SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________________
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 3, 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.)
245 Winter Street
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of January 30, 1998, was approximately $24,593,000.
As of January 30, 1998, the Registrant had 12,560,000 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 3, 1998, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 1, 1998, are incorporated by
reference into Part III.
PAGE
<PAGE>
PART I
Item 1. Business
--------
(a) General Development of Business
-------------------------------
ThermoSpectra Corporation (the Company or the Registrant) 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 was incorporated in Delaware in August
1994 as an indirect, wholly owned subsidiary of Thermo Instrument Systems
Inc., a publicly traded subsidiary of Thermo Electron Corporation.
The Company has achieved and maintains its competitive position
primarily by providing customers with a broad array of technologically
advanced instrumentation. The Company's strategy for growth includes the
continued development of new applications for its technology to address
related market segments, identifying and acquiring complementary
businesses, and strengthening its presence in selected geographic
markets.
In March 1997, Thermo Instrument 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 $76.2 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
consisted of 2,759,042 shares of Company common stock valued at $31.3
million issuable to Thermo Instrument and the assumption of $44.9 million
of debt, which was paid 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.
In March 1997, the Company acquired Park Scientific Instruments
Corporation (PSI), for $16.7 million in cash, including the repayment of
$1.3 million in 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 approximately $1.7 million as of the date of the
merger agreement. PSI is a manufacturer of scanning-probe microscopes
used in industry and academia to test and measure the topography and
other surface properties of materials.
2PAGE
<PAGE>
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.
As of January 3, 1998, Thermo Instrument owned 11,756,517 shares of
the common stock of the Company, representing 77% of such stock
outstanding. Thermo Instrument develops, manufactures, markets, and
services instruments and software used for the identification and
quantification of complex molecular compounds and elements in gases,
liquids, and solids. Uses include pharmaceutical drug research and
clinical diagnostics, monitoring and measuring environmental pollutants,
industrial inspection, and test and control for quality assurance and
productivity improvement. In addition, Thermo Instrument develops,
manufactures, markets, and services equipment for the measurement,
preparation, storage, and automation of sample materials, and photonics
and vacuum components for original equipment manufacturers. As of January
3, 1998, Thermo Electron owned 954,253 shares of the common stock of the
Company, representing 6% of such stock outstanding. During 1997*, Thermo
Electron purchased 845,000 shares in the open market for a total purchase
price of $10.8 million. Thermo Electron provides analytical and
monitoring instruments; biomedical products including heart-assist
devices, respiratory-care equipment, and mammography systems; paper
recycling and papermaking equipment; alternative-energy systems;
industrial-process equipment; and other specialized products. Thermo
Electron also provides industrial outsourcing, particularly in
environmental-liability management, laboratory analysis, and
metallurgical services, and conducts advanced-technology research and
development.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. 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 the Registrant's 1997 Annual Report to Shareholders, which
statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company is engaged in one business segment: developing,
manufacturing, and marketing imaging and inspection, temperature-control,
and test and measurement instruments.
* References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
3PAGE
<PAGE>
(c) Description of Business
-----------------------
(i) Principal Products and Services
-------------------------------
The Company manufactures and markets a variety of advanced
instrumentation that employs a broad range of technologies.
Imaging and Inspection Systems
The Company's Kevex Instruments and NORAN Instruments subsidiaries
manufacture X-ray analytical instruments enhanced by real-time digital
imaging technology for the electronics, aerospace, and automotive
industries, among others. The product lines include several X-ray
microanalysis instruments that analyze the chemical composition of
microscopic samples by detecting, collecting, sorting, and measuring
X-rays emitted by a sample that has been excited by an energy source. The
Company also manufactures a range of X-ray fluorescence instruments that
incorporate an X-ray source into the instrument to excite the sample.
Industrial customers, universities, and government laboratories
represent the majority of the end users of X-ray microanalysis systems.
Over 50% of the Company's sales of X-ray microanalyzers are to electron
microscope manufacturers, including Japan Electro Optical Laboratories,
Hitachi, Ltd., and Amray, for resale to end users. The Company sells its
X-ray microanalyzers and X-ray fluorescence instruments in the U.S.
through a direct sales force; through a combination of direct
salespeople, distributors, and sales representatives in Europe, Japan,
and the rest of the Pacific Rim; and through original equipment
manufacturer (OEM) relationships with electron microscope manufacturers.
The Company's Kevex X-Ray subsidiary is a manufacturer of specialized
X-ray sources used by industrial users for imaging, inspection,
analytical, and thickness-gauging applications. Kevex X-Ray also supplies
X-ray sources for advanced medical diagnostic imaging equipment. The
Company sells its X-ray sources primarily to OEMs through a direct sales
force in the United States, a distributor in Japan, and through both a
direct sales force and distributors in the remainder of the world.
The Company's Nicolet Imaging Systems (NIS) division manufactures
real-time, nondestructive X-ray imaging systems for quality-control
inspection. NIS' products are used to inspect high-reliability,
high-liability products, two examples of which are components for the
telecommunications industry and those used in airbag assembly in the
automobile industry. The Company's line of X-ray inspection products are
among the most complete on the market, ranging from manual, industrial
inspection systems to fully automated, conveyorized circuit board
analysis systems for high-volume electronics manufacturing. The Company
markets its X-ray inspection systems worldwide through a network of
domestic and international sales representatives.
Through the Company's recently acquired SRT subsidiary, the Company
manufactures systems for the rework and repair of printed circuit boards
that have failed quality-control inspection. The product line includes
systems that remove defective components from the board, clean away
4PAGE
<PAGE>
excess solder, redispense solder to the board, and replace components.
This is facilitated by proprietary software that allows for increased
automation and ease of use when incorporated into the system. The Company
sells its circuit board-repair systems through a combination of
distributors and sales representatives.
Through its PSI subsidiary, the Company designs, manufactures, and
sells a family of scanning probe microscopes, including vacuum, ambient
air, and liquid cell systems. Scanning probe microscopy is a new imaging
tool that offers three-dimensional resolution used for studying the
surface properties of materials down to the atomic level. Scanning probe
microscopes can measure such physical surface properties as magnetic
fields, surface conductivity, and static-charge distribution. PSI's
instruments are used for academic, semiconductor, computer storage,
materials science, optics, and life science applications. The Company
sells its scanning probe microscopes through a direct sales force,
representatives, and distributors throughout the world.
The Company's NORAN subsidiary manufactures confocal laser scanning
microscopes that create an image of a sample by rapidly scanning it with
a laser light source. Confocal microscopes provide greatly enhanced depth
resolution over conventional optical microscopes. The Company sells its
confocal laser scanning microscope through a direct sales force and
through distributors and sales representatives.
Revenues from imaging and inspection systems represented 46%, 55%,
and 49% of the Company's total revenues in 1997, 1996, and 1995,
respectively.
Temperature-control Systems
Through its NESLAB subsidiary, the Company manufactures and markets
precision temperature-control systems for analytical, laboratory,
industrial, R&D, laser, and semiconductor applications. The laboratory
product line includes constant-temperature bath/circulators and immersion
coolers typically used for cell culture, incubations, refractometer
cooling, and general research and development. The industrial product
line features self-contained cooling systems that pump chilled water
through water-cooled equipment such as lasers; analytical instrumentation
such as X-ray diffraction; and, in the semiconductor industry, etchers
and ion implanters.
The Company sells its temperature-control systems through a direct
sales force in the U.S. and Europe, and through a network of distributors
and sales representatives in the rest of the world. Revenues from
temperature-control systems represented 28% of the Company's total
revenues in 1997.
Test and Measurement Instruments
The Company's Nicolet Instrument Technologies and Gould Instrument
Systems subsidiaries manufacture data-acquisition systems, digital
oscilloscopes, and recording systems addressing a broad range of
applications, primarily research-oriented. Markets served include
5PAGE
<PAGE>
automotive, power, medical research, telecommunications, and TV and
video. The product family enables the analysis and display of most common
signal types such as voltage, pressure, current, strain, acceleration,
and temperature.
The Company markets its test and measurement instruments in the
United States and Europe through a combination of direct salespeople,
distributors, and sales representatives, and in the rest of the world
through over 90 distributors and sales representatives. Revenues from
test and measurement instruments represented 26%, 45%, and 51% of the
Company's total revenues in 1997, 1996, and 1995, respectively.
(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development of both
hardware and software to create new applications for its instruments that
address related market segments and to enhance existing applications.
Research and development expenses for the Company were $17.3 million,
$12.9 million, and $9.0 million in 1997, 1996, and 1995, respectively.
(iii) Raw Materials
Raw materials, components, and supplies purchased by the Company are
either available from a number of different suppliers or from alternative
sources that could be developed without a material adverse effect on the
Company's business. To date, the Company has experienced no difficulties
in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights
and to apply for patent protection when appropriate. The Company is the
owner of a number of patents. Patent protection provides the Company with
competitive advantages with respect to certain instruments. The Company
believes, however, that technical know-how and trade secrets are more
important to its business than patent protection.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales
of its products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
6PAGE
<PAGE>
(viii) Backlog
-------
The Company's backlog of firm orders was $40.4 million as of
January 3, 1998, and $24.5 million as of December 28, 1996. The Company
believes that substantially all of the backlog as of January 3, 1998,
will be shipped during 1998. Certain of such firm orders are cancellable
by the customer upon payment of a cancellation charge. The Company does
not believe that the size of its backlog is necessarily indicative of
intermediate or long-term trends in its business.
(ix) Government Contracts
--------------------
Not applicable.
(x) Competition
-----------
The Company competes primarily on the basis of technical advances
that result in new products and improved price/performance ratios and
reputation among customers as a quality leader for products and services.
To a lesser extent, the Company competes on the basis of price. The
Company is not aware of any other company that competes with it in all of
its product lines. Some of the Company's competitors have resources
substantially greater than those of the Company.
