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 September 30, 1995.
[ ] 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 October 27, 1995
---------------------------- -------------------------------
Common Stock, $.10 par value 73,106,217
PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of September 30, 1995 and
December 31, 1994 (In thousands) (Unaudited)
September 30, December 31,
1995 1994
------------- ------------
Current Assets:
Cash and cash equivalents $ 310,173 $ 152,933
Available-for-sale investments, at quoted
market value (amortized cost of $2,280
and $15,385) (includes $4,471 and $2,904
of related party investments) 4,471 15,931
Accounts receivable, less allowances
of $10,367 and $8,779 184,462 159,615
Unbilled contract costs and fees 6,455 5,903
Inventories:
Raw materials and supplies 81,437 65,441
Work in process 35,613 27,879
Finished goods 33,841 28,033
Prepaid expenses 6,915 5,388
Prepaid income taxes 28,420 28,533
---------- ----------
691,787 489,656
---------- ----------
Property, Plant and Equipment, at Cost 185,053 170,907
Less: Accumulated depreciation and
amortization 51,714 43,983
---------- ----------
133,339 126,924
---------- ----------
Net Assets of Discontinued Operations (Note 5) - 34,265
---------- ----------
Patents and Other Assets 25,137 22,224
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 358,730 338,848
---------- ----------
$1,208,993 $1,011,917
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(a) Consolidated Balance Sheet - Liabilities and Shareholders' Investment
as of September 30, 1995 and December 31, 1994 (In thousands except
share amounts) (Unaudited)
September 30, December 31,
1995 1994
------------- ------------
Current Liabilities:
Notes payable $ 49,999 $ 45,953
Accounts payable 45,931 38,594
Accrued payroll and employee benefits 32,030 33,085
Accrued and current deferred income taxes 26,555 29,175
Accrued installation and warranty expenses 19,190 16,545
Customer deposits 10,265 11,115
Other accrued expenses 73,467 70,884
Due to parent company 22,562 13,999
---------- ----------
279,999 259,350
---------- ----------
Deferred Income Taxes 18,042 21,347
---------- ----------
Other Deferred Items 23,657 19,261
---------- ----------
Long-term Obligations:
Senior obligations, including $140,000 due
to parent company 210,000 210,000
Subordinated obligations, including $284
and $1,334 due to parent company (Note 4) 119,174 38,196
Other 14,078 15,363
---------- ----------
343,252 263,559
---------- ----------
Minority Interest 26,283 7,637
---------- ----------
Shareholders' Investment (Note 6):
Common stock, $.10 par value, 125,000,000
shares authorized; 73,813,577 and 48,156,101
shares issued 7,381 4,816
Capital in excess of par value 245,138 233,765
Retained earnings 270,054 212,584
Treasury stock at cost, 824,737 and
683,742 shares (10,746) (12,736)
Cumulative translation adjustment 4,575 1,991
Net unrealized gain on available-for-sale
investments 1,358 343
---------- ----------
517,760 440,763
---------- ----------
$1,208,993 $1,011,917
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(b) Consolidated Statement of Income for the three months ended
September 30, 1995 and October 1, 1994 (In thousands except per
share amounts) (Unaudited)
Three Months Ended
--------------------------
September 30, October 1,
1995 1994
------------- ----------
Revenues $193,899 $161,580
-------- --------
Costs and Expenses:
Cost of revenues 100,364 84,015
Selling, general and administrative expenses 56,112 44,325
Research and development expenses 13,908 10,998
-------- --------
170,384 139,338
-------- --------
Operating Income 23,515 22,242
Interest Income 3,776 1,467
Interest Expense (includes $1,418 and $1,344
to parent company) (4,490) (3,833)
Gain on Issuance of Stock by Subsidiaries (Note 3) 9,333 3,284
-------- --------
Income from Continuing Operations Before
Provision for Income Taxes and Minority
Interest Expense 32,134 23,160
Provision for Income Taxes 9,850 8,617
Minority Interest Expense 403 11
-------- --------
Income from Continuing Operations 21,881 14,532
Income from Discontinued Operations (less applicable
income taxes of $468 in 1994) (Note 5) - 572
-------- --------
Net Income $ 21,881 $ 15,104
======== ========
Earnings per Share from Continuing Operations:
Primary $ .30 $ .21
======== ========
Fully diluted $ .27 $ .19
======== ========
Earnings per Share:
Primary $ .30 $ .21
======== ========
Fully diluted $ .27 $ .20
======== ========
Weighted Average Shares:
Primary 72,904 70,731
======== ========
Fully diluted 85,445 84,881
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(b) Consolidated Statement of Income for the nine months ended
September 30, 1995 and October 1, 1994 (In thousands except per
share amounts) (Unaudited)
Nine Months Ended
--------------------------
September 30, October 1,
1995 1994
------------- ----------
Revenues $552,587 $471,782
-------- --------
Costs and Expenses:
Cost of revenues 283,222 242,760
Selling, general and administrative expenses 157,597 125,895
Research and development expenses 40,098 31,418
-------- --------
480,917 400,073
-------- --------
Operating Income 71,670 71,709
Interest Income 9,030 4,205
Interest Expense (includes $4,199 and $4,048
to parent company) (12,187) (11,923)
Gain on Issuance of Stock by Subsidiaries (Note 3) 18,878 3,284
Gain on Sale of Related Party Investments - 2,000
-------- --------
Income from Continuing Operations Before
Provision for Income Taxes and Minority
Interest Expense 87,391 69,275
Provision for Income Taxes 29,104 28,692
Minority Interest Expense 819 11
-------- --------
Income from Continuing Operations 57,468 40,572
Income from Discontinued Operations (less applicable
income taxes of $1,118 in 1994) (Note 5) 2 1,468
-------- --------
Net Income $ 57,470 $ 42,040
======== ========
Earnings per Share from Continuing Operations:
Primary $ .80 $ .58
======== ========
Fully diluted $ .72 $ .53
======== ========
Earnings per Share:
Primary $ .80 $ .60
======== ========
Fully diluted $ .72 $ .55
======== ========
Weighted Average Shares:
Primary 72,220 70,348
======== ========
Fully diluted 85,359 84,865
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(c) Consolidated Statement of Cash Flows for the nine months ended
September 30, 1995 and October 1, 1994 (In thousands) (Unaudited)
Nine Months Ended
---------------------------
September 30, October 1,
1995 1994
------------- ----------
Operating Activities:
Net income $ 57,470 $ 42,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,344 17,653
Provision for losses on accounts receivable 1,486 363
Gain on issuance of stock by
subsidiaries (Note 3) (18,878) (3,284)
Gain on sale of related party investments - (2,000)
Minority interest expense 819 11
Increase (decrease) in deferred income taxes 70 (3)
Other noncash expenses 2,357 596
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (4,593) 5,330
Inventories (9,861) (3,305)
Other current assets 1,196 (341)
Accounts payable 6,021 28
Other current liabilities (24,357) (18,480)
Other 3 (105)
--------- ---------
Net cash provided by operating activities 30,077 38,503
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (46,448) (100,940)
Proceeds from sale of services
businesses (Note 5) 34,267 -
Purchases of available-for-sale investments - (18,250)
Proceeds from sale and maturities of
available-for-sale investments 13,000 11,000
Purchases of property, plant and equipment (7,459) (5,544)
Other 2,065 1,915
--------- ---------
Net cash used in investing activities (4,575) (111,819)
--------- ---------
Financing Activities:
Net proceeds from issuance of Company and
subsidiaries' common stock (Note 3) 37,630 7,175
Proceeds from issuance of long-term
obligations (Note 4) 93,994 -
Proceeds from issuance of obligations to parent
company (Note 2) 15,000 -
Repayment of long-term obligations (1,060) (7,632)
Repayment of obligations to parent
company (Note 2) (15,000) -
--------- ---------
Net cash provided by (used in)
financing activities $ 130,564 $ (457)
--------- ---------
6PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(c) Consolidated Statement of Cash Flows for the nine months ended
September 30, 1995 and October 1, 1994 (In thousands) (Unaudited)
(continued)
Nine Months Ended
---------------------------
September 30, October 1,
1995 1994
------------- ----------
Exchange Rate Effect on Cash $ 1,174 $ 921
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 157,240 (72,852)
Cash and Cash Equivalents at Beginning of Period 152,933 177,442
--------- ---------
Cash and Cash Equivalents at End of Period $ 310,173 $ 104,590
========= =========
Cash Paid For:
Interest $ 12,322 $ 13,626
Income taxes $ 29,119 $ 20,930
Noncash Financing Activities:
Conversions of convertible obligations $ 15,272 $ 11,292
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - September 30, 1995
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- and nine-month periods ended September 30, 1995 and October 1,
1994, (b) the financial position at September 30, 1995, and (c) the cash
flows for the nine-month periods ended September 30, 1995 and October 1,
1994. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of December 31, 1994, 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 December 31, 1994, filed with the Securities and
Exchange Commission.
