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 1-13391
THERMO VISION CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3296594
(State or other jurisdiction of incorporation or
organization) (I.R.S. Employer Identification No.)
8E Forge Parkway
Franklin, Massachusetts 02038
(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 Registrant 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 $4,861,000.
As of January 29, 1999, the Registrant had 8,048,276 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 Vision Corporation (the Company or the Registrant) designs,
manufactures, and markets a diverse array of photonics products - light-based
technologies that are embedded as "enabling technologies" in a wide range of
applications, including medical diagnostic and analytical instrumentation;
semiconductor manufacturing; X-ray imaging; and physics, chemistry, and biology
research. The Company organizes and manages its business by individual
functional operating entity. The Company's businesses operate in three segments:
Optical Components, Sensors and Imaging Systems, and Optically Based Instruments
and Lasers.
The Company was incorporated in November 1995 as a wholly owned subsidiary
of Thermo Optek Corporation, a publicly traded, majority-owned subsidiary of
Thermo Instrument Systems Inc. In December 1997, the Company was "spun out"
through a distribution of all of its outstanding capital stock as a tax-free
dividend to Thermo Optek shareholders. Thermo Vision is now a majority-owned
public subsidiary of Thermo Instrument. Also in December 1997, the Company sold
1,139,491 shares of its common stock in an initial public offering at $7.50 per
share for net proceeds of $7,033,000.
As of January 2, 1999, Thermo Instrument owned 6,299,495 shares of the
common stock of the Company, representing 78% of such stock outstanding. Thermo
Instrument develops, manufactures, markets, and services instruments and
software used for the identification and quantification of complex molecular
compounds and elements in gases, liquids, and solids. Uses include
pharmaceutical drug research and clinical diagnostics, monitoring and measuring
environmental pollutants, industrial inspection, and test and control for
quality assurance and productivity improvement. In addition, Thermo Instrument
develops, manufactures, markets, and services equipment for the measurement,
preparation, storage, and automation of sample materials, and photonics and
vacuum components for original equipment manufacturers. Thermo Instrument is an
85%-owned subsidiary of Thermo Electron Corporation. As of January 2, 1999,
Thermo Electron owned 102,349 shares of the common stock of the Company,
representing 1% of such stock outstanding. 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, and electronic information-management technologies.
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 9 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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(c) Description of Business
(i) Principal Products and Services
In many ways, photonics is analogous to electronics. Both can be used to
detect, transmit, store, and process information, and to generate energy, as
well as to capture and display images. But photonics has two primary advantages
over electronics - greater speed and smaller size. This is why a thin fiber
optic cable (photonic) can transmit 10,000 times more information than a copper
wire (electronic).
The Company estimates that the growing worldwide photonics industry
currently totals approximately $17 billion. The Company offers products in three
market segments:
Optical Components
Optical components include filters and crystals. Primary applications for
optical components include medical and analytical instruments and X-ray baggage
screening for security purposes. The Company offers a broad line of optical
components designed for specific applications and for use in modular systems.
Revenues from sales of optical components represented 21%, 21%, and 22% of
the Company's total revenues in 1998, 1997, and 1996, respectively.
Sensors and Imaging Systems
Sensors detect photons and produce a resultant electrical signal. An imaging
system consists of a sensor or an array of sensors connected to a recording
and/or display device. Applications of sensors and imaging systems include
cameras for filmless dental X-ray imaging and detectors for optical
spectrometers used in chemical analysis. The Company's imaging sensors can be
designed to have very high dynamic range at low light levels, which makes them
attractive in demanding spectroscopy and astronomy applications. The Company
offers a number of proprietary charge-injection device (CID) sensors based on
its own designs and also customizes sensors to particular customer
specifications. The Company also designs and markets CID camera systems.
The Company's sensors convert light to electricity or electricity to light.
A familiar example is the silicon photodiode detector, with uses ranging from
orienting satellites toward the sun to color recognition for paint matching. The
Company customizes its photodiodes for specific applications. The primary
customers for the Company's sensors include manufacturers of medical diagnostic
and analytical instruments.
Revenues from sales of sensors and imaging systems represented 18%, 13%, and
9% of the Company's total revenues in 1998, 1997, and 1996, respectively.
Optically Based Instruments and Lasers
Optically based instruments combine optical components and signal processors
and are used primarily in research, analytical, and process applications, such
as the determination of correct exposure time for photoresist development in
photolithography, identification of materials by their fluorescence lifetime,
and the quality testing of optical components. The Company focuses on the
development of low-cost analyzers that use standard photonics components as
building blocks designed to work together in multiple configurations and to be
easily modified to accommodate changing end-user requirements. For example, the
Company's monochromators, which divide white light into its component
wavelengths, are one of the basic building blocks for spectroscopic research and
analytical instruments.
This segment also includes pulsed nitrogen lasers, nitrogen laser
accessories, and pulsed CO(2) lasers, which the Company designs, manufactures,
and markets. Pulsed lasers are preferable to continuous lasers in measurement
applications because the break in the laser beam provides discrete time segments
in which to perform measurements.
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The Company's lasers are often used as the ionization sources for matrix
assisted laser desorption ionization-time of flight (MALDI-TOF) mass
spectrometers used to study proteins, peptides, and other large biomolecules, as
well as for the cutting of samples mounted in a microscope.
Revenues from sales of optically based instruments and lasers represented
61%, 66%, and 69% of the Company's total revenues in 1998, 1997, and 1996,
respectively.
Sales and Marketing
The Company markets its products both in the U.S. and internationally by
means of technical catalogs, available in printed format, as well as through Web
sites and the dealer and distributor networks of its subsidiaries and divisions.
The Company sells directly to larger OEM buyers through the direct salesforces
of its subsidiaries and divisions. The Company trains the members of its
salesforces on the technical aspects of its products so they are able to respond
to questions and otherwise support customers, dealers, and distributors. The
Company holds a minority equity interest in LOT-Oriel Holding GmbH (LOT-Oriel),
a large European distributor of photonics products. A Company representative
serves as a member of LOT-Oriel's board of directors. The Company believes that
its relationship with LOT-Oriel enhances the Company's visibility in and access
to the European photonics market.
(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development of new
technologies and the enhancement of its existing products. In addition, the
Company seeks to develop new applications for its products and technologies. The
Company incurred research and development expenses of $4,233,000, $4,143,000,
and $3,499,000 in 1998, 1997, and 1996, respectively. In addition, for
customer-sponsored contract research and development expenses, the Company
received $338,000, $744,000, and $532,000 in 1998, 1997, and 1996, respectively.
(iii) Raw Materials
The Company purchases the silicon wafers used in its CID sensor and silicon
photodiodes from third-party suppliers. After purchase, the silicon wafers are
shipped to fabricators to be processed in accordance with the Company's designs
and specifications. Historically, a single fabricator was employed to process
silicon wafers. In 1998, the Company experienced problems with this fabricator
when the processed silicon wafers did not meet anticipated process yields. The
lower yields hampered the Company's ability to meet orders for its products. The
Company qualified and has begun purchasing processed silicon wafers for certain
of the Company's products from a second fabricator and has started the process
of qualifying a third fabricator to process silicon wafers for certain of the
Company's other products. The Company has and continues to work with the
original fabricator to increase the yields of the processed silicon wafers. The
original fabricator was recently acquired by a third party that the Company
believes will provide additional resources and commitment necessary to continue
to improve yields. The Company purchases CID wafers from its existing supplier
on a purchase-order basis and does not have a formal supply arrangement with
these companies. The Company believes that outsourcing the processing of these
wafers enables it to avoid the technological risks and significant capital costs
associated with maintaining its own wafer-fabrication lines.
Except for those discussed above, raw materials, components, and supplies
purchases by the Company are generally either available from a number of
different suppliers or from alternative sources that could be developed without
a material adverse effect on the Company. To date, the Company has experienced
no difficulties in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
The Company's success depends in part on the strength and protection of its
proprietary methodologies and designs and other proprietary intellectual rights.
The Company's policy is to protect its intellectual property rights and to apply
for patent protection when appropriate. The Company believes that its
manufacturing know-how, particularly with respect to its optical filters and
crystals, provides it with a competitive advantage.