Imaging and Inspection Systems
The Company competes in both the high- and mid-end of the X-ray
microanalysis market. In the high end of this market, the Company offers
superior imaging and user-interface software. By incorporating computer
workstations in some of its systems, the Company believes it offers its
customers superior ability to collect, analyze, and display images, and
to network into a broader laboratory environment. The Company also offers
mid-level products in this market, with instruments that operate on a
personal-computer platform. The Company competes in the mid-end of this
market on the basis of quality, performance, and price. The primary
competitors in this segment are Link Analytical Limited, a wholly owned
subsidiary of Oxford Instruments plc and EDAX.
The Company's X-ray fluorescence product offerings compete in the
high end of this market. The Company believes that its strong X-ray
source and detector technology gives its products unique capabilities for
industrial process analysis. The Company competes on the basis of
quality, performance, technology, and price. The primary competitors in
this segment are Horiba Ltd., Seiko Instruments Inc., and Jordan Valley
Applied Radiation, Ltd.
The Company competes in the specialty X-ray source market on the
basis of quality and price. Competitors in such markets include Hamamatsu
Photonics KK, True Focus Inc., and Oxford.
In the X-ray inspection market, the Company competes on the basis of
superior imaging performance, imaging analysis algorithms, customer-
applications expertise, overall machine flexibility and quality, and
price. In the manual segment of the X-ray inspection market, the Company
7PAGE
<PAGE>
competes primarily with a few small companies. In the automated segment,
its main competitor is Four Pi, a subsidiary of Hewlett-Packard. No
company occupies an across-the-board dominant position. Competitors also
include manufacturers of visible and laser-based inspection systems.
SRT competes primarily on the basis of technological innovation,
performance, and price. SRT's main competitors are Fine Tech, AirVac,
Conceptronics, OK Industries, APE, Manncorp, Pace, Mannix, and SEC.
The Company competes primarily in the high-speed imaging segment of
the confocal microscopy market. The Company competes by offering a
higher-speed imaging capability than its competitors. The Company also
competes by offering a highly integrated software package to its
customers. The Company competes only to a lesser extent on the basis of
price. The Company believes it holds the largest share of the high-speed
imaging market, however, it is a minor competitor in the overall confocal
life sciences market. Major competitors include Bio-Rad Laboratories,
Inc., Carl Zeiss, Inc., Leica PLC, and Nikon, Inc.
The Company competes in the scanning probe microscope market on the
basis of quality, performance, and price. The dominant competitor in this
market is Digital Instruments Inc. Other competitors include Seiko and
Topometrix Corporation.
Temperature-control Systems
NESLAB competes primarily on the basis of performance, price, and
customer service. The Company's main competitors are Lauder and Julabo.
Test and Measurement Instruments
In the broad-based test and measurement market, the Company competes
with products offering a wide range of measurement capabilities and price
points. The Company competes on the basis of quality of the measurement
and analysis capability of its products. The Company's combined product
lines are among the most complete in the industry, mostly differentiating
themselves on the quality of measurement and analysis capabilities. To a
much lesser degree, the Company competes on price. The Company believes
it is well-positioned to capitalize on the market transition from
monolithic, single-purpose tools based on proprietary architectures to
multi-purpose Windows(R)-based acquisition and analysis systems.
A common competitor for the Company across all test and measurement
product lines is Yokogawa Corporation. The Company also competes with
Hewlett Packard and Tektronix in the general-purpose digital storage
oscilloscope marketplace. In the oscillographic recorder marketplace, the
primary competition comes from Astro-Med and Graphtec Corporation of
Japan. In the data acquisition marketplace, the Company competes in a
variety of applications and markets against a range of competitors.
Primary competition at the low end of the marketplace comes from
companies such as National Instruments and IOTech and in the
high-performance segments competition comes from companies such as
Hewlett-Packard, as well as many smaller regional suppliers.
8PAGE
<PAGE>
(xii) Environmental Protection Regulations
The Company believes that its compliance with federal, state, and
local environmental protection regulations will not have a material
adverse effect on its capital expenditures, earnings, or competitive
position.
(xiii) Number of Employees
As of January 3, 1998, the Company employed approximately 1,400
people.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 12 to Consolidated Financial
Statements in the Registrant's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
-------------------------------------------------------------------
Barry S. Howe 41 President and Chief Executive Officer
(1998)
John N. Hatsopoulos 63 Chief Financial Officer and
Senior Vice President (1994)
Richard S. Melanson 44 Senior Vice President (1997)
Christopher J. Barron 49 Vice President (1994)
Ronald W. Lindell 46 Vice President (1994)
Paul F. Kelleher 55 Chief Accounting Officer (1994)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until earlier
resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have
held comparable positions for at least five years with Thermo Instrument
and Thermo Electron. Mr. Howe has been President and Chief Executive
Officer of the Company since March 1998. Prior to joining the Company,
Mr. Howe was President and Chief Executive Officer of Thermo BioAnalysis
Corporation, from February 1995 to March 1998, and President of Thermo
Instrument's Thermo Separation Products Inc. subsidiary and its
predecessor, a manufacturer of liquid chromatography instruments, from
September 1989 to December 1995. Mr. Barron has been a Vice President of
the Company since August 1994 and President of Nicolet Instrument
Technologies, Inc. since August 1993. Mr. Barron held various positions
within Nicolet Instrument Corporation (Nicolet) from May 1988 to August
1993. Nicolet is a wholly owned subsidiary of Thermo Optek Corporation, a
publicly traded, majority-owned subsidiary of Thermo Instrument. Mr.
Lindell has been a Vice President of the Company since August 1994 and
President of Nicolet Imaging Systems since January 1994. Mr. Lindell was
a founder of Imaging Systems International, Inc. and its President from
November 1992 to January 1994. Mr. Melanson has been a Senior Vice
9PAGE
<PAGE>
President of the Company and President of NESLAB Instruments Inc. since
October 1997. Mr. Melanson was Vice President and General Manager of
Philips ElectroScan from July 1996 to September 1997 and was President
and Chief Executive Officer of ElectroScan Corporation from September
1989 to July 1996. Each of the above-named officers is a full-time
employee of the Company except for Messrs. Hatsopoulos and Kelleher, who
are full-time employees of Thermo Electron but devote such time to the
affairs of the Company as the Company's needs reasonably require.
Item 2. Properties
----------
The Company owns approximately 200,000 square feet of office,
engineering, laboratory, and manufacturing space in Valencia, California;
Middleton, Wisconsin; and Hainault, England. The Company leases
approximately 440,000 square feet of additional office, engineering,
laboratory, and manufacturing space under leases expiring from 1998
through 2005, principally in Newington, New Hampshire; Valley View, Ohio;
San Diego, California; and Sunnyvale, California. The Company believes
that its facilities are in good condition and are suitable and adequate
for its present operations. With respect to leases expiring in the near
future, in the event the Company does not renew such leases, the Company
believes suitable alternate space is available for lease on acceptable
terms.
Item 3. Legal Proceedings
-----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
10PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------
Matters
-------
Information concerning the market and market price for the
Registrant's Common Stock, $.01 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
-----------------------
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Registrant's Consolidated Financial Statements as of January 3,
1998, and Supplementary Data are included in the Registrant's 1997 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
11PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
----------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
12PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a,d) Financial Statements and Schedules
----------------------------------
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedules set forth in
the list below are filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
-------------------------------------------------------------
Item 14
-------
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(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
Instruments 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.
(c) Exhibits
--------
See Exhibit Index on the page immediately preceding exhibits.
13PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 18, 1998 THERMOSPECTRA CORPORATION
By: Barry S. Howe
---------------------------------------
Barry S. Howe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated, as of March 18, 1998.
Signature Title
--------- -----
By: Barry S. Howe President, Chief Executive Officer,
-------------------- and Director
Barry S. Howe
By: John N. Hatsopoulos Chief Financial Officer and Senior
--------------------- Vice President
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
---------------------
Paul F. Kelleher
By: Robert E. Finnigan Director
---------------------
Robert E. Finnigan
By: Elias P. Gyftopoulos Director
---------------------
Elias P. Gyftopoulos
By: Earl R. Lewis Director
---------------------
Earl R. Lewis
By: Theo Melas-Kyriazi Chairman of the Board and Director
---------------------
Theo Melas-Kyriazi
By: Arvin H. Smith Director
---------------------
Arvin H. Smith
14PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of ThermoSpectra Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in
ThermoSpectra Corporation's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
February 17, 1998. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14 on page 13 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 1998
15PAGE
<PAGE>
SCHEDULE II
THERMOSPECTRA CORPORATION
Valuation And Qualifying Accounts
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Accounts Written at End
Description of Year Expense Recovered Off Other(a) of Year
----------------------------------------------------------------------------
Allowance for
Doubtful Accounts
Year Ended
Jan. 3, 1998 $1,516 $ 521 $ 135 $ (704) $ 466 $1,934
Year Ended
Dec. 28, 1996 $1,095 $ 199 $ 1 $ (436) $ 657 $1,516
Year Ended
Dec. 30, 1995 $1,007 $ 192 $ - $ (559) $ 455 $1,095
(a) Includes allowance of businesses acquired during the year as described
in Note 3 to Consolidated Financial Statements in the Registrant's 1997
Annual Report to Shareholders and the effect of foreign currency
translation.
16PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Asset Purchase Agreement dated as of August 5, 1996, between
the Registrant and Thermo Instrument Systems Inc. for the
purchase of the Kevex businesses (filed as Exhibit 2 to the
Registrant's Quarterly Report on form 10-Q for the quarter
ended June 29, 1996 [File No. 1-13876] and incorporated
herein by reference).
2.2 Agreement and Plan of Merger dated as of January 30, 1997,
by and among the Registrant, Park Acquisition Corp., and
Park Scientific Instruments Corporation (filed as Exhibit
2.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 [File No. 1-13876] and
incorporated herein by reference). Pursuant to Item
601(b)(2) of Regulation S-K, schedules to this Agreement
have been omitted. The Registrant hereby undertakes to
furnish supplementally a copy of such schedules to the
Commission upon request.
2.3 Share purchase agreement dated as of July 30, 1997, between
the Registrant and Thermo Instrument for the purchase of
NESLAB Instruments Inc. (filed as Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997 [File No. 1-13876] and incorporated
herein by reference).
