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 October 3, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-14254
THERMO SENTRON INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1827303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 90th Avenue N.W.
Minneapolis, Minnesota 55433
(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 October 30, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 9,427,901
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
THERMO SENTRON INC.
Consolidated Balance Sheet
(Unaudited)
Assets
October 3, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $2,677 and
$26,229 under repurchase agreement with
affiliated company) $ 13,580 $ 30,283
Available-for-sale investments, at quoted
market value (amortized cost of $9,660
in 1997) - 9,686
Accounts receivable, less allowances of $2,224
and $1,667 23,163 18,345
Inventories:
Raw materials 6,652 3,937
Work in process 3,038 2,516
Finished goods 7,722 4,900
Prepaid expenses and income taxes 4,904 1,866
-------- --------
59,059 71,533
-------- --------
Property, Plant, and Equipment, at Cost 6,311 4,455
Less: Accumulated depreciation and amortization 2,684 2,009
-------- --------
3,627 2,446
-------- --------
Other Assets 4,093 4,074
-------- --------
Cost in Excess of Net Assets of Acquired Companies
(Note 2) 74,833 37,048
-------- --------
$141,612 $115,101
======== ========
2
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THERMO SENTRON INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 3, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Notes payable (includes $21,000 due to Thermo
Electron in 1998; Note 2) $ 24,123 $ 5,122
Accounts payable 8,903 6,861
Accrued payroll and employee benefits 4,229 4,172
Accrued income taxes 4,020 3,036
Customer deposits 2,470 2,307
Other accrued expenses 8,530 4,075
Due to parent company and affiliated companies 925 955
-------- --------
53,200 26,528
-------- --------
Deferred Income Taxes 638 642
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 30,000,000 shares
authorized; 9,875,000 shares issued 99 99
Capital in excess of par value 77,072 77,072
Retained earnings 15,978 11,640
Treasury stock at cost, 447,099 and 9,000 shares (4,965) (95)
Accumulated other comprehensive items (Note 4) (410) (785)
-------- --------
87,774 87,931
-------- --------
$141,612 $115,101
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMO SENTRON INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $29,102 $19,500
------- -------
Costs and Operating Expenses:
Cost of revenues 18,730 11,677
Selling, general, and administrative expenses 7,203 5,060
Research and development expenses 980 483
------- -------
26,913 17,220
------- -------
Operating Income 2,189 2,280
Interest Income 138 505
Interest Expense (includes $304 to related party
in 1998; Note 2) (384) (99)
Other Income, Net 41 48
------- -------
Income Before Provision for Income Taxes 1,984 2,734
Provision for Income Taxes 771 1,094
------- -------
Net Income $ 1,213 $ 1,640
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .13 $ .17
======= =======
Weighted Average Shares (Note 3):
Basic 9,519 9,875
======= =======
Diluted 9,520 9,880
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMO SENTRON INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $69,660 $55,967
------- -------
Costs and Operating Expenses:
Cost of revenues 43,328 33,654
Selling, general, and administrative expenses 17,869 14,789
Research and development expenses 1,987 1,349
------- -------
63,184 49,792
------- -------
Operating Income 6,476 6,175
Interest Income 1,171 1,507
Interest Expense (includes $381 to related party
in 1998; Note 2) (680) (219)
Gain on Sale of Investments, Net 11 -
Other Income, Net 100 93
------- -------
Income Before Provision for Income Taxes 7,078 7,556
Provision for Income Taxes 2,740 2,926
------- -------
Net Income $ 4,338 $ 4,630
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .45 $ .47
======= =======
Weighted Average Shares (Note 3):
Basic 9,690 9,875
======= =======
Diluted 9,693 9,878
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO SENTRON INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 4,338 $ 4,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,041 1,355
Provision for losses on accounts receivable 146 18
Other noncash items - (93)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 1,936 (444)
Inventories 364 (392)
Other current assets (754) (442)
Accounts payable (813) 368
Other current liabilities (2,803) (16)
-------- --------
Net cash provided by operating activities 4,455 4,984
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (44,196) (2,860)
Purchases of available-for-sale investments - (8,000)
Proceeds from sale and maturities of available-
for-sale investments 9,511 5,000
Purchases of property, plant, and equipment (471) (484)
Other, net (254) 75
-------- --------
Net cash used in investing activities (35,410) (6,269)
-------- --------
Financing Activities:
Issuance of short-term obligation to Thermo
Electron (Note 2) 21,000 -
Repurchases of Company common stock (4,870) -
Net increase (decrease) in short-term
borrowings (2,131) 1,762
-------- --------
