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 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-14262
THERMOQUEST CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0407461
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2215 Grand Avenue Parkway
Austin, Texas 78728-3812
(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 51,208,704
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMOQUEST CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $84,117
and $60,376 under repurchase agreement
with affiliated company) $110,035 $ 91,898
Accounts receivable, less allowances of
$4,110 and $4,361 94,200 96,541
Inventories:
Raw materials and supplies 20,819 17,174
Work in process and finished goods 49,317 49,215
Prepaid expenses 3,052 2,490
Prepaid income taxes 12,550 12,542
Due from parent company and affiliated
companies - 750
-------- --------
289,973 270,610
-------- --------
Property, Plant, and Equipment, at Cost 88,785 89,316
Less: Accumulated depreciation and
amortization 24,100 22,580
-------- --------
64,685 66,736
-------- --------
Patents and Other Assets 3,867 2,845
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 251,933 255,435
-------- --------
$610,458 $595,626
======== ========
2PAGE
THERMOQUEST 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 $ 9,094 $ 7,147
Accounts payable 26,162 24,151
Accrued payroll and employee benefits 13,008 19,541
Accrued installation and warranty expenses 10,618 9,991
Accrued income taxes 26,063 21,331
Deferred revenue 11,427 9,939
Customer deposits 3,621 5,193
Other accrued expenses 14,162 16,907
Due to parent company and affiliated
companies 5,536 -
-------- --------
119,691 114,200
-------- --------
Deferred Income Taxes 7,503 7,503
-------- --------
Accrued Pension and Other Deferred Items 14,884 15,064
-------- --------
Long-term Obligations:
5% Subordinated convertible debentures 80,591 80,591
Other 7,200 7,489
-------- --------
87,791 88,080
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 51,201,627 and
51,185,127 shares issued 512 512
Capital in excess of par value 303,096 302,881
Retained earnings 89,539 78,229
Treasury stock at cost, 507 and 340 shares (9) (6)
Accumulated other comprehensive item (Note 3) (12,549) (10,837)
-------- --------
380,589 370,779
-------- --------
$610,458 $595,626
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
THERMOQUEST CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Revenues $108,118 $ 89,353
-------- --------
Costs and Operating Expenses:
Cost of revenues 55,373 46,963
Selling, general, and administrative
expenses 26,031 21,160
Research and development expenses 7,865 6,222
Gain on sale of property (756) -
-------- --------
88,513 74,345
-------- --------
Operating Income 19,605 15,008
Interest Income (includes $186 and $67 from
related parties) 1,338 2,604
Interest Expense (includes $248 to related
parties in 1997) (1,444) (2,095)
-------- --------
Income Before Provision for Income Taxes 19,499 15,517
Provision for Income Taxes 8,189 6,634
-------- --------
Net Income $ 11,310 $ 8,883
======== ========
Earnings per Share (Note 2):
Basic $ .22 $ .18
======== ========
Diluted $ .21 $ .18
======== ========
Weighted Average Shares (Note 2):
Basic 51,190 48,586
======== ========
Diluted 56,331 54,602
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Operating Activities:
Net income $ 11,310 $ 8,883
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,570 2,689
Gain on sale of property (756) -
Provision for losses on accounts
receivable (111) 177
Other noncash expenses 257 361
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 1,337 (17,576)
Inventories (3,250) (1,359)
Other current assets (598) (309)
Accounts payable 2,614 8,285
Other current liabilities (4,212) (6,322)
Other 352 271
--------- ---------
Net cash provided by (used in) operating
activities 10,513 (4,900)
--------- ---------
Investing Activities:
Acquisition of product line (1,300) -
Refund from parent company for acquisitions 5,953 -
Cash balance of acquired businesses - 6,107
Purchases of property, plant, and equipment (1,072) (544)
Proceeds from sale of property, plant,
and equipment 1,453 28
Other - (40)
--------- ---------
Net cash provided by investing activities 5,034 5,551
--------- ---------
Financing Activities:
Net proceeds from issuance of Company
common stock 211 24,834
Increase in short-term obligations 2,118 6,865
Repayment of long-term obligations (395) (629)
--------- ---------
Net cash provided by financing activities $ 1,934 $ 31,070
--------- ---------
5PAGE
THERMOQUEST CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
------------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Exchange Rate Effect on Cash $ 656 $ (771)
--------- ---------
Increase in Cash and Cash Equivalents 18,137 30,950
Cash and Cash Equivalents at Beginning
of Period 91,898 174,978
--------- ---------
Cash and Cash Equivalents at End of Period $ 110,035 $ 205,928
========= =========
Noncash Activities:
Fair value of assets of acquired companies $ 1,300 $ 186,669
Cash paid for acquired companies (1,300) -
Due to parent company for acquisitions - (165,146)
Stock issuable to parent company for
acquired companies - (16)
--------- ---------
Liabilities assumed of acquired companies $ - $ 21,507
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
THERMOQUEST CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoQuest 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 $ 11,310 $ 8,883
-------- --------
Weighted average shares 51,190 48,586
-------- --------
Basic earnings per share $ .22 $ .18
======== ========
Diluted
Net income $ 11,310 $ 8,883
Effect of convertible obligations 594 710
-------- --------
Income available to common shareholders,
as adjusted $ 11,904 $ 9,593
-------- --------
Weighted average shares 51,190 48,586
Effect of:
Convertible obligations 4,884 5,833
Stock options 257 183
-------- --------
Weighted average shares, as adjusted 56,331 54,602
-------- --------
Diluted earnings per share $ .21 $ .18
======== ========
7PAGE
THERMOQUEST CORPORATION
2. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of April 4, 1998, there were 823,750 of
such options outstanding, with exercise prices ranging from $16.60 to
$17.01 per share.
