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 4, 1998.
[ ] 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: (781) 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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 15,323,303
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMOSPECTRA CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 32,259 $ 20,672
Available-for-sale investments, at quoted
market value (cost of $2,056) 2,399 2,083
Accounts receivable, less allowances of
$1,746 and $1,934 40,909 43,015
Inventories:
Raw materials and supplies 17,528 16,850
Work in process 6,777 7,096
Finished goods 9,444 10,839
Prepaid income taxes 7,221 7,337
Other current assets 2,139 1,774
-------- --------
118,676 109,666
-------- --------
Property, Plant, and Equipment, at Cost 29,971 31,108
Less: Accumulated depreciation and
amortization 11,299 10,717
-------- --------
18,672 20,391
-------- --------
Patents, Trademarks, and Other Assets 7,853 8,108
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 114,326 115,232
-------- --------
$259,527 $253,397
======== ========
2PAGE
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THERMOSPECTRA CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
------------------------------------------------------------------------
Current Liabilities:
Note payable to Thermo Electron $ 25,000 $ 15,000
Accounts payable 12,836 12,842
Accrued payroll and employee benefits 5,747 6,987
Deferred revenue 5,192 4,695
Accrued installation and warranty expenses 4,118 4,495
Accrued income taxes 3,008 2,050
Other accrued expenses 8,178 8,496
Due to affiliated companies 5,648 1,561
-------- --------
69,727 56,126
-------- --------
Deferred Income Taxes and Other Deferred Items 1,851 1,633
-------- --------
Long-term Obligations, Due to Thermo Electron
and Thermo Instrument 57,300 67,300
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares
authorized; 15,323,726 and 15,313,506 shares
issued 153 153
Capital in excess of par value 111,292 111,262
Retained earnings 20,010 17,938
Treasury stock at cost, 423 shares (7) (7)
Accumulated other comprehensive items (Note 4) (799) (1,008)
-------- --------
130,649 128,338
-------- --------
$259,527 $253,397
======== ========
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
---------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
---------------------------------------------------------------------
Revenues $53,067 $37,177
------- -------
Costs and Operating Expenses:
Cost of revenues 30,397 20,902
Selling, general, and administrative expenses 14,118 10,351
Research and development expenses 4,513 3,432
Gain on sale of building (339) -
------- -------
48,689 34,685
------- -------
Operating Income 4,378 2,492
Interest Income 325 186
Interest Expense - (26)
Interest Expense, Related Party (1,191) (493)
------- -------
Income Before Provision for Income Taxes 3,512 2,159
Provision for Income Taxes 1,440 971
------- -------
Net Income $ 2,072 $ 1,188
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .14 $ .09
======= =======
Weighted Average Shares (Note 3):
Basic 15,319 12,993
======= =======
Diluted 15,337 13,175
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-----------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Operating Activities:
Net income $ 2,072 $ 1,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,814 1,254
Provision for losses on accounts
receivable 14 194
Other noncash expenses, net 243 266
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 1,974 931
Inventories 83 (63)
Other current assets (257) 158
Accounts payable 1 (104)
Due to affiliated companies 4,227 (75)
Other current liabilities (183) (1,403)
Other (89) 15
-------- --------
Net cash provided by operating activities 9,899 2,361
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (13,885)
Proceeds from sale of product line (Note 2) 750 -
Purchases of property, plant, and equipment (519) (392)
Proceeds from sale of property, plant,
and equipment 1,657 18
Other, net 10 (283)
-------- --------
Net cash provided by (used in) investing
activities 1,898 (14,542)
-------- --------
Financing Activities:
Proceeds from issuance of long-term
obligation to Thermo Electron - 10,000
Net proceeds from issuance of Company common
stock 30 107
Increase (decrease) in short-term borrowings,
net (42) 724
-------- --------
Net cash provided by (used in) financing
activities (12) 10,831
-------- --------
Exchange Rate Effect on Cash (198) (205)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 11,587 (1,555)
Cash and Cash Equivalents at Beginning of Period 20,672 16,580
-------- --------
Cash and Cash Equivalents at End of Period $ 32,259 $ 15,025
======== ========
5PAGE
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
------------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ - $108,483
Cash paid for acquired companies - (17,044)
Stock options issued in connection with
acquisition of PSI - (2,080)
Stock issuable to Thermo Instrument for
acquisition of NESLAB - (32,571)
Debt assumed in connection with acquisition
of NESLAB - (44,907)
-------- --------
Liabilities assumed of acquired companies $ - $ 11,881
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 April
4, 1998, and the results of operations and the cash flows for the
three-month periods ended April 4, 1998, and March 29, 1997. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, 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 January 3, 1998, filed with
the Securities and Exchange Commission.