2. Acquisition
In May 1995, the Company's ThermoSpectra Corporation (ThermoSpectra)
subsidiary acquired Gould Instrument Systems, Inc. (GIS) for $25.7 million
in cash, which includes the repayment of $6.0 million of bank debt. To
partially finance the acquisition of GIS, ThermoSpectra borrowed $15.0
million from Thermo Electron Corporation (Thermo Electron) pursuant to a
promissory note due May 1996. This note was repaid in August 1995 with
proceeds from ThermoSpectra's initial public offering of common stock
(Note 3). GIS develops, manufactures, and sells data acquisition systems,
high-performance oscillographic recorders, and digital storage
oscilloscopes for industrial, medical, scientific, and government
applications.
This acquisition has been accounted for using the purchase method of
accounting and GIS's results of operations have been included in the
accompanying financial statements from the date of acquisition. The cost of
this acquisition exceeded the estimated fair value of the acquired net
assets by $11.6 million, which is being amortized over 40 years. Allocation
of the purchase price for this acquisition was based on an estimate of the
fair value of the net assets acquired and is subject to adjustment. Pro
forma data is not presented since this acquisition was not material to the
Company's results of operations or financial position.
8PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
3. Transactions in Stock of Subsidiaries
In March 1995, the Company's wholly owned Thermo BioAnalysis
Corporation (Thermo BioAnalysis) subsidiary sold 700,000 shares of its
common stock in a private placement at $10.00 per share for net proceeds of
$6.5 million, resulting in a gain of $4.7 million. In April 1995, Thermo
BioAnalysis sold 901,500 shares of its common stock in a private placement
at $10.00 per share for net proceeds of $8.4 million, resulting in a gain
of $4.8 million. Following the private placements, the Company owned 80% of
Thermo BioAnalysis' outstanding common stock. Thermo BioAnalysis
specializes in capillary electrophoresis and matrix-assisted laser
desorption/ionization time-of-flight mass spectrometry for the analytical
biochemistry and biopharmaceutical markets, as well as radiation detection
and monitoring and nuclear health physics.
In August 1995, ThermoSpectra sold 1,725,000 shares of its common
stock in an initial public offering at $14.00 per share for net proceeds of
$21.9 million, resulting in a gain of $9.3 million. In October 1995,
ThermoSpectra sold an additional 202,000 shares of its common stock in a
private placement at $15.72 per share for net proceeds of $3.0 million.
Following the offerings, the Company owned 72% of ThermoSpectra's
outstanding common stock.
4. Subsidiary Debenture Offering
In August 1995, the Company's wholly owned ThermoQuest Corporation
(ThermoQuest) subsidiary issued and sold $96.3 million principal amount of
5% subordinated convertible debentures due 2000. The debentures will be
convertible into shares of ThermoQuest's common stock at any time after the
later of (1) 180 days after the date of the closing of ThermoQuest's
initial public offering of common stock or (2) the date of effectiveness
under the Securities Act of 1933 of a registration statement covering the
resale of shares of ThermoQuest's common stock issuable upon conversion of
the debentures, and prior to redemption and maturity. The conversion price
of the debentures will be set on the date of the closing of ThermoQuest's
initial public offering of common stock. The conversion price will be equal
to 110% of the initial public offering price of ThermoQuest common stock.
If ThermoQuest's initial public offering has not occurred by August 3,
1996, this percentage will decrease by 2.5% on such date and on each
anniversary of such date prior to ThermoQuest's initial public offering.
If ThermoQuest's initial public offering has not occurred by August 1,
1996, the rate of interest borne by the debentures will increase by 0.5% on
such date and on each anniversary of such date prior to ThermoQuest's
initial public offering. The debentures are guaranteed on a subordinated
basis by Thermo Electron. The Company has agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under
the guarantee.
9PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
5. Discontinued Operations
Effective April 2, 1995, the Company and Thermo Process Systems Inc.
(Thermo Process) dissolved their Thermo Terra Tech joint venture. Thermo
Process then purchased the services businesses formerly operated by the
joint venture from the Company for $34.3 million in cash. The Company owned
49% of the joint venture and accounted for its interest in the joint
venture using the equity method. Prior to the joint venture's formation on
April 2, 1994, the Company's services businesses comprised the Company's
Services segment and were consolidated in the Company's financial
statements. The sale of the businesses to Thermo Process represents the
Company's disposal of the operations that comprised its Services segment.
Accordingly, the operating results of the Company's Services segment for
the three-month period ended April 2, 1994, and the equity in the income of
the joint venture recorded by the Company are classified as "Income from
discontinued operations" in the accompanying statements of income. Revenues
from the Company's Services segment for the three-month period ended April
2, 1994 were $12.2 million.
6. Stock Split
In February 1995, the Company declared a three-for-two stock split in
the form of a 50% stock dividend that was distributed on April 14, 1995, to
shareholders of record as of March 31, 1995. All weighted average share and
per share amounts have been restated to reflect the stock split.
7. Subsequent Event
In October 1995, the Company's wholly owned Thermo Optek Corporation
(Thermo Optek) subsidiary issued and sold $96.3 million principal amount of
5% subordinated convertible debentures due 2000. The debentures will be
convertible into shares of Thermo Optek's common stock at any time after
the later of (1) 180 days after the date of the closing of Thermo Optek's
initial public offering of common stock or (2) the date of effectiveness
under the Securities Act of 1933 of a registration statement covering the
resale of shares of Thermo Optek's common stock issuable upon conversion of
the debentures, and prior to redemption and maturity. The conversion price
of the debentures will be set on the date of the closing of Thermo Optek's
initial public offering of common stock. The conversion price will be equal
to 110% of the initial public offering price of Thermo Optek common stock.
If Thermo Optek's initial public offering has not occurred by October 12,
1996, this percentage will decrease by 2.5% on such date and on each
anniversary of such date prior to Thermo Optek's initial public offering.
10PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
7. Subsequent Event (continued)
If Thermo Optek's initial public offering has not occurred by October 1,
1996, the rate of interest borne by the debentures will increase by 0.5% on
such date and on each anniversary of such date prior to Thermo Optek's
initial public offering. The debentures are guaranteed on a subordinated
basis by Thermo Electron. The Company has agreed to reimburse Thermo
Electron in the event Thermo Electron is require to make a payment under
the guarantee.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Third Quarter 1995 Compared With Third Quarter 1994
---------------------------------------------------
Revenues increased $32.3 million, or 20%, to $193.9 million in the
third quarter of 1995 from $161.6 million in the third quarter of 1994, due
primarily to acquisitions, which included the Analytical Instruments
Division of Baird Corporation in January 1995 and Gould Instrument Systems,
Inc. (GIS) in May 1995. Acquisitions added revenues of $21.9 million in the
third quarter of 1995. Revenues increased approximately $3.8 million as a
result of the favorable effects of currency translation due to the decline
in the value of the U.S. dollar relative to foreign currencies in countries
where the Company operates. An increase in revenues from certain existing
businesses was offset in part by a decline in revenues from the Company's
air monitoring instruments subsidiary as most orders in response to Phases
I and II of the Clean Air Act of 1990 have been completed.
