SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11757
THERMO OPTEK CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3283973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 49,580,581
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
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THERMO OPTEK CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 93,065 $ 71,109
Accounts receivable, less allowances of
$4,975 and $5,191 86,424 89,368
Inventories:
Raw materials and supplies 31,995 32,129
Work in process 12,873 11,538
Finished goods 17,984 20,678
Prepaid expenses 8,133 7,276
Prepaid income taxes 9,622 9,634
Due from parent company and affiliated
companies 1,510 6,844
-------- --------
261,606 248,576
-------- --------
Property, Plant, and Equipment, at Cost 83,291 82,786
Less: Accumulated depreciation and amortization 29,487 27,573
-------- --------
53,804 55,213
-------- --------
Patents and Other Assets 7,318 7,707
-------- --------
Due from Thermo Vision Corporation 3,947 3,947
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 229,579 231,028
-------- --------
$556,254 $546,471
======== ========
2PAGE
THERMO OPTEK CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations (includes $40,000
due to Thermo Electron) $ 54,956 $ 56,875
Accounts payable 21,546 22,095
Accrued payroll and employee benefits 10,873 11,492
Accrued income taxes 22,027 18,811
Accrued installation and warranty expenses 17,655 18,643
Deferred revenue 21,116 19,229
Other accrued expenses 32,351 32,052
-------- --------
180,524 179,197
-------- --------
Deferred Income Taxes 12,398 12,456
-------- --------
Other Deferred Items 2,441 2,678
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 79,916 79,956
Other 1,370 1,444
-------- --------
81,286 81,400
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 49,576,317 and
49,569,819 shares issued 496 496
Capital in excess of par value 240,076 239,507
Retained earnings 46,321 37,100
Treasury stock at cost, 619 and 594 shares (11) (10)
Accumulated other comprehensive items
(Note 3) (7,277) (6,353)
-------- --------
279,605 270,740
-------- --------
$556,254 $546,471
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
---------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
----------------------------------------------------------------------
Revenues $103,554 $106,175
-------- --------
Costs and Operating Expenses:
Cost of revenues 55,472 56,784
Selling, general, and administrative expenses 26,004 26,779
Research and development expenses 5,599 6,407
-------- --------
87,075 89,970
-------- --------
Operating Income 16,479 16,205
Interest Income (includes $187 from related
party in 1998) 1,090 893
Interest Expense (includes $578 to related
party in 1998) (1,792) (1,793)
-------- --------
Income Before Provision for Income Taxes 15,777 15,305
Provision for Income Taxes 6,556 6,407
-------- --------
Net Income $ 9,221 $ 8,898
======== ========
Earnings per Share (Note 2):
Basic $ .19 $ .18
======== ========
Diluted $ .18 $ .17
======== ========
Weighted Average Shares (Note 2):
Basic 49,573 48,450
======== ========
Diluted 55,720 55,017
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
----------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Operating Activities:
Net income $ 9,221 $ 8,898
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,440 3,855
Provision for losses on accounts receivable 102 33
Other noncash items 389 415
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 2,387 (8,442)
Inventories 1,289 (5,515)
Other current assets (891) (1,840)
Accounts payable (537) (673)
Amounts due to affiliated companies (1,305) 12,643
Other current liabilities 3,917 2,209
Other 269 237
-------- --------
Net cash provided by operating activities 18,281 11,820
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (2,571)
Refund from parent company for acquisitions 6,737 -
Purchases of property, plant, and equipment (1,061) (1,929)
Other (201) 94
-------- --------
Net cash provided by (used in) investing
activities 5,475 (4,406)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock 36 -
Repayment of short-term obligations, net (1,823) (7,452)
Repayment of long-term obligations (85) (115)
-------- --------
Net cash used in financing activities (1,872) (7,567)
-------- --------
Exchange Rate Effect on Cash 72 (452)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 21,956 (605)
Cash and Cash Equivalents at Beginning of Period 71,109 66,293
-------- --------
Cash and Cash Equivalents at End of Period $ 93,065 $ 65,688
======== ========
5PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
