SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 2, 1999
[ ] 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 Identification No.)
incorporation ororganization)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 Company was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 29, 1999, was approximately $13,063,000.
As of January 29, 1999, the Registrant had 9,427,901 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
January 2, 1999, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 27, 1999, are incorporated by reference into
Part III.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
Thermo Sentron Inc. (the Company or the Registrant) develops, manufactures,
and markets high-speed precision-weighing and inspection equipment for
industrial production and packaging lines. The Company's business is managed
geographically and operates in three segments: North America, Europe, and Other,
which principally consists of Australia, New Zealand, and South Africa. Each of
the Company's segments 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, as
well as hot foil and thermal printers and X-ray inspection equipment. In June
1998, the Company acquired the three businesses that constituted the
product-monitoring group of Graseby Limited (the product-monitoring businesses),
a subsidiary of Smiths Industries plc, for $44.0 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 Company's bulk-materials product line includes
conveyor-belt scales, solid level-measurement and conveyor-monitoring systems,
sampling systems, and small-capacity feeders.
The Company was incorporated in Delaware in November 1995 as a wholly owned
subsidiary of Thermedics Inc., a publicly traded subsidiary of Thermo Electron
Corporation. The Company was operated as Ramsey Technology Inc., a wholly owned
subsidiary of Baker Hughes Incorporated, prior to its March 16, 1994,
acquisition by Thermedics. As of January 2, 1999, Thermedics owned 7,000,000
shares of the Company's common stock, representing 74% of such stock
outstanding. In addition to the Company's products, Thermedics develops,
manufactures, and markets electrochemistry and microweighing products, on-line
product quality-assurance systems, instruments to test electronics and
semiconductors and a range of power products, security devices, implantable
heart-assist systems, whole-blood coagulation testing equipment, skin-incision
devices, and other biomedical products. Thermedics is a 74%-owned subsidiary of
Thermo Electron. As of January 2, 1999, Thermo Electron owned 1,131,124 shares
of the Company's common stock, representing 12% of such stock outstanding.
Thermo Electron and Thermedics may purchase shares of the Company's common stock
from time to time in the open market, or in negotiated transactions. During
1998*, Thermo Electron purchased 454,224 shares of the Company's common stock
for $4,335,000. Thermo Electron is a world leader in monitoring, analytical, and
biomedical instrumentation; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; and paper recycling and
papermaking equipment. Thermo Electron also develops alternative-energy systems
and clean fuels, provides a range of services including industrial outsourcing
and environmental-liability management, and conducts research and development in
advanced imaging, laser communications, and electronic information-management
technologies.
During 1998, Thermo Electron announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Company. Under this
plan, Thermedics' majority interest in the Company would be transferred to
Thermo Electron. The Company would then be taken private and become a wholly
owned subsidiary of Thermo Electron. Shareholders of the Company would receive
cash in exchange for their shares of common stock. The proposed transactions are
subject to a number of conditions, as outlined in Note 13 to Consolidated
Financial Statements in the Registrant's 1998 Annual Report to Shareholders,
which information is incorporated herein by reference.
- --------------------
* References to 1998, 1997, and 1996 herein are for the fiscal years ended
January 2, 1999, January 3, 1998, and December 28, 1996, respectively.
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Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 the Registrant's 1998 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 10 to Consolidated Financial Statements in the Registrant's 1998 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
Products for Packaged Goods
Sales of products for the packaged-goods market represented approximately
51% of the Company's total revenues in 1998. These products are sold primarily
to customers in the food-processing and pharmaceutical industries.
Checkweighing Equipment. The Company's checkweighing products weigh,
classify, and reject packages moving at high speeds (more than 600 packages per
minute) with accuracy to within three grams. The Company also offers
checkweighing products that are accurate to the 50-milligram level for
pharmaceutical and other high-accuracy applications. By assuring that packages
contain designated quantities of materials, the Company's checkweighing
equipment is used to satisfy customer demand and regulatory requirements for
quality standards, to improve productivity by minimizing product giveaway, and
to protect the value associated with customers' brand names.
The Company has developed customized weighing solutions suitable for
particular applications, such as retrofitting packaging lines in response to
changes in package size, type, and design.
The Company produces a complete line of electronic in-line checkweighing
products ranging from devices designed solely to reject underweight products, to
sophisticated machines with comprehensive statistical data-collection and
production-monitoring capabilities, allowing customers to monitor the deviation
from target weight, the number of rejections, and the amount of product
giveaway.
Metal Detectors. Metal detectors are used to inspect packaged products for
metal contaminants. The Company offers metal detectors capable of detecting a
small metal particle (approximately one millimeter in diameter) in a package
moving on a conveyor belt at speeds in excess of 300 feet per minute.
The Company's patented self-testing technology for use with metal-detection
products allows an operator to program a metal detector to automatically route a
metal test sphere through the device at preset intervals, without operator
assistance or interruption to the production process. The results of these tests
can be tracked by computer and incorporated into quality- and process-control
reports.
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Hot Foil and Thermal Printing Equipment. The Company manufactures hot foil
and thermal printers that apply information such as bar codes, lot numbers, and
"sell by" dates to labels on food and pharmaceutical products.
X-ray Inspection Equipment. The Company manufactures specialized equipment
that incorporates X-ray inspection technology and imaging software to detect a
wide range of contaminants in a variety of packaged goods, including foods and
pharmaceuticals.
Other Products for Packaged Goods. Other complementary packaged-goods
products offered by the Company include various conveying and product-handling
devices to assist in the presentation of products to the Company's checkweighing
equipment and metal detectors, and the rejecting and handling of unacceptable
products from the customer's production line.
Revenues from products for packaged goods were $50,690,000, $28,563,000, and
$25,861,000 in 1998, 1997, and 1996, respectively.
Products for Bulk Materials
Sales of products for the bulk-materials market represented approximately
49% of the Company's total revenues in 1998. These products are sold primarily
to customers in the mining and material-processing industries, electric
utilities, and chemical and other manufacturing companies.
Conveyor-belt Scales. A conveyor-belt scale is a device that measures the
rate at which bulk material is being conveyed and delivered on a moving conveyor
belt, as well as the total mass of material conveyed over a given time. The
Company offers a wide variety of conveyor-belt scales for use in industrial and
other applications.
The Company's conveyor-belt scales are typically used to measure production
rates and monitor inventory, to control the rate of flow of measured materials
or other related materials for blending purposes, and to monitor process
performance. Conveyor-belt scales are used in many industries, including mining,
construction materials, power, food-processing, pulp and paper, chemicals, and
solids recycling. By eliminating a separate weighing procedure from the
production process, conveyor-belt scales are used to streamline operations in
these industries.
The Company's conveyor-belt scales are well-suited for the weighing of
materials traveling at high speeds and for processes requiring high accuracy.
These products make use of the Company's proprietary algorithms and applications
expertise to measure material moving at speeds in excess of 10,000 tons per hour
with accuracy to within the 0.125% level. The Company's conveyor-belt scales may
also be linked to a computer for system process-control. This communications
capability is designed to assist customers in monitoring inventory, preparing
quality-control reports, and operating production lines more efficiently.
The Company incorporates its conveyor-belt scales into short-length
conveyors called weigh-belt feeders. These products are used both to weigh
materials in motion and to adjust the speed of the conveyor belt to control the
amount of material fed in connection with a production process.
The Company's conveyor-belt scales include models for process monitoring,
plant-control and inventory, and stock piling services, as well as
high-precision models for use in the transfer of custody of goods requiring
government-agency certification and approvals.
Sampling Systems. Sampling systems are typically used to mechanically
extract a small amount of material (the sample) from a moving conveyor so that
the material can be taken to an analytical laboratory for testing. The Company
provides a number of different systems that extract and collect statistically
representative samples of bulk materials for quality-control purposes. The
Company's sampling systems are used at mine sites, shipping facilities, transfer
stations, steel mills, cement plants, and coal-fired power plants. The Company's
sampling systems are used
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by manufacturers and their customers to ensure that products conform to desired
specifications at the time of both shipment and delivery.
The Company offers a variety of sampling solutions, including "sweep"
samplers, which extract samples from any location on a moving conveyor belt, and
self-contained sampling units, which provide a modular approach to sampling
without expensive integration into the user's material-handling system.
Small-capacity Feeders. The Company's small-capacity feeders are used to
feed the correct proportions of ingredients, such as powders, liquids, and
granules, during continuous production processes. Customers include companies in
the food, pharmaceutical, chemical, and plastics industries.
Other Bulk-materials Products. The Company's solid level-measurement and
conveyor-monitoring products include safety pull, belt run-off, and tilt
switches; speed-monitoring devices; contents-monitoring systems; and grade,
slope, and material feed controls for asphalt paving machines. The Company's
other complementary bulk-material products include tramp metal detectors and
static weighing and batching equipment. These products are often incorporated
into complete weighing solutions the Company provides to its customers.
Revenues from products for bulk materials were $48,073,000, $50,132,000, and
$44,166,000 in 1998, 1997, and 1996, respectively.
Distribution of Products
The Company markets and distributes its products primarily through
manufacturer representatives. It also relies upon a direct sales force,
distributors, and original equipment manufacturers.
Raw Materials
The C-level sensor used as a component of one of the Company's
bulk-materials products is supplied by a sole-source vendor. Although the
Company has not experienced any difficulty in obtaining adequate supplies from
this vendor, there can be no assurance that the vendor will be able to furnish
the Company with a sufficient number of C-level sensors to meet customer demand.
The Company believes that the unanticipated loss of this vendor would not result
in a material adverse effect on the Company's business.
