SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
AMENDMENT NO. 1 ON FORM 10-K/A
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-10574
THERMO VOLTEK CORP.
(Exact name of Registrant as specified in its charter)
Delaware 13-1946800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2878
Woburn, Massachusetts 01888-1578
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.05 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 24, 1997, was approximately $56,019,000.
As of January 24, 1997, the Registrant had 9,759,238 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 28, 1996, are incorporated by reference into Parts I and
II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 2, 1997, are incorporated by
reference into Part III.
PAGE
<PAGE>
FORM 10-K/A
THERMO VOLTEK CORP.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(c) Exhibits
13 Annual Report to Shareholders for the year ended
December 28, 1996 (only those portions incorporated
herein by reference)
23 Consent of Arthur Andersen LLP
Attached is Exhibit 13 of the Registrant's Form 10-K for the year
ended December 28, 1996. This amended information replaces the
corresponding information filed originally in the Form 10-K.
PAGE
<PAGE>
FORM 10-K/A
THERMO VOLTEK CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto authorized, on this 17th day of March 1997.
THERMO VOLTEK CORP.
Paul F. Kelleher
-----------------------
Paul F. Kelleher
Chief Accounting Officer
Exhibit 13
THERMO VOLTEK CORP.
Consolidated Financial Statements
1996
PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues (Note 11) $48,507 $36,326 $23,641
------- ------- -------
Costs and Operating Expenses:
Cost of revenues 24,357 18,790 12,120
Selling, general, and administrative
expenses (Note 9) 14,889 11,766 8,027
Research and development expenses 3,618 2,349 1,492
------- ------- -------
42,864 32,905 21,639
------- ------- -------
Operating Income 5,643 3,421 2,002
Interest Income 1,774 2,073 1,697
Interest Expense (includes $706, $706,
and $607 to related parties; Note 8) (1,408) (2,130) (2,216)
------- ------- -------
Income Before Provision for Income Taxes 6,009 3,364 1,483
Provision for Income Taxes (Note 6) 1,540 692 365
------- ------- -------
Net Income $ 4,469 $ 2,672 $ 1,118
======= ======= =======
Earnings per Share:
Primary $ .51 $ .40 $ .19
======= ======= =======
Fully diluted $ .38 $ .28 $ .17
======= ======= =======
Weighted Average Shares:
Primary 8,827 6,731 5,995
======= ======= =======
Fully diluted 13,636 13,541 13,368
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
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Thermo Voltek Corp. 1996 Financial Statements
Consolidated Balance Sheet
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $17,874 $ 8,651
Available-for-sale investments, at quoted
market value (amortized cost of $10,011
and $25,795; includes $1,399 and $1,517 of
related party investments; Notes 2 and 9) 10,067 26,038
Accounts receivable, less allowances of
$587 and $447 12,123 8,680
Inventories 10,725 8,581
Prepaid income taxes and other current assets
(Note 6) 2,025 1,022
------- -------
52,814 52,972
------- -------
Property, Plant, and Equipment, at Cost, Net 4,151 3,144
------- -------
Other Assets 299 648
------- -------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 16,425 12,081
------- -------
$73,689 $68,845
======= =======
3PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable (Note 8) $ 1,666 $ 1,276
Accounts payable 3,718 3,966
Accrued payroll and employee benefits 1,264 1,128
Accrued income taxes 1,244 1,103
Accrued commissions 1,063 468
Other accrued expenses 2,043 2,366
Due to parent company and affiliates 901 839
------- -------
11,899 11,146
------- -------
Subordinated Convertible Obligations
(includes $10,000 and $11,500 of related
party debt; Note 8) 19,345 36,740
------- -------
Commitments (Note 7)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.05 par value, 25,000,000
shares authorized; 9,765,676 and
4,881,099 shares issued 488 244
Capital in excess of par value 37,762 20,545
Retained earnings (accumulated deficit) 4,284 (185)
Treasury stock at cost, 6,438 and 1,958 shares (69) (20)
Cumulative translation adjustment (56) 229
Net unrealized gain on available-for-sale
investments (Note 2) 36 146
------- -------
42,445 20,959
------- -------
$73,689 $68,845
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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Thermo Voltek Corp. 1996 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Operating Activities:
Net income $ 4,469 $ 2,672 $ 1,118
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,636 1,529 948
Provision for losses on accounts
receivable 103 135 101
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (3,552) (1,525) (1,161)
Inventories (903) (2,527) 6
Other current assets (1,390) (44) (42)
Accounts payable (191) 968 532
Other current liabilities 329 720 976
Other - (17) 44
-------- -------- --------
Net cash provided by operating activities 501 1,911 2,522
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (6,040) (4,127) (1,269)
Purchases of available-for-sale
investments (5,500) (7,500) (17,300)
Proceeds from sale and maturities
of available-for-sale investments 21,009 10,000 3,500
Purchases of property, plant, and
equipment (2,048) (1,364) (734)
Other 325 526 (289)
-------- -------- --------
Net cash provided by (used in) investing
activities $ 7,746 $ (2,465) $(16,092)
-------- -------- --------
5PAGE
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Thermo Voltek Corp. 1996 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Financing Activities:
Net increase in short-term obligations $ 510 $ 435 $ 747
Net proceeds from issuance of Company
common stock 232 324 268
Repurchase of long-term obligations
(Note 8) - (132) -
Other - - (99)
-------- -------- --------
Net cash provided by financing activities 742 627 916
-------- -------- --------
Exchange Rate Effect on Cash 234 (377) 151
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 9,223 (304) (12,503)
Cash and Cash Equivalents at Beginning
of Year 8,651 8,955 21,458
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 17,874 $ 8,651 $ 8,955
======== ======== ========
Cash Paid For:
Interest $ 1,311 $ 2,034 $ 2,048
Income taxes $ 2,604 $ 236 $ 150
Noncash Activities:
Conversions of subordinated convertible
obligations (Note 8) $ 17,395 $ 9,111 $ -
======== ======== ========
Fair value of assets of acquired
companies $ 7,048 $ 5,228 $ 1,955
Cash paid for acquired companies (6,300) (4,157) (1,330)
-------- -------- --------
Liabilities assumed of acquired
companies $ 748 $ 1,071 $ 625
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Common Stock, $.05 Par Value
Balance at beginning of year $ 244 $ 202 $ 197
Issuance of stock under
employees' and directors'
stock plans 3 3 5
Conversion of subordinated
convertible obligations
(Note 8) 83 39 -
Effect of three-for-two
stock split 158 - -
------- ------- -------
Balance at end of year 488 244 202
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 20,545 11,237 10,907
Issuance of stock under
employees' and directors'
stock plans 279 291 291
Tax benefit related to
employees' and directors'
stock plans 112 166 39
Conversion of subordinated
convertible obligations
(Note 8) 16,984 8,851 -
Effect of three-for-two
stock split (158) - -
------- ------- -------
Balance at end of year 37,762 20,545 11,237
------- ------- -------
Retained Earnings (Accumulated
Deficit)
Balance at beginning of year (185) (2,857) (3,975)
Net income 4,469 2,672 1,118
------- ------- -------
Balance at end of year $ 4,284 $ (185) $(2,857)
------- ------- -------
7PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year $ (20) $ (50) $ (22)
Issuance of stock under
employees' and directors'
stock plans (49) 30 (28)
------- ------- -------
Balance at end of year (69) (20) (50)
------- ------- -------
Cumulative Translation Adjustment
Balance at beginning of year 229 260 (10)
Translation adjustment (285) (31) 270
------- ------- -------
Balance at end of year (56) 229 260
------- ------- -------
Net Unrealized Gain (Loss) on
Available-for-sale Investments
Balance at beginning of year 146 (320) -
Effect of change in accounting
principle (Note 2) - 10
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) (110) 466 (330)
------- ------- -------
Balance at end of year 36 146 (320)
------- ------- -------
Total Shareholders' Investment $42,445 $20,959 $ 8,472
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Voltek Corp. (the Company) designs, manufactures, and markets
electromagnetic compatibility (EMC) testing instruments, high-voltage
power-conversion systems, and programmable power amplifiers. The
Company's EMC testing instruments simulate pulsed electromagnetic
interference (pulsed EMI), radio frequency interference (RFI), and
changes in AC voltage, to allow manufacturers of electronic systems and
integrated circuits to test for resistance to those conditions. The
Company's high-voltage power conversion systems transform utility-
supplied AC power into DC voltages and currents required by the user. The
Company's programmable power amplifiers have applications in EMC testing
and other areas. The Company also provides EMC consulting and
systems-integration services and distributes EMC-related products.
Relationship with Thermedics Inc. and Thermo Electron Corporation
As of December 28, 1996, Thermedics Inc. (Thermedics) owned 4,971,333
shares of the Company's common stock, representing 51% of such stock
outstanding. Thermedics is a 55%-owned subsidiary of Thermo Electron
Corporation (Thermo Electron). As of December 28, 1996, Thermo Electron
owned 51,700 shares of the Company's common stock, representing 0.53% of
such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1996, 1995, and 1994 are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
Revenue Recognition
The Company recognizes product revenues upon shipment of its
products. The Company provides a reserve for its estimate of warranty
costs at the time of shipment. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method.
Revenues recorded under the percentage-of-completion method were
$4,806,000 in 1996, $2,884,000 in 1995, and $330,000 in 1994. The
percentage of completion is determined by relating either the actual
costs or actual labor incurred to date to management's estimate of total
costs or total labor, respectively, to be incurred on each contract. If a
loss is indicated on any contract in process, a provision is made
currently for the entire loss. The Company's contracts generally provide
for billing of customers upon the attainment of certain milestones
specified in each contract. Revenues earned on contracts in process in
excess of billings are included in inventories in the accompanying
9PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
balance sheet and were not material at year-end 1996 and 1995. There are
no significant amounts included in the accompanying balance sheet that
are not expected to be recovered from existing contracts at current
contract values, or that are not expected to be collected within one
year, including amounts billed but not paid under retainage provisions.
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 equity.