The gross profit margin remained unchanged at 48% in the third quarter
of 1995 and 1994.
Selling, general and administrative expenses as a percentage of
revenues increased to 29% in the third quarter of 1995 from 27% in the
third quarter of 1994, due primarily to higher costs as a percentage of
revenues at acquired businesses and reduced revenues from the Company's air
monitoring instruments subsidiary as discussed above. Research and
development expenses as a percentage of revenues were 7.2% in 1995,
compared with 6.8% in 1994. The increase is consistent with the Company's
objective to develop and market new products.
Interest income increased to $3.8 million in the third quarter of 1995
from $1.5 million in the third quarter of 1994, primarily as a result of
higher prevailing interest rates in 1995 compared with 1994, and interest
income earned on the net proceeds from the issuance of $96.3 million
principal amount of 5% subordinated convertible debentures by the Company's
ThermoQuest Corporation (ThermoQuest) subsidiary in August 1995 (Note 4).
Interest income also increased, to a lesser extent, as a result of interest
11PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
income earned on the net proceeds from the issuance of common stock by the
Company's Thermo BioAnalysis Corporation (Thermo BioAnalysis) subsidiary in
the first and second quarters of 1995 and by the Company's ThermoSpectra
Corporation (ThermoSpectra) subsidiary in the third quarter of 1995 and the
third and fourth quarter of 1994. The increase was offset in part by a
reduction in cash as a result of the acquisitions of the Analytical
Instruments Division of Baird Corporation in January 1995 and GIS in May
1995. Interest expense increased to $4.5 million in 1995 from $3.8 million
in 1994 due primarily to the issuance of subordinated convertible
debentures by ThermoQuest in August 1995, offset in part by the conversion
of a portion of the Company's 6 5/8% subordinated convertible debentures
into common stock of the Company.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell a
minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiary through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the subsidiaries'
growth. As a result of the sale of stock by subsidiaries, the Company
recorded gains of $9.3 million in the third quarter of 1995 and $3.3
million in the third quarter of 1994 (Note 3). Although the Company expects
to continue this strategy in the future, its goal is to continue increasing
operating income over the next few years so that gains generated through
the sale of stock by its subsidiaries will represent a decreasing portion
of net income. The size and timing of these transactions are dependent on
market and other conditions that are beyond the Company's control.
Accordingly, there can be no assurance that the Company will be able to
realize gains from such transactions in the future.
The effective tax rate decreased to 31% in the third quarter of 1995
from 37% in the third quarter of 1994, due primarily to the higher
nontaxable gain on the issuance of stock by subsidiary in 1995 compared
with 1994. Excluding the impact of the gain on the issuance of stock by
subsidiary in 1995 and 1994, the effective tax rates in 1995 and 1994
exceeded the statutory federal income tax rate 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.
12PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994
-----------------------------------------------------------
Revenues increased $80.8 million, or 17%, to $552.6 million in the
first nine months of 1995 from $471.8 million in the first nine months of
1994 due primarily to acquisitions, which included several businesses
within the EnviroTech Measurements & Controls group of Baker Hughes
Incorporated in March 1994, the Analytical Instruments Division of Baird
Corporation in January 1995, and GIS in May 1995. Acquisitions added
revenues of $68.2 million in the first nine months of 1995. Revenues
increased approximately $19.5 million as a result of the favorable effects
of currency translation due to the decline in the value of the U.S. dollar
relative to foreign currencies in countries where the Company operates. An
increase in revenues from certain existing businesses was more than offset
by a decline in revenues from the Company's air monitoring instruments
subsidiary due to the reasons discussed in the results of operations for
the third quarter. Orders booked by the Company in the first nine months of
1995 exceeded its shipments by $16.0 million.
The gross profit margin remained unchanged at 49% in the first nine
months of 1995 and 1994.
Selling, general and administrative expenses as a percentage of
revenues increased to 29% in the first nine months of 1995 from 27% in the
first nine months of 1994 due to the reasons discussed in the results of
operations for the third quarter. Research and development expenses as a
percentage of revenues were 7.3% in 1995, compared with 6.7% in 1994. The
increase is consistent with the Company's objective to develop and market
new products.
Interest income increased to $9.0 million in the first nine months of
1995 from $4.2 million in the first nine months of 1994. Interest expense
was $12.2 million in 1995, compared with $11.9 million in 1994. The reasons
for the increases are the same as those discussed in the results of
operations for the third quarter.
As a result of the sale of stock by subsidiaries, the Company recorded
gains of $18.9 million in the first nine months of 1995 and $3.3 million in
the first nine months of 1994 (Note 3).
The Company recorded a gain of $2.0 million in 1994 on the sale of a
portion of its investment in Thermedics Inc. (Thermedics) subordinated
convertible debentures. Thermedics is a majority-owned subsidiary of Thermo
Electron Corporation (Thermo Electron).
13PAGE
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994 (continued)
-----------------------------------------------------------
The effective tax rate decreased to 33% in the first nine months of
1995 from 41% in the first nine months of 1994, due primarily to the higher
nontaxable gains on the issuance of stock by subsidiaries in 1995 compared
with 1994. Excluding the impact of the gains on the issuance of stock by
the subsidiaries in 1995 and 1994, the effective tax rates in 1995 and 1994
exceeded the statutory federal income tax rate due to the reasons discussed
in the results of operations for the third quarter.
Financial Condition
Liquidity and Capital Resources
-------------------------------
Consolidated working capital was $411.8 million at September 30, 1995,
compared with $230.3 million at December 31, 1994, an increase of $181.5
million. Included in working capital are cash, cash equivalents, and
available-for-sale investments of $314.6 million at September 30, 1995, and
$168.9 million at December 31, 1994. Of the $314.6 million balance at
September 30, 1995, $15.8 million was held by ThermoSpectra, $19.1 million
by Thermo BioAnalysis, and $279.7 million by the Company and its wholly
owned subsidiaries, including ThermoQuest and Thermo Optek Corporation.
During the first nine months of 1995, $30.1 million of cash was provided by
operating activities. Increases in accounts receivable and inventories of
$4.6 million and $9.9 million, respectively, and a decrease in other
current liabilities of $24.4 million was offset in part by an increase of
$6.0 million in accounts payable and a decrease of $1.2 million in other
current assets.
The Company's investing activities used $4.6 million of cash in the
first nine months of 1995. During the first nine months of 1995 the Company
expended $46.4 million for acquisitions and $7.5 million for the purchase
of property, plant and equipment. Additionally, during the first nine
months of 1995, the Company and Thermo Process Systems Inc. (Thermo
Process) dissolved their Thermo Terra Tech joint venture and the Company
sold its services business formerly operated by the joint venture to Thermo
Process for $34.3 million in cash. The Company also had proceeds of $13.0
million from the sale of available-for-sale investments during the first
nine months of 1995.
The Company's financing activities provided $130.6 million of cash in
the first nine months of 1995. In March and April 1995, Thermo BioAnalysis
completed private placements of its common stock for net proceeds of $14.9
million (Note 3). In August 1995, ThermoSpectra sold shares of its common
stock in an initial public offering for net proceeds of $21.9 million (Note
3). In August 1995, ThermoQuest issued and sold $96.3 million principal
amount of 5% subordinated convertible debentures due 2000 for net proceeds
of approximately $94.0 million.
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
In October 1995, Thermo Optek issued and sold $96.3 million principal
amount of 5% subordinated convertible debentures due 2000. Also in October
1995, ThermoSpectra sold shares of its common stock in a private placement
for net proceeds of approximately $3.0 million (Note 3).
