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 27, 1997.
[ ] 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.)
8E Forge Parkway
Franklin, Massachusetts 02038
(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 September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.01 par value 48,455,589
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO OPTEK CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, December 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 51,630 $ 66,292
Accounts receivable, less allowances of
$5,670 and $4,997 101,860 88,559
Inventories:
Raw materials and supplies 36,671 34,381
Work in process 15,380 13,557
Finished goods 27,406 26,354
Prepaid expenses 7,698 6,371
Prepaid income taxes 15,940 15,254
Due from affiliated companies 775 -
-------- --------
257,360 250,768
-------- --------
Property, Plant, and Equipment, at Cost 89,189 83,296
Less: Accumulated depreciation and
amortization 29,036 23,271
-------- --------
60,153 60,025
-------- --------
Patents and Other Assets 8,984 10,232
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 260,805 234,447
-------- --------
$587,302 $555,472
======== ========
2PAGE
THERMO OPTEK CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations (including $40,000
due to Thermo Electron; Note 2) $ 60,832 $ 27,736
Accounts payable 27,392 28,920
Accrued payroll and employee benefits 13,305 12,809
Accrued installation and warranty expenses 20,338 21,088
Accrued income taxes 22,231 14,379
Deferred revenue 19,991 15,331
Other accrued expenses (Note 2) 36,795 45,379
Due to affiliated companies - 28,167
-------- --------
200,884 193,809
-------- --------
Deferred Income Taxes 13,752 13,865
-------- --------
Other Deferred Items 3,156 3,413
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 96,250 96,250
Due to Thermo Electron (Note 2) 3,800 -
Other 1,823 528
-------- --------
101,873 96,778
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 48,456,153 shares
issued 485 485
Capital in excess of par value 222,197 222,123
Retained earnings (Note 2) 51,356 24,773
Treasury stock at cost, 564 shares (10) -
Cumulative translation adjustment (6,391) 226
-------- --------
267,637 247,607
-------- --------
$587,302 $555,472
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $118,216 $105,806
-------- --------
Costs and Operating Expenses:
Cost of revenues 63,759 58,575
Selling, general, and administrative
expenses 28,579 27,923
Research and development expenses 7,247 6,256
-------- --------
99,585 92,754
-------- --------
Operating Income 18,631 13,052
Interest Income 1,413 1,571
Interest Expense (1,953) (1,716)
Interest Expense, Related Party (1,279) -
-------- --------
Income Before Provision for Income Taxes 16,812 12,907
Provision for Income Taxes 7,144 5,506
-------- --------
Net Income $ 9,668 $ 7,401
======== ========
Earnings per Share:
Primary $ .20 $ .15
======== ========
Fully diluted $ .19 $ .15
======== ========
Weighted Average Shares:
Primary 48,452 48,410
======== ========
Fully diluted 55,439 55,169
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $341,408 $283,362
-------- --------
Costs and Operating Expenses:
Cost of revenues 183,702 156,388
Selling, general, and administrative
expenses 84,007 77,583
Research and development expenses 20,222 17,969
-------- --------
287,931 251,940
-------- --------
Operating Income 53,477 31,422
Interest Income 3,218 4,255
Interest Expense (5,268) (5,025)
Interest Expense, Related Party (1,848) -
-------- --------
Income Before Provision for Income Taxes 49,579 30,652
Provision for Income Taxes 21,234 12,898
-------- --------
Net Income $ 28,345 $ 17,754
======== ========
Earnings per Share:
Primary $ .59 $ .38
======== ========
Fully diluted $ .55 $ .38
======== ========
Weighted Average Shares:
Primary 48,451 46,442
======== ========
Fully diluted 55,438 52,923
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
---------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 28,345 $ 17,754
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,176 9,529
Provision for losses on accounts receivable 206 1,538
Other noncash expenses 1,239 1,372
Decrease in deferred income taxes - (174)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (11,441) 5,613
Inventories (4,502) 712
Other current assets (570) (531)
Accounts payable (4,257) (11,468)
Due to affiliated companies 17,435 2,348
Other current liabilities 4,584 (4,300)
Other 461 1,167
-------- --------
Net cash provided by operating activities 43,676 23,560
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (45,449) (15,527)
Cash payment to parent company for
acquisitions of VG Systems in 1997 and
Mattson and Unicam in 1996 (Note 2) (45,546) (36,558)
Purchases of property, plant, and equipment (5,320) (4,560)
Proceeds from sale of property, plant,
and equipment 1,456 -
Other (69) (66)
-------- --------
Net cash used in investing activities (94,928) (56,711)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 64 42,937
Proceeds from issuance of notes payable to
Thermo Electron (Note 2) 43,800 -