Patents, Licenses, and Trademarks
The Company's proprietary methodologies, designs, and other proprietary
intellectual rights are important to the Company's operations. The Company
relies upon a combination of patent, trade secret, nondisclosure, and other
contractual arrangements, as well as copyright and trademark laws, to protect
its proprietary rights. The Company seeks to limit access to and distribution of
its proprietary information. There can be no assurance that the steps taken by
the Company in this regard will be adequate to deter misappropriation of its
proprietary information, that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights, or
that competitors will not be able to develop similar technology independently.
The Company holds issued U.S. patents expiring at various dates ranging from
2002 to 2015. The Company also has applications pending for additional U.S.
patents and a number of foreign counterparts for its patents in various foreign
countries. In addition, the Company has certain registered and other trademarks
and is a licensee of a patent for its C-level sensors. The Company believes that
its products, trademarks, and other proprietary rights do not infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims in the future.
5
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Backlog
The Company's backlog of firm orders at year-end 1998 and 1997 was as
follows:
(In thousands) 1998 1997
- ------------------------------------------------------------------------------
North America $7,793 $6,189
Europe 5,256 4,191
Other 1,634 2,762
------ ------
$14,683 $13,142
======= =======
Certain of these orders are cancelable by the customer upon payment of a
cancellation charge. The Company anticipates that substantially all of the
backlog at January 2, 1999, will be shipped during 1999. The Company does not
believe that the size of its backlog is necessarily indicative of intermediate
or long-term trends in its business.
Competition
The Company encounters and expects to continue to encounter intense
competition in the sale of its products. The Company's principal competitors in
the packaged-goods market are Ishida Scales Mfg. Co., Ltd. and Mettler-Toledo
AG. In the more fragmented bulk-materials market, the Company competes on a
worldwide basis primarily with Carl Schenck AG and Milltronics Corporation. The
Company believes that the principal competitive pressures affecting the market
for precision-weighing and inspection equipment include customer service and
support, quality and reliability, price, accuracy, ease of use, distribution
channels, technical features, compatibility with customers' manufacturing
processes, and regulatory approvals. Certain of the Company's competitors have
greater resources, manufacturing and marketing capabilities, technical staff,
and production facilities than those of the Company. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion and sale
of their products, than can the Company. Competition could increase if new
companies enter the market or if existing competitors expand their product
lines.
Research and Development
Research and development expenses for the Company were $2,823,000,
$1,888,000, and $1,881,000 in 1998, 1997, and 1996, respectively.
Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state, and
local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
Number of Employees
As of January 2, 1999, the Company had a total of 712 employees.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 10 to
Consolidated Financial Statements in the Registrant's 1998 Annual Report to
Shareholders, which information is incorporated herein by
reference.
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(e) Executive Officers of the Registrant
Name Age Present Title (Fiscal Year First
Became Executive Officer)
-----------------------------------------------------------------
Lewis J. Ribich 54 President and Chief Executive Officer (1995)
M. Preston Luman 43 Vice President, Operations (1995)
Theo Melas-Kyriazi 39 Chief Financial Officer (1998)
Paul F. Kelleher 56 Chief Accounting Officer (1995)
Each executive officer serves until his successor is chosen or appointed by
the Board of Directors and qualified or until his earlier resignation, death, or
removal. Mr. Kelleher has held a comparable position for at least five years
with Thermo Electron. Mr. Ribich has been Chief Executive Officer, President,
and a Director of the Company since its inception in 1995 and President of
Ramsey since 1990. Mr. Melas-Kyriazi was appointed Chief Financial Officer of
the Company and Thermo Electron on January 1, 1999. He joined Thermo Electron in
1986 as Assistant Treasurer and became Treasurer in 1988. In 1994, he was named
President and Chief Executive Officer of ThermoSpectra Corporation, a public
subsidiary of Thermo Instrument Systems Inc. In 1998, he became Vice President
of Corporate Strategy for Thermo Electron. He remains a Vice President of Thermo
Electron. Mr. Luman has been Vice President, Operations, of the Company since
1995. For twelve years, Mr. Luman has held various financial and operations
positions at Ramsey. Messrs. Melas-Kyriazi and Kelleher are full-time employees
of Thermo Electron, but devote such time to the affairs of the Company as the
Company's needs reasonably require.
Item 2. Properties
North America
The Company conducts its North American operations from approximately
144,000 square feet of office, manufacturing, and engineering facilities, 9,500
of which are owned by the Company. The remainder is occupied under leases
expiring at various dates through 2002.
Europe
The Company conducts its European operations from approximately 173,000
square feet of office, manufacturing, and engineering facilities, 17,000 of
which are owned by the Company. The remainder is occupied under leases expiring
at various dates through 2068.
Other
The remainder of the Company's operations are conducted from approximately
34,000 square feet of office, manufacturing, and engineering facilities occupied
under leases expiring at various dates through 2001. The Company believes its
facilities are in good condition and are suitable and adequate to meet its
current needs.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $.01 par value, and dividend policy is included under the sections
labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7.Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1998 Annual Report to Shareholders and
is incorporated herein by reference.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1998 Annual Report to Shareholders and
is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of January 2, 1999,
and Supplementary Data are included in the Registrant's 1998 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference from the material contained under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the caption
"Stock Ownership" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference
from the material contained under the caption "Executive Compensation" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by reference
from the material contained under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by reference
from the material contained under the caption "Relationship with Affiliates" in
the Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2)The consolidated financial statement schedule set forth in the list below
is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference are set forth
in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
On December 10, 1998, the Company filed a Current Report on Form 8-K dated
December 10, 1998, the purpose of which was to provide an update to a
proposed corporate reorganization by Thermo Electron involving certain of
Thermo Electron's subsidiaries, including the Company.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 12, 1999 THERMO SENTRON INC.
By: /s/ Lewis J. Ribich
Lewis J. Ribich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated below, as of March 12, 1999.
Signature Title
By: /s/ Lewis J. Ribich President, Chief Executive
Lewis J. Ribich Officer, and Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ Marshall J. Armstrong Director
Marshall J. Armstrong
By: /s/ John T. Keiser Chairman of the Board and
John T. Keiser Director
By: /s/ Donald E. Noble Director
Donald E. Noble
By: /s/ Peter Richman Director
Peter Richman
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Sentron Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Thermo Sentron Inc.'s Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 11, 1999. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14 on page 10 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1999
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<TABLE>
<CAPTION>
SCHEDULE II
THERMO SENTRON INC.
Valuation and Qualifying Accounts
(In thousands)
<S> <C> <C> <C> <C> <C>
Description Balance at Provision Accounts Other (a) Balance
Beginning Charged to Written at End
of Year Expense Off of Year
- ------------------------------------ ------------- ------------- -------------- ------------- ------------
Allowance for Doubtful Accounts
Year Ended January 2, 1999 $1,083 $ 260 $ (794) $ 818 $ 1,367
Year Ended January 3, 1998 $1,812 $ 88 $ (697) $ (120) $ 1,083
Year Ended December 28, 1996 $2,291 $ 217 $ (679) $ (17) $ 1,812
Description
Amount
Capitalized
Balance at as Balance
Beginning Cost of at End
of Year Acquisition Expenditures Other (c) of Year
- ------------------------------------ ------------- ------------- -------------- ------------- ------------
Accrued Acquisition Expenses (b)
Year Ended January 2, 1999 $ 259 $1,309 $ (592) $ (11) $ 965
Year Ended January 3, 1998 $ 317 $ 299 $ (357) $ - $ 259
Year Ended December 28, 1996 $ 525 $ 138 $ (346) $ - $ 317
(a) Includes allowance of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's 1998 Annual
Report to Shareholders and the effect of foreign currency translation.
(b) The nature of the activity in this account is described in Note 3 to
Consolidated Financial Statements in the Registrant's 1998 Annual Report to
Shareholders.
(c) Represents the effect of foreign currency translation.
</TABLE>
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Agreement dated March 13, 1998, for the sale and purchase of all of
the issued share capital of Graseby Allen Limited, Graseby Product
Monitoring Limited, Goring Kerr Detection Limited, Graseby Goring
Kerr Inc., Graseby Andersen Inc., and part of the share capital of
Allen France S.A., between Graseby Limited, Thermo Environmental
Instruments Inc., Thermo Sentron Inc., Smiths Industries plc, and
Thermo Electron Corporation (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed June 12, 1998 [File No. 1-14254] and
incorporated hereby by reference). Pursuant to Item 601(b)(2) of
Regulation S-K, schedules and exhibits to this Agreement have been
omitted. The Company hereby undertakes to furnish supplementally a
copy of such schedules and exhibits to the Commission upon request.
Certain portions of this exhibit have been omitted pursuant to a
confidential treatment request filed with the Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
2.2 Amendment Agreement dated May 7, 1998, between Graseby Limited,
Thermo Environmental Instruments Inc., Thermo Sentron Inc., Smiths
Industries plc, and Thermo Electron Corporation (filed as Exhibit 2.2
to the Company's Current Report on Form 8-K filed June 12, 1998 [File
No. 1-14254] and incorporated herein by reference).
2.3 Agreement, dated June 9, 1998, to further amend the sale and purchase
agreement dated March 13, 1998, between Graseby Limited, Thermo
Environmental Instruments Inc., Thermo Sentron Inc., Smiths
Industries plc, and Thermo Electron Corporation (filed as Exhibit 2.3
to the Company's Current Report on Form 8-K filed June 12, 1998 [File
No. 1-14254] and incorporated herein by reference). Pursuant to Item
601(b)(2) of Regulation S-K, schedules and exhibits to this Amendment
Agreement have been omitted. The Company hereby undertakes to furnish
supplementally a copy of such schedules and exhibits to the
Commission upon request.
3.1 Certificate of Incorporation, as amended, of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-806] and incorporated
herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-806] and incorporated herein by reference).
10.1 Corporate Services Agreement dated as of January 31, 1996, between
Thermo Electron Corporation and the Registrant (filed as Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 [Reg. No.
