SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarter Ended
April 2, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-9786
THERMO INSTRUMENT SYSTEMS INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
504 Airport Road
Post Office Box 2108
Santa Fe, New Mexico 87504-2108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at April 29, 1994
---------------------------- -----------------------------
Common Stock, $.10 par value 46,777,961
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of April 2, 1994 and
January 1, 1994 (In thousands)
April 2, Jan. 1,
1994 1994
-------- --------
Current Assets:
Cash and cash equivalents $ 87,503 $177,442
Available-for-sale investments, at quoted
market value (amortized cost of $19,634)
(includes $7,840 of related party debentures)
(Note 3) 21,378 -
Short-term investments in related party
debentures - 6,145
Accounts receivable, net 162,012 129,184
Unbilled contract costs and fees 7,115 6,907
Inventories:
Raw materials and supplies 73,498 53,322
Work in process and finished goods 57,843 44,230
Prepaid expenses 5,171 5,131
Prepaid income taxes 33,068 24,212
-------- --------
447,588 446,573
-------- --------
Property, Plant and Equipment, at Cost 178,794 160,472
Less: Accumulated depreciation and amortization 43,415 39,185
-------- --------
135,379 121,287
-------- --------
Patents and Other Assets 29,277 27,820
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 349,211 295,461
-------- --------
$961,455 $891,141
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(a) Consolidated Balance Sheet - Liabilities and Shareholders'
Investment as of April 2, 1994 and January 1, 1994
(In thousands except share amounts)
April 2, Jan. 1,
1994 1994
-------- --------
Current Liabilities:
Notes payable $ 40,536 $ 37,516
Accounts payable 41,799 29,658
Accrued payroll and employee benefits 30,728 22,737
Accrued income taxes 17,665 18,653
Customer deposits 9,974 9,699
Accrued installation and warranty expenses 16,136 14,111
Other accrued expenses 96,622 70,079
Due to parent company 9,111 6,067
--------- ---------
262,571 208,520
--------- ---------
Deferred Income Taxes 19,610 19,542
--------- ---------
Other Deferred Items 19,604 18,863
--------- ---------
Long-term Obligations:
Senior obligations, including $140,000 due
to parent company 210,000 210,000
Subordinated obligations, including $2,384
and $2,734 due to parent company 45,444 52,303
Other 23,490 23,858
--------- ---------
278,934 286,161
--------- ---------
Shareholders' Investment:
Common stock, $.10 par value, 125,000,000
shares authorized; 47,557,080 and 47,078,660
shares issued 4,756 4,708
Capital in excess of par value 226,030 219,703
Retained earnings 165,216 152,364
--------- ---------
396,002 376,775
Treasury stock at cost, 817,947 and
867,087 shares (15,089) (15,850)
Cumulative translation adjustment (1,275) (2,870)
Net unrealized gain on available-for-sale
investments (Note 3) 1,098 -
--------- ---------
380,736 358,055
--------- ---------
$961,455 $891,141
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(b) Consolidated Statement of Income for the three months ended
April 2, 1994 and April 3, 1993 (In thousands except per share
amounts)
Three Months Ended
-------------------
April 2, April 3,
1994 1993
-------- ---------
Revenues:
Instruments $147,587 $136,464
Services 12,195 13,284
--------- ---------
159,782 149,748
--------- ---------
Costs and Expenses:
Cost of instrument revenues 74,917 70,349
Cost of service revenues 9,493 10,293
Selling, general and administrative expenses 41,028 38,584
Research and development expenses 9,106 9,856
--------- ---------
134,544 129,082
--------- ---------
Operating Income 25,238 20,666
Interest Income 1,542 361
Interest Expense (includes $1,356 and $1,227
related to notes to parent company) (4,098) (3,780)
Other Income, Net 65 32
--------- ---------
Income Before Provision for Income Taxes 22,747 17,279
Provision for Income Taxes 9,895 7,430
--------- ---------
Net Income $ 12,852 $ 9,849
========= =========
Earnings per Share:
Primary $ .28 $ .22
========= =========
Fully diluted $ .26 $ .22
========= =========
Weighted Average Shares:
Primary 46,573 43,924
========= =========
Fully diluted 56,579 49,680
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(c) Consolidated Statement of Cash Flows for the three months ended
April 2, 1994 and April 3, 1993 (In thousands)
Three Months Ended
------------------
April 2, April 3,
1994 1993
-------- --------
Operating Activities:
Net income $ 12,852 $ 9,849
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,783 5,668
Provision for losses on accounts receivable 234 262
Decrease in deferred income taxes - (680)
Other noncash expenses 807 1,142
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (435) (8,407)
Inventories (5,842) 4,286
Other current assets 1,122 (1,232)
Accounts payable 3,991 2,112
Other current liabilities (1,369) (10,837)
--------- --------
Net cash provided by operating activities 17,143 2,163
--------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (90,669) (86,519)
Decrease in short-term investments - 101
Purchases of long-term investments (1,325) (1,339)
Purchases of available-for-sale investments (13,250) -
Purchases of property, plant and equipment (2,160) (2,401)
Other (47) 451
--------- --------
Net cash used in investing activities (107,451) (89,707)
--------- --------