Decrease in short-term obligations, net (6,346) (6,945)
Repayment of long-term obligations (97) (4,166)
-------- --------
Net cash provided by financing activities 37,421 31,826
-------- --------
Exchange Rate Effect on Cash (831) (350)
-------- --------
Decrease in Cash and Cash Equivalents (14,662) (1,675)
Cash and Cash Equivalents at Beginning of Period 66,292 116,890
-------- --------
Cash and Cash Equivalents at End of Period $ 51,630 $115,215
======== ========
6PAGE
THERMO OPTEK CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
---------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ 51,736 $ 186,889
Cash paid for acquired companies (46,293) (16,869)
Stock issuable to Thermo Instrument for
acquired company (12) -
Due to parent for acquired company - (100,742)
--------- ---------
Liabilities assumed of acquired companies $ 5,431 $ 69,278
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
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
September 27, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the nine-month periods ended September 27, 1997, and
September 28, 1996. Interim results are not necessarily indicative of
results for a full year.
Historical financial results have been restated to include VG
Systems Limited (VG Systems) and Spectronic Instruments Inc.
(Spectronic), which were acquired in transactions similar to poolings of
interests (Note 2). 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 28, 1996, filed with the Securities and Exchange
Commission.
2. Acquisitions
On March 29, 1996, Thermo Instrument Systems Inc. (Thermo
Instrument), the Company's majority shareholder, 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. In July 1997, the Company agreed to acquire VG Systems, a business
formerly part of Fisons, from Thermo Instrument for $45,546,000 in cash,
subject to a post-closing adjustment. The purchase price was determined
based on the net tangible book value of VG Systems and a pro rata
allocation of Thermo Instrument's total cost in excess of net assets of
acquired companies recorded in connection with the acquisition of the
Fisons businesses. VG Systems manufactures instrumentation and equipment
for material and surface science analysis. This U.K.-based company
consists of four major operating divisions: VG Scientific (analytical
instruments for elemental, chemical, and spatial analysis), VG Semicon
(molecular beam epitaxy systems for semiconductor production), VG
Microtech (ultrahigh-vacuum surface science instruments), and Vacuum
Generators (vacuum components and systems). In addition to these four
divisions, VG Systems includes VG Broadcast, a supplier of teletext
systems for closed-caption television applications. VG Systems reported
1996 revenues of $62 million.
8PAGE
THERMO OPTEK CORPORATION
2. Acquisitions (continued)
Because the Company and VG Systems 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 historical financial
statements have been restated to include the results of VG Systems from
March 29, 1996, the date the business was acquired by Thermo Instrument.
The purchase price included $6,902,000 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 as of
December 28, 1996. The cost of this acquisition exceeded the estimated
fair value of the acquired net assets by $36,353,000, which is being
amortized over 40 years.
On March 12, 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 Spectronic, a former LSI subsidiary, from Thermo
Instrument. Spectronic is a Rochester, New York-based supplier of UV/VIS
spectrophotometers and accessories, fluorescence instruments, and
precision-ruled and holographic gratings for industrial and educational
markets worldwide, and had 1996 revenues of approximately $30 million.
The purchase price for Spectronic consisted of: (i) $20,760,000 in cash,
(ii) 1,000 shares of the Company's common stock valued at $11,940, and
(iii) the assumption of $19,559,000 of debt. The purchase price
represents the sum of the net tangible book value of Spectronic 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 Spectronic relative to LSI's 1996
consolidated revenues. The purchase price, the cash and debt portions of
which were paid in August 1997 together with interest calculated at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter, is subject to a post-closing adjustment based
on final determination of the net tangible book value of the acquired
business and a final calculation of Thermo Instrument's total cost in
excess of net assets acquired associated with the acquisition of LSI. The
1,000 shares of common stock to be issued to Thermo Instrument will be
issued as soon as they are listed on the American Stock Exchange.
Because the Company and Spectronic 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 Spectronic from March 12, 1997, the
date the business was acquired by Thermo Instrument. The purchase price
included $1,762,000 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 acquired net assets
by $28,719,000, which is being amortized over 40 years.
