SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 2, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-13391
THERMO VISION CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3296594
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
8 East 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 October 29, 1999
Common Stock, $.01 par value 8,059,326
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO VISION CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes $9,231 under repurchase agreement $ 340 $ 9,457
with affiliated company at January 2, 1999)
Advance to affiliate (Note 6) 3,989 -
Accounts receivable, less allowances of $350 and $246 6,680 5,487
Inventories:
Raw materials and supplies 5,405 5,090
Work in progress 921 585
Finished goods 1,733 2,156
Prepaid expenses 412 254
Prepaid income taxes 2,127 2,563
------- -------
21,607 25,592
------- -------
Property, Plant, and Equipment, at Cost 11,672 9,265
Less: Accumulated depreciation and amortization 4,426 3,410
------- -------
7,246 5,855
------- -------
Other Assets (Note 5) 1,788 836
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 17,326 13,997
------- -------
$47,967 $46,280
======= =======
2
<PAGE>
THERMO VISION CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Notes payable and capital lease obligation (includes $3,947 due $ 8,556 $ 1,070
to Thermo Optek and $3,800 due to Thermo Electron at October 2,
1999)
Accounts payable 3,084 2,335
Accrued payroll and employee benefits 1,262 912
Accrued installation and warranty expenses 441 346
Other accrued expenses (Note 5) 1,670 1,166
Due to Thermo Electron and affiliated companies 523 308
------- -------
15,536 6,137
------- -------
Deferred Income Taxes 217 217
------- -------
Long-term Obligations (includes $3,947 due to Thermo Optek and $3,800 - 7,747
due to Thermo Electron)
------- -------
Shareholders' Investment:
Common stock, $.01 par value, 20,000,000 shares authorized; 8,051,626 81 80
and 8,048,276 shares issued and outstanding
Capital in excess of par value 28,040 28,031
Retained earnings 4,057 4,006
Deferred compensation (8) -
Accumulated other comprehensive items (Note 2) 44 62
------- -------
32,214 32,179
------- -------
$47,967 $46,280
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $11,208 $9,046
------- ------
Costs and Operating Expenses:
Cost of revenues 7,418 7,328
Selling, general, and administrative expenses 2,729 2,460
Research and development expenses 1,069 1,052
Restructuring costs - 40
------- ------
11,216 10,880
------- ------
Operating Loss (8) (1,834)
Interest Income 59 111
Interest Expense (12) (20)
Interest Expense, Related Party (105) (111)
------- ------
Loss Before Income Taxes (66) (1,854)
Income Tax Benefit 25 775
------- ------
Net Loss $ (41) $(1,079)
======= =======
Basic and Diluted Loss per Share (Note 3) $ (.01) $ (.13)
======= =======
Basic and Diluted Weighted Average Shares (Note 3) 8,052 8,048
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $30,323 $29,799
------- -------
Costs and Operating Expenses:
Cost of revenues 19,046 19,027
Selling, general, and administrative expenses 7,913 7,172
Research and development expenses 3,175 3,136
Restructuring costs - 40
------- -------
30,134 29,375
------- -------
Operating Income 189 424
Interest Income 248 339
Interest Expense (39) (59)
Interest Expense, Related Party (305) (333)
------- -------
Income Before Income Taxes 93 371
Income Tax Provision 42 154
------- -------
Net Income $ 51 $ 217
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .01 $ .03
======= =======
Weighted Average Shares (Note 3):
Basic 8,051 8,048
======= =======
Diluted 8,159 8,048
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO VISION CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 51 $ 217
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,510 1,176
Provision for losses on accounts receivable 90 2
Other noncash expenses - 2,167
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable (1,116) 1,129
Inventories 1,168 (1,074)
Other current assets 485 (716)
Accounts payable 693 (1,352)
Other current liabilities 777 (118)
-------- -------
Net cash provided by operating activities 3,658 1,431
-------- -------
Investing Activities:
Acquisitions (Note 5) (6,055) -
Advances to affiliate, net (Note 6) (3,989) -
Purchases of property, plant, and equipment (1,679) (1,934)
Increase in other assets (787) (191)
-------- -------
Net cash used in investing activities (12,510) (2,125)