2. Disposition
In January 1998, the Company's Nicolet Imaging Systems subsidiary
sold its security screening product line to OSI Systems, Inc. for
$750,000 in cash. No material gain or loss was recognized on the sale of
the product line, which represented less than 0.5% of the Company's
revenues.
7PAGE
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THERMOSPECTRA CORPORATION
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
-----------------------------------------------------------------------
Basic
Net income $ 2,072 $ 1,188
------- -------
Weighted average shares 13,113 12,447
Shares issuable for acquisition
of NESLAB 2,206 546
------- -------
Weighted average shares, as adjusted 15,319 12,993
------- -------
Basic earnings per share $ .14 $ .09
======= =======
Diluted
Net income $ 2,072 $ 1,188
------- -------
Basic weighted average shares 15,319 12,993
Effect of stock options 18 182
------- -------
Weighted average shares, as adjusted 15,337 13,175
------- -------
Diluted earnings per share $ .14 $ .09
======= =======
The computation of diluted earnings per share for 1998 and 1997
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of April 4, 1998,
there were 1,122,000 of such options outstanding, with exercise prices
ranging from $9.53 to $17.15 per share.
4. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items.
In general, comprehensive income combines net income and "other
comprehensive items," which represent certain amounts that are reported
as components of shareholders' investment in the accompanying balance
sheet, including foreign currency translation adjustments and unrealized
net of tax gains and losses from available-for-sale investments. During
the first quarter of 1998 and 1997, the Company's comprehensive income
totaled $2,280,000 and $487,000, respectively.
8PAGE
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THERMOSPECTRA CORPORATION
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 heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998, filed with the Securities and
Exchange Commission.
Overview
The Company develops, manufactures, and markets imaging and
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 test and measurement systems consisting of digital
oscillographic recorders, digital storage oscilloscopes (DSOs), and data-
acquisition systems; X-ray microanalyzers; X-ray fluorescence
instruments; nondestructive X-ray inspection systems; specialty X-ray
tubes; and confocal laser scanning microscopes. In 1997, the Company
broadened its product offerings through the acquisition of Park
Scientific Instruments Corporation (PSI), a manufacturer of
scanning-probe microscopes; NESLAB Instruments, Inc., a supplier of
temperature-control products; and Sierra Research and Technology Inc.
(SRT), a manufacturer of systems used for the rework and repair of
printed circuit boards.
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. 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. One of the
Company's principal goals during recent quarters has been to improve
operating margins. A part of this plan included the December 1997 and
January 1998 divestitures of two low-margin product lines (Note 2).
A significant portion of the Company's total revenues is attributable
to the sale of products and related services to customers in the
semiconductor industry. Demand for the Company's products and services
within the semiconductor industry is dependent upon the level of capital
spending by semiconductor companies. There can be no assurance that
current levels of semiconductor activities will be maintained or that
demand for the Company's products and related services will reflect the
level of such activities.
9PAGE
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THERMOSPECTRA CORPORATION
Overview (continued)
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 worldwide. During
1997, exports from the Company's U.S. and foreign subsidiaries to the Far
East represented 15% of total revenues. Exports to Japan represented 8%
of total revenues and exports to Taiwan, South Korea, and Singapore,
collectively, represented 5% of total revenues. Asia is experiencing a
severe economic crisis, which has been characterized by sharply reduced
economic activity and liquidity, highly volatile foreign-currency-
exchange and interest rates, and unstable stock markets. The Company's
sales in Asia could be adversely affected by the unstable economic
conditions there. Additionally, certain of the Company's customers
located outside of the Asian region could be adversely affected by the
unstable economic conditions in Asia.
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.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues were $53.1 million in the first quarter of 1998, compared
with $37.2 million in the first quarter of 1997, an increase of 43%.