During the remainder of 1995, the Company plans to make expenditures
of approximately $4.0 million for property, plant and equipment. The
Company believes that its existing resources are sufficient to meet the
capital requirements of its existing operations for the foreseeable future.
The Company has historically complemented internal development with
acquisitions of businesses or technologies that extend the Company's
presence in current markets or provide opportunities to enter and compete
effectively in new markets. The Company will consider making acquisitions
of such companies, product lines, or technologies that are consistent with
its plans for strategic growth. On March 1, 1995, the Company entered into
an agreement with Fisons plc (Fisons) to acquire the Scientific Instruments
Division (the Division) of Fisons for approximately 202 million British
pounds sterling. On April 13, 1995, the Company announced that it had
received a "second request" for information regarding the transaction from
the U.S. Federal Trade Commission (FTC). The FTC and competition regulatory
authorities in certain other countries have expressed concern that
completion of the transaction in its original form would affect competition
in markets for certain product lines to be acquired by the Company, in
particular the market for mass spectrometers. On November 1, 1995, the
Company and Fisons entered into an amendment to the agreement. Among other
things, the amendment extends the termination date of the agreement to
March 31, 1996, and establishes a framework for modifying the transaction
to satisfy the concerns of the FTC and other competition regulatory
authorities. In addition to receipt of required antitrust regulatory
approvals, completion of the transaction is subject to consent of certain
third parties, and the satisfaction of other customary closing conditions.
Thermo Electron has guaranteed the obligations of the Company under the
agreement. The purchase price is subject to a post-closing adjustment based
on the net asset value of the Division as of the closing date.
On July 20, 1995, Thermo Electron announced that it had signed a
letter of intent to acquire Analytical Technology, Inc. (ATI), a
Boston-based manufacturer and marketer of analytical instruments used
primarily for testing and analysis, both in laboratories and in
manufacturing. ATI operates through two divisions: laboratories and
analytical instruments. Upon completion of the acquisition, it is
anticipated that the Company would acquire the analytical instrument
products division, which had revenues of approximately $78 million in 1994.
ATI's analytical instrument products include spectrometers, chromatographs,
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
and other instruments that determine molecular and elemental composition.
The completion of the acquisition is subject to several conditions,
including execution of a mutually satisfactory acquisition agreement,
obtaining applicable regulatory approvals and other customary conditions to
closing.
The Company intends to fund the purchase price of these acquisitions
from available cash and through borrowings from Thermo Electron. Borrowings
from Thermo Electron will be at prevailing market rates at the time funds
are advanced.
PART II - Other Information
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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FORM 10-Q
September 30, 1995
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 7th day of November
1995.
THERMO INSTRUMENT SYSTEMS INC.
Paul F. Kelleher
--------------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------------------
John N. Hatsopoulos
Chief Financial Officer
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FORM 10-Q
September 30, 1995
THERMO INSTRUMENT SYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Document Page
------- -------------------------------------------------- ----
2 Amendment No. 2 to Asset and Stock Purchase
Agreement dated as of November 1, 1995 among the
Registrant, Thermo Electron Corporation, and
Fisons plc. Pursuant to Item 601(b)(2) of
Regulation S-K, schedules to this Agreement have
been omitted. The Company hereby undertakes to
furnish supplementally a copy of such schedules
to the Commission upon request.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
EXHIBIT 2
AMENDMENT NO. 2 TO ASSET AND STOCK PURCHASE AGREEMENT
This Amendment No. 2 to the Asset and Stock Purchase
Agreement dated as of March 1, 1995, as previously amended (the
"Agreement"), between Fisons plc, a company organized under the
laws of England (the "Seller"), Thermo Instrument Systems Inc., a
corporation organized under the laws of Delaware, U.S.A. (the
"Buyer"), and Thermo Electron Corporation, a corporation
organized under the laws of Delaware, U.S.A. (the "Parent"), is
made as of the 1st day of November, 1995. The Buyer and the
Parent are sometimes collectively referred to herein as the
"Thermo Parties". Terms used but not otherwise defined herein
shall have the meanings ascribed to them in the Agreement.
WHEREAS, the parties acknowledge that certain conditions to
closing of the transactions contemplated by the Agreement will
not be satisfied unless the Thermo Parties and the Seller make
certain undertakings with respect to the operation and sale of
certain product lines included within the Business, including
those described on Exhibit A attached hereto; and
WHEREAS, to address the concerns of the U.S. Federal Trade
Commission (the "FTC"), the Parent and the Seller intend to enter
into a consent order (the "Consent Order") with the FTC and an
Agreement to Hold Separate (the "Hold Separate") under which the
Parent will agree, inter alia, to hold certain product lines,
including those described on Exhibit A, separate from the
remainder of the Business and the other businesses of the Thermo
Parties and to sell such product lines to an unaffiliated third
party within a certain period of time after the Closing; and
WHEREAS, to address the concerns of the United Kingdom
Director General of Fair Trading ("OFT") and the German
Bundeskartellamt (the "FCO"), the Thermo Parties and the Seller
may make similar undertakings with respect to certain product
lines included in the Business (collectively, the "European
Undertakings"); and
WHEREAS, compliance by the Thermo Parties with the Consent
Order and with the European Undertakings and the operation of the
product lines subject to the Consent Order and the European
Undertakings by the Thermo Parties prior to their sale may result
in costs to the Thermo Parties that would not have been incurred
if such product lines had been treated, instead, as Excluded
Assets; and
WHEREAS, the parties desire to put the Thermo Parties, to
the extent possible, in the same position they would have been in
had such product lines been treated as Excluded Assets, had the
Purchase Price been reduced by the value of such product lines,
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and had the Thermo Parties not been required to comply with the
Consent Order and the European Undertakings;
NOW, THEREFORE, the parties agree as follows:
1. Operation of Excluded Product Lines.
(a) Sale of Excluded Product Lines. The Seller and
the Thermo Parties shall cooperate in the process of (i) defining
(to the extent not specified in Exhibit A) the assets and
liabilities that comprise the Excluded Product Lines (as such
term is defined in Section 2(c) of this Amendment) and allocating
employees to the Excluded Product Lines, (ii) preparing one or
more selling memoranda and other documents necessary to provide
prospective purchasers with information about the Excluded
Product Lines, (iii) locating prospective purchasers and
discussing the Excluded Product Lines with prospective
purchasers, (iv) facilitating due diligence review of the
Excluded Product Lines by prospective purchasers, (v) negotiating
purchase and sale agreements with prospective purchasers and (vi)
conveying the assets and liabilities of the Excluded Product
Lines to purchasers and otherwise facilitating an orderly
transfer of the Excluded Product Lines to the purchasers thereof.
Notwithstanding anything to the contrary in Exhibit A, the
parties agree that the following employees (the "Excluded Product
Line Employees") will be allocated to the Excluded Product Lines:
(A) any employees whose responsibilities involve primarily the
support of the Excluded Product Lines and (B) a percentage of the
administrative (including, without limitation, clerical, human
resources and accounting) employees at any Shared Building (as
defined in Section 1(d)) equal to the ratio of the revenues
generated from sales of Excluded Product Line products from such
Shared Building to the revenues generated from sales of all
products from such Shared Building.
Notwithstanding the foregoing, the parties agree and
acknowledge that the Seller shall bear primary responsibility for
the sale of the Excluded Product Lines. In furtherance of, but
without limiting, the foregoing, the Seller shall be responsible,
at its expense, for drafting and negotiating purchase and sale
agreements with prospective purchasers, preparing exhibits and
schedules to such agreements, providing representations and
warranties and indemnifications to such purchasers, ensuring
compliance of such transactions with applicable laws and
preparing any periodic reports relating to compliance with the
Consent Order, the Hold Separate or the European Undertakings
that are required to be submitted to the FTC under the Consent
Order or to the OFT or FCO under the European Undertakings,
including applications for divestiture. Such reports shall be
provided to Buyer in sufficient time that Buyer has a reasonable
opportunity to review and comment thereon prior to the time they
are to be submitted. The Thermo Parties shall have no liability
or obligation to any purchaser of the Excluded Product Lines
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except for the obligations of the Thermo Parties described in the
first sentence of this Section 1(a) or to the extent such
liability results from the gross negligence or willful misconduct
of the Thermo Parties, their employees, agents or
representatives.
