SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11757
THERMO VISION CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3296594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8E Forge Parkway
Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 8,048,276
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO VISION CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $7,860
and $9,410 under repurchase agreement with
affiliated company) $ 8,297 $ 9,604
Accounts receivable, less allowances of
$351 and $430 6,416 6,935
Inventories:
Raw materials and supplies 6,392 5,637
Work in progress 682 967
Finished goods 2,074 1,697
Prepaid expenses 804 971
Prepaid income taxes 1,410 1,405
------- -------
26,075 27,216
------- -------
Property, Plant, and Equipment, at Cost 9,009 7,196
Less: Accumulated depreciation and amortization 3,024 2,439
------- -------
5,985 4,757
------- -------
Other Assets 753 584
------- -------
Cost in Excess of Net Assets of Acquired Companies 14,657 14,844
------- -------
$47,470 $47,401
======= =======
2
<PAGE>
THERMO VISION CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Note payable and capital lease obligation $ 1,079 $ 1,143
Accounts payable 3,100 3,671
Accrued payroll and employee benefits 673 905
Accrued acquisition expenses 306 510
Other accrued expenses 1,277 1,171
Due to Thermo Electron and affiliated companies 22 177
------- -------
6,457 7,577
------- -------
Deferred Income Taxes 22 22
------- -------
Long-term Obligations, Due to Thermo Electron
and Thermo Optek 7,747 7,747
------- -------
Shareholders' Investment:
Common stock, $.01 par value, 20,000,000
shares authorized; 8,048,276 shares issued
and outstanding 80 80
Capital in excess of par value 28,023 28,144
Retained earnings 5,081 3,785
Accumulated other comprehensive items (Note 3) 60 46
------- -------
33,244 32,055
------- -------
$47,470 $47,401
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $10,224 $ 9,225
------- -------
Costs and Operating Expenses:
Cost of revenues 5,714 5,136
Selling, general, and administrative expenses 2,400 2,059
Research and development expenses 1,049 965
------- -------
9,163 8,160
------- -------
Operating Income 1,061 1,065
Interest Income 104 -
Interest Expense (18) (24)
Interest Expense, Related Party (110) (54)
------- -------
Income Before Provision for Income Taxes 1,037 987
Provision for Income Taxes 430 421
------- -------
Net Income $ 607 $ 566
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .08 $ .08
======= =======
Basic and Diluted Weighted Average Shares (Note 2) 8,048 6,909
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $20,753 $17,810
------- -------
Costs and Operating Expenses:
Cost of revenues 11,699 9,962
Selling, general, and administrative expenses 4,712 3,986
Research and development expenses 2,084 1,867
------- -------
18,495 15,815
------- -------
Operating Income 2,258 1,995
Interest Income 228 -
Interest Expense (39) (34)
Interest Expense, Related Party (222) (76)
------- -------
Income Before Provision for Income Taxes 2,225 1,885
Provision for Income Taxes 929 791
------- -------
Net Income $ 1,296 $ 1,094
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .16 $ .16
======= =======
Basic and Diluted Weighted Average Shares (Note 2) 8,048 6,909
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 1,296 $ 1,094
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 774 781
Provision for losses on accounts receivable - 17
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable 525 211
Inventories (636) 108
Other current assets 164 (226)
Accounts payable (774) 221
Other current liabilities (490) (526)
------- -------
Net cash provided by operating activities 859 1,680
------- -------
Investing Activities:
Acquisition, net of cash acquired - (3,545)
Purchases of property, plant, and equipment (1,801) (875)
Other (169) -
------- -------
Net cash used in investing activities (1,970) (4,420)
------- -------
Financing Activities:
Net proceeds from issuance of notes payable to
Thermo Optek - 3,947
Net decrease in short-term borrowings from
Thermo Electron and affiliated companies - (2,949)
Net transfer from parent company - 1,893
Net decrease in short-term borrowings (77) (24)
Other (121) (242)
------- -------
Net cash provided by (used in) financing activities (198) 2,625
------- -------
Exchange Rate Effect on Cash 2 3
------- -------
Decrease in Cash and Cash Equivalents (1,307) (112)
Cash and Cash Equivalents at Beginning of Period 9,604 306
------- -------
Cash and Cash Equivalents at End of Period $ 8,297 $ 194
======= =======
Noncash Activities:
Fair value of assets of acquired company $ - $ 4,519
Due to Thermo Optek for acquired company - (3,600)
------- -------
Liabilities assumed of acquired company $ - $ 919
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMO VISION CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Vision Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 4, 1998, the results of
operations for the three- and six-month periods ended July 4, 1998, and June 28,
1997, and the cash flows for the six-month periods ended July 4, 1998, and June
28, 1997. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of January 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998,
filed with the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
------------------- -------------------
(In thousands except July 4, June 28, July 4, June 28,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Net income $ 607 $ 566 $1,296 $1,094
------ ------ ------ ------
Weighted average shares 8,048 6,909 8,048 6,909
------ ------ ------ ------
Basic and diluted earnings
per share $ .08 $ .08 $ .16 $ .16
====== ====== ====== ======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of outstanding stock options because the effect would be
antidilutive. As of July 4, 1998, there were 310,000 of such options
outstanding, with exercise prices ranging from $7.29 to $7.80 per share.
