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 March 29, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-13876
THERMOSPECTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3242970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(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 25, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 12,449,991
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOSPECTRA CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 12,228 $ 16,580
Accounts receivable, less allowances of
$1,495 and $1,516 32,891 32,327
Inventories:
Raw materials and supplies 12,795 12,047
Work in process 7,809 6,941
Finished goods 9,554 8,054
Prepaid income taxes 5,750 5,931
Other current assets 1,599 1,722
-------- --------
82,626 83,602
-------- --------
Property, Plant, and Equipment, at Cost 28,373 27,379
Less: Accumulated depreciation and
amortization 8,034 7,210
-------- --------
20,339 20,169
-------- --------
Patents, Trademarks, and Other Assets 5,850 5,556
-------- --------
Equity Investment in Joint Venture 2,485 2,382
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 56,361 40,776
-------- --------
$167,661 $152,485
======== ========
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THERMOSPECTRA CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Note payable $ 1,520 $ 591
Accounts payable 11,973 11,508
Deferred revenue 4,432 3,453
Accrued payroll and employee benefits 4,421 5,334
Accrued installation and warranty expenses 3,615 3,396
Accrued income taxes 2,698 1,792
Other accrued expenses 9,581 9,586
Due to affiliates 2,876 3,259
-------- --------
41,116 38,919
-------- --------
Deferred Income Taxes and Other Deferred Items 1,591 1,645
-------- --------
Long-term Obligations, Due to Thermo Electron
and Thermo Instrument (Note 2) 32,300 22,300
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares
authorized; 12,450,400 and 12,439,950 shares
issued 125 124
Capital in excess of par value 79,603 77,416
Retained earnings 13,904 12,345
Treasury stock at cost, 409 and 305 shares (6) (5)
Cumulative translation adjustment (972) (259)
-------- --------
92,654 89,621
-------- --------
$167,661 $152,485
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMOSPECTRA CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $33,705 $26,927
------- -------
Costs and Operating Expenses:
Cost of revenues 18,117 14,139
Selling, general, and administrative expenses 9,620 7,821
Research and development expenses 3,232 2,756
------- -------
30,969 24,716
------- -------
Operating Income 2,736 2,211
Interest Income 173 273
Interest Expense (26) -
Interest Expense, Related Party (353) (107)
------- -------
Income Before Provision for Income Taxes 2,530 2,377
Provision for Income Taxes 971 941
------- -------
Net Income $ 1,559 $ 1,436
======= =======
Earnings per Share $ .13 $ .12
======= =======
Weighted Average Shares 12,447 12,433
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 1,559 $ 1,436
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,134 995
Provision for losses on accounts
receivable 194 36
Other noncash expenses 266 120
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 1,195 118
Inventories (509) 1,774
Other current assets 159 (202)
Accounts payable (205) 438
Other current liabilities (1,641) (1,838)
Other 16 -
-------- --------
Net cash provided by operating activities 2,168 2,877
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 2) (16,681) -
Purchases of property, plant, and equipment (392) (1,660)
Proceeds from sale of property, plant, and
equipment 18 -
Other (283) (34)
-------- --------
Net cash used in investing activities (17,338) (1,694)
-------- --------
Financing Activities:
Proceeds from issuance of long-term
obligation to Thermo Electron
Corporation (Note 2) 10,000 -
Net proceeds from issuance of Company common
stock 107 21
Increase in short-term borrowings, net 929 -
Other (10) -
-------- --------
Net cash provided by financing activities 11,026 21
-------- --------
Exchange Rate Effect on Cash (206) (36)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (4,352) 1,168
Cash and Cash Equivalents at Beginning of Period 16,580 20,306
-------- --------
Cash and Cash Equivalents at End of Period $ 12,228 $ 21,474
======== ========
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
----------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ 22,949 $ 28,727
Cash paid for acquired companies (17,044) -
Stock options issued for acquired companies (2,080) -
Due to parent company for acquired
companies - (21,527)
-------- --------
Liabilities assumed of acquired companies $ 3,825 $ 7,200
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOSPECTRA CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoSpectra Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at March
29, 1997, the results of operations for the three-month periods ended
March 29, 1997, and March 30, 1996, and the cash flows for the
three-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, 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, as amended, for the fiscal year ended December 28,
1996, filed with the Securities and Exchange Commission.