9PAGE
THERMO OPTEK CORPORATION
2. Acquisitions (continued)
Notes payable and current maturities of long-term obligations in the
accompanying 1997 balance sheet includes $40,000,000 due to Thermo
Electron Corporation (Thermo Electron) to partially fund the acquisitions
of VG Systems and Spectronics. The Company borrowed these funds in August
1997 pursuant to a promissory note due August 1998 and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set
at the beginning of each quarter. The Company used the proceeds from the
note and available cash to pay Thermo Instrument for the acquisitions.
During 1997, the Company acquired three additional companies, for an
aggregate $6,816,000 in cash, which were accounted for using the purchase
method of accounting. Allocation of the purchase price for these
acquisitions was based on an estimate of the fair value of the net assets
acquired. The cost of these acquisitions exceeded the estimated fair
value of the acquired net assets by $6,629,000, which is being amortized
over 40 years. To fund one of the acquisitions, the Company's Thermo
Vision Corporation subsidiary borrowed $3,800,000 from Thermo Electron
pursuant to a promissory note due July 2000 and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. This amount is included in long-term
obligations in the accompanying 1997 balance sheet.
Based on unaudited data, the following table presents selected
financial information of the Company, VG Systems, and Spectronic on a pro
forma basis, assuming the companies had been combined since the beginning
of 1996. The effect of the acquisitions not included in the pro forma
data was not material to the Company's results of operations.
Three Months Nine Months
Ended Ended
------------- -------------------
(In thousands except per Sept. 28, Sept. 27, Sept. 28,
share amounts) 1996 1997 1996
-----------------------------------------------------------------------
Revenues $113,321 $346,054 $318,178
Net income 6,944 26,599 14,122
Earnings per share:
Primary .14 .55 .30
Fully diluted .14 .52 .30
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions of VG Systems and Spectronic been made at the beginning of
1996.
During 1996, the Company undertook a restructuring in connection
with its acquisitions of VG Systems, A.R.L. Applied Research Laboratories
S.A. (ARL), and VG Elemental, effective March 1996, and the Mattson
Instruments and Unicam divisions of ATI, effective December 1995. The
Company finalized its restructuring plans for Mattson and Unicam in 1996
and for VG Systems, ARL, and VG Elemental in the first quarter of 1997.
10PAGE
THERMO OPTEK CORPORATION
2. Acquisitions (continued)
A summary of the changes in these acquisition reserves during 1997
is as follows:
VG Systems,
Mattson and ARL, and
(In thousands) Unicam VG Elemental
------------------------------------------------------------------------
Balance, December 28, 1996 $ 3,528 $ 2,678
Adjustment to opening balance due to
acquisition of VG Systems, accounted for
in a manner similar to a pooling of
interests - 4,516
Payments, primarily for severance
and abandoned facilities (1,991) (4,242)
Decrease due to finalization of
restructuring plan, recorded as
a decrease in cost in excess of
net assets of acquired companies - (1,492)
Other decrease to reserve, recorded as
a decrease in cost in excess of
net assets of acquired companies (115) -
------- -------
Balance, September 27, 1997, for
ongoing severance and abandoned-
facility payments $ 1,422 $ 1,460
======= =======
As of September 27, 1997, the Company had accrued a total of
$5,252,000 for restructuring costs for all of its acquisitions, including
those discussed above. These reserves are included in other accrued
expenses in the accompanying 1997 balance sheet.
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 caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996, filed with the Securities and Exchange
Commission.
11PAGE
THERMO OPTEK CORPORATION
Overview
Prior to 1996, the Company's principal operating units included
Thermo Jarrell Ash Corporation (TJA), a manufacturer and distributor of
atomic absorption (AA) and atomic emission (AE) spectrometry products
based in Franklin, Massachusetts, and Nicolet Instrument Corporation, a
manufacturer and distributor of Fourier Transform Infrared (FT-IR) and
FT-Raman spectrometry products based in Madison, Wisconsin. During 1996
and 1997, the Company acquired several companies, summarized below, which
significantly increased its operations.