All consideration paid by purchasers of the Excluded Product
Lines shall be paid directly to the Buyer at the closing of any
sale of Excluded Product Lines. Within five days after all of
the Excluded Product Lines have been sold, the Seller shall pay
to the Buyer interest from the Closing Date at the rate of the
one-month London Interbank Offered Rate in effect from time to
time as reported in The Wall Street Journal ("LIBOR") plus 1% on
the Excluded Product Line Value (as such term is defined in
Section 2(c) of this Amendment) as reduced from time to time upon
the sale of Excluded Product Lines and the receipt by the Buyer
of the cash proceeds from such sales as described in the
preceding sentence. Interest shall be computed for all purposes
of this Amendment and the Agreement on a daily basis, with a year
being deemed to represent 365 days.
(b) Management of Excluded Product Lines. The
Excluded Product Lines shall be managed and operated as provided
in the Hold Separate and the European Undertakings by the Manager
and Management Committee ("Manager" and "Management Committee"
being used herein as defined in the Hold Separate.) Each of
Seller and the Thermo Parties will direct their respective
representatives on the Management Committee to act so that the
Excluded Product Lines comply with applicable laws during the
period they are subject to the Hold Separate; however, as the
party controlling the Management Committee, the Seller shall be
responsible for ensuring such compliance. The Thermo Parties
shall be provided promptly with any financial, tax or other
information regarding the Excluded Product Lines as either of the
Thermo Parties shall reasonably request, subject to any
limitations on access to such information set forth in the
Consent Order, the Hold Separate or the European Undertakings.
(c) Intellectual Property. The parties acknowledge
that there may be certain Intellectual Property that is used in
the operation of both the Business other than the business of the
Excluded Product Lines (the "Retained Businesses") and the
business of the Excluded Product Lines ("Shared Intellectual
Property"). Title to any such Shared Intellectual Property shall
be retained by the Buyer and shall not be transferred to any
purchaser of the Excluded Product Lines. However, Buyer shall
grant a license to any purchaser of Excluded Product Lines to use
any Shared Intellectual Property used by such Excluded Product
Lines, but only to the extent the Buyer has the legal right to
grant such a license. Any such license, to the extent legally
possible, shall be perpetual, royalty-free and non-exclusive,
shall be transferable only to those of such purchaser's
suppliers, distributors or representatives who must obtain such a
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license to legally make or sell products on behalf of such
purchasers or those of such purchaser's customers who must obtain
such a license to legally use such purchaser's products or to a
subsequent purchaser of a business of the Excluded Product Lines,
and shall be on such other terms and conditions as shall be
reasonably acceptable to the Buyer. Notwithstanding the
foregoing, neither of the Thermo Parties shall be obligated to
make any payment to any third parties or incur any out-of-pocket
expenses to grant any such license unless the Thermo Party is
reimbursed for such expense. No such license shall apply to
improvements to Shared Intellectual Property developed by Buyer
after the Closing and the Thermo Parties will not have a license
over or title to such improvements developed by the purchaser or
in the operation of the business of the Excluded Product Lines
after the Closing.
(d) Ownership for Tax Purposes. The Thermo Parties
and the Seller agree that, notwithstanding the Consent Order, the
Hold Separate or European Undertakings and any provision of the
Agreement or this Amendment, the Thermo Parties shall for Tax
purposes be treated as the legal owners of, and legally liable
for Taxes with respect to, each of the Excluded Product Lines
until the Thermo Parties have sold such Excluded Product Lines,
unless the Thermo Parties shall have received a binding written
determination by the applicable Taxing authorities, or shall have
received an actual refund of Taxes paid, based upon a
determination by the applicable Taxing authorities that the
Thermo Parties are not legal owners of, and are not legally
liable for Taxes with respect to, such Excluded Product Lines.
` 2. Indemnification.
(a) By the Seller. Notwithstanding anything to the
contrary in the Agreement, including, without limitation, Section
11.3 thereof, the Seller shall indemnify the Thermo Parties for
all (i) Divestiture Costs (as defined in subparagraph (c) below),
(ii) Negative Cashflow (as defined in subparagraph (c) below),
(iii) Sale Price Shortfall (as defined in subparagraph (c)
below), (iv) Excluded Product Line Taxes (as defined in
subparagraph (c) below) except to the extent otherwise
indemnified under this Section 2(a), (v) Excluded Product Line
Losses (as defined in subparagraph (c) below), (vi) any Losses
resulting from any failure by the Seller to comply with the
Consent Order, the Hold Separate or the European Undertakings or
from the failure of the Excluded Product Lines to be managed or
operated in a manner that complies with the Consent Order, the
Hold Separate or the European Undertakings or (vii) any
Transaction Taxes or VAT applicable to the sale of the Excluded
Product Lines to the Buyer under the Agreement.
(b) By the Thermo Parties. The Thermo Parties,
jointly and severally, shall pay the Seller an amount equal to
(i) Positive Cashflow (as defined in subparagraph (c) below),
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(ii) 50% of all Sale Price Excess (as defined in subparagraph (c)
below), (iii) Seller's Disposition Costs ( as defined in
subparagraph (c) below), but only up to an amount equal to the
excess of the Sale Price over the Excluded Product Line Value,
(iv) Excluded Product Line Tax Benefits (as defined in
subparagraph (c) below) except to the extent otherwise
indemnified under this Section 2(b), and (v) any Losses resulting
from any failure by the Thermo Parties to comply with the Consent
Order, the Hold Separate or the European Undertakings.
(c) Definitions.
(i) "Divestiture Costs" means, except to the extent
otherwise paid or reimbursed to the Thermo Parties, (A) the
reasonable fees and expenses of any legal, tax, accounting
or other advisors retained by the Thermo Parties, and the
out-of-pocket expenses reasonably incurred by employees of
the Thermo Parties, incurred in connection with selling the
Excluded Product Lines or complying with any aspect of the
Consent Order, the Hold Separate or the European
Undertakings relating to the ownership, operation,
maintenance or disposition of the Excluded Product Lines,
(B) the fees and expenses of any trustee or other third
party that the Thermo Parties are required under the Consent
Order or the European Undertakings to retain for purposes of
operating or selling the Excluded Product Lines, (C) the
out-of-pocket expenses reasonably incurred by any employees
of the Thermo Parties in providing corporate services
(including, without limitation, legal, tax, accounting,
treasury, and risk management services) to or for the
benefit of the Excluded Product Lines, (D) Transaction
Taxes, VAT, filing fees and similar costs relating to the
disposition of the Excluded Product Lines, (E) any
Redundancy Costs (as defined below), (F) any Licensing Costs
(as defined below) and (F) the costs and expenses of any
lessors or sublessors (and their advisors, including
applicable VAT) in connection with obtaining the consents of
any such lessors or sublessors to the assignment of any
leases relating to properties occupied by the Excluded
Product Lines upon the sale of the Excluded Product Lines as
contemplated hereby, but only to the extent such costs and
expenses are billed to the Thermo Parties. Other fees and
expenses relating to the Agreement and the closing of the
transactions contemplated thereby, including the negotiation
of this Amendment, the Consent Order, the Hold Separate and
the European Undertakings, shall be paid in accordance with
Section 13.3 of the Agreement. It is understood that Seller
is taking primary responsibility for the sale of the
Excluded Product Lines and therefore the fees and expenses
of the Thermo Parties relating to any such sale and
described in clause (A) above should be limited to any
necessary review of the legal, financial or other impact of
such sale on the Thermo Parties.