---------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Noncash Activities:
Conversion of convertible debentures $ 40 $ -
======== ========
Fair value of assets of acquired companies $ - $ 51,032
Cash paid for acquired companies - (3,016)
Stock issuable to parent company for acquired
companies - (12)
Due to parent company for acquired companies - (38,891)
-------- --------
Liabilities assumed of acquired companies $ - $ 9,113
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
THERMO OPTEK CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Optek Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at April
4, 1998, the results of operations for the three-month periods ended
April 4, 1998, and March 29, 1997, and the cash flows for the three-month
periods ended April 4, 1998, and March 29, 1997. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998, filed with
the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Basic
Net income $ 9,221 $ 8,898
-------- --------
Weighted average shares 49,573 48,450
-------- --------
Basic earnings per share $ .19 $ .18
======== ========
Diluted
Net income $ 9,221 $ 8,898
Effect of convertible debentures 599 722
-------- --------
Income available to common shareholders,
as adjusted $ 9,820 $ 9,620
-------- --------
Weighted average shares 49,573 48,450
Effect of:
Convertible debentures 5,731 6,481
Stock options 416 86
-------- --------
Weighted average shares, as adjusted 55,720 55,017
-------- --------
Diluted earnings per share $ .18 $ .17
======== ========
7PAGE
THERMO OPTEK CORPORATION
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items.
In general, comprehensive income combines net income and "other
comprehensive items," which represents foreign currency translation
adjustments reported as a component of shareholders' investment in the
accompanying balance sheet. During the first quarter of 1998 and 1997,
the Company's comprehensive income totaled $8,297,000 and $3,323,000,
respectively.
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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1998, filed with the Securities and Exchange
Commission.
Overview
The Company is a worldwide leader in instrumentation based upon
energy and light measurements (molecular and elemental analysis), and
systems for materials analysis, characterization, and preparation
(materials science). The Company provides industry, government, and
academia with complete solutions to specific analytical problems, moving
sophisticated analytical technology outside the laboratory. The Company's
instruments are used in virtually every industry for research and
development, manufacturing, and quality control.
For molecular and elemental analysis, the Company has three principal
operating units: Madison, Wisconsin-based Nicolet Instrument Corporation,
a manufacturer and distributor of Fourier transform infrared (FT-IR) and
FT-Raman spectrometry products; Franklin, Massachusetts-based Thermo
Jarrell Ash Corporation, a manufacturer and distributor of atomic
absorption (AA) and atomic emission (AE) spectrometry products; and
Ecublens, Switzerland-based A.R.L. Applied Research Laboratories S.A., a
manufacturer and distributor of wavelength-dispersive X-ray fluorescence
and AE instruments.
8PAGE
THERMO OPTEK CORPORATION
Overview (continued)
For materials science, the Company has one principal operating unit,
VG Systems Limited, located in the United Kingdom. VG Systems primarily
includes VG Semicon, a manufacturer and distributor of equipment for the
production of molecular-beam epitaxy products, and VG Scientific, a
manufacturer and distributor of instrumentation for surface and chemical
analysis.
Effective March 12, 1997, the Company acquired Spectronic Instruments
Inc., a supplier of ultraviolet/visible (UV/Vis) spectrophotometers and
accessories, fluorescence instruments, and diffraction gratings based in
Rochester, New York, from Thermo Instrument Systems Inc.
In December 1997, the Company distributed 100 percent of its Thermo
Vision Corporation subsidiary's capital stock in the form of a dividend
to the Company's shareholders. Thermo Vision designs, manufactures, and
markets a diverse array of photonic products, including optical
components, imaging sensors and systems, lasers, optically based
instruments, optoelectronics, and fiber optics. As a result of the
distribution, Thermo Vision is a publicly traded, majority-owned
subsidiary of Thermo Instrument. The consolidated financial statements of
the Company include the results for Thermo Vision through December 15,
1997.