Net cash provided by financing activities 13,999 1,762
-------- --------
Exchange Rate Effect on Cash 253 184
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (16,703) 661
Cash and Cash Equivalents at Beginning of Period 30,283 28,226
-------- --------
Cash and Cash Equivalents at End of Period $ 13,580 $ 28,887
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired companies $ 56,433 $ 4,544
Cash paid for acquired companies (44,196) (3,043)
-------- --------
Liabilities assumed of acquired companies $ 12,237 $ 1,501
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMO SENTRON INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Sentron Inc. (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 October 3, 1998, the results of
operations for the three- and nine-month periods ended October 3, 1998, and
September 27, 1997, and the cash flows for the nine-month periods ended October
3, 1998, and September 27, 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. Acquisition
On June 12, 1998, the Company acquired the three businesses that constitute
the product-monitoring group of Smiths Industries plc's Graseby Limited
subsidiary (the product-monitoring businesses) for $44.2 million in cash, net of
cash acquired, and the assumption of certain liabilities. The product-monitoring
businesses design, manufacture, and distribute specialized packaged-goods
equipment, including checkweighers and metal detectors, for the food and
pharmaceutical industries. The product-monitoring businesses are based in the
United Kingdom and had combined revenues in calendar 1997 of approximately $46.0
million. To partially finance this acquisition, the Company borrowed $21.0
million from Thermo Electron Corporation pursuant to a promissory note due
December 1998, bearing interest at the 90-day Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter.
This acquisition has been accounted for using the purchase method of
accounting, and the results of operations of the product-monitoring businesses
have been included in the accompanying financial statements from the date of
acquisition. The cost of the acquisition exceeded the estimated fair value of
the acquired net assets by $39.0 million, which is being amortized over 40
years. Allocation of the purchase price was based on an estimate of the fair
value of the net assets acquired and is subject to adjustment upon finalization
of the purchase price allocation. The Company has gathered no information that
indicates the final allocation will differ materially from the preliminary
estimate.
7
<PAGE>
2. Acquisition (continued)
Based on unaudited data, the following table presents selected financial
information for the Company and the product-monitoring businesses on a pro forma
basis, assuming that the product-monitoring businesses had been purchased at the
beginning of 1997.
Three
Months Ended Nine Months Ended
------------ -------------------
(In thousands except Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1997 1998 1997
- --------------------------------------------------------------------------
Revenues $30,361 $88,838 $89,608
Net Income (21) 4,522 $ 2,148
Basic and Diluted
Earnings per Share - .47 .22
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition of the
product-monitoring businesses been made at the beginning of 1997.
The Company is in the process of restructuring the acquired businesses. This
restructuring is expected to primarily include reductions in staffing and the
abandonment of excess facilities. The Company established $1,630,000 of reserves
for such actions as part of the cost of the acquisition in accordance with
Emerging Issues Task Force (EITF) Pronouncement No. 95-3. During the first nine
months of 1998, the Company expended $250,000 of the established reserve,
primarily for severance payments. Unresolved matters at October 3, 1998,
included completing planned severances and the abandonment of excess facilities.
In accordance with the requirements of EITF 95-3, the Company will finalize its
restructuring plan no later than one year from the date of acquisition.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Nine Months Ended
------------------ -------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Basic
Net Income $1,213 $1,640 $4,338 $4,630
------ ------ ------ ------
Weighted Average Shares 9,519 9,875 9,690 9,875
------ ------ ------ ------
Basic Earnings per Share $ .13 $ .17 $ .45 $ .47
====== ====== ====== ======
8
<PAGE>
3. Earnings per Share (continued)
Three Months Ended Nine Months Ended
------------------- -------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Diluted
Net Income $1,213 $1,640 $4,338 $4,630
------ ------ ------ ------
Weighted Average Shares 9,519 9,875 9,690 9,875
Effect of Stock Options 1 5 3 3
------ ------ ------ ------
Weighted Average Shares,
as Adjusted 9,520 9,880 9,693 9,878
------ ------ ------ ------
Diluted Earnings per Share $ .13 $ .17 $ .45 $ .47
====== ====== ====== ======
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. At October 3, 1998, there were 576,000 of such options
outstanding, with exercise prices ranging from $11.38 to $16.00 per share.
4. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards 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
represent certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net of tax gains and losses from
available-for-sale investments. During the third quarter of 1998 and 1997, the
Company's comprehensive income totaled $1,637,000 and $1,596,000, respectively.
During the first nine months of 1998 and 1997, the Company's comprehensive
income totaled $4,713,000 and $4,184,000, respectively.
5. Proposed Reorganization
On August 12, 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. Under this plan, the Company may be merged with two other publicly
traded subsidiaries of Thermo Electron to form one combined majority-owned
public subsidiary of Thermo Instrument Systems Inc. Shareholders of the Company
would receive shares of the common stock of the combined entity. The proposed
transactions are subject to a number of conditions, as outlined in the Company's
Current Report on Form 8-K for events occurring on August 12, 1998, filed with
the Securities and Exchange Commission.
9
<PAGE>
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 designs, develops, manufactures, and sells high-speed
precision-weighing and inspection equipment for industrial production and
packaging lines. The Company serves two principal markets: packaged goods and
bulk materials. The Company's products for the packaged-goods market include a
broad line of checkweighing equipment and metal detectors that can be integrated
at various stages in production lines for process control and quality assurance.
These products are sold to customers in the food-processing, pharmaceutical,
mail-order, and other diverse industries. On June 12, 1998, the Company expanded
its packaged-goods product line through the acquisition of the three businesses
that constitute the product-monitoring group of Smiths Industries plc's Graseby
Limited subsidiary (the product-monitoring businesses; Note 2). The Company's
bulk-materials product line includes conveyor-belt scales, solid-level
measurement and conveyor-monitoring devices, sampling systems, and
small-capacity feeders. These products are sold primarily to customers in the
mining and materials-processing industries, as well as to electric utilities,
chemical, and other manufacturing companies.
A substantial portion of the Company's sales are derived from sales of
products outside the United States, through export sales, and sales by the
Company's foreign subsidiaries. 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 affecting the relationship between the U.S. dollar and foreign
currencies. The Company expects an increase in the percentage of its revenues
derived from international operations during the next 12 months.
10
<PAGE>
Results of Operations
Third Quarter 1998 Compared With Third Quarter 1997
Revenues increased 49% to $29.1 million in the third quarter of 1998 from
$19.5 million in the third quarter of 1997. Revenues increased $11.0 million due
to the acquisition of the product-monitoring businesses on June 12, 1998.
Excluding the impact of the acquisition and foreign exchange, revenues decreased
$0.9 million, or 5%. Sales from the bulk-materials product line decreased $0.6
million, primarily due to lower demand in Asia. Sales from the packaged-goods
product line decreased $0.3 million, primarily due to lower demand in Europe.
Revenues decreased $0.5 million due to a stronger U.S. dollar relative to
currencies in foreign countries in which the Company operates. The Company's
backlog, excluding newly acquired businesses, decreased $2.5 million to $10.7
million in the first nine months of 1998. The backlog decreased primarily due to
a slowdown in the bulk-materials business.
The gross profit margin decreased to 36% in the third quarter of 1998 from
40% in the third quarter of 1997, primarily due to the inclusion of lower-margin
revenues from the product-monitoring businesses and, to a lesser extent, higher
material costs at existing businesses.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 25% in the third quarter of 1998 from 26% in the third quarter of
1997, primarily due to the inclusion of lower selling, general, and
administrative expenses as a percentage of revenues at the product-monitoring
businesses. Research and development expenses increased to $980,000 in the third
quarter of 1998 from $483,000 in the third quarter of 1997, primarily due to the
acquisition of the product-monitoring businesses.
Interest income decreased to $138,000 in the third quarter of 1998 from
$505,000 in the third quarter of 1997, primarily due to lower average cash
balances during the period due to cash expended for the acquisition of the
product-monitoring businesses. Interest expense increased to $384,000 in 1998
from $99,000 in 1997, primarily due to interest expense on borrowings used to
partially finance the acquisition of the product-monitoring businesses.
The effective tax rate was 39% in the third quarter of 1998, compared with
40% in the third quarter of 1997. The effective tax rates exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes.