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents foreign currency translation
7
<PAGE>
3. Comprehensive Income (continued)
adjustments, reported as a component of shareholders' investment in the
accompanying balance sheet. During the second quarter of 1998 and 1997, the
Company's comprehensive income totaled $603,000 and $588,000, respectively.
During the first six months of 1998 and 1997, the Company's comprehensive income
totaled $1,310,000 and $1,097,000, respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998, filed with the Securities and Exchange
Commission.
Overview
Thermo Vision Corporation (the Company) designs, manufactures, and markets a
diverse array of photonics products, including optical components, imaging
sensors and systems, lasers, optically based instruments, optoelectronics, and
fiber optics. The Company sells photonics products in multiple markets across a
number of industries for research, testing, detecting, and manufacturing
applications.
The Company initially comprised two businesses: Scientific Measurement
Systems Inc. (now called Thermo Vision Colorado), a manufacturer of optically
based instruments, and CID Technologies Inc. (CIDTEC), a manufacturer of sensors
and cameras based on proprietary charge-injection device (CID) technology. Since
February 1996, the Company has acquired four businesses from unrelated third
parties that currently comprise the bulk of its operations. In February 1996,
the Company acquired Oriel Corporation, a manufacturer and distributor of
photonics components and instruments, and the assets of Corion Corporation, a
manufacturer of commercial optical filters. In February 1997, the Company
acquired Laser Science, Inc. (LSI), a manufacturer of gas lasers. In July 1997,
the Company acquired the assets of Centronic, Inc. (now called Centro Vision,
Inc.), a manufacturer of silicon photodiodes. In addition, in August 1997, the
Company acquired the crystal-materials business (Hilger) of Hilger Analytical
Limited, a wholly owned subsidiary of Thermo Optek Corporation. Because the
Company and Hilger were deemed for accounting purposes to be under control of
their common owner, Thermo Instrument Systems Inc., the transaction has
8
<PAGE>
Overview (continued)
been accounted for at historical cost in a manner similar to a pooling of
interests. Accordingly, the results of operations of Hilger are included for all
periods presented. From the time of the Company's incorporation in November 1995
to August 1997, Hilger was under the Company's management. All of the Company's
other acquisitions were accounted for using the purchase method of accounting.
Approximately 7% of the Company's 1997 revenues originated outside the U.S.
and approximately 27% of the Company's 1997 revenues were exports from the U.S.
Revenues originating outside the U.S. represent revenues of Hilger. Hilger's
operations are located in the United Kingdom and principally sell in the local
currency. Exports from the Company's U.S. operations are denominated in U.S.
dollars. 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.
Results of Operations
Second Quarter 1998 Compared With Second Quarter 1997
Revenues increased 11% to $10.2 million in the second quarter of 1998 from
$9.2 million in the second quarter of 1997. Revenues increased $1.3 million due
to the acquisition of Centro Vision in July 1997. Excluding the impact of the
acquisition, revenues decreased $333,000. Higher revenues at Corion primarily
due to shipments under a contract with a new customer and at LSI due to
increased manufacturing capacity were more than offset by a decrease in revenue
at Oriel as a result of a slowdown in the semiconductor industry. The Company's
backlog decreased $1.7 million during the second quarter of 1998 to $10.2
million, primarily at Oriel as a result of the slowdown in the semiconductor
industry.
The gross profit margin was unchanged at 44% in the second quarter of 1998
and 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased slightly to 23% in the second quarter of 1998 from 22% in the second
quarter of 1997, primarily due to public reporting costs incurred during 1998
that were not incurred in 1997. Research and development expenses were unchanged
at $1.0 million in 1998 and 1997.