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The Company currently holds numerous issued U.S. patents expiring at various
dates ranging from 1999 to 2016. The Company also has a number of applications
pending for additional U.S. patents and a number of foreign counterparts for its
patents in various foreign countries. The Company does not believe the
expiration of any single patent will materially impact the Company's competitive
position. The Company also has certain registered and other trademarks. In
addition, the Company has entered into license agreements with other companies
pursuant to which it grants or receives the rights to certain technology,
know-how, trademarks, or patents. Several of the Company's issued U.S. patents
pertain to its CID technology. In addition, the Company holds a nonexclusive
license to certain additional patents relating to CID technology.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales of its
products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
(viii) Backlog
The Company's backlog of firm orders at year-end 1998 and 1997 was as
follows:
(In thousands) 1998 1997
- -----------------------------------------------------------------------------
Optical Components $1,885 $2,324
Sensors and Imaging Systems 4,222 4,377
Optically Based Instruments and Lasers 4,552 5,559
------ ------
$10,659 $12,260
======= =======
Certain of these orders are cancellable by the customer upon payment of a
cancellation charge. The Company believes that substantially all of the backlog
as of January 2, 1999, will be shipped or completed during 1999. The $0.5
million decrease in the Optical Components backlog is primarily due to the
completion of the Stanford Linear Accelerator Contract in 1998. The $1.0 million
decrease in the Optically Based Instruments and Lasers segment backlog is
primarily due to a slowdown in the semiconductor industry.
(ix) Government Contracts
Not applicable.
(x) Competition
The photonics industry is highly competitive. Photonics has historically
been a fragmented market, comprising more than 4,000 competitors around the
world. The Company competes with a number of companies that have substantially
greater financial, marketing, and other resources than the Company. The Company
competes in each of its three photonics segments primarily on the basis of
technical suitability, product performance, reliability, and price. The
Company's principal competitors are:
Optical Components
Optical Coating Laboratory, Inc. and the Bicron business unit of
Saint-Gobain Industrial Ceramics, Inc.
5
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Sensors and Imaging Systems
UDT Sensors, Inc., an Opto-Sensors Company; Dalsa Corporation; and
Cohu, Inc.
Optically Based Instruments and Lasers
Roper Scientific, Inc.; Acton Research Corporation; the ISA unit of Horiba
Instruments, Inc.; Hamamatsu Corporation, a unit of Hamamatsu Photonic KK;
Newport Corporation; and Coherent, Inc.
(xii) 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.
(xiii) Number of Employees
As of January 2, 1999, the Company employed 243 people.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 9 to
Consolidated Financial Statements in the Registrant's 1998 Annual Report to
Shareholders and is incorporated herein by reference.
(e) Executive Officers of the Registrant
Name Age Present Title (Fiscal Year First
Became Executive Officer)
-----------------------------------------------------------------
Kristine Stotz 40 President and Chief Executive Officer
Langdon (1995)
Allen J. Smith 50 Vice President (1997)
Theo Melas-Kyriazi 39 Chief Financial Officer (1998)
Paul F. Kelleher 56 Chief Accounting Officer (1995)
Each executive officer serves until his or her successor is chosen or
appointed by the Board of Directors and qualified or until his or her
earlier resignation, death, or removal. Ms. Langdon has served as Chief
Executive Officer and President of the Company since its inception in
January 1995. Ms. Langdon served as Director of Business Development of
Thermo Jarrell Ash, a subsidiary of Thermo Optek, from April 1994 until
January 1995. Ms. Langdon was Special Assistant to the Presidents of
Thermo Electron and Thermo Instrument from August 1991 to April 1994. 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. He was named President
and Chief Executive Officer of ThermoSpectra Corporation, a public
subsidiary of Thermo Instrument, in 1994, a position he held until
becoming Vice President of Corporate Strategy for Thermo Electron in
1998. Mr. Melas-Kyriazi remains a Vice President of Thermo Electron. Mr.
Smith has been Vice President of the Company since August 1997 and
Chairman of Oriel since October 1994. Mr. Smith served Oriel in various
capacities, including Executive Vice President, Vice President, General
Manager, and Sales Manager from February 1970 to October 1994. Mr.
Kelleher has held a comparable position for at least five years with
Thermo Instrument or Thermo Electron. 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.
6
<PAGE>
Item 2.Properties
The Company believes that its facilities are in good condition and are
suitable and adequate to meet current needs and that suitable alternate space is
available in the event any lease is not extended upon expiration. The location
of the Company's principal properties as of January 2, 1999, are:
Optical Components
The Company leases approximately 43,200 square feet of office, engineering,
and manufacturing space in Massachusetts and England under leases expiring in
2006 and 1999, respectively. During 1999, the Company plans to purchase the
building located in England.
Sensors and Imaging Systems
The Company leases approximately 30,300 square feet of office, engineering,
and manufacturing space in California and New York under leases expiring in 2004
and 2006, respectively.
Optically Based Instruments and Lasers
The Company leases approximately 44,900 square feet of office, engineering,
and manufacturing space in Connecticut and Massachusetts under leases expiring
in 2008 and 2006, respectively. In addition, the Company owns approximately
3,600 square feet of office and manufacturing space in Colorado.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
7
<PAGE>
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. Quantitative and Qualitative Disclosures About Market Risk
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 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
None.
(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 VISION CORPORATION
By: /s/ Kristine Stotz Langdon
Kristine Stotz Langdon
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, as of March 12, 1999.
Signature Title
By: /s/ Kristine Stotz Langdon President, Chief Executive Officer,
Kristine Stotz Langdon 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/ D. Allan Bromley Director
D. Allan Bromley
By: /s/ Elias P. Gyftopoulos Director
Elias P. Gyftopoulos
By: /s/ Earl R. Lewis Chairman of the Board and Director
Earl R. Lewis
By: /s/ Melissa F. Riordan Director
Melissa F. Riordan
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Vision Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Thermo Vision Corporation's
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 16, 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 16, 1999
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<TABLE>
<CAPTION>
SCHEDULE II
THERMO VISION CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Description Provision Accounts Accounts Other (a) Balance
Balance at Charged to Recovered Written at End
Beginning Expense of Year
of Off
Year
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Allowance for Doubtful Accounts
Year Ended January 2, 1999 $ 430 $ 17 $ 3 $ (132) $ (72) $ 246
Year Ended January 3, 1998 $ 266 $ 114 $ 2 $ (84) $ 132 $ 430
Year Ended December 28, 1996 $ 24 $ 174 $ - $ (82) $ 150 $ 266
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Description Established Activity Other (c) Balance
Balance at as Cost of Charged to at End
Beginning Acquisitions Reserve of Year
of
Year
- ----------------------------------------- ------------ ------------ ------------ ------------ ------------
Accrued Acquisition Expenses (b)
Year Ended January 2, 1999 $ 468 $ - $(271) $(132) $ 65
Year Ended January 3, 1998 $ 304 $ 425 $(215) $ (46) $ 468
Year Ended December 28, 1996 $ 100 $ 746 $(481) $ (61) $ 304
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements in the Registrant's 1998 Annual
Report to Shareholders, reductions of cost in excess of net assets of
acquired companies resulting from finalization of restructuring plans for
acquired companies, and the effect of foreign currency translation.
(b) The nature of activity in this account is described in Note 2 to
Consolidated Financial Statements in the Registrant's 1998 Annual Report to
Shareholders.
(c) Represents reversal of accrued acquisition expenses and corresponding
reduction of cost in excess of net assets of acquired companies resulting
from finalization of restructuring plans.
</TABLE>
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Plan and Agreement of Distribution dated as of December 15, 1997,
between Thermo Optek Corporation and the Registrant (filed as Exhibit
2.1 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 3, 1998 [File No. 1-13391] and incorporated herein
by reference).
2.2 Asset Purchase Agreement dated as of January 23, 1996, by and between
the Registrant and Corion Corporation (filed as Exhibit 2.2 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
2.3 Purchase Agreement dated as of February 7, 1996, by and between the
Registrant and the shareholders and option holders of Oriel
Corporation as set forth therein (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration Statement on
Form 10 [File No. 1-13391] and incorporated herein by reference).
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant dated December 9, 1997 (filed as
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 [File No. 1-13391] and incorporated
herein by reference).
3.3 Bylaws of the Registrant (filed as Exhibit 3.3 to the Registrant's
Registration Statement on Form 10 [File No. 1-13391] and incorporated
herein by reference).
