (7,725)
related party; Note 6)
Equity in Earnings of Unconsolidated Subsidiaries (Notes 3 and 10) 2,640 1,241 -
Other Income 114 1,150 -
-------- -------- -------
Income Before Provision for Income Taxes and Minority Interest 30,454 20,155 17,875
Provision for Income Taxes (Note 5) 11,237 8,155 6,535
Minority Interest Expense (Income) 5 (9) -
-------- -------- -------
Net Income $ 19,212 $ 12,009 $11,340
======== ======== =======
Earnings per Share (Note 13)
Basic $ 1.06 $ .74 $ .86
======== ======== =======
Diluted $ .99 $ .70 $ .79
======== ======== =======
Weighted Average Shares (Note 13)
Basic 18,166 16,124 13,232
======== ======== =======
Diluted 20,770 19,309 16,367
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Balance Sheet
<S> <C> <C>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Assets
Current Assets:
Cash and cash equivalents (includes $40,861 under repurchase $ 37,621 $ 62,957
agreements with affiliated company in 1998)
Advance to affiliate 16,516 -
Accounts receivable, less allowances of $5,386 and $5,571 64,606 54,718
Inventories 43,658 42,044
Deferred tax asset (Note 5) 13,880 11,459
Other current assets 6,848 5,253
-------- --------
183,129 176,431
-------- --------
Property, Plant, and Equipment, at Cost, Net 25,698 25,493
-------- --------
Patents and Other Assets (Note 3) 24,961 24,204
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 180,213 175,153
-------- --------
$414,001 $401,281
======== ========
3
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term obligations and current maturities of long-term $ 53,228 $ 63,824
obligations (includes advance from affiliate of $10,307 in 1999
and $50,000 due to parent company in 1998; Note 6)
Accounts payable 18,286 16,384
Accrued payroll and employee benefits 11,041 9,543
Accrued income taxes 14,596 11,545
Accrued acquisition expenses (Note 2) 3,883 3,537
Other accrued expenses 22,943 18,767
Due to parent company and affiliated companies 4,122 4,756
-------- --------
128,099 128,356
-------- --------
Deferred Income Taxes (Note 5) - 1,679
-------- --------
Long-term Obligations (Note 6):
Subordinated convertible note, due to parent company - 50,000
Other 18,452 10,181
-------- --------
18,452 60,181
-------- --------
Minority Interest 33 460
-------- --------
Commitments and Contingency (Note 7)
Shareholders' Investment (Notes 2, 4, 6, and 9):
Common stock, $.01 par value, 25,000,000 shares authorized; 212 181
21,199,640 and 18,096,950 shares issued
Capital in excess of par value 251,452 200,736
Retained earnings 39,807 20,595
Treasury stock at cost, 550,564 and 550,522 shares (10,067) (10,064)
Deferred compensation (72) -
Accumulated other comprehensive items (13,915) (843)
-------- --------
267,417 210,605
-------- --------
$414,001 $401,281
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Operating Activities
Net income $ 19,212 $ 12,009 $ 11,340
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,349 11,366 9,452
Provision for losses on accounts receivable 1,408 648 606
Gain on sale of equipment, net (434) - -
Deferred income tax expense (benefit) (170) 291 (948)
Equity in earnings of unconsolidated subsidiaries (Note 3) (2,640) (1,241) -
Other noncash items (36) 2,710 47
Changes in current accounts, excluding the effects of acquisitions and
disposition:
Accounts receivable (8,677) 2,959 (11,330)
Inventories 426 (1,448) 1,970
Other current assets (926) (1,100) 2,065
Accounts payable 726 (4,495) 145
Other current liabilities 2,581 2,352 3,394
-------- -------- --------
Net cash provided by operating activities 24,819 24,051 16,741
-------- -------- --------
Investing Activities
Acquisitions, net of cash acquired (Note 2) (16,063) (45,204) (41,053)
Cash acquired through acquisitions from Thermo - - 23,995
Instrument in 1997 (Note 2)
Adjustment to acquisition purchase price (Note 2) 705 9,459 955
Advances to affiliate, net (16,516) - -
Purchases of property, plant, and equipment (7,695) (7,746) (4,535)
Proceeds from sale of property, plant, and equipment 1,837 2,556 665
Other (78) (16) (103)
-------- -------- --------
Net cash used in investing activities (37,810) (40,951) (20,076)
-------- -------- --------
Financing Activities
Net proceeds from issuance of Company common stock (Note 9) 636 69,174 21
Purchases of Company common stock - (10,054) -
Repayment of indebtedness to parent company (Notes 2 and 6) (50,000) (37,861) -
Increase in short-term obligations, net 19,362 7,180 2,465
Issuance of long-term obligations (Note 2) 15,190 11,409 -
Issuance of long-term obligation to affiliated company (Note 6) 15,958 - -
Repayment of long-term obligations (8,713) (82) (2,220)
-------- -------- --------
Net cash provided by (used in) financing activities $ (7,567) $ 39,766 $ 266
-------- -------- --------
5
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Exchange Rate Effect on Cash $ (4,778) $ 387 $ (2,703)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (25,336) 23,253 (5,772)
Cash and Cash Equivalents at Beginning of Year 62,957 39,704 45,476
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 37,621 $ 62,957 $ 39,704
======== ======== ========
Cash Paid For
Interest $ 5,954 $ 6,888 $ 7,736
Income taxes $ 9,705 $ 3,054 $ 5,619
Noncash Activities
Fair value of assets of acquired companies, including $ 37,467 $ 59,406 $242,374
cash acquired of $1,500, $1,278, and $23,995 (Note 2)
Cash paid for acquired companies (17,563) (46,482) (41,053)
Issuance of Company common stock for acquired companies - - (83,533)
Promissory note payable to parent company for acquired - - (50,000)
companies
Debt payable to parent company for acquired companies - - (37,861)
Adjustments to purchase price due from parent - - 9,075
company for acquired companies -------- -------- --------
Liabilities assumed of acquired companies $ 19,904 $ 12,924 $ 39,002
======== ======== ========
Conversion of subordinated convertible note by $ 50,000 $ - $ -
parent company (Note 6) ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Comprehensive Income
Net Income $ 19,212 $ 12,009 $ 11,340
--------- --------- ---------
Other Comprehensive Items:
Foreign currency translation adjustment (13,072) 6,071 (8,543)
--------- --------- ---------
$ 6,140 $ 18,080 $ 2,797
========= ========= =========
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 181 $ 141 $ 98
Net proceeds from issuance of Company common stock (Note 9) - 40 -
Conversion of subordinated convertible note (Note 6) 30 - -
Issuance of stock under employees' and directors' stock plans 1 - -
Issuance of stock for the acquisition of the Biosystems Group - - 43
and the Clinical Products Group of LSI (Note 2) --------- --------- ---------
Balance at end of year 212 181 141
--------- --------- ---------
Capital in Excess of Par Value:
Balance at beginning of year 200,736 131,483 47,882
Net proceeds from issuance of Company common stock (Note 9) - 68,988 -
Conversion of subordinated convertible note (Note 6) 49,970 - -
Issuance of stock under employees' and directors' stock plans 746 156 21
Tax benefit related to employees' and directors' stock plans - 109 90
Issuance of stock for the acquisition of the Biosystems Group - - 83,490
and the Clinical Products Group of LSI (Note 2) --------- --------- ---------
Balance at end of year 251,452 200,736 131,483
--------- --------- ---------
Retained Earnings:
Balance at beginning of year 20,595 9,633 1,707
Net income 19,212 12,009 11,340
Deemed distribution to parent company for the acquisition of - (1,047) (3,414)
the Clinical Products Group of LSI (Note 2) --------- --------- ---------
Balance at end of year 39,807 20,595 9,633
--------- --------- ---------
Treasury Stock:
Balance at beginning of year (10,064) - -
Activity under employees' and directors' stock plans (3) (10) -
Purchases of Company common stock - (10,054) -
--------- --------- ---------
Balance at end of year $ (10,067) $ (10,064) $ -
--------- --------- ---------
7
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Deferred Compensation (Note 4):
Balance at beginning year $ - $ - $ -
Issuance of restricted stock under employees' stock plans (108) - -
Amortization of deferred compensation 36 - -
--------- --------- ---------
Balance at end of year (72) - -
--------- --------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of year (843) (6,914) 1,629
Other comprehensive items (13,072) 6,071 (8,543)
--------- --------- ---------
Balance at end of year (13,915) (843) (6,914)
--------- --------- ---------
$ 267,417 $ 210,605 $ 134,343
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo BioAnalysis Corporation (the Company) operates in three business
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. 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; chemistry reagents and
accessories; rapid diagnostic tests for use in physician offices; and clinical
chemistry analyzers and laboratory automation systems. The Company's Information
Management Systems segment designs, develops, and supports laboratory
information management systems and chromatography data systems, which are
designed to facilitate the monitoring and analysis of samples and the
organization and storage of data throughout the laboratory or clinical life
cycle.
Relationship With Thermo Instrument Systems Inc. and Thermo Electron Corporation
The Company was incorporated in February 1995 as a wholly owned subsidiary
of Thermo Instrument Systems Inc. As of January 1, 2000, Thermo Instrument owned
13,891,582 shares of the Company's common stock, representing 67% of such stock
outstanding. Thermo Instrument is an 88%-owned subsidiary of Thermo Electron
Corporation. As of January 1, 2000, Thermo Electron owned 4,299,104 shares of
the Company's common stock, representing 21% of such stock outstanding.
In January 2000, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company. As
part of the reorganization, Thermo Instrument intends to acquire the publicly
held shares of the Company (Note 15).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its majority and wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
The Company accounts for investments in joint ventures in which it owns
between 20% and 50% using the equity method. Under the equity method, the
Company records its initial investment in each joint venture at cost, and
adjusts the carrying value of the investment to recognize its proportionate
share of the joint venture's earnings or losses. In July 1998, the Company
contributed a business to a joint venture with Thermo Instrument and, as a
result, the business has not been consolidated in the Company's financial
statements since that time (Note 3).
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal year 1997 included 53 weeks.
Revenue Recognition
The Company recognizes revenue upon shipment of its products. The Company
provides a reserve for its estimate of warranty and installation costs at the
time of shipment. The Company recognizes revenue from service contracts over the
respective terms of the contracts. In accordance with Statement of Position No.
97-2, "Software Revenue Recognition," revenue from information management
systems is recognized upon execution of the license agreement and delivery of
the software when any ongoing service commitments are not critical to the
functionality of the software; otherwise revenue on both the service and
software components is recognized using the percentage-of- completion method.
Revenues recorded under the percentage-of-completion method were $6,803,000,
$6,599,000,
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
and $408,000 in 1999, 1998, and 1997, respectively. Revenue from software
maintenance contracts, including amounts bundled in initial software licenses,
is recognized ratably over the term of the contract. Revenues related to
collaborative research agreements are recognized when the related services are
performed and the research expenses are incurred.
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established. The Company believes that, under
its current process for developing software, the software is essentially
completed concurrently with the establishment of technological feasibility.
Accordingly, no software development costs have been capitalized except for
software recorded in connection with an acquisition (see "Patents and other
assets").
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
Income Taxes
In the periods prior to its initial public offering, the Company was
included in Thermo Electron's consolidated federal and certain state income tax
returns. Subsequent to the Company's initial public offering in September 1996,
Thermo Instrument's and Thermo Electron's combined equity ownership of the
Company was reduced below 80%. As a result, the Company was required to file its
own federal income tax return until the fourth quarter of 1998, at which time
Thermo Instrument's and Thermo Electron's combined equity ownership again
exceeded 80%. As a result, the Company and Thermo Instrument are included in
Thermo Electron's consolidated tax return as provided for under a tax allocation
agreement between the Company and Thermo Instrument. The agreement provides that
in years in which the Company has taxable income, it will pay to Thermo Electron
amounts comparable to the taxes the Company would have paid if it had filed
separate tax returns.
