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 27, 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 September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.01 par value 15,383,688
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOSPECTRA CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 13,409 $ 16,580
Accounts receivable, less allowances of
$2,420 and $1,516 42,066 32,327
Inventories:
Raw materials and supplies 17,926 12,047
Work in process 8,774 6,941
Finished goods 12,078 8,054
Prepaid income taxes 6,905 5,931
Other current assets 2,118 1,722
-------- --------
103,276 83,602
-------- --------
Property, Plant, and Equipment, at Cost 34,753 27,379
Less: Accumulated depreciation and
amortization 10,255 7,210
-------- --------
24,498 20,169
-------- --------
Patents, Trademarks, and Other Assets 5,636 5,556
-------- --------
Equity Investment in Joint Venture 2,413 2,382
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 119,616 40,776
-------- --------
$255,439 $152,485
======== ========
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THERMOSPECTRA CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term debt (including $15,000 due to
Thermo Electron) $ 15,293 $ 591
Accounts payable 14,757 11,508
Accrued payroll and employee benefits 5,937 5,334
Accrued installation and warranty expenses 4,604 3,396
Deferred revenue 4,058 3,453
Accrued income taxes 1,997 1,792
Other accrued expenses (Note 3) 10,056 9,586
Due to affiliated companies 3,598 3,259
-------- --------
60,300 38,919
-------- --------
Deferred Income Taxes and Other Deferred Items 1,564 1,645
-------- --------
Long-term Obligations, Due to Thermo Electron
and Thermo Instrument (Note 2) 67,300 22,300
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares
authorized; 15,384,111 and 12,439,950 shares
issued (Note 2) 154 124
Capital in excess of par value (Note 2) 112,007 77,416
Retained earnings (Note 2) 15,320 12,345
Treasury stock at cost, 423 and 305 shares (7) (5)
Cumulative translation adjustment (1,199) (259)
-------- --------
126,275 89,621
-------- --------
$255,439 $152,485
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOSPECTRA CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $52,271 $30,329
------- -------
Costs and Operating Expenses:
Cost of revenues 32,022 15,237
Selling, general, and administrative expenses 13,569 9,196
Research and development expenses 4,346 3,300
Other nonrecurring income, net - (185)
------- -------
49,937 27,548
------- -------
Operating Income 2,334 2,781
Interest Income 116 228
Interest Expense (10) -
Interest Expense, Related Party (1,203) (239)
------- -------
Income Before Provision for Income Taxes 1,237 2,770
Provision for Income Taxes 532 1,080
------- -------
Net Income $ 705 $ 1,690
======= =======
Earnings per Share $ .05 $ .14
======= =======
Weighted Average Shares 15,367 12,439
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOSPECTRA CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $139,140 $ 88,537
-------- --------
Costs and Operating Expenses:
Cost of revenues 80,914 45,577
Selling, general, and administrative expenses 37,294 26,272
Research and development expenses 12,130 9,375
Other nonrecurring expense (income), net
(Note 3) 800 (185)
-------- --------
131,138 81,039
-------- --------
Operating Income 8,002 7,498
Interest Income 524 740
Interest Expense (58) -
Interest Expense, Related Party (2,866) (448)
-------- --------
Income Before Provision for Income Taxes 5,602 7,790
Provision for Income Taxes 2,372 3,102
-------- --------
Net Income $ 3,230 $ 4,688
======== ========
Earnings per Share $ .22 $ .38
======== ========
Weighted Average Shares 14,571 12,436
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 3,230 $ 4,688
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,006 3,341
Restructuring expense (Note 3) 800 683
Provision for losses on accounts
receivable 703 182
Other noncash expenses, net 1,078 550
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 391 2,012
Inventories 845 (944)
Other current assets 578 82
Accounts payable (556) (138)
Due to affiliates (628) (822)
Other current liabilities (5,479) (3,507)
-------- --------
Net cash provided by operating activities 5,968 6,127
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (21,104) (22,521)
Refund of acquisition purchase price - 1,103
Purchases of property, plant, and equipment (2,025) (2,343)
Purchases of available-for-sale investments - (3,000)
Other, net (691) (196)
-------- --------
Net cash used in investing activities (23,820) (26,957)
-------- --------
Financing Activities:
Proceeds from issuance of notes payable
to Thermo Electron (Note 2) 60,000 15,000
Payment to Thermo Instrument for NESLAB
debt assumed (Note 2) (44,907) -
Net proceeds from issuance of Company common
stock 353 74
Decrease in short-term borrowings, net (353) -
-------- --------
Net cash provided by financing activities 15,093 15,074
-------- --------
Exchange Rate Effect on Cash (412) (49)
-------- --------
Decrease in Cash and Cash Equivalents (3,171) (5,805)
Cash and Cash Equivalents at Beginning of Period 16,580 20,306
-------- --------
Cash and Cash Equivalents at End of Period $ 13,409 $ 14,501
======== ========
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
------------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash Activities (Note 2):
Fair value of assets of acquired companies $116,707 $ 30,264
Cash paid for acquired companies (24,342) (22,525)
Stock options issued for PSI (1,693) -
Stock issuable to Thermo Instrument for
NESLAB (32,571) -
Debt assumed for NESLAB (44,907) -
-------- --------
Liabilities assumed of acquired companies $ 13,194 $ 7,739
======== ========
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
September 27, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the nine-month periods ended September 27, 1997, and
September 28, 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 for the fiscal year ended December 28, 1996, filed
with the Securities and Exchange Commission.