Related-party interest expense primarily represents interest incurred on the
aggregate $7.7 million of promissory notes issued to Thermo Optek and Thermo
Electron Corporation for the acquisitions of LSI and Centro Vision,
respectively. Related-party interest expense increased to $110,000 in the second
quarter of 1998 from $54,000 in the second quarter of 1997 due to the July 1997
issuance of a $3.8 million note payable to Thermo Electron for the acquisition
of Centro Vision.
9
<PAGE>
Second Quarter 1998 Compared With Second Quarter 1997 (continued)
The effective tax rate was 41.5% and 42.7% in the second quarter of 1998 and
1997, respectively. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of nondeductible amortization of
cost in excess of net assets of acquired companies and state income taxes.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products purchased by the Company. The Company
believes that its internal information systems are either year 2000 compliant or
will be so prior to the year 2000 without incurring material costs. There can be
no assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems,
which could result in a material adverse effect on the Company's future results
of operations.
The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect it may have on the Company. The
Company has not completed its analysis and is unable to conclude at this time
that the year 2000 issue as it relates to products purchased from key suppliers
is not reasonably likely to have a material adverse effect on the Company's
future results of operations.
First Six Months 1998 Compared With First Six Months 1997
Revenues increased 17% to $20.8 million in the first six months of 1998 from
$17.8 million in the first six months of 1997. Revenues increased $3.2 million
due to the acquisition of Centro Vision in July 1997 and the inclusion of
revenues for the full period from LSI, acquired in February 1997. Excluding the
impact of acquisitions, revenues were relatively unchanged. Higher revenues at
Corion primarily due to shipments under a contract with a new customer, at
Hilger due to increased shipments under its Stanford Linear Accelerator (SLAC)
contract, and at CIDTEC due to increased sales of sensors were offset by a
decrease in revenue at Oriel as a result of its relocation to a new facility in
the first quarter of 1998 and a slowdown in the semiconductor industry during
1998.
The gross profit margin was unchanged at 44% in the first six months of 1998
and 1997.
Selling, general, and administrative expenses as a percentage of revenues
remained relatively unchanged at 22.7% and 22.4% in the first six months of 1998
and 1997, respectively. Research and development expenses increased to $2.1
million in 1998 from $1.9 million in 1997, primarily due to the acquisition of
Centro Vision and the inclusion of LSI's results for the full period in 1998.
Related-party interest expense increased to $222,000 in the first six months
of 1998 from $76,000 in the first six months of 1997 due to the reason discussed
in the results of operations for the second quarter.
10
<PAGE>
First Six Months 1998 Compared With First Six Months 1997 (continued)
The effective tax rate was 42% in the first six months of 1998 and 1997. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of nondeductible amortization of cost in excess of net assets of
acquired companies and state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $19.6 million at July 4, 1998, and January
3, 1998. Included in working capital are cash and cash equivalents of $8.3
million at July 4, 1998, compared with $9.6 million at January 3, 1998. During
the first six months of 1998, operating activities provided $0.9 million of
cash. The Company used cash of $0.6 million to fund an increase in inventory,
primarily to support raw material requirements at Hilger and increased demand
for sensors at CIDTEC. In addition, the Company used cash of $0.8 million during
the period to reduce accounts payable, primarily at LSI.
Investing activities used $2.0 million of cash during the first six months
of 1998. The Company expended $1.8 million on purchases of property, plant, and
equipment, including leasehold improvements at Oriel's new facility. The Company
plans to spend approximately $0.5 million on property, plant, and equipment
during the remainder of 1998.
In August 1998, the Company signed a nonbinding letter of intent to acquire
a laser diode manufacturing business (the Business) for approximately $5.6
million. The proposed acquisition is subject to certain conditions including
completion of due diligence and approval by the boards of directors of the
Company and the Business. The final terms of this acquisition have not been
determined and there can be no assurance that it will be completed. Thermo
Instrument has indicated a willingness to lend sufficient funds to the Company
to enable it to acquire the Business.
The Company may require significant amounts of cash for any acquisition of
complementary businesses. The Company expects that it will finance any such
acquisitions through a combination of internal funds and/or short- or long-term
borrowings from Thermo Instrument or Thermo Electron, although, except as
discussed above, it has no agreement with these companies to ensure that funds
will be available on acceptable terms or at all. The Company believes its
existing resources are sufficient to meet the capital requirements of its
existing businesses for the foreseeable future.