In accordance with SFAS No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes based on the expected future tax
consequences of differences between the financial statement basis and the tax
basis of assets and liabilities, calculated using enacted tax rates in effect
for the year in which the differences are expected to be reflected in the tax
return.
Earnings per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding during the year. Except where the
effect would be antidilutive, diluted earnings per share have been computed
assuming the conversion of the Company's convertible obligation and the
elimination of the related expense, and the exercise of stock options and their
related income tax effects.
Cash and Cash Equivalents
The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a notional pool arrangement with Barclays Bank. Under
this arrangement, Barclays notionally combines the positive and negative cash
balances held by the participants to calculate the net interest yield/expense
for the group. The benefit derived from this arrangement is then allocated based
on balances attributable to the respective participants. The Company has access
to a $15,362,000 line of credit under this arrangement. Thermo Electron
guarantees all of the obligations of each participant in this arrangement. At
year-end 1999 and 1998, the Company had invested $13,832,000 and $3,410,000,
respectively, and borrowed $8,588,000 and $2,465,000, respectively, under this
arrangement (Note 6).
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a cash management arrangement in the Netherlands with
a wholly owned subsidiary of Thermo Electron. Under this arrangement,
participants' balances are pooled for interest calculation purposes. Interest
under this arrangement is based on Euro market rates. The Company has access to
a $2,507,000 line of credit under this arrangement. Thermo Electron guarantees
all of the obligations of each participant in this arrangement. At year-end
1999, the Company had $1,288,000 invested and $2,247,000 borrowed under this
arrangement (Note 6).
At year-end 1998, $40,339,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement were readily convertible
into cash by the Company. The repurchase agreement earned a rate based on the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. Effective June 1999, the Company adopted a new cash
management arrangement with Thermo Electron, described below, that replaces the
repurchase arrangement. At year-end 1998, $522,000 was invested in a similar
arrangement in the Netherlands.
At year-end 1999 and 1998, the Company's cash equivalents also included
cash held in accounts in foreign countries and, at year-end 1998, certificates
of deposits, which matured in three months or less. Cash equivalents are carried
at cost, which approximates market value.
Advance to/from Affiliate
Effective June 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
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.
In addition, certain of the Company's European-based subsidiaries
participate in new cash management arrangements with a wholly owned subsidiary
of Thermo Electron. The Company has access to a $12,102,000 line of credit under
these arrangements, of which the Company had borrowed $10,307,000 at year-end
1999 (Note 6). Interest under these arrangements is based on Euro market rates.
The other terms of these arrangements are similar to the domestic cash
management arrangement.
</TABLE>
Inventories
Inventories are stated at the lower of cost (on a weighted average or
first-in, first-out basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Raw Materials and Supplies $11,601 $11,370
Work in Process 4,477 3,532
Finished Goods 27,580 27,142
------- -------
$43,658 $42,044
======= =======
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings and improvements, 30 years;
machinery and equipment, 2 to 15 years; and leasehold improvements, the shorter
of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Land $ 327 $ 327
Buildings 3,890 3,890
Machinery, Equipment, and Leasehold Improvements 37,438 32,738
------- -------
41,655 36,955
Less: Accumulated Depreciation and Amortization 15,957 11,462
------- -------
$25,698 $25,493
======= =======
Patents and Other Assets
Patents and other assets in the accompanying balance sheet includes the
costs of acquired patents, technology, software, and other specifically
identifiable intangible assets. These assets are amortized using the
straight-line method over their estimated useful lives, which range from 5 to 15
years. These assets were $15,613,000 and $17,410,000, net of accumulated
amortization of $2,117,000 and $1,091,000, at year-end 1999 and 1998,
respectively. Other assets also includes investments in joint ventures accounted
for under the equity method (Note 3).
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 15 to 40 years. Accumulated
amortization was $13,660,000 and $8,418,000 at year-end 1999 and 1998,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. Such events or circumstances generally include the occurrence of
operating losses or a significant decline in earnings associated with the
acquired business or asset The Company considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of this asset.
The Company assesses cash flows before interest charges when impairment is
indicated and writes the asset down to fair value. If quoted values are not
available, the Company estimates fair value by calculating the present value of
future cash flows. If impairment has occurred, any excess of carrying value over
fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of income and are not material for 1999 and 1997. In 1998, the Company
recorded foreign currency translation gains of $1,150,000, arising from certain
foreign subsidiaries' intercompany borrowings denominated in U.S. dollars, which
are included in other income in the accompanying statement of income.
12
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
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. The
balance of accumulated other comprehensive items represents the Company's
cumulative translation adjustment.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. These contracts
principally hedge transactions denominated in U.S. dollars and British pounds
sterling. The purpose of the Company's foreign currency hedging activities is to
protect the Company's local currency cash flows related to these commitments
from fluctuations in foreign exchange rates. Gains and losses arising from
forward foreign exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter into
speculative foreign currency agreements.
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein during the first quarter of
calendar 2000 through recording a cumulative net of tax effect of the change in
accounting. The Company has not yet completed the analysis to determine the
effect that SAB 101 will have on its financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation
Certain amounts in 1998 and 1997 have been reclassified to conform to the
presentation in the 1999 financial statements.
2. Acquisitions
Acquisitions Effective in 1999
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 $12.4
million in cash, net of cash acquired, and the assumption of $7.5 million of
debt. 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 $14.5 million from a lender in Finland. The
debt, which is guaranteed by Thermo Electron, is payable semiannually through
March 2004 and bears interest at the 6-month Euribor rate plus 0.4%, which was
3.1% at January 1, 2000 (Note 6).
13
<PAGE>
2. Acquisitions (continued)
In October 1999, the Company acquired Interactiva Biotechnologie GmbH for
$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 diagnostics applications.
During 1999, the Company also purchased an additional interest in its
67.5%-owned subsidiary in Shanghai, China for $1.0 million in cash, which
increased the Company's ownership to 90%.
Acquisitions Effective in 1998
In December 1998, the Company's Hybaid GmbH subsidiary acquired the
capital stock of Angewandte Gentechnologie Systeme GmbH (AGS), a German
manufacturer of molecular biology reagents for the life sciences research
market, for $1.9 million in cash.
In November 1998, the Company acquired substantially all of the assets of
BioStar, Inc. for $27.9 million in cash and the assumption of certain
liabilities. BioStar develops, manufactures, and markets point-of-care rapid
immunoassay test kits for detecting various medical conditions.
In August 1998, the Company acquired the stock of Trace Scientific Limited
for $7.3 million in cash and the repayment of $2.2 million in debt. Trace, based
in Melbourne, Australia, markets a wide variety of chemical reagents used for
diagnostic tests in clinical laboratories and supplies a range of products used
by cell biologists in the pharmaceutical industry and in academia. Trace has
operations in Australia, New Zealand, and the U.S.
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 clinical chemistry tests, for
$5.2 million in cash and the repayment of $0.5 million of debt. Accounts
receivable in the accompanying 1998 balance sheet includes $0.7 million related
to a purchase price adjustment for the acquisition of DMA, which was received in
1999.
In addition, in June 1998, the Company completed another acquisition for
$0.9 million in cash and, in September 1998, purchased an additional 35%
interest in the Company's subsidiary in Shanghai, China, for $0.6 million in
cash. This additional investment increased the Company's ownership to 67.5% and,
as a result, the results of the subsidiary have been consolidated with the
results of the Company, effective September 1998.
These acquisitions in 1999 and 1998 have been accounted for using the
purchase method of accounting, and their results have been included in the
accompanying financial statements from the respective dates of acquisition.
Acquisitions Effective in 1997
In March 1997, Thermo Instrument acquired Life Sciences International PLC
(LSI), a London Stock Exchange-listed company. 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, 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 was $66.7 million, which
represents the sum of the net book value, exclusive of cash, 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 SAB 55 (Topic 1:B).
The net purchase price for the Clinical Products Group was comprised of
3,007,930 shares of Company common stock valued at $22.16 per share, which
represents the five-day average for the period preceding the date the parties
reached agreement in principle on the material terms of the transaction.
Following approval of the Company's shareholders, the shares for the purchase of
the Clinical Products Group were issued in October 1998. In addition to the
shares of Company common stock 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
14
<PAGE>
2. Acquisitions (continued)
million. This amount includes $12.0 million for an equivalent amount of cash
acquired. The existing indebtedness owed to Thermo Instrument bore interest at
the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. This debt was repaid during 1998.
In May 1997, the Company agreed to acquire Labsystems Oy and Hybaid, which
comprised the Biosystems Group of LSI, from Thermo Instrument. Labsystems Oy,
based in Finland, manufactures microplate-based immunoassay instruments and
liquid-handling equipment. Hybaid, based in the U.K., manufactures thermal
cyclers and consumables for DNA amplification. The aggregate purchase price for
Labsystems Oy and Hybaid was approximately $102.5 million, which consisted of:
a) approximately $91.5 million for the net operating assets of the acquired
businesses plus b) $11.0 million for an equivalent amount of cash held by the
acquired businesses. The purchase price for the net operating assets represents
the sum of the net book value, exclusive of cash, of the businesses as of the
date that Thermo Instrument acquired LSI, plus a percentage of Thermo
Instrument's total cost in excess of net assets acquired associated with its
acquisition of LSI, based on the aggregate 1996 revenues of the Biosystems 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 SAB 55 (Topic 1:B). The purchase price was subject to a post-closing
adjustment based on final determination of the net book value, exclusive of
cash, of the acquired businesses and a final calculation of Thermo Instrument's
total cost in excess of net assets acquired associated with the acquisition of
LSI. The post-closing adjustment resulted in a refund of $5.1 million, including
$0.3 million of interest income, which was received during 1998 was recorded as
a reduction of cost in excess of net assets of acquired companies, exclusive of
the interest component.
Of the $102.5 million aggregate purchase price, the Company paid
approximately $35.6 million in cash to Thermo Instrument, issued a $50.0 million
promissory note to Thermo Instrument, and issued 1,300,000 shares of Company
common stock, valued at approximately $16.9 million, or $12.98 per share, which
represents the five-day average for the period preceding the date the
transaction was approved by the Company's and Thermo Instrument's respective
boards of directors. The Company believes that this five-day average is
appropriate as it most closely represents the value of Company common stock on
the date the Company became obligated to transfer such shares to Thermo
Instrument. The $50.0 million promissory note bore interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. The Company repaid a portion of this debt in July 1999 (Note 6).
In July 1997, the Company agreed to acquire Labsystems Japan from Thermo
Instrument for approximately $5.9 million in cash. Labsystems Japan was acquired
by Thermo Instrument as part of its acquisition of LSI. The purchase price for
Labsystems Japan was determined in a manner similar to that for the Biosystems
Group of LSI. Subsequent to the initial determination of the purchase price, the
Company assumed certain additional trade payables totaling approximately $4.4
million, which resulted in a corresponding decrease in the purchase price, plus
interest income, which was recorded as a reduction of cost in excess of net
assets of acquired companies, exclusive of the interest component. Of the $4.4
million purchase price adjustment, $0.4 million was received in 1997 and the
remainder was received in 1998, including $0.3 million of interest income.
Labsystems Japan distributes products manufactured by Labsystems Oy and LSI
companies.
Because the Company, the Clinical Products Group, the Biosystems Group,
and Labsystems Japan were deemed for accounting purposes to be under control of
their common majority owner, Thermo Instrument, the transactions have 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, the Biosystems Group, and Labsystems Japan from March 12, 1997, the date
these businesses were acquired by Thermo Instrument, and the shares issued to
Thermo Instrument have been deemed outstanding from that date for purposes of
computing earnings per share. The purchase price for the Clinical Products Group
included $4.5 million for the increase in the 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 until the date of transfer to the
Company.
