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 1, 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 April 28, 1995
---------------------------- -----------------------------
Common Stock, $.10 par value 72,031,728
PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of April 1, 1995 and
December 31, 1994 (In thousands)
April 1, December 31,
1995 1994
---------- ------------
Current Assets:
Cash and cash equivalents $ 145,910 $ 152,933
Available-for-sale investments, at quoted
market value (amortized cost of $15,402
and $15,385) (includes $3,528 and $2,904
of related party investments) 16,647 15,931
Accounts receivable, less allowances
of $9,939 and $8,779 171,199 159,615
Unbilled contract costs and fees 5,920 5,903
Inventories:
Raw materials and supplies 71,534 65,441
Work in process 29,043 27,879
Finished goods 31,148 28,033
Prepaid expenses 6,271 5,388
Prepaid income taxes 28,195 28,533
---------- ----------
505,867 489,656
---------- ----------
Property, Plant and Equipment, at Cost 175,658 170,907
Less: Accumulated depreciation and
amortization 45,731 43,983
---------- ----------
129,927 126,924
---------- ----------
Investment in Thermo Terra Tech Joint Venture 34,267 34,265
---------- ----------
Patents and Other Assets 21,966 22,224
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies 345,343 338,848
---------- ----------
$1,037,370 $1,011,917
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(a) Consolidated Balance Sheet - Liabilities and Shareholders' Investment
as of April 1, 1995 and December 31, 1994 (In thousands except share
amounts)
April 1, December 31,
1995 1994
---------- ------------
Current Liabilities:
Notes payable $ 49,767 $ 45,953
Accounts payable 40,751 38,594
Accrued payroll and employee benefits 33,743 33,085
Accrued income taxes 24,195 29,175
Accrued installation and warranty expenses 18,459 16,545
Customer deposits 13,219 11,115
Other accrued expenses 68,192 70,884
Due to parent company 12,570 13,999
---------- ----------
260,896 259,350
---------- ----------
Deferred Income Taxes 18,130 21,347
---------- ----------
Other Deferred Items 21,581 19,261
---------- ----------
Long-term Obligations:
Senior obligations, including $140,000 due
to parent company 210,000 210,000
Subordinated obligations, including $984
and $1,334 due to parent company 31,768 38,196
Other 15,156 15,363
---------- ----------
256,924 263,559
---------- ----------
Minority Interest 9,593 7,637
---------- ----------
Shareholders' Investment (Note 4):
Common stock, $.10 par value, 125,000,000
shares authorized; 72,870,773 and 48,156,101
shares issued 7,287 4,816
Capital in excess of par value 237,312 233,765
Retained earnings 229,500 212,584
Treasury stock at cost, 973,479 and
683,742 shares (12,191) (12,736)
Cumulative translation adjustment 7,566 1,991
Net unrealized gain on available-for-sale
investments 772 343
---------- ----------
470,246 440,763
---------- ----------
$1,037,370 $1,011,917
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(b) Consolidated Statement of Income for the three months ended
April 1, 1995 and April 2, 1994 (In thousands except per share
amounts)
Three Months Ended
---------------------
April 1, April 2,
1995 1994
-------- --------
Revenues:
Instruments $172,944 $147,587
Services - 12,195
-------- --------
172,944 159,782
-------- --------
Costs and Expenses:
Cost of instrument revenues 88,030 74,917
Cost of service revenues - 9,493
Selling, general and administrative expenses 49,613 41,028
Research and development expenses 12,479 9,106
-------- --------
150,122 134,544
-------- --------
Operating Income 22,822 25,238
Interest Income 2,302 1,542
Interest Expense (includes $1,330 and $1,356
related to notes to parent company) (3,825) (4,098)
Gain on Issuance of Stock by Subsidiary (Note 3) 4,714 -
Equity in Income of Unconsolidated Subsidiaries, Net 17 65
-------- --------
Income Before Provision for Income Taxes and
Minority Interest Expense 26,030 22,747
Provision for Income Taxes 8,974 9,895
