SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 3, 1999
[ ] 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 Identification No.)
incorporation or organization)
8 East Forge Parkway
Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common Stock, $.01 par value 15,335,416
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOSPECTRA CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 3, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 18,094 $20,717
Accounts receivable, less allowances of $2,240 and $2,386 36,756 41,016
Inventories:
Raw materials and supplies 19,020 18,355
Work in process 5,341 5,899
Finished goods 6,773 7,491
Prepaid income taxes 13,119 10,188
Other current assets 2,364 2,271
-------- --------
101,467 105,937
-------- --------
Property, Plant, and Equipment, at Cost 31,294 30,517
Less: Accumulated depreciation and amortization 14,669 13,526
-------- --------
16,625 16,991
-------- --------
Patents, Trademarks, and Other Assets 6,923 7,280
-------- --------
Cost in Excess of Net Assets of Acquired Companies 117,908 119,674
-------- --------
$242,923 $249,882
======== ========
2
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THERMOSPECTRA CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 3, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Liabilities:
Notes payable (includes $50,000 and $60,000 due to Thermo Electron) $ 52,747 $60,000
Accounts payable 12,419 11,822
Accrued payroll and employee benefits 4,695 6,239
Accrued installation and warranty expenses 4,532 4,362
Deferred revenue 3,835 4,360
Accrued income taxes 7,507 3,735
Other accrued expenses (Notes 5 and 6) 11,434 13,143
Due to parent company and affiliated companies 3,807 4,528
-------- --------
100,976 108,189
-------- --------
Deferred Income Taxes and Other Deferred Items 4,767 3,558
-------- --------
Long-term Obligations, Due to Related Party 7,300 7,300
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares authorized; 153 153
15,335,839 and 15,327,620 shares issued
Capital in excess of par value 111,630 111,549
Retained earnings 19,767 19,763
Treasury stock at cost, 423 shares (7) (7)
Accumulated other comprehensive items (Note 2) (1,663) (623)
-------- --------
129,880 130,835
-------- --------
$242,923 $249,882
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMOSPECTRA CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $41,874 $53,067
------- -------
Costs and Operating Expenses:
Cost of revenues 25,111 30,397
Selling, general, and administrative expenses 11,637 14,118
Research and development expenses 3,771 4,513
Restructuring and related costs (Note 6) 758 -
Gain on sale of property, plant, and equipment (45) (339)
------- -------
41,232 48,689
------- -------
Operating Income 642 4,378
Interest Income 188 325
Interest Expense, Related Party (822) (1,191)
------- -------
Income Before Provision for Income Taxes 8 3,512
Provision for Income Taxes 4 1,440
------- -------
Net Income $ 4 $ 2,072
======= =======
Basic and Diluted Earnings per Share (Note 3) $ - $ .14
======= =======
Weighted Average Shares (Note 3):
Basic 15,330 15,319
======= =======
Diluted 15,386 15,337
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMOSPECTRA CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 4 $ 2,072
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,929 1,814
Provision for losses on accounts receivable (3) 14
Gain on sale of property, plant, and equipment (45) (339)
Other noncash items 241 493
Changes in current accounts, excluding the effects of a disposition:
Accounts receivable 3,463 1,974
Inventories 246 83
Other current assets (141) (257)
Accounts payable 709 1
Due to parent company and affiliated companies 232 4,227
Other current liabilities (1,124) (183)
-------- -------
Net cash provided by operating activities 5,511 9,899
-------- -------
Investing Activities:
Proceeds from sale of a product line - 750
Purchases of property, plant, and equipment (971) (519)
Proceeds from sale of property, plant, and equipment 137 1,657
Refund of acquisition purchase price 595 -
Other 243 10
-------- -------
Net cash provided by investing activities 4 1,898
-------- -------
Financing Activities:
Repayment of obligation to Thermo Electron (10,000) -
Net proceeds from issuance of Company common stock 81 30
Change in short-term borrowings 2,818 (42)
-------- -------
Net cash used in financing activities (7,101) (12)
-------- -------
Exchange Rate Effect on Cash (1,037) (198)
-------- -------
Increase (Decrease) in Cash and Cash Equivalents (2,623) 11,587
Cash and Cash Equivalents at Beginning of Period 20,717 20,672
-------- -------
Cash and Cash Equivalents at End of Period $ 18,094 $32,259
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ThermoSpectra Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at April 3, 1999, and the results of
operations and cash flows for the three-month periods ended April 3, 1999, and
April 4, 1998. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and, in the 1998 period, unrealized net of tax
gains and losses from available-for-sale investments. During the first quarter
of 1999 and 1998, the Company had a comprehensive loss of $1,036,000 and
comprehensive income of $2,281,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Basic
Net Income $ 4 $2,072
------- ------
Weighted Average Shares 15,330 15,319
------- ------
Basic Earnings per Share $ - $ .14
======= ======
Diluted
Net Income $ 4 $2,072
------- ------
Weighted Average Shares 15,330 15,319
Effect of Stock Options 56 18
------- ------
Weighted Average Shares, as Adjusted 15,386 15,337
------- ------
Diluted Earnings per Share $ - $ .14
======= ======
The computation of diluted earnings per share for each period excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of April 3, 1999, there were 281,075 of such
options outstanding, with exercise prices ranging from $11.03 to $17.15 per
share.