3.1 Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3.2 to the
Registrant's [Reg. No. 33-93778] and incorporated herein by
reference).
10.1 Corporate Services Agreement dated as of August 10, 1994,
between the Registrant and Thermo Electron Corporation
(filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
10.3 Tax Allocation Agreement dated as of August 10, 1994,
between the Registrant and Thermo Electron (filed as Exhibit
10.3 to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-93778] and incorporated herein by reference).
17PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.4 Amended and Restated Master Repurchase Agreement dated as of
December 28, 1996, between the Registrant and Thermo
Electron (filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [File No. 1-13876] and incorporated herein by
reference).
10.5 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of December 4, 1997, between the
Registrant and Thermo Electron (filed as Exhibit 10.40 to
Thermo Instrument's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 [File No. 1-9786] and
incorporated herein by reference).
10.6 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of December 4, 1997, between the
Registrant and Thermo Instrument.
10.7 ThermoSpectra - Park Scientific Instruments Corporation 1988
Incentive Stock Option Plan (filed as Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 [File No. 1-13876] and incorporated
herein by reference).
10.8 Lease Agreement dated as of November 30, 1995, between
Nicolet Instrument Corporation and Nicolet Instrument
Technologies, Inc. (filed as Exhibit 10.8 to the
Registrant's 1995 Annual Report on Form 10-K [File No.
1-13876] and incorporated herein by reference).
10.9 Lease Agreement dated as of July 26, 1989, between Gould
Instrument Systems, Inc. (successor-in-interest to Gould,
Inc.) and Linclay (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-93778] and
incorporated herein by reference).
10.10 Lease Agreement dated as of October 19, 1994, between RREEF
West-VI, Inc. and Thermo Instrument (filed as Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 [Reg.
No. 33-93778] and incorporated herein by reference).
10.11 Stock Purchase Agreement dated as of May 10, 1995, among the
Registrant, Thermo Instrument, and Japan Energy Corporation
(filed as Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.12 $7.3 Million Note due September 2001 issued to Thermo
Instrument (filed as Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-93778] and
incorporated herein by reference).
18PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.13 Equity Incentive Plan of the Registrant (filed as Exhibit
10.18 to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-93778] and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of
Thermo Electron and Thermo instrument for services rendered
to the Registrant or such affiliated corporations. The terms
of such plans are substantially the same as those of the
Registrant's Equity Incentive Plan.
10.14 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.15 Directors' Stock Option Plan of the Registrant (filed as
Exhibit 10.20 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
10.16 Form of Indemnification Agreement for Officers and Directors
(filed as Exhibit 10.21 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.17 Restated Stock Holdings Assistance Plan and Form of
Promissory Note (filed as Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the year ended December 28,
1996 [File No. 1-13876] and incorporated herein by
reference).
10.18 $15,000,000 Promissory Note dated as of August 5, 1996,
issued by the Registrant to Thermo Electron (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 29, 1996 [File No. 1-13876]
and incorporated herein by reference).
10.19 $10,000,000 Promissory Note dated as of March 12, 1997,
issued by the Registrant to Thermo Electron (filed as
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K
for the year ended December 28, 1996 [File No. 1-13876] and
incorporated herein by reference).
10.20 $5,000,000 Promissory Note dated as of August 1, 1997,
issued by the Registrant to Thermo Electron (filed as
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1997 [File No. 1-13876] and
incorporated herein by reference).
19PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.21 $45,000,000 Promissory Note dated as of September 12, 1997,
issued by the Registrant to Thermo Electron (filed as
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1997 [File No. 1-13876]
and incorporated herein by reference).
13 Annual Report to Shareholders for the year ended January 3,
1998 (only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended January 3, 1998.
27.2 Financial Data Schedule for the quarter ended March 30, 1996
(restated for the adoption of SFAS No. 128).
27.3 Financial Data Schedule for the quarter ended September 28,
1996 (restated for the adoption of SFAS No. 128).
Exhibit 10.6
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 4th day of
December, 1997, by and among Thermo Instrument Systems Inc. (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
PAGE
<PAGE>
Parent as a result of the Parent Guarantee. If a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof
provides a Credit Support Obligation for any subsidiary of
the Parent, other than a subsidiary of such Majority Owned
Subsidiary, and the beneficiary(ies) of the Credit Support
Obligation enforce the Credit Support Obligation, or the
Majority Owned Subsidiary or its wholly-owned subsidiary
performs under the Credit Support Obligation for any other
reason, then the Parent shall indemnify and save harmless
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, from any liability, cost, expense
or damage (including reasonable attorneys' fees) suffered by
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, as a result of the Credit Support
Obligation. Without limiting the foregoing, Credit Support
Obligations include the deposit of funds by a Majority Owned
Subsidiary or a wholly-owned subsidiary thereof in a credit
arrangement with a banking facility whereby such funds are
available to the banking facility as collateral for
overdraft obligations of other Majority Owned Subsidiaries
or their subsidiaries also participating in the credit
arrangement with such banking facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
PAGE
<PAGE>
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") 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 such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
PAGE
<PAGE>
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. 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 Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
6. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO INSTRUMENT SYSTEMS INC.
By: /s/ Earl R. Lewis
------------------------------
Title: President
PAGE
<PAGE>
THERMOSPECTRA CORPORATION
By: /s/ Theo Melas-Kyriazi
------------------------------
Title: President
Exhibit 13
THERMOSPECTRA CORPORATION
Consolidated Financial Statements
1997
PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Notes 8 and 12) $198,900 $123,199 $ 91,714
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues (Note 8) 115,747 62,900 46,384
Selling, general, and administrative
expenses (Note 8) 53,182 36,493 28,501
Research and development
expenses 17,303 12,910 9,036
Gain on sale of business (Note 3) (2,210) - -
Other nonrecurring expense, net
(Note 4) 953 171 -
-------- -------- --------
184,975 112,474 83,921
-------- -------- --------
Operating Income 13,925 10,725 7,793
Interest Income 692 935 820
Interest Expense (66) - -
Interest Expense, Related Party (Note 8) (4,151) (773) (707)
-------- -------- --------
Income Before Provision for Income Taxes 10,400 10,887 7,906
Provision for Income Taxes (Note 6) 4,552 4,270 3,312
-------- -------- --------
Net Income $ 5,848 $ 6,617 $ 4,594
======== ======== ========
Earnings per Share (Note 13):
Basic $ .40 $ .53 $ .41
======== ======== ========
Diluted $ .39 $ .53 $ .40
======== ======== ========
Weighted Average Shares (Note 13):
Basic 14,694 12,437 11,229
======== ======== ========
Diluted 14,806 12,570 11,356
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 20,672 $ 16,580
Available-for-sale investments, at quoted
market value (cost of $2,056; Note 2) 2,083 -
Accounts receivable, less allowances of
$1,934 and $1,516 43,015 32,327
Inventories 34,785 27,042
Prepaid income taxes (Note 6) 7,337 5,931
Other current assets 1,774 1,722
-------- --------
109,666 83,602
-------- --------
Property, Plant, and Equipment, at Cost, Net 20,391 20,169
-------- --------
Patents, Trademarks, and Other Assets 8,108 7,938
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3, 4, and 6) 115,232 40,776
-------- --------
$253,397 $152,485
======== ========
3PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Note payable to Thermo Electron (Notes 3 and 8) $ 15,000 $ -
Note payable (Note 9) - 591
Accounts payable 12,842 11,508
Accrued payroll and employee benefits 6,987 5,334
Accrued installation and warranty expenses 4,495 3,396
Deferred revenue 4,695 3,453
Accrued income taxes 2,050 1,792
Other accrued expenses (Note 4) 8,496 9,586
Due to affiliated companies 1,561 3,259
-------- --------
56,126 38,919
-------- --------
Deferred Income Taxes (Note 6) 356 268
-------- --------
Other Deferred Items 1,277 1,377
-------- --------
Long-term Obligations, Due to Thermo Electron
and Thermo Instrument (Notes 3 and 8) 67,300 22,300
-------- --------
Commitments and Contingencies (Notes 7 and 8)
Shareholders' Investment (Notes 3, 5, and 10):
Common stock, $.01 par value, 25,000,000 shares
authorized; 15,313,506 and 12,439,950 shares
issued 153 124
Capital in excess of par value 111,262 77,416
Retained earnings 17,938 12,345
Treasury stock at cost, 423 and 305 shares (7) (5)
Cumulative translation adjustment (1,035) (259)
Unrealized gain on available-for-sale
investments (Note 2) 27 -
-------- --------
128,338 89,621
-------- --------
$253,397 $152,485
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 5,848 $ 6,617 $ 4,594
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 6,615 4,493 3,720
Gain on sale of business
(Note 3) (2,210) - -
Restructuring expense (Note 4) 953 1,038 -
Provision for losses on
accounts receivable 521 199 192
Other noncash expenses 1,417 839 430
Deferred income tax (benefit)
expense (40) (796) 75
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (733) (3,444) 739
Inventories 4,873 (3,105) (1,106)
Other current assets (81) 335 (173)
Accounts payable (2,330) 2,123 (3,116)
Due to affiliates (2,699) 426 1,398
Other current liabilities (3,782) (3,276) (1,432)
Other 34 (21) -
-------- -------- --------
Net cash provided by operating
activities 8,386 5,428 5,321
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (21,142) (22,521) (26,142)
Proceeds from sale of business
(Note 3) 4,980 - -
Refund of acquisition purchase
price (Note 4) - 1,103 -
Purchases of property, plant, and
equipment (2,595) (2,762) (1,254)
Proceeds from sale of property,
plant, and equipment 91 168 452
Purchases of available-for-sale
investments - (3,000) -
Proceeds from sale and maturities
of available-for-sale
investments - 3,000 4,855
Investment in joint venture - - (2,017)
Other, net (926) (733) 34
-------- -------- --------
Net cash used in investing
activities $(19,592) $(24,745) $(24,072)
-------- -------- --------
5PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term
obligations to Thermo Electron
(Note 8) $ 60,000 $ 15,000 $ 15,000
Repayment of long-term obligation
to Thermo Electron - - (15,000)
Payment to Thermo Instrument for debt
assumed in connection with
acquisition of NESLAB (Note 3) (44,907) - -
Net proceeds from issuance of
Company common stock (Note 10) 561 74 24,880
Other (674) 552 -
-------- -------- --------
Net cash provided by financing
activities 14,980 15,626 24,880
-------- -------- --------
Exchange Rate Effect on Cash 318 (35) (262)
