SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-10574
THERMO VOLTEK CORP.
(Exact name of Registrant as specified in its charter)
Delaware 13-1946800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2878
Woburn, Massachusetts 01888-1578
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each
of the issuer's classes of Common Stock, as of the
latest practicable date.
Class Outstanding at October 25, 1996
---------------------------- -------------------------------
Common Stock, $.05 par value 9,578,645
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO VOLTEK CORP.
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $15,288 $ 8,651
Available-for-sale investments, at quoted
market value (amortized cost of $13,053
and $25,795) (includes $1,404 and $1,482
of related party investments) 13,156 26,038
Accounts receivable, less allowances of
$582 and $447 10,647 8,680
Inventories:
Raw materials 4,767 3,598
Work in process 3,059 3,059
Finished goods 2,815 1,924
Prepaid income taxes and other
current assets 1,246 1,022
------- -------
50,978 52,972
------- -------
Property, Plant and Equipment, at Cost 9,021 7,677
Less: Accumulated depreciation and
amortization 5,418 4,533
------- -------
3,603 3,144
------- -------
Other Assets 265 648
------- -------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 16,326 12,081
------- -------
$71,172 $68,845
======= =======
2PAGE
THERMO VOLTEK CORP.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
-----------------------------------------------------------------------
Current Liabilities:
Notes payable $ 1,171 $ 1,276
Accounts payable 3,692 3,966
Accrued payroll and employee benefits 1,091 1,128
Accrued income taxes 655 1,103
Accrued commissions 802 468
Other accrued expenses 1,838 2,366
Due to parent company and affiliates 1,452 839
------- -------
10,701 11,146
------- -------
Subordinated Convertible Obligations
(includes $10,000 and $11,500 of related
party debt) 21,150 36,740
------- -------
Shareholders' Investment (Note 2):
Common stock, $.05 par value, 25,000,000
shares authorized; 9,506,649 and 4,881,099
shares issued 475 244
Capital in excess of par value 35,747 20,545
Retained earnings (accumulated deficit) 3,078 (185)
Treasury stock at cost, 3,736 and 1,958 shares (32) (20)
Cumulative translation adjustment (13) 229
Net unrealized gain on available-for-sale
investments 66 146
------- -------
39,321 20,959
------- -------
$71,172 $68,845
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
THERMO VOLTEK CORP.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues $12,800 $ 9,442
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Costs and Operating Expenses:
Cost of revenues 6,470 4,783
Selling, general and administrative expenses 3,792 3,136
Research and development expenses 1,007 626
------- -------
11,269 8,545
------- -------
Operating Income 1,531 897
Interest Income 399 514
Interest Expense (includes $177 to related
party in 1996 and 1995) (297) (509)
------- -------
Income Before Provision for Income Taxes 1,633 902
Provision for Income Taxes 439 158
------- -------
Net Income $ 1,194 $ 744
======= =======
Earnings per Share:
Primary $ .13 $ .11
======= =======
Fully diluted $ .10 $ .08
======= =======
Weighted Average Shares:
Primary 9,451 6,861
======= =======
Fully diluted 13,640 13,554
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMO VOLTEK CORP.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $35,303 $25,304
------- -------
Costs and Operating Expenses:
Cost of revenues 18,013 13,115
Selling, general and administrative expenses 10,572 8,226
Research and development expenses 2,538 1,672
------- -------
31,123 23,013
------- -------
Operating Income 4,180 2,291
Interest Income 1,393 1,547
Interest Expense (includes $530 to related
party in 1996 and 1995) (1,134) (1,643)
Other Income - 14
------- -------
Income Before Provision for Income Taxes 4,439 2,209
Provision for Income Taxes 1,176 447
------- -------
Net Income $ 3,263 $ 1,762
======= =======
Earnings per Share:
Primary $ .38 $ .28
======= =======
Fully diluted $ .28 $ .19
======= =======
Weighted Average Shares:
Primary 8,560 6,285
======= =======
Fully diluted 13,639 13,533
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
THERMO VOLTEK CORP.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Operating Activities:
Net income $ 3,263 $ 1,762
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,287 1,105
Provision for losses on accounts receivable 80 108
Other noncash items - (9)
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (1,901) 101
Inventories (764) (2,914)
Other current assets (196) 281
Accounts payable (266) 325
Other current liabilities (1,098) 764
Due to parent company and affiliates 894 (581)
------- -------
Net cash provided by operating
activities 1,299 942
------- -------
Investing Activities:
Acquisition, net of cash acquired (Note 3) (6,040) (4,127)
Purchases of available-for-sale investments (5,500) (7,500)
Proceeds from sale and maturities of
available-for-sale investments 18,009 8,000