6
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4. Business Segment Information
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues:
Imaging and Inspection $21,413 $22,993
Temperature Control 12,033 18,592
Test and Measurement 8,428 11,482
------- -------
$41,874 $53,067
======= =======
Income Before Provision for Income Taxes:
Imaging and Inspection $ 181 $1,691
Temperature Control 527 2,592
Test and Measurement 370 690
Corporate (a) (436) (595)
------- -------
Total operating income 642 4,378
Interest expense, net (634) (866)
------- -------
$ 8 $3,512
======= =======
(a) Primarily general and administrative expenses.
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5. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels and the abandonment of excess
facilities. In connection with these restructuring activities, as part of the
cost of acquisitions, the Company established reserves, primarily for severance
and excess facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Unresolved matters at April 3, 1999, primarily included completion
of abandonment of excess facilities for TopoMetrix Corporation, acquired October
1998. A summary of the changes in accrued acquisition expenses, included in
other accrued expenses in the accompanying balance sheet, follows:
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Abandonment
of Excess
(In thousands) Severance Facilities Total
- -------------------------------------------------------------- -------------- ------------- -------------
Balance at January 2, 1999 $ 30 $ 416 $ 446
Usage - (234) (234)
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Balance at April 3, 1999 $ 30 $ 182 $ 212
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7
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6. Restructuring and Related Costs
During the first quarter of 1999, the Company recorded restructuring costs
of $758,000, which were accounted for in accordance with EITF 94-3. Such costs
consist of $259,000 related to severance costs for four employees at a foreign
sales office, $155,000 for facility-closure costs, and $344,000 related to
certain business relocation and related costs. In addition, in 1998, the Company
had recorded restructuring costs for severance for 259 employees, of which 182
were terminated in 1998. During the first quarter of 1999, the Company
terminated 30 additional employees. A summary of the changes in accrued
restructuring costs, included in other accrued expenses in the accompanying
balance sheet, follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ---------------------------------------------- -------------- -------------- -------------- -------------
Balance at January 2, 1999 $ 2,459 $ - $ - $ 2,459
Charged to expense 259 155 344 758
Usage (1,360) (155) (344) (1,859)
Currency translation adjustment (21) - - (21)
-------- -------- -------- --------
Balance at April 3, 1999 $ 1,337 $ - $ - $ 1,337
======== ======== ======== ========
In connection with the Company's restructuring activities, the Company
expects to incur approximately $400,000 of additional costs which, pursuant to
the requirements of EITF 94-3, are not permitted as charges until incurred.
These additional costs primarily include costs for certain employee and business
relocation and related costs. The Company plans to complete implementation of
its restructuring plan in the second quarter of 1999.