-------- -------
Financing Activities:
Net decrease in short-term borrowings (262) (260)
Other - (121)
-------- -------
Net cash used in financing activities (262) (381)
-------- -------
Exchange Rate Effect on Cash (3) -
-------- -------
Decrease in Cash and Cash Equivalents (9,117) (1,075)
Cash and Cash Equivalents at Beginning of Period 9,457 9,604
-------- -------
Cash and Cash Equivalents at End of Period $ 340 $ 8,529
======== =======
Noncash Activities:
Fair value of assets of acquired companies $ 6,505 $ -
Cash paid for acquired companies (6,055) -
-------- -------
Liabilities assumed of acquired companies $ 450 $ -
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
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 October 2, 1999, the results of
operations for the three- and nine-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the nine-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents foreign currency translation adjustments, reported as a
component of shareholders' investment in the accompanying balance sheet. During
the third quarter of 1999 and 1998, the Company had comprehensive income of
$9,000 and a comprehensive loss of $1,055,000, respectively. During the first
nine months of 1999 and 1998, the Company's comprehensive income totaled $33,000
and $255,000, respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic
Net Income (Loss) $ (41) $(1,079) $ 51 $ 217
----- ------- ----- ------
Weighted Average Shares 8,052 8,048 8,051 8,048
----- ------- ----- ------
Basic Earnings (Loss) per Share $(.01) $ (.13) $ .01 $ .03
===== ======= ===== ======
Diluted
Net Income (Loss) $ (41) $(1,079) $ 51 $ 217
----- ------- ----- ------
Weighted Average Shares 8,052 8,048 8,051 8,048
Effect of Stock Options - - 108 -
----- ------- ----- ------
Weighted Average Shares, as Adjusted 8,052 8,048 8,159 8,048
----- ------- ----- ------
Diluted Earnings (Loss) per Share $(.01) $ (.13) $ .01 $ .03
===== ======= ===== ======
7
<PAGE>
3. Earnings (Loss) per Share (continued)
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of October 2, 1999, there
were 171,000 of such options outstanding, with exercise prices ranging from
$7.29 to $7.50 per share.
4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- -----------
Revenues:
Optically Based Instruments and Lasers $ 5,698 $ 5,625 $16,294 $17,958
Optical Components 3,527 1,971 8,480 6,566
Sensors and Imaging Systems 1,983 1,450 5,549 5,275
------- ------- ------- -------
$11,208 $ 9,046 $30,323 $29,799
======= ======= ======= =======
Income (Loss) Before Income Taxes:
Optically Based Instruments and Lasers $ 771 $ (11) $ 1,878 $ 1,911
Optical Components 20 265 485 1,024
Sensors and Imaging Systems (301) (1,830) (1,076) (1,647)
Corporate (a) (498) (258) (1,098) (864)
------- ------- ------- -------
Total operating income (loss) (8) (1,834) 189 424
Interest expense, net (58) (20) (96) (53)
------- ------- ------- -------
$ (66) $(1,854) $ 93 $ 371
======= ======= ======= =======
(a) Primarily general and administrative expenses.
5. Acquisitions
On February 1, 1999, the Company acquired the assets, subject to certain
liabilities, of Opticon Corporation (now called Thermo Vision Opticon
Corporation), a manufacturer of replicated optical components and assemblies,
for $2,055,000 in cash. The cost of this acquisition exceeded the estimated fair
value of the acquired net assets by $1,487,000, which is being amortized over 40
years. On July 16, 1999, the Company acquired the assets of the
non-telecommunications optical filter business of Corning OCA Corporation (OCA)
for $4,000,000 in cash. OCA manufactures optical filters and assemblies in the
ultra-violet, near infrared, and infrared portions of the electromagnetic
spectrum. The cost of this acquisition exceeded the estimated fair value of the
acquired net assets by $2,180,000, which is being amortized over 40 years.
These acquisitions have been accounted for using the purchase method of
accounting and their results have been included in the Company's results from
the respective dates of acquisition. Allocation of the purchase price for these
acquisitions was based on estimates of the fair value of the net assets acquired
and is subject to adjustment upon finalization of the purchase price allocation.
The Company has gathered no information that indicates the final allocations
will differ materially from the preliminary estimates.