2. Acquisitions
In March 1997, Thermo Instrument Systems Inc. (Thermo Instrument),
the Company's majority shareholder, acquired approximately 95% of the
outstanding shares of Life Sciences International PLC (LSI), a London
Stock Exchange-listed company. Subsequently, Thermo Instrument acquired
the remaining shares of LSI capital stock. In July 1997, the Company
agreed to acquire NESLAB Instruments, Inc. and its related sales and
service entity, NESLAB Instruments Europa BV in the Netherlands,
(collectively, NESLAB), a global supplier of temperature-control products
and former LSI subsidiary, from Thermo Instrument for approximately $77.5
million. The purchase price represents the sum of the net tangible book
value of the business as of June 28, 1997, plus a percentage of Thermo
Instrument's total cost in excess of net assets acquired associated with
its acquisition of LSI, based on the aggregate 1996 revenues of NESLAB
relative to LSI's 1996 consolidated revenues. The purchase price is
subject to a post-closing adjustment based on final determination of the
net tangible book value of the acquired business and a final calculation
of Thermo Instrument's total cost in excess of net assets acquired
associated with the acquisition of LSI.
The purchase price will be paid through the issuance of 2,869,717
shares of Company common stock valued at $32.6 million and the assumption
of $44.9 million of debt payable to Thermo Instrument. Issuance of the
common stock component of the purchase price will occur immediately after
its listing upon the American Stock Exchange, which will require approval
by the Company's shareholders. Because Thermo Instrument is the Company's
majority shareholder and intends to vote its shares in favor of such
listing, the approval is assured.
8PAGE
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THERMOSPECTRA CORPORATION
2. Acquisitions (continued)
Because the Company and NESLAB were deemed for accounting purposes to
be under control of their common majority owner, Thermo Instrument, the
transaction has been accounted for in a manner similar to a pooling of
interests. Accordingly, the accompanying financial statements include the
results of NESLAB from March 12, 1997, the date the business was acquired
by Thermo Instrument, and the shares issuable to Thermo Instrument
subject to shareholder vote have been deemed outstanding from that date.
The purchase price included $255,000 for the increase in net book value
from the date the business was acquired by Thermo Instrument to June 28,
1997. This amount was recorded as a reduction in retained earnings.
In connection with the acquisition of NESLAB, the Company borrowed
$45.0 million from Thermo Electron Corporation (Thermo Electron) pursuant
to a promissory note due July 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 used the proceeds from the
long-term note to repay the debt assumed in connection with the NESLAB
acquisition.
In March 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 $16.7 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 144,941 shares of
Company common stock at a weighted average exercise price of $3.07 per
share, with an aggregate value of $1.7 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.
In July 1997, the Company acquired Sierra Research and Technology
Inc. (SRT), a manufacturer of systems used for the rework and repair of
printed circuit boards, for $7.6 million in cash. In connection with the
acquisition of SRT, the Company borrowed $5.0 million from Thermo
Electron pursuant to a promissory note due July 1999 and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set
at the beginning of each quarter.