7. Proposed Reorganization
During 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. As part of this reorganization, Thermo Electron announced that the
Company may be taken private. It is currently contemplated that the Company's
public shareholders would receive cash in exchange for their shares of common
stock of the Company. Representatives of Thermo Instrument Systems Inc. and the
members of a special committee of the Company's independent directors (formed
for the purpose of evaluating and negotiating the proposed transaction), along
with their financial and legal advisors, have been conducting negotiations
related to the pricing and terms of this proposed transaction. The completion of
this transaction is subject to numerous conditions, including the establishment
of the price; the approval of the Board of Directors of Thermo Instrument; the
negotiation and execution of a definitive purchase and sale or merger agreement;
the receipt of a fairness opinion from an investment banking firm that the
transaction is fair to the Company's shareholders (other than Thermo Instrument
and Thermo Electron) from a financial point of view; the approval of the
Company's special committee, as well as approval by the Company's entire Board
of Directors; and clearance by the Securities and Exchange Commission of any
necessary documents regarding the proposed transaction.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities and Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, filed with the Securities and Exchange
Commission.
8
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Overview
The Company develops, manufactures, and markets precision instruments in
three segments: Imaging and Inspection, Temperature Control, and Test and
Measurement. 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 Imaging and
Inspection segment includes X-ray microanalysis instruments; X-ray fluorescence
instruments; nondestructive X-ray inspection systems; specialty X-ray tubes; and
confocal laser scanning microscopes. In 1998, the Company acquired a
manufacturer of scanning probe microscopes, TopoMetrix Corporation. The Test and
Measurement segment consists of digital oscillographic recorders, digital
storage oscilloscopes (DSO's), and data acquisition systems. The Company's
Temperature Control segment manufactures and markets precision temperature
control systems for analytical, laboratory, industrial, research and
development, laser, and semiconductor applications.
The Company's growth strategy has included acquiring complementary
businesses, developing new applications for its technologies to address related
market segments, and strengthening its presence in selected geographic markets.
Because the Company competes primarily on the basis of its technology in all its
segments, it will also need to continually improve the technology underlying the
products of any company it acquires. One of the Company's principal goals during
recent quarters has been to improve operating margins. As part of this plan, the
Company completed the divestiture of a low-margin product line, and undertook
certain other restructuring actions, during 1998.
A significant portion of the Company's total revenues, primarily in the
Imaging and Inspection and Temperature Control segments, is attributable to the
sale of products and related services to customers in the semiconductor
industry. The semiconductor industry has historically been cyclical and is
characterized by sudden and sharp changes in supply and demand. Demand for the
Company's products and services within the semiconductor industry is dependent
upon, among other things, the level of capital spending by semiconductor
companies. The semiconductor industry has been experiencing weakness in demand
for its products as a result of the economic crisis in Asia, excess
manufacturing capacity, and a slowdown in sales of high-end personal computers.
Many semiconductor manufacturers delayed construction or expansion of their
production facilities in response to the foregoing conditions. This slowdown in
semiconductor activity began to affect demand for the Company's products
beginning in the second quarter of 1998. During the first quarter of 1999, the
semiconductor industry has shown some increased activity, but not to the levels
experienced prior to this most recent slowdown. Continued fluctuation in the
semiconductor industry could have a significant adverse effect upon the demand
for the Company's products and related services, which could materially
adversely affect the Company's business and future results of operations.
The Company conducts all of its manufacturing operations in the United
States. The Company sells its products worldwide. During 1998, exports to the
Far East represented 15% 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 to Asia have been, and
are expected to continue to be, adversely affected by the unstable economic
conditions in that region. Additionally, certain of the Company's customers
located outside of the Asian region could be adversely affected by the unstable
economic conditions in Asia.
The Company anticipates that a significant portion of its revenues in all
three segments 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.
9
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Results of Operations
First Quarter 1999 Compared With First Quarter 1998
Total revenues decreased to $41.9 million in the first quarter of 1999
from $53.1 million in the first quarter of 1998. Revenues at the Imaging and
Inspection segment, excluding the impact of foreign currency translation,
decreased $1.8 million, primarily due to a continued reduction in demand for
semiconductor related products, a downturn in overseas markets, and reduced
demand for products at Kevex Instruments. The decrease in revenues at the
Imaging and Inspection segment was offset in part by an increase of $1.9 million
due to the inclusion of revenues from TopoMetrix, acquired October 1998.