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 4,092 (3,726) 5,867
Cash and Cash Equivalents at Beginning
of Year 16,580 20,306 14,439
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 20,672 $ 16,580 $ 20,306
======== ======== ========
Cash Paid For:
Interest $ 4,217 $ 773 $ 806
Income taxes $ 4,490 $ 3,419 $ 1,796
Noncash Activities:
Inventory contributed to joint
venture $ - $ - $ 412
Common stock received from sale of
business (Note 3) $ 2,056 $ - $ -
Fair value of assets of acquired
companies $114,495 $ 29,757 $ 47,597
Cash paid for acquired companies (24,379) (22,525) (28,098)
Stock options issued in connection
with acquisition of PSI (1,693) - -
Stock issuable to Thermo Instrument
for acquisition of NESLAB (31,315) - -
Debt assumed in connection with
acquisition of NESLAB (44,907) - -
-------- -------- --------
Liabilities assumed of acquired
companies $ 12,201 $ 7,232 $ 19,499
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 124 $ 124 $ 105
Stock issuable to Thermo Instrument
for acquisition of NESLAB (Note 3) 28 - -
Issuance of Company common
stock (Note 10) 1 - 19
-------- -------- --------
Balance at end of year 153 124 124
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 77,416 76,955 52,005
Stock issuable to Thermo Instrument
for acquisition of NESLAB (Note 3) 31,287 - -
Stock options issued in connection
with acquisition of PSI (Note 3) 1,693 - -
Issuance of Company common
stock (Note 10) 562 79 24,861
Tax benefit related to employees'
and directors' stock plans 304 382 89
-------- -------- --------
Balance at end of year 111,262 77,416 76,955
-------- -------- --------
Retained Earnings
Balance at beginning of year 12,345 5,728 1,134
Net income 5,848 6,617 4,594
Deemed distribution to Thermo
Instrument for acquisition of
NESLAB (Note 3) (255) - -
-------- -------- --------
Balance at end of year 17,938 12,345 5,728
-------- -------- --------
Treasury Stock
Balance at beginning of year (5) - -
Purchases of Company common stock (2) (5) -
-------- -------- --------
Balance at end of year (7) (5) -
-------- -------- --------
Cumulative Translation Adjustment
Balance at beginning of year (259) (282) 69
Translation adjustment (776) 23 (351)
-------- -------- --------
Balance at end of year (1,035) (259) (282)
-------- -------- --------
Unrealized Gain on Available-for-sale
Investments
Balance at beginning of year - - -
Unrealized gain on available-for-sale
investments (Note 2) 27 - -
-------- -------- --------
Balance at end of year 27 - -
-------- -------- --------
Total Shareholders' Investment $128,338 $ 89,621 $ 82,525
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
ThermoSpectra Corporation (the Company) develops, manufactures, and
markets imaging and inspection, temperature-control, and test and
measurement instruments, which represent 46%, 28%, and 26% of the
Company's 1997 revenues, respectively. The Company sells its products on
a worldwide basis (Note 12).
Relationship with Thermo Instrument Systems Inc. and Thermo Electron
Corporation
The Company was incorporated in August 1994 as an indirect, wholly
owned subsidiary of Thermo Instrument Systems Inc., which is an 82%-owned
subsidiary of Thermo Electron Corporation. As of January 3, 1998, Thermo
Instrument and Thermo Electron owned a total of 12,710,770 shares of the
Company's common stock, representing 83% of such stock outstanding,
including 2,759,042 shares issuable to Thermo Instrument upon shareholder
approval (Note 3).
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
Revenue Recognition
The Company recognizes product revenue upon shipment. The Company
provides a reserve for its estimate of warranty and installation costs at
the time of shipment. Deferred revenue in the accompanying balance sheet
consists of unearned revenue on service contracts, which is recognized as
revenue over the life of the service contract. Substantially all of the
deferred revenue included in the accompanying 1997 balance sheet will be
recognized within one year.
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," software development costs are expensed
as incurred until technological feasibility has been established. The
Company believes that, under its current process for developing software,
the software is essentially completed concurrently with the establishment
of technological feasibility. Accordingly, no software development costs
have been capitalized.
8PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
Income Taxes
The Company and Thermo Instrument entered into a tax allocation
agreement under which both the Company and Thermo Instrument were
included in Thermo Electron's consolidated federal and certain state
income tax returns. The agreement provided that, in years that the
Company had taxable income, the Company would pay to Thermo Instrument
amounts comparable to the taxes the Company would have paid if it had
filed separate tax returns. Subsequent to the Company's initial public
offering in August 1995, Thermo Instrument's equity ownership of the
Company was reduced below 80% and, as a result, the Company is required
to file its own federal income tax returns. Subsequent to the issuance of
2,759,042 shares to Thermo Instrument (Note 3), the Company may be
included in Thermo Electron's consolidated tax returns, provided that
certain tax requirements are met.
In accordance with SFAS No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes based on the expected future tax
consequences of differences between the financial statement basis and the
tax basis of assets and liabilities, calculated using enacted tax rates
in effect for the year in which the differences are expected to be
reflected in the tax return.
Earnings per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 13). As a result, all previously reported
earnings per share have been restated, and the Company is required to
report diluted earnings per share. However, basic earnings per share
equals the Company's previously reported earnings per share for the 1996
and 1995 periods. Basic earnings per share have been computed by dividing
net income by the weighted average number of shares outstanding during
the year. Diluted earnings per share have been computed assuming the
exercise of stock options, as well as their related income tax effects.
Cash and Cash Equivalents
At year-end 1997 and 1996, $14,311,000 and $11,858,000, respectively
of the Company's cash equivalents were invested in a repurchase agreement
with Thermo Electron. Under this agreement, the Company in effect lends
excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, commercial paper,
U.S. government-agency securities, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation.
9PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
The Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. At year-end 1997 and 1996,
the Company's cash equivalents also included investments in short-term
certificates of deposit at the Company's foreign operations, which have
an original maturity of three months or less. Cash equivalents are
carried at cost, which equals market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $16,850 $12,047
Work in process 7,096 6,941
Finished goods 10,839 8,054
------- -------
$34,785 $27,042
======= =======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property as follows: buildings and
improvements, 5 to 30 years; machinery and equipment, 2 to 10 years; and
leasehold improvements, the shorter of the term of the lease or the life
of the asset. Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Land $ 3,067 $ 3,372
Buildings 6,910 7,896
Machinery, equipment, and leasehold improvements 21,131 16,111
------- -------
31,108 27,379
Less: Accumulated depreciation and amortization 10,717 7,210
------- -------
$20,391 $20,169
======= =======
Patents, Trademarks, and Other Assets
Patents, trademarks, and other assets in the accompanying balance
sheet includes the costs of acquired patents and trademarks that are
amortized using the straight-line method over an estimated useful life of
3 to 20 years. These assets were $4,826,000 and $4,695,000, net of
accumulated amortization of $2,135,000 and $1,473,000, at year-end 1997
and 1996, respectively.
10PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over 40 years.
Accumulated amortization was $4,927,000 and $2,360,000 at year-end 1997
and 1996, respectively. The Company assesses the future useful life of
this asset whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired businesses in assessing the
recoverability of this asset. If impairment occurs, any excess of
carrying value over fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for the three years presented.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to
manage exposures related to firm purchase and sale commitments that are
denominated in currencies other than its subsidiaries' local currencies.
These contracts principally hedge U.S. dollars, British pound sterling,
Japanese yen, French francs, and German deutsche marks. Gains and losses
arising from forward foreign exchange contracts are recorded as an offset
to the gains and losses resulting from the transactions being hedged. The
Company does not enter into speculative foreign currency agreements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's marketable equity
securities are considered available-for-sale investments and are carried
at market value, with the difference between cost and market value
recorded currently as a component of shareholders' investment titled
"Unrealized gain on available-for-sale investments." As of January 3,
1998, available-for-sale investments represented common stock received in
connection with the sale of its Linac business (Note 3).
11PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Disposition
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 $7,638,000 in cash. The cost of this
acquisition exceeded the estimated fair value of the net assets by
$6,368,000. To partially finance the acquisition, the Company borrowed
$5,000,000 from Thermo Electron (Note 8).
In March 1997, Thermo Instrument 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 $76,222,000. 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 NESLAB's 1996 revenues relative to LSI's
1996 consolidated revenues.
The purchase price consisted of 2,759,042 shares of Company common
stock valued at $31,315,000 issuable to Thermo Instrument and the
assumption of $44,907,000 of debt to Thermo Instrument, which was
subsequently paid. 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. To repay the debt assumed from Thermo Instrument, the Company
borrowed $45,000,000 from Thermo Electron (Note 8).
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
for purposes of computing weighted average shares. 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. The cost of this
acquisition exceeded the estimated fair value of the net assets by
$57,774,000.
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 $16,702,000 in cash, including the
repayment of $1,300,000 of bank debt. In addition, the Company assumed
outstanding PSI stock options, which were converted into 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
12PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Disposition (continued)
value of $1,693,000 as of the date of the merger agreement. The cost of
this acquisition exceeded the estimated fair value of the net assets by
$14,132,000. To partially finance the acquisition, the Company borrowed
$10,000,000 from Thermo Electron (Note 8).
In March 1996, Thermo Instrument acquired a substantial portion of
the businesses comprising the Scientific Instruments Division of Fisons
plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer, Inc.
Pursuant to an agreement executed in August 1996, the Company acquired
Kevex Instruments and Kevex X-Ray (the Kevex businesses), which were
formerly part of Fisons, from Thermo Instrument for $21,567,000 in cash.