Purchases of property, plant and equipment (1,331) (962)
Other 284 495
------- -------
Net cash provided by (used in)
investing activities 5,422 (4,094)
------- -------
Financing Activities:
Net increase (decrease) in short-term
obligations (31) 415
Repurchase of long-term obligations - (132)
Net proceeds from issuance of Company
common stock 124 247
------- -------
Net cash provided by financing
activities 93 530
------- -------
Exchange Rate Effect on Cash (177) (335)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 6,637 (2,957)
Cash and Cash Equivalents at Beginning of Period 8,651 8,955
------- -------
Cash and Cash Equivalents at End of Period $15,288 $ 5,998
======= =======
6PAGE
THERMO VOLTEK CORP.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired company $ 7,048 $ 5,228
Cash paid for acquired company (6,300) (4,157)
------- -------
Liabilities assumed of acquired company $ 748 $ 1,071
======= =======
Conversions of subordinated convertible
obligations (includes $1,500 of related
party debt in 1996) $15,590 $ 5,646
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
THERMO VOLTEK CORP.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Voltek Corp. (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at
September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 30, 1995,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995, filed
with the Securities and Exchange Commission.
2. Stock Split
All share and per share information, except for share information in
the accompanying 1995 balance sheet, has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
distributed in August 1996.
3. Acquisition
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Pacific Power Source Corporation
(Pacific Power) for approximately $6.3 million in cash, including the
repayment of $800,000 in debt. Pacific Power manufactures programmable
power amplifiers that can be incorporated into electromagnetic
compatibility test equipment to assess how well electronics tolerate
normal variations in the quality and quantity of AC voltage. These
amplifiers are also used in other kinds of test equipment and in
application-specific power supplies.
The acquisition has been accounted for using the purchase method of
accounting and Pacific Power's results of operations have been included
in the accompanying financial statements from the date of acquisition.
The cost of this acquisition exceeded the estimated fair value of
acquired net assets by approximately $4.7 million, which is being
amortized over 40 years. Allocation of the purchase price was based on an
8PAGE
THERMO VOLTEK CORP.
3. Acquisition (continued)
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. Pro forma
data is not presented since the acquisition was not material to the
Company's results of operations and financial position.
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 Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Description of Business
The Company designs, manufactures, and markets instruments that test
electronic and electrical systems and components for immunity to pulsed
electromagnetic interference (pulsed EMI) through its KeyTek Instrument
division (KeyTek); designs, manufactures, and markets high-voltage
power-conversion systems, modulators, fast-response protection systems,
and related high-voltage equipment for industrial, medical, and
environmental processes, and for defense and scientific research
applications, through its Universal Voltronics division; and designs,
manufactures, and markets radio frequency power amplifiers and systems
used to test products for immunity to radiated or conducted radio
frequency interference and for medical imaging and telecommunications
applications, through its Kalmus division. Through its Comtest
Instrumentation B.V. and Comtest Limited subsidiaries (collectively,
Comtest), the Company provides electromagnetic compatibility (EMC)
consulting and systems-integration services, distributes a range of
EMC-related products, and manufactures and markets specialized power
supplies for telecommunications equipment. Comtest's Verifier division
and KeyTek manufacture a line of electrostatic discharge and other
component reliability test equipment that performs electrical stress
tests for semiconductor devices. Pacific Power Source Corporation
(Pacific Power) manufactures AC/DC power conversion products for both the
EMC market and specific OEM applications in the instrumentation,
research, government, and communications industry segments.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Revenues increased 36% to $12,800,000 in the third quarter of 1996
from $9,442,000 in the third quarter of 1995. The increase reflects the
inclusion of $1,450,000 in revenues from Pacific Power, which was
acquired in July 1996, as well as increases in revenues at Comtest,
KeyTek, and Kalmus. The increase in revenues at Comtest resulted
primarily from an increase in demand for Verifier's electrostatic-
discharge test equipment, as well as an increase in revenues from a radio
9PAGE
THERMO VOLTEK CORP.