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(ii) "Negative Cashflow" means any cash invested in
or loaned or advanced to any of the operations of the
Excluded Product Lines by the Thermo Parties during the
Interim Period (as defined below) except for any such
investments, loans or advancements that are repaid prior to
the end of the Interim Period.
(iii) "Excluded Product Line Taxes" means any and all
losses, liabilities, obligations, damages, impositions,
assessments, judgments, settlements, costs and expenses
(including reasonable attorneys', accountants' and experts'
fees and expenses and any applicable assessments of interest
and penalties) with respect to the Tax liability of the
Thermo Parties attributable to acquiring, owning, holding,
operating or selling all or any part of the Excluded Product
Lines related to any Tax period ending on or before the
later of December 31, 1999 or the date upon which all of the
Excluded Product Lines have been sold. Excluded Product
Line Taxes shall not include any Taxes actually or
anticipated to be paid, incurred or accrued with respect to
any taxable year ending after the later of December 31, 1999
or the date upon which all of the Excluded Product Lines
have been sold. The amount of Excluded Product Line Taxes
shall be determined by computing (A) the amount of Taxes
actually paid by the Thermo Parties and their affiliates
(including the Excluded Product Lines), minus (B) the amount
of Tax liability of the Thermo Parties and their affiliates
determined as if the Thermo Parties had never acquired the
Excluded Product Lines. The amount of Excluded Product Line
Taxes shall in no case be less than zero.
(iv) "Excluded Product Line Losses" means any Losses
resulting from any Third Party Claim incurred by the Thermo
Parties that arise from or relate to the ownership or
operation of the Excluded Product Lines at any time, whether
before or after the Closing Date, except to the extent such
Losses result from the gross negligence or willful
misconduct of the Thermo Parties, or their employees, agents
or representatives.
(v) "Excluded Product Line Tax Benefits" means any
refunds of Taxes paid or the amount of the decrease, if any,
in the amount of the Tax liability of the Thermo Parties and
their affiliates attributable to acquiring, owning, holding,
operating or selling all or any part of the Excluded Product
Lines with respect to any Tax period ending on or before the
later of December 31, 1999 or the date upon which all of the
Excluded Product Lines have been sold. Excluded Product
Line Tax Benefits shall not include any reduction in Tax
liability (or refunds) actually or anticipated to be
received with respect to any taxable year ending after the
later of December 31, 1999 or the date upon which all of the
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Excluded Product Lines have been sold. The amount of
Excluded Product Line Tax Benefits shall be determined by
computing (A) the amount of tax liability of the Thermo
Parties and their affiliates determined as if the Thermo
Parties had never acquired the Excluded Product Lines minus
(B) the amount of taxes actually paid by the Thermo Parties
and their affiliates (including the Excluded Product Lines).
The amount of the Excluded Product Line Tax Benefits will in
no case be less than zero.
(vi) "Sale Price Shortfall" means the amount by which
the Excluded Product Line Value exceeds the aggregate cash
purchase price actually received by the Buyer at the
closing(s) for all of the Excluded Product Lines (the "Sale
Price"). Neither non-cash consideration nor any deferred
consideration will be included in the calculation of Sale
Price.
(vii) "Sale Price Excess" means the amount by which
the Sale Price exceeds the sum of (A) the Excluded Product
Line Value plus (B) Seller's Disposition Costs. Neither
non-cash consideration nor any deferred consideration will
be included in the calculation of Sale Price.
(viii) "Positive Cashflow" means any cash
distributed, loaned or advanced from the businesses of the
Excluded Product Lines to the Thermo Parties or their
respective subsidiaries or affiliates other than the
businesses of the Excluded Product Lines, except for any
such loans or advances that are repaid by the Thermo Parties
prior to the end of the Interim Period.
(ix) "Seller's Disposition Costs" means the reasonable
fees and expenses of any legal, tax, accounting, investment
banking or other advisors retained by the Seller in
connection with the sale of the Excluded Product Lines, and
the reasonable out-of-pocket expenses incurred by employees
of the Seller in connection with the sale of the Excluded
Product Lines. Other fees and expenses relating to the
Agreement and the closing of the transaction contemplated
thereby, including the negotiation of this Amendment, the
Consent Order, the Hold Separate and the European
Undertakings, shall be paid in accordance with Section 13.3
of the Agreement.
(x) "Excluded Product Lines" means the product lines
described on Exhibit A attached hereto and any other product
lines included within the Business, the divestiture of which
is required by the FTC, OFT or FCO as a condition to the
approval by any of such entities of the transactions
contemplated by the Agreement.
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(xi) "Excluded Product Line Value" means
[Information ommitted, subject to request for
confidential treatment.]
(xii) "Redundancy Costs" means the costs of
terminating the employment of any Excluded Product Line
Employees that are not offered employment by the purchaser
of the Excluded Product Line with which such Excluded
Product Line Employees are associated.
(xiii) "Licensing Costs" means the out-of-pocket
costs incurred by the Thermo Parties as a result of any
requirement under the Consent Order, the Hold Separate or
the European Undertakings that the Thermo Parties (A)
license to any third party any technology relating to a
product included within the Retained Businesses, or (B)
supply any such product to any third party on prescribed
terms, except to the extent such costs are permitted to be
recovered by the Thermo Parties under such license or supply
arrangements.
(d) Procedures for Indemnification.
(i) The Seller shall indemnify the Thermo Parties for
Divestiture Costs on a monthly basis within 30 days after
receipt of a reasonably detailed description of the
Divestiture Costs for which indemnification is sought.
Seller shall provide to the Thermo Parties a reasonably
detailed description of the Seller's Disposition Costs
within 30 business days after completion of the sale of all
of the Excluded Product Lines.
(ii) The Seller shall indemnify the Buyer for any Sale
Price Shortfall, or the Thermo Parties shall pay the Seller
50% of any Sale Price Excess, as the case may be, and, to
the extent provided in Section 2(b) of this Amendment, the
Thermo Parties shall indemnify the Seller for Seller's
Disposition Costs, within 30 business days after the last to
occur of the Seller's receipt of the description of cash
flow referred to in clause (iii) below, the Thermo Parties'
receipt of the description of Seller's Disposition Costs
referred to in clause (i) above and completion of the sale
of all of the Excluded Product Lines.
(iii) Within 40 business days after completion of the
sale of all of the Excluded Product Lines, the Thermo
Parties shall provide the Seller with a reasonably detailed
description of any Negative Cashflow or Positive Cashflow.
If the Positive Cashflow exceeds the Negative Cashflow, such
description shall be accompanied by payment of such excess
to the Seller. If the Negative Cashflow exceeds the
Positive Cashflow, the Seller shall pay the amount of such
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excess to the Buyer within 30 days after receipt of such
description.
(iv) Claims for indemnification for Excluded Product
Line Taxes shall be made within 90 days of the filing of the
Tax Return or amended Tax Return or payment of Tax, to which
such claim relates. Such claims shall be accompanied by a
reasonably detailed description of the Excluded Product Line
Taxes that are the subject of the claim for indemnification.
In addition, for each taxable year beginning with the
taxable year in which the Closing occurs and each subsequent
taxable year ending on or before the later of December 31,
1999 or December 31 of the year in which all of the Excluded
Product Lines have been sold, the Buyer shall, no later than
90 days after the filing of the Buyer's United States
federal income Tax return for such taxable year, provide to
the Seller a reasonably detailed description of all known
Excluded Product Line Taxes and Excluded Product Line Tax
Benefits with respect to that taxable year. If such
description shows Excluded Product Line Tax Benefits that
exceed Excluded Product Line Taxes, such description shall
be accompanied by payment of such excess to the Seller. If
such description shows Excluded Product Line Taxes in excess
of Excluded Product Line Tax Benefits, the Seller shall pay
the amount of such excess to the Buyer within 30 days after
receipt of such description. In either case, appropriate
adjustment to the payment due shall be made to reflect any
indemnification already made with respect to Excluded
Product Line Taxes shown on such description (such as for
estimated tax payments previously made and indemnified).