Income Taxes
In accordance with Statement of Financial Accounting Standards (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
Primary earnings per share has been computed based on the weighted
average number of shares outstanding and, in 1996 and 1995, included
common stock equivalents (stock options) computed using the treasury
stock method. In 1994, the effect of common stock equivalents was
immaterial. Fully diluted earnings per share has been computed, where
dilutive, assuming the conversion of the Company's subordinated
convertible obligations and elimination of the related interest expense,
as well as the exercise of stock options and their related income tax
effects.
Stock Split
All share and per share information, except for share information in
the accompanying 1995 balance sheet, has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
distributed in August 1996.
Cash and Cash Equivalents
As of December 28, 1996, $16,623,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government agency securities, corporate
notes, 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 are readily
convertible into cash by the Company. The repurchase agreement earns
10PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Cash equivalents are
carried at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Raw materials $ 4,835 $ 3,598
Work in process 3,097 3,059
Finished goods 2,793 1,924
------- -------
$10,725 $ 8,581
======= =======
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: building and
improvements, 5 to 25 years; machinery and equipment, 3 to 10 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) 1996 1995
-----------------------------------------------------------------------
Land and building $ 1,806 $ 1,788
Machinery, equipment, and leasehold improvements 7,933 5,889
------- -------
9,739 7,677
Less: Accumulated depreciation and amortization 5,588 4,533
------- -------
$ 4,151 $ 3,144
======= =======
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 periods not
exceeding 40 years. Accumulated amortization was $1,371,000 and $943,000
at year-end 1996 and 1995, 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. The Company
considers the future undiscounted cash flows of the acquired companies in
assessing the recoverability of this asset. If impairment has occurred,
any excess of carrying value over fair value is recorded as a loss.
11PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for the three years presented.
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.
2. Available-for-sale Investments
Effective January 2, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company's debt and marketable equity
securities are considered available-for-sale investments in the
accompanying balance sheet and are carried at market value, with the
difference between cost and market value, net of related tax effects,
recorded currently as a component of shareholders' investment titled "Net
unrealized gain (loss) on available-for-sale investments." Effect of
change in accounting principle in the accompanying 1994 statement of
shareholders' investment represents the unrealized gain, net of related
tax effects, pertaining to available-for-sale investments held by the
Company on January 2, 1994.
12PAGE
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Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
The aggregate market value, cost basis, and gross unrealized gains
and losses of available-for-sale investments by major security type, as
of December 28, 1996, and December 30, 1995, are as follows:
1996
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
-----------------------------------------------------------------------
Government agency
securities $ 4,501 $ 4,500 $ 1 $ -
Corporate bonds 2,379 2,314 65 -
Money market preferred
stock 1,060 1,070 - (10)
Other 2,127 2,127 - -
------- ------- ------- -------
$10,067 $10,011 $ 66 $ (10)
======= ======= ======= =======
1995
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
-----------------------------------------------------------------------
Government agency
securities $13,464 $13,396 $ 71 $ (3)
Corporate bonds 7,533 7,362 182 (11)
Money market preferred
stock 2,660 2,655 24 (19)
Other 2,381 2,382 - (1)
------- ------- ------- ------
$26,038 $25,795 $ 277 $ (34)
======= ======= ======= =======
Available-for-sale investments in the accompanying 1996 balance sheet
includes $7,016,000 with contractual maturities of one year or less and
$3,051,000 with contractual maturities of more than one year through five
years. Actual maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity
and as a result of put and call options that enable the Company, the
issuer, or both to redeem these securities at an earlier date.
13PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Pacific Power Source Corporation
(Pacific Power) for $6,300,000 in cash, including the repayment of
$800,000 in debt. Pacific Power manufactures programmable power
amplifiers that can be incorporated into EMC test equipment to assess how
well electronics tolerate normal variations in the quality and quantity
of AC voltage. These amplifiers are also used in other kinds of test
equipment and in application-specific power supplies.
In March 1995, the Company acquired substantially all of the assets,
subject to certain liabilities, of Kalmus Engineering Incorporated and
R.F. Power Labs, Incorporated (collectively, Kalmus) for $3,755,000 in
cash. Kalmus is a manufacturer of radio frequency power amplifiers and
systems used to test products for immunity to RFI and in medical imaging
and telecommunications applications.
Additionally, the Company acquired a component-reliability product
line in 1995 for approximately $402,000 in cash.
In July 1994, the Company's Comtest Limited subsidiary acquired
Verifier Systems Limited (Verifier) for approximately $1,330,000 in cash.
Verifier is a United Kingdom-based manufacturer of test equipment that
performs electrical stress tests for semiconductor devices.
These acquisitions have been accounted for using the purchase method
of accounting, and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $8,707,000, which is
being amortized over periods not exceeding 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 Pacific Power, is subject to
adjustment upon finalization of the purchase price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company and Kalmus, on a pro forma basis,
assuming that the Company and Kalmus had been combined since the
beginning of 1994. Pro forma data is not presented for the Company's
other acquisitions since they were not material to the Company's results
of operations.
(In thousands except per share amounts) 1995 1994
------------------------------------------------------------------------
Revenues $37,051 $27,513
Net income 2,874 1,358
Earnings per share:
Primary .43 .23
Fully diluted .30 .19
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Kalmus been made at the beginning of 1994.
14PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
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. Two of the plans, adopted in 1985 and 1990, permit
the grant of nonqualified and incentive stock options. A third plan,
adopted in 1994, permits 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. To date,
only nonqualified stock options have been awarded under this plan. The
option recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options granted to date are
exercisable immediately, 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 five to ten year
period, depending on the term of the option, which may range 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,
adopted in 1993, 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 six months after the date
of grant and expire three or seven years after the date of 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 Electron and Thermedics.
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time U.S. 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 the end
of a 12-month period at 95% of the fair market value at the beginning of
the period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During 1996, 1995, and
1994, the Company issued 8,891 shares, 10,308 shares, and 4,820 shares,
respectively, of its common stock under this program.
15PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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 in 1996 and 1995 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) 1996 1995
------------------------------------------------------------------------
Net income:
As reported $4,469 $2,672
Pro forma 4,294 2,601
Primary earnings per share:
As reported .51 .40
Pro forma .49 .39
Fully diluted earnings per share:
As reported .38 .28
Pro forma .37 .28
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 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 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:
1996 1995
-----------------------------------------------------------------------
Volatility 41% 41%
Risk-free interest rate 6.6% 6.3%
Expected life of options 5 years 4.4 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that 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.
16PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's stock option activity is as follows:
1996 1995 1994
---------------- ---------------- -----------------
Weighted Weighted Range of
Number Average Number Average Number Option
(Shares of Exercise of Exercise of Prices
in thousands) Shares Price Shares Price Shares per Share
--------------------------------------------------------------------------
Options outstanding, $ 1.08-
beginning of year 766 $ 5.22 740 $ 4.07 783 6.43
5.10-
Granted 115 12.52 167 8.73 118 5.89
1.08-
Exercised (55) 3.64 (98) 2.94 (131) 3.93
1.33-
Forfeited (44) 5.74 (43) 4.30 (30) 5.89
----- ----- -----
Options outstanding, $ 1.08-
end of year 782 $ 6.37 766 $ 5.22 740 6.43
===== ====== ===== ====== ===== =======
$ 1.08-
Options exercisable 782 $ 6.37 766 $ 5.22 737 6.43
===== ====== ===== ====== ===== =======
Options available
for grant 85 155 329
===== ===== =====
Weighted average fair
value per share of
options granted
during year $ 5.58 $ 3.70
====== ======
A summary of the status of the Company's stock options at December 28,
1996, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Weighted Average Average
Number Remaining Exercise
Range of Exercise Prices of Shares Contractual Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 1.08 - $ 4.23 328 2.8 years $ 3.23
4.24 - 7.62 244 7.3 years 6.17
7.63 - 11.01 112 5.9 years 10.29
11.02 - 14.40 98 7.0 years 12.86
---
$ 1.08 - $14.40 782 5.2 years $ 6.37
===
17PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are
eligible to participate in Thermo Electron's 401(k) savings plan.
Contributions to the plan are made by both the employee and the Company.
Company contributions are based upon the level of employee contributions.
For this plan, the Company contributed and charged to expense $249,000,
$184,000, and $196,000 in 1996, 1995, and 1994, respectively.
5. Common Stock
At December 28, 1996, the Company had reserved 4,718,744 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and for issuance upon possible conversion of the
Company's subordinated convertible obligations.
6. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Domestic $4,684 $2,616 $1,118
Foreign 1,325 748 365
------ ------ ------
$6,009 $3,364 $1,483
====== ====== ======
The components of the provision for income taxes are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable:
Federal $1,554 $ 608 $ 36
Foreign 466 323 154
State 249 276 108
------ ------ ------
2,269 1,207 298
------ ------ ------
Net deferred (prepaid):
Federal (689) (412) 57
State (40) (103) 10
------ ------ ------
(729) (515) 67
------ ------ ------
$1,540 $ 692 $ 365
====== ====== ======
18PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
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 Company's common stock on the date of exercise.
The provision for income taxes that is currently payable does not reflect
$112,000, $166,000, and $39,000 of such benefits allocated to capital in
excess of par value in 1996, 1995, and 1994, 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 34% to income before provision for income taxes due to
the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $2,043 $1,144 $ 504
Increases (decreases) resulting from:
Decrease in valuation allowance (684) (630) (290)
State income taxes, net of federal tax 138 114 77
Nondeductible expenses 62 86 101
Foreign tax rate and tax regulation
differential 15 68 10
Foreign sales corporation (123) (87) (55)
Other 89 (3) 18
------ ------ ------
$1,540 $ 692 $ 365
====== ====== ======
Prepaid income taxes in the accompanying balance sheet consist of the
following:
(In thousands) 1996 1995
-------------------------------------------------------------
Prepaid income taxes:
Tax loss and credit carryforwards $ 652 $1,237
Accruals and reserves 708 702
Available-for-sale investments (20) (97)
Inventory basis differences 180 -
Accrued compensation 160 88
Allowance for doubtful accounts 82 78
Other 40 -
------ ------
1,802 2,008
Less: Valuation allowance - 1,209
------ ------
$1,802 $ 799
====== ======
19PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The 1995 valuation allowance primarily related to uncertainty
surrounding the realization of tax loss and credit carryforwards and
certain other tax assets of the Company. The valuation allowance was
eliminated in 1996. Of the total decrease to the valuation allowance,
$684,000 relates to reduced uncertainty surrounding the realizability of
the tax loss and credit carryforwards, and was recorded as a decrease in
the provision for income taxes in 1996. The remaining decrease in the
valuation allowance primarily relates to the elimination of related tax
loss and credit carryforwards due to the inability to obtain a benefit
prior to the expiration thereof. The provision for income taxes was reduced
by $630,000 and $290,000 in 1995 and 1994, respectively, as a result of
changes in the amount of estimated tax assets and the utilization of a
portion of the Company's tax loss and credit carryforwards.