To partially finance the acquisition, the Company borrowed $15,000,000
from Thermo Electron (Note 8). The purchase price was determined based on
the net book value of the Kevex businesses at March 29, 1996, and a pro
rata allocation of Thermo Instrument's total cost in excess of the net
assets of acquired companies recorded in connection with the acquisition
of the Fisons businesses. Kevex Instruments is a manufacturer of X-ray
microanalyzers and X-ray fluorescence instruments and Kevex X-Ray is a
manufacturer of specialty X-ray sources.
Because the Company and the Kevex businesses 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 Company's 1996
financial statements include the results of the Kevex businesses from
March 29, 1996, the date these businesses were acquired by Thermo
Instrument. The cost of this acquisition exceeded the estimated fair
value of the net assets by $10,046,000. During 1996, the Company acquired
two additional companies for an aggregate $900,000 in cash.
In May 1995, the Company acquired Gould Instrument Systems, Inc.
(GIS) for $25,758,000 in cash, which included the repayment of $6,000,000
of bank debt. In 1996, the Company recorded a $1,103,000 reduction in the
purchase price of GIS (Note 4). To partially finance the acquisition of
GIS, the Company borrowed $15,000,000 from Thermo Electron pursuant to a
promissory note that was repaid in August 1995 with proceeds from the
Company's initial public offering (Note 8). The cost of this acquisition
exceeded the estimated fair value of the net assets by $9,438,000. GIS
develops, manufactures, and sells data acquisition systems,
oscillographic recorders, and digital storage oscilloscopes (DSOs) for
industrial, medical, scientific, and government applications. During
1995, the Company acquired one additional company for $2,340,000 in cash.
Except for the acquisitions of NESLAB and the Kevex businesses, the
acquisitions described above 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. Allocation of the purchase price for these acquisitions was
based on estimates of the fair value of the net assets acquired and, for
businesses acquired in 1997, is subject to adjustment. The Company has
gathered no information that indicates the final allocation will differ
materially from the preliminary estimates.
13PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Disposition (continued)
Based on unaudited data, the following table presents selected
financial information for the Company and the businesses acquired, on a
pro forma basis, assuming that the Company, NESLAB, and PSI had been
combined since the beginning of 1996 and the Company, the Kevex
businesses, and GIS had been combined since the beginning of 1995. The
effect of the acquisitions not included in the pro forma data was not
material to the Company's results of operations or financial position.
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues $210,412 $202,813 $138,876
Net income 3,736 3,280 1,633
Earnings per share:
Basic .25 .22 .15
Diluted .24 .21 .14
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 or the
acquisitions of the Kevex businesses and GIS been made at the beginning
of 1995.
In December 1997, the Company sold its Linac business to SteriGenics
International, Inc. for $4,980,000 in cash and 109,607 shares of
SteriGenics common stock valued at $2,056,000, resulting in a gain of
$2,210,000. The Linac business is an electron beam radiation business
that offers contract sterilization services.
4. Other Nonrecurring Expense, Net
In 1997, the Company's GIS subsidiary incurred a $953,000
restructuring charge, related primarily to severance costs for 40
employees terminated during the year. Other accrued expenses in the
accompanying balance sheet includes a remaining reserve of $244,000
associated with these actions.
In 1996, the Company's GIS subsidiary commenced a $1,038,000
restructuring plan, which included the termination of approximately 40
employees.
In 1996, the Company finalized negotiations in connection with
amounts claimed for the discontinuance of the Acqulab product line, which
was sold to the Company as part of the purchase of GIS. Of the $1,970,000
settlement received, $1,103,000 related to a reduction of the purchase
price principally for the unrealized earning potential of the Acqulab
product line, resulting in a reduction of "Cost in excess of net assets
of acquired companies" in the accompanying 1996 balance sheet. The
remaining $867,000 related to a reimbursement of expenses incurred
subsequent to the acquisition of GIS for the ongoing development of
Acqulab.
The $867,000 reimbursement and the $1,038,000 restructuring charge
were recorded as "Other nonrecurring expense, net" in the accompanying
1996 statement of income.
14PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others, which permit the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted
stock, stock options, stock bonus shares, or performance-based shares. To
date, only nonqualified stock options have been awarded under these
plans. The option recipients and the terms of options granted under these
plans are determined by the Board Committee. Generally, options granted
to date are exercisable immediately, but are subject to certain transfer
restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events.
The restrictions and repurchase rights generally lapse ratably over a
five- to ten-year period, depending on the term of the option, which
generally ranges from seven to twelve years. Nonqualified stock options
may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market
value of the Company's common stock on the date of grant. To date, all
options have been granted at fair market value. The Company also has a
directors' stock option plan that provides for the grant of stock options
to outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms
as options granted under the stock-based compensation plans described
above, except that the restrictions and repurchase rights generally lapse
ratably over a four-year period and the option term is five years. In
addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermo Electron and Thermo Instrument.
15PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is as follows:
1997 1996 1995
--------------- --------------- ---------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
-------------------------------------------------------------------------
Options outstanding,
beginning of year 971 $12.10 862 $11.32 578 $10.00
Issued upon
acquisition of
PSI 145 3.07 - - - -
Granted 374 10.46 183 15.26 315 13.68
Exercised (105) 4.20 (8) 10.00 - -
Forfeited (129) 12.02 (66) 10.89 (31) 10.75
----- ------ -----
Options outstanding,
end of year 1,256 $11.23 971 $12.10 862 $11.32
===== ====== ====== ====== ===== ======
Options exercisable 1,238 $11.35 971 $12.10 862 $11.32
===== ====== ====== ====== ===== ======
Options available
for grant 172 121 238
===== ====== =====
A summary of the status of the Company's stock options at January 3,
1998, is as follows:
Options Outstanding
------------------------------------------
Weighted
Weighted Average Average
Range of Number Remaining Exercise
Exercise Prices of Shares Contractual Life Price
--------------------------------------------------------------------
(Shares in thousands)
$ 2.55 - $ 6.20 56 6.9 years $ 3.31
6.21 - 9.85 188 7.8 years 9.53
9.86 - 13.50 604 7.4 years 10.24
13.51 - 17.15 408 7.3 years 14.58
-----
$ 2.55 - $17.15 1,256 7.4 years $11.23
=====
The information disclosed above for options outstanding at January 3,
1998, does not differ materially for options exercisable.
16PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
Employee Stock Purchase Program
-------------------------------
Effective November 1, 1996, substantially all of the Company's
full-time U.S. employees are eligible to participate in an employee stock
purchase program sponsored by the Company and Thermo Electron, under
which employees can purchase shares of the Company's and Thermo
Electron's common stock. Prior to November 1, 1996, the program was
sponsored by Thermo Instrument and Thermo Electron. Under this program,
the applicable shares of common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During 1997, the Company
issued 9,852 shares of its common stock under this program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards granted in 1997, 1996, and 1995 under the
Company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under
SFAS No. 123, the effect on the Company's net income and earnings per
share would have been as follows:
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Net income:
As reported $5,848 $6,617 $4,594
Pro forma 5,343 6,277 4,475
Basic earnings per share:
As reported .40 .53 .41
Pro forma .36 .50 .40
Diluted earnings per share:
As reported .39 .53 .40
Pro forma .36 .50 .39
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Pro forma compensation expense for options
granted is reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
17PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was
$3.74, $5.80, and $5.93 in 1997, 1996, and 1995, respectively. The fair
value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1997 1996 1995
-----------------------------------------------------------------------
Volatility 28% 26% 26%
Risk-free interest rate 5.9% 6.6% 6.4%
Expected life of options 5.0 years 5.4 years 6.7 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions, including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plans
Substantially all of the Company's full-time U.S. employees are
eligible to participate in a 401(k) savings plan. Contributions to the
401(k) savings plans are made by both the employee and the Company.
Company contributions are based upon the level of employee contributions.
For these plans, the Company contributed and charged to expense
$1,427,000, $689,000, and $493,000 in 1997, 1996, and 1995, respectively.
6. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Domestic $10,719 $ 8,969 $ 5,835
Foreign (319) 1,918 2,071
------- ------- -------
$10,400 $10,887 $ 7,906
======= ======= =======
18PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Currently payable:
Federal $3,834 $3,427 $1,651
State 600 774 349
Foreign 158 865 1,237
------ ------ ------
4,592 5,066 3,237
------ ------ ------
Net deferred (prepaid):
Federal (112) (608) 125
State (24) (129) 27
Foreign 96 (59) (77)
------ ------ ------
(40) (796) 75
------ ------ ------
$4,552 $4,270 $3,312
====== ====== ======
The provision for income taxes that is currently payable does not
reflect $1,024,000 of tax benefits used to reduce cost in excess of net
assets of acquired companies in 1996. In addition, the Company receives a
tax deduction upon exercise of nonqualified stock options by employees
for the difference between the exercise price and the market price of the
underlying common stock on the date of exercise. The provision for income
taxes that is currently payable does not reflect $304,000, $382,000, and
$89,000 of such benefits that have been allocated to capital in excess of
par value in 1997, 1996, and 1995, respectively.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 34% to income before provision for income
taxes due to the following:
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Provision for income taxes at
statutory rate $3,536 $3,702 $2,688
Increases (decreases) resulting from:
State income taxes, net of federal tax 380 426 248
Net foreign losses not benefited and
tax rate differential 362 154 456
Tax benefit of foreign sales
corporation (295) (268) (201)
Amortization of cost in excess of net
assets of acquired companies 685 146 155
Other, net (116) 110 (34)
------ ------ ------
$4,552 $4,270 $3,312
====== ====== ======
19PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid income taxes:
Tax loss carryforwards $ 9,052 $ 9,334
Reserves and accruals 3,800 3,726
Inventory basis difference 3,185 1,983
Allowance for doubtful accounts 352 222
------- -------
16,389 15,265
Less: Valuation allowance 9,052 9,334
------- -------
$ 7,337 $ 5,931
======= =======
Deferred income taxes:
Intangible assets $ 333 $ 176
Other 23 92
------- -------
$ 356 $ 268
======= =======
At year-end 1997, the Company had foreign and federal tax loss
carryforwards of $21,905,000 and $6,088,000, respectively. The valuation
allowance relates to uncertainty surrounding the realization of the tax
loss carryforwards, for which realization is limited to the future income
of certain subsidiaries. The federal tax loss carryforwards expire in the
years 2008 through 2010. The foreign tax loss carryforwards do not
expire. Any resulting benefit from the loss carryforwards will first be
used to reduce "Cost in excess of net assets of acquired companies," with
any remaining benefit used to reduce other acquired intangible assets.