Revenues at the Company's Temperature Control segment, excluding the impact of
foreign currency translation, decreased $6.7 million, principally due to a
severe reduction in capital-equipment expenditures in the semiconductor
industry. Revenues at the Company's Test and Measurement segment, excluding the
impact of foreign currency translation, decreased $3.1 million, primarily due to
decreased demand and a delay in shipments due to facility consolidations related
to restructuring actions that commenced in 1998. The favorable effects of
currency translation due to the strengthening of foreign currencies in countries
in which the Company operates relative to the U.S. dollar increased revenues by
$0.4 million. The Company's total backlog remained at $26.0 million during the
first quarter of 1999 compared to year-end 1998.
Gross profit margin decreased to 40% in the first quarter of 1999 from 43%
in the first quarter of 1998, primarily due to lower sales volume. The decrease
in gross profit margin was offset in part by reduced spending as a result of
restructuring actions commenced in 1998.
Selling, general, and administrative expenses decreased 18% to $11.6
million in the first quarter of 1999 from $14.1 million in the first quarter of
1998 in response to reduced revenues and as a result of restructuring actions
commenced in 1998.
Research and development expenses decreased to $3.8 million in the first
quarter of 1999 from $4.5 million in the first quarter of 1998. The decreased
spending primarily resulted from the discontinuation of research and development
efforts on underperforming product lines and completion of efforts relating to
new-product releases.
The Company recorded $0.8 million of restructuring costs in the first
quarter of 1999 (Note 6). In connection with the closing of certain facilities,
the Company expects to incur approximately $0.4 million of additional costs in
the second quarter of 1999.
Interest income decreased to $0.2 million in the first quarter of 1999
from $0.3 million in the first quarter of 1998, principally due to lower average
invested balances. Interest expense, related party, decreased due to the
repayment to Thermo Electron of a promissory note.
The tax provision was $4,000 in the first quarter of 1999 and $1.4 million
in the first quarter of 1998. The effective tax rate in 1998 was 41%, which
exceeded the statutory federal income tax rate primarily due to the impact of
state income taxes and nondeductible amortization of costs in excess of net
assets of acquired companies.
Liquidity and Capital Resources
The Company had working capital of $0.5 million at April 3, 1999, compared
with negative working capital of $2.3 million at January 2, 1999. Included in
working capital are cash and cash equivalents of $18.1 million at April 3, 1999,
compared with $20.7 million at January 2, 1999. Also included in working capital
are notes payable to Thermo Electron of $50.0 million at April 3, 1999, and
$60.0 million at January 2, 1999.
During the first quarter of 1999, the Company's operating activities
provided $5.5 million of cash. A decrease in accounts receivable, primarily due
to lower revenues, provided $3.5 million of cash. An increase in accounts
payable, due to the timing of payments, provided $0.7 million of cash. These
increases in cash were reduced in part by the use of $1.1 million of cash to
fund a decrease in other current liabilities, primarily for cash payments
relating to severance and facility-closure costs (Note 6).
10
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Liquidity and Capital Resources (continued)
The Company's primary investing activities included $1.0 million expended
for the purchase of property, plant, and equipment and a $0.6 million refund of
a portion of the acquisition purchase price for Park Scientific Instruments
Corporation, which resulted from the final determination of the post-closing
adjustment. During the remainder of 1999, the Company plans to expend
approximately $3 million for the purchase of property, plant, and equipment.
During the first quarter of 1999, the Company's financing activities used
$7.1 million of cash. The Company repaid $10.0 million of borrowings to Thermo
Electron. In addition, short-term borrowings provided $2.8 million of cash.