Financing Activities:
Proceeds from issuance of obligations to
parent company - 89,010
Repayment and repurchase of long-term
obligations (299) (690)
Proceeds from issuance of common stock 422 344
Purchases of Company common stock - (820)
--------- --------
Net cash provided by financing activities 123 87,844
--------- --------
Exchange Rate Effect on Cash 246 266
Increase (Decrease) in Cash and Cash Equivalents (89,939) 566
Cash and Cash Equivalents at Beginning of Period 177,442 25,939
--------- --------
Cash and Cash Equivalents at End of Period $ 87,503 $26,505
========= ========
Cash Paid For:
Interest $ 5,660 $ 4,911
Income taxes $ 11,482 $ 1,068
Noncash Financing Activities:
Conversions of convertible obligations $ 6,860 $10,960
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - April 2, 1994
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Instrument Systems Inc. (the Company) without audit
and, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair statement of (a) the results of
operations for the three-month periods ended April 2, 1994 and April
3, 1993, (b) the financial position at April 2, 1994, and (c) the cash
flows for the three-month periods ended April 2, 1994 and April 3,
1993. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of January 1, 1994 has
been derived from the consolidated financial statements which 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 1, 1994, filed with the Securities and Exchange Commission.
2. Acquisition
On March 16, 1994, the Company completed the acquisition of several
businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated for a purchase price of approximately $87.3
million in cash, subject to a post-closing adjustment. The Company
acquired the EnviroTech Controls, Noran Instruments, TN Technologies,
and Tremetrics businesses, which collectively design, manufacture, and
market a variety of process control, process measurement, and
laboratory analytical products for use in a wide range of industrial,
energy, environmental, and research applications.
This acquisition has been accounted for using the purchase method
of accounting and the results of operations of the acquired businesses
have been included in the accompanying financial statements from the
date of acquisition. The aggregate cost of this acquisition exceeded
the estimated fair value of the acquired net assets by $52.9 million,
which is being amortized over 40 years. Allocation of the purchase
price was based on an estimate of the fair value of the net assets
acquired and is subject to adjustment.
Based on unaudited data, the following table presents selected
financial information for the Company and the acquired businesses on a
pro forma basis, assuming the companies had been combined since the
beginning of 1993.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - April 2, 1994
(continued)
2. Acquisition (continued)
Three Months Ended
------------------
April 2, April 3,
(In thousands except per share amounts) 1994 1993
---------------------------------------------------------------------
Revenues $181,466 $185,910
Net income 10,992 10,127
Earnings per share:
Primary .24 .23
Fully diluted .22 .22
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition been made at the beginning of 1993.
3. Available-for-sale Investments
Effective January 2, 1994, the Company adopted Statement of
Financial Accounting Standards (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 on available-for-sale investments." "Net unrealized
gain on available-for-sale investments" consists of (1) an unrealized
gain, net of related tax effects, of $1,885,000 that was recorded as a
cumulative effect of change in accounting principle adjustment and
(2) an unrealized loss, net of related tax effects, of $787,000
relating to the decline in market value of available-for-sale
investments for the three-month period ended April 2, 1994.
Available-for-sale investments at April 2, 1994 represent
investments in corporate bonds. The difference between the market
value and the cost basis of available-for-sale investments was
$1,744,000 at April 2, 1994, which represents gross unrealized gains
of $1,777,000 and gross unrealized losses of $33,000 on those
investments.
Available-for-sale investments in the accompanying balance sheet at
April 2, 1994, include $10,347,000 with contractual maturities of one
year or less and $11,031,000 with contractual maturities of one year
through five years. Expected 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 either the Company and/or the issuer to redeem these
securities at an earlier date.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - April 2, 1994
(continued)
4. Subsequent Event
In April 1994, the Company announced its intent to form an
environmental services joint venture with Thermo Process Systems Inc.
(Thermo Process), another public subsidiary of Thermo Electron
Corporation. The joint venture will operate under the name Thermo
Terra Tech. The Company will contribute the analytical laboratories
and the nuclear health physics and environmental science and
engineering services businesses that comprise its Services segment.
Thermo Process will contribute its recently acquired environmental
laboratory business, which specializes in fast-response testing of
petroleum-contaminated soils and groundwater, and approximately
$31 million in cash and short-term investments.