The Company's strategy is to supplement its internal growth with the
acquisition of businesses and technologies that complement and augment
its existing product lines. In February 1996, the Company acquired Oriel
Corporation, a manufacturer and distributor of photonics components and
instruments, and Corion Corporation, a manufacturer of commercial optical
filters. Effective March 29, 1996, the Company acquired A.R.L. Applied
Research Laboratories S.A. (ARL), a manufacturer of wavelength-dispersive
X-ray fluorescence instruments and arc/spark atomic emission
spectrometers; VG Elemental, a manufacturer of inductively coupled
plasma/mass spectrometers; and VG Systems Limited, a manufacturer of
instrumentation and equipment for material and surface science analysis,
from Thermo Instrument Systems Inc. (Note 2). Effective March 12, 1997,
the Company acquired Spectronic Instruments Inc., a supplier of UV/VIS
spectrophotometers and accessories, fluorescence instruments, and
precision-ruled and holographic gratings, from Thermo Instrument
(Note 2).
Through its Thermo Vision Corporation subsidiary, the Company
addresses the photonics marketplace for optical components, imaging
sensors and systems, lasers, optically based instruments,
optoelectronics, and fiber optics. Thermo Vision is pursuing applications
of the Company's technologies for cost-effective, application-specific
instruments and for optical components, systems, and subassemblies for
analytical instrumentation and other applications. In 1996, the Company
announced its intent to spin off Thermo Vision through a distribution of
100 percent of its outstanding capital stock in the form of a dividend to
the Company's shareholders. The Company anticipates completing the
spinoff in the fourth quarter of 1997. After the distribution, Thermo
Vision will be a majority-owned subsidiary of Thermo Instrument, and
shareholders of Thermo Optek will be shareholders of both Thermo Optek
and Thermo Vision. Thermo Vision, which includes Oriel and Corion, had
revenues of $30.4 million in 1996 and $28.4 million for the nine months
ended September 27, 1997.
The Company sells its products on a worldwide basis. 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.
12PAGE
THERMO OPTEK CORPORATION
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Revenues increased 12% to $118.2 million in the third quarter of
1997 from $105.8 million in the third quarter of 1996, primarily due to
the acquisition of Spectronic, effective March 12, 1997 (Note 2).
Excluding the effect of foreign currency translation, acquisitions added
revenues of $13.3 million in 1997 and revenues from existing operations
increased $3.5 million, primarily due to increased product demand at
Nicolet and VG Systems. These increases were offset in part by a $4.4
million decrease 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.
The gross profit margin increased to 46% in the third quarter of
1997 from 45% in the third quarter of 1996, primarily due to margin
improvements at ARL and VG Systems and, to a lesser extent, the inclusion
of higher-margin Spectronic revenues, specifically from its gratings
products.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 24% in the third quarter of 1997 from 26% in the
third quarter of 1996, primarily due to reduced selling and
administrative costs at Mattson and Unicam and, to a lesser extent, the
integration of ARL and VG Elemental products into the Company's existing
North American and European distribution channels.
Research and development expenses as a percentage of revenues were
unchanged at 6% in the third quarter of 1997 and 1996.
Interest income decreased to $1.4 million in the third quarter of
1997 from $1.6 million in the third quarter of 1996, due to lower
invested cash balances as a result of cash used to fund acquisitions.
Interest expense increased to $3.2 million in 1997 from $1.7 million in
1996, primarily due to interest paid to Thermo Instrument in connection
with the acquisitions of VG Systems and Spectronic (Note 2); interest
expense incurred on borrowings from Thermo Electron Corporation to
finance the acquisitions of VG Systems and Spectronic (Note 2); and the
inclusion of interest on short- and long-term borrowings at acquired
businesses.
The effective tax rate was 42% in the third quarter of 1997,
compared with 43% in the third quarter of 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, and the inability to provide
a tax benefit on foreign losses, offset in part by the tax benefit
associated with a foreign sales corporation.
13PAGE
THERMO OPTEK CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996
Revenues increased 20% to $341.4 million in the first nine months of
1997 from $283.4 million in the first nine months of 1996, primarily due
to the acquisitions of ARL, VG Elemental, and VG Systems, effective March
29, 1996, and Spectronic, effective March 12, 1997 (Note 2). Acquisitions
added revenues of $70.0 million in 1997. In addition, increased revenues
resulting from greater product demand at Nicolet and VG Systems were more
than offset by the inclusion in 1996 of several large nonrecurring sales
to the Chinese and Japanese governments and the elimination of certain
unprofitable product lines at companies acquired in late 1995 and 1996.