15
<PAGE>
2. Acquisitions (continued)
Other Information Concerning Acquisitions
The aggregate cost of these acquisitions exceeded the estimated fair value
of the acquired net assets by $179.1 million, which is being amortized over 20
to 40 years. Allocation of the purchase price for these acquisitions was based
on estimates of the fair value of the net assets acquired and, for acquisitions
made in 1999, is subject to adjustment upon finalization of the purchase price
allocation. To date, no information has been gathered that indicates that the
final allocations of purchase price will be materially different from the
preliminary estimates, except for the acquisition of Konelab and Clids, in which
the Company is awaiting the determination of the value of the acquired
technology.
In connection with its acquisitions, 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 the termination of certain
joint venture arrangements. In connection with these restructuring activities,
as part of the cost of the 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
January 1, 2000, primarily included completion of planned severances,
abandonment of excess facilities and, to a lesser extent, the relocation of
certain employees, for acquisitions completed during the last 12 months.
</TABLE>
16
<PAGE>
2. Acquisitions (continued)
A summary of the changes in accrued acquisition expenses for severance is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 Total
(In thousands) Acquisitions Acquisitions Acquisitions Acquisitions
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
Balance at December 28, 1996 $ - $ - $ - $1,801 $ 1,801
Reserves established - - 3,864 - 3,864
Usage - - (2,969) (559) (3,528)
Decrease due to finalization (1,159) (1,159)
of restructuring plan,
recorded as a decrease to
cost in excess of net assets
of acquired companies
Currency translation - - - (83) (83)
------ ------- ------ ------ -------
Balance at January 3, 1998 - - 895 - 895
Reserves established - 1,335 445 - 1,780
Usage - (92) (852) - (944)
Decrease due to finalization - - (139) - (139)
of restructuring plan,
recorded as a decrease to
cost in excess of net assets
of acquired companies
Currency translation - 15 (23) - (8)
------ ------- ------ ------ -------
Balance at January 2, 1999 - 1,258 326 - 1,584
Reserves established 1,978 130 - - 2,108
Usage (554) (541) (257) - (1,352)
Decrease due to finalization - (527) - - (527)
of restructuring plan,
recorded as a decrease to
cost in excess of net assets
of acquired companies
Currency translation (153) (40) (47) - (240)
------ ------- ------ ------ -------
Balance at January 1, 2000 $1,271 $ 280 $ 22 $ - $ 1,573
====== ======= ====== ====== =======
Amounts established for severance related to 27, 30, and 150 employees in
1999, 1998, and 1997, respectively.
17
<PAGE>
2. Acquisitions (continued)
A summary of the changes in accrued acquisition expenses for excess
facilities is as follows:
1999 1998 1997 1996 Total
(In thousands) Acquisitions Acquisitions Acquisitions Acquisitions
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
Balance at December 28, 1996 $ - $ - $ - $ 56 $ 56
Reserves established - - 1,828 - 1,828
Usage - - - (33) (33)
Decrease due to finalization of - - - (20) (20)
restructuring plan, recorded
as a decrease to cost in
excess of net assets of
acquired companies
Currency translation - - - (3) (3)
----- ------ ----- ----- ------
Balance at January 3, 1998 - - 1,828 - 1,828
Reserves established - 262 306 - 568
Usage - - (737) - (737)
Decrease due to finalization of - - (58) - (58)
restructuring plan, recorded
as a decrease to cost in
excess of net assets of
acquired companies
Currency translation - (27) 56 - 29
----- ------ ----- ----- ------
Balance at January 2, 1999 - 235 1,395 - 1,630
Reserves established 192 - - - 192
Usage (1) (93) (216) - (310)
Decrease due to finalization of - (146) - - (146)
restructuring plan, recorded
as a decrease to cost in
excess of net assets of
acquired companies
Currency translation (15) 4 (44) - (55)
----- ------ ----- ----- ------
Balance at January 1, 2000 $ 176 $ - $1,135 $ - $1,311
===== ====== ====== ===== ======
Provisions for the abandonment of facilities for 1997 acquisitions
primarily related to sales offices in France, Germany, and Spain, as well as a
manufacturing facility in the United Kingdom, with lease terms through 2014.
Provisions for 1998 and 1999 acquisitions related to costs for exiting
manufacturing facilities in Australia and Germany and sales offices in France
and Germany with lease terms through 2000.
18
<PAGE>
2. Acquisitions (continued)
A summary of the changes in other accrued acquisition expenses, which
primarily represents costs for the relocation of certain employees and the
termination of certain joint venture arrangements, is as follows:
1999 1998 1997 1996 Total
(In thousands) Acquisitions Acquisitions Acquisitions Acquisitions
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
Balance at December 28, 1996 $ - $ - $ - $ - $ -
Reserves established - - 1,882 103 1,985
Usage - - (1) (103) (104)
Currency translation - - - - -
------ ------- ------ ------ -------
Balance at January 3, 1998 - - 1,881 - 1,881
Reserves established - 177 - - 177
Usage - (148) (390) - (538)
Decrease due to finalization of - - (1,220) - (1,220)
restructuring plan, recorded
as a decrease to cost in
excess of net assets of
acquired companies
Currency translation - 4 19 - 23
------ ------- ------ ------ -------
Balance at January 2, 1999 - 33 290 - 323
Reserves established 828 94 - - 922
Usage (57) (84) - - (141)
Currency translation (64) - (41) - (105)
------ ------- ------ ------ -------
Balance at January 1, 2000 $ 707 $ 43 $ 249 $ - $ 999
====== ======= ====== ====== =======
The provision established for 1997 acquisitions related to costs
associated with exiting three joint venture arrangements. The provision
established for 1998 acquisitions related to moving expenses for two
manufacturing facilities. The provision established for 1999 acquisitions
related to costs associated with relocating sales employees in France and
Germany.
Of the total acquisition reserves accrued at January 1, 2000, the Company
expects to pay $2,499,000 in 2000 and $1,384,000 over the terms of the leases,
in 2001 through 2014.
</TABLE>
19
<PAGE>
2. Acquisitions (continued)
Based on unaudited data, the following table presents selected financial
information for the Company, BioStar, and the Clinical Products Group and the
Biosystems Group of LSI on a pro forma basis, assuming the companies had been
combined since the beginning of 1997. The effect of the acquisitions not
included in the pro forma data was not material to the Company's results of
operations.
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands except per share amounts) 1998 1997
- ------------------------------------------------------------------------- ---- ------------- -------------
Revenues $242,629 $242,242
Net Income 7,967 3,196
Basic and Diluted Earnings per Share .49 .23
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisitions had been
made at the beginning of 1997.
3. Joint Ventures
The Company records its share of income and losses in unconsolidated joint
ventures, in which it owns between 22% and 50%, as equity in earnings of
unconsolidated subsidiaries and the carrying value is included in patents and
other assets in the accompanying balance sheet.
As of July 5, 1998, the Company contributed the assets and liabilities of
its Eberline health physics division to a joint venture the Company formed with
Thermo Instrument. The joint venture was established to address the nuclear
instrumentation market. The Company received a 49% equity interest in the joint
venture, and initially receives 67% of the profit and losses of the joint
venture through the later of the achievement of certain earnings targets or July
2000. The Company's health physics division had unaudited revenues and operating
income of $7,133,000 and $1,486,000, respectively, in 1998, through July 4. As a
result of the formation of the joint venture, the Company has not consolidated
the results of this business since July 4, 1998. In addition, the Company has
joint ventures in China and Mexico of which it owns 22% and 50%, respectively.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others, which permit the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted stock,
stock options, stock bonus shares, or performance-based shares. The option
recipients and the terms of options granted under these plans are determined by
the Board Committee. Generally, options granted to date are immediately
exercisable, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a one- to ten-year period, depending on the term of
the option, which generally ranges from five to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market value
of the Company's stock on the date of grant. To date, all options have been
granted at fair market value. The Company also has a directors' stock option
plan that provides for the grant of stock options to outside directors pursuant
to a formula approved by the Company's shareholders. Options awarded under this
plan are exercisable immediately and expire three to seven years after the date
of the grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in the stock-based
compensation plans of Thermo Instrument and Thermo Electron.
20
<PAGE>
4. Employee Benefit Plans (continued)
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 95,000 shares at a weighted average exercise price of $16.74 per share
elected to participate in this exchange and, as a result, received options to
purchase 48,000 shares of Company common stock at $10.76 per share, which are
included in the 1998 grants in the table below. The other terms of the new
options are the same as the exchanged options except that the holders may not
sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
In February 1999, the Company awarded 6,500 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$108,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period.
A summary of the Company's stock option activity is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Number Number Number
of of of
(Shares in thousands) Shares Shares Shares
- ---------------------------------------------- -------- ---------- -------- ---------- --------- ---------
Options Outstanding, Beginning of Year 994 $13.10 907 $12.42 717 $11.27
Granted 323 18.45 354 15.57 282 15.71
Exercised (55) 10.51 (15) 10.84 (2) 10.38
Forfeited (82) 14.04 (157) 12.81 (90) 13.60
Canceled due to exchange - - (95) 16.74 - -
---- ---- -----
Options Outstanding, End of Year 1,180 $14.62 994 $13.10 907 $12.42
===== ====== ==== ====== ===== ======
Options Exercisable 1,180 $14.62 994 $13.10 907 $12.42
===== ====== ==== ====== ===== ======
Options Available for Grant 341 388 291
==== ==== =====
</TABLE>
21
<PAGE>
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at January 1, 2000,
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Outstanding and Exercisable
----------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ------------------------------------------------- ---------------- ------------------- ------------------
$10.00 - $13.22 505 6.9 years $10.77
13.23 - 16.45 253 7.0 years 14.88
16.46 - 19.68 346 5.2 years 18.42
19.69 - 22.91 76 10.3 years 21.95
-----
$10.00 - $22.91 1,180 6.6 years $14.62
=====
Employee Stock Purchase Program
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Under this program, shares of the Company's and Thermo
Electron's common stock can be purchased at 85% of the lower of the fair market
value at the beginning or end of the period, and the shares purchased are
subject to a one-year resale restriction. Prior to the 1998 program year, the
applicable shares of common stock could be purchased at the end of a 12-month
period at 95% of the fair market value at the beginning of the period, and the
shares purchased were subject to a six-month resale restriction. Shares are
purchased through payroll deductions of up to 10% of each participating
employee's gross wages. During 1999, the Company issued 15,000 shares of its
common stock under this program. No shares were issued under this program during
1998 and 1997.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
under the Company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under SFAS
No. 123, the effect on the Company's net income and earnings per share would
have been as follows:
(In thousands except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Net Income:
As reported $19,212 $12,009 $11,340
Pro forma 17,030 10,636 10,850
Basic Earnings per Share:
As reported 1.06 .74 .86
Pro forma .94 .66 .82
Diluted Earnings per Share:
As reported .99 .70 .79
Pro forma .88 .63 .76
22
<PAGE>
4. Employee Benefit Plans (continued)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $5.94,
$5.48, and $6.73 in 1999, 1998, and 1997, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 1998 1997
- ----------------------------------------------------------------------- ---------- ------------ ----------
Volatility 30% 28% 28%
Risk-free Interest Rate 5.4% 4.9% 6.4%
Expected Life of Options 4.0 years 4.9 years 6.4 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) Savings Plan
The majority of the Company's domestic subsidiaries participate in Thermo
Electron's 401(k) savings plan. Contributions to the 401(k) savings plan are
made by both the employee and the Company. Company contributions are based upon
the level of employee contributions. For these plans, the Company contributed
and charged to expense $1,005,000, $453,000, and $433,000 in 1999, 1998, and
1997, respectively.