10.1 Corporate Services Agreement dated as of November 14, 1997, between
Thermo Electron Corporation and the Registrant (filed as Exhibit 10.1
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998 [File No. 1-13391] 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 3, 1993 [File
No. 1-8002] and incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of November 14, 1997, between
Thermo Electron and the Registrant (filed as Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998 [File No. 1-13391] and incorporated
herein by reference).
10.4 Master Repurchase Agreement dated as of November 14, 1997, 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
January 3, 1998 [File No. 1-13391] and incorporated herein by
reference).
10.5 Master Guarantee Reimbursement and Loan Agreement dated as of
November 14, 1997, between Thermo Electron and the Registrant (filed
as Exhibit 10.38 to Thermo Instrument Systems Inc.'s Annual Report on
Form 10-K for the fiscal year ended January 3, 1998 [File No. 1-9786]
and incorporated herein by reference).
10.6 Master Guarantee Reimbursement and Loan Agreement dated as of
November 24, 1997, between Thermo Instrument 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. 1-13391] and
incorporated herein by reference).
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Exhibit
Number Description of Exhibit
10.7 CID Contract Research and Development Agreement dated October 1994
between Thermo Optek and the Registrant (filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
10.8 CID Supply Agreement effective as of December 15, 1997, between
Thermo Optek and the Registrant (filed as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998 [File No. 1-13391] and incorporated
herein by reference).
10.9 Equity Incentive Plan of the Registrant (filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998 [File No. 1-13391] 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 Thermo
Instrument for services rendered to the Registrant or such affiliated
corporations. Such plans are substantially similar to the Equity
Incentive Plan of the Registrant.
10.10 Deferred Compensation Plan for Directors of the Registrant (filed as
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 [File No. 1-13391] and incorporated
herein by reference).
10.11 Form of Indemnification Agreement for Officers and Directors of the
Registrant (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.
1-13391] and incorporated herein by reference).
10.12 Sublease Agreement dated as of September 1, 1997, between the
Registrant and Thermo Instrument (filed as Exhibit 10.14 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
10.13 Sublease Agreement effective as of February 1, 1984, between Oriel
Instruments Corporation and Osbrook Associates Limited Partnership,
as modified (filed as Exhibit 10.15 to the Registrant's Registration
Statement on Form 10 [File No. 1-13391] and incorporated herein by
reference).
10.14 Agreement of Lease dated as of October 6, 1997, between Oriel and
1608 Development Limited Partnership (filed as Exhibit 10.21 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
10.15 Tax Matters Agreement dated as of November 24, 1997, between Thermo
Optek and the Registrant (filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998
[File No. 1-13391] and incorporated
herein by reference).
10.16 $3.8 Million Principal Amount Promissory Note due July 13, 2000,
issued by the Registrant to Thermo Electron (filed as Exhibit 10.16
to the Registrant's Registration Statement on Form 10 [File No.
1-13391] and incorporated herein by
reference).
10.17 $3.6 Million Principal Amount Promissory Note and $347,438 Principal
Amount Promissory Note, both due February 18, 2000, issued by the
Registrant to Thermo Optek (filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
15
<PAGE>
Exhibit
Number Description of Exhibit
10.18 Indemnification Agreement effective as of December 31, 1995, between
the Registrant and Thermo Instrument (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form 10 [File No. 1-13391] and
incorporated herein by reference).
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.
Exhibit 13
Thermo Vision Corporation
Consolidated Financial Statements
1998
<PAGE>
<TABLE>
<CAPTION>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Statement of Income
<S> <C> <C> <C>
(In thousands except per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------ -------- --------- --------
Revenues (Notes 8 and 9) $37,966 $ 39,694 $30,434
------- -------- -------
Costs and Operating Expenses:
Cost of revenues (Note 3) 23,769 22,151 17,066
Selling, general, and administrative expenses (Note 8) 9,370 9,065 7,402
Research and development expenses 4,233 4,143 3,499
Restructuring costs (Note 3) 40 - -
------- -------- -------
37,412 35,359 27,967
------- -------- -------
Operating Income 554 4,335 2,467
Interest Income 455 41 -
Interest Expense (75) (66) (44)
Interest Expense, Related Party (Note 8) (446) (261) -
------- -------- -------
Income Before Provision for Income Taxes 488 4,049 2,423
Provision for Income Taxes (Note 6) 267 1,701 1,005
------- -------- -------
Net Income $ 221 $ 2,348 $ 1,418
======= ======== =======
Basic and Diluted Earnings per Share (Note 10) $ .03 $ .34 $ .21
======= ======== =======
Weighted Average Shares (Note 10)
Basic 8,048 6,983 6,909
======= ======== =======
Diluted 8,049 6,985 6,909
======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Balance Sheet
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------- -------- ---------
Assets
Current Assets:
Cash and cash equivalents (includes $9,231 and $9,410 under repurchase $ 9,457 $ 9,604
agreement with affiliated company)
Accounts receivable, less allowances of $246 and $430 5,487 6,935
Inventories 7,831 8,301
Prepaid expenses 254 971
Prepaid and refundable income taxes (Note 6) 2,563 1,405
------- --------
25,592 27,216
Property, Plant, and Equipment, at Cost, Net 5,855 4,757
------- --------
Other Assets 836 584
------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 13,997 14,844
------- --------
$46,280 $ 47,401
======= ========
3
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1998 1997
- ---------------------------------------------------------------------------------------- -------- ---------
Liabilities and Shareholders' Investment
Current Liabilities:
Note payable and capital lease obligation (Note 8) $ 1,070 $ 1,143
Accounts payable 2,335 3,671
Accrued payroll and employee benefits 912 905
Accrued installation and warranty expenses 346 232
Other accrued expenses 1,166 1,449
Due to Thermo Electron and affiliated companies (Note 8) 308 177
------- --------
6,137 7,577
Deferred Income Taxes (Note 6) 217 22
------- --------
Long-term Obligations, Due to Thermo Electron and Thermo Optek (Note 8) 7,747 7,747
------- --------
Commitments (Note 7)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 20,000,000 shares authorized; 8,048,276 80 80
shares issued and outstanding
Capital in excess of par value 28,031 28,144
Retained earnings 4,006 3,785
Accumulated other comprehensive items 62 46
------- --------
32,179 32,055
------- --------
$46,280 $ 47,401
======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------- ---------- ---------- ---------
Operating Activities
Net income $ 221 $ 2,348 $ 1,418
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,568 1,849 1,251
Provision for losses on accounts receivable 17 114 174
Deferred income tax expense (benefit) 309 514 (79)
Other noncash expenses (Note 3) 2,167 - -
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 1,509 (380) (732)
Inventories (908) (631) 471
Other current assets (820) (364) (253)
Accounts payable (1,537) 71 (174)
Other current liabilities 64 (210) (397)
-------- -------- -------
Net cash provided by operating activities 2,590 3,311 1,679
-------- -------- -------
Investing Activities
Acquisitions, net of cash acquired (Note 2) - (7,345) (15,528)
Purchases of property, plant, and equipment (2,270) (1,527) (1,450)
Other, net (252) - 92
-------- -------- -------
Net cash used in investing activities (2,522) (8,872) (16,886)
-------- -------- -------
Financing Activities
Net increase (decrease) in short-term borrowings (95) 240 (575)
Net proceeds from issuance of Company common stock (Note 5) - 7,033 -
Net proceeds from issuance of notes payable to Thermo Electron - 7,747 -
and Thermo Optek (Notes 2 and 8)
Transfer from parent company to fund acquisitions - - 16,870
Net increase (decrease) in short-term borrowings from Thermo - (2,591) 1,830
Electron and affiliated companies
Net transfer (to) from parent company - 2,430 (2,785)
Other (121) - -
Net cash provided by (used in) financing activities (216) 14,859 15,340
-------- -------- -------
Exchange Rate Effect on Cash 1 - 2
-------- -------- -------
Increase (Decrease) in Cash and Cash Equivalents (147) 9,298 135
Cash and Cash Equivalents at Beginning of Year 9,604 306 171
-------- -------- -------
Cash and Cash Equivalents at End of Year $ 9,457 $ 9,604 $ 306
======== ======== =======
5
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------- ---------- ---------- ----------
Cash Paid For
Interest $ 527 $ 265 $ 44
Income taxes $ 1,077 $ - $ 43
Noncash Activities
Fair value of assets of acquired companies $ - $ 9,414 $ 22,480
Cash paid for acquired companies - (7,400) (16,870)
-------- -------- --------
Liabilities assumed of acquired companies $ - $ 2,014 $ 5,610
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------ -------- --------- --------
Comprehensive Income
Net Income $ 221 $ 2,348 $ 1,418
------- -------- -------
Other Comprehensive Items:
Foreign currency translation adjustment 16 (8) 52
------- -------- -------
$ 237 $ 2,340 $ 1,470
======= ======== =======
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 80 $ 68 $ 68
Issuance of Company common stock (Note 5) - 11 -
Effect of stock split - 1 -
------- -------- -------
Balance at end of year 80 80 68
------- -------- -------
Capital in Excess of Par Value:
Balance at beginning of year 28,144 18,693 4,608
Issuance of Company common stock (Note 5) (121) 7,022 -
Tax benefit related to employees' and directors' stock plans 8 - -
Effect of stock split - (1) -
Net transfer (to) from parent company - 2,430 (2,785)
Transfer from parent company to fund acquisitions - - 16,870
------- -------- -------
Balance at end of year 28,031 28,144 18,693
------- -------- -------
Retained Earnings:
Balance at beginning of year 3,785 1,437 19
Net income 221 2,348 1,418
------- -------- -------
Balance at end of year 4,006 3,785 1,437
------- -------- -------
Accumulated Other Comprehensive Items:
Balance at beginning of year 46 54 2
Other comprehensive items, net 16 (8) 52
------- -------- -------
Balance at end of year 62 46 54
------- -------- -------
$32,179 $ 32,055 $20,252
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Vision Corporation (the Company) designs, manufactures, and markets
a diverse array of photonics products - light-based technologies that are
embedded as "enabling technologies" in a wide range of applications, including
medical diagnostic and analytical instrumentation; semiconductor manufacturing;
X-ray imaging; and physics, chemistry, and biology research.