The Company generally expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it would seek to finance any such
acquisitions through a combination of internal funds 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. Thermo Electron has indicated that it will seek repayment from
the Company of its $50 million promissory note, due in 1999, only to the extent
the Company's cash flow permits such repayment. Accordingly, 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.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications, and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company's efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material noncompliant information technology systems
or facilities that were identified during phase one are prioritized and
remediated. The Company is currently upgrading or replacing its material
noncompliant information technology systems, and this process was approximately
78% complete as of April 3, 1999. In many cases, such upgrades or replacements
are being made in the ordinary course of business, without accelerating
previously scheduled upgrades or replacements. The Company expects that all of
its material information technology systems and critical facilities will be year
2000 compliant by September 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate third-party products, and operate on computer systems that are
not under the Company's control, there can be no assurance
11
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Year 2000 (continued)
that the Company has identified all of the year 2000 problems with its current
products. The Company believes that certain of its older products, which it no
longer manufactures or sells, may not be year 2000 compliant. The Company is
continuing to test and evaluate such products. The Company is focusing its
efforts on products that are still under warranty and/or are early in their
expected life. The Company is offering upgrades and/or identifying potential
solutions where reasonably practicable.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company is now following up with its
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has not completed the majority of its assessment of
third-party risk, but expects to be substantially completed by September 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products, and significant suppliers and vendors, it will modify and
adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
were funded from working capital. All internal costs and related external costs,
other than capital additions, related to year 2000 remediation have been and
will continue to be expensed as incurred. The Company does not track the
internal costs incurred for its year 2000 compliance project. Such costs are
principally the related payroll costs for its information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see
12
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Year 2000 (continued)
an increase in warranty and other claims, especially those related to Company
products that incorporate, or operate using, third-party software or hardware.
In addition, certain of the Company's older products, which it no longer
manufactures or sells, may not be year 2000 compliant, which may expose the
Company to claims. As discussed above, if any of the Company's material
suppliers or vendors experience business disruptions due to year 2000 issues,
the Company might also be materially adversely affected. If any countries in
which the Company operates experience significant year 2000 disruption, the
Company could also be materially adversely impacted. There is expected to be a
significant amount of litigation relating to the year 2000 issue and there can
be no assurance that the Company will not incur material costs in defending or
bringing lawsuits. In addition, if any year 2000 issues are identified, there
can be no assurance that the Company will be able to retain qualified personnel
to remedy such issues. Any unexpected costs or delays arising from the year 2000
issue could have a material adverse impact on the Company's business,
operations, and financial condition in amounts that cannot be reasonably
estimated at this time.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates and interest rates has not changed materially from year-end 1998.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 11th day of May 1999.
THERMOSPECTRA CORPORATION
/s/ Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-------------------------
Theo Melas-Kyriazi
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27.1 Financial Data Schedule for the quarter ended April 3, 1999.
27.2 Amended Financial Data Schedule for the year ended January 2, 1999.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
SPECTRA CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL
3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 18,094
<SECURITIES> 0
<RECEIVABLES> 38,996
<ALLOWANCES> 2,240
<INVENTORY> 31,134
<CURRENT-ASSETS> 101,467
<PP&E> 31,294
<DEPRECIATION> 14,669
<TOTAL-ASSETS> 242,923
<CURRENT-LIABILITIES> 100,976
<BONDS> 7,300
0
0
<COMMON> 153
<OTHER-SE> 129,727
<TOTAL-LIABILITY-AND-EQUITY> 242,923
<SALES> 41,874
<TOTAL-REVENUES> 41,874
<CGS> 25,111
<TOTAL-COSTS> 25,111
<OTHER-EXPENSES> 4,529
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> 822
<INCOME-PRETAX> 8
<INCOME-TAX> 4
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
SPECTRA CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 2,
1999 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-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 20,717
<SECURITIES> 0
<RECEIVABLES> 43,402
<ALLOWANCES> 2,386
<INVENTORY> 31,745
<CURRENT-ASSETS> 105,937
<PP&E> 30,517
<DEPRECIATION> 13,526
<TOTAL-ASSETS> 249,882
<CURRENT-LIABILITIES> 108,189
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 130,682
<TOTAL-LIABILITY-AND-EQUITY> 130,835
<SALES> 191,017
<TOTAL-REVENUES> 191,017
<CGS> 110,915
<TOTAL-COSTS> 110,915
<OTHER-EXPENSES> 20,618
<LOSS-PROVISION> 689
<INTEREST-EXPENSE> 4,334
<INCOME-PRETAX> 3,652
<INCOME-TAX> 1,827
<INCOME-CONTINUING> 1,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,825
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