The Company sells its products worldwide. Although the Company seeks
to charge its customers in the same currency as its operating costs, the
Company's financial performance and competitive position can be affected
by currency exchange rate fluctuations. Where appropriate, the Company
uses forward contracts to reduce its exposure to currency fluctuations.
During 1997, the Company's U.S. and foreign operations had revenues
to customers in Asia of approximately 22% of total revenues. Certain
countries in Asia are 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. Revenues to customers in South Korea, Taiwan,
Singapore, Malaysia, and Indonesia represented approximately 5% of the
Company's total 1997 revenues. The Company's sales to Asia could be
adversely affected by the unstable economic conditions there.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues decreased to $103.6 million in the first quarter of 1998
from $106.2 million in the first quarter of 1997. An increase in revenues
of $6.6 million in the first quarter of 1998, due to acquisitions, was
more than offset by the distribution of Thermo Vision in late 1997, which
had revenues of $7.7 million in the first quarter of 1997. In addition,
the Company's revenues decreased by $2.0 million due to the unfavorable
effects of currency translation as a result of the strengthening in value
of the U.S. dollar relative to currencies in foreign countries in which
the Company operates.
9PAGE
THERMO OPTEK CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
The gross profit margin remained relatively unchanged at 46.4% in the
first quarter of 1998 and 46.5% in the first quarter of 1997.
Selling, general, and administrative expenses as a percentage of
revenues were 25% in the first quarter of 1998 and 1997.
Research and development expenses as a percentage of revenues
decreased to 5.4% in the first quarter of 1998 from 6.0% in the first
quarter of 1997, primarily due to the distribution of Thermo Vision.
During the first quarter of 1997, Thermo Vision invested approximately
11% of sales in research and development.
Interest income increased slightly to $1.1 million in the first
quarter of 1998 from $0.9 million in the first quarter of 1997. Interest
expense remained unchanged at $1.8 million in 1998 and 1997.
The effective tax rate was 42% in the first quarter of 1998 and 1997.
The effective tax rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, the nondeductible
amortization of cost in excess of net assets of acquired companies, and
the inability to provide a tax benefit on foreign losses, offset in part
by the tax benefit associated with a foreign sales corporation.
Liquidity and Capital Resources
Consolidated working capital was $81.1 million at April 4, 1998,
compared with $69.4 million at January 3, 1998. Included in working
capital are cash and cash equivalents of $93.1 million at April 4, 1998,
compared with $71.1 million at January 3, 1998. Cash provided by
operating activities was $18.3 million in the first quarter of 1998. Cash
provided by the Company's operating results benefited from a $3.9 million
increase in other current liabilities due to an increase in accrued
income taxes related to the timing of tax payments. In addition, cash was
provided by a $2.4 million decrease in accounts receivable and a $1.3
million decrease in inventory. The decreases in accounts receivable and
inventory are the result of management efforts to reduce the Company's
investment in these assets.
The Company's investing activities provided $5.5 million of cash in
the first quarter of 1998. The Company received a refund of $6.7 million
from Thermo Instrument relating to the purchase of the former Fisons
businesses. The Company expended $1.1 million for the purchase of
property, plant, and equipment and plans to expend an additional $7.0
million for such purchases in the remainder of 1998.
The Company's financing activities used $1.9 million of cash in the
first quarter of 1998. The Company used $1.8 million for the repayment of
short-term borrowings.
Although the Company expects to have positive cash flow from its
existing operations, the Company may require significant amounts of cash
for any acquisition of complementary businesses. The Company expects that
it will finance any such acquisitions through a combination of internal
funds, additional debt or equity financing from capital markets, or
10PAGE
THERMO OPTEK CORPORATION
Liquidity and Capital Resources (continued)
short-term borrowings from Thermo Instrument or Thermo Electron
Corporation, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all. The Company
believes its existing resources are sufficient to meet the capital
requirements of its existing operations for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
11PAGE
THERMO OPTEK CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 12th day of May 1998.
THERMO OPTEK CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
12PAGE
THERMO OPTEK CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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27 Financial Data Schedule.