Relationship with Thermo Optek Corporation, Thermo Instrument Systems Inc., and
Thermo Electron Corporation
The Company was incorporated in November 1995 as a wholly owned subsidiary
of Thermo Optek Corporation at which time Thermo Optek transferred to the
Company all of the assets, liabilities, and businesses of two subsidiaries of
Thermo Jarrell Ash (TJA) in exchange for 6,908,785 shares of the Company's
common stock (adjusted to reflect a 55-for-54 stock split distributed in
December 1997 in the form of a stock dividend). The companies transferred were
CID Technologies Inc. (CIDTEC) and Scientific Measurement Systems Inc., (now
called Thermo Vision Colorado). In August 1997, the Company acquired the
crystal-materials business (Hilger) of Hilger Analytical Limited, a wholly owned
subsidiary of Thermo Optek, and accounted for the transaction at historical cost
in a manner similar to a pooling of interests (Note 2).
In December 1997, Thermo Optek, a 91%-owned publicly traded subsidiary of
Thermo Instrument Systems Inc., distributed to its shareholders 100% of the
Company's common stock in the form of a dividend. Thermo Instrument is an
85%-owned subsidiary of Thermo Electron Corporation. As of January 2, 1999,
Thermo Instrument and Thermo Electron owned a total of 6,401,844 shares of the
Company's common stock, representing 79.5% of such stock outstanding.
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.
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 1998 and 1996
included 52 weeks; 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 and installation 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 4). 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>
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Income Taxes
The Company, Thermo Optek, and Thermo Instrument entered into tax
allocation agreements under which the Company, Thermo Optek, and Thermo
Instrument were included in Thermo Electron's consolidated federal and certain
state income tax returns. The agreements provided that in years in which the
Company had taxable income, it would pay to Thermo Electron amounts comparable
to the taxes the Company would have paid if it had filed separate tax returns.
Subsequent to the Company's initial public offering in December 1997, Thermo
Instrument's equity ownership of the Company was reduced below 80% and, as a
result, the Company is required to file its own federal and certain state income
tax returns.
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 effects.
Stock Splits
All share and per share information has been restated to reflect an
approximate 55-for-54 stock split, effected in the form of a stock dividend,
distributed in December 1997. The purpose of this stock split was to preserve a
distribution ratio of 14 shares of the Company's common stock for each 100
shares of common stock held by Thermo Optek shareholders as of the date that
Thermo Optek distributed the Company's common stock to its shareholders.
Cash and Cash Equivalents
As of year-end 1998 and 1997, $9,231,000 and $9,410,000 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 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.
Inventories
Inventories are stated at the lower of cost (primarily on a first-in,
first-out basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------- ----------- -----------
Raw Materials and Supplies $5,090 $5,637
Work in Process 585 967
Finished Goods 2,156 1,697
------ ------
$7,831 $8,301
====== ======
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 method over the estimated
useful lives of the property as follows: buildings, 35 years; machinery and
equipment, 3 to 10 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 and Buildings $ 277 $ 277
Machinery and Equipment 6,994 5,987
Leasehold Improvements 1,994 932
------ ------
9,265 7,196
Less: Accumulated Depreciation and Amortization 3,410 2,439
------ ------
$5,855 $4,757
====== ======
</TABLE>
Other Assets
Other assets in the accompanying balance sheet includes a 10% ownership
interest in LOT-Oriel Holding GmbH (LOT). The carrying amount of the investment,
which is being accounted for under the cost method, is $500,000 in the
accompanying balance sheet.
The Company has an investment of less than 20% in Andor Technology
Limited. The carrying amount of the investment, which is being accounted for
under the cost method, is $84,000 in the accompanying balance sheet. Prior to
October 1996, the Company owned approximately 51% of Andor, and Andor's results
were consolidated with those of the Company. During the third quarter of 1996,
the Company reduced its ownership interest in Andor in a transaction with
Andor's other stockholders. In consideration for the sale of a portion of its
interest in Andor, the Company received approximately $159,000 in cash and a
$147,000 principal amount 8% note, which was paid in September 1997. Andor's
results were not material to the Company's results of operations.
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 $1,107,000 and $718,000 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 companies 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 subsidiary 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.
Foreign currency transaction gains and losses are included in the accompanying
statement of income and are not material for the three years presented.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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, net, which represents foreign currency translation
adjustments, reported as a component of shareholders' investment in the
accompanying balance sheet. At year-end 1998 and 1997, the balance of
accumulated other comprehensive items represents the Company's cumulative
translation adjustment.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, note payable, accounts payable, due to Thermo
Electron and affiliated companies, and long-term obligations due to Thermo
Electron and Thermo Optek. The Company's long-term obligations (Note 8) bear
interest at a variable market rate and, therefore, the carrying amounts
approximate fair value. The carrying amounts of the Company's remaining
financial instruments approximate fair value due to their short-term nature.
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. Acquisitions
In August 1997, the Company acquired Hilger, a manufacturer of crystals
used for X-ray scintillation and infrared spectroscopy, from Thermo Optek for
the assumption of the short-term obligation discussed in Note 8. Because the
Company and Hilger were deemed for accounting purposes to be under control of
their common owner, Thermo Optek, the transaction has been accounted for at
historical cost in a manner similar to a pooling of interests. Accordingly, the
results of operations of Hilger are included for all periods presented.
In July 1997, the Company acquired the assets of Centronic, Inc. (now
called Centro Vision, Inc.), a manufacturer of silicon photodiodes, for
$3,800,000 in cash. The cost of this acquisition exceeded the estimated fair
market value of the acquired net assets by $2,307,000. To finance this
acquisition, the Company borrowed $3,800,000 from Thermo Electron (Note 8).
In February 1997, the Company acquired all the outstanding stock of Laser
Science, Inc. (LSI) for $3,600,000 in cash. LSI is a manufacturer of nitrogen
and tunable dye lasers as well as pulsed CO(2) lasers for industry, medicine,
education, and defense. The cost of this acquisition exceeded the estimated fair
market value of the acquired net assets by $2,836,000. To finance this
acquisition, the Company borrowed $3,600,000 from Thermo Optek (Note 8). In
addition, the Company borrowed an additional $347,000 from Thermo Optek to fund
certain property additions made in connection with the acquisition of LSI (Note
8).