8
<PAGE>
5. Acquisitions (continued)
Based on unaudited data, the following table presents selected financial
information for the Company and OCA on a pro forma basis, assuming these
businesses had been combined since the beginning of 1998. The effect of the
acquisition of Opticon has not been included in the pro forma data, as its
results were not material to the Company's results of operations.
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- --------- ---------- ---------- ----------
Revenues $11,381 $10,854 $32,965 $35,190
Net Income (Loss) (32) (724) 235 1,318
Basic and Diluted Earnings (Loss) per Share - (.09) .03 .16
</TABLE>
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had this acquisition been made at
the beginning of 1998.
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) No. 95-3,
primarily have included reductions in staffing levels and the abandonment of
excess facilities. In connection with these restructuring activities, as part of
the cost of acquisitions, the Company established reserves for severance and
excess facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Unresolved matters at October 2, 1999, primarily included
completion of anticipated severances at OCA and Opticon. A summary of the
changes in accrued acquisition expenses, which are included in other accrued
expenses in the accompanying balance sheet, follows:
<TABLE>
<CAPTION>
Abandonment
of Excess
(In thousands) Severance Facilities Total
- --------------------------------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 2, 1999 $ 59 $ 6 $ 65
Reserves established 110 - 110
Usage (72) (6) (78)
Decrease due to finalization of restructuring plan, recorded (7) - (7)
as a decrease to cost in excess of net assets of acquired
companies
---- --- ----
Balance at October 2, 1999 $ 90 $ - $ 90
==== === ====
</TABLE>
6. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
9
<PAGE>
7. Proposed Merger
On July 13, 1999, the Company entered into a definitive agreement and plan
of merger with its parent, Thermo Instrument Systems Inc., under which Thermo
Instrument would acquire all of the outstanding Thermo Vision common stock
(other than shares held by Thermo Electron and Thermo Instrument, shares held by
the Company in treasury, and shares held by stockholders exercising dissenters'
rights) for $7 per share in cash, without interest. Following the merger, the
Company would become a wholly owned subsidiary of Thermo Instrument and the
Company's common stock would cease to be publicly traded. For the transaction to
be completed, the Securities and Exchange Commission must complete its review of
documents regarding the proposed transaction, holders of a majority of
outstanding Thermo Vision shares (excluding Thermo Electron, Thermo Instrument,
and the officers and directors of the Company, Thermo Electron, and Thermo
Instrument) must vote at a special stockholders' meeting to be held to approve
the proposed merger, and certain customary conditions must be met. The
stockholders' meeting is expected to be held in the first quarter of 2000.
On July 15, 1999, a lawsuit styled as a class action was filed by a
stockholder of the Company against the Company, Thermo Instrument, and certain
directors of the Company in the Chancery Court of the State of Delaware. The
complaint alleges that the proposed Thermo Vision going private transaction
would deprive the Company's stockholders of the fair value of their shares of
the Company's common stock. The plaintiff is seeking injunctive and other
appropriate relief, although no specific amount of monetary damages were
claimed. The Company, Thermo Instrument, and the individual defendants filed an
answer to the complaint on September 8, 1999, in which they deny that there has
been any violation of law or breach of any duty to the plaintiff or the
purported class set forth in the complaint. The parties are currently conducting
discovery.
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 2, 1999, filed with the Securities and Exchange
Commission.
Overview
The Company designs, manufactures, and markets a diverse array of
photonics products - light-based technologies that are embedded as "enabling
technologies" in a wide range of applications, including medical diagnostic and
analytical instrumentation; semiconductor manufacturing; X-ray imaging; and
physics, chemistry, and biology research.
The Company organizes and manages its business by individual functional
operating entity. The Company's businesses operate in three segments: Optically
Based Instruments and Lasers, Optical Components, and Sensors and Imaging
Systems. The Optically Based Instruments and Lasers segment, which consists of
the Company's Oriel Corporation, Laser Science, Inc. (LSI), and Thermo Vision
Colorado subsidiaries, manufactures low-cost analyzers that combine optical
components and signal processors used primarily in research, analytical, and
process applications such as semiconductor photolithography. In addition, this
segment manufactures pulsed nitrogen lasers, nitrogen laser accessories, pulsed
CO(2) lasers, and autosamplers sold as accessories to analytical instruments.