A provision has not been made for U.S. or additional foreign taxes on
$4,239,000 of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company
currently plans to keep these amounts permanently reinvested overseas.
7. Commitments and Contingencies
Operating Leases
The Company leases portions of its office and operating facilities
under various operating lease arrangements. The accompanying statement of
income includes expenses from operating leases of $2,171,000, $2,818,000,
and $2,066,000 in 1997, 1996, and 1995, respectively, net of sublease
income of $893,000 and $185,000 in 1997 and 1996, respectively. Future
minimum payments due under noncancelable operating leases at January 3,
1998, were $2,611,000 in 1998; $2,172,000 in 1999; $1,851,000 in 2000;
$1,382,000 in 2001; $1,067,000 in 2002; and $2,473,000 in 2003 and
thereafter. Total future minimum lease payments are $11,556,000 and have
not been reduced by minimum sublease rental income of $2,248,000 due
through 2001 under noncancelable operating subleases. See Note 8 for
office and manufacturing space leased from related parties.
20PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Commitments and Contingencies (continued)
Contingencies
The Company has received correspondence alleging that certain of its
products infringe patents owned by third parties, though no lawsuits have
been filed. The Company does not believe that its products infringe the
intellectual property rights of these parties; however, given the
inherent uncertainty of dispute resolution, there can be no assurance
that the outcome of any such lawsuit, if filed, would not result in a
material adverse effect on the Company's results of operations or
financial position.
8. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company paid Thermo Electron
annually an amount equal to 1.0% of the Company's revenues in 1997 and
1996 and 1.2% of the Company's revenues in 1995. For these services, the
Company was charged $1,989,000, $1,232,000, and $1,101,000 in 1997, 1996,
and 1995, respectively. Beginning in 1998, the Company will pay an annual
fee equal to 0.8% of the Company's revenues. The annual fee is reviewed
and adjusted annually by mutual agreement of the parties. Management
believes that the service fee charged by Thermo Electron is reasonable
and that such fees are representative of the expenses the Company would
have incurred on a stand-alone basis. The corporate services agreement is
renewed annually but can be terminated upon 30 days' prior notice by the
Company or upon the Company's withdrawal from the Thermo Electron Charter
defines the relationship among Thermo Electron and its majority-owned
subsidiaries). For additional items such as employee benefit plans,
insurance coverage, and other identifiable costs, Thermo Electron charges
the Company based upon costs attributable to the Company.
Operating Leases
In addition to the operating leases discussed in Note 7, the Company
leases certain office and manufacturing space from Nicolet Instrument
Corporation (Nicolet), a wholly owned subsidiary of Thermo Optek
Corporation, and Shandon Inc., a wholly owned subsidiary of Thermo
Instrument. The accompanying statement of income includes expenses from
these operating leases of $602,000, $208,000, and $218,000 in 1997, 1996,
and 1995, respectively. The lease with Nicolet is effective until
December 31, 1998, but may be terminated by the Company upon 90 days'
prior notice to Nicolet, and the lease with Shandon expires in September
2000. At January 3, 1998, future minimum payments due under these leases
are $884,000 in 1998, $675,000 in 1999, and $506,000 in 2000. Total
future minimum lease payments under these leases are $2,065,000.
21PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Related-party Transactions (continued)
Other Related-party Transactions
The Company purchases and sells products and services in the ordinary
course of business with other companies affiliated with Thermo Electron.
Sales of products to such affiliated companies totaled $825,000,
$240,000, and $118,000 in 1997, 1996, and 1995, respectively. Purchases
of products and services from such affiliated companies totaled
$2,226,000, $1,310,000, and $1,090,000 in 1997, 1996, and 1995,
respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short- and Long-term Obligations
The accompanying balance sheet includes the following amounts
borrowed from Thermo Instrument and Thermo Electron to finance the
acquisitions of certain companies (Note 3):
(In thousands) 1997 1996
---------------------------------------------------------------------
Promissory notes to Thermo Electron, due:
August 1998 $15,000 $15,000
March 1999 10,000 -
July 1999 45,000 -
July 1999 5,000 -
Promissory note to Thermo Instrument, due
September 2001 7,300 7,300
------- -------
$82,300 $22,300
======= =======
These notes bear interest at the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. The
interest rate for the notes outstanding at year-end 1997 and 1996 was
5.76% and 5.77%, respectively. In addition, in connection with the May
1995 acquisition of GIS, the Company borrowed $15,000,000 from Thermo
Electron pursuant to a promissory note that was repaid in August 1995
with proceeds from the Company's initial public offering (Note 10).
9. Note Payable
Note payable in the accompanying 1996 balance sheet represents
borrowings under a 1.2 million British pounds sterling line of credit
facility. The interest rate for this line of credit was 8.0% and 7.0% at
January 3, 1998, and December 28, 1996, respectively. Unused amounts
available under this and other lines of credit available to the Company's
foreign subsidiaries were $3,249,000 as of January 3, 1998.
22PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
10. Common Stock
In 1995, the Company sold 1,725,000 shares of its common stock in its
initial public offering at $14.00 per share for net proceeds of
$21,858,000, and the Company sold an additional 202,000 shares of its
common stock in a private placement at $15.72 per share for net proceeds
of $3,022,000.
At January 3, 1998, the Company had reserved 1,594,000 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
note payable to Thermo Electron, note payable, accounts payable, due to
affiliated companies, long-term obligations due to Thermo Electron and
Thermo Instrument, and forward foreign exchange contracts. The Company's
long-term obligations (Note 8) bear interest at a variable market rate
and therefore the carrying amounts approximate fair value. The carrying
amounts of the Company's remaining financial instruments, with the
exception of available-for-sale investments and forward foreign exchange
contracts, approximate fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices (Note 2).
The Company has forward foreign exchange contracts of $2,041,000 and
$2,185,000 outstanding at year-end 1997 and 1996, respectively. The fair
value of the Company's forward foreign exchange contracts receivable was
$3,000 and $138,000 at year-end 1997 and 1996, respectively. The fair
value of such contracts is the estimated amount that the Company would
receive upon termination of the contracts, taking into account the change
in foreign exchange rates.
23PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Geographical Information
The Company is engaged in one business segment: developing,
manufacturing, and marketing imaging and inspection, temperature-control,
and test and measurement instruments. The following table shows data for
the Company by geographical area:
(In thousands) 1997 1996 1995
-------------------------------------------------------------------------
Revenues:
United States $176,717 $ 94,493 $ 63,675
Germany 12,217 14,673 12,952
England 12,546 14,260 12,759
Other Europe 17,930 13,698 14,545
Other 7,463 5,593 3,609
Transfers among geographical areas (a) (27,973) (19,518) (15,826)
-------- -------- -------
$198,900 $123,199 $ 91,714
======== ======== ========
Income before provision for income taxes:
United States (b) $ 15,106 $ 9,072 $ 5,586
Germany (13) 867 975
England (406) 253 (70)
Other Europe 128 697 1,297
Other (890) (164) 5
-------- -------- --------
Total operating income 13,925 10,725 7,793
Interest income (expense), net (3,525) 162 113
-------- -------- --------
$ 10,400 $ 10,887 $ 7,906
======== ======== ========
Identifiable assets:
United States $220,590 $121,891 $ 89,951
Germany 7,118 8,968 8,881
England 7,207 9,142 9,707
Other Europe 13,902 10,210 13,060
Other 4,580 2,274 1,318
-------- -------- --------
$253,397 $152,485 $122,917
======== ======== ========
Export revenues included in United States
revenues above (c):
Asia $ 28,304 $ 19,102 $ 8,195
Europe 25,093 13,300 13,003
Other 6,036 4,070 5,400
-------- -------- --------
$ 59,433 $ 36,472 $ 26,598
======== ======== ========
(a) Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(b) Includes corporate general and administrative expenses.
(c) In general, export sales are denominated in U.S. dollars.
24PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Basic
Net income $ 5,848 $ 6,617 $ 4,594
------- ------- -------
Weighted average shares 12,488 12,437 11,229
Shares issuable for acquisition
of NESLAB 2,206 - -
------- ------- -------
Weighted average shares, as adjusted 14,694 12,437 11,229
------- ------- -------
Basic earnings per share $ .40 $ .53 $ .41
======= ======= =======
Diluted
Net income $ 5,848 $ 6,617 $ 4,594
------- ------- -------
Basic weighted average shares 14,694 12,437 11,229
Effect of stock options 112 133 127
------- ------- -------
Weighted average shares, as adjusted 14,806 12,570 11,356
------- ------- -------
Diluted earnings per share $ .39 $ .53 $ .40
======= ======= =======
The computation of diluted earnings per share for 1997 and 1996
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of January 3, 1998,
there were 410,400 of such options outstanding, with exercise prices
ranging form $13.78 to $17.15 per share.
25PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First(a) Second Third Fourth(b)
------------------------------------------------------------------------
Revenues $37,177 $49,692 $52,271 $59,760
Gross profit 16,275 21,702 20,249 24,927
Net income 1,188 1,337 705 2,618
Basic and diluted
earnings per share .09 .09 .05 .17
1996 First Second(c) Third Fourth
---------------------------------------------------------------------
Revenues $26,927 $31,281 $30,329 $34,662
Gross profit 12,788 15,080 15,092 17,339
Net income 1,436 1,562 1,690 1,929
Earnings per share:
Basic .12 .13 .14 .16
Diluted .11 .12 .13 .15
(a) Reflects the March 1997 acquisitions of NESLAB and PSI.