Other Retirement Plans
Certain of the Company's subsidiaries offer other defined contribution
plans in lieu of participation in the Thermo Electron 401(k) savings plan.
Company contributions to these plans are based on formulas determined by the
Company. For these plans, the Company contributed and charged to expense
$99,000, $668,000, and $430,000 in 1999, 1998, and 1997, respectively.
5. Income Taxes
The components of income before provision for income taxes and minority
interest are as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------- ------------ ----------- ----------
Domestic $12,833 $ 9,447 $15,727
Foreign 17,621 10,708 2,148
------- ------- -------
$30,454 $20,155 $17,875
======= ======= =======
23
<PAGE>
5. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------- ------------ ----------- -----------
Currently Payable:
Federal $ 4,861 $2,566 $ 5,255
State 996 398 729
Foreign 5,550 4,900 1,499
------- ------ --------
11,407 7,864 7,483
------- ------ --------
Net Deferred (Prepaid):
Federal (36) 1,155 (381)
State (18) 219 (81)
Foreign (116) (1,083) (486)
------- ------ --------
(170) 291 (948)
------- ------ --------
$11,237 $8,155 $ 6,535
======= ====== ========
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $109,000
and $90,000 of such benefits that have been allocated to capital in excess of
par value in 1998 and 1997, respectively.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% in 1999 and 1998, and 34% in 1997 to income before provision for
income taxes and minority interest due to the following:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Provision for Income Taxes at Statutory Rate $10,659 $ 7,054 $ 6,078
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 636 401 428
Foreign tax rate and tax law differential (733) 69 283
Tax benefit of foreign sales corporation (159) (117) (37)
Amortization of cost in excess of net assets of acquired companies 359 338 20
Other, net 475 410 (237)
------- ------- -------
$11,237 $ 8,155 $ 6,535
======= ======= =======
</TABLE>
24
<PAGE>
5. Income Taxes (continued)
Deferred tax asset (liability) in the accompanying balance sheet consists
of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ----------- ----------
Current Deferred Tax Asset:
Foreign prepaid $ 9,550 $ 7,713
Net operating loss 7,616 2,475
Inventory basis difference 2,081 2,010
Reserves and accruals 1,658 1,329
Allowance for doubtful accounts 591 407
------- -------
21,496 13,934
Less: Valuation allowance 7,616 2,475
------- -------
$13,880 $11,459
======= =======
Long-term Deferred Tax Asset (Liability):
Depreciation and amortization $ 156 $(1,679)
======= =======
At year-end 1999, the Company had foreign net operating loss carryforwards
of approximately $20,045,000 for which a valuation allowance has been
established as it is more likely than not that the deferred tax asset will not
be realized. Of this amount, approximately $16,026,000 expires from 2002 through
2009. Any tax benefit resulting from the use of acquired loss carryforwards is
recorded as a reduction of cost in excess of net assets of acquired companies.
The increase in the valuation allowance in 1999 is a result of the increase in
acquired loss carryforwards.
A provision has not been made for U.S. or additional foreign taxes on
$33,383,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas.
6. Short- and Long-term Obligations
Short-term Obligations
In May 1997, the Company agreed to purchase the Biosystems Group of LSI
from Thermo Instrument (Note 2). The purchase price for such businesses included
$50,000,000 payable to Thermo Instrument, which bore interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. In satisfaction of this obligation, in July 1999, 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,
$2,555,000 was borrowed under an arrangement with Barclays Bank (Note 1), and is
included in short-term obligations and current maturities of long-term
obligations in the accompanying 1999 balance sheet. This amount bears interest
at a variable rate, which was 5.77% at January 1, 2000. The unpaid balance of
the amount that was refinanced, is denominated in British pounds sterling and
translated into an obligation of $16,333,000 at January 1, 2000. This debt,
which the Company borrowed from a wholly owned subsidiary of Thermo Instrument,
has a maturity date of July 15, 2001, and bears interest at a fixed rate of
6.05%. The Company expects to repay this debt during 2000, and therefore, it is
included in short-term obligations and current maturities of long-term
obligations in the accompanying 1999 balance sheet.
Short-term obligations and current maturities of long-term obligations in
the accompanying balance sheet include $9,959,000 and $2,399,000 at year-end
1999 and 1998, respectively, of short-term bank borrowings at the Company's
foreign subsidiaries.
25
<PAGE>
6. Short- and Long-term Obligations (continued)
The Company has overdraft facilities for use by certain of its European
and Asian subsidiaries. The Company had $8,856,000 outstanding under these
facilities at year-end 1998. Borrowings under overdraft facilities are
guaranteed by either Thermo Instrument or Thermo Electron.
The weighted average interest rate for these borrowings was 4.7% and 3.1%
at year-end 1999 and 1998, respectively. Unused lines of credit, including
amounts available under arrangements with a wholly owned subsidiary of Thermo
Electron, were $16,081,000 at year-end 1999.
At year-end 1999, the Company had borrowings of $12,554,000 under
arrangements with a wholly owned subsidiary of Thermo Electron (Note 1). In
addition, at year-end 1999 and 1998, the Company had $8,588,000, including the
$2,555,000 short-term obligation discussed above, and $2,465,000, respectively,
under an arrangement with Barclays Bank (Note 1). The weighted average interest
rate for these borrowings was 4.7% and 7.2% at year-end 1999 and 1998,
respectively.
Long-term Obligations
In connection with the acquisitions of Konelab, Clids, and Bio-Orbit (Note
2), the Company borrowed $14,528,000 from a lender in Finland. This debt, which
is guaranteed by Thermo Electron, is payable semiannually through March 2004 and
bears interest at the 6-month Euribor rate plus 0.4%, which was 3.1% at January
1, 2000. The balance outstanding was $13,059,000 at year-end 1999, of which
$3,380,000 is included in short-term obligations and current maturities of
long-term obligations in the accompanying 1999 balance sheet.
The Company's Labsystems Oy subsidiary has an outstanding foreign bank
loan of $7,842,000 and $11,393,000, at year-end 1999 and 1998, respectively,
which bears interest at the 6-month Helibor rate plus 0.4%, which was 3.5% at
January 1, 2000. Of this amount, $1,960,000 and $2,266,000 is included in
short-term obligations and current maturities of long-term obligations in the
accompanying 1999 and 1998 balance sheet, respectively, and the remainder is due
in installments through 2003. This loan is guaranteed by Thermo Electron.
In addition to the long-term portion of the borrowings described above,
other long-term obligations includes bank borrowings at several of the Company's
subsidiaries as well as certain borrowings related to equipment financing. The
total of these borrowings was $3,345,000 and $1,357,000, of which $454,000 and
$303,000 was included in short-term obligations and current maturities of
long-term obligations at year-end 1999 and 1998, respectively. The net book
value of equipment under these financing arrangements was $635,000 and $466,000
at year-end 1999 and 1998, respectively. These obligations are payable monthly
and are due in installments through 2005.
In July 1996, the Company issued to Thermo Instrument a $50,000,000
principal amount 4.875% subordinated convertible note, due 2001, convertible
into shares of the Company's common stock at $16.50 per share. In October 1999,
Thermo Instrument converted this note into 3,030,303 shares of Company common
stock.
The annual requirements for these long-term obligations as of January 1,
2000, are $5,794,000 in 2000, $6,165,000 in 2001, $5,986,000 in 2002, $5,442,000
in 2003, $368,000 in 2004, and $491,000 in 2005 and thereafter. Total
requirements of long-term obligations are $24,246,000.
See Note 11 for the fair value information pertaining to the Company's
long-term obligations.
7. Commitments and Contingency
Operating Leases
The Company leases portions of its office and operating facilities under
various noncancelable operating lease arrangements. The accompanying statement
of income includes expenses from operating leases of $7,586,000, $6,709,000 and
$4,842,000 in 1999, 1998, and 1997, respectively. Future minimum payments due
under noncancelable operating leases as of January 1, 2000, are $6,400,000 in
2000, $5,137,000 in 2001, $4,201,000 in 2002, $3,058,000 in 2003, $2,391,000 in
2004, and $5,827,000 in 2005 and thereafter. Total future minimum lease payments
are $27,014,000.
26
<PAGE>
7. Commitments and Contingency (continued)
The Company subleases a portion of space in its U.K. and Finland
facilities to unrelated parties under noncancelable sublease agreements, which
expire at various dates through 2003. The accompanying statement of income
includes income from this sublease agreement of $328,000 and $54,000 in 1999 and
1998, respectively. The operating lease commitments above have not been reduced
by sublease rental income commitments of $240,000 in 2000, $208,000 in 2001,
$112,000 in 2002, and $66,000 in 2003.
Contingency
As a result of the acquisition of Affinity Sensors in March 1996, formerly
part of the Fisons businesses acquired by Thermo Instrument, the Company is a
defendant in a dispute alleging patent infringement. In general, an owner of
intellectual property can prevent others from using such property and is
entitled to damages for unauthorized past usage. In January 2000, the U.S.
District Court for the District of Delaware ruled that the Company infringed on
this patent. However, the prevailing party's remedies have been limited to
injunctive relief and money damages, based on a reasonable royalty, which has
not yet been determined, on past U.S. sales. Although the Company believes that
it is entitled to indemnification for any losses on such matter by Rhone-Poulenc
Rorer under the purchase agreement between Thermo Instrument and Rhone-Poulenc
Rorer for the initial purchase of the Fisons businesses, Rhone-Poulenc Rorer is
disputing the Company's entitlement to indemnification for sales of the alleged
infringing products that occurred after the March 1996 acquisition of these
businesses by Thermo Instrument. The Company does not expect that this
contingency will materially affect its future results of operations or financial
position.
8. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues. The Company paid an amount equal to 0.8% and 1.0% of the
Company's revenues in 1998 and 1997, respectively. For these services, the
Company was charged $2,325,000, $1,817,000, and $2,020,000 in 1999, 1998, and
1997, respectively. The fee is reviewed and adjusted annually by mutual
agreement of the parties. Management believes that the service fee charged by
Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. The corporate
services agreement is renewed annually but can be terminated upon 30 days' prior
notice by the Company or upon the Company's withdrawal from the Thermo Electron
Corporate Charter (the Thermo Electron Corporate Charter defines the
relationship among Thermo Electron and its majority-owned subsidiaries). For
additional items such as employee benefit plans, insurance coverage, and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.
Other Related-party Transactions
The Company purchases and sells products in the ordinary course of
business with other companies affiliated with Thermo Electron. Sales of such
products to affiliated companies totaled $4,448,000, $4,269,000, and $16,667,000
in 1999, 1998, and 1997, respectively. The Company established several sales
offices in 1998 and discontinued using certain affiliated Company's distributors
for its products, which resulted in a decrease in sales to affiliates. Purchases
of products from affiliated companies totaled $2,817,000, $5,959,000, and
$6,693,000 in 1999, 1998, and 1997, respectively.
In addition, a majority-owned subsidiary of Thermo Instrument assembled
certain of the Company's products. For these services, the Company paid $312,000
and $632,000 in 1998 and 1997, respectively.
27
<PAGE>
8. Related-party Transactions (continued)
Operating Leases
In addition to the operating leases discussed in Note 7, the Company
leased certain manufacturing space from ThermoQuest Corporation, a
majority-owned subsidiary of Thermo Instrument, as a tenant-at-will through
April 1998. The accompanying statement of income includes expenses from this
operating lease of $14,000 and $74,000 in 1998 and 1997, respectively.
Cash Management
The Company invests excess cash and borrows short-term funds under
arrangements with Thermo Electron as discussed in Note 1.