333-806] and incorporated herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated effective
January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's Annual
Report on Form 10-K for the fiscal year ended January 2, 1993 [File
No. 1-8002] and incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of January 31, 1996, between
Thermedics Inc. and the Registrant (filed as Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 [Reg. No.
333-806] and incorporated herein by reference).
10.4 Amended and Restated Master Repurchase Agreement dated as of January
31, 1996, between Thermo Electron and the Registrant (filed as
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 [File No. 1-14254] and
incorporated herein by reference).
14
<PAGE>
Number Description of Exhibit
10.5 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of December 9, 1997, between Thermo Electron and
the Registrant (filed as Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998 [File
No. 1-14254] and incorporated herein by reference).
10.6 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of December 9, 1997, between Thermedics and the
Registrant (filed as Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998 [File No.
1-14254] and incorporated herein by reference).
10.7 Equity Incentive Plan of the Registrant (filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-806] and incorporated herein by reference).
In addition to the stock-based compensation plans of the Registrant,
the executive officers of the Registrant may be granted awards under
stock-based compensation plans of Thermo Electron and Thermedics for
services rendered to the Registrant or such affiliated corporations.
The terms of such plans are substantially the same as those of the
Registrant's Equity Incentive Plan.
10.8 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-806] and incorporated
herein by reference).
10.9 Directors Stock Option Plan of the Registrant (filed as Exhibit
10.9 to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-806] and incorporated herein by reference).
10.10 Form of Indemnification Agreement for Officers and Directors
(filed as Exhibit 10.10 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-806] and incorporated
herein by reference).
10.11 Amended and Restated Stock Holdings Assistance Plan and Form of
Promissory Note (filed as Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998 [File
No. 1-14254] and incorporated herein by reference).
10.12 $21.0 Million Promissory Note due December 15, 1998, payable to
Thermo Electron Corporation (filed as Exhibit 10 to the Company's
Current Report on Form 8-K filed June 12, 1998 [File No. 1-14254] and
incorporated herein by reference).
10.13 $19.0 Million Promissory Note due June 30, 1999, payable to Thermo
Electron Corporation.
13 Annual Report to Shareholders for the year ended January 2, 1999
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT, AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE SECURITIES OR (2)
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THERMO SENTRON INC.
Promissory Note Due June 30, 1999
Minneapolis, Minnesota
December 15, 1998
For value received, THERMO SENTRON INC., a Delaware corporation (the
("Company"), hereby promises to pay to Thermo Electron Corporation (hereinafter
referred to as the "Payee"), or registered assigns, on June 30, 1999, as
described below, the principal sum of nineteen million dollars ($19,000,000) or
such part thereof as then remains unpaid, to pay interest from the date hereof
on the whole amount of said principal sum remaining from time to time unpaid at
a rate per annum equal to the rate of the Commercial Paper Composite Rate for
90-day maturities as reported by Merrill Lynch Capital Markets, as an average of
the first five business days of the Company's current fiscal quarter, plus
twenty-five (25) basis points, which rate shall be adjusted on the sixth
business day of each fiscal quarter of the Company and shall be in effect for
the entirety of such fiscal quarter, such interest to be payable in arrears on
the first day of each fiscal quarter of the Company during the term set forth
herein, until the whole amount of the principal hereof remaining unpaid shall
become due and payable, and to pay interest on all overdue principal and
interest at a rate per annum equal to the rate of interest announced from time
to time by BankBoston Corporation at its head office in Boston, Massachusetts as
its "base rate" plus one percent (1%). Principal and all accrued but unpaid
interest shall be repaid on June 30, 1999. Principal and interest shall be
payable in lawful money of the United States of America, in immediately
available funds, at the principal office of the Payee or at such other place as
the legal holder may designate from time to time in writing to the Company.
Interest shall be computed on an actual 360-day basis.
This Note may be prepaid at any time or from time to time, in whole or
in part, without any premium or penalty. All prepayments shall be applied first
to accrued interest and then to principal.
The then unpaid principal amount of, and interest outstanding on, this
Note shall be and become immediately due and payable without notice or demand,
at the option of the holder hereof, upon the occurrence of any of the following
events:
(a) the failure of the Company to pay any amount due hereunder
within ten (10) days of the date when due;
(b) any representation, warranty or statement made or furnished
to the Payee by the Company in connection with this Note or the
transaction from which it arises shall prove to have been false or
misleading in any material respect as of the date when made or
furnished;
(c) the failure of the Company to pay its debts as they become
due, the insolvency of the Company, the filing by or against the Company
of any petition under the U.S. Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any jurisdiction), or the
making by the Company of an assignment or trust mortgage for the benefit
of creditors or the appointment of a receiver, custodian or similar
agent with respect to, or the taking by any such person of possession
of, any property of the Company;
(d) the sale by the Company of all or substantially all of its
assets;
(e) the merger or consolidation of the Company with or into any
other corporation in a transaction in which the Company is not the
surviving entity;
(f) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction not removed, repealed
or dismissed within thirty (30) days of issuance, against or affecting
the person or property of the Company or any liability or obligation of
the Company to the holder hereof; and
(g) the suspension of the transaction of the usual business of
the Company.
Upon surrender of this Note for transfer or exchange, a new Note or new
Notes of the same tenor dated the date to which interest has been paid on the
surrendered Note and in an aggregate principal amount equal to the unpaid
principal amount of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all reasonable
attorneys' fees.
No delay or omission on the part of the Payee in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Payee, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Company hereby waives presentment, demand, notice of prepayment, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note. The undersigned hereby assents
to any indulgence and any extension of time for payment of any indebtedness
evidenced hereby granted or permitted by the Payee.
This Note shall be governed by and construed in accordance with, the
laws of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
THERMO SENTRON INC.
By: /s/ Lewis J. Ribich
Lewis J. Ribich
President
[Corporate Seal]
Attest:
/s/ Sandra L. Lambert
Sandra L. Lambert
Secretary
Exhibit 13
Thermo Sentron Inc.
Consolidated Financial Statements
1998
<PAGE>
<TABLE>
<CAPTION>
Thermo Sentron Inc. 1998 Financial Statements
Consolidated Statement of Income
<S> <C> <C> <C>
(In thousands except per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------- -------- --------- --------
Revenues (Notes 8 and 10) $98,763 $78,695 $70,027
------- ------- -------
Costs and Operating Expenses:
Cost of revenues (Note 8) 61,621 47,564 41,863
Selling, general, and administrative expenses (Note 8) 25,449 20,533 19,075
Research and development expenses 2,823 1,888 1,881
------ ------- ------
89,893 69,985 62,819
------ ------- ------
Operating Income 8,870 8,710 7,208
Interest Income 1,398 2,089 1,469
Interest Expense (includes $663 to related party in 1998; Notes 3 and 9) (1,060) (338) (551)
Other Income 197 175 184
------ ------- ------
Income Before Provision for Income Taxes 9,405 10,636 8,310
Provision for Income Taxes (Note 6) 3,686 4,148 3,158
------ ------- ------
Net Income $5,719 $ 6,488 $5,152
====== ======= ======
Basic and Diluted Earnings per Share (Note 11) $ .59 $ .66 $ .56
====== ======= ======
Weighted Average Shares (Note 11)
Basic 9,625 9,875 9,156
====== ======= ======
Diluted 9,627 9,878 9,162
====== ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Thermo Sentron Inc. 1998 Financial Statements
<S> <C> <C>
Consolidated Balance Sheet
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------- ---------- ----------
Assets
Current Assets:
Cash and cash equivalents (includes $3,741 and $26,229 under repurchase $ 14,144 $ 30,283
agreement with affiliated company)
Available-for-sale investments, at quoted market value (amortized cost - 9,686
of $9,660 in 1997; Note 2)
Accounts receivable, less allowances of $1,367 and $1,083 25,076 18,345
Inventories 16,029 11,353
Prepaid income taxes (Note 6) 3,330 1,407
Prepaid expenses 859 459
--------- ---------
59,438 71,533
--------- ---------
Property, Plant, and Equipment, at Cost, Net 3,757 2,446
--------- ---------
Other Assets 4,768 4,074
--------- ---------
Cost in Excess of Net Assets of Acquired Companies (Note 3) 72,201 37,048
--------- ---------
$ 140,164 $ 115,101
========= =========
3
<PAGE>
Thermo Sentron Inc. 1998 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1998 1997
- ------------------------------------------------------------------------------------- ---------- ----------
Liabilities and Shareholders' Investment
Current Liabilities:
Note payable to Thermo Electron (Note 3) $ 19,000 $ -
Notes payable (includes $791 to affiliated company in 1998; Notes 3 and 9) 3,047 5,122
Accounts payable 9,472 6,861
Accrued payroll and employee benefits 4,483 4,172
Accrued income taxes 3,664 3,036
Customer deposits 2,688 2,307
Other accrued expenses 7,098 4,075
Due to parent company and affiliated companies 810 955
-------- --------
50,262 26,528
-------- --------
Deferred Income Taxes (Note 6) 909 642
-------- --------
Commitments (Note 7)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 30,000,000 shares authorized; 9,875,000 99 99
shares issued
Capital in excess of par value 77,072 77,072
Retained earnings 17,359 11,640
Treasury stock at cost, 447,099 and 9,000 shares (4,965) (95)
Accumulated other comprehensive items (Note 12) (572) (785)
-------- --------
88,993 87,931
-------- --------
$140,164 $115,101
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Thermo Sentron Inc. 1998 Financial Statements
<S> <C> <C> <C>
Consolidated Statement of Cash Flows
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------- --------- --------- ---------
Operating Activities
Net income $ 5,719 $ 6,488 $ 5,152
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,894 1,905 1,865
Provision for losses on accounts receivable 260 88 217
Deferred income tax expense (benefit) (269) 621 (485)