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 item.
In general, comprehensive income combines net income and "other
comprehensive item," 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 $9.6 million and $2.6 million,
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 year
ended January 3, 1998, filed with the Securities and Exchange Commission.
Overview
The Company's Analytical Products Group develops, manufactures,
sells, and services instruments, including mass spectrometers, liquid
chromatographs, and gas chromatographs. These analytical instruments are
used in the quantitative and qualitative chemical analysis of chemical
compounds at ultratrace levels of detection. The Company's Scientific
Equipment Group develops, manufactures, sells, and services systems for
the preparation and preservation of chemical samples. In addition, the
Company manufactures consumables for the chromatography industry. The
Company's products are used primarily by pharmaceutical companies for
drug research, testing, and quality control; by environmental
laboratories for testing water, air, and soil samples for compliance with
environmental regulations; by chemical companies for research and quality
control; by manufacturers for testing in certain industrial applications,
such as the manufacture of silicon chips, and for quality control; by
8PAGE
THERMOQUEST CORPORATION
Overview (continued)
food and beverage companies for quality control and to test for product
contamination; and in forensic applications.
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.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues increased 21% to $108.1 million in the first quarter of 1998
from $89.4 million in the first quarter of 1997. Revenues from the
Scientific Equipment Group increased $23.3 million due to the acquisition
of three business units within Life Sciences International PLC's
Laboratory Products Group, as well as Life Sciences' Hypersil operations,
from Thermo Instrument Systems Inc., effective March 12, 1997. Revenues
from the Analytical Products Group decreased $4.6 million, primarily due
to the strengthening of the U.S. dollar relative to foreign currencies in
countries in which the Company operates. Increases in revenues from
Europe and North America were offset by a decrease in revenues of $7.0
million from Japan due to the economic uncertainty in that country.
The gross profit margin was 48.8% in the first quarter of 1998,
compared with 47.4% in the first quarter of 1997. The 1997 period
included an adjustment to expense of $1.0 million relating to the sale of
inventories revalued on the date the Laboratory Products businesses were
acquired.
Selling, general, and administrative expenses as a percentage of
revenues remained relatively unchanged at 24.1% in the first quarter of
1998, compared with 23.7% in the first quarter of 1997. Research and
development expenses as a percentage of revenues remained relatively
unchanged at 7.3% in 1998, compared with 7.0% in 1997.
In the first quarter of 1998, the Company recorded a gain of $0.8
million relating to the sale of a parcel of land at its San Jose,
California, manufacturing facility.
Interest income decreased to $1.3 million in the first quarter of
1998 from $2.6 million in the first quarter of 1997, primarily due to a
reduction in cash as a result of the cash payment of $160.4 million to
Thermo Instrument in September 1997 for the acquisition of the Laboratory
Products businesses and Hypersil. Interest expense decreased to $1.4
million in 1998 from $2.1 million in 1997, primarily due to the repayment
to Thermo Instrument in September 1997 of debt assumed in connection with
the acquisition of the Laboratory Products businesses and the conversion
of a portion of the Company's 5% subordinated convertible debentures into
common stock of the Company.
9PAGE
THERMOQUEST CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
The effective tax rate was 42% in the first quarter of 1998, compared
with 43% in the first quarter of 1997. The effective tax rates exceeded
the statutory federal income tax rate primarily due to the effect of
state income taxes, foreign tax rate and tax law differentials, and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Liquidity and Capital Resources
Consolidated working capital was $170.3 million at April 4, 1998,
compared with $156.4 million at January 3, 1998. Included in working
capital are cash and cash equivalents of $110.0 million at April 4, 1998,
compared with $91.9 million at January 3, 1998. Cash provided by
operating activities was $10.5 million in the first quarter of 1998. Cash
of $4.2 million was used to reduce other current liabilities and cash of
$3.3 million was used to fund an increase in inventories, primarily due
to replenishing year-end levels at the Company's European sales offices.
At April 4, 1998, $19.9 million of the Company's cash and cash
equivalents was held by its foreign subsidiaries. While this cash can be
used outside of the United States, including for acquisitions,
repatriation of this cash into the United States would be subject to
foreign withholding taxes and could also be subject to a United States
tax.
The Company's investing activities provided $5.0 million of cash in
the first quarter of 1998. The Company received an aggregate refund of
$6.0 million from Thermo Instrument in connection with the acquisition of
businesses from Thermo Instrument in 1997 and 1996. The Company expended
$1.3 million for the acquisition of a product line and $1.1 million for
purchases of property, plant, and equipment. The Company recorded $1.5
million in proceeds from the sale of property, plant, and equipment,
primarily from the sale of a parcel of land at the Company's San Jose,
California, manufacturing facility. During the remainder of 1998, the
Company plans to expend approximately $7.0 million for property, plant,
and equipment.
The Company's financing activities provided $1.9 million of cash in
the first quarter of 1998, primarily due to an increase in short-term
borrowings of $2.1 million.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant
amounts of cash to pursue the acquisition of complementary businesses.
The Company expects that it will finance acquisitions through a
combination of internal funds, additional debt or equity financing from
the capital markets, or short-term borrowings from Thermo Instrument or
Thermo Electron Corporation, although there is no agreement with these
companies to ensure that funds will be available on acceptable terms or
at all. The Company believes that its existing resources are sufficient
to meet the capital requirements of its existing businesses for the
foreseeable future.
10PAGE
THERMOQUEST CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
11PAGE
THERMOQUEST 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 8th day of May 1998.
THERMOQUEST CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
and Senior Vice President
12PAGE
THERMOQUEST CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27 Financial Data Schedule.