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
frequency interference immunity tester product line that was introduced
in 1995. Increased revenues at KeyTek resulted primarily from greater
demand for its EMC test equipment. Kalmus increased shipments during the
quarter, relative to prior periods, due to the implementation of
manufacturing efficiencies.
The gross profit margin was 49% in the third quarter of 1996 and
1995.
Selling, general and administrative expenses as a percentage of
revenues decreased to 30% in the third quarter of 1996 from 33% in the
third quarter of 1995, primarily due to an increase in revenues. Research
and development expenses as a percentage of revenues increased to 7.9% in
the third quarter of 1996 from 6.6% in the third quarter of 1995,
principally due to higher research and development expenses at Keytek.
Interest income decreased to $399,000 in the third quarter of 1996
from $514,000 in the third quarter of 1995, primarily due to lower
average invested balances. Interest expense decreased to $297,000 in the
third quarter of 1996 from $509,000 in the third quarter of 1995,
primarily due to conversions of the Company's subordinated convertible
obligations during 1995 and 1996.
The effective tax rate was 27% and 18% in the third quarter of 1996
and 1995, respectively. The effective tax rates were below the statutory
federal income tax rate due primarily to the utilization of tax net
operating loss carryforwards, offset in part by the impact of state
income taxes. The effective tax rate increased in 1996 as the result of a
decrease in tax net operating loss carryforwards as a percentage of
income before provision for income taxes.
First Nine Months 1996 Compared With First Nine Months 1995
Revenues increased 40% to $35,303,000 in the first nine months of
1996 from $25,304,000 in the first nine months of 1995, due to increases
in revenues at Comtest, KeyTek, and Kalmus, and from the inclusion of
$1,450,000 in revenues from Pacific Power, which was acquired in July
1996. Revenues at Comtest and Keytek increased for the reasons discussed
in the results of operations for the third quarter. Revenues at Kalmus,
which was acquired in March 1995, increased $1,126,000 due to the
inclusion of revenues for the full nine months of 1996 and $1,283,000 for
the reasons discussed in the results of operations for the third quarter.
The gross profit margin increased to 49% in the first nine months of
1996 from 48% in the first nine months of 1995, primarily due to an
increase in higher-margin domestic sales at KeyTek and the inclusion of
higher-margin Kalmus revenues for the full nine months of 1996.
10PAGE
THERMO VOLTEK CORP.
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
Selling, general and administrative expenses as a percentage of
revenues decreased to 30% in the first nine months of 1996 from 33% in
the first nine months of 1995, primarily due to an increase in revenues.
Research and development expenses as a percentage of revenues increased
to 7.2% in the first nine months of 1996 from 6.6% in the first nine
months of 1995, principally due to higher research and development
expenses at KeyTek.
Interest income decreased to $1,393,000 in the first nine months of
1996 from $1,547,000 in the first nine months of 1995. Interest expense
decreased to $1,134,000 in the first nine months of 1996 from $1,643,000
in the first nine months of 1995. The reasons for these decreases are the
same as those discussed in the results of operations for the third
quarter.
The effective tax rate was 26% and 20% in the first nine months of
1996 and 1995, respectively. The effective tax rates were below the
statutory federal income tax rate due primarily to the utilization of tax
net operating loss carryforwards, offset in part by the impact of state
income taxes. The effective tax rate increased in 1996 for the reason
discussed in the results of operations for the third quarter.