Gain on sale of investments (11) - (37)
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 233 (990) (3,783)
Inventories 1,661 53 (959)
Other current assets (52) (23) 4
Accounts payable (391) 280 1,018
Other current liabilities (2,653) (490) 553
Other - - (4)
-------- -------- --------
Net cash provided by operating activities 7,391 7,932 3,541
-------- -------- --------
Investing Activities
Acquisitions, net of cash acquired (Note 3) (43,976) (2,860) (4,323)
Acquisition of product line (Note 3) - - (4,437)
Proceeds from sale and maturities of available-for-sale 9,511 5,000 5,037
investments
Purchases of available-for-sale investments - (8,009) (11,511)
Purchases of property, plant, and equipment (1,043) (707) (872)
Proceeds from sale of property, plant, and equipment 13 75 157
Other (232) (150) (158)
-------- -------- --------
Net cash used in investing activities (35,727) (6,651) (16,107)
-------- -------- --------
Financing Activities
Issuance of short-term obligations to Thermo Electron (Note 3) 21,000 - -
Repayment of short-term obligations to Thermo Electron (Note 3) (2,000) - -
Net proceeds from issuance of Company common stock (Note 4) - - 42,335
Net increase (decrease) in short-term borrowings (2,168) 1,721 (2,569)
Repayment of long-term obligation - - (2,176)
Repurchases of Company common stock (4,870) (95) -
-------- -------- --------
Net cash provided by financing activities $ 11,962 $ 1,626 $ 37,590
-------- -------- --------
5
<PAGE>
Thermo Sentron Inc. 1998 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------- --------- --------- ---------
Exchange Rate Effect on Cash $ 235 $ (850) $ 190
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (16,139) 2,057 25,214
Cash and Cash Equivalents at Beginning of Year 30,283 28,226 3,012
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 14,144 $ 30,283 $ 28,226
======== ======== ========
Cash Paid For
Interest $ 1,183 $ 279 $ 635
Income taxes $ 3,740 $ 3,245 $ 939
Noncash Activities
Fair value of assets of acquired companies $ 54,390 $ 4,544 $ 6,510
Cash paid for acquired companies (43,976) (3,043) (4,464)
-------- -------- --------
Liabilities assumed of acquired companies $ 10,414 $ 1,501 $ 2,046
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Thermo Sentron Inc. 1998 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------- ---------- ---------- ----------
Comprehensive Income
Net Income $ 5,719 $ 6,488 $ 5,152
-------- -------- --------
Other Comprehensive Items, Net (Note 12):
Foreign currency translation adjustment 230 (836) 183
Net unrealized gain (loss) on available-for-sale investments (17) 9 8
-------- -------- --------
213 (827) 191
-------- -------- --------
$ 5,932 $ 5,661 $ 5,343
======== ======== ========
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 99 $ 99 $ -
Issuance of Company common stock (Note 4) - - 29
Capitalization of Company - - 70
-------- -------- --------
Balance at end of year 99 99 99
-------- -------- --------
Capital in Excess of Par Value:
Balance at beginning of year 77,072 77,072 -
Issuance of Company common stock (Note 4) - - 42,306
Capitalization of Company - - 34,766
-------- -------- --------
Balance at end of year 77,072 77,072 77,072
-------- -------- --------
Retained Earnings:
Balance at beginning of year 11,640 5,152 -
Net income 5,719 6,488 5,152
-------- -------- --------
Balance at end of year 17,359 11,640 5,152
-------- -------- --------
Treasury Stock:
Balance at beginning of year (95) - -
Repurchases of Company common stock (4,870) (95) -
-------- -------- --------
Balance at end of year (4,965) (95) -
-------- -------- --------
Accumulated Other Comprehensive Items (Note 12):
Balance at beginning of year (785) 42 (149)
Other comprehensive items, net 213 (827) 191
-------- -------- --------
Balance at end of year (572) (785) 42
-------- -------- --------
Net Parent Company Investment:
Balance at beginning of year - - 34,836
Capitalization of Company - - (34,836)
-------- -------- --------
Balance at end of year - - -
-------- -------- --------
$ 88,993 $ 87,931 $ 82,365
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Thermo Sentron Inc. 1998 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Sentron Inc. (the Company) develops, manufactures, and markets
high-speed precision-weighing and inspection equipment for industrial production
and packaging lines. The Company is managed geographically and operates in three
segments: North America, Europe, and Other, which principally includes
Australia, New Zealand, and South Africa. Each of the Company's segments serves
two principal markets: packaged goods and bulk materials. Products for the
packaged-goods market represented 51% of the Company's revenues in 1998 and are
sold to customers in the food-processing, pharmaceutical, mail-order, and other
diverse industries. Products for the bulk-materials market represented 49% of
the Company's revenues in 1998 and are sold primarily to customers in the mining
and material-processing industries, as well as to electric utilities, chemical,
and other manufacturing companies.
Relationship with Thermedics Inc. and Thermo Electron Corporation
On March 16, 1994, Thermedics Inc. acquired the Ramsey Technology Inc.
business (Ramsey, or the Predecessor) of Baker Hughes Incorporated. The Company
was incorporated in November 1995 as a wholly owned subsidiary of Thermedics. On
January 2, 1996, Thermedics transferred to the Company the assets, liabilities,
and businesses of Ramsey and certain related companies in exchange for 7,000,000
shares of the Company's common stock. As of January 2, 1999, Thermedics owned
7,000,000 shares of the Company's common stock, representing 74% of such stock
outstanding. Thermedics is a 74%-owned subsidiary of Thermo Electron
Corporation. As of January 2, 1999, Thermo Electron owned 1,131,124 shares of
the Company's common stock, representing 12% of such stock outstanding.
During 1998, Thermo Electron announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Company. As part of
this reorganization, Thermo Electron announced that the Company may be taken
private and become a wholly owned subsidiary of Thermo Electron (Note 13).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1998, 1997, and 1996 are for the fiscal years ended January 2,
1999, January 3, 1998, and December 28, 1996, respectively. Fiscal years 1998
and 1996 each included 52 weeks; fiscal year 1997 included 53 weeks.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty costs at the time of shipment.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
8
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Income Taxes
In the periods prior to its initial public offering, the Company was
included in Thermedics' consolidated federal and certain state income tax
returns. Subsequent to the Company's initial public offering in April 1996,
Thermedics' equity ownership of the company was reduced below 80% and, as a
result, the Company is required to file its own federal income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding during the year. Diluted earnings
per share have been computed assuming the exercise of stock options, as well as
their related income tax effect.
Cash and Cash Equivalents
At year-end 1998 and 1997, $3,741,000 and $26,229,000, respectively, of
the Company's cash equivalents were invested in a repurchase agreement with
Thermo Electron. Under this agreement, the Company in effect lends excess cash
to Thermo Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, U.S. government-agency securities,
commercial paper, money market funds, and other marketable equity securities, in
the amount of at least 103% of such obligation. The Company's funds subject to
the repurchase agreement are readily convertible into cash by the Company. The
repurchase agreement earns a rate based on the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. At year-end
1998 and 1997, the Company's cash equivalents also included investments in
short-term certificates of deposit of the Company's foreign operations, which
have an original maturity of three months or less. Cash equivalents are carried
at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out, or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are:
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------- -------- ---------
Raw Materials $ 5,603 $ 3,937
Work in Process 2,891 2,516
Finished Goods 7,535 4,900
------- --------
$16,029 $ 11,353
======= ========
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line and declining balance
methods over the estimated useful lives of the property as follows: buildings,
30 years; machinery and equipment, 2 to 12 years; and leasehold improvements,
the shorter of the term of the lease or the life of the asset. Property, plant,
and equipment consists of:
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------- -------- --------
Land $ 180 $ 187
Buildings 484 495
Machinery, Equipment, and Leasehold Improvements 6,003 3,773
------ ------
6,667 4,455
Less: Accumulated Depreciation and Amortization 2,910 2,009
------ ------
$3,757 $2,446
====== ======
Other Assets
Other assets in the accompanying balance sheet consist primarily of
acquired technology and patents, which are amortized using the straight-line
method over their estimated useful lives of 15 years. Accumulated amortization
was $721,000 and $430,000 at year-end 1998 and 1997, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $5,016,000 and $3,440,000 at year-end 1998 and 1997,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired businesses in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as a
loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment
(Note 12). Foreign currency transaction gains and losses are included in other
income in the accompanying statement of income and are not material for the
three years presented.
Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, note payable
to Thermo Electron, notes payable, accounts payable, and due to parent company
and affiliated companies. Available-for-sale investments are carried at fair
value in the accompanying 1997 balance sheet (Note 2). The fair values were
determined based on quoted market prices. The carrying amounts of the Company's
remaining financial instruments approximate fair value due to their short-term
nature.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation
Certain amounts in 1997 and 1996 have been reclassified to conform to the
presentation in the 1998 financial statements.
2. Available-for-sale Investments
The Company's debt securities are considered available-for-sale
investments in the accompanying 1997 balance sheet and are carried at market
value, with the difference between cost and market value, net of related tax
effects, recorded in the "Accumulated other comprehensive items" component of
shareholders' investment. The aggregate market value, cost basis, and gross
unrealized gains of available-for-sale investments by major security type are:
(In thousands) Gross
Market Cost Unrealized
Value Basis Gains
- ----------------------------------------------------------------------- ----------- ----------- -----------
1997
Corporate Bonds $9,545 $9,519 $ 26
Other 141 141 -
------ ------ ------
$9,686 $9,660 $ 26
====== ====== ======
</TABLE>
The cost of available-for-sale investments that were sold was based on
specific identification in determining gross realized gains of $11,000 and
$37,000 in 1998 and 1996, respectively, recorded in other income in the
accompanying statement of income.