The acquisitions of SRT and PSI have been accounted for using the
purchase method of accounting, and their results of operations have been
included in the accompanying financial statements from their respective
dates of acquisition.
The cost of NESLAB, PSI, and SRT exceeded the estimated fair value of
the acquired net assets by $59.3 million, $15.4 million, and $6.2
million, respectively, which is being amortized over 40 years.
9PAGE
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THERMOSPECTRA CORPORATION
2. Acquisitions (continued)
Allocation of the purchase price for these acquisitions was based on
an estimate of the fair value of the net assets acquired and is subject
to adjustment.
Based on unaudited data, the following table presents selected
financial information for the Company, NESLAB, and PSI on a pro forma
basis, assuming the companies had been combined since the beginning of
1996. The effect of SRT was not material to the Company's results of
operations.
Three Months Ended Nine Months Ended
------------------ ---------------------
(In thousands except Sept. 28, Sept. 27, Sept. 28,
per share amounts) 1996 1997 1996
-----------------------------------------------------------------------
Revenues $47,236 $150,652 $143,884
Net income 831 2,677 3,829
Earnings per share .05 .17 .25
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions of NESLAB and PSI been made at the beginning of 1996.
3. Other Nonrecurring Expense
During the second quarter of 1997, the Company's Gould Instrument
Systems, Inc. subsidiary incurred an $800,000 charge related to severance
costs for 33 employees terminated during the quarter. Other accrued
expenses in the accompanying 1997 balance sheet includes a remaining
reserve of $373,000 associated with these staff reductions.
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 for
the fiscal year ended December 28, 1996, filed with the Securities and
Exchange Commission.
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THERMOSPECTRA CORPORATION
Overview
The Company develops, manufactures, and markets precision imaging,
inspection, temperature control, and test and measurement instruments.
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, digital storage oscilloscopes (DSOs), and data
acquisition systems; X-ray microanalyzers; nondestructive X-ray
inspection systems; X-ray fluorescence instruments; specialty X-ray
tubes; and confocal laser scanning microscopes. The Company broadened its
product offerings through the acquisition of Park Scientific Instruments
Corporation (PSI), a manufacturer of scanning-probe microscopes, in March
1997; NESLAB Instruments, Inc. (NESLAB), a supplier of
temperature-control products, effective for accounting purposes in March
1997; and Sierra Research and Technology Inc. (SRT), a manufacturer of
systems used for the rework and repair of printed circuit boards, in July
1997.
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 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
business 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 significant portion 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.
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THERMOSPECTRA CORPORATION
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Revenues were $52.3 million in the third quarter of 1997, compared
with $30.3 million in the third quarter of 1996, an increase of 72%.
Revenues increased $20.9 million due to the inclusion of revenues from
NESLAB, which was acquired for accounting purposes effective March 1997;
PSI, which was acquired in March 1997; and SRT, which was acquired in
July 1997 (Note 2). Excluding the impact of acquisitions and foreign
currency translation, revenues from existing operations increased 6% in
1997 compared with 1996. Revenues increased an aggregate of $2.5 million
due to higher demand for inspection systems manufactured by the Company's
Nicolet Imaging Systems division (NIS) and X-ray tubes manufactured by
the Company's Kevex X-Ray subsidiary. These increases were partially
offset by a $1.3 million decrease in revenues at the Company's NORAN
Instrument subsidiary (NORAN) due to a decline in demand for confocal
laser-scanning microscopes. Demand for the Company's digital signal
measurement systems was relatively unchanged in 1997 compared with 1996.
Revenues were adversely affected by approximately $0.6 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 declined to 39% in the third quarter of 1997
from 50% in the third quarter of 1996, of which approximately three
percentage points of the decline were due to margin deterioration at NIS.