In February 1996, the Company acquired Oriel Instruments Corporation, a
manufacturer and distributor of photonics components and instruments, for
$11,798,000 in cash and the assumption of $731,000 in debt, and the assets of
Corion Corporation, a manufacturer of commercial optical filters, for $5,072,000
in cash. The cost of Oriel and Corion exceeded the estimated fair market value
of the acquired net assets by $4,736,000 and $2,056,000, respectively.
These acquisitions, except for Hilger, have been accounted for using the
purchase method of accounting, and their results of operations have been
included in the accompanying financial statements from the respective dates of
acquisition.
11
<PAGE>
2. Acquisitions (continued)
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. A summary of the changes in accrued acquisition expenses is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- --------------
Balance at December 30, 1995 $ - $ 80 $ 20 $ 100
Reserves established 286 460 - 746
Usage (150) (328) (3) (481)
Decrease due to finalization of (61) - - (61)
-------- -------- -------- --------
restructuring plan, recorded as a
decrease to cost in excess of net
assets of acquired companies
Balance at December 28, 1996 75 212 17 304
Reserves established 325 25 75 425
Usage (102) (96) (17) (215)
Decrease due to finalization of (46) - - (46)
-------- -------- -------- --------
restructuring plan, recorded as a
decrease to cost in excess of net
assets of acquired companies
Balance at January 3, 1998 252 141 75 468
Usage (97) (125) (49) (271)
Decrease due to finalization of (96) (10) (26) (132)
-------- -------- -------- --------
restructuring plan, recorded as a
decrease to cost in excess of net
assets of acquired companies
Balance at January 2, 1999 $ 59 $ 6 $ - $ 65
======== ======== ======== ========
</TABLE>
Accrued acquisition expenses are included in other accrued expenses in the
accompanying balance sheet.
Based on unaudited data, the following table presents selected financial
information for the Company and the businesses acquired on a pro forma basis,
assuming the Company, Centro Vision, LSI, Oriel, and Corion had been combined
since the beginning of 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands except per share amounts) 1997 1996
- ------------------------------------------------------------------------------ -------- --------- --------
Revenues $ 42,944 $43,428
Net Income 2,209 527
Basic and Diluted Earnings per Share .32 .08
</TABLE>
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had these acquisitions been made
at the beginning of 1996.
12
<PAGE>
1. Restructuring and Related Costs
During 1998, the Company recorded restructuring and related costs of
$2,207,000. Restructuring costs of $40,000, which were accounted for in
accordance with EITF 94-3, related to severance costs for 10 employees across
several functions, all of whom were terminated in 1998. The Company also
recorded an inventory write-down of $2,167,000. The inventory write-down is
included in cost of revenues in the accompanying statement of income and
primarily relates to reserves for discontinued products and inventories
considered excess based on current customer demand. In addition, the write-down
includes a provision for yields from outsourced wafer production that were lower
than had been anticipated.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has a stock-based compensation plan for its key employees,
directors, and others, which permits 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 this plan are determined by
the Board Committee. As of year-end 1998, only nonqualified stock options have
been awarded under this plan. 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 stock on the date of grant. In addition to 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 Thermo
Instrument.
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 127,000 shares at a weighted average exercise price of $7.50 per share
elected to participate in this exchange and, as a result, received options to
purchase 64,000 shares of Company common stock at $2.29 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.
13
<PAGE>
4. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 1997
------------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Price Price
Number Number
of of
(Shares in thousands) Shares Shares
- ------------------------------------------------------------------ --------- ---------- -------- ----------
Options Outstanding, Beginning of Year 303 $7.50 - $ -
Granted 281 3.06 303 7.50
Forfeited (27) 7.50 - -
Canceled due to exchange (127) 7.50 - -
----- ----
Options Outstanding, End of Year 430 $4.59 303 $7.50
===== ===== ==== =====
Options Exercisable 430 $4.59 - $ -
===== ===== ==== =====
Options Available for Grant 270 397
===== ====
</TABLE>
A summary of the status of the Company's stock options at January 2, 1999,
is:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
------------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ---------------------------------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
$2.29 - $3.59 256 5.3 years $2.62
6.21 - 7.50 174 5.9 years 7.48
---
$2.29 - $7.50 430 5.8 years $4.59
===
</TABLE>
Employee Stock Purchase Program
Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase program sponsored by the Company
and Thermo Electron, under which employees can purchase shares of the Company's
and Thermo Electron's common stock. Prior to November 1, 1998, the program was
sponsored by Thermo Instrument 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 period, 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. No shares have been issued under this
program.
14
<PAGE>
4. Employee Benefit Plans (continued)
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>
(In thousands except per share amounts) 1998 1997
- ---------------------------------------------------------------------------------- ----------- -----------
Net Income:
As reported $ 221 $2,348
Pro forma 30 2,270
Basic and Diluted Earnings per Share:
As reported .03 .34
Pro forma - .33
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 $0.91 and
$2.69 in 1998 and 1997, 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
- ---------------------------------------------------------------------------------- ----------- -----------
Volatility 30% 28%
Risk-free Interest Rate 4.7% 6.0%
Expected Life of Options 3.5 years 4.9 years
</TABLE>
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.
401(k) Savings Plans
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 $320,000, $212,000, and
$182,000 in 1998, 1997, and 1996, respectively.
5. Common Stock
In December 1997, the Company sold 1,139,491 shares of its common stock in
an initial public offering at $7.50 per share for net proceeds of $7,033,000.
At January 2, 1999, the Company had reserved 775,000 unissued shares of
its common stock for possible issuance under stock-based compensation plans.
15
<PAGE>
6. Income Taxes
<TABLE>
<CAPTION>
The components of income before provision for income taxes are:
<S> <C> <C> <C>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Domestic $ 238 $3,719 $2,186
Foreign 250 330 237
------ ------ ------
$ 488 $4,049 $2,423
====== ====== ======
The components of the provision for income taxes are:
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Currently Payable (Receivable):
Federal $ (65) $ 904 $ 895
State (60) 174 105
Foreign 83 109 84
------ ------ ------
(42) 1,187 1,084
------ ------ ------
Net Deferred (Prepaid):
Federal 245 424 (71)
State 64 90 (8)
------ ------ -------
309 514 (79)
------ ------ ------
$ 267 $1,701 $1,005
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $8,000 of
such benefits that have been allocated to capital in excess of par value in
1998.
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 34% to income before provision for income taxes due to:
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------- ----------- ----------- -----------
Provision for Income Taxes at Statutory Rate $ 166 $1,377 $ 824
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 3 174 64
Foreign tax rate and tax loss differential (2) 3 3
Tax benefit of foreign sales corporation (60) (49) (5)
Amortization of cost in excess of net assets of acquired 98 103 80
companies
Nondeductible expenses and other 62 93 39
------ ------ ------
$ 267 $1,701 $1,005
====== ====== ======
16
<PAGE>
6. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of:
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------- ---------- ----------
Prepaid Income Taxes:
Tax loss carryforwards $ 258 $ 258
Reserves and accruals 291 822
Inventory basis difference 895 424
Accrued compensation 295 159
Other, net 1 -
------ ------
1,740 1,663
Less: Valuation allowance 258 258
------ ------
$1,482 $1,405
====== ======
Deferred Income Taxes:
Fixed and intangible assets $ 154 $ 22
Other, net 63 -
------ ------
$ 217 $ 22
====== ======
</TABLE>
LSI has $737,000 of federal tax net loss carryforwards, which will begin
to expire in 1999 and are subject to the limitations of U.S. Internal Revenue
Code Section 382, which limits the utilization of the net operating loss
carryforwards to a deduction of approximately $197,000 per year with any unused
portion of this annual limitation carried forward to future years. The valuation
allowance relates to uncertainty surrounding the utilization of this
carryforward.
A provision has not been made for U.S. or additional foreign taxes on
$1,165,000 of undistributed earnings of the Company's foreign subsidiary that
could be subject to taxation if remitted to the U.S. because the Company plans
to keep this amount permanently reinvested overseas.
7. Commitments
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $681,000, $659,000, and $438,000 in
1998, 1997, and 1996, respectively. Future minimum payments due under
noncancelable operating leases at January 2, 1999, are $538,000 in 1999;
$553,000 in 2000; $522,000 in 2001; $531,000 in 2002; $573,000 in 2003; and
$1,700,000 in 2004 and thereafter. Total future minimum lease payments are
$4,417,000. The Company also has operating lease arrangements with related
parties as discussed in Note 8.