Short-term Obligations
The Company has short-term obligations due to related parties as discussed
in Note 6.
9. 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.
In October 1999, the Company issued 3,030,303 shares of its common stock
to Thermo Instrument in connection with Thermo Instrument's conversion of the
Company's $50,000,000 principal amount 4.875% subordinated convertible note due
2001 (Note 6).
At January 1, 2000, the Company had reserved 1,581,000 unissued shares of
its common stock for possible issuance under stock-based compensation plans.
10. Restructuring and Related Costs
During 1998, the Company recorded restructuring and related costs of
$4,072,000. Restructuring costs of $1,300,000, which were accounted for in
accordance with EITF 94-3, consisted of $983,000 related to severance costs for
69 employees across all functions, and $317,000 related primarily to
facility-closing costs for the Company's biomolecular instrumentation
manufacturing operation in Guernsey and downsizing of its clinical
instrumentation manufacturing operations in the United Kingdom. Of the 69
employees, 54 were terminated in 1998 and the remainder in 1999. The charge for
facility-closing costs included $198,000 for the write-down of related fixed
assets. In addition, the Company recorded a write-down of inventories totaling
$2,772,000 related to discontinuing several low-margin product lines and
disposing of inventory at its manufacturing operation in Guernsey, which is
included in cost of revenues in the accompanying 1998 statement of income. In
addition to the restructuring costs discussed above, the Company's nuclear
instrumentation joint venture (Note 3) incurred $500,000 of restructuring costs
during 1998. The Company recorded its share of the joint venture's restructuring
costs of $335,000 as a reduction of the Company's equity in earnings of
unconsolidated subsidiaries in the accompanying statement of income.
</TABLE>
28
<PAGE>
10. Restructuring and Related Costs (continued)
As of January 1, 2000, the Company had completed its restructuring plan,
including employee terminations. A summary of activity in accrued restructuring
costs is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance (a) Facilities Total
(b)
- -------------------------------------------------------------- -------------- -------------- -------------
Balance at January 3, 1998 $ - $ - $ -
Provision charged to expense in 1998 (c) 983 119 1,102
1998 usage (913) - (913)
Currency translation 20 - 20
------- ------- -------
Balance at January 2, 1999 90 119 209
1999 usage (61) (119) (180)
Currency translation (29) - (29)
------- ------- -------
Balance at January 1, 2000 $ - $ - $ -
======= ======= =======
(a) Represents $528,000 and $455,000 of costs in the Biomolecular Instruments
and Consumables segment and the Clinical Equipment and Supplies segment,
respectively.
(b) Represents costs in the Biomolecular Instruments and Consumables segment.
(c) Excludes noncash charges in the Biomolecular Instruments and Consumables
segment of $2,772,000 for inventory provisions and $198,000 for the
write-down of fixed assets.
</TABLE>
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, advance to affiliate, accounts receivable, short-term obligations
and current maturities of long-term obligations, accounts payable, due to parent
company and affiliated companies, long-term obligations, and forward exchange
contracts. The carrying amount of these financial instruments, with the
exception of long-term obligations and forward exchange contracts, approximate
fair value due to their short-term nature.
The carrying amount and fair value of the Company's long-term obligations
and off-balance-sheet financial instruments are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
----------------------- ----------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ---------------------------------------------------------- ------------ ----------- ----------- ----------
Long-term Obligations:
Subordinated convertible note, due to parent company $ - $ - $50,000 $46,250
Other 18,452 18,452 10,181 10,181
------- ------- ------- -------
$18,452 $18,452 $60,181 $56,431
======= ======= ======= =======
Off-balance-sheet Financial Instruments:
Forward exchange contracts payable $ 34 $ 1
29
<PAGE>
11. Fair Value of Financial Instruments (continued)
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the respective
year-ends.
The notional amounts of forward foreign exchange contracts outstanding
totaled $2,000,000 and $1,000,000 at year-end 1999 and 1998, respectively. The
fair value of such contracts is the estimated amount that the Company would pay
upon termination of the contract, taking into account the change in foreign
exchange rates.
12. Business Segment and Geographical Information
The Company organizes and manages its business by individual functional
operating entity. The Company's businesses operate in three segments:
Biomolecular Instruments and Consumables, Clinical Equipment and Supplies, and
Information Management Systems. In classifying operational entities into a
particular segment, the Company aggregates businesses with similar economic
characteristics, products and services, production processes, customers, and
methods of distribution. In addition, through July 4, 1998, the Company
consolidated the results of its Eberline health physics division (Note 3), which
are captioned as "other" in the business segment section in the following
tables.
The Company's Bimolecular 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. 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;
chemistry reagents and accessories; rapid diagnostic tests for use in physician
offices; and clinical chemistry analyzers and laboratory automation systems. The
Company's Information Management Systems segment designs, develops, and supports
laboratory information management systems and chromatography data systems, which
are designed to facilitate the monitoring and analysis of samples and the
organization and storage of data throughout the laboratory or clinical life
cycle.
</TABLE>
30
<PAGE>
12. Business Segment and Geographical Information (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Business Segment Information
Revenues:
Biomolecular Instruments and Consumables $121,764 $112,247 $101,068
Clinical Equipment and Supplies 128,910 75,471 62,544
Information Management Systems 39,908 32,231 25,015
Other - 7,133 13,371
-------- -------- --------
$290,582 $227,082 $201,998
======== ======== ========
Income Before Provision for Income Taxes and Minority Interest:
Biomolecular Instruments and Consumables (a) $ 12,479 $ 9,244 $ 9,523
Clinical Equipment and Supplies (b) 12,435 7,031 7,395
Information Management Systems 9,389 6,478 6,028
Other - 1,486 2,515
Corporate (c) (3,565) (2,826) (2,292)
-------- -------- --------
Total operating income 30,738 21,413 23,169
Interest and other expense, net (284) (1,258) (5,294)
-------- -------- --------
$ 30,454 $ 20,155 $ 17,875
======== ======== ========
Total Assets:
Biomolecular Instruments and Consumables $181,764 $168,787 $168,444
Clinical Equipment and Supplies 193,541 164,902 115,707
Information Management Systems 21,203 18,068 15,595
Other - 5,886 9,925
Corporate (d) 17,493 43,638 12,768
-------- -------- --------
$414,001 $401,281 $322,439
======== ======== ========
Depreciation and Amortization:
Biomolecular Instruments and Consumables $ 6,188 $ 6,595 $ 5,736
Clinical Equipment and Supplies 6,361 3,789 2,613
Information Management Systems 783 857 814
Other - 102 262
Corporate 17 23 27
-------- -------- --------
$ 13,349 $ 11,366 $ 9,452
======== ======== ========
31
<PAGE>
12. Business Segment and Geographical Information (continued)
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Capital Expenditures:
Biomolecular Instruments and Consumables $ 3,269 $ 5,042 $ 2,459
Clinical Equipment and Supplies 3,520 1,846 1,427
Information Management Systems 900 801 598
Other - 43 39
Corporate 6 14 12
-------- -------- --------
$ 7,695 $ 7,746 $ 4,535
======== ======== ========
Geographical Information
Revenues (e):
United States $140,593 $112,609 $ 96,146
England 64,996 64,738 61,457
Finland 64,610 46,648 40,520
Other 90,736 65,741 55,095
Transfers among geographical areas (f) (70,353) (62,654) (51,220)
-------- -------- --------
$290,582 $227,082 $201,998
======== ======== ========
Long-lived Assets (g):
United States $ 17,950 $ 15,391 $ 7,696
England 2,648 3,707 6,040
Finland 7,971 8,554 7,292
Other 6,303 4,604 1,894
Corporate 18 31 45
-------- -------- --------
$ 34,890 $ 32,287 $ 22,967
======== ======== ========
Export Revenues Included in United States Revenues Above (h) $ 28,152 $ 20,624 $ 9,060
======== ======== ========
(a) Includes restructuring and nonrecurring costs of $3,617,000 in 1998.
(b) Includes restructuring costs of $455,000 in 1998.
(c) Primarily corporate general and administrative expenses.
(d) Primarily cash, cash equivalents, and advance to affiliate.
(e) Revenues are attributed to countries based on selling location.
(f) Transfers among geographical areas are accounted for at prices that are representative of
transactions with unaffiliated parties.
(g) Includes property, plant, and equipment, net and other long-term tangible assets.
(h) In general, export revenues are denominated in U.S. dollars.
32
<PAGE>
13. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Basic
Net Income $19,212 $ 12,009 $11,340
------- -------- -------
Weighted Average Shares 18,166 16,124 13,232
------- -------- -------
Basic Earnings per Share $ 1.06 $ .74 $ .86
======= ======== =======
Diluted
Net Income $19,212 $ 12,009 $11,340
Effect of Convertible Note 1,260 1,560 1,560
------- -------- -------
Income Available to Common Shareholders, as Adjusted $20,472 $ 13,569 $12,900
------- -------- -------
Basic Weighted Average Shares 18,166 16,124 13,232
Effect of:
Convertible note 2,448 3,030 3,030
Stock options 156 155 105
------- -------- -------
Weighted Average Shares, as Adjusted 20,770 19,309 16,367
------- -------- -------
Diluted Earnings per Share $ .99 $ .70 $ .79
======= ======== =======
Options to purchase 331,000, 216,000, and 143,000 shares of common stock
were not included in the computation of diluted earnings per share for 1999,
1998, and 1997, respectively, because their effect would have been antidilutive
due to the options' exercise prices exceeding the average market price for the
common stock.
</TABLE>
33
<PAGE>
14. Unaudited Quarterly Information
(In thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 First Second Third Fourth
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
Revenues $65,774 $72,846 $66,468 $85,494
Gross Profit 34,806 38,192 36,591 45,205
Net Income 3,863 4,319 3,491 7,539
Earnings per Share:
Basic .22 .25 .20 .38
Diluted .21 .23 .19 .37
1998 First Second Third (a) Fourth (b)
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
Revenues $54,434 $55,345 $51,110 $66,193
Gross Profit 27,851 29,516 23,180 33,858
Net Income (Loss) 3,202 3,807 (185) 5,185
Earnings (Loss) per Share:
Basic .23 .26 (.01) .30
Diluted .21 .23 (.01) .27
(a) Reflects the contribution of the Eberline health physics division to a joint
venture with Thermo Instrument in July 1998 and restructuring and related
costs of $4,072,000.
(b) Reflects the acquisition of BioStar in November 1998.
15. Subsequent Event
On March 17, 2000, Thermo Instrument commenced a cash tender offer for any
and all of the outstanding shares of the Company's common stock at $28.00 per
share. This action is part of a major reorganization plan under which Thermo
Electron will spin in, spin off, and sell various businesses to focus solely on
its core measurement and detection instruments business. Thermo Instrument and
Thermo Electron own approximately 67% and 21%, respectively, of the outstanding
shares of the Company's common stock. Thermo Instrument has conditioned the
tender offer on receiving acceptances from holders of enough shares so that its
and Thermo Electron's combined share ownership reaches at least 90%. If Thermo
Instrument and Thermo Electron achieve this 90-percent-ownership threshold,
Thermo Instrument will acquire all remaining outstanding shares of the Company's
common stock through a "short-form" merger in Delaware. Shareholders who do not
tender shares to Thermo Instrument during the tender offer would also receive
$28.00 per share in cash for their stock in the short-form merger. The tender
offer and proposed subsequent short-form merger require review by the Securities
and Exchange Commission of necessary filings; a short-form merger would not
require the Company's board or shareholder approval. If the tender offer is
successful, the spin-in of the Company is expected to be completed in the second
quarter of 2000.