The gross profit margin at NIS deteriorated to 16% in 1997 from 41% in
1996, due substantially to a one-time inventory write-off. To a lesser
extent, the gross profit margin at NIS deteriorated due to a change in
mix from higher-margin manual systems to lower-margin automated systems
and pricing pressures resulting from the strengthening of the U.S. dollar
compared to the German Deutsche Mark. The decline in the Company's gross
profit margin in 1997, compared with 1996, is also attributable to the
inclusion of lower-margin revenues from NESLAB, which had a gross profit
margin of 35% in the third quarter of 1997; a four percentage-point
decline in the gross profit margin at NORAN primarily resulting from
lower confocal revenues; and a six percentage-point decline in margin
levels at the Company's Gould Instrument Systems Inc. subsidiary (GIS), a
manufacturer of digital signal measurement systems, due in part to the
strengthening of the U.S. dollar.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 26% in the third quarter of 1997 from 30% in the
third quarter of 1996, primarily due to the inclusion of lower selling
expenses as a percentage of revenues at NESLAB and, to a lesser extent,
lower selling, general, and administrative expenses at GIS as a result of
ongoing expense reductions, including a restructuring charge taken in the
second quarter of 1997, which reduced employee cost levels at that
subsidiary (Note 3). These improvements were offset in part by the
inclusion of higher selling, general, and administrative expenses as a
percentage of revenues at PSI and a higher provision for losses on
accounts receivable in 1997, compared to 1996, principally due to the
aging of accounts receivable at two of the Company's subsidiaries.
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THERMOSPECTRA CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
Research and development expenses as a percentage of revenues
decreased to 8% in the third quarter of 1997 from 11% in the third
quarter of 1996, primarily due to the inclusion of NESLAB, and overall
reduced research and development spending levels at the Company's
existing operations.
Interest income decreased to $0.1 million in the third quarter of
1997 from $0.2 million in the third quarter of 1996 due to lower invested
cash balances as a result of cash used to partially fund the acquisitions
of Kevex Instrument and Kevex X-Ray (the Kevex businesses), which was
paid to Thermo Instrument Systems Inc. (Thermo Instrument) in August
1996, and the acquisition of PSI in March 1997. Interest expense, related
party, increased to $1.2 million in 1997 from $0.2 million in 1996 due to
the assumption of $44.9 million of debt in connection with the
acquisition of NESLAB, the issuance of a $5.0 million promissory note to
Thermo Electron Corporation (Thermo Electron) in connection with the July
1997 acquisition of SRT, the issuance of a $10.0 million promissory note
to Thermo Electron in connection with the March 1997 acquisition of PSI,
and the issuance of a $15.0 million promissory note to Thermo Electron in
August 1996 in connection with the acquisitions of the Kevex businesses.
The effective tax rate was 43% in the third quarter of 1997, compared
with 39% in the third quarter of 1996. The effective tax rates exceed the
statutory federal income tax rate primarily due 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.
The increase in the effective tax rate in 1997 was due to higher
nondeductible amortization of cost in excess of net assets of acquired
companies as a percentage of income before provision for income taxes at
NESLAB.
First Nine Months 1997 Compared With First Nine Months 1996
Revenues were $139.1 million in the first nine months of 1997,
compared with $88.5 million in the first nine months of 1996, an increase
of 57%. Revenues increased $52.0 million due to the inclusion of revenues
from NESLAB, PSI, and SRT, which were acquired in 1997, and the inclusion
of revenues for the full nine-month period from the Kevex businesses,
which were acquired effective March 29, 1996. Excluding the impact of
acquisitions and foreign currency translation, revenues from existing
operations were unchanged in 1997 compared with 1996. Increased revenues
at NIS due to higher demand for inspection systems were offset by a
decline in demand for digital signal measurement systems and a decline in
revenues of $2.1 million at NORAN due to weak demand for the Company's
confocal laser-scanning microscopes. Revenues were adversely affected by
approximately $1.9 million due to the strengthening in the value of the
U.S. dollar relative to currencies in foreign countries in which the
Company operates.
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THERMOSPECTRA CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
The gross profit margin declined to 42% in the first nine months of
1997 from 49% in the first nine months of 1996. The gross profit margin
at NIS declined to 29% in 1997 from 37% in 1996 due to a deterioration in
margin levels during the third quarter of 1997 as discussed in the
results of operations for that quarter. The decline in the gross profit
margin is also attributable to the inclusion of lower-margin revenues
from NESLAB; a three percentage-point decline in the gross profit margin
at NORAN resulting primarily from lower confocal revenues; and a two
percentage-point decline in margin levels at GIS due principally to the
strengthening of the U.S. dollar.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 27% in the first nine months of 1997 from 30% in
the first nine months of 1996, due to the reasons discussed in the
results of operations for the third quarter.
Research and development expenses as a percentage of revenues
decreased to 9% in the first nine months of 1997 from 11% in the first
nine months of 1996, due to the reasons discussed in the results of
operations for the third quarter.