Liquidity and Capital Resources
Working capital was $40,277,000 at September 28, 1996, compared with
$41,826,000 at December 30, 1995. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $28,444,000 at
September 28, 1996, compared with $34,689,000 at December 30, 1995.
During the first nine months of 1996, $1,299,000 of cash was provided by
operating activities. Cash flow from operations was reduced by an
increase in accounts receivable, which resulted primarily from an
increase in revenues.
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Pacific Power for approximately $6.3
million in cash, including the repayment of $800,000 in debt (Note 3).
During the first nine months of 1996, the Company expended
$1,331,000 for purchases of property, plant and equipment. During the
remainder of 1996, the Company expects to make capital expenditures of
approximately $300,000. The Company believes that its existing resources
are sufficient to meet the capital requirements of its existing
operations for the foreseeable future.
11PAGE
THERMO VOLTEK CORP.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On August 8, 1996, at a special meeting of shareholders, the
Company's shareholders approved a proposal to amend the Company's
Restated Certificate of Incorporation to increase the Company's
authorized common stock, $.05 par value per share, from 10 million shares
to 25 million shares as follows: 5,200,759 shares voted in favor, 204,034
shares voted against, and 8,293 shares abstained. No broker nonvotes were
recorded on the proposal.
Item 5 - Other Information
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 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Rapid Technological Change. The market for EMC testing products and
services is characterized by rapid technological change. No assurance can
be given that the Company will be able to develop new and enhanced
instruments that keep pace with technological developments and respond to
the increasingly complex requirements of electronics manufacturers.
Reliance on Electrical Standards. Demand for the Company's EMC
testing products and services is driven to a large extent by mandatory
government standards and voluntary industry standards relating to
electromagnetic compatibility. In particular, demand for the Company's
products results from efforts by manufacturers to comply with IEC 801, an
EC directive that became effective on January 1, 1996. Although many
manufacturers have not yet complied with IEC 801, as the number of
noncomplying manufacturers is reduced over time, demand for the Company's
products could be adversely affected. In addition, if new EMC standards
requiring new testing capabilities are enacted less frequently or if EMC
standards become less strict, demand for the Company's products could be
adversely affected.
Sole Source Suppliers. A number of the components of the Company's
EMC testing products are supplied by single vendors. While the Company
has not experienced significant difficulty in obtaining adequate supplies
from these vendors, and believes that it would be able to identify
alternative suppliers if necessary, there can be no assurance that the
unanticipated loss of a single vendor would not result in delays in
shipments or in the introduction of new products.
International Sales. International sales account for a significant
portion of the Company's revenues. Sales to customers in certain foreign
countries are subject to a number of risks, including the following:
agreements may be difficult to enforce, and receivables difficult to
collect, through a foreign country's legal system; foreign customers may
have longer payment cycles; foreign countries could impose withholding
12PAGE
THERMO VOLTEK CORP.
Item 5 - Other Information (continued)
taxes or otherwise tax the Company's foreign income, impose tariffs,
embargoes or exchange controls or adopt other restrictions on foreign
trade; and export licenses, if required, may be difficult to obtain. In
addition, fluctuations in foreign currency exchange rates could have an
adverse impact on international sales.
Risks Associated With Acquisition Strategy. The Company's strategy
includes the acquisition of 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
approval, including antitrust approvals. 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 business. In
order to finance such acquisitions, it may be necessary for the Company
to raise additional funds through public or private financings. Any
equity or debt financing, if available at all, may be on terms which are
not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
13PAGE
THERMO VOLTEK CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 4th day of November
1996.
THERMO VOLTEK CORP.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
14PAGE
THERMO VOLTEK CORP.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------------------------------------------------------------------------
3(i) Amendment to Restated Certificate of Incorporation
of the Registrant.
10.1 Stock Holdings Assistance Plan and Form of Promissory
Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.