34
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo BioAnalysis Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
BioAnalysis Corporation (a Delaware corporation and 67%-owned subsidiary of
Thermo Instrument Systems Inc.) and subsidiaries as of January 1, 2000, and
January 2, 1999, and the related consolidated statements of income, cash flows,
and comprehensive income and shareholders' investment for each of the three
years in the period ended January 1, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
BioAnalysis Corporation and subsidiaries as of January 1, 2000, and January 2,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended January 1, 2000, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000 (except with respect to the matter
discussed in Note 15, as to which the date is March 17, 2000)
35
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
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 biosensors, 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 the 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; chemistry reagents and accessories; rapid diagnostic
tests for use in physician offices; and clinical chemistry analyzers and
laboratory automation systems. 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.
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.
In January 2000, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. As part of the reorganization, Thermo Instrument Systems Inc.
intends to acquire the publicly held shares of the Company (Note 15).
Results of Operations
1999 Compared With 1998
Total revenues increased to $290.6 million in 1999 from $227.1 million in
1998. Revenues in the Clinical Equipment and Supplies segment increased to
$128.9 million in 1999 from $75.5 million in 1998, primarily due to an increase
in revenues of $52.9 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 of $0.9 million due to the
strengthening in value of the U.S. dollar relative to foreign currencies in
countries in which the Company operates.
Revenues in the Biomolecular Instruments and Consumables segment increased
to $121.8 million in 1999 from $112.2 million in 1998, primarily due to an
increase in revenues of $5.6 million due to acquisitions. To a lesser extent,
revenues increased due to higher demand for the segment's products in Asia.
These increases in revenues were offset in part by a decrease in revenues of
$3.1 million due to the strengthening in value of the U.S. dollar relative to
foreign currencies in countries in which the Company operates.
36
<PAGE>
1999 Compared With 1998 (continued)
Revenues in the Information Management Systems segment increased to $39.9
million in 1999 from $32.2 million in 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 $1.1 million due to
the strengthening in value of the U.S. dollar relative to foreign currencies in
countries in which the Company operates.
Revenues from the Company's Eberline health physics division were $7.1
million in 1998. The Company no longer consolidates the results of the Eberline
health physics division with its results because the Company contributed this
business to a joint venture formed with Thermo Instrument in July 1998 (Note 3).
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 income.
The gross profit margin increased to 53% in 1999 from 50% in 1998,
primarily due to a $2.8 million inventory write-down recorded during 1998 that
related to discontinuing several lower-margin product lines and disposing of
inventory at the Company's manufacturing operation in Guernsey (Note 10). To a
lesser extent, the gross profit margin increased due to changes in the sales mix
in the Biomolecular Instrument and Consumables segment and the exclusion of the
results in 1999 of the Company's former Eberline health physics division, which
had lower gross margins. The gross margin for the Eberline health physics
division in 1998 was 40%.
Selling, general, and administrative expenses as a percentage of revenues
increased to 34.5% in 1999 from 33.5% in 1998, primarily due to an increase in
costs in the Biomolecular Instruments and Consumables segment due to the opening
of a sales and service office in India, the expansion of the Company's
operations in China and, to a lesser extent, the exclusion of the results in
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 $24.2 million in 1999 from
$15.6 million in 1998, primarily due to the inclusion of $7.6 million of
expenses from acquired businesses.
During 1999, the Company sold equipment and realized a net gain of $0.4
million.
Interest income decreased to $2.4 million in 1999 from $4.3 million in
1998, primarily due to the repayment of debt discussed below and, to a lesser
extent, the inclusion in the 1998 period of interest income received from Thermo
Instrument on a $9.1 million adjustment to the aggregate purchase price for
certain acquisitions (Note 2). Interest expense decreased to $5.4 million in
1999 from $7.9 million in 1998, primarily due to the repayment in 1998 of $37.9
million of debt to Thermo Instrument 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 6). Equity in
earnings of unconsolidated subsidiaries in the accompanying statement of income
represents the Company's proportionate share of earnings from its joint ventures
(Notes 3 and 10).
The effective tax rate was 37% and 40% in 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. The effective tax rate was higher in
1998 primarily due to nondeductible expenses.
1998 Compared With 1997
Total revenues increased to $227.1 million in 1998 from $202.0 million in
1997. Revenues in the Clinical Equipment and Supplies segment increased to $75.5
million in 1998 from $62.5 million in 1997, primarily due to an increase in
revenues of $19.8 million due to acquisitions, offset in part by a decrease of
$4.6 million due to a change in the distribution relationship with certain
affiliated companies that switched to direct sales. To a lesser extent, sales
decreased due to lower demand for certain of the Company's products. In
addition, increased sales to North America were offset in part by a decrease in
sales to Asia of $1.2 million.
Revenues in the Information Management Systems segment increased to $32.2
million in 1998 from $25.0 million in 1997, primarily due to higher demand for
products and the expansion of the segment's sales and distribution channels into
new markets.
37
<PAGE>
1998 Compared With 1997 (continued)
Revenues in the Biomolecular Instruments and Consumables segment increased
to $112.2 million in 1998 from $101.1 million in 1997, primarily due to an
increase in revenues of $15.6 million due to acquisitions. A $5.1 million
decline in sales to Asia was offset in part by an increase in sales to Europe
and North America. A decrease in revenues of $2.3 million occurred as a result
of lower sales of the Company's DIAS immunoassay system to original equipment
manufacturer (OEM) customers, offset in part by the settlement of an OEM
agreement with a customer for $0.8 million in lieu of purchasing product. In
addition, revenues decreased $1.0 million due to the strengthening in value of
the U.S. dollar relative to foreign currencies in countries in which the Company
operates.
Revenues from the Company's Eberline health physics division decreased to
$7.1 million in 1998 from $13.4 million in 1997, due to the exclusion of the
results of this business in the last half of the 1998 period, as a result of the
Company contributing this business to a joint venture formed with Thermo
Instrument (Note 3).
The gross profit margin increased to 50% in 1998 from 49% in 1997,
primarily due to the introduction of certain higher-margin products and
manufacturing efficiencies in the Biomolecular Instruments and Consumables
segment and, to a lesser extent, the settlement of an OEM agreement, discussed
above. This increase in the Biomolecular Instruments and Consumables segment was
offset in part by a $2.8 million inventory write-down related to discontinuing
several lower-margin product lines and disposing of inventory at the Company's
manufacturing operation in Guernsey (Note 10). The increase in the gross profit
margin was also offset in part by lower-margin revenues at recently acquired
businesses in the Clinical Equipment and Supplies segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 34% in 1998 from 31% in 1997, primarily due to the opening of four
direct sales and service offices and the expansion of the U.S. direct sales and
service office in the Biomolecular Instruments and Consumables segment. To a
lesser extent, selling, general, and administrative expenses increased due to
the exclusion of the results in the last half of the 1998 period of the
Company's former Eberline health physics division, which had lower selling,
general, and administrative expenses as a percentage of revenues, and the
opening of four direct sales and service offices in the Information Management
Systems segment during the second quarter of 1997.
Research and development expenses increased to $15.6 million in 1998 from
$14.1 million in 1997, primarily due to the inclusion of $0.9 million of
expenses from businesses acquired in 1998 and increased spending in the
Management Information Systems segment on products introduced in 1998. These
increases were offset in part by a $0.5 million decrease in research and
development expenses in the Biomolecular Instruments and Consumables segment,
primarily due to reduced spending at the MALDI-TOF mass spectrometry business.
During 1998, the Company recorded restructuring costs of $1.3 million,
primarily related to severance costs and facility closing costs (Note 10). These
costs, together with the effect of the inventory write-down and joint venture
restructuring activities described in Note 10, reduced diluted earnings per
share by $.16 in 1998.
Interest income increased to $4.3 million in 1998 from $2.4 million in
1997, primarily due to higher average invested balances as a result of the
Company's June 1998 public offering of common stock (Note 9) and, to a lesser
extent, interest income received from Thermo Instrument on a $9.1 million
adjustment to the aggregate purchase price for the acquisition of Labsystems
Japan and the Biosystems Group of LSI (Note 2). Interest expense increased to
$7.9 million in 1998 from $7.7 million in 1997, primarily due to the inclusion
for the full period of 1998 of interest expense on the Company's debt to Thermo
Instrument associated with certain 1997 and 1998 acquisitions. This increase was
offset in part by the repayment of $37.9 million of debt to Thermo Instrument
associated with the acquisition of the Clinical Products Group of LSI.
Equity in earnings of unconsolidated subsidiaries in the accompanying
statement of income represents the Company's proportionate share of earnings
from its joint ventures (Notes 3 and 10).
Other income of $1.2 million in 1998 represents a foreign currency
translation gain arising from the repayment of certain foreign subsidiaries'
intercompany borrowings denominated in U.S. dollars.
The effective tax rate was 40% in 1998, compared with 37% in 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 acquired companies. The effective tax rate increased in 1998 primarily
due to an increase in nondeductible expenses.
38
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $55.0 million as of January 1, 2000,
compared with $48.1 million as of January 2, 1999. Included in working capital
are cash and cash equivalents of $37.6 million as of January 1, 2000, compared
with $63.0 million as of January 2, 1999. In addition, as of January 1, 2000,
the Company had $16.5 million invested in an advance to affiliate. Prior to the
use of a new domestic cash management arrangement between the Company and Thermo
Electron, which became effective June 1999, amounts invested with Thermo
Electron were included in cash and cash equivalents. During 1999, $24.8 million
of cash was provided by operating activities. An increase in accounts payable
and other current liabilities provided $3.3 million of cash, primarily due to
the timing of payments. Cash of $8.7 million was used to fund an increase in
accounts receivable, primarily due to the timing of customer payments and
shipments, as well as an increase in revenues.
Excluding advance to affiliate activity, the Company's primary investing
activity consisted of acquisitions for aggregate consideration of $16.1 million
in cash, net of cash acquired. In addition, the Company expended $7.7 million
for purchases of property, plant, and equipment during 1999, and expects to make
capital expenditures of approximately $11.0 million during 2000. During 1999,
the Company received proceeds of $1.8 million from the sale of property, plant,
and equipment.
The Company's financing activities used $7.6 million of cash during 1999.
During this period, the Company repaid a $50.0 million obligation to Thermo
Instrument through the use of internal funds and borrowings from affiliates
(Note 6) and used $8.7 million of cash to repay long-term obligations. The
Company's short-term obligations increased by $19.4 million primarily due to
funds borrowed to repay intercompany debt. In addition, certain divisions of the
Company borrowed $15.2 million of debt denominated in the currencies of
countries where the divisions operate, primarily to fund the acquisition of
three Finnish companies (Note 2).
The Company has undertaken a restructuring of certain acquired businesses
(Note 2). Amounts accrued for such activities totaled $3.9 million at January 1,
2000. The Company expects that such expenditures will not change materially from
amounts accrued at January 1, 2000.
In October 1999, the Company's $50.0 million subordinated convertible note
was converted by Thermo Instrument into 3,030,303 shares of Company common stock
(Note 6).
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.
Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates, equity prices, and interest rates, which could affect its future
results of operations and financial condition. The Company manages its exposure
to these risks through its regular operating and financing activities.
Additionally, the Company uses short term forward contracts to manage certain
exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. The Company does not
engage in extensive foreign currency hedging activities; however, the purpose of
the Company's foreign currency hedging activities is to protect the Company's
local currency cash flows related to these commitments from fluctuations in
foreign exchange rates. The Company's forward foreign exchange contracts
principally hedge transactions denominated in U.S. dollars and British pounds
sterling. Gains and losses arising from forward contracts are recognized as
offsets to gains and losses resulting from the transactions being hedged. The
Company does not enter into speculative foreign currency agreements.