11
<PAGE>
PART II - OTHER INFORMATION
Item 2 - Use of Proceeds
The Company's Registration Statement on Form S-1 (File No. 333-38153)
covering 1,236,250 shares of common stock, par value $.01 per share, with an
aggregate offering price of $9,272,000, was declared effective by the Securities
and Exchange Commission on December 10, 1997. The offering commenced on December
10, 1997, and terminated on December 31, 1997. The managing underwriters were
Fahnestock & Co. Inc. and HSBC Securities, Inc. The Company sold 1,139,491
shares in the offering for an aggregate offering price of $8,546,000. The
Company's total expenses in connection with the offering were $1,634,000, of
which $598,000 was for underwriting discounts and commissions, $867,000 was for
other expenses paid to persons other than directors or officers of the Company,
persons owning more than 10 percent of any class of equity securities of the
Company, or affiliates of the Company, and $169,000 was paid to Thermo Electron,
the Company's ultimate parent company, for certain corporate services rendered
in connection with the offering. The Company's net proceeds from the offering
were $6,912,000. As of July 4, 1998, the Company had expended $1,801,000 of such
net proceeds for the purchase of property, plant, and equipment, $2,084,000 for
research and development expenses, and $1,211,000 for working capital. As of
July 4, 1998, the Company had expended an aggregate of $5,096,000 of such net
proceeds, and the remaining net proceeds of $1,816,000 were invested in
investment-grade interest- or dividend-bearing investments pursuant to a
repurchase agreement with Thermo Electron whereby the Company in effect lends
its excess cash to Thermo Electron on a collateralized basis at market interest
rates. As of July 4, 1998, the Company had $8,297,000 of cash and cash
equivalents.
Item 4 - Submission of Matters to a Vote of Security Holders
On June 1, 1998, at the Annual Meeting of Shareholders, the
shareholders elected five incumbent directors to a one-year term expiring
in 1999. The directors elected at the meeting were: Dr. D. Allan Bromley,
Dr. Elias P. Gyftopoulos, Ms. Kristine Stotz Langdon, Mr. Earl R. Lewis,
and Mr. Arvin H. Smith. Each director received 7,688,565 shares voted in
favor of election and 35 shares voted against. No abstentions or broker
nonvotes were recorded on the election of directors.
At the Annual Meeting of Shareholders, the shareholders also approved a
proposal to adopt an employees' stock purchase plan and to reserve 50,000 shares
of the Company's common stock for issuance thereunder, as follows: 7,678,409
shares voted in favor, 4,876 shares voted against, and 5,315 shares abstained.
No broker nonvotes were recorded on the proposal.
12
<PAGE>
Item 5 - Other Information
Pursuant to recent amendments to the rules relating to proxy statements
under the Securities Exchange Act of 1934, as amended (the Exchange Act),
shareholders of the Company are hereby notified that any shareholder proposal
not included in the Company's proxy materials for its 1999 Annual Meeting of
Shareholders (the Annual Meeting) in accordance with Rule 14a-8 under the
Exchange Act will be considered untimely for the purposes of Rules 14a-4 and
14a-5 under the Exchange Act if notice thereof is received by the Company after
March 16, 1999. Management proxies will be authorized to exercise discretionary
voting authority with respect to any shareholder proposal not included in the
Company's proxy materials for the Annual Meeting unless (a) the Company receives
notice of such proposal by March 16, 1999, and (b) the conditions set forth in
Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act are met.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 7th day of August 1998.
THERMO VISION CORPORATION
Paul F. Kelleher
----------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
----------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ----------------------------------------------------------------------------
27 Financial Data Schedule.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
VISION CORPORATION'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 4, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 8,297
<SECURITIES> 0
<RECEIVABLES> 6,767
<ALLOWANCES> 351
<INVENTORY> 9,148
<CURRENT-ASSETS> 26,075
<PP&E> 9,009
<DEPRECIATION> 3,024
<TOTAL-ASSETS> 47,470
<CURRENT-LIABILITIES> 6,457
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 33,164
<TOTAL-LIABILITY-AND-EQUITY> 47,470
<SALES> 20,753
<TOTAL-REVENUES> 20,753
<CGS> 11,699
<TOTAL-COSTS> 11,699
<OTHER-EXPENSES> 2,084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261
<INCOME-PRETAX> 2,225
<INCOME-TAX> 929
<INCOME-CONTINUING> 1,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,296
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