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
$304,000, $397,000, and $304,000 in 1998, 1997, and 1996, respectively. The fee
is reviewed and adjusted annually by mutual agreement of the parties. 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. 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). 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.
Operating Leases
In addition to the operating leases described in Note 7, the Company
leases certain office and manufacturing space on a monthly basis from Thermo
Optek and Thermo Instrument. The accompanying statement of income includes
expenses from these arrangements of $262,000, $238,000, and $297,000 in 1998,
1997, and 1996, respectively. Prior to January 1, 1997, rent expense under these
arrangements was determined as the Company's allocated share of total occupancy
expenses. Subsequently, the Company pays fixed monthly rates. In 1999, the
Company plans to purchase the building previously leased from Thermo Optek for
$165,000 in cash. At January 2, 1999, future minimum payments due under the
lease with Thermo Instrument, which expires in January 2006, are $220,000 in
1999; $230,000 in 2000; $236,000 in 2001; $246,000 in 2002; $256,000 in 2003;
and $542,000 in 2004 and thereafter. Total future minimum lease payments are
$1,730,000.
Short-term Obligation
Note payable in the accompanying balance sheet represents short-term bank
borrowings at the Company's foreign subsidiary. Prior to 1998, the Company had
an arrangement under which it could borrow on a bank line of credit arrangement
held by Thermo Optek. In 1998, the Company established its own 1,000,000 British
pounds sterling line of credit facility. The interest rate for these borrowings
was 7.25% and 8.00% at year-end 1998 and 1997, respectively. Availability to the
Company under this line of credit totaled $588,000 as of January 2, 1999.
Borrowings under the line of credit are guaranteed by Thermo Electron.
Long-term Obligations
The Company borrowed funds from Thermo Electron and Thermo Optek to
finance the acquisitions of certain companies (Note 2). In connection with the
July 1997 acquisition of Centro Vision, the Company borrowed $3,800,000 from
Thermo Electron pursuant to a promissory note due July 2000. In connection with
the February 1997 acquisition of LSI and certain related property additions, the
Company borrowed $3,947,000 from Thermo Optek pursuant to promissory notes due
February 2000. These notes bear interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each quarter. The
interest rate for the notes at year-end 1998 and 1997 was 5.36% and 5.76%,
respectively.
18
<PAGE>
8. Related-party Transactions (continued)
Distribution Agreement with LOT
The Company has a distribution agreement with LOT which allows LOT to be
Oriel's primary distributor in certain parts of Europe. Sales to LOT included in
the accompanying 1998, 1997, and 1996 statements of income were $1,982,000,
$2,122,000, and $1,952,000, respectively. Accounts receivable in the
accompanying balance sheet includes $405,000, and $608,000 due from LOT at
year-end 1998 and 1997, respectively.
Trademark License and Royalty Agreement
In September 1996, the Company agreed to license the use of a trademark to
Andor in exchange for a fee equal to the greater of 3.3% of the net sales
revenue, as defined, from sales of products sold under the trade name, or 10,000
British pounds sterling. In 1998, 1997, and 1996, the Company recorded revenues
of $81,000, $91,000, and $15,000, respectively, under this agreement.
Contract Research and Development
In 1997 and 1996, the Company recorded revenues of $80,000 and $188,000,
respectively, from Thermo Optek for contract research and development services
related to components used in certain products manufactured by Thermo Optek. No
such revenues were recorded in 1998.
Other Related-party Transactions
The Company purchases and sells products in the ordinary course of
business with other companies affiliated with Thermo Instrument. Sales of
products to such affiliated companies totaled $1,689,000, $2,013,000, and
$1,786,000 in 1998, 1997, and 1996, respectively. Purchases of products from
such affiliated companies totaled $162,000, $443,000, and $971,000 in 1998,
1997, 1996, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
9. Business Segment and Geographical Information
The Company organizes and manages its business by individual functional
operating entity. The Company's businesses operate in three segments: Optically
Based Instruments and Lasers, Optical Components, and Sensors and Imaging
Systems. In classifying operational entities into a particular segment, the
Company aggregates businesses with similar economic characteristics, products
and services, production processes, customers, and methods of distribution.
The Optically Based Instruments and Lasers segment, which consists of the
Company's Oriel, LSI, and Thermo Vision Colorado subsidiaries, manufactures
low-cost analyzers that combine optical components and signal processors used
primarily in research, analytical, and process applications such as
semiconductor photolithography. In addition, this segment manufactures pulsed
nitrogen lasers, nitrogen laser accessories, pulsed CO(2) lasers, and
autosamplers sold as accessories to analytical instruments.
The Optical Components segment, which consists of the Company's Corion
division and Hilger subsidiary, manufactures a variety of optical components,
including filters and crystals. The Company's optical components are used
primarily in medical and analytical instruments and X-ray baggage screening for
security purposes.
The Sensors and Imaging Systems segment, which consists of the Company's
CentroVision and CIDTEC subsidiaries, manufactures sensors that are primarily
used by manufacturers of medical diagnostic and analytical instruments. This
segment also designs and markets charge-injection device (CID) sensors and CID
camera systems.
19
<PAGE>
9. Business Segment and Geographical Information (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------ -------- --------- --------
Business Segment Information
Revenues:
Optically Based Instruments and Lasers $23,154 $ 26,203 $21,125
Optical Components 8,152 8,306 6,562
Sensors and Imaging Systems 6,660 5,185 2,747
------- -------- -------
$37,966 $ 39,694 $30,434
======= ======== =======
Income Before Provision for Income Taxes:
Optically Based Instruments and Lasers $ 2,657 $ 3,753 $ 1,596
Optical Components 1,029 1,121 621
Sensors and Imaging Systems (1,992) 193 333
Corporate (a) (1,140) (732) (83)
------- -------- -------
Total operating income 554 4,335 2,467
Interest expense, net (66) (286) (44)
------- -------- -------
$ 488 $ 4,049 $ 2,423
======= ======== =======
Total Assets:
Optically Based Instruments and Lasers $18,900 $ 20,680 $16,509
Optical Components 7,743 7,859 7,334
Sensors and Imaging Systems 9,414 9,563 4,510
Corporate (b) 10,223 9,299 9
------- -------- -------
$46,280 $ 47,401 $28,362
======= ======== =======
Depreciation and Amortization:
Optically Based Instruments and Lasers $ 718 $ 911 $ 776
Optical Components 452 644 293
Sensors and Imaging Systems 391 292 182
Corporate 7 2 -
------- -------- -------
$ 1,568 $ 1,849 $ 1,251
======= ======== =======
Capital Expenditures:
Optically Based Instruments and Lasers $ 1,342 $ 690 $ 317
Optical Components 395 423 1,073
Sensors and Imaging Systems 519 401 49
Corporate 14 13 11
------- -------- -------
$ 2,270 $ 1,527 $ 1,450
======= ======== =======
20
<PAGE>
9. Business Segment and Geographical Information (continued)
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------ -------- --------- --------
Geographical Information
Revenues (c):
United States $35,532 $ 36,954 $28,780
United Kingdom 2,434 2,740 1,654
------- -------- -------
$37,966 $ 39,694 $30,434
======= ======== =======
Long-lived Assets (d):
United States $ 5,282 $ 4,290 $ 3,372
United Kingdom 573 467 529
------- -------- -------
$ 5,855 $4,757 $ 3,901
======= ======== =======
Export Revenues Included in United States Revenues Above (e) $10,544 $ 10,811 $ 9,487
======= ======== =======
(a) Primarily corporate general and administrative expenses.
(a) Primarily cash and cash equivalents.
(a) Revenues are attributed to countries based on selling location.
(a) Includes property, plant, and equipment, net and other long-term tangible assets.
(a) In general, export revenues are denominated in U.S. dollars.
10. 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 $ 221 $ 2,348 $ 1,418
------- -------- -------
Weighted Average Shares 8,048 6,983 6,909
------- -------- -------
Basic Earnings per Share $ .03 $ .34 $ .21
======= ======== =======
Diluted
Net Income $ 221 $ 2,348 $ 1,418
------- -------- -------
Weighted Average Shares 8,048 6,983 6,909
Effect of Stock Options 1 2 -
------- -------- -------
Weighted Average Shares, as Adjusted 8,049 6,985 6,909
------- -------- -------
Diluted Earnings per Share $ .03 $ .34 $ .21
======= ======== =======
</TABLE>
The computation of diluted earnings per share for 1998 excludes the effect
of assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of January 2, 1999, there were 366,100 of such options
outstanding, with exercise prices ranging from $2.73 to $7.50 per share.