Other nonrecurring expense of $0.8 million in the first nine months
of 1997 represents a charge incurred by GIS during the second quarter of
1997 related to severance costs for 33 employees terminated during that
quarter. Other nonrecurring income, net, in the first nine months of 1996
represents $0.9 million, of an aggregate settlement with the prior owner
of GIS of $2.0 million, for costs incurred by GIS in connection with its
Acqulab product line, offset in part by a $0.7 million restructuring
reserve established in the third quarter of 1996.
Interest income decreased to $0.5 million in the first nine months of
1997 from $0.7 million in the first nine months of 1996 due to lower
invested cash balances as a result of cash used to partially fund the
acquisitions of the Kevex businesses and PSI. Interest expense, related
party, increased to $2.9 million in 1997 from $0.4 million in 1996 due to
the reasons discussed in the results of operations for the third quarter.
The effective tax rate was 42% in 1997, compared with 40% in 1996.
The effective tax rates exceed the statutory federal income tax rate
primarily due to the reasons discussed in the results of operations for
the third quarter. The increase in the effective tax rate in 1997 was due
to the reasons discussed in the results of operations for the third
quarter.
Liquidity and Capital Resources
Consolidated working capital was $43.0 million at September 27, 1997,
compared with $44.7 million at December 28, 1996. Included in working
capital are cash and cash equivalents of $13.4 million at September 27,
1997, compared with $16.6 million at December 28, 1996. Cash provided by
operating activities was $6.0 million in the first nine months of 1997.
Cash of $5.5 million was used to reduce other current liabilities during
this period.
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THERMOSPECTRA CORPORATION
Liquidity and Capital Resources (continued)
The Company used $23.8 million of cash for investing activities
during the first nine months of 1997. During this period, the Company
used $21.1 million of cash for acquisitions, net of cash acquired
(Note 2). The Company expended $2.0 million during the period for
purchases of property, plant, and equipment. The Company plans to expend
an additional $1.0 million for capital expenditures during the remainder
of 1997.
The Company's financing activities provided $15.1 million of cash
during the first nine months of 1997, primarily to fund acquisitions. In
September 1997, the Company borrowed $45.0 million from Thermo Electron
pursuant to a promissory note due July 1999. The Company used the
proceeds from this note to repay the $44.9 million of debt assumed in
connection with the NESLAB acquisition. In connection with the March 1997
acquisition of PSI, the Company borrowed $10.0 million from Thermo
Electron pursuant to a promissory note due March 1999. In connection with
the July 1997 acquisition of SRT, the Company borrowed $5.0 million from
Thermo Electron pursuant to a promissory note due July 1999. These notes
bear interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
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 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, except as described above. 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.
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 August 11, 1997, the Company filed a Current Report on Form 8-K
pertaining to its acquisition of NESLAB Instruments, Inc., a wholly owned
subsidiary of the Company's parent, Thermo Instrument Systems Inc. On
October 14, 1997, the Company filed an amendment on Form 8-K/A, the
purpose of which was to file the financial information required by Form
8-K concerning this acquisition.
15PAGE
<PAGE>
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 4th day of November
1997.
THERMOSPECTRA CORPORATION
Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
-------------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
16PAGE
<PAGE>
THERMOSPECTRA CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
--------------------------------------------------------------------------
10 $45,000,000 Promissory Note dated as of September 12, 1997,
issued by the Company to Thermo Electron Corporation.
27 Financial Data Schedule.
EXHIBIT 10
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW
TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED,
MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE
SECURITIES OR (2) UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THERMOSPECTRA CORPORATION
Promissory Note Due July 30, 1999
Waltham, Massachusetts
September 12, 1997
For value received, Thermospectra Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to Thermo
Electron Corporation (hereinafter referred to as the "Payee"), or
registered assigns, on July 30, 1999, as described below, the
principal sum of forty five million dollars ($45,000,000) or such
part thereof as then remains unpaid, to pay interest from the
date hereof on the whole amount of said principal sum remaining
from time to time unpaid at a rate per annum equal to the rate of
the Commercial Paper Composite Rate for 90-day maturities as
reported by Merrill Lynch Capital Markets, as an average of the
last five business days of the Company's latest fiscal quarter
then ended, plus twenty-five (25) basis points, which rate shall
be adjusted on the first business day of each fiscal quarter of
the Company and shall be in effect for the entirety of such
fiscal quarter, such interest to be payable in arrears on the
first day of each fiscal quarter of the Company during the term
set forth herein, until the whole amount of the principal hereof
remaining unpaid shall become due and payable, and to pay
interest on all overdue principal and interest at a rate per
annum equal to the rate of interest announced from time to time
by BankBoston Corporation at its head office in Boston,
Massachusetts as its "base rate" plus one percent (1%).