3. Acquisitions
In June 1998, the Company acquired the three businesses that constituted
the product-monitoring group of Graseby Limited (the product-monitoring
businesses), a subsidiary of Smiths Industries plc, for $43,976,000 in cash, net
of cash acquired, and the assumption of certain liabilities. The U.K.-based
product-monitoring businesses design, manufacture, and distribute specialized
packaged-goods equipment, including checkweighers and metal detectors, for the
food and pharmaceutical industries. To partially finance this acquisition, the
Company borrowed $21,000,000 from Thermo Electron 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. In December
1998, the Company repaid $2,000,000 of this amount and issued Thermo Electron a
new promissory note for $19,000,000 in exchange for the initial note. This note
is due June 1999 and bears interest under the same terms as the initial note. As
of January 2, 1999, the interest rate on this promissory note was 5.36%.
In July 1997, the Company acquired Westerland Engineering Ltd. for
$1,961,000 in cash. To finance this acquisition, the Company borrowed
$1,961,000, denominated in British pounds sterling, from a bank, pursuant to a
promissory note repaid in January 1998 and bearing interest at 7.94%. Westerland
is a U.K.-based manufacturer of process-weighing and control equipment.
11
<PAGE>
3. Acquisitions (continued)
In February 1997, the Company acquired substantially all of the assets of
RCC Industrial Electronics Pty. Limited (RCCI) for $1,082,000 in cash and the
assumption of certain liabilities. RCCI is an Australian-based manufacturer of
in-motion checkweighers for the food and pharmaceutical industries.
In April 1996, the Company purchased the assets of the solids
flow-measurement product line of Endress + Hauser, Inc. for $4,437,000 in cash.
The acquisition was financed with an advance from Thermo Electron that was
repaid in April 1996.
In January 1996, the Company acquired Hitech Electrocontrols Limited, a
U.K.-based manufacturer of metal-detection equipment and specialty checkweighing
equipment for the baking industry, for $4,464,000 in cash. The acquisition was
financed with a credit facility, denominated in British pounds sterling, that
was repaid in April 1996.
These acquisitions have been accounted for using the purchase method of
accounting, and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of these acquisitions, other than the product line
acquisition, exceeded the estimated fair value of the acquired net assets by
$43,933,000, 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, in the case of the product-monitoring businesses, 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.
In connection with these acquisitions, the Company has undertaken
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalized its
restructuring plans no later than one year from the respective dates of the
acquisitions except for the acquisition completed in 1998, for which
finalization will occur no later than one year from the date of the acquisition.
Unresolved matters at January 2, 1999, primarily included completion of planned
severances and abandonment of excess facilities for the acquisition completed
during 1998. A summary of the changes in accrued acquisition expenses, which are
included in other accrued expenses in the accompanying balance sheet, is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- --------------
Balance at December 30, 1995 $ 65 $ 460 $ - $ 525
Reserves established 101 - 37 138
Usage (65) (281) - (346)
-------- -------- -------- --------
Balance at December 28, 1996 101 179 37 317
Reserves established 237 62 - 299
Usage (141) (179) (37) (357)
-------- -------- -------- --------
Balance at January 3, 1998 197 62 - 259
Reserves established 537 772 - 1,309
Usage (552) (40) - (592)
Currency translation adjustment (5) (6) - (11)
-------- -------- -------- --------
Balance at January 2, 1999 $ 177 $ 788 $ - $ 965
======== ======== ======== ========
</TABLE>
12
<PAGE>
3. Acquisitions (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 the product-monitoring businesses had been purchased at the
beginning of 1997. The effect of the acquisitions not included in the pro forma
data was not material to the Company's results of operations.
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands except per share amounts) 1998 1997
- ------------------------------------------------------------------------------------- ---------- ----------
Revenues $117,941 $124,513
Net Income 5,937 3,028
Basic and Diluted Earnings per Share .62 .31
</TABLE>
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.
4. Common Stock
In April 1996, the Company sold 2,875,000 shares of its common stock in an
initial public offering at $16.00 per share, for net proceeds of $42,335,000.
The Company used part of those proceeds to repay approximately $12,600,000 in
advances and short-term borrowings from Thermo Electron and third parties (Note
3).
At January 2, 1999, the Company had reserved 1,025,000 unissued shares of
its common stock for possible issuance under stock-based compensation plans.
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has two stock-based compensation plans for its key employees,
directors, and others, which permit the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted stock,
stock options, stock bonus shares, or performance-based shares. The option
recipients and the terms of options granted under these plans are determined by
the Board Committee. As of year-end 1998, only nonqualified stock options have
been awarded under these plans. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions and
the right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over a one- to ten-year period,
depending on the term of the option, which generally ranges from five to twelve
years. Nonqualified stock options may be granted at any price determined by the
Board Committee, although incentive stock options must be granted at not less
than the fair market value of the Company's common stock on the date of grant.
To date, all options have been granted at fair market value. The Company also
has a directors' stock option plan that provides for the grant of stock options
to outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms as
options granted under the stock-based compensation plan described above, except
that the restrictions and repurchase rights generally lapse ratably over a
four-year period and the option term is five years. In addition to participating
in the Company's stock-based compensation plans, certain officers and key
employees may also participate in the stock-based compensation plans of Thermo
Electron and Thermedics.
13
<PAGE>
5. Employee Benefit Plans (continued)
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 148,000 shares at a weighted average exercise price of $13.83 per share
elected to participate in this exchange and, as a result, received options to
purchase 74,000 shares of Company common stock at $9.93 per share, which are
included in the 1998 grants in the table below. The other terms of the new
options are the same as the exchanged options except that the holders may not
sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
<TABLE>
<CAPTION>
A summary of the Company's stock option activity is:
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
------------------- ------------------ ------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Number Number Number
of of of
(Shares in thousands) Shares Shares Shares
- ---------------------------------------------- --------- ---------- -------- ---------- -------- ----------
Options Outstanding, Beginning of Year 596 $13.58 398 $14.12 - $ -
Granted 296 9.83 201 12.52 398 14.12
Forfeited (19) 13.40 (3) 14.00 - -
Canceled due to exchange (148) 13.83 - - - -
---- --- --
Options Outstanding, End of Year 725 $12.00 596 $13.58 398 $14.12
==== ====== === ====== === ======
Options Exercisable 725 $12.00 596 $13.58 398 $14.12
==== ====== === ====== === ======
Options Available for Grant 225 204 402
==== === ===
</TABLE>
<TABLE>
<CAPTION>
A summary of the status of the Company's stock options at January 2, 1999,
is:
<S> <C> <C> <C>
Options Outstanding and Exercisable
-------------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- --------------------------------------------------- --------------- ------------------- -------------------
$ 9.53 - $11.15 312 7.6 years $ 9.66
11.16 - 12.77 30 7.4 years 11.90
12.78 - 14.38 353 9.2 years 13.73
14.39 - 16.00 30 2.3 years 16.00
----
$ 9.53 - $16.00 725 8.2 years $12.00
=====
</TABLE>
14
<PAGE>
5. Employee Benefit Plans (continued)
Employee Stock Purchase Program
Effective November 1, 1997, substantially all of the Company's full-time
employees are eligible to participate in an employee stock purchase program
sponsored by the Company and Thermo Electron. Prior to November 1, 1997, the
program was sponsored by Thermedics and Thermo Electron. Prior to the 1998
program year, the applicable shares of common stock could be purchased at the
end of a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased were subject to a six-month resale restriction.
Effective November 1, 1998, the applicable shares of common stock may be
purchased at 85% of the lower of the fair market value at the beginning or end
of the plan year, and the shares purchased are subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10% of
each participating employee's gross wages.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
under the Company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under SFAS
No. 123, the effect on the Company's net income and earnings per share would
have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(In thousands except per share amounts) 1998 1997 1996
- -------------------------------------------------------------------------- ---------- ---------- ----------
Net Income:
As reported $5,719 $ 6,488 $ 5,152
Pro forma 5,364 6,252 4,989
Basic and Diluted Earnings per Share:
As reported .59 .66 .56
Pro forma .56 .63 .54
Pro forma compensation expense for options granted is reflected over the
vesting period, therefore future pro forma compensation expense may be greater
as additional options are granted.
The weighted average fair value per share of options granted was $3.44,
$5.98, and $6.69 in 1998, 1997, and 1996, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1998 1997 1996
- -------------------------------------------------------------------------- ---------- ---------- ----------
Volatility 30% 28% 29%
Risk-free Interest Rate 4.8% 6.3% 6.1%
Expected Life of Options 4.9 years 7.8 years 8 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
15
<PAGE>
5. Employee Benefit Plans (continued)
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible
to participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For these
plans, the Company contributed and charged to expense $318,000, $332,000, and
$316,000 in 1998, 1997, and 1996, respectively.
6. Income Taxes
The components of income before provision for income taxes are:
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Domestic $5,340 $ 5,969 $ 4,374
Foreign 4,065 4,667 3,936
------ ------- -------
$9,405 $10,636 $ 8,310
====== ======= =======
The components of the provision for income taxes are:
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Currently Payable:
Federal $1,643 $ 1,920 $1,289
State 339 380 392
Foreign 1,973 1,227 1,962
------ ------ ------
3,955 3,527 3,643
------ ------ ------
Net Deferred (Prepaid):
Federal (31) 13 (54)
State (6) 3 (12)
Foreign (232) 605 (419)
------ ------ ------
(269) 621 (485)
------ ------ ------
$3,686 $ 4,148 $3,158
====== ======= ======
16
<PAGE>
6. Income Taxes (continued)
The provision for income taxes that is currently payable does not reflect
$1,779,000 of tax benefits used to reduce cost in excess of net assets of
acquired companies in 1996. The provision for income taxes in the accompanying
statement of income differs from the provision calculated by applying the
statutory federal income tax rate of 35% to income before provision for income
taxes due to:
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Provision for Income Taxes at Statutory Rate
Increases (Decreases) Resulting From: $3,292 $3,723 $2,909
State income taxes, net of federal tax 216 249 247
Foreign tax rate and tax law differential 318 205 165
Tax benefit of foreign sales corporation (66) (137) (42)
Other, net (74) 108 (121)
------ ------ ------
$3,686 $4,148 $3,158
====== ====== ======
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of:
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------- ----------- -----------
Prepaid Income Taxes:
Reserves and accruals $2,826 $ 746
Accrued compensation 260 503
Allowance for doubtful accounts 131 110
Inventory basis difference 113 48
------ ------
$3,330 $1,407
====== ======
Deferred (Prepaid) Income Taxes:
Depreciation $ (15) $ (3)
Intangible assets 924 645
------ ------
$ 909 $ 642
====== ======
A provision has not been made for U.S. or additional foreign taxes on
$8,275,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas.