Revenues decreased $8.2 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.
The gross profit margin increased to 46% in the first nine months of
1997 from 45% in the first nine months of 1996, primarily due to the
reasons discussed in the results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 25% in the first nine months of 1997 from 27% in
the first nine months of 1996, primarily due to the reasons discussed in
the results of operations for the third quarter.
Research and development expenses as a percentage of revenues were
unchanged at 6% in the first nine months of 1997 and 1996.
Interest income decreased to $3.2 million in the first nine months
of 1997 from $4.3 million in the first nine months of 1996, primarily due
to lower invested cash balances as a result of cash used to fund
acquisitions. Interest expense increased to $7.1 million in 1997 from
$5.0 million in 1996, primarily due to the reasons discussed in the
results of operations for the third quarter.
The effective tax rate was 43% in the first nine months of 1997,
compared with 42% in the first nine months of 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, 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 $56.5 million at September 27,
1997, compared with $57.0 million at December 28, 1996. Included in
working capital are cash and cash equivalents of $51.6 million at
September 27, 1997, compared with $66.3 million at December 28, 1996.
Cash provided by operating activities was $43.7 million for the first
nine months of 1997. During this period, the Company used $4.5 million of
cash to fund an increase in inventories, primarily to support the
distribution of ARL and VG Elemental products through certain of the
Company's existing distribution channels. This change in distribution
14PAGE
THERMO OPTEK CORPORATION
Liquidity and Capital Resources (continued)
channels also contributed to a reduction in amounts due from affiliated
companies of $17.4 million and an increase in accounts receivable of
$11.4 million.
The Company's investing activities used $94.9 million of cash in the
first nine months of 1997. During this period, the Company used $91.0
million of cash for acquisitions, net of cash acquired (Note 2). The
Company expended $5.3 million for the purchase of property, plant, and
equipment and plans to expend an additional $1.8 million for such
purchases in the remainder of 1997.
The Company's financing activities provided $37.4 million of cash in
the first nine months of 1997. To partially finance the acquisitions of
VG Systems and Spectronic, the Company borrowed $40.0 million from Thermo
Electron pursuant to a promissory note due August 1998 (Note 2). In
addition, Thermo Vision borrowed $3.8 million from Thermo Electron to
finance an acquisition, pursuant to a promissory note due July 2000
(Note 2). These notes bear interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each
quarter.
The Company used $6.4 million of cash in the first nine months of
1997 for the repayment of short- and long-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
short-term borrowings from Thermo Instrument or Thermo Electron, although
it has no agreement with these companies to ensure that funds will be
available on acceptable terms or at all, except as described above. 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 2 - Use of Proceeds
The Company sold 3,450,000 shares of its common stock pursuant to a
Registration Statement on Form S-1 (file No. 333-03630), which was
declared effective by the Securities and Exchange Commission on June 6,
1996. The managing underwriters of the offering were NatWest Securities
Limited, Lehman Brothers, Cazenove & Co., and Fahnestock & Co., Inc. The
aggregate gross proceeds of the offering were $46,575,000. The Company's
total expenses in connection with the offering were $3,638,000, of which
$3,027,000 was for underwriting discounts and commissions and $611,000
was for other expenses paid to persons other than directors or officers
of the Company, persons owning more than 10 percent of any class of
equity securities of the Company, or affiliates of the Company. The
Company's net proceeds from the offering were $42,937,000. In November
1996, the Company expended such net proceeds, together with other funds,
for the acquisition of A.R.L. Applied Research Laboratories S.A. and VG
Elemental from Thermo Instrument.
15PAGE
THERMO OPTEK CORPORATION
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
On August 14, 1997, the Company filed a Current Report on Form 8-K
pertaining to its acquisitions of VG Systems Limited and Spectronic
Instruments, Inc., both of which were wholly owned subsidiaries of the
Company's parent, Thermo Instrument Systems Inc. On October 10, 1997, the
Company filed an amendment on Form 8-K/A, the purpose of which was to
indicate that financial information was not required concerning these
acquisitions.
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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 5th day of November
1997.
THERMO OPTEK CORPORATION
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
17PAGE
THERMO OPTEK CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10 $3,800,000 Promissory Note dated as of July 14, 1997,
issued by Thermo Vision Corporation to Thermo Electron
Corporation.
11 Statement re: Computation of Earnings per Share.
27 Financial Data Scedule.