39
<PAGE>
Market Risk (continued)
Foreign Currency Exchange Rates
The Company generally views its investment in its foreign subsidiaries
with a functional currency other than the Company's reporting currency as
long-term. The Company's investment in foreign subsidiaries is sensitive to
fluctuations in foreign currency exchange rates. The functional currencies of
the Company's foreign subsidiaries are principally denominated in British pounds
sterling. The effect of a change in foreign exchange rates on the Company's net
investment in foreign subsidiaries is reflected in the "Accumulated other
comprehensive items" component of shareholders' investment. A 10% depreciation
in year-end 1999 and 1998 functional currencies, relative to the U.S. dollar,
would result in a reduction of shareholders' investment of $12.8 million and
$15.4 million, respectively.
Certain of the Company's cash and cash equivalents and variable rate notes
payable are denominated in currencies other than the functional currency of the
depositor and are sensitive to changes in foreign currency exchange rates. A 10%
appreciation in the year-end 1999 related foreign currency exchange rates would
result in a negative impact to the Company of $0.4 million on its net income. A
10% depreciation in the year-end 1998 related foreign currency exchange rates
would result in a negative impact to the Company of $0.5 million on its net
income.
Equity Prices
The Company's subordinated convertible note is sensitive to fluctuations
in the price of Company's common stock into which the note is convertible.
Changes in the price of the underlying common stock would result in changes in
the fair value of the Company's subordinated convertible note due to the
difference between the current market price and the market price at the date of
issuance of the note. A 10% increase in the year-end 1998 market equity prices
would result in a negative impact to the Company of $1.4 million on the fair
value of its subordinated convertible note.
Interest Rates
The Company's long-term obligations are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair value of the
long-term obligations due to the difference between the market interest rate and
the rate at the date of issuance of the long-term obligations. A 10% decrease in
year-end 1998 market interest rates would result in a negative impact of $0.5
million on the fair value of the Company's long-term obligations.
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives, which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) testing and developing upgrades, where
necessary, for the Company's current products and certain discontinued products;
(iii) assessing the year 2000 readiness of its key suppliers, vendors, and
customers; and (iv) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The costs incurred to date
by the Company in connection with the year 2000 issue have not been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
40
<PAGE>
Thermo BioAnalysis Corporation 1999 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement or
augment the Company's existing product lines. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals,
including antitrust approvals. Any acquisitions completed by the Company may be
made at substantial premiums over the fair value of the net assets of the
acquired companies, resulting in significant amortization expenses related to
goodwill and other intangible assets. There can be no assurance that the Company
will be able to complete future acquisitions or that the Company will be able to
successfully integrate any acquired businesses. In order to finance such
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's shareholders.
Intense Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company believes
that the principal competitive factors affecting the markets for its products
include product features, product performance, price, and service. The Company's
competitors include a number of large multinational corporations. These
companies and certain of the Company's other competitors have substantially
greater financial, marketing, and other resources than the Company. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than the Company. Competition could
increase if new companies enter the market or if existing competitors expand
their product lines or intensify efforts within existing product lines. There
can be no assurance that the Company's current products, products under
development, or ability to develop new technologies will be sufficient to enable
it to compete effectively.
Rapid and Significant Technological Change and New Products. The markets
for the Company's products are characterized by rapid and significant
technological change, evolving industry standards, and frequent new product
introductions and enhancements. Many of the Company's products and products
under development are technologically innovative, and require significant
planning, design, development, and testing, at the technological, product, and
manufacturing process levels. These activities require significant capital
commitments and investment by the Company. In addition, products that are
competitive in the Company's markets are characterized by rapid and significant
technological change due to industry standards that may change on short notice
and by the introduction of new products and technologies that render existing
products and technologies uncompetitive or obsolete. There can be no assurance
that any of the products currently being developed by the Company, or those to
be developed in the future, will be technologically feasible or accepted by the
marketplace, that any such development will be completed in any particular time
frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete.
Uncertainty of Market Acceptance of New Products. Certain of the Company's
products represent alternatives to traditional instruments and methods and as a
result may be slow to achieve, or may not achieve, market acceptance, as
customers may seek further validation of the efficiency and efficacy of the
Company's technology. This is particularly true where the purchase of the
product requires a significant capital commitment. The Company's optical
biosensor, polymerase chain reaction for DNA amplification, MALDI-TOF mass
spectrometry, and capillary electrophoresis products are based on relatively
new, emerging technologies. The Company believes that, to a significant extent,
its growth prospects depend on its ability to gain acceptance by a broader group
of customers of the efficiency and efficacy of the Company's innovative
technologies. There can be no assurance that the Company will be successful in
obtaining such broad acceptance.
41
<PAGE>
Dependence on Capital Spending Policies and Government Funding. The
Company's customers include pharmaceutical, biotechnology, chemical and
industrial companies, hospitals, physicians' office, laboratories, and clinical
diagnostic laboratories and companies. The capital spending policies of these
companies and institutions can have a significant effect on the demand for the
Company's products. Such policies are based on a wide variety of factors,
including the resources available to make such purchases, the spending
priorities among various types of research equipment, and the policies regarding
capital expenditures during recessionary periods. Any decrease in capital
spending by life sciences companies could have a material adverse effect on the
Company's business and results of operations. Biotechnology companies have
raised significant amounts of capital through public equity offerings, and most
of these companies are engaged in programs that include capital spending.
However, the availability of capital through the public markets can be cyclical
and there can be no assurance that the raising of capital by these companies
will continue, nor can there be any assurance that additional capital, if
available, will result in increased sales of the Company's products.
A significant portion of the Company's sales are to universities,
government research laboratories, private foundations, and other institutions
where funding is dependent on grants from government agencies such as the
National Institutes of Health (NIH) and the equivalent of the NIH in foreign
countries where the Company markets its products. If government funding
necessary to purchase the Company's products were to become unavailable to
researchers for any extended period of time, or if overall research funding were
to decrease, the Company's business and results of operations could be adversely
affected. In addition, a significant portion of sales by the Company's nuclear
instrumentation joint venture with Thermo Instrument are made to various
branches of the United States government, primarily the United States Department
of Energy. Any decline in purchases by the United States government, including,
without limitation, declines as the result of budgeting limitations, could have
an adverse effect on the Company's investment in this joint venture.
Potential Fluctuations in Quarterly Performance. Many of the Company's
products are large systems that may require significant capital expenditures.
Consequently, the timing of sales of these systems could affect the Company's
quarterly earnings. Further, the Company's quarterly operating results may also
vary significantly depending on a number of other factors, including the size,
timing, and shipment of individual orders, changes in pricing by the Company or
its competitors, discount levels, seasonality of revenue, foreign currency
exchange rates, the mix of products sold, introduction and delivery of new
product enhancements by the Company and its competitors, and general economic
conditions. Generally, the Company recognizes product revenues upon shipment of
its products. Revenues on substantially all contracts are recognized using the
percentage-of-completion method. Typically, the Company experiences lower
revenues in the third quarter and, to a lesser extent, the first quarter of each
fiscal year. Because certain operating expenses of the Company are based on
anticipated capacity levels and a high percentage of the Company's expenses are
fixed for the short term, a small variation in the timing of recognition of
revenue can cause significant variations in operating results from quarter to
quarter. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business or results of operations.
Risks Associated with International Operations. International sales
accounted for 54% of the Company's total revenues in 1999. A significant portion
of the Company's manufacturing operations are based in Finland. The Company
intends to continue to expand its presence in international markets.
International operations are subject to a number of risks, including the
following: agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system; foreign customers may have
longer payment cycles; foreign countries may impose additional withholding taxes
or otherwise tax the Company's foreign income, impose tariffs, or adopt other
restrictions on foreign trade; fluctuations in exchange rates may affect product
demand and adversely affect the profitability in U.S. dollars of products and
services provided by the Company in foreign markets where payment for the
Company's products and services is made in the local currency; U.S. export
licenses may be difficult to obtain; and the protection of intellectual property
in foreign countries may be more difficult to enforce. There can be no assurance
that any of these factors will not have a material adverse impact on the
Company's business and results of operations.
42
<PAGE>
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products, and processes because of the length of
time and expense associated with bringing new products through the development
process and to the marketplace. The Company's success depends, in part, on its
ability to develop patentable products and obtain and enforce patent protection
for its products both in the United States and in other countries. The Company
has filed and intends to file applications as appropriate for patents covering
its products. No assurance can be given that patents will issue from any pending
or future patent applications owned by or licensed to the Company, or that the
claims allowed under any issued patents will be sufficiently broad to protect
the Company's technology. In addition, no assurance can be given that any issued
patents owned by or licensed to the Company will not be challenged, invalidated,
or circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The Company could incur substantial costs in
defending itself in suits brought against it or in suits in which the Company
may assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others, nor breaching the
technology licenses upon which components of the Company's products are based.
The Company is aware of patents and patent applications belonging to competitors
and other third parties, and it is uncertain whether these patents and patent
applications will require the Company to alter its products or processes, pay
licensing fees, or cease making and selling infringing products and pay damages
for past infringement. In general, the holder of a patent who is successful in
proving infringement by the Company could subject the Company to damages for
past infringement and could enjoin the Company from manufacturing and selling
products utilizing the features associated with such patent. In particular, the
Company is a defendant in a patent infringement lawsuit brought by Biacore AB
and Biacore, Inc. The complaint alleged that the design of the cuvette used in
the Company's optical biosensor system infringed a patent held by Biacore. In
January 2000, the U.S. District Court for the District of Delaware ruled that
the Company infringed on this patent. However, Biacore's remedies have been
limited to injunctive relief and money damages, based on a reasonable royalty,
which has not yet been determined, on past U.S. sales. Although the Company
believes that it is entitled to indemnification for any losses on this matter by
Rhone-Poulenc Rorer Inc. under the purchase agreement between Thermo Instrument
and Rhone-Poulenc Rorer for the initial purchase of the Fisons businesses,
Rhone-Poulenc Rorer is disputing the Company's entitlement to indemnification
for sales of the alleged infringing products that occurred after the March 1996
acquisition of these businesses by Thermo Instrument.
The Company relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.
Government Regulations; No Assurance of Regulatory Approval. The
production and marketing of certain of the Company's products and its ongoing
research and development activities are subject to regulation by government
authorities in the United States and in other countries. To the extent that an
analytical instrument or an in vitro diagnostic product will be used in human
clinical or diagnostic applications, the manufacturer of that instrument may be
required to submit to the U.S. Food and Drug Administration (FDA), prior to
commercial distribution of the instrument or in vitro diagnostic product in the
U.S., either a premarket notification (510(k)) or a premarket approval (PMA)
application, unless the product is exempt or has been in commercial distribution
for the labeled intended use since before May 28, 1976, the effective date of
the Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. The
FDA uses a risk-based system to classify medical devices. Unless they are
exempt, lower risk devices, in Class I and Class II, are generally subject to
510(k) premarket notification, in which the FDA determines that a device is safe
and effective based on its "substantial equivalence" to a legally marketed
product. Highest risk, Class III devices are subject to the premarket approval
process, in which the FDA generally determines the safety and effectiveness of
the device based on the submission of clinical data. The Company has, to date,
been required to
43
<PAGE>
obtain 510(k) clearance with respect to certain clinical applications,
instruments, and in vitro diagnostic products, which are classified as Class I
and Class II products. There can be no assurance that 510(k) clearance or
premarket approval for any future product or modification of an existing product
will be granted by the FDA within a reasonable time frame, if at all, that in
the future the FDA will not require manufacturers of certain medical devices to
engage in a more thorough and time consuming approval process than the 510(k)
process, or that international government agencies will permit marketing of the
Company's products in their respective jurisdictions.