7. Commitments
The Company leases portions of its office and operating facilities under
various operating lease arrangements expiring between 1999 and 2068. The
accompanying statement of income includes expenses from operating leases of
$2,069,000, $1,898,000, and $1,759,000 in 1998, 1997, and 1996, respectively.
Future minimum payments due under noncancelable operating leases at January 2,
1999, were $2,917,000 in 1999, $2,227,000 in 2000, $1,601,000 in 2001,
$1,452,000 in 2002, $941,000 in 2003, and $2,042,000 in 2004 and thereafter.
Total future minimum lease payments of $11,180,000 have not been reduced by
minimum sublease rentals of $624,000 due through 2003 under noncancelable
operating leases.
17
<PAGE>
8. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In 1997 and 1996, the Company paid an amount equal to
1.0% of the Company's revenues. For these services, the Company was charged
$790,000, $787,000, and $700,000 in 1998, 1997, and 1996, respectively. The fee
is reviewed and adjusted annually by mutual agreement of the parties. The
corporate services agreement is renewed annually but can be terminated upon 30
days' prior notice by the Company or upon the Company's withdrawal from the
Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines
the relationship among Thermo Electron and its majority-owned subsidiaries).
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the Company
would have incurred on a stand-alone basis. For additional items such as
employee benefit plans, insurance coverage, and other identifiable costs, Thermo
Electron charges the Company based upon costs attributable to the Company.
Other Related-party Transactions
The Company acts as a distributor in Europe for process measurement
instruments manufactured by an affiliate. In 1998, 1997, and 1996, the Company
purchased such products for $528,000, $564,000, and $563,000, respectively.
In 1998, 1997, and 1996, the Company sold meters to an affiliate pursuant
to purchase orders resulting in revenues of $33,000, $6,000, and $114,000,
respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short-term Obligations
See Notes 3 and 9 for a discussion of the Company's related-party
obligations.
9. Short-term Obligations
Notes payable in the accompanying balance sheet include $2,238,000 and
$3,200,000 at year-end 1998 and 1997, respectively, of amounts borrowed under
lines of credit by the Company's foreign subsidiaries.
In addition, the Company's Netherlands-based subsidiaries have an
agreement with a wholly owned subsidiary of Thermo Electron under which the
subsidiaries can borrow funds that bear interest at a rate based on Netherlands
market rates, set at the beginning of each month. At year-end 1998, the Company
had borrowings under this agreement of $791,000, which are included in notes
payable in the accompanying balance sheet.
The weighted average interest rate for these borrowings was 6.3% and 7.1%
at year-end 1998 and 1997, respectively. Unused lines of credit were $9,155,000
as of January 2, 1999.
18
<PAGE>
10. Business Segment and Geographical Information
The Company organizes and manages its businesses geographically. The
Company has combined its operating entities into three segments based on the
locations from which they conduct business: North America, Europe, and Other,
which principally includes Australia, New Zealand, and South Africa. Each of the
Company's segments serves two principal markets: packaged goods and bulk
materials. Revenues from packaged-goods products were $50,690,000, $28,563,000,
and $25,861,000 in 1998, 1997, and 1996, respectively. Revenues from
bulk-materials products were $48,073,000, $50,132,000, and $44,166,000 in 1998,
1997, and 1996, respectively.
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------- ---------- ---------- ---------
Business Segment Information
Revenues:
North America (a) $ 55,470 $ 45,090 $ 38,573
Europe (b) 43,655 28,633 27,637
Other (c) 9,749 11,652 9,329
Intersegment sales elimination (d) (10,111) (6,680) (5,512)
--------- --------- -------
$ 98,763 $ 78,695 $ 70,027
========= ======== =========
Income (Loss) Before Provision for Income Taxes:
North America $ 6,881 $ 5,264 $ 4,590
Europe 2,519 2,870 2,393
Other 1,167 1,558 966
Corporate (e) (1,697) (982) (741)
--------- -------- ---------
Total operating income 8,870 8,710 7,208
Interest and other income, net 535 1,926 1,102
--------- -------- ---------
$ 9,405 $ 10,636 $ 8,310
========= ======== =========
Total Assets:
North America $ 57,800 $ 46,109 $ 48,154
Europe 70,592 26,150 23,789
Other 7,369 6,964 4,652
Corporate (f) 4,403 35,878 30,591
--------- -------- ---------
$ 140,164 $115,101 $ 107,186
========= ======== =========
Depreciation and Amortization:
North America $ 1,483 $ 1,261 $ 1,244
Europe 1,311 533 534
Other 100 111 87
--------- -------- ---------
$ 2,894 $ 1,905 $ 1,865
========= ======== =========
Capital Expenditures:
North America $ 555 $ 307 $ 316
Europe 431 361 458
Other 57 39 98
--------- -------- ---------
$ 1,043 $ 707 $ 872
========= ======== =========
19
<PAGE>
10. Business Segment and Geographical Information (continued)
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------- ----------- ---------- ----------
Geographical Information
Revenues (g):
United States $ 46,597 $37,595 $ 32,992
United Kingdom 21,460 7,723 6,797
Italy 9,335 9,363 9,832
Australia 6,110 8,602 6,874
Other 15,261 15,412 13,532
--------- ------- ---------
$ 98,763 $78,695 $ 70,027
========= ======= =========
Long-lived Assets (h):
United States $ 1,932 $ 1,351 $ 1,210
United Kingdom 1,579 633 183
Italy 333 349 339
Canada 326 290 297
Other 392 379 442
--------- ------- ---------
$ 4,562 $ 3,002 $ 2,471
========= ======= =========
Export revenues included in United States revenues above (i) $ 14,673 $10,719 $ 8,820
========= ======= =========
(a) Includes intersegment sales of $4,953,000, $4,174,000, and $3,369,000 in
1998, 1997, and 1996, respectively.
(b) Includes intersegment sales of $5,144,000, $2,468,000, and $2,132,000 in
1998, 1997, and 1996, respectively.
(c) Includes intersegment sales of $14,000, $38,000, and $11,000 in 1998, 1997,
1996, respectively. (d) Intersegment sales are accounted for at prices that are
representative of transactions with
unaffiliated parties.
(e) Primarily general and administrative expenses.
(f) Primarily cash, cash equivalents, and available-for-sale investments. (g)
Revenues are attributed to countries based on selling location. (h) Includes
property, plant, and equipment, net and other long-term tangible assets. (i) In
general, export revenues are denominated in U.S. dollars.
20
<PAGE>
11. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Basic
Net Income $5,719 $6,488 $5,152
------ ------ ------
Weighted Average Shares 9,625 9,875 9,156
------ ------ ------
Basic Earnings per Share $ .59 $ .66 $ .56
====== ====== ======
Diluted
Net Income $5,719 $6,488 $5,152
------ ------ ------
Weighted Average Shares 9,625 9,875 9,156
Effect of Stock Options 2 3 6
------ ------ ------
Weighted Average Shares, as Adjusted 9,627 9,878 9,162
------ ------ ------
Diluted Earnings per Share $ .59 $ .66 $ .56
====== ====== ======
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 January 2, 1999, there were 725,000 of such options
outstanding, with exercise prices ranging from $9.53 to $16.00 per share.
12. Comprehensive Income
During the first quarter of 1998, the Company adopted 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 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 on available-for-sale investments.
Accumulated other comprehensive items in the accompanying balance sheet
consist of:
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------- ----------- -----------
Cumulative Translation Adjustment $ (572) $ (802)
Net Unrealized Gain on Available-for-sale Investments - 17
-------- ---------
$ (572) $ (785)
======== =========
21
<PAGE>
13. Proposed Reorganization
During 1998, Thermo Electron announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Company. Under this
plan, Thermedics' majority interest in the Company would be transferred to
Thermo Electron. The Company would then be taken private and become a wholly
owned subsidiary of Thermo Electron. Shareholders of the Company would receive
cash in exchange for their shares of common stock. The proposed transactions are
subject to a number of conditions, including the establishment of prices and
exchange ratios; confirmation of anticipated tax consequences; approval by the
Board of Directors of the Company, Thermedics, and Thermo Electron (including
the independent directors of the Company and Thermedics); negotiation and
execution of definitive agreements; clearance by the Securities and Exchange
Commission of any necessary documents in connection with the proposed
transactions; and the receipt of fairness opinions from investment banking firms
on certain financial aspects of the transactions.
14. Unaudited Quarterly Information
(In thousands except per share amounts)
1998 First Second (a) Third Fourth
- ---------------------------------------------------------------- --------- ----------- --------- ----------
Revenues $18,946 $21,612 $29,102 $29,103
Gross Profit 7,360 8,600 10,372 10,810
Net Income 1,479 1,646 1,213 1,381
Basic and Diluted Earnings per Share .15 .17 .13 .15
1997 First Second Third Fourth
- ---------------------------------------------------------------- --------- ---------- ---------- ----------
Revenues $17,981 $18,486 $19,500 $22,728
Gross Profit 6,896 7,594 7,823 8,818
Net Income 1,348 1,642 1,640 1,858
Basic and Diluted Earnings per Share .14 .17 .17 .19
(a) Reflects the June 1998 acquisition of the product-monitoring group of
Graseby Limited, a subsidiary of Smiths Industries plc.