10
<PAGE>
Overview (continued)
The Optical Components segment consists of the Company's Corion division,
its Hilger Crystals subsidiary, its Thermo Vision Opticon Corporation
subsidiary, acquired in February 1999 (Note 5), and the assets of the
non-telecommunications optical filter business of Corning OCA Corporation (OCA),
acquired in July 1999 (Note 5). This segment manufactures a variety of optical
components, including filters and crystals, that are used primarily in medical
and analytical instruments and X-ray baggage screening for security purposes.
The Sensors and Imaging Systems segment, which consists of the Company's
CentroVision, Inc. and CID Technologies Inc. (CIDTEC) subsidiaries, manufactures
sensors that are primarily used by manufacturers of medical diagnostic and
analytical instruments. This segment also designs and markets charge-injection
device (CID) sensors and CID camera systems. The Company is considering selling
either CIDTEC or CIDTEC's dental imager business.
Approximately 7% of the Company's 1998 revenues originated outside the
U.S. and approximately 28% of the Company's 1998 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
Third Quarter 1999 Compared With Third Quarter 1998
Revenues increased to $11.2 million in the third quarter of 1999 from $9.0
million in the third quarter of 1998. Revenues increased $1.6 million due to the
inclusion of revenues from Opticon Corporation (now called Thermo Vision
Opticon), which was acquired in February 1999, and OCA, which was acquired in
July 1999. Optically Based Instruments and Lasers segment revenues remained
relatively constant at $5.7 million in 1999 and $5.6 million in 1998. Excluding
the acquisitions of Thermo Vision Opticon and OCA, Optical Components segment
revenues were relatively unchanged at $1.9 million in 1999 and $2.0 million in
1998. Sensors and Imaging Systems segment revenues increased $0.5 million,
primarily due to revenues from the sale of CIDTEC's dental imagers, which were
introduced in late 1998.
The gross profit margin increased to 34% in the third quarter of 1999,
from 19% in the third quarter of 1998, primarily due to an inventory write-down
of $2.2 million recorded in 1998. Excluding the effect of the inventory
write-down, the gross profit margin was 43% in 1998. The gross profit margin
decrease was primarily at the Optical Components segment, due to the inclusion
of results from Thermo Vision Opticon, which had a gross profit margin of 24%
during the period, and OCA, which had a negative gross profit margin of 11%
during the period. This segment recorded a charge for the sale of inventories
revalued at the date of acquisition of $0.1 million, which also contributed to
the lower margin in 1999. In addition, the gross profit margin decreased at the
Sensors and Imaging Systems segment due to increased sales of lower-margin
products, including CIDTEC's dental imagers. The lower gross profit margin
contributed to an operating loss in this segment in the 1999 period (Note 4).
Selling, general, and administrative expenses as a percentage of revenues
decreased to 24% in the third quarter of 1999 from 27% in the third quarter of
1998. The decrease was primarily at the Sensors and Imaging Systems segment due
to increased revenues, as well as lower marketing expenses at CIDTEC. The
decrease also resulted from reduced spending at Oriel as a result of its 1998
restructuring efforts. These decreases were offset in part by the inclusion of
$0.2 million of expenses at acquired businesses and certain nonrecurring
employee-related costs incurred in 1999. Research and development expenses were
unchanged at $1.1 million in 1999 and 1998.
11
<PAGE>
Third Quarter 1999 Compared With Third Quarter 1998 (continued)
During the third quarter of 1998, the Company recorded restructuring costs
of $40,000 related to the termination of 10 employees.
Interest income decreased slightly to $59,000 in the third quarter of 1999
from $111,000 in the third quarter of 1998, primarily due to lower average
invested balances resulting from the use of $6.1 million of cash in 1999 to fund
acquisitions. Related-party interest expense was unchanged at $0.1 million in
1999 and 1998 and primarily represents interest incurred on the aggregate $7.7
million of promissory notes issued to Thermo Optek Corporation for the
acquisition of LSI and to Thermo Electron Corporation for the acquisition of
CentroVision.
The effective tax benefit was 38% in the third quarter of 1999, compared
with 42% in the third quarter of 1998. 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 effective tax rate decreased in 1999 due to the higher
relative impact of nondeductible expenses on the Company's tax benefit.