As a result of the clinical applications of certain of the Company's
instruments and in vitro diagnostic products, certain of the Company's
facilities are registered with the FDA as medical device manufacturers. The
Company's registered facilities may be inspected on a routine basis by the FDA
for compliance with the FDA's Quality System Regulation and other applicable
regulations. These regulations require that the Company manufacture its products
and maintain related documentation in accordance with current good manufacturing
practices with respect to manufacturing, testing, and quality control
activities. Further, the Company is required to comply with various FDA
requirements for reporting of product malfunctions and other matters.
The regulatory standards for manufacturing are currently being applied
stringently by the FDA and state regulatory agencies. Noncompliance with FDA or
applicable state agency regulations, or discovery of previously unknown problems
with a product, manufacturer, or facility may result in restrictions on such
product or manufacturer, including fines, recalls, injunctions or seizures of
products, refusal of the government to approve or clear product approval
applications or to allow the Company to enter into government supply contracts,
withdrawal of the product from the market, or criminal prosecution, any of which
could have a material adverse effect on the Company's business and results of
operations.
In addition, a significant percentage of the Company's product revenues
are derived from sales outside of the United States. International regulatory
bodies often establish varying regulations governing product standards,
packaging requirements, labeling requirements, import restrictions, tariff
regulations, duties, and tax requirements. In order to continue to sell its
instrument products in Europe, certain of the Company's facilities maintain ISO
9000 series registration, an internationally-recognized set of quality
standards, and each of its instrument products is required to obtain CE Marking,
as evidence of compliance with European Union electronic safety requirements.
Failure to obtain CE Marking would prohibit the Company from selling its
products in Europe, which could have a material adverse effect on the Company's
business and results of operations. At the present time, analytical instruments
and in vitro diagnostic products are not subject to CE Marking requirements
under the IVD Directive, but by December 7, 2003, CE Marking will be required to
market analytical instruments and in vitro diagnostic products within the
European Union. Certain other countries require the Company to obtain clearances
for its products prior to marketing the products in those countries. In
addition, certain countries impose product specifications that differ from those
mandated in the United States. These requirements may significantly affect the
efficiency and timeliness of international market introductions of the Company's
products. Although the Company has an active program to comply with CE Marking
requirements and an ISO 9000 compliance program, there can be no assurance that
the Company will be successful in maintaining its compliance with current or
future applicable certification requirements. Any violation of, and the cost of
compliance with, these regulations or requirements could have a material adverse
effect on the Company's business and results of operations.
Uncertainty of Patient Reimbursement. The Federal government regulates
reimbursement of fees for certain diagnostic examinations and capital equipment
acquisition costs connected with services to Medicare beneficiaries. Recent
legislation has limited Medicare reimbursement for diagnostic examinations. For
example, deficit reduction measures have resulted in reimbursement rate
reductions in the past and may result in further rate reductions in the future.
These policies may have the effect of limiting the availability or reimbursement
for procedures, and as a result may inhibit or reduce demand by healthcare
providers for products in the markets in which the Company competes. Although
the Company cannot predict what effect the policies of government entities and
other third-party payors will have on future sales of the Company's products,
there can be no assurance that such policies would not have an adverse effect on
the Company's business and results of operations.
44
<PAGE>
Potential Product Liability. The Company's business exposes it to
potential product liability claims which are inherent in the manufacturing,
marketing, and sale of biomedical instruments and diagnostic products, and as
such the Company may face substantial liability to patients for damages
resulting from the faulty design or manufacture of its products. The Company
currently maintains product liability insurance, but there can be no assurance
that this insurance will provide sufficient coverage in the event of a claim,
that the Company will be able to maintain such coverage on acceptable terms, if
at all, or that a product liability claim would not materially adversely affect
the Company's business or results of operations.
Risks Associated with Cash Management Arrangement with Thermo Electron.
The Company participates in a cash management arrangement with Thermo Electron.
Under this cash management arrangement, the Company lends its excess cash to
Thermo Electron on an unsecured basis. The Company has the contractual right to
withdraw its funds invested in the cash management arrangement upon 30 days'
prior notice. 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 the cash management arrangement by all Thermo
Electron subsidiaries other than wholly owned subsidiaries. The funds are held
on an unsecured basis and therefore are subject to the credit risk of Thermo
Electron. The Company's ability to receive its cash upon notice of withdrawal
could be adversely affected if participants in the cash management arrangement
demand withdrawal of their funds in an aggregate amount in excess of the 50%
reserve required to be maintained by Thermo Electron. In the event of a
bankruptcy of Thermo Electron, the Company would be treated as an unsecured
creditor and its right to receive funds from the bankruptcy estate would be
subordinated to secured creditors and would be treated on a pari passu basis
with all other unsecured creditors. Further, all cash withdrawn by the Company
from the cash management arrangement within one year before the bankruptcy would
be subject to rescission. The inability of Thermo Electron to return the
Company's cash on a timely basis or at all could have a material adverse effect
on the Company's results of operations and financial position.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Thermo BioAnalysis Corporation 1999 Financial Statements
Selected Financial Information
<S> <C> <C> <C> <C> <C>
(In thousands except per share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995
- -------------------------------------------------- ---------- ----------- ---------- ---------- ---------
Statement of Operations Data
Revenues $290,582 $ 227,082 $201,998 $ 71,649 $ 22,534
Net Income (Loss) 19,212 12,009 11,340 (436) 2,514
Earnings (Loss) per Share:
Basic 1.06 .74 .86 (.05) .33
Diluted .99 .70 .79 (.05) .33
Balance Sheet Data
Working Capital $ 55,030 $ 48,075 $ 50,501 $ 59,750 $ 27,105
Total Assets 414,001 401,281 322,439 122,997 32,907
Long-term Obligations 18,452 60,181 100,204 50,000 -
Shareholders' Investment 267,417 210,605 134,343 51,316 29,146
(a) Reflects the conversion of the Company's 4.875% subordinated convertible note.
(b) Reflects the acquisition of BioStar in November 1998, the contribution of the Company's Eberline
health physics to a joint venture with Thermo Instrument in July 1998, the
net proceeds of the Company's public offering of common stock in June 1998,
and restructuring and related costs of $4.1 million.
(c) Reflects the acquisitions of the Biosystems Group of LSI, the Clinical
Products Group of LSI, and Labsystems Japan, effective March 1997, including
the effect of treating as outstanding from March 1997 the 1,300,000 shares
issued to Thermo Instrument as part of the purchase price for the Biosystems
Group of LSI and the 3,007,930 shares issued to Thermo Instrument as part of
the purchase price for the Clinical Products Group of LSI.
(d) Reflects the net proceeds of the Company's initial public offering of common
stock in September and October 1996, the acquisition of Dynex in February
1996, and the acquisition of Affinity Sensors and LabSystems effective March
1996, including the associated write-off of $3.5 million of acquired
technology.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Thermo BioAnalysis Corporation 1999 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol TBA. The following table sets forth the high and low sale prices of
the Company's common stock for 1999 and 1998, as reported in the consolidated
transaction reporting system.
<S> <C> <C> <C> <C>
1999 1998
------------------ -------------------
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
First $18 3/4 $12 7/16 $21 7/8 $17 7/16
Second 21 16 3/8 22 3/4 16 3/4
Third 19 1/2 17 1/8 19 3/8 10 1/4
Fourth 18 3/4 16 1/8 20 3/4 8 1/2
As of January 28, 2000, the Company had 131 holders of record of its
common stock. This does not include holdings in street or nominee names. The
closing market price on the American Stock Exchange for the Company's common
stock on January 28, 2000, was $18 1/2 per share.
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
</TABLE>
Exhibit 21
THERMO BIOANALYSIS CORPORATION
Subsidiaries of the Registrant
As of February 23, 2000, Thermo BioAnalysis Corporation owned the
following companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME STATE OR JURISDICTION PERCENT OF
OF INCORPORATION OWNERSHIP
- ---------------------------------------------------------------------------------------------------------
BioStar, Inc. Delaware 100
Data Medical Associates, Inc. Texas 100
DMA Latinoamericana S.A. de C.V.* Mexico 50
Labsystems (SEA) Pte. Ltd. Singapore 100
Fastighets AB Skrubba Sweden 100
Dynex Technologies spol. s.r.o. Czech Republic 100
DYNEX Technologies (Asia) Inc. Delaware 100
DYNEX Technologies Inc. Virginia 100
DYNEX Technologies GmbH Germany 100
Hybaid Limited England 100
Hybaid BV Netherlands 100
Thermo Labsystems B.V. Netherlands 100
Labsystems Inc. Delaware 100
Thermo BioAnalysis Japan K.K. Japan 100
Labsystems OY Finland 100
Biosystems OY Finland 100
Konelab OY Finland 100
AO Analytical Systems Russia 100
Konelab S.A. France 100
Konelab GmbH Germany 100
Labsystems (Hong Kong) Limited Hong Kong 99
Labsystems BTD China 67
Labsystems LHD China 90
Labsystems Lenpipette Russia 95
Labsystems Pakistan (Private) Ltd. Pakistan 33.50
Labsystems Sweden AB Sweden 100
Labsystems (UK) Limited England 100
Life Sciences International SNC France 100
Shandon France SA France 100
Shandon Scientific Limited England 100
Anglia Scientific Instruments Limited England 100
Shandon Southern Instruments Limited England 100
Life Sciences International (Benelux) B.V. Netherlands 100
Shandon Inc. Pennsylvania 100
E-C Apparatus Corporation Florida 100
Whale Scientific Corporation Colorado 100
ALKO Diagnostic Corporation Massachusetts 100
TBA Nucleonics Holding Corporation Delaware 100
TBA Securities Corporation Massachusetts 100
Shandon GmbH Germany 100
<PAGE>
2
NAME STATE OR JURISDICTION PERCENT OF
OF INCORPORATION OWNERSHIP
- -----------------------------------------------------------------------------------------------------------
Thermo BioAnalysis GmbH Germany 100
Hybaid GmbH Germany 100
Angewandte Gentechnologie Systems GmbH Germany 100
Interactiva Biotechnologie GmbH Germany 100
Labsystems GmbH Germany 100
Thermo LabSystems Vertriebs GmbH Germany 100
Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100
Thermo BioAnalysis Holdings, Limited England 100
Thermo Fast U.K. Limited England 100
Dynex Technologies Limited England 100
Thermo BioAnalysis Limited England 100
Thermo LabSystems Limited England 100
Thermo BioAnalysis S.A. France 100
Thermo LabSystems S.A.R.L. France 100
Labsystems S.A.R.L. France 100
Thermo LabSystems (Australia) Pty Limited Australia 100
Thermo LabSystems Inc. Massachusetts 100
BioAnalysis Labsystems, S.A. Spain 100
Trace Scientific Limited Australia 100
Trace BioSciences Pty. Ltd. Australia 100
Trace BioSciences NZ Limited New Zealand 99
Trace America, Inc. Florida 100
Herbos Dijaganosticka Croatia 50
Shanghai Long March Chiron Trace Medical Science Co. Ltd.* China 22
* Joint Venture/Partnership
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 15, 2000, included in or incorporated
by reference into Thermo BioAnalysis Corporation's Annual Report on Form 10-K
for the year ended January 1, 2000 (except for the matter discussed in Note 15,
as to which the date is March 17, 2000), into the Company's previously filed
Registration Statement No. 333-61949 on Form S-8, Registration Statement No.
333-80349 on Form S-8, and Registration Statement No. 333-91843 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO BIOANALYSIS CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<RECEIVABLES> 69,992
<ALLOWANCES> 5,386
<INVENTORY> 43,658
<CURRENT-ASSETS> 183,129
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0
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<OTHER-EXPENSES> 24,241
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<INTEREST-EXPENSE> 5,443
<INCOME-PRETAX> 30,454
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