As of December 28, 1996, the Company has federal tax net operating loss
carryforwards of approximately $2.5 million, subject to the limitations
described below. These net operating loss carryforwards will begin to
expire in 1998. Pursuant to U.S. Internal Revenue Code Sections 382 and
383, the utilization of the net operating loss carryforwards is limited to
the tax benefit of a deduction of approximately $240,000 per year with any
unused portion of this annual limitation carried forward to future years.
A provision has not been made for U.S. or additional foreign taxes on
$1.8 million of undistributed earnings of foreign subsidiaries that could
be subject to tax if remitted to the U.S. because the Company currently
plans to keep these amounts permanently reinvested overseas. The Company
believes that any additional U.S. tax liability due upon remittance of such
earnings would be immaterial due to available U.S. foreign tax credits.
7. Commitments
The Company occupies office and operating facilities under operating
leases expiring at various dates through 2003. The accompanying statement
of income includes expenses from operating leases of $555,000, $381,000,
and $363,000 in 1996, 1995, and 1994, respectively. The future minimum
payments due under noncancellable operating leases as of December 28, 1996,
are $749,000 in 1997; $758,000 in 1998; $770,000 in 1999; $764,000 in 2000;
and $613,000 in 2001 and thereafter. Total future minimum lease payments
are $3,654,000.
8. Short- and Long-term Obligations
Short-term Obligations
The Company has lines of credit denominated in certain foreign
currencies to borrow up to approximately $2,625,000. Amounts borrowed under
these arrangements are classified as notes payable in the accompanying
balance sheet. The weighted average interest rate for these borrowings at
year-end 1996 and 1995 was 6.3% and 7.6%, respectively. Unused lines of
credit were $959,000 at December 28, 1996.
20PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Short- and Long-term Obligations (continued)
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
3 3/4% Subordinated convertible debentures,
due 2000, convertible at $7.83 per share (a) $ 9,345 $25,240
5% Subordinated convertible note, due 2003,
convertible at $3.78 per share (b) 4,000 4,000
6 3/4% Subordinated convertible note, due 2002,
convertible at $4.27 per share (b) 6,000 7,500
------- -------
$19,345 $36,740
======= =======
(a) In lieu of issuing shares of the Company's common stock upon
conversion, the Company has the option to pay holders of the debentures
cash equal to the weighted average market price of the Company's common
stock on the trading date prior to conversion.
(b) Represents an obligation to Thermedics.
During 1996 and 1995, $17,395,000 and $9,111,000, respectively, of
convertible obligations were converted into shares of the Company's common
stock. In 1995, the Company repurchased $149,000 principal amount of the 3
3/4% subordinated convertible debentures.
Short- and long-term obligations in the accompanying balance sheet are
guaranteed on a subordinated basis by Thermo Electron. Thermedics has
agreed to reimburse Thermo Electron in the event Thermo Electron is
required to make a payment under the guarantees.
See Note 10 for fair value information pertaining to the Company's
long-term obligations.
9. 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 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
1995 and 1994, respectively. The annual fee is reviewed and adjusted
annually by mutual agreement of the parties. For these services, the
Company was charged $485,000, $436,000, and $296,000 in 1996, 1995, and
1994, respectively. 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). Management believes that the service
21PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
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. 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.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
Available-for-sale Investments
At December 28, 1996, and December 30, 1995, the Company's
available-for-sale investments included $1,399,000 and $1,517,000
(amortized cost of $1,336,000 and $1,339,000), respectively, of 6 1/2%
subordinated convertible debentures due 1997, which were purchased on the
open market. These debentures have a par value of $1,300,000 and were
issued by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo
Electron.
Subordinated Convertible Notes
See Note 8 for subordinated convertible notes of the Company held by
Thermedics.
10. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, notes
payable, accounts payable, due to parent company and affiliates, and
subordinated convertible obligations. The carrying amounts of these
financial instruments, with the exception of available-for-sale
investments and subordinated convertible obligations, approximate fair
value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for fair value information pertaining to
these financial instruments.
The fair value of the Company's subordinated convertible obligations
was determined based on quoted market prices. The carrying amount and
fair value of the Company's subordinated convertible obligations are as
follows:
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
-----------------------------------------------------------------------
Subordinated convertible
obligations (1) $ 19,345 $ 38,836 $36,740 $61,449
(1) The fair value of subordinated convertible obligations exceeds the
carrying amount primarily due to the market price of the Company's
common stock exceeding the conversion price of the subordinated
convertible obligations.
22PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
11. Geographical Information
The following table shows data for the Company by geographical area.