First Nine Months 1999 Compared With First Nine Months 1998
Revenues were $30.3 million in the first nine months of 1999, compared
with $29.8 million in the first nine months of 1998. Revenues increased $2.6
million due to the inclusion of revenues from Thermo Vision Opticon, which was
acquired in February 1999, and OCA, which was acquired in July 1999. Excluding
the effect of the acquisitions, revenues decreased $2.1 million. Optically Based
Instruments and Lasers segment revenues decreased $1.7 million, primarily as a
result of softness in the semiconductor industry and economic uncertainty in
Asia as compared to the same period in the prior year. Excluding the
acquisitions of Thermo Vision Opticon and OCA, Optical Components segment
revenues decreased $0.7 million, primarily due to the completion of shipments
under Hilger's Stanford Linear Accelerator contract during the second quarter of
1998. Sensors and Imaging Systems segment revenues increased $0.3 million, due
to revenues from sales of CIDTEC's dental imagers, which were introduced in late
1998, offset in part by a decrease in revenues at CentroVision due to lower
customer demand.
The gross profit margin decreased to 37% in the first nine months of 1999
from 43% in the first nine months of 1998, excluding the 1998 inventory
write-down discussed in the results of operations for the third quarter of 1999.
The decrease was primarily due to increased sales of lower-margin products in
the Sensors and Imaging Systems segment as discussed in the results of
operations for the third quarter of 1999. To a lesser extent, the gross profit
margin decreased due to the inclusion of results from Thermo Vision Opticon,
which had a gross profit margin of 29% during the period, and OCA, which had a
negative gross profit margin of 11% during the period.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26% in the first nine months of 1999 from 24% in the first nine
months of 1998, primarily due to decreased revenues in the Optically Based
Instruments and Lasers segment and certain nonrecurring employee-related costs
incurred during 1999. Selling, general, and administrative expenses increased to
$7.9 million in 1999 from $7.2 million in 1998. An overall decrease in spending
at the Sensors and Imaging Systems segment was more than offset by the inclusion
of $0.5 million of costs at acquired businesses, certain nonrecurring
employee-related costs incurred during 1999, and increased building maintenance
costs in the Optical Components segment. Research and development expenses were
relatively unchanged at $3.2 million in 1999 and $3.1 million in 1998.
During the third quarter of 1998, the Company recorded restructuring costs
of $40,000 related to the termination of 10 employees.
Interest income decreased slightly to $0.2 million in the first nine
months of 1999 from $0.3 million in the first nine months of 1998, primarily due
to the reasons discussed in the results of operations for the third quarter.
Related-party interest expense was unchanged at $0.3 million in 1999 and 1998.
12
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
The effective tax rate was 45% in the first nine months of 1999 and 42% in
the first nine months of 1998. The effective tax rate exceeded the statutory
federal income tax rate primarily due to the effect of nondeductible
amortization of cost in excess of net assets of acquired companies and state
income taxes. The effective tax rate increased primarily due to the higher
relative impact of nondeductible expenses.
Liquidity and Capital Resources
Consolidated working capital was $6.1 million at October 2, 1999, compared
with $19.5 million at January 2, 1999. Working capital decreased $7.7 million
due to the reclassification to current liabilities of notes payable to Thermo
Optek, due February 2000, and Thermo Electron, due July 2000. Included in
working capital are cash and cash equivalents of $0.3 million at October 2,
1999, compared with $9.5 million at January 2, 1999. Also, as of October 2,
1999, the Company had $4.0 million invested in an advance to affiliate. Prior to
the use of a new domestic cash management arrangement between the Company and
Thermo Electron (Note 6), which became effective June 1, 1999, amounts invested
with Thermo Electron were included in cash and cash equivalents.
In the first nine months of 1999, operating activities provided $3.7
million of cash, including a 1998 federal income tax refund of $0.7 million. An
increase in accounts receivable used $1.1 million of cash and was primarily due
to an increase in accounts receivable at acquired companies over the amounts
that existed at the purchase dates. A decrease in inventory provided $1.2
million of cash. The assets of OCA acquired by the Company included a high level
of inventory, which was necessary to process shipments during OCA's relocation
into the Company's Corion facility. This inventory was subsequently sold during
the quarter and contributed to the inventory decrease.