22
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Sentron Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Sentron Inc. (a Delaware corporation and 74%-owned subsidiary of Thermedics
Inc.) and its subsidiaries as of January 2, 1999, and January 3, 1998, and the
related consolidated statements of income, cash flows, and comprehensive income
and shareholders' investment for each of the three years in the period ended
January 2, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
Sentron Inc. and its subsidiaries as of January 2, 1999, and January 3, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended January 2, 1999, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1999
23
<PAGE>
Thermo Sentron Inc. 1998 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
Overview
The Company designs, develops, manufactures, and markets high-speed
precision-weighing and inspection equipment for industrial production and
packaging lines. The Company is managed geographically and operates in three
segments based on the locations from which they conduct business: North America,
Europe, and Other, which principally includes Australia, New Zealand, and South
Africa. Each of the Company's segments 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 constituted the product-monitoring group of Graseby
Limited (the product-monitoring businesses), a subsidiary of Smiths Industries
plc. (Note 3). The Company's bulk-materials product line includes conveyor-belt
scales, solid level-measurement and conveyor-monitoring systems, sampling
systems, and small-capacity feeders. These products are sold primarily to
customers in the mining and material-processing industries, as well as to
electric utilities and chemical and other manufacturing companies.
A portion of the Company's revenues are generated from large orders for
the Company's sampling systems. This equipment has a high percentage of
subcontracted costs, particularly for steel and steel fabrication, which results
in lower gross profit margins in comparison to the Company's other products. The
timing of the sales of this equipment can lead to variability in the Company's
quarterly revenues and income. In addition, 65% of the Company's revenues in
1998 were derived from sales of products outside the United States, through
export sales and sales by the Company's foreign subsidiaries. During 1998, the
Company had exports from its U.S. and foreign operations to Asia of
approximately 7% of total revenues. Exports to Asia in 1998 were primarily to
China, India, and Japan. Asia is 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. The Company's export sales have been adversely affected by the unstable
economic conditions in Asia. 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.
24
<PAGE>
Results of Operations
1998 Compared With 1997
Revenues increased 26% to $98.8 million in 1998 from $78.7 million in
1997. Revenues increased $24.6 million due to the acquisition of the
product-monitoring businesses on June 12, 1998, as well as the inclusion of
revenues for the full year from RCC Industrial Electronics Pty. Limited (RCCI),
acquired in February 1997, and Westerland Engineering Ltd., acquired in July
1997. Excluding the impact of the acquisitions and foreign exchange, revenues
decreased $2.3 million, or 3%. Sales from the European segment decreased $1.9
million, primarily due to decreased demand in the United Kingdom. Revenues
decreased $2.2 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 $2.6 million to $10.5 million as
of year-end 1998. The decrease is primarily due to decreased demand in Asia and
Australia.
The gross profit margin decreased to 38% in 1998 from 40% in 1997,
primarily due to the inclusion of lower-margin revenues from the
product-monitoring businesses.
Selling, general, and administrative expenses as a percentage of revenues
were unchanged at 26% in 1998 and 1997.
Research and development expenses increased to $2.8 million in 1998 from
$1.9 million in 1997, primarily due to the inclusion of expenses from the
product-monitoring businesses.
Interest income decreased to $1.4 million in 1998 from $2.1 million in
1997, primarily due to lower average cash balances during the year due to cash
expended for the acquisition of the product-monitoring businesses. Interest
expense increased to $1.1 million in 1998 from $0.3 million 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 1998 and 1997. The effective tax rates
exceeded the statutory federal income tax rate primarily due to the impact of
state income taxes and foreign tax rate differences.
1997 Compared With 1996
Revenues increased 12% to $78.7 million in 1997 from $70.0 million in
1996. Revenues increased $4.2 million due to the acquisitions of RCCI and
Westerland, as well as the inclusion of revenues for the full year from the
solids flow-measurement product line of Endress + Hauser, Inc., purchased in
April 1996. Excluding the impact of acquisitions and foreign exchange, revenues
increased $7.2 million. Sales from the North American segment increased $5.6
million, primarily due to increased exports due to increased demand in Southeast
Asia and Latin America and, to a lesser extent, increased demand in the U.S.
Total revenues decreased $2.7 million due to a stronger U.S. dollar relative to
currencies in foreign countries in which the Company operates.
The gross margin was unchanged at 40% in 1997 and 1996.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 26% in 1997 from 27% in 1996, primarily due to increased revenues
and, to a lesser extent, increased efforts to control costs. Research and
development expenses were unchanged at $1.9 million in 1997 and 1996.
Interest income increased to $2.1 million in 1997 from $1.5 million in
1996, primarily due to increased cash balances for the full year in 1997 as a
result of proceeds received from the Company's April 1996 initial public
offering of common stock. Interest expense decreased to $0.3 million in 1997
from $0.6 million in 1996, primarily due to the 1996 repayment of a note
payable. Interest expense includes interest on borrowings at the Company's
foreign subsidiaries and on a credit facility denominated in British pounds
sterling.
The effective tax rate was 39% in 1997, compared with 38% in 1996. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes and foreign tax rate differences.
25
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $9.2 million at January 2, 1999, compared
with $45.0 million at January 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $14.1 million at January
2, 1999, compared with $40.0 million at January 3, 1998. During 1998, operating
activities provided cash of $7.4 million. Cash provided by the Company's
operations and a $1.7 million decrease in inventories in response to lower
demand was offset in part by cash of $2.7 million used to fund a decrease in
other current liabilities.
During 1998, the Company's investing activities used cash of $35.7
million. Excluding available-for-sale investment activity, the Company's primary
investing activity during 1998 was the acquisition of the product-monitoring
businesses for $44.0 million in cash, net of cash acquired, and the assumption
of certain liabilities (Note 3). The Company expended $1.0 million for purchases
of property, plant, and equipment in 1998, and plans to make capital
expenditures of approximately $2.0 million in 1999.
The Company's financing activities provided $12.0 million of cash in 1998.
In June 1998, the Company borrowed $21.0 million from Thermo Electron to
partially finance the acquisition of the product-monitoring businesses. In
December 1998, the Company repaid $2.0 million of this amount and issued Thermo
Electron a new note for $19.0 million in exchange for the initial note. In
December 1997, the Company's Board of Directors authorized the repurchase of up
to $5.0 million of Company common stock in the open market, or in negotiated
transactions. The Company expended the entire amount authorized, including $4.9
million in 1998. 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 $2.2 million of
short-term borrowings under these arrangements. Unused lines of credit were $9.2
million as of January 2, 1999.
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 acquisition through a combination of internal funds, additional
debt or equity financing from the capital markets, or short-term borrowings from
Thermedics 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 payment 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.
Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates, which could affect its future results of operations and
financial condition. The Company manages its exposure to these risks through its
regular operating and financing activities.
Foreign Currency Exchange Rates
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling. The
effect of a change in foreign exchange rates on the Company's net investment in
foreign subsidiaries is recorded as a separate component of shareholders'
investment. A 10% depreciation in year-end 1998 functional currencies, relative
to the U.S. dollar, would result in a $6.1 million reduction of shareholders'
investment.
26
<PAGE>
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 significant information
technology systems and facilities; (ii) testing and developing upgrades, if
necessary, for the Company's current products and certain discontinued products;
(iii) contacting key suppliers and vendors to determine their year 2000
compliance status; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications, and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company is currently in phase two of its
program, during which any noncompliant systems or facilities that were
identified during phase one are prioritized and remediated. The Company is
currently upgrading or replacing such noncompliant information technology
systems, and this process was approximately 65% complete as of January 2, 1999.
In many cases, such upgrades or replacements are being made in the ordinary
course of business, without accelerating previously scheduled upgrades or
replacements. The Company expects that all of its material information
technology systems and critical facilities will be year 2000 compliant by the
end of 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate 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. The Company is focusing its efforts on products that are
still under warranty and/or early in their expected life. The Company is
offering upgrades and/or identifying potential solutions where reasonably
practicable.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. The Company has started to follow-up and
monitor the year 2000 compliance progress of significant suppliers and vendors
that indicate that they are not year 2000 compliant or that do not respond to
the Company's questionnaires. The Company has completed the majority of its
assessment of third party risk, and expects to be substantially completed by
June 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan 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 and vendors, it will modify and
adjust its contingency plan as may be required.
27
<PAGE>
Year 2000 (continued)
Estimated Costs to Address the Company's Year 2000 Issues
The Company had incurred expenses to third parties (external costs)
related to year 2000 issues of approximately $90,000 as of January 2, 1999, and
the total external costs of year 2000 remediation are expected to be
approximately $400,000. All of the external costs incurred as of January 2,
1999, were spent on testing and upgrading information technology systems. All
internal costs and related external costs other than capital additions related
to Year 2000 remediation have been and will continue to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
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 or vendors experience business disruptions due to year 2000
issues, the Company might also be materially adversely affected. 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. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. 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 in amounts that cannot
be reasonably estimated at this time.
28
<PAGE>
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 1999 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Risks Associated With Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement or
augment the Company's existing product lines. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approval,
including antitrust approvals. There can be no assurance that the Company will
be able to complete future acquisitions or that the Company will be able to
successfully integrate any acquired business, including the product-monitoring
businesses, acquired in June 1998. In order to finance such acquisitions, it may
be necessary for the Company to raise additional funds through public or private
financings. Any equity or debt financing, if available at all, may be on terms
that are not favorable to the Company.