Minority Interest Expense 140 -
-------- --------
Net Income $ 16,916 $ 12,852
======== ========
Earnings per Share:
Primary $ .24 $ .18
======== ========
Fully diluted $ .22 $ .17
======== ========
Weighted Average Shares:
Primary 71,492 69,860
======== ========
Fully diluted 85,125 84,868
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(c) Consolidated Statement of Cash Flows for the three months ended
April 1, 1995 and April 2, 1994 (In thousands)
Three Months Ended
--------------------
April 1, April 2,
1995 1994
-------- --------
Operating Activities:
Net income $ 16,916 $ 12,852
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,139 5,783
Provision for losses on accounts receivable 655 234
Gain on issuance of stock by subsidiary
(Note 3) (4,714) -
Equity in income of unconsolidated
subsidiaries, net (17) (65)
Minority interest expense 140 -
Decrease in deferred income taxes (3,217) -
Other noncash expenses 772 872
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (607) (435)
Inventories (1,468) (5,842)
Other current assets 918 1,122
Accounts payable (2,184) 3,991
Other current liabilities (15,078) (1,369)
-------- --------
Net cash provided by (used in)
operating activities (1,745) 17,143
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (10,730) (90,669)
Purchases of available-for-sale investments - (13,250)
Purchases of property, plant and equipment (2,598) (2,160)
Other 473 (1,372)
-------- --------
Net cash used in investing
activities (12,855) (107,451)
-------- --------
Financing Activities:
Repayment of long-term obligations (205) (299)
Net proceeds from issuance of Company and
subsidiary common stock (Note 3) 6,783 422
-------- --------
Net cash provided by financing
activities $ 6,578 $ 123
-------- --------
5PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(c) Consolidated Statement of Cash Flows for the three months ended
April 1, 1995 and April 2, 1994 (In thousands) (continued)
Three Months Ended
--------------------
April 1, April 2,
1995 1994
-------- --------
Exchange Rate Effect on Cash $ 999 $ 246
-------- --------
Decrease in Cash and Cash Equivalents (7,023) (89,939)
Cash and Cash Equivalents at Beginning of Period 152,933 177,442
-------- --------
Cash and Cash Equivalents at End of Period $145,910 $ 87,503
======== ========
Cash Paid For:
Interest $ 4,825 $ 5,660
Income taxes $ 12,664 $ 11,482
Noncash Financing Activities:
Conversions of convertible obligations $ 6,428 $ 6,800
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - April 1, 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-month periods ended April 1, 1995 and April 2, 1994, (b) the
financial position at April 1, 1995, and (c) the cash flows for the
three-month periods ended April 1, 1995 and April 2, 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. Potential Acquisition
On April 17, 1995, the Company's ThermoSpectra Corporation subsidiary
signed a letter of intent to acquire Gould Instrument Systems, Inc. (Gould
Instrument) for approximately $25 million in cash, which includes repayment
of bank debt. Gould Instrument develops, manufactures, and sells data
acquisition systems, high-performance oscillographic recorders, and digital
storage oscilloscopes for industrial, medical, scientific, and government
applications. The acquisition is subject to certain conditions, including
the completion of due diligence, negotiation of a definitive acquisition
agreement, the approval of the boards of directors of both parties, and
other customary conditions to closing. Gould Instrument had revenues of $51
million for the year ended December 31, 1994.
3. Transactions in Stock of Subsidiary
On March 15, 1995, the Company's wholly owned Thermo BioAnalysis
Corporation subsidiary (Thermo BioAnalysis) sold 700,000 shares of its
common stock in a private placement at $10.00 per share for net proceeds of
approximately $6.5 million, resulting in a gain of $4.7 million. 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.