First Nine Months 1998 Compared With First Nine Months 1997
Revenues increased 24% to $69.7 million in the first nine months of 1998
from $56.0 million in the first nine months of 1997. Revenues increased $14.5
million due to the acquisition of the product-monitoring businesses on June 12,
1998, RCC Industrial Electronics Pty. Limited (RCCI) in February 1997, and
Westerland Engineering Ltd. in July 1997. Excluding the impact of the
acquisitions and foreign exchange, revenues
11
<PAGE>
First Nine Months 1998 Compared With First Nine Months 1997 (continued)
increased $1.3 million, or 2%. Sales from the packaged-goods product line
increased $0.9 million, while sales from the bulk-materials product line
increased $0.4 million. These increases were primarily due to higher demand in
the U.S. during the first six months of 1998. Revenues decreased $2.1 million
due to a stronger U.S. dollar relative to currencies in foreign countries in
which the Company operates.
The gross profit margin decreased to 38% in the first nine months of 1998
from 40% in the first nine months of 1997, primarily due to the reason discussed
in the results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of revenues
were 26% in both the first nine months of 1998 and 1997. Research and
development expenses increased to $2.0 million in the first nine months of 1998
from $1.3 million in the first nine months of 1997, primarily due to the reason
discussed in the results of operations for the third quarter.
Interest income decreased to $1.2 million in the first nine months of 1998
from $1.5 million in the first nine months of 1997. Interest expense increased
to $0.7 million in the first nine months of 1998 from $0.2 million in the first
nine months of 1997. These changes were primarily due to the reasons discussed
in the results of operations for the third quarter.
The effective tax rate was 39% in the first nine months of 1998 and 1997.
The effective tax rates exceeded the statutory federal income tax rate primarily
due to the impact of state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $5.9 million at October 3, 1998, compared
with $45.0 million at January 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $13.6 million at October
3, 1998, and $40.0 million at January 3, 1998. During the first nine months of
1998, operating activities provided $4.5 million of cash. Cash of $2.8 million
used to reduce other current liabilities was offset in part by $1.9 million of
cash provided by a decrease in accounts receivable, primarily due to decreased
sales from existing businesses.
During the first nine months of 1998, the Company's investing activities
used cash of $35.4 million. Excluding available-for-sale investment activity,
the Company's primary investing activity during the first nine months of 1998
was the acquisition of the three businesses that constitute the
product-monitoring group of Smiths Industries plc's Graseby Limited subsidiary
for $44.2 million in cash, net of cash acquired, and the assumption of certain
liabilities (Note 2). During the first nine months of 1998, the Company expended
$0.5 million for purchases of property, plant, and equipment. The Company
expects to make capital expenditures of approximately $0.4 million in the
remainder of 1998.
12
<PAGE>
Liquidity and Capital Resources (continued)
The Company's financing activities provided $14.0 million of cash in the
first nine months of 1998. The Company borrowed $21.0 million from Thermo
Electron Corporation to partially finance the acquisition of the
product-monitoring businesses. In the first nine months of 1998, the Company
expended $4.9 million for the repurchase of Company common stock. In December
1997, the Company's Board of Directors authorized the repurchase, through
December 8, 1998, of up to $5.0 million of Company common stock in the open
market or in negotiated transactions. At October 3, 1998, the Company had
$35,000 remaining under this authorization. Any repurchases are funded from
working capital. Certain of the Company's foreign subsidiaries have
foreign-currency-denominated line-of-credit arrangements with banks. Notes
payable in the accompanying 1998 balance sheet includes $3.1 million of
short-term borrowings under these arrangements. Unused lines of credit were
$10.3 million as of October 3, 1998.
Although the Company expects to have positive cash flow from its existing
operations, the Company may require significant amounts of cash for the
acquisition of complementary businesses. While the Company currently has no
agreements to acquire other businesses, the Company expects that it would
finance any such acquisitions through a combination of internal funds and/or
short-term borrowings from Thermedics Inc. or Thermo Electron, although it has
no agreement with these companies to ensure that funds will be available on
acceptable terms, or at all. Thermo Electron has indicated its willingness to
require repayment of the Company's note payable only to the extent that the
Company's cash flows permit. Accordingly, the Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading internal business
systems and facilities; (ii) testing and developing necessary upgrades for the
Company's current products, and certain discontinued products; (iii) contacting
key suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.