(b) Reflects a $2,210,000 gain from the sale of the Company's Linac
business.
(c) Reflects the March 1997 acquisition of Kevex Instruments and Kevex
X-Ray.
26PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoSpectra Corporation:
We have audited the accompanying consolidated balance sheet of
ThermoSpectra Corporation (a Delaware corporation and 77%-owned
subsidiary of Thermo Instrument Systems Inc.) and subsidiaries as of
January 3, 1998, and December 28, 1996, and the related consolidated
statements of income, shareholders' investment, and cash flows for each
of the three years in the period ended January 3, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
ThermoSpectra Corporation and subsidiaries as of January 3, 1998, and
December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 1998
27PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities 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 immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
heading "Forward-looking Statements."
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. (NESLAB), 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.
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
28PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
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
1997 Compared With 1996
Revenues were $198.9 million in 1997, compared with $123.2 million in
1996, an increase of 61%. Revenues increased $76.6 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; and the inclusion of revenues for
the full year 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 (the Kevex businesses), which
were acquired effective March 1996 (Note 3). Excluding the impact of
acquisitions and foreign currency translation, revenues from existing
operations increased 2% in 1997 compared with 1996. Revenues increased an
aggregate of $8.5 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 $2.5 million decline in demand for
test and measurement systems and a $2.4 million decrease in revenues at
the Company's NORAN Instrument subsidiary due to a decline in demand for
confocal laser scanning microscopes. Revenues were adversely affected by
approximately $3.5 million due to the strengthening in the value of the
U.S. dollar relative to currencies in foreign countries in which the
Company operates.
The gross profit margin declined to 42% in 1997 from 49% in 1996. The
decline in the gross profit margin is primarily attributable to the
inclusion of lower-margin revenues from NESLAB, which had a gross profit
margin of 36% in 1997, and to an eight percentage-point deterioration in
margin levels at NIS due to an inventory write-off in the third quarter
of 1997 and a change in mix from higher-margin manual systems to
lower-margin automated systems. To a lesser extent, the gross margin was
adversely impacted in 1997 by a deterioration in the gross profit margin
for the Company's test and measurement systems and at NORAN due in part
to the strengthening of the U.S. dollar.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 27% in 1997 from 30% in 1996, primarily due to the
29PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
inclusion of lower selling expenses as a percentage of revenues at NESLAB
and, to a lesser extent, lower selling, general, and administrative
expenses at Gould Instrument Systems Inc. (GIS) as a result of ongoing
expense reductions, including restructuring charges taken in 1997 that
reduced employee cost levels at that subsidiary (Note 4). 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 relative expense level at NORAN primarily due to lower
revenues.
Research and development expenses as a percentage of revenues
decreased to 8.7% in 1997 from 10.5% in 1996, due to the inclusion of
NESLAB and overall reduced research and development spending levels at
the Company's existing operations.
Other nonrecurring expense, net, in 1997 primarily represents charges
incurred by GIS relating to severance costs for employees terminated
during the year (Note 4). Other nonrecurring expense, net, in 1996
represents a $1.0 million restructuring reserve recorded at GIS offset in
part by $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 (Note 4).
Gain on sale of business in 1997 represents the sale of NIS' Linac
business in December 1997 to SteriGenics International Inc. for $5.0
million in cash and 109,607 shares of SteriGenics common stock valued at
$2.1 million. The Linac business, which had revenues and operating income
in 1997 of $3.7 million and $1.2 million, respectively, is an electron
beam radiation business that offers contract sterilization services.
Interest income decreased to $0.7 million in 1997 from $0.9 million
in 1996 due to lower invested cash balances as a result of cash used to
partially fund the acquisitions of the Kevex businesses, which was paid
to Thermo Instrument Systems Inc. in August 1996, and the acquisition of
PSI in March 1997. Interest expense, related party, increased to $4.2
million in 1997 from $0.8 million in 1996 due to borrowings from Thermo
Electron Corporation to fund acquisitions (Note 8).
The effective tax rate was 44% in 1997, compared with 39% in 1996.
The effective tax rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, nondeductible
amortization of cost in excess of net assets of acquired companies for
certain of the Company's acquisitions and, in 1997, the inability to
benefit losses at certain of the Company's foreign subsidiaries. The
increase in the effective tax rate in 1997 was due to the impact of
nondeductible amortization of cost in excess of net assets of acquired
companies from the acquisitions of NESLAB and PSI and increased losses at
certain of the Company's foreign subsidiaries that were not benefited.
See Note 7 for a description of certain patent infringement matters
involving the Company.
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal
information systems and current products are either year 2000 compliant
or will be so prior to the year 2000 without incurring material costs.
30PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its
internal information systems and current products, which could result in
a material adverse effect on the Company's future results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
1996 Compared With 1995
Revenues were $123.2 million in 1996, compared with $91.7 million in
1995, an increase of 34%. Revenues increased due to the inclusion of
$18.0 million of revenues from the acquisition of the Kevex businesses
and $9.6 million of incremental revenues from GIS, acquired in May 1995
(Note 3). Revenues at GIS for the last six months of 1996 declined by
approximately 14% from the comparable period in 1995, due to a decrease
in demand for GIS products. Revenues from the Company's other operations
increased approximately 9% in 1996, compared with 1995, due to the
inclusion of $2.3 million of revenues related to shipments of airbag
inspection systems, overall higher demand for X-ray inspection systems at
NIS, and increased demand for products sold by NORAN. Revenues were
negatively affected by approximately $1.6 million in 1996 due to the
strengthening in the value of the U.S. dollar relative to the Japanese
yen and other foreign currencies in countries where the Company operates.
The gross profit margin was 49% in both 1996 and 1995. Higher gross
profit margins at the Company's test and measurement businesses, due to
changes in product mix and manufacturing efficiencies, were offset by a
lower gross profit margin at NIS due to higher material costs and the
inclusion of lower-margin revenues from airbag inspection systems, the
inclusion of revenues from the Kevex businesses which had a combined
gross profit margin of 42%, and the strengthening in the value of the
U.S. dollar.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 30% in 1996 from 31% in 1995 due to the inclusion
of lower selling expenses as a percentage of revenues at Kevex X-Ray.
Research and development expenses as a percentage of revenues were
unchanged at 10% in both 1996 and 1995.
Interest income increased to $0.9 million in 1996 from $0.8 million
in 1995, principally due to overall higher cash balances in 1996.
Interest expense, related party in 1996 represents interest expense
associated with a $7.3 million promissory note issued to Thermo
Instrument in September 1994 and a $15.0 million promissory note issued
to Thermo Electron in August 1996 (Note 8). Interest expense, related
party in 1995 represents interest expense associated with the $7.3
million promissory note issued to Thermo Instrument and a $15.0 million
promissory note issued to Thermo Electron in May 1995. The $15.0 million
promissory note issued in May 1995 was repaid in August 1995.
31PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
The effective tax rate decreased to 39% in 1996 from 42% in 1995.
These rates exceeded the statutory federal income tax rate primarily due
to the impact of state and foreign income taxes and the nondeductible
amortization of cost in excess of net assets of acquired companies for
certain of the Company's acquisitions. The effective tax rate decreased
in 1996 principally as a result of a lower percentage of the Company's
income generated in countries with higher tax rates.
Liquidity and Capital Resources
Consolidated working capital was $53.5 million at January 3, 1998,
compared with $44.7 million at December 28, 1996. Included in working
capital are cash, cash equivalents, and short-term investments of $22.8
million at January 3, 1998, compared with $16.6 million at December 28,
1996. Net cash provided by operating activities was $8.4 million in 1997.
The Company used $8.8 million during the year to reduce its current
liabilities. A reduction in inventories provided $4.9 million.
The Company's investing activities used $19.6 million of cash in
1997. The Company used $21.1 million, net of cash acquired, for
acquisitions and received $5.0 million in cash and $2.1 million of
SteriGenics common stock for the sale of the Company's Linac business
(Note 3). During 1997, the Company expended $2.6 million for the purchase
of property, plant, and equipment. The Company plans to expend
approximately $4.0 million for the purchase of property, plant, and
equipment in 1998.
During 1997, the Company's financing activities provided $15.0
million of cash. 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 anticipates that it may require
significant amounts of cash to pursue the acquisition of complementary
businesses. The Company expects that it would seek to 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 any additional 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.
32PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1998 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Uncertainty of Growth. Certain of the markets in which the Company
competes have been flat or declining over the past several years. The
Company has identified a number of strategies it believes will allow it
to grow its business, including: acquiring complementary businesses,
developing new applications for its technologies, and strengthening its
presence in selected geographic markets. No assurance can be given that
the Company will be able to successfully implement these strategies, or
that these strategies will result in growth of the Company's business.
Potential Increased Competition. The Company predominantly sells its
products in the high-performance segment of the markets in which it
competes. The products in this segment are generally characterized by
superior engineering and performance and compete more on product
specifications than on price. The other segments of these markets are
dominated by companies with substantially greater financial resources
than those of the Company. If these larger companies enter the
high-performance segment of the market, no assurance can be given that
the Company will be able to successfully compete against them.
Need to Respond to Technological Change. Many of the Company's
products are marketed primarily based on their technologies. In order to
be successful, the Company believes that it will be important to
continually improve the technology underlying its products. No assurance
can be given that the Company will be able to do so or that a competitor
of the Company will not develop technology or products that will render
the Company's competing products noncompetitive or obsolete.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of underperforming businesses and technologies
that complement or augment the Company's existing product lines.
Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the
need for regulatory approvals, including antitrust approvals.
Acquisitions completed by the Company may be made at substantial premiums
over the fair value of the net assets of the acquired companies. There
can be no assurance that the Company will be able to complete future
acquisitions or that the Company will be able to successfully integrate
any acquired businesses into its existing businesses or make such
businesses profitable.
Dependence on Semiconductor Industry. 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.
33PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Forward-looking Statements
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. Decreases in
semiconductor activities could have a significant adverse effect upon the
demand for the Company's products and related services, which would
materially adversely affect the Company's business, financial position,
and results of operations.
Possible Adverse Impact of Significant International Operations. The
Company expects that international sales will continue to represent a
significant portion of its revenues. In fiscal 1997, international sales
accounted for approximately half of the Company's total revenues. These
sales carry a number of inherent risks, including risks associated with
currency exchange, tariffs and other potential trade barriers,
potentially reduced protection for intellectual property, the impact of
recessionary environments in economies outside the United States, and
generally longer receivable collection patterns. In addition, exports
from the Company's U.S. and foreign subsidiaries to the Far East
represented 15% of total revenues in 1997. 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. There can be no
assurance that the Company's export sales to Asia will not 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 there.
Risks Associated with Protection, Defense, and Use of Intellectual
Property. The Company holds many patents relating to various aspects of
its products, and believes that proprietary technical know-how is
critical to many of its products. Proprietary rights relating to the
Company's products are protected from unauthorized use by third parties
only to the extent that they are covered by valid and enforceable patents
or are maintained in confidence as trade secrets. There can be no
assurance that patents will issue from any pending or future patent
applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect
the Company's technology and, in the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the
Company's products or gain access to its trade secrets and know-how.
Proceedings initiated by the Company to protect its proprietary rights
could result in substantial costs to the Company. There can be no
assurance that competitors of the Company will not initiate litigation to
challenge the validity of the Company's patents, or that they will not
use their resources to design comparable products that do not infringe
the Company's patents. There may also be pending or issued patents held
by parties not affiliated with the Company that relate to the Company's
products or technologies. The Company's PSI subsidiary has received an
allegation of patent infringement from a competitor relating to its
scanning probe microscopy technology and the Company's NORAN subsidiary
has received allegations of patent infringement from two competitors
34PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Forward-looking Statements
relating to its confocal microscopy technology. The Company may need to
acquire licenses to, or contest the validity of, these or any other such
patents. There can be no assurance that any license required under any
such patent would be made available on acceptable terms or that the
Company would prevail in any such contest. In addition, if any such
competitor were successful in enforcing such patents, the Company could
be subject to damages and enjoined from manufacturing and selling any
related products. The Company could incur substantial costs in defending
itself in suits brought against it or in suits in which the Company may
assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and
results of operations could be materially adversely affected. Further,
the laws of some jurisdictions do not protect the Company's proprietary
rights to the same extent as the laws of the U.S. and there can be no
assurance that the available protections will be adequate. In addition,
the Company relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its
collaborators, employees, and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
Inability to Raise Future Capital; Possible Dilution. In order to
finance the acquisitions that are part of the Company's growth strategy,
it may be necessary for the Company to raise additional funds either
through public or private financings. Any equity or debt financing, if
available at all, may be on terms that are not favorable to the Company
and, in the case of an equity financing, could result in dilution to the
Company's stockholders.
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems and on products sold as well
as products purchased by the Company. The Company believes that its
internal information systems and current products are either year 2000
compliant or will be so prior to the year 2000 without incurring material
costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance
for its internal information systems and current products, which could
result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the potential impact of the year
2000 on its previously sold products. The Company is also assessing
whether its key suppliers are adequately addressing this issue and the
effect this might have on the Company. The Company has not completed its
analysis and is unable to conclude at this time that the year 2000
problem as it relates to its previously sold products and products
purchased from key suppliers is not reasonably likely to have a material
adverse effect on the Company's future results of operations.
35PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993
-----------------------------------------------------------------------
Statement of Income
Data:
Revenues $198,900 $123,199 $ 91,714 $ 42,142 $ 17,702
Net income 5,848 6,617 4,594 2,368 253
Earnings per share:
Basic .40 .53 .41 .25 .03
Diluted .39 .53 .40 .25 .03
Balance Sheet Data:
Working capital $ 53,540 $ 44,683 $ 35,961 $ 27,377 $ 6,037
Total assets 253,397 152,485 122,917 78,701 18,795
Long-term obligations 67,300 22,300 7,300 7,300 -
Shareholders'
investment 128,338 89,621 82,525 53,313 14,494
(a)Reflects the March 1997 acquisition by Thermo Instrument of NESLAB
and the March 1997 acquisition by the Company of PSI.
(b)Reflects the March 1996 acquisition by Thermo Instrument of the Kevex
businesses.
(c)Reflects the May 1995 acquisition of GIS and the net proceeds of the
Company's initial public offering and private placement of common
stock.
(d)Reflects the March 1994 acquisition by Thermo Instrument of NORAN
Instruments Inc., the September 1994 acquisition by the Company of
IRT Corporation, and the net proceeds of the Company's private
placements of common stock.
36PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol THS. The following table sets forth the high and low
sales prices of the Company's common stock for 1997 and 1996, as reported
in the consolidated transaction reporting system.
1997 1996
------------------- ----------------
Quarter High Low High Low
-----------------------------------------------------------------------
First $15 1/8 $11 3/4 $18 7/8 $14 5/8
Second 14 1/2 11 3/8 18 7/8 15 1/4
Third 13 5/8 9 3/4 16 1/8 12 1/2
Fourth 13 5/8 9 15 7/8 11 3/8
As of January 30, 1998, the Company had 260 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 30, 1998, was $9 1/2 per share.
Shareholder Services
Shareholders of ThermoSpectra Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, Chief
Financial Officer, ThermoSpectra Corporation, 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list
is maintained to enable shareholders whose stock is held in street name,
and other interested individuals, to receive quarterly reports, annual
reports, and press releases as quickly as possible. Distribution of
printed quarterly reports is limited to the second quarter only. All
material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/ths1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
37PAGE
<PAGE>
ThermoSpectra Corporation 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, ThermoSpectra Corporation, 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 1,
1998, at 10:45 a.m. at the Hyatt Regency Hotel, Scottsdale, Arizona.
38<PAGE>
Exhibit 21
THERMOSPECTRA CORPORATION
Subsidiaries of the Registrant
At February 20, 1998, the Registrant owned the following companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
------------------------------------ ---------------- ------------
Diametrix Detectors, Inc. Delaware 50
Gould Instrument Systems, Inc. Ohio 100
Kevex Instruments Inc. Delaware 100
Kevex X-Ray Inc. Delaware 100
NesLab Instruments Europa BV The Netherlands 100
NesLab Instruments, Inc. New Hampshire 100
NesLab Instruments Limited England 100
Nicolet Instrument Technologies Inc. Wisconsin 100
NORAN Instruments Inc. Wisconsin 100
Park Scientific Instruments Corporation California 100
Park Scientific S.A. Switzerland 100
PSI Virgin Islands Incorporated U.S. Virgin Islands 100
Sierra Research and Technology, Inc. Delaware 100
ThermoSpectra B.V. The Netherlands 100
Nicolet Technologies B.V. The Netherlands 100
Bakker Electronics Limited United Kingdom 100
NORAN Instruments B.V. The Netherlands 100
ThermoSpectra GmbH Germany 100
Gould Nicolet Messtechnik GmbH Germany 100
NORAN Instruments GmbH Germany 100
ThermoSpectra Limited United Kingdom 100
Nicolet Technologies Ltd. United Kingdom 100
ThermoSpectra S.A. France 100
Nicolet Technologies S.A.R.L. France 100
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 17, 1998,
included in or incorporated by reference into ThermoSpectra Corporation's
Annual Report on Form 10-K for the year ended January 3, 1998, into the
Company's previously filed Registration Statements as follows:
Registration Statement No. 33-99110 on Form S-3, Registration Statement
No. 33-80759 on Form S-8, and Registration Statement No. 333-24649 on
Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOSPECTRA CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 20,672
<SECURITIES> 2,083
<RECEIVABLES> 44,949
<ALLOWANCES> 1,934
<INVENTORY> 34,785
<CURRENT-ASSETS> 109,666
<PP&E> 31,108
<DEPRECIATION> 10,717
<TOTAL-ASSETS> 253,397
<CURRENT-LIABILITIES> 56,126
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 128,185
<TOTAL-LIABILITY-AND-EQUITY> 253,397
<SALES> 198,900
<TOTAL-REVENUES> 198,900
<CGS> 115,747
<TOTAL-COSTS> 115,747
<OTHER-EXPENSES> 16,046
<LOSS-PROVISION> 521
<INTEREST-EXPENSE> 4,217
<INCOME-PRETAX> 10,400
<INCOME-TAX> 4,552
<INCOME-CONTINUING> 5,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,848
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
<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 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 21,474
<SECURITIES> 0
<RECEIVABLES> 24,425
<ALLOWANCES> 1,108
<INVENTORY> 16,390
<CURRENT-ASSETS> 66,606
<PP&E> 20,356
<DEPRECIATION> 4,777
<TOTAL-ASSETS> 122,811
<CURRENT-LIABILITIES> 30,211
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 83,669
<TOTAL-LIABILITY-AND-EQUITY> 122,811
<SALES> 26,927
<TOTAL-REVENUES> 26,927
<CGS> 14,139
<TOTAL-COSTS> 14,139
<OTHER-EXPENSES> 2,756
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 2,377
<INCOME-TAX> 941
<INCOME-CONTINUING> 1,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,436
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
<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 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 14,501
<SECURITIES> 3,038
<RECEIVABLES> 28,481
<ALLOWANCES> 1,555
<INVENTORY> 24,592
<CURRENT-ASSETS> 75,282
<PP&E> 26,792
<DEPRECIATION> 6,320
<TOTAL-ASSETS> 145,908
<CURRENT-LIABILITIES> 34,953
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 87,009
<TOTAL-LIABILITY-AND-EQUITY> 145,908
<SALES> 88,537
<TOTAL-REVENUES> 88,537
<CGS> 45,577
<TOTAL-COSTS> 45,577
<OTHER-EXPENSES> 9,190
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 448
<INCOME-PRETAX> 7,790
<INCOME-TAX> 3,102
<INCOME-CONTINUING> 4,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,688
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