Principal and all accrued but unpaid interest shall be repaid on
July 30, 1999. Principal and interest shall be payable in lawful
money of the United States of America, in immediately available
funds, at the principal office of the Payee or at such other
place as the legal holder may designate from time to time in
writing to the Company. Interest shall be computed on an actual
360-day basis.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. All
prepayments shall be applied first to accrued interest and then
to principal.
1PAGE
<PAGE>
The then unpaid principal amount of, and interest
outstanding on, this Note shall be and become immediately due and
payable without notice or demand, at the option of the holder
hereof, upon the occurrence of any of the following events:
(a) the failure of the Company to pay any amount due
hereunder within ten (10) days of the date when due;
(b) any representation, warranty or statement made or
furnished to the Payee by the Company in connection with
this Note or the transaction from which it arises shall
prove to have been false or misleading in any material
respect as of the date when made or furnished;
(c) the failure of the Company to pay its debts as
they become due, the insolvency of the Company, the filing
by or against the Company of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under
the insolvency law of any jurisdiction), or the making by
the Company of an assignment or trust mortgage for the
benefit of creditors or the appointment of a receiver,
custodian or similar agent with respect to, or the taking by
any such person of possession of, any property of the
Company;
(d) the sale by the Company of all or substantially
all of its assets;
(e) the merger or consolidation of the Company with or
into any other corporation in a transaction in which the
Company is not the surviving entity;
(f) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Company or any liability or obligation of the Company to
the holder hereof; and
(g) the suspension of the transaction of the usual
business of the Company.
Upon surrender of this Note for transfer or exchange, a new
Note or new Notes of the same tenor dated the date to which
interest has been paid on the surrendered Note and in an
aggregate principal amount equal to the unpaid principal amount
of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may
treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all
other purposes.
2PAGE
<PAGE>
In case any payment herein provided for shall not be paid
when due, the Company further promises to pay all cost of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Payee in exercising
any right hereunder shall operate as a waiver of such right or of
any other right of the Payee, nor shall any delay, omission or
waiver on any one occasion be deemed a bar to or waiver of the
same or any other right on any future occasion. The Company
hereby waives presentment, demand, notice of prepayment, protest
and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Note. The undersigned hereby assents to any indulgence and any
extension of time for payment of any indebtedness evidenced
hereby granted or permitted by the Payee.
This Note shall be governed by and construed in accordance
with, the laws of the Commonwealth of Massachusetts and shall
have the effect of a sealed instrument.
THERMOSPECTRA CORPORATION
By: _____________________________________
Theo Melas-Kyriazi
President and Chief Executive Officer
[Corporate Seal]
Attest:
____________________________
Sandra L. Lambert
Secretary
cc: Patrice Barnes
Seth Hoogasian
Maureen Jacobs
Sandra Lambert
Karen Levin
Andy Pilla
Gina Silvestri
Chris Vinchesi
3<PAGE>
<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
SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 13,409
<SECURITIES> 0
<RECEIVABLES> 44,486
<ALLOWANCES> 2,420
<INVENTORY> 38,778
<CURRENT-ASSETS> 103,276
<PP&E> 34,753
<DEPRECIATION> 10,255
<TOTAL-ASSETS> 255,439
<CURRENT-LIABILITIES> 60,300
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 126,121
<TOTAL-LIABILITY-AND-EQUITY> 255,439
<SALES> 139,140
<TOTAL-REVENUES> 139,140
<CGS> 80,914
<TOTAL-COSTS> 80,914
<OTHER-EXPENSES> 12,930
<LOSS-PROVISION> 703
<INTEREST-EXPENSE> 2,924
<INCOME-PRETAX> 5,602
<INCOME-TAX> 2,372
<INCOME-CONTINUING> 3,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,230
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