On April 19, 1995, Thermo BioAnalysis sold 901,500 shares of its
common stock in a private placement at $10.00 per share for net proceeds of
approximately $8.4 million. Following the private placements, the Company
owned 80% of Thermo BioAnalysis' outstanding common stock.
7PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
(d) Notes to Consolidated Financial Statements - April 1, 1995 (continued)
4. 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. Common shares outstanding as
of April 1, 1995, and all weighted average share and per share amounts have
been restated to reflect the stock split.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
First Quarter 1995 Compared With First Quarter 1994
Revenues increased 8% to $172.9 million in the first quarter of 1995
from $159.8 million in the first quarter of 1994. Instruments segment
revenues increased $25.4 million, or 17%, to $172.9 million in 1995 from
$147.6 million in 1994. The increase was due to acquisitions, which added
revenues of $28.1 million in the first quarter of 1995, offset by a
decrease in revenues from the Company's air monitoring instruments
subsidiary, as most orders in response to Phase I and II of the Clean Air
Act of 1990 have been completed. The Company's acquisitions included
several businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated (Baker Hughes) in March 1994 and the Analytical
Instruments Division of Baird Corporation (Baird) in January 1995. Services
segment revenues in 1994 represent revenues from the analytical
laboratories and the nuclear health physics and environmental science and
engineering services businesses that the Company contributed to the Thermo
Terra Tech joint venture effective April 4, 1994. As a result, the Services
segment operations are no longer consolidated in the Company's financial
statements.
The gross profit margin increased to 49% in the first quarter of 1995
from 47% in the first quarter of 1994. The increase reflects the transfer
of the lower-margin businesses that comprised the Company's Services
segment to the Thermo Terra Tech joint venture as discussed above. The
gross profit margin for the Instruments segment was 49% in the first
quarters of both 1995 and 1994. The gross profit margin for the Services
segment was 22% in 1994.
Selling, general and administrative expenses as a percentage of
revenues increased to 29% in the first quarter of 1995 from 26% in the
first quarter of 1994 as a result of higher costs as a percentage of
revenues at acquired businesses and reduced shipments from the Company's
air monitoring instruments subsidiary as discussed above. Research and
development expenses were 7.2% of Instruments segment revenues in the first
quarter of 1995, compared with 6.2% in the first quarter of 1994. The
increase is consistent with the Company's objective of developing and
marketing new products for current and future lines of business.
8PAGE
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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Quarter 1995 Compared With First Quarter 1994 (continued)
Interest income increased to $2.3 million in the first quarter of 1995
from $1.5 million in the first 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 common stock by the
Company's ThermoSpectra Corporation subsidiary (ThermoSpectra) in the third
and fourth quarters of 1994. The increase was offset in part by a reduction
in cash as a result of the acquisitions of several businesses within the
EnviroTech Measurements & Controls group of Baker Hughes in March 1994 and
the Analytical Instruments Division of Baird in January 1995. Interest
expense was $3.8 million in the first quarter of 1995, compared with $4.1
million in the first quarter of 1994. The decrease is primarily a result of
the conversions of a portion of the Company's 6 5/8% subordinated
convertible debentures into common stock of the Company.
As a result of the sale of stock by its Thermo BioAnalysis Corporation
subsidiary (Thermo BioAnalysis), the Company recorded a gain of $4.7
million in the first quarter of 1995. The gain represents an increase in
the Company's proportionate share of the subsidiary's equity and is
classified as "Gain on issuance of stock by subsidiary" in the accompanying
statement of income (see Note 3 to Consolidated Financial Statements).
The effective tax rate decreased to 34% in the first quarter of 1995
from 44% in the first quarter of 1994 due primarily to the nontaxable gain
on the issuance of stock by the Company's Thermo BioAnalysis subsidiary.
Excluding the impact of the gain on the issuance of stock by Thermo
BioAnalysis in 1995, 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.