21
<PAGE>
11. Unaudited Quarterly Information
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(In thousands except per share amounts)
1998 First Second Third(a) Fourth
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Revenues $10,529 $10,224 $ 9,046 $ 8,167
Gross Profit 4,544 4,510 1,718 3,425
Net Income (Loss) 689 607 (1,079) 4
Basic and Diluted Earnings (Loss) per Share .09 .08 (.13) -
1997 First(b) Second Third(c) Fourth
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Revenues $ 8,585 $ 9,225 $10,635 $11,249
Gross Profit 3,759 4,089 4,806 4,889
Net Income 528 566 608 646
Basic and Diluted Earnings per Share .08 .08 .09 .09
(a) Reflects a $2.2 million pretax charge for an inventory write-down and
restructuring costs. (b) Reflects the February 1997 acquisition of LSI.
(c) Reflects the July 1997 acquisition of Centro Vision.
</TABLE>
22
<PAGE>
Thermo Vision Corporation 1998 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Vision Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Vision Corporation (a Delaware corporation and 78%-owned subsidiary of Thermo
Instrument Systems Inc.) and 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
Vision Corporation and 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 16, 1999
23
<PAGE>
Thermo Vision Corporation 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, manufactures, and markets a diverse array of
photonics products - light-based technologies that are embedded as "enabling
technologies" in a wide range of applications, including medical diagnostic and
analytical instrumentation; semiconductor manufacturing; X-ray imaging; and
physics, chemistry, and biology research.
The Company organizes and manages its business by individual functional
operating entity. The Company's businesses operate in three segments: Optically
Based Instruments and Lasers, Optical Components, and Sensors and Imaging
Systems. The Optically Based Instruments and Lasers segment, which consists of
the Company's Oriel Corporation, Laser Science, Inc. (LSI), and Thermo Vision
Colorado subsidiaries, manufactures low-cost analyzers that combine optical
components and signal processors used primarily in research, analytical, and
process applications such as semiconductor photolithography. In addition, this
segment manufactures pulsed nitrogen lasers, nitrogen laser accessories, pulsed
CO(2) lasers, and autosamplers sold as accessories to analytical instruments.
The Optical Components segment, which consists of the Company's Corion
division and Hilger Crystals subsidiary, manufactures a variety of optical
components, including filters and crystals. The Company's optical components are
used primarily in medical and analytical instruments and X-ray baggage screening
for security purposes.
The Sensors and Imaging Systems segment, which consists of the Company's
CentroVision, Inc. and CID Technologies Inc. (CIDTEC) subsidiaries, manufactures
sensors that are primarily used by manufacturers of medical diagnostic and
analytical instruments. This segment also designs and markets charge-injection
device (CID) sensors and CID camera systems.
Approximately 7% of the Company's 1998 revenues originated outside the
U.S. and approximately 28% of the Company's 1998 revenues were exports from the
U.S. Revenues originating outside the U.S. represent revenues of Hilger.
Hilger's operations are located in the United Kingdom and principally sell in
the local currency. Exports from the Company's U.S. operations are denominated
in U.S. dollars. 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.
24
<PAGE>
Results of Operations
1998 Compared With 1997
Revenues decreased to $38.0 million in 1998 from $39.7 million in 1997.
Revenues increased $3.2 million due to the inclusion of revenues for the full
period from Centro Vision, acquired in July 1997, and LSI, acquired in February
1997. Excluding the impact of acquisitions, revenues decreased $4.9 million.
Excluding acquisitions, Optically Based Instruments and Lasers segment revenues
decreased $3.8 million, primarily as a result of a slowdown in the semiconductor
industry during 1998 and the economic crisis in Asia. Excluding acquisitions,
Sensors and Imaging Systems segment revenues decreased $0.9 million, primarily
due to the loss of a customer. Sales to this customer in 1997 were approximately
$0.8 million. There were no sales to this customer in 1998.
The gross profit margin decreased to 37% in 1998 from 44% in 1997,
primarily due to an inventory write-down of $2.2 million (Note 3). The Sensors
and Imaging Systems segment recorded an inventory write-down of $1.6 million,
which primarily relates to a provision for yields from outsourced wafer
production that were lower than had been anticipated and inventories considered
to be in excess based on current customer demand. The Optically Based
Instruments and Lasers segment recorded an inventory write-down of $0.6 million,
which primarily relates to reserves for discontinued products and inventories
considered to be in excess based on current customer demand.
Exclusive of the inventory write-down, the gross profit margin was 43% in
1998, compared with 44% in 1997. The decrease was primarily due to higher cost
of sales in the Sensors and Imaging Systems segment as a result of initial
production startup costs related to CIDTEC's dental imager.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in 1998 from 23% in 1997, primarily due to public reporting
costs incurred in 1998 that were not incurred in 1997. Research and development
expenses were relatively unchanged at $4.2 million in 1998 and $4.1 million in
1997.
During the third quarter of 1998, the Optically Based Instruments segment
recorded restructuring costs of $40,000 related to the termination of 10
employees (Note 3).
As a result of the inventory write-down and decline in sales, the Sensors
and Imaging Systems segment incurred an operating loss in 1998 compared with
profitable operations in 1997.
Interest income increased to $0.5 million in 1998 from $41,000 in 1997,
primarily due to higher average invested balances as a result of proceeds from
the Company's December 1997 initial public offering. Related-party interest
expense increased to $0.4 million in 1998 from $0.3 million in 1997, primarily
due to the July 1997 issuance of a $3.8 million note payable to Thermo Electron
Corporation for the acquisition of Centro Vision.
The effective tax rate was 55% in 1998, compared with 42% in 1997. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of nondeductible amortization of cost in excess of net assets of
acquired companies and state income taxes. The effective tax rate increased
primarily due to the higher relative impact of nondeductible amortization of
cost in excess of net assets of acquired companies.
1997 Compared With 1996
Revenues increased 30% to $39.7 million in 1997 from $30.4 million in
1996. Revenues increased $9.2 million due to the inclusion of revenues from LSI,
acquired in February 1997, and Centro Vision, acquired in July 1997, and the
inclusion of revenues for the full year from Oriel and Corion, acquired in
February 1996. Optical Components segment revenues increased, primarily due to
shipments under Hilger's Stanford Linear Accelerator contract, which commenced
in the second quarter of 1996. This increase was offset in part by lower
Optically Based Instruments segment revenues, primarily because the Company is
no longer consolidating the results of Andor Technology Limited (Note 1).
The gross profit margin was unchanged at 44% in 1997 and 1996.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 23% in 1997 from 24% in 1996, primarily due to lower selling and
marketing expenses in the Optically Based Instruments segment. Research and
development expenses increased to $4.1 million in 1997 from $3.5 million in
1996, primarily due to the inclusion of research and development expenses at LSI
and Centro Vision.
25
<PAGE>
1997 Compared With 1996 (continued)
Interest expense of $0.3 million in 1997 primarily represents interest
incurred on the $3.6 million and $3.8 million promissory notes issued to Thermo
Optek and Thermo Electron, respectively, for the acquisitions of LSI and Centro
Vision, respectively.
The effective tax rate was 42% in 1997 and 41% in 1996. The effective tax
rates exceeded the statutory federal income tax rate primarily due to the impact
of nondeductible amortization of cost in excess of net assets of acquired
companies and state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $19.5 million at January 2, 1999,
compared with $19.6 million at January 3, 1998. Included in working capital are
cash and cash equivalents of $9.5 million at January 2, 1999, compared with $9.6
million at January 3, 1998. In 1998, operating activities provided $2.6 million
of cash. A decrease in accounts receivable provided $1.5 million of cash,
primarily as a result of lower sales volume in the Optically Based Instruments
and Lasers segment. The Company used cash of $0.9 million to fund an increase in
inventories, primarily to support increased demand for sensors in the Sensors
and Imaging Systems segment and for Optical Components segment raw material
requirements. The Company used $1.5 million to reduce accounts payable in each
of its segments.
During 1998, the Company's investing activities used $2.5 million of cash.