2. Acquisition
On March 12, 1997, the Company acquired Park Scientific Instruments
Corporation (PSI), a manufacturer of scanning-probe microscopes used in
industry and academia to test and measure the topography and other
surface properties of materials, for $17.0 million in cash, including the
repayment of $1.3 million of bank debt. In addition, the Company assumed
outstanding PSI stock options that are exercisable into 183,940 shares of
Company common stock at a weighted average exercise price of $3.44 per
share, with an aggregate value of $2.1 million as of the date of the
merger agreement. The purchase price is subject to a post-closing
adjustment based on the acquired net assets of PSI. In connection with
the acquisition of PSI, the Company borrowed $10.0 million from Thermo
Electron Corporation pursuant to a promissory note due March 1999 and
bearing interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter.
The acquisition has been accounted for using the purchase method of
accounting, and the results of operations have been included in the
accompanying financial statements from the date of acquisition. The cost
of the acquisition exceeded the estimated fair value of the acquired net
assets by $16.1 million, which is being amortized over 40 years.
Allocation of the purchase price was based on an estimate of the fair
value of the net assets acquired and is subject to adjustment upon
finalization of the purchase price allocation.
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THERMOSPECTRA CORPORATION
2. Acquisition (continued)
Based on unaudited data, the following table presents selected
financial information for the Company and PSI on a pro forma basis,
assuming the companies had been combined since the beginning of 1996.
Three
Months Ended
--------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $35,392 $30,158
Net income 1,064 1,301
Earnings per share .09 .10
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of PSI been made at the beginning of 1996.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities and Exchange Act of 1934, are made throughout this
Management's Discussion and Analysis of Financial Condition and Results
of Operations. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 28, 1996, filed with the
Securities and Exchange Commission.
Overview
The Company develops, manufactures, and markets precision imaging,
inspection, and measurement instruments based on high-speed data
acquisition and digital processing technologies. These instruments are
generally combined with proprietary operations and analysis software to
provide industrial and research customers with integrated systems that
address their specific needs. The Company's products include digital
signal measurement systems, consisting of digital oscillographic
recorders that continuously measure and monitor signals from various
sensors, digital storage oscilloscopes (DSOs) that are capable of taking
hundreds of millions of measurements per second of repetitive or
transient signals, and data acquisition systems that combine the
attributes of DSOs and digital oscillographic recorders; X-ray
microanalyzers used as accessories to electron microscopes to provide
elemental materials analysis as a supplement to the microscope's imaging
capabilities; nondestructive X-ray inspection systems for process
8PAGE
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THERMOSPECTRA CORPORATION
Overview (continued)
monitoring and quality control applications; X-ray fluorescence
instruments for bulk and selected area sample analysis; specialty X-ray
tubes for industrial and medical applications; confocal laser scanning
microscopes that use laser light to generate precise optical images
primarily for life-science applications; and, with the March 1997
acquisition of Park Scientific Instruments Corporation (PSI), scanning-
probe microscopes that test and measure the topography and other surface
properties of materials down to the atomic level.
The Company's growth strategy includes acquiring complementary
businesses, developing new applications for its technology to address
related market segments, and strengthening its presence in selected
geographic markets. Certain acquisitions the Company has made have been
businesses with strong technologies and a good reputation and presence in
the markets in which they compete, but often relatively poor
profitability because of high manufacturing and operating expenses. The
Company's goal for these acquisitions is to reduce these expenses and
thereby improve the acquired companies' profitability. Businesses the
Company may acquire in the future may have these same financial
characteristics. Because the Company competes primarily on the basis of
its technology, it will also need to continually improve the technology
underlying the products of any company it acquires.
The Company conducts all of its manufacturing operations in the
United States, except for the production of certain DSOs that are
manufactured in England. The Company sells its products on a worldwide
basis. The Company anticipates that a majority of its revenues will be
from sales to customers outside the United States. The Company's business
activities outside the United States are conducted through sales and
service subsidiaries and through third-party representatives and
distributors. The results of the Company's international operations are
subject to foreign currency fluctuations, and the exchange rate value of
the dollar may have a significant impact on both revenues and earnings.
The Company may use forward contracts to reduce its exposure to currency
fluctuations.
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Revenues were $33.7 million in the first quarter of 1997, compared
with $26.9 million in the first quarter of 1996, an increase of 25%.
Revenues increased $7.7 million due to the inclusion of revenues from
Kevex Instruments, a manufacturer of X-ray microanalyzers and X-ray
fluorescence instruments, and Kevex X-Ray, a manufacturer of specialty
X-ray sources, which were acquired effective March 29, 1996, and the
inclusion of revenues from PSI, which was acquired in March 1997 (Note
2). Revenues from existing operations were relatively unchanged in 1997
compared with 1996. Increased revenues due to overall higher demand for
inspection systems manufactured by the Company's Nicolet Imaging Systems
division were offset by a decline in demand for the Company's digital
9PAGE
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THERMOSPECTRA CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
signal measurement systems. Revenues were adversely affected by
approximately $0.7 million due to the strengthening in the value of the
U.S. dollar relative to currencies in foreign countries in which the
Company operates.