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Revenues:
United States $31,013 $23,375 $16,262
The Netherlands 8,164 6,977 5,156
United Kingdom 8,565 6,967 2,865
Italy 3,460 2,143 -
Transfers among geographical areas (a) (2,695) (3,136) (642)
------- ------- -------
$48,507 $36,326 $23,641
======= ======= =======
Income before provision for income taxes:
United States $ 5,045 $ 3,343 $ 2,296
The Netherlands 798 405 170
United Kingdom 370 388 244
Italy 236 123 -
Corporate and eliminations (b) (806) (838) (708)
------- ------- -------
Total operating income 5,643 3,421 2,002
Interest income (expense), net 366 (57) (519)
------- ------- -------
$ 6,009 $ 3,364 $ 1,483
======= ======= =======
Identifiable assets:
United States $30,954 $21,816 $15,749
The Netherlands 5,249 5,238 5,076
United Kingdom 6,561 5,015 3,273
Italy 1,643 1,914 -
Corporate (c) 29,282 34,862 38,126
------- ------- -------
$73,689 $68,845 $62,224
======= ======= =======
Export revenues included in United States
revenues above (d):
Europe $ 2,150 $ 4,598 $ 1,661
Asia 7,881 4,994 3,704
Other 1,513 330 422
------- ------- -------
$11,544 $ 9,922 $ 5,787
======= ======= =======
(a) Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(b) Primarily corporate general and administrative expenses.
(c) Primarily cash and cash equivalents and available-for-sale
investments.
(d) In general, export sales are denominated in U.S. dollars.
23PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Notes to Consolidated Financial Statements
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1996 First Second Third(a) Fourth
------------------------------------------------------------------------
Revenues $10,621 $11,882 $12,800 $13,204
Gross profit 5,231 5,729 6,330 6,860
Net income 937 1,132 1,194 1,206
Earnings per share:
Primary .12 .13 .13 .13
Fully diluted .08 .10 .10 .10
1995 First(b) Second Third Fourth
------------------------------------------------------------------------
Revenues $ 7,308 $ 8,554 $ 9,442 $11,022
Gross profit 3,488 4,042 4,659 5,347
Net income 415 603 744 910
Earnings per share:
Primary .07 .09 .11 .12
Fully diluted .05 .07 .08 .09
(a)Reflects the July 1996 acquisition of Pacific Power.
(b)Reflects the March 1995 acquisition of Kalmus.
24PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Voltek Corp.:
We have audited the accompanying consolidated balance sheet of Thermo
Voltek Corp. (a Delaware corporation and 51%-owned subsidiary of
Thermedics Inc.) and subsidiaries as of December 28, 1996, and December
30, 1995, and the related consolidated statements of income,
shareholders' investment, and cash flows for each of the three years in
the period ended December 28, 1996. 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 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 Voltek Corp. and subsidiaries as of December 28, 1996, and
December 30, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 6, 1997
25PAGE
<PAGE>
Thermo Voltek Corp. 1996 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 Conditions and Results of Operations under the
caption "Forward-looking Statements."
Overview
The Company designs, manufactures, and markets electromagnetic
compatibility (EMC) testing instruments, high-voltage power-conversion
systems, and programmable power amplifiers. The Company's KeyTek
Instrument (KeyTek) division manufactures instruments that test for
immunity to pulsed electromagnetic interference (pulsed EMI). Through its
Universal Voltronics division, the Company manufactures high-voltage
power conversion systems that transform utility-supplied AC power into DC
voltages and currents required by the user, while allowing precise
control over the performance level desired for each application. The
Company's Kalmus division manufactures radio frequency power amplifiers
and systems used to test products for immunity to conducted and radiated
radio frequency interference (RFI). Comtest Europe B.V. (Comtest)
manufactures and distributes a range of EMC-related products, provides
EMC consulting and systems-integration services, and manufactures
specialized power supplies for telecommunications equipment. Acquired in
July 1996, Pacific Power Source Corporation (Pacific Power) manufactures
programmable power amplifiers that can be incorporated into EMC test
equipment to assess tolerance to normal variances in the quality and
quantity of AC voltage.
The Company's strategy is to expand through a combination of internal
product development and the acquisition of new businesses and
technologies. The Company acquired Pacific Power to provide additional
depth to its line of EMC products and services. The Company plans to make
additional acquisitions to expand the range of EMC products and services
it can offer to its customers.
Approximately 60% and 63% of the Company's revenues in 1996 and 1995,
respectively, were derived from sales of products outside the U.S.,
through export sales and sales by the Company's European operations.
Although the Company seeks to charge its customers in the same currency
as its operating costs, the Company's financial performance and
competitive position can be affected by currency exchange rate
fluctuations.
26PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
1996 Compared With 1995
Revenues increased 34% to $48.5 million in 1996 from $36.3 million in
1995, due to an increase in revenues at Comtest, the inclusion of $3.0
million in revenues from the July 1996 acquisition of Pacific Power, and
increased revenues at KeyTek and Kalmus. Revenues at Comtest increased
primarily due to an increase in demand for electrostatic-discharge test
equipment manufactured by its Verifier division, as well as an increase
in revenues from a product line for testing immunity to RFI that was
introduced in 1995. Increased revenues at KeyTek primarily resulted from
greater demand for its EMC test equipment. The Company anticipates that
sales of its EMC test products will slow in 1997, as many companies have
completed purchases necessary to come into compliance with IEC 801, the
European Union directive on electromagnetic compatability. Revenues at
Kalmus, acquired in March 1995, increased $1.1 million due to the
inclusion of revenues for the full year in 1996 and $1.3 million primarily
due to increased shipments resulting from the implementation of
manufacturing efficiencies.