The Company's State of Readiness
The Company has tested and evaluated its critical information technology
systems for year 2000 compliance, including its significant computer systems,
software applications, and related equipment. The Company is currently in the
process of upgrading or replacing its noncompliant systems. The Company expects
that all of its material information technology systems will be year 2000
compliant by the end of 1999. The Company is also evaluating the potential year
2000 impact on its facilities, including its buildings and utility systems. Any
problems
13
<PAGE>
Year 2000 (continued)
that are identified will be prioritized and remediated based on their assigned
priority. The Company will continue periodic testing of its critical internal
business systems and facilities in an effort to minimize operating disruptions
due to year 2000 issues.
The Company believes that all of the material products that it currently
manufactures and sells are year 2000 compliant. However, as many of the
Company's products are complex, interact with third-party products, and operate
on computer systems that are not under the Company's control, there can be no
assurance that the Company has identified all of the year 2000 problems with its
current products. The Company believes that certain of its older products, which
it no longer manufactures or sells, may not be year 2000 compliant. The Company
is continuing to test and evaluate such products and may offer upgrades or
alternative products where reasonably practicable.
The Company is in the process of identifying and contacting suppliers,
vendors, and customers that are believed to be significant to the Company's
business operations in order to assess their year 2000 readiness. As part of
this effort, the Company has developed and is distributing questionnaires
relating to year 2000 compliance to its significant suppliers, vendors, and
customers. The Company intends to follow-up and monitor the year 2000 compliant
progress of significant suppliers, vendors, and customers that indicate that
they are not year 2000 compliant or that do not respond to the Company's
questionnaires.
Contingency Plans
The Company intends to develop a contingency plan that will allow its
primary business operations to continue despite disruptions due to year 2000
problems. These plans may include identifying and securing other suppliers,
increasing inventories, and modifying production facilities and schedules. As
the Company continues to evaluate the year 2000 readiness of its business
systems and facilities, products and significant suppliers, vendors, and
customers, it will modify and adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had incurred expenses related to year 2000 issues of
approximately $200,000 as of October 3, 1998, and it estimates that the total
cost of year 2000 remediation is expected to be approximately $500,000, however,
there can be no assurance that the Company will not encounter unexpected costs
or delays in achieving year 2000 compliance. Of the costs incurred as of October
3, 1998, approximately $160,000 was spent on testing and upgrading internal
business systems and facilities and contacting suppliers, vendors, and
customers, and approximately $40,000 was spent on evaluating and upgrading
products.
14
<PAGE>
Year 2000 (continued)
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. If any of the Company's
material suppliers, vendors, or customers experience business disruptions due to
year 2000 issues, the Company might also be materially adversely affected. The
Company's research and development, production, distribution, financial,
administrative, and communications operations might be disrupted. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. Any unexpected costs or delays arising
from the year 2000 issue could have a significant adverse impact on the
Company's business, operations, and financial condition.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On August 13, 1998, the Company filed a Current Report on Form 8-K dated
August 12, 1998, with respect to a proposed corporate reorganization by the
Company's ultimate parent corporation, Thermo Electron Corporation, involving
certain of Thermo Electron's subsidiaries, including the Company.
On August 27, 1998, the Company filed an amendment on Form 8-K/A to Current
Report on Form 8-K dated June 12, 1998, the purpose of which was to file the
financial information required by Form 8-K concerning the acquisition of the
three businesses that constitute the product-monitoring group of Smith
Industries plc's Graseby Limited subsidiary.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 5th day of November 1998.
THERMO SENTRON INC.
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ----------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
SENTRON INC.'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 3, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 13,580
<SECURITIES> 0
<RECEIVABLES> 25,387
<ALLOWANCES> 2,224
<INVENTORY> 17,412
<CURRENT-ASSETS> 59,059
<PP&E> 6,311
<DEPRECIATION> 2,684
<TOTAL-ASSETS> 141,612
<CURRENT-LIABILITIES> 53,200
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 87,675
<TOTAL-LIABILITY-AND-EQUITY> 141,612
<SALES> 69,660
<TOTAL-REVENUES> 69,660
<CGS> 43,328
<TOTAL-COSTS> 43,328
<OTHER-EXPENSES> 1,987
<LOSS-PROVISION> 146
<INTEREST-EXPENSE> 680
<INCOME-PRETAX> 7,078
<INCOME-TAX> 2,740
<INCOME-CONTINUING> 4,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,338
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