Financial Condition
Liquidity and Capital Resources
Consolidated working capital at April 1, 1995, was $245.0 million,
compared with $230.3 million at December 31, 1994, an increase of $14.7
million. Included in working capital are cash, cash equivalents, and
available-for-sale investments of $162.6 million at April 1, 1995, and
$168.9 million at December 31, 1994. Of the $162.6 million balance at April
1, 1995, $17.2 million was held by ThermoSpectra, $7.4 million by Thermo
BioAnalysis, and $138.0 million by the Company and its wholly owned
subsidiaries. During the first three months of 1995, $1.7 million of cash
was used in operating activities, compared with $17.1 million of cash
provided by operating activities during the first three months of 1994. The
decrease in 1995 resulted primarily from the payment of current
liabilities, including $12.7 million of federal and state tax payments. In
March 1995, Thermo BioAnalysis completed a private placement of 700,000
shares of its common stock at $10.00 per share for net proceeds of
approximately $6.5 million. In April 1995, Thermo BioAnalysis completed a
private placement of 901,500 shares of its common stock at $10.00 per share
for net proceeds of approximately $8.4 million.
9PAGE
<PAGE>
FORM 10-Q
April 1, 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)
During the remainder of 1995, the Company plans to make expenditures
of approximately $8.4 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. Consummation of the acquisition is subject to several
conditions, including regulatory approvals, consent of certain third
parties, and customary conditions to closing. The Company is currently
responding to a second request for information from the Federal Trade
Commission (FTC), and no assurance can be given that the Company will be
able to provide information sufficient to satisfactorily address any FTC
concerns regarding the potential effect of the transaction upon competition
in the analytical instruments market. The Company intends to fund the
purchase price from available cash and through borrowings from Thermo
Electron Corporation (Thermo Electron). 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 April 17, 1995, the Company's
ThermoSpectra subsidiary signed a letter of intent to acquire Gould
Instrument Systems, Inc. for approximately $25 million in cash (see Note 2
to Consolidated Financial Statements).
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 March 6, 1995, the Company filed a Current Report on Form 8-K
pertaining to its pending acquisition of the Scientific Instruments
Division of Fisons plc.
10PAGE
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FORM 10-Q
April 1, 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 9th day of May 1995.
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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FORM 10-Q
April 1, 1995
THERMO INSTRUMENT SYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Document Page
------- -------- ----
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMO INSTRUMENT SYSTEMS INC.
Computation of Earnings per Share
Three Months Ended
-------------------------
April 1, April 2,
1995 1994
----------- -----------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $16,916,000 $12,852,000
Add: Convertible obligation interest,
net of tax 1,517,000 1,631,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $18,433,000 $14,483,000
----------- -----------
Shares:
Weighted average shares outstanding 71,492,357 69,859,532
Add: Shares issuable from assumed
conversion of convertible
obligations 13,264,560 14,615,631
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 368,375 393,282
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 85,125,292 84,868,445
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .22 $ .17
=========== ===========
<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
APRIL 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 145,910
<SECURITIES> 16,647
<RECEIVABLES> 171,199
<ALLOWANCES> 9,939
<INVENTORY> 131,725
<CURRENT-ASSETS> 505,867
<PP&E> 175,658
<DEPRECIATION> 45,731
<TOTAL-ASSETS> 1,037,370
<CURRENT-LIABILITIES> 260,896
<BONDS> 115,940
<COMMON> 7,287
0
0
<OTHER-SE> 462,959
<TOTAL-LIABILITY-AND-EQUITY> 1,037,370
<SALES> 172,944
<TOTAL-REVENUES> 172,944
<CGS> 88,030
<TOTAL-COSTS> 88,030
<OTHER-EXPENSES> 12,479
<LOSS-PROVISION> 655
<INTEREST-EXPENSE> 3,825
<INCOME-PRETAX> 26,030
<INCOME-TAX> 8,974
<INCOME-CONTINUING> 16,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,916
<EPS-PRIMARY> .24
<EPS-DILUTED> .22
</TABLE>