The gross profit margin increased to 50% in 1996 from 48% in 1995,
primarily due to an increase in higher-margin domestic sales at KeyTek
and an increase in the gross profit margin at Kalmus, primarily due to
implementation of manufacturing efficiencies.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 31% in 1996 from 32% in 1995, primarily due to an
increase in revenues. Research and development expenses as a percentage
of revenues increased to 7.5% in 1996 from 6.5% in 1995, principally due
to higher research and development expenses at Comtest and KeyTek.
Interest income decreased to $1.8 million in 1996 from $2.1 million
in 1995, primarily due to lower average invested balances. Interest
expense decreased to $1.4 million in 1996 from $2.1 million in 1995,
primarily due to conversions of the Company's subordinated convertible
obligations during 1995 and 1996.
The effective tax rate was 26% in 1996 and 21% in 1995. The effective
tax rates were below the statutory federal income tax rate primarily due
to the elimination of the tax valuation allowance that was no longer
required (Note 6), offset in part by the impact of state income taxes.
The effective tax rate increased in 1996 primarily due to a decrease in
tax net operating loss carryforwards as a percentage of income before
provision for income taxes. As of December 28, 1996, the Company has no
further net operating loss carryforwards that will benefit future
periods. Accordingly, the Company expects its effective tax rate in 1997
to increase.
1995 Compared With 1994
Revenues increased 54% to $36.3 million in 1995 from $23.6 million in
1994. The increase in revenues is primarily the result of the inclusion
of $4.7 million in revenues from Kalmus, acquired in March 1995, an
increase of $3.1 million in revenues from Comtest, and an increase of
$2.5 million in revenues due to the inclusion of revenues for the full
year of 1995 from Verifier, acquired in July 1994. The increase in
revenues from Comtest resulted primarily from the introduction in 1995 of
a new product line for testing immunity to RFI and, to a lesser extent,
the favorable effects of currency translation due to a weaker U.S. dollar
27PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1995 Compared With 1994 (continued)
in 1995. The balance of the increase in sales resulted from greater
demand at KeyTek and, to a lesser extent, Universal Voltronics.
The gross profit margin decreased to 48% in 1995 from 49% in 1994,
primarily due to higher European sales in 1995 in one of KeyTek's product
lines, which have lower margins due to competitive pricing pressures and,
to a lesser extent, higher costs associated with an upgraded product at
KeyTek. These decreases were offset in part by the inclusion of
higher-margin Verifier revenues.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 32% in 1995 from 34% in 1994, primarily due to
lower costs as a percentage of revenues at KeyTek and Universal
Voltronics as a result of higher sales volume in 1995, and lower selling,
general, and administrative expenditures as a percentage of revenues at
Kalmus. Research and development expenses as a percentage of revenues was
relatively unchanged at 6.5% in 1995, compared with 6.3% in 1994.
Interest income increased to $2.1 million in 1995 from $1.7 million
in 1994, primarily due to higher prevailing interest rates in 1995.
Interest expense was $2.1 million in 1995, compared with $2.2 million in
1994. The decrease in interest expense resulting from the conversion of
$9.1 million principal amount of the Company's subordinated convertible
obligations during 1995 was substantially offset by the inclusion of
interest expense associated with increased borrowings under Comtest's
outstanding line of credit.
The effective tax rate was 21% in 1995 and 25% in 1994. These rates
were below the statutory federal income tax rate primarily due to the
utilization of tax net operating loss carryforwards, offset in part by
the impact of state income taxes. The decrease in the effective tax rate
in 1995 was due to increased utilization of tax net operating loss
carryforwards.
Liquidity and Capital Resources
Working capital was $40.9 million at December 28, 1996, compared with
$41.8 million at December 30, 1995. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $27.9 million at
December 28, 1996, compared with $34.7 million at December 30, 1995.
During 1996, $0.5 million of cash was provided by operating activities.
Cash flow from operations was offset by cash used to fund increases in
certain current assets, including an increase in accounts receivable of
$3.6 million, primarily due to an increase in revenues.
During 1996, the Company's primary investing activities, excluding
purchases, sales, and maturities of available-for-sale investments,
included the acquisition of Pacific Power and capital expenditures. In
July 1996, the Company acquired substantially all of the assets, subject
to certain liabilities, of Pacific Power for approximately $6.3 million
in cash, including the repayment of $0.8 million in debt. During 1996,
the Company expended $2.0 million for purchases of property, plant, and
equipment, and expects to make capital expenditures of approximately $2
million during 1997.
28PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
During 1996, financing activities provided $0.7 million in cash,
including $0.5 million from an increase in notes payable.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant
amounts of cash for the possible acquisition of complementary businesses
and technologies. The Company expects that it will finance these
acquisitions through a combination of internal funds, additional debt or
equity financing, and/or short-term borrowings from Thermo Electron
Corporation or Thermedics Inc., 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 resources are sufficient
to meet the capital requirements of its existing operations for the
foreseeable future.