Revenues increased $18.4 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. Revenues declined $1.0 million due to the recent sale of two
of the Company's product lines. Revenues were adversely affected by
approximately $0.5 million due to the strengthening in the value of the
U.S. dollar relative to currencies in foreign countries in which the
Company operates. Combined revenues increased 12% at NORAN Instrument,
Nicolet Instrument Technologies, Kevex X-Ray, and Nicolet Imaging
Systems, which represent 37% of first quarter 1998 revenues. These
increases were slightly more than offset by a 23% decline in revenues due
to decreased demand for test and measurement systems at Gould Instrument
Systems Inc. (GIS) and the inclusion in 1997 of a large shipment at Kevex
Instruments. GIS and Kevex Instruments represent 20% of first quarter
1998 revenues.
The gross profit margin declined to 43% in the first quarter of 1998
from 44% in the first quarter of 1997. The decline is primarily
attributable to the inclusion of lower-margin revenues from NESLAB, which
had a gross profit margin of 37% in the first quarter of 1998.
10PAGE
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THERMOSPECTRA CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Selling, general, and administrative expenses as a percentage of
revenues decreased to 27% in the first quarter of 1998 from 28% in the
first quarter of 1997, 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. These improvements were offset in part by the inclusion of
higher selling, general, and administrative expenses as a percentage of
revenues at PSI.
Research and development expenses increased to $4.5 million in the
first quarter of 1998 from $3.4 million in the first quarter of 1997,
primarily due to the inclusion of NESLAB and PSI for the full period in
1998.
Interest income increased slightly to $0.3 million in the first
quarter of 1998 from $0.2 million in the first quarter of 1997 due to
higher average invested cash balances. Interest expense, related party,
increased to $1.2 million in 1998 from $0.5 million in 1997 due to the
issuance of $60.0 million aggregate amount of promissory notes to Thermo
Electron Corporation in connection with acquisitions in 1997.
The effective tax rate was 41% in the first quarter of 1998, compared
with 45% in the first quarter of 1997. 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 decrease in the effective tax rate in 1998 was primarily due to the
lower relative effect of nondeductible amortization of cost in excess of
net assets of acquired companies and, to a lesser extent, a decrease in
foreign tax losses not benefited.
Liquidity and Capital Resources
Consolidated working capital was $48.9 million at April 4, 1998,
compared with $53.5 million at January 3, 1998. Included in working
capital are cash, cash equivalents, and short-term investments of $34.7
million at April 4, 1998, compared with $22.8 million at January 3, 1998.
Cash provided by operating activities was $9.9 million in the first three
months of 1998. A decrease in accounts receivable provided $2.0 million
of cash, due primarily to lower sales at the Company's GIS subsidiary. An
increase in amounts due to affiliated companies provided $4.2 million of
cash. Amounts due to affiliated companies are payable under normal
commercial terms.
Cash of $1.9 million was provided by investing activities during the
first three months of 1998. During this period, the Company received $0.8
million of cash from the sale of a product line (Note 2) and $1.7 million
from the sale of property, plant, and equipment, primarily for the sale
of a building by GIS. The Company expended $0.5 million during the period
for purchases of property, plant, and equipment and plans to spend an
additional $2.5 million for capital expenditures during the remainder of
1998.
11PAGE
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THERMOSPECTRA CORPORATION
Liquidity and Capital Resources (continued)
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. 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. Thermo Electron has
indicated that it will seek repayment of the notes due to it in 1998 and
1999 only to the extent the Company's cash flow permits such repayment.
PART II - OTHER INFORMATION
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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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 12th day of May 1998.
THERMOSPECTRA CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
and Senior Vice President
13PAGE
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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 CONATINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOSPECTRA CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
APRIL 4, 1998 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-02-1999
<PERIOD-END> APR-04-1998
<CASH> 32,259
<SECURITIES> 2,399
<RECEIVABLES> 42,655
<ALLOWANCES> 1,746
<INVENTORY> 33,749
<CURRENT-ASSETS> 118,676
<PP&E> 29,971
<DEPRECIATION> 11,299
<TOTAL-ASSETS> 259,527
<CURRENT-LIABILITIES> 69,727
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 130,496
<TOTAL-LIABILITY-AND-EQUITY> 259,527
<SALES> 53,067
<TOTAL-REVENUES> 53,067
<CGS> 30,397
<TOTAL-COSTS> 30,397
<OTHER-EXPENSES> 4,513
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 1,191
<INCOME-PRETAX> 3,512
<INCOME-TAX> 1,440
<INCOME-CONTINUING> 2,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,072
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