The gross profit margin decreased to 46% in the first quarter of
1997, compared with 47% in the first quarter of 1996, due to the
inclusion of lower-margin revenues at Kevex Instruments and Kevex X-Ray
(the Kevex businesses), which had a combined gross margin of 39% in 1997.
Selling, general, and administrative expenses as a percentage of
revenues were unchanged at 29% in the first quarter of 1997 and 1996.
Lower selling expenses as a percentage of revenues at the Kevex
businesses were offset by slightly higher selling, general, and
administrative expenses at the Company's existing operations.
Research and development expenses as a percentage of revenues were
unchanged at 10% in the first quarter of 1997 and 1996.
Interest income decreased to $173,000 in the first quarter of 1997
from $273,000 in the first quarter of 1996 due to decreased cash balances
as a result of cash used to partially fund the acquisitions of the Kevex
businesses and PSI. Interest expense, related party in 1997 represents
interest expense associated with a $10 million note issued to Thermo
Electron Corporation in March 1997, a $15 million promissory note issued
to Thermo Electron in August 1996, and a $7.3 million promissory note
issued to Thermo Instrument Systems Inc. in 1994. Interest expense,
related party in 1996 represents interest expense associated with the
$7.3 million promissory note issued to Thermo Instrument.
The effective tax rate was 38.4% in the first quarter of 1997,
compared with 39.6% in the first quarter of 1996. The effective tax rates
exceed the statutory federal income tax rate due primarily to the impact
of state income taxes and nondeductible amortization of cost in excess of
net assets of acquired companies for certain of the Company's
acquisitions.
Liquidity and Capital Resources
Consolidated working capital was $41.5 million at March 29, 1997,
compared with $44.7 million at December 28, 1996. Included in working
capital are cash and cash equivalents of $12.2 million at March 29, 1997,
compared with $16.6 million at December 28, 1996. Cash provided by
operating activities was $2.2 million in the first three months of 1997.
During this period, the Company used $1.8 million of cash to reduce
current liabilities and accounts payable. This use of cash was offset in
part by $1.2 million of cash provided by a reduction in accounts
receivable.
In March 1997, the Company acquired PSI (Note 2) for $17.0 million in
cash, including the repayment of $1.3 million of bank debt, subject to a
post-closing adjustment. In addition, the Company assumed outstanding PSI
stock options that are exercisable into 183,940 shares of Company common
10PAGE
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THERMOSPECTRA CORPORATION
Liquidity and Capital Resources (continued)
stock at a weighted average exercise price of $3.44 per share, with an
aggregate value of approximately $2.1 million as of the date of the
merger agreement. In connection with the acquisition of PSI, the Company
borrowed $10.0 million from Thermo Electron pursuant to a promissory note
due March 1999 and bearing interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each
quarter.
The Company expended $392,000 during the first three months of 1997
for purchases of property, plant, and equipment. The Company plans to
expend an additional $2.6 million for capital expenditures during the
remainder of 1997.
Although the Company expects to generate positive cash flow from its
existing operations, the Company may require significant amounts of cash
to pursue the acquisition of complementary businesses. The Company
expects that it will finance any such acquisitions through a combination
of internal funds, additional equity financing or convertible debt
financing from the capital markets, and/or short-term borrowings from
Thermo Instrument or Thermo Electron, although it has no agreement with
these companies to ensure that funds will be available on acceptable
terms or at all. The Company believes that its existing resources and
cash provided by operations are sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
11PAGE
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THERMOSPECTRA CORPORATION
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 6th day of May 1997.
THERMOSPECTRA CORPORATION
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
12PAGE
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THERMOSPECTRA CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOSPECTRA CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 29, 1997 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> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 12,288
<SECURITIES> 0
<RECEIVABLES> 34,386
<ALLOWANCES> 1,495
<INVENTORY> 30,158
<CURRENT-ASSETS> 82,626
<PP&E> 28,373
<DEPRECIATION> 8,034
<TOTAL-ASSETS> 167,661
<CURRENT-LIABILITIES> 41,116
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 92,529
<TOTAL-LIABILITY-AND-EQUITY> 167,661
<SALES> 33,705
<TOTAL-REVENUES> 33,705
<CGS> 18,117
<TOTAL-COSTS> 18,117
<OTHER-EXPENSES> 3,232
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 379
<INCOME-PRETAX> 2,530
<INCOME-TAX> 971
<INCOME-CONTINUING> 1,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,559
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