29PAGE
<PAGE>
Thermo Voltek Corp. 1996 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 1997 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Rapid Technological Change. The market for EMC testing products and
services is characterized by rapid technological change. No assurance can
be given that the Company will be able to develop new and enhanced
instruments that keep pace with technological developments and respond to
the increasingly complex requirements of electronics manufacturers.
Reliance on Electrical Standards. Demand for the Company's EMC
testing products and services is driven to a large extent by mandatory
government standards and voluntary industry standards relating to
electromagnetic compatibility. In particular, demand for the Company's
products results from efforts by manufacturers to comply with IEC 801, an
EC directive that became effective on January 1, 1996. Although many
manufacturers have not yet complied with IEC 801, as the number of
noncomplying manufacturers is reduced over time, demand for the Company's
products could be adversely affected. In addition, if new EMC standards
requiring new testing capabilities are enacted less frequently or if EMC
standards become less strict, demand for the Company's products could be
adversely affected.
Sole Source Suppliers. A number of the components of the Company's
EMC testing products are supplied by single vendors. Although the Company
has not experienced significant difficulty in obtaining adequate supplies
from these vendors, and believes that it would be able to identify
alternative suppliers if necessary, there can be no assurance that the
unanticipated loss of a single vendor would not result in delays in
shipments or in the introduction of new products.
International Sales. International sales account for a significant
portion of the Company's revenues. Sales to customers in certain foreign
countries 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 could impose withholding
taxes or otherwise tax the Company's foreign income, impose tariffs,
embargoes, or exchange controls, or adopt other restrictions on foreign
trade; and export licenses, if required, may be difficult to obtain. In
addition, fluctuations in foreign currency exchange rates could have an
adverse impact on international sales.
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
approval, including antitrust approvals. 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 business. In
order to finance such acquisitions, it may be necessary for the Company
to raise additional funds through public or private financings. Any
30PAGE
<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Forward-looking Statements
equity or debt financing, if available at all, may be on terms that are
not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.
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<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1996(a) 1995(b) 1994(c) 1993(d) 1992
------------------------------------------------------------------------
Statement of Income
Data:
Revenues $48,507 $36,326 $23,641 $18,089 $12,998
Net income 4,469 2,672 1,118 480 390
Earnings per share:
Primary .51 .40 .19 .08 .07
Fully diluted .38 .28 .17 .08 .07
Balance Sheet Data:
Working capital $40,915 $41,826 $41,990 $42,023 $ 6,482
Total assets 73,689 68,845 62,224 57,471 16,364
Long-term
obligations 19,345 36,740 46,000 46,000 7,500
Shareholders'
investment 42,445 20,959 8,472 7,097 6,598
(a)Reflects the July 1996 acquisition of Pacific Power.
(b)Reflects the March 1995 acquisition of Kalmus.
(c)Reflects the July 1994 acquisition of Verifier.
(d)Reflects the August 1993 acquisition of Comtest, the issuance of a
$4.0 million principal amount 5% subordinated convertible note to
Thermedics, and the issuance of $34.5 million principal amount of
3 3/4% subordinated convertible debentures.
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<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sale prices on the American Stock Exchange
(symbol TVL) for 1996 and 1995. Prices have been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
distributed in August 1996.
1996 1995
------------------ ----------------
Quarter High Low High Low
--------------------------------------------------
First $14 1/12 $10 1/4 $ 7 5/6 $ 5 1/4
Second 15 12 1/12 10 1/2 6 2/3
Third 14 1/8 10 1/3 11 5/12 9 1/4
Fourth 14 9 3/4 11 1/12 9 2/3
As of January 24, 1997, the Company had 334 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 24, 1997, was $12 per share.
Shareholder Services
Shareholders of Thermo Voltek Corp. who desire information about the
Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo Voltek Corp., 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to
enable shareholders whose stock is held in street name, and other
interested individuals, to receive quarterly reports, annual reports, and
press releases as quickly as possible. Beginning in 1997, quarterly
distribution will be limited to the second quarter report only. All
quarterly reports and press releases are available through the Internet
from Thermo Electron's home page on the World Wide Web (http://www.
thermo.com/subsid/tvl.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
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, earnings, capital requirements, and financial
condition.
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<PAGE>
Thermo Voltek Corp. 1996 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Voltek Corp., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 2,
1997, at 1:30 p.m., at the Hyatt Regency Hotel, Hilton Head, South
Carolina.
34<PAGE>
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 6, 1997,
included in or incorporated by reference into Thermo Voltek Corp.'s
Annual Report on Form 10-K/A for the year ended December 28, 1996, into
the Company's previously filed Registration Statements as follows:
Registration Statement No. 33-74484 on Form S-3, Registration Statement
No. 33-52802 on Form S-8, Registration Statement No. 33-71780 on Form
S-8, Registration Statement No. 33-70646 on Form S-8, Registration
Statement No. 33-71782 on Form S-8, Registration Statement No. 33-71784
on Form S-8, Registration Statement No. 33-85954 on Form S-8, and
Registration Statement No. 033-65277 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 14, 1997