Excluding advances to affiliate activity (Note 6), the Company's primary
investing activities during the first nine months of 1999 were for acquisitions
and capital expenditures. In February 1999, the Company purchased Thermo Vision
Opticon for $2.1 million in cash and in July 1999, the Company acquired the
assets of the non-telecommunications optical filter business of OCA for $4.0
million in cash (Note 5). The Company expended $1.7 million on purchases of
property, plant, and equipment, including $0.8 million related to the relocation
of OCA to the Company's Corion facility and $0.2 million for the purchase by
Hilger of a building. The Company plans to make capital expenditures of
approximately $0.9 million during the remainder of 1999, including $0.7 million
for the remaining costs related to OCA's relocation.
Hilger, the Company's foreign subsidiary, has a credit facility
arrangement for working capital needs. 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 internal funds and/or
short- or long-term borrowings from Thermo Instrument Systems Inc. or Thermo
Electron, although it has no agreement with these companies to ensure that
additional funds will be available on acceptable terms or at all. The maturity
of the Company's debt to Thermo Optek in February 2000 and to Thermo Electron in
July 2000 could adversely affect the Company's liquidity. Excluding debt to
affiliates, the Company believes its existing resources are sufficient to meet
the capital requirements of its existing businesses for the foreseeable future.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
13
<PAGE>
Year 2000 (continued)
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical non-information technology systems, which efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material noncompliant systems or non-information
technology systems that were identified during phase one are prioritized and
remediated. Based on its evaluations of its critical non-information technology
systems, the Company does not believe any material upgrades or modifications are
required. The Company is currently upgrading or replacing its material
noncompliant information technology systems, and this process was approximately
90% complete as of October 2, 1999. In many cases, such upgrades or replacements
are being made in the ordinary course of business, without accelerating
previously scheduled upgrades or replacements. The Company expects that all of
its material information technology systems and critical non-information
technology systems will be year 2000 compliant by the end of 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. Very few of the Company's products interface with computers and the
Company believes that all of its material products are year 2000 compliant.
However, there can be no assurance that the Company has identified all of the
year 2000 problems with its current products.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and has distributed questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has substantially completed its
assessment of third-party risk.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products and significant suppliers, and vendors, it will modify and
adjust its contingency plan as may be required. The Company expects to complete
its contingency plan by the end of November 1999.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
are funded from working capital. All internal costs and related external costs,
other than capital additions, related to year 2000 remediation have been and
will continue to be expensed as incurred. The Company does not track internal
costs incurred for its year 2000 compliance project. Such costs are principally
the related payroll costs for its information systems group.
14
<PAGE>
Year 2000 (continued)
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected.
There is expected to be a significant amount of litigation relating to the year
2000 issue and there can be no assurance that the Company will not incur
material costs in defending or bringing lawsuits. In addition, if any year 2000
issues are identified, there can be no assurance that the Company will be able
to retain qualified personnel to remedy such issues. Any unexpected costs or
delays arising from the year 2000 issue could have a material adverse impact on
the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates has not changed materially from its exposure at year-end 1998.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On July 13, 1999, the Company filed a Current Report on Form 8-K, dated
July 13, 1999, with respect to the execution of an Agreement and Plan of Merger
by and among the Company, Thermo Instrument, and VIZ Acquisition Corporation,
pursuant to which the Company would be taken private and become a wholly owned
subsidiary of Thermo Instrument.
On July 28, 1999, the Company filed a Current Report on Form 8-K, dated
July 16, 1999, with respect to its acquisition of the non-telecommunications
optical filter business of Corning OCA Corporation. On September 24, 1999, the
Company filed an amendment on Form 8-K/A, the purpose of which was to file the
financial information required by Form 8-K concerning this acquisition.
15
<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 4th day of November 1999.
THERMO VISION CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
VISION CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER
2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 340
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<RECEIVABLES> 7,030
<ALLOWANCES> 350
<INVENTORY> 8,059
<CURRENT-ASSETS> 21,607
<PP&E> 11,672
<DEPRECIATION> 4,426
<TOTAL-ASSETS> 47,967
<CURRENT-LIABILITIES> 15,536
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 32,133
<TOTAL-LIABILITY-AND-EQUITY> 47,967
<SALES> 30,323
<TOTAL-REVENUES> 30,323
<CGS> 19,046
<TOTAL-COSTS> 19,046
<OTHER-EXPENSES> 3,175
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 93
<INCOME-TAX> 42
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