The Company will own 49 percent of Thermo Terra Tech. The Company
will account for its interest in the joint venture under the equity
method. The Company's environmental services businesses had revenues
of $55.2 million and $12.2 million for the year ending January 1, 1994
and the three-month period ending April 2, 1994, respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
First Quarter 1994 Compared With First Quarter 1993
Revenues for the first quarter of 1994 increased 7% to $159.8
million from $149.7 million for the same period in 1993. Instruments
segment revenues increased $11.1 million, or 8%, to $147.6 million in
the first quarter of 1994 from $136.5 million in 1993. The increase
was principally due to acquisitions, net of the sale of the biomedical
instruments products business of the Company's Nicolet Instrument
Corporation (Nicolet Biomedical) subsidiary to Thermo Electron
Corporation effective April 5, 1993. The Company's acquisitions
include Spectra-Physics Analytical in February 1993, the radiation
safety measurement products and radiometry process control divisions
of FAG Kugelfischer Georg Shafer AG in October 1993, and several
businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated (Baker Hughes) in March 1994. Nicolet
Biomedical accounted for $12.6 million of revenues in the first
quarter of 1993. Services segment revenues declined 8% to $12.2
million in 1994 from $13.3 million in 1993, principally as a result of
project delays due to severe weather conditions in the Northeast and
as a result of reduced or delayed government spending.
8PAGE
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
First Quarter 1994 Compared With First Quarter 1993 (continued)
The Company's gross profit margin increased to 47% in the first
quarter of 1994 from 46% for the same period in 1993. Gross profit
margin for the Instruments segment increased to 49% in the first
quarter of 1994 from 48% in 1993 due to changes in product mix. Gross
profit margin for the Services segment was virtually unchanged at
22.2% in the first quarter of 1994 and 22.5% in 1993.
Selling, general and administrative expenses as a percentage of
revenues was unchanged at 26% in the first quarters of both 1994 and
1993. Research and development expenses decreased to 6.2% of
Instruments segment revenues in the first quarter of 1994 from 7.2% in
the first quarter of 1993, principally due to the sale of Nicolet
Biomedical.
Interest income increased to $1.5 million in the first quarter of
1994 from $0.4 million for the same period in 1993 primarily as a
result of interest income earned on the net proceeds from the issuance
of the 3 3/4% senior obligations in September 1993, offset in part by
the cash used to purchase several businesses within the EnviroTech
Measurements & Controls group of Baker Hughes late in the first
quarter of 1994. Interest expense was $4.1 million in 1994, compared
with $3.8 million in 1993.
The effective tax rate was 43.5% in the first quarter of 1994,
compared with 43.0% for the same period in 1993. These rates exceeded
the statutory federal income tax rate primarily due to nondeductible
amortization of cost in excess of net assets of acquired companies,
the inability to provide a tax benefit on losses incurred at certain
foreign subsidiaries, and the impact of state income taxes.
Financial Condition
Liquidity and Capital Resources
Consolidated working capital at April 2, 1994 was $185.0 million,
compared with $238.1 million at January 1, 1994, a decrease of $53.1
million. Included in working capital are cash, cash equivalents, and
short-term investments of $108.9 million at April 2, 1994 and $183.6
million at January 1, 1994. In March 1994 the Company acquired the
EnviroTech Measurements & Controls group of Baker Hughes for $87.3
million in cash, subject to a post-closing adjustment (see Note 2 to
Consolidated Financial Statements).
In 1994 the Company plans to make expenditures of approximately
$11.0 million for property, plant and equipment. The Company plans to
make these expenditures from working capital. The Company believes
that the remainder of its existing resources are sufficient to meet
the capital requirements of its existing operations for the
foreseeable future.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
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 February 2, 1994 the Company filed a Current Report on Form 8-K
pertaining to the Company's intention to acquire the EnviroTech
Controls, Noran Instruments, TN Technologies, and Tremetrics
businesses of Baker Hughes Incorporated. On March 31, 1994, the
Company filed a Current Report on Form 8-K pertaining to the
acquisition of these businesses from Baker Hughes Incorporated on
March 16, 1994.
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FORM 10-Q
April 2, 1994
THERMO INSTRUMENT SYSTEMS INC.
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 9th day
of May 1994.
THERMO INSTRUMENT SYSTEMS INC.
Paul F. Kelleher
--------------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
-------------------------------
John N. Hatsopoulos
Chief Financial Officer
11PAGE
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EXHIBIT INDEX
Exhibit Number Document Page
-------------- -------- ----
11 Statement re: Computation of earnings per share
12<PAGE>
Exhibit 11
THERMO INSTRUMENT SYSTEMS INC.
Computation of Earnings per Share
Three Months Ended
------------------------
April 2, April 3,
1994 1993
----------- -----------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $12,852,000 $ 9,849,000
Add: Subordinated convertible obligation
interest, net of tax 1,631,000 846,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $14,483,000 $10,695,000
----------- -----------
Shares:
Weighted average shares outstanding 46,573,021 43,923,714
Add: Shares issuable from assumed
exercise of subordinated convertible
obligations 9,743,754 5,408,793
Shares issuable from assumed exercise
of options (as determined by the
application of the treasury stock
method) 262,188 347,538
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 56,578,963 49,680,045
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .26 $ .22
=========== ===========
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