(v) Any indemnification sought by the Thermo Parties
for Excluded Product Line Losses shall follow the procedure
set forth in Section 11.4 of the Agreement.
(vi) The Seller shall indemnify the Thermo Parties for
the amounts referred to under clause (vii) of Section 2(a)
above within 15 days after receipt of a reasonably detailed
description of the amount and the basis for such
indemnification and evidence of payment.
(vii) As used in this Amendment the terms "Sale Price
Shortfall" and "Sale Price Excess" exclude non-cash and
deferred consideration in their calculation. However, any
such consideration that is received by the Thermo Parties
and is thereafter reduced to cash after completion of the
sale of all of the Excluded Product Lines shall be added to
the Sale Price, and the Sale Price Shortfall, Sale Price
Excess and Seller's Disposition Costs shall be recalculated
accordingly. Amounts owed to the Seller pursuant to Section
2 of this Amendment after such recalculation shall be paid
within 10 days of such recalculation.
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(e) Settlement of Disputes. Failure of the Seller to
notify the Buyer in reasonable detail of any objection with
respect to any description received as provided in subparagraph
(d) above within 30 days after receipt of such description shall
constitute acceptance thereof, whereupon all amounts shown
therein to be due to the Thermo Parties shall be deemed to have
been agreed to by the Seller. If the Seller objects to any such
descriptions within such 30-day period, the parties shall use
good faith efforts to resolve any such objections. However, if
the parties cannot reach a resolution within 30 days after the
Buyer has received notice of Seller's objection, the parties
shall submit the dispute to the Neutral Auditors, the decision of
which shall be binding upon the parties. The parties shall share
equally the fees and expenses of the Neutral Auditors. The
parties agree that nothing in this Section (2)(e) shall entitle
the Seller to examine the books and records relating to the Taxes
of the Thermo Parties and their affiliates, other than books and
records relating solely to the Taxes of the Excluded Product
Lines. The parties further agree that the Neutral Auditors shall
be permitted to examine the books and records relating to the
books and records of the Thermo Parties only insofar as they
relate to a dispute to be resolved under this Section 2(e), and
only if the Neutral Auditors provide assurance reasonably
acceptable to the Thermo Parties that the Neutral Auditors will
preserve the confidentiality of all information regarding the
Thermo Parties.
(f) Survival of Indemnity. The indemnification
obligations of the parties under this Section 2 shall survive
indefinitely.
(g) Security. To secure the obligations of the Seller
pursuant to Sections 1(a) and 2(a) of this Amendment, at the
Closing the Seller shall place cash in an amount equal to the
Excluded Product Line Value in a collateral trust account at
Chemical Bank and shall grant the Buyer a security interest in
the proceeds of such account pursuant to a pledge and collateral
trust agreement in the form attached hereto as Exhibit B.
(h) All indemnification payments under the Agreement
and this Amendment shall be deemed adjustments to the Purchase
Price.
3. Adjustment of Purchase Price.
(a) The last sentence of Section 2.1 of the Agreement
is amended by replacing "138,000,000" British pounds sterling
each place it appears by a figure that equals the Net Book Value
of the Retained Businesses as of the December 31, 1994 balance
sheet, assuming that the Retained Businesses consist of the
Business other than the Excluded Product Lines described on
Exhibit A. Such figure is currently estimated to be 108.5
million British pounds sterling, but the parties shall determine
a precise figure in good faith. If the Excluded
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Product Lines include product lines in addition to those
described on Exhibit A, such figure shall be recalculated to
reflect the resulting change in composition of the Retained
Businesses.
(b) Section 4.1 of the Agreement is amended to read in
its entirety as follows:
"4.1 Post-Closing Adjustment. The Purchase Price shall be
subject to adjustment after the Closing Date as follows:
(a) Within 60 days after the Closing Date, the Seller
shall prepare and deliver to the Buyer a balance sheet as of
the Closing Date, which shall reflect the assets and
liabilities of the Retained Businesses (the "Draft Closing
Balance Sheet"). The Draft Closing Balance Sheet shall not
include assets or liabilities that are not Assets, Company
Assets, Assumed Liabilities or Company Liabilities. The
Seller shall prepare the Draft Closing Balance Sheet in
accordance with English generally accepted accounting
principles ("GAAP") and the Accounting Principles and in
such detail as the Buyer shall reasonably request. The
Draft Closing Balance Sheet shall include appropriate
accruals for (x) liabilities of the Retained Businesses
incurred prior to the Closing Date but for which invoices
have not been received as of the Closing Date and (y)
prepayments in respect of the Retained Businesses.
(b) The Buyer shall deliver to the Seller within 60
days after receiving the Draft Closing Balance Sheet a
detailed statement describing its objections (if any)
thereto. Failure of the Buyer so to object to the Draft
Closing Balance Sheet shall constitute acceptance thereof,
whereupon the Draft Closing Balance Sheet shall be deemed to
be the "Closing Balance Sheet"The Buyer and the Seller shall
use reasonable efforts to resolve any such objections, but
if they do not reach a final resolution within 30 days after
the Seller has received the statement of objections, the
Buyer and the Seller shall select an accounting firm
mutually acceptable to them (the "Neutral Auditors") to
resolve any remaining objections. If the Buyer and the
Seller are unable to agree on the choice of Neutral
Auditors, they shall select as Neutral Auditors an
internationally-recognized accounting firm by lot (after
excluding their respective regular independent accounting
firms). The Draft Closing Balance Sheet shall be adjusted
by the Neutral Auditors only to conform to GAAP and the
Accounting Principles and, as so adjusted, shall be the
Closing Balance Sheet. Such determination by the Neutral
Auditors shall be conclusive and binding upon the Buyer and
the Seller, absent fraud or manifest error.
11PAGE
<PAGE>
(c) During the preparation of the Draft Closing
Balance Sheet by the Seller and the period of any dispute
referred to above, the Buyer shall promptly disclose to the
Seller, the Seller's independent accountants and, if
applicable, the Neutral Auditors all relevant facts and
information, give them full access to books, records,
facilities and employees of the Retained Businesses and
cooperate fully with the Seller, the Seller's accountants
and, if applicable, the Neutral Auditors in order to prepare
the Draft Closing Balance Sheet or the Closing Balance
Sheet, as the case may be; provided, however, that any such
access shall be allowed only in such manner as not to
interfere unreasonably with the operation of the Retained
Businesses.
(d) The Buyer and the Seller shall share equally the
fees and expenses of the Neutral Auditors.
(e) If the Net Book Value (as defined below) as shown
on the Closing Balance Sheet is less than the Interim Net
Book Value, the Seller shall pay to the Buyer, by wire
transfer or other delivery of immediately available funds,
within three business days after the date on which the
Closing Balance Sheet is finally determined pursuant to this
Section 4.1, an amount equal to such deficiency (plus
interest thereon from the Closing Date at the interest rate
equal to 1% above LIBOR). "Net Book Value" shall mean the
excess of the combined tangible Assets and Company Assets
(and for the avoidance of doubt shall include accounts
receivable, cash, bank balances and similar assets) of the
Retained Businesses over the combined Assumed Liabilities
and Company Liabilities of the Retained Businesses.
(f) If the Net Book Value as shown on the Closing
Balance Sheet exceeds the Interim Net Book Value, the Buyer
shall pay to the Seller, by wire transfer or other delivery
of immediately available funds, within three business days
after the date on which the Closing Balance Sheet is finally
determined pursuant to this Section 4.1, an amount equal to
such excess (plus interest thereon from the Closing Date at
the interest rate equal to 1% above LIBOR).