International Operations. Sales outside the United States accounted for
65% of the Company's total revenues in 1998. The Company intends to continue to
expand its presence in international markets. International revenues are subject
to a number of risks, including the following: agreements may be difficult to
enforce and receivables difficult to collect through a foreign country's legal
system; foreign customers may have longer payment cycles; foreign countries may
impose additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs, or adopt other restrictions on foreign trade;
fluctuations in exchange rates may affect product demand and adversely affect
the profitability in U.S. dollars of products and services provided by the
Company in foreign markets where payment for the Company's products and services
is made in the local currency; U.S. export licenses may be difficult to obtain;
and the protection of intellectual property in foreign countries may be more
difficult to enforce. There can be no assurance that any of these factors will
not have a material adverse effect on the Company's business and results of
operations. During 1998, the Company had export from its U.S. and foreign
operations to Asia of approximately 7% of total revenues. Exports to Asia in
1998 were primarily to China, India, and Japan. Asia is 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. The Company's export sales have been and
continue to be adversely affected by the unstable economic conditions in Asia.
Government Regulations and Approvals. The market for certain of the
Company's products, both in the United States and abroad, is subject to or
influenced by various domestic and foreign clean air and consumer protection
laws. The Company designs, develops, and markets its products to meet customer
needs created by existing and anticipated regulations, and any changes in these
regulations may adversely affect consumer demand for the Company's products. In
addition, the marketing of certain of the Company's products is dependent upon
the receipt of regulatory and other approvals, including industry association
approvals of the design, construction, and accuracy of the Company's products.
Delays in obtaining, or the failure to obtain, any such approvals could have a
material adverse effect on the Company's business and results of operations.
Competition. The Company encounters and expects to continue to encounter
intense competition in the sale of its products. The Company believes that the
principal competitive factors affecting the market for precision-weighing and
inspection equipment include customer service and support, quality and
reliability, price, accuracy, ease of use, distribution channels, technical
features, compatibility with customers' manufacturing processes, and regulatory
approvals. Certain of the Company's competitors have greater resources,
manufacturing and marketing capabilities, technical staff, and production
facilities than those of the Company. As a result, they may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than can the Company. Competition could increase if new companies enter
the market or if existing competitors expand their product lines.
29
<PAGE>
Technological Change and New Products. The market for precision-weighing
and inspection equipment is characterized by changing technology, evolving
industry standards, and new product introductions. The Company's future success
will depend in part upon its ability to enhance its existing products and to
develop and introduce new products and technologies to meet changing customer
requirements. The Company is currently devoting significant resources to
enhancing its existing products and developing new products and technologies.
There can be no assurance that the Company will successfully complete the
enhancement and development of these products in a timely fashion or that the
Company's current or future products will satisfy the needs of the
precision-weighing and inspection equipment market.
Potential Fluctuations in Quarterly Performance. The Company's quarterly
operating results may vary significantly depending on a number of factors,
including the size, timing, and shipment of individual orders, seasonality of
revenue, foreign currency exchange rates, the mix of products sold, and general
economic conditions. Because the Company's operating expenses are based on
anticipated revenue levels and a high percentage of the Company's expenses are
fixed for the short term, a small variation in the timing of recognition of
revenue can cause significant variations in operating results from quarter to
quarter.
Potential Impact of Year 2000 on Processing of Date-sensitive Information.
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 or vendors experience business disruptions due to year 2000
issues, the Company might also be materially adversely affected. 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. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. 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 in amounts that cannot
be reasonably estimated at this time.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Information
The Company(a) Predecessor(a)
Mar. 16, Oct. 1,
1994 1993
Through Through
(In thousands except per share amounts) Dec. 31, Mar. 15,
1998(b) 1997(c) 1996(d) 1995 1994 1994
- ------------------------------------- ---------- ---------- ---------- ---------- --------- ---------------
Statement of Operations Data
Revenues $ 98,763 $ 78,695 $ 70,027 $ 67,474 $50,116 $ 24,300
Net Income (Loss) 5,719 6,488 5,152 3,830 1,260 (1,269)
Basic and Diluted Earnings .59 .66 .56 .55 .18 (.18)
(Loss) per Share
Balance Sheet Data
Working Capital $ 9,176 $ 45,005 $ 41,394 $ (853) $ (250) $ 13,409
Total Assets 140,164 115,101 107,186 61,960 62,527 28,494
Long-term Obligation - - - - 1,849 -
Shareholders' Investment 88,993 87,931 82,365 34,687 34,600 15,781
(a) On March 16, 1994, Thermedics acquired the Predecessor from Baker Hughes.
Periods prior to March 16, 1994, represent the results of Ramsey as included
in Baker Hughes' financial statements. Periods subsequent to March 15, 1994,
represent the results of Ramsey as included in Thermedics' consolidated
financial statements. The principal difference in the basis of accounting
between the Predecessor and the Company relates to the cost in excess of net
assets of acquired companies, the amortization of which approximates
$860,000 per year.
(b) Reflects the June 1998 acquisition of the product-monitoring group of
Graseby Limited, a subsidiary of Smiths Industries plc.
(c) Reflects the February 1997 acquisition of the business of RCC Industrial
Electronics Pty. Limited and the July 1997 acquisition of Westerland
Engineering Ltd.
(d) Includes the net proceeds of the Company's initial public offering in April
1996, and reflects the January 1996 acquisition of Hitech Electrocontrols
Limited and the April 1996 acquisition of the solids flow-measurement
product line of Endress + Hauser.
</TABLE>
31
<PAGE>
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol TSR. The following table sets forth the high and low sale prices of
the Company's common stock for 1998 and 1997, as reported in the consolidated
transaction reporting system.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 1997
------------------ -------------------
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ---------- -----------
First $12 1/16 $9 1/4 $13 3/4 $ 9
Second 12 5/8 11 3/8 11 5/8 8 9/16
Third 12 1/2 8 3/8 14 1/8 10 15/16
Fourth 10 8 1/8 14 9 1/4
</TABLE>
As of January 29, 1999, the Company had 69 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
January 29, 1999, was $10 1/4 per share.
Shareholder Services
Shareholders of Thermo Sentron Inc. who desire information about the
Company are invited to contact the Investor Relations Department, Thermo Sentron
Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, (781)
622-1111. A mailing list is maintained to enable shareholders whose stock is
held in street name, and other interested individuals, to receive quarterly
reports, annual reports, and press releases as quickly as possible. Distribution
of printed quarterly reports is limited to the second quarter only. All material
is available from Thermo Electron's Internet site (http://www.thermo.com/
subsid/tsr1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent and
maintains shareholder activity records. The agent will respond to questions on
issuance of stock certificates, change of ownership, lost stock certificates,
and change of address. For these and similar matters, please direct inquiries
to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended January
2, 1999, as filed with the Securities and Exchange Commission, may be obtained
at no charge by writing to the Investor Relations Department, Thermo Sentron
Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
Annual Meeting
The annual meeting of shareholders will be held on Thursday, May 27, 1999,
at 1:30 p.m., at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts.
THERMO SENTRON INC.
Subsidiaries of the Registrant
As of February 28, 1999, the Registrant owned the following subsidiaries:
<TABLE>
<CAPTION>
STATE OR JURISDICTION OF
INCORPORATION PERCENT OF
NAME OWNERSHIP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allen Coding Systems Limited United Kingdom 100
Allen Coding Corporation Delaware 100
Goring Kerr Limited United Kingdom 100
Best Checkweighers Limited United Kingdom 100
Intertest (UK) Limited United Kingdom 100
Goring Kerr Detection Limited United Kingdom 100
Graseby Goring Kerr (NZ) Limited New Zealand 100
Graseby Goring Kerr Canada Inc. Ontario 100
Graseby Product Monitoring GmbH Germany 100
Goring Kerr Inc. New York 100
Ramsey France S.A.R.L. France 100
Ramsey Ingenieros S.A. Spain 100
Ramsey Italia S.R.L. Italy 100
Tecno Europa Elettromeccanica S.R.L. Italy 100
Ramsey Technology Inc. Massachusetts 100
Xuzhou Ramsey Technology Development Co., Limited China 50*
Thermo Sentron Australia Pty. Ltd.. Australia 100
Thermo Sentron B.V. Netherlands 100
Thermo Sentron Canada Inc. Canada 100
Thermo Sentron GmbH Germany 100
Thermo Sentron Limited United Kingdom 100
Hitech Electrocontrols Limited United Kingdom 100
Hitech Licenses Ltd. United Kingdom 100
Hitech Metal Detectors Ltd. United Kingdom 100
Westerland Engineering Ltd. United Kingdom 100
Thermo Sentron SEC Corporation Massachusetts 100
Thermo Sentron (South Africa) Pty. Ltd. South Africa 100
* Joint Venture/Partnership
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 11, 1999, included in or incorporated
by reference into Thermo Sentron Inc.'s Annual Report on Form 10-K for the year
ended January 2, 1999, into the Company's previously filed Registration
Statement No. 333-66909 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
SENTRON INC.'S REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 2, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 14,144
<SECURITIES> 0
<RECEIVABLES> 26,443
<ALLOWANCES> 1,367
<INVENTORY> 16,029
<CURRENT-ASSETS> 59,438
<PP&E> 6,667
<DEPRECIATION> 2,910
<TOTAL-ASSETS> 140,164
<CURRENT-LIABILITIES> 50,262
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 88,894
<TOTAL-LIABILITY-AND-EQUITY> 140,164
<SALES> 98,763
<TOTAL-REVENUES> 98,763
<CGS> 61,621
<TOTAL-COSTS> 61,621
<OTHER-EXPENSES> 2,823
<LOSS-PROVISION> 260
<INTEREST-EXPENSE> 1,060
<INCOME-PRETAX> 9,405
<INCOME-TAX> 3,686
<INCOME-CONTINUING> 5,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,719
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