4. Allocation of Purchase Price. Notwithstanding Section
4.2 of the Agreement, the portion of the Purchase Price allocated
to the Assets and the Shares that comprise the Excluded Product
Lines shall equal the Excluded Product Line Value.
5. Transition Period for Foreign Retirement Plans. For
Continuing Employees who are Excluded Product Line Employees and
who are located outside of the U.S., the Foreign Transition
Period (as defined in Section 7.7(a) of the Agreement) shall not
equal one year, but shall equal the period commencing on the
Closing Date through the date upon which all of the Excluded
12PAGE
<PAGE>
Product Lines are sold by the Buyer to one or more unaffiliated
third parties in accordance with the Consent Order (the "Sale
Date").
6. Health Insurance for U.K. Employees. The maximum
period during which the Seller shall be required, at the Buyer's
election, to allow U.K. Employees to participate in the Seller's
private health insurance scheme pursuant to Section 7.7(b)(vi) of
the Agreement, shall be extended to the Sale Date for any
Excluded Product Line Employees that are U.K. Employees.
7. Assignment. Notwithstanding anything to the contrary
in the Agreement, the Buyer may assign some or all of its rights
and obligations under the Agreement to one or more third parties
other than the Thermo Parties that acquire some or all of the
Excluded Product Lines, to the extent such rights and obligations
relate to such Excluded Product Lines. To the extent such
obligations are so assigned, neither the Buyer nor the Parent
shall have any further obligation to the Seller with respect
thereto, and the Seller will look only to the assignee for the
performance thereof.
8. Modifications to Indemnification Provisions. Section
11.3(a) of the Agreement shall apply only to Losses that do not
relate to the Excluded Product Lines, and each reference to
"Losses" therein shall refer only to such Losses. The
Indemnification Threshold shall be reduced from 2,000,000 British
pounds sterling to the product of (i) 2,000,000 British pounds
sterling and (ii) the ratio of the Purchase Price less the
Excluded Product Line Value to the Purchase Price. The Minimum
Claim Amount shall be reduced from 100,000 British pounds
sterling to the product of (i) 100,000 British pounds sterling
and (ii) the ratio of the Purchase Price less the Excluded
Product Line Value to the Purchase Price. Section 11.3(a)(ii)
shall be amended to read in its entirety as follows:
"(ii) The Indemnitor shall not be required to indemnify the
Indemnitee for any Losses which, when added to the aggregate
amount of all other Losses indemnifiable under this Section
11, exceed in the aggregate one-half of the amount equal to
the Purchase Price minus the Excluded Product Line Value."
9. Modification of Best Efforts Clause. The following
sentence shall be added as the second sentence of Section 7.3:
"For purposes of clause (ii) of the preceding sentence and
Section 13.11 hereof, "best efforts" shall include entering into
arrangements with competition regulatory authorities that
contemplate the divestiture by the Buyer of the Excluded Product
Lines and the management of the Excluded Product Lines prior to
such divestiture by the Seller."
10. Certain Employment Arrangements. Notwithstanding
anything to the contrary in the Agreement, the Thermo Parties
13PAGE
<PAGE>
shall not assume any obligations whatsoever of the Seller or any
other Asset Seller or any Company (including under any employment
agreement, severance agreement or benefit or welfare plan of any
kind, or under applicable law) with respect to the employment of
David Richardson, the principal executive officer of the
Business, or the termination of such employment, and the Seller
shall indemnify the Thermo Parties against any costs or expenses
incurred as a result of any such obligations. The Seller shall
use its best efforts to retain Mr. Richardson in the employment
of the Business up to the Closing Date and terminate the
employment of Mr. Richardson prior to the Closing. If the Thermo
Parties elect to offer employment to Mr. Richardson as of the
Closing Date, such employment shall be deemed to be a new
employment relationship and shall not cause the Thermo Parties to
assume any liabilities with respect to Mr. Richardson's
employment or termination by the Seller prior to the Closing.
11. Extension of Termination Date. The Termination Date
shall be extended to March 31, 1996.
12. Conflicts. In the event of any conflict between the
terms of this Amendment and any other term of the Agreement, the
terms of this Amendment shall be controlling.
13. No Further Amendments. Except as amended heretofore
and hereby, the Agreement shall remain in full force and effect,
enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed on the day and year first written above.
THERMO INSTRUMENT SYSTEMS INC.
By: Jonathan W. Painter
Name: Jonathan W. Painter
Title: Treasurer
THERMO ELECTRON CORPORATION
By: Peter G. Pantazelos
Name: Peter G. Pantazelos
Title: Executive Vice President
FISONS PLC
By: John H. Bailey
Name: John H. Bailey
Title: Corporate Development
Director
14<PAGE>
Exhibit 11
THERMO INSTRUMENT SYSTEMS INC.
Computation of Earnings per Share
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ----------- ------------- -----------
Computation of Fully Diluted
Earnings per Share from
Continuing Operations:
Income:
Net income $21,881,000 $14,532,000 $57,468,000 $40,572,000
Add: Convertible
obligation
interest, net
of tax 1,392,000 1,562,000 4,352,000 4,773,000
----------- ----------- ----------- -----------
Income applicable
to common
stock assuming
full dilution (a) $23,273,000 $16,094,000 $61,820,000 $45,345,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 72,903,966 70,730,555 72,220,484 70,348,466
Add: Shares issuable
from assumed
conversion of
convertible
obligations 12,004,497 13,860,161 12,602,292 14,185,601
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 536,362 289,915 536,362 331,225
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 85,444,825 84,880,631 85,359,138 84,865,292
----------- ----------- ----------- -----------
Fully Diluted Earnings
per Share from
Continuing Operations
(a) / (b) $ .27 $ .19 $ .72 $ .53
=========== =========== =========== ===========
PAGE
<PAGE>
Exhibit 11
THERMO INSTRUMENT SYSTEMS INC.
Computation of Earnings per Share (continued)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ----------- ------------- -----------
Computation of Fully Diluted
Earnings per Share:
Income:
Net income $21,881,000 $15,104,000 $57,470,000 $42,040,000
Add: Convertible
obligation
interest, net
of tax 1,392,000 1,562,000 4,352,000 4,773,000
----------- ----------- ----------- -----------
Income applicable
to common
stock assuming
full dilution (a) $23,273,000 $16,666,000 $61,822,000 $46,813,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 72,903,966 70,730,555 72,220,484 70,348,466
Add: Shares issuable
from assumed
conversion of
convertible
obligations 12,004,497 13,860,161 12,602,292 14,185,601
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 536,362 289,915 536,362 331,225
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 85,444,825 84,880,631 85,359,138 84,865,292
----------- ----------- ----------- -----------
Fully Diluted Earnings
per Share (a) / (b) $ .27 $ .20 $ .72 $ .55
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
INSTRUMENT SYSTEMS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 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> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 310,173
<SECURITIES> 4,471
<RECEIVABLES> 184,462
<ALLOWANCES> 10,367
<INVENTORY> 150,891
<CURRENT-ASSETS> 691,787
<PP&E> 185,053
<DEPRECIATION> 51,714
<TOTAL-ASSETS> 1,208,993
<CURRENT-LIABILITIES> 279,999
<BONDS> 202,968
<COMMON> 7,381
0
0
<OTHER-SE> 510,379
<TOTAL-LIABILITY-AND-EQUITY> 1,208,993
<SALES> 552,587
<TOTAL-REVENUES> 552,587
<CGS> 283,222
<TOTAL-COSTS> 283,222
<OTHER-EXPENSES> 40,098
<LOSS-PROVISION> 1,486
<INTEREST-EXPENSE> 12,187
<INCOME-PRETAX> 87,391
<INCOME-TAX> 29,104
<INCOME-CONTINUING> 57,468
<DISCONTINUED> 2
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,470
<EPS-PRIMARY> .80
<EPS-DILUTED> .72
</TABLE>