The Company expended $2.3 million on purchases of property, plant, and equipment
during 1998, including leasehold improvements at Oriel's new facility, and plans
to make capital expenditures of approximately $1.7 million on such purchases in
1999, including the purchase by Hilger of a building for $165,000 in cash.
The Company's financing activities used $0.2 million of cash during 1998.
In January 1999, the Company signed a nonbinding letter of intent to
acquire the assets of the non-telecommunications optical filter business of
Corning OCA Corporation (OCA) for $5.6 million. The proposed acquisition is
subject to certain conditions including completion of due diligence and approval
by the boards of directors of the Company and OCA. The final terms of this
acquisition have not been determined and there can be no assurance that it will
be completed.
On February 1, 1999, the Company acquired the assets, subject to certain
liabilities, of Opticon Corporation, a manufacturer of replicated optical
components and assemblies, for $2.0 million in cash, subject to a post-closing
adjustment. To date, no information has been gathered that would cause the
Company to believe that the post-closing adjustment will be material. This
acquisition has been accounted for using the purchase method of accounting and
its results will be included in the Company's results from the date of
acquisition.
Hilger, the Company's foreign subsidiary, has a credit facility
arrangement for working capital needs (Note 8). The Company may require
significant amounts of cash for any acquisition of complementary businesses. The
Company expects that it will finance any such acquisitions through internal
funds and/or short- or long-term borrowings from Thermo Instrument or Thermo
Electron, although it has no agreement with these companies to ensure that
additional funds will be available on acceptable terms or at all. The Company
believes its existing resources are sufficient to meet the capital requirements
of its existing businesses for the foreseeable future.
26
<PAGE>
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 this risk through its
regular operating and financing activities.
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 $0.1 million reduction of shareholders'
investment.
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 70% 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. Very few of the Company's products interface with computers and the
Company believes that all of its material products are year 2000 compliant.
However, there can be no assurance that the Company has identified all of the
year 2000 problems with its current products.
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, vendors, and customers. The Company has started to
follow up and monitor the year 2000 compliant progress of significant suppliers,
vendors, and customers that indicate that they are not year 2000 compliant or
that do not respond to the Company's questionnaires. The Company has completed
the majority of its assessment of third-party risk, and expects to be
substantially complete by July 1999.
27
<PAGE>
Contingency Plans
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.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
were funded from working capital. 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 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 Technological Change, Obsolescence, and the
Development and Acceptance of New Products. The market for the Company's
products is characterized by rapid and significant technological change and
evolving industry standards. New product introductions responsive to these
factors require significant planning, design, development, and testing at the
technological, product, and manufacturing process levels, and may render
existing products and technologies uncompetitive or obsolete. There can be no
assurance that the Company's products will not become uncompetitive or obsolete.
In addition, industry acceptance of new applications for the Company's
technologies developed by the Company may be slow to develop due to, among other
things, the general unfamiliarity of users with new applications and
technologies. There can be no assurance that these factors will not have a
material adverse effect on the Company's results of operations, financial
condition, or business.
Risks Associated with Acquisition Strategy; No Assurance of a Successful
Acquisition Strategy. One of the Company's growth strategies is to supplement
its internal growth with the acquisition of businesses and technologies that
complement or augment the Company's existing product lines. Since February 1996,
the Company has acquired five businesses from unrelated third parties that
constitute the bulk of its operations. Certain businesses that the Company may
seek to acquire in the future may be marginally profitable or unprofitable. In
order for any acquired businesses to achieve the level of profitability desired
by the Company, the Company must successfully reduce expenses and improve market
penetration. No assurance can be given that the Company will be successful in
this regard. In many instances, acquisitions by the Company will result in the
Company recording cost in excess of net assets of acquired companies on its
balance sheet. Such cost in excess of net assets of acquired companies will be
amortized as a noncash expense over specified periods. In addition, promising
acquisitions are difficult to identify and complete for a number of reasons,
including competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. These factors may adversely affect
both the availability and price of prospective acquisition targets. There can be
no assurance that the Company will be able to complete pending or future
acquisitions. In order to finance any acquisitions, it may be necessary for the
Company to raise additional funds through additional public or private
financings. Any equity or debt financing, if available at all, may be on terms
which are not favorable to the Company and may result in dilution to the
Company's shareholders. In the past, a significant portion of the funding for
the Company's acquisitions has come from Thermo Optek, Thermo Instrument, or
Thermo Electron. Although Thermo Electron and Thermo Instrument regularly fund
acquisitions by their respective wholly and partially owned subsidiaries,
neither Thermo Electron nor Thermo Instrument has committed to fund any future
acquisitions by the Company. There can be no assurance that the Company will be
able to secure any such financing or that these factors will not have a material
adverse effect on the Company's results of operations, financial condition, or
business.
Intense 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 its products
include product performance, price, reliability, and customer service. The
Company's principal competitors include Optical Coating Laboratory, Inc.;
Newport Corporation; Coherent, Inc.; the Bicron Business Unit of Saint-Gobain
Industrial Ceramics, Inc.; UDT Sensors, Inc., an Opto-Sensors Company; Dalsa
Corporation; Cohu, Inc.; Roper Scientific, Inc.; Acton Research Corporation; the
ISA unit of Horiba Instruments, Inc.; and Hamamatsu Corporation, a unit of
Hamamatsu Photonic KK . Certain of these companies and certain of the Company's
other competitors have substantially greater financial, marketing, and other
resources 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 the
Company. In addition, competition could increase if
29
<PAGE>
new companies enter the market or if existing competitors expand their product
lines or intensify efforts within existing product lines. There can be no
assurance that the Company's current products, products under development, or
ability to discover new technologies will be sufficient to enable it to compete
effectively with its competitors. In addition, there can be no assurance that
these factors will not have a material adverse effect on the Company's results
of operations, financial condition, or business.
Possible Adverse Impact of Significant International Sales. Sales outside
the United States account for a significant portion of the Company's revenues,
and the Company expects that international sales will continue to account for a
significant portion of its revenues in the future. Sales to customers in foreign
countries 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 could impose 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 provided by the Company in
foreign markets where payment for the Company's products 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 results of operations, financial condition, or
business. A portion of the Company's revenues is derived from exports to Asia.
Certain countries in Asia are experiencing a severe economic crisis, which has
been characterized by sharply reduced economic activity and liquidity, highly
volatile foreign-currency-exchange and interest rates, and unstable stock
markets. The Company's export sales to Asia may continue to be adversely
affected by the unstable economic conditions there, which may continue to
adversely affect the Company's results of operations, financial condition, or
business.
Risks Associated with Suppliers and Vendors. Historically the Company has
relied on a single vendor to process the silicon wafers used in its CID sensors
and silicon photodiodes. In 1998, the Company experienced problems with this
fabricator when the processed silicon wafers did not meet anticipated process
yields. The lower yields hampered the Company's ability to meet orders for its
products. The Company qualified and has begun purchasing processed silicon
wafers for certain of the Company's products from a second fabricator and has
started the process of qualifying a third fabricator to process silicon wafers
for certain of the Company's other products. There can be no assurance that
wafers obtained from these other suppliers will not exhibit similar yield
problems or that other issues affecting these suppliers will not adversely
impact the adequate supply of wafers to the Company. The Company has and
continues to work with the original fabricator to increase the yields of the
processed silicon wafers. The original fabricator was recently acquired by a
third party that the Company believes will provide additional resources and
commitment necessary to continue to improve yields. There can be no assurance
that the wafers supplied by this original fabricator will meet design
specifications or that other issues affecting this supplier will not adversely
impact the Company.
Risks Associated with Protection, Defense, and Use of Intellectual
Property. The Company holds a number of patents relating to various aspects of
its products and believes that proprietary technical know-how is critical to
many of its products. Proprietary rights relating to the Company's products are
protected from unauthorized use by third parties only to the extent that they
are covered by valid and enforceable patents or are maintained in confidence as
trade secrets. There can be no assurance that patents will issue from any
pending or future patent applications owned by or licensed to the Company or
that the claims allowed under any issued patents will be sufficiently broad to
protect the Company's technology. In the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the Company's
products or gain access to its trade secrets and know-how. Proceedings initiated
by the Company to protect its proprietary rights could result in substantial
costs to the Company. There can be no assurance that competitors of the Company
will not initiate litigation to challenge the validity of the Company's patents
or that they will not use their resources to design comparable products that do
not infringe the Company's patents. There may
30
<PAGE>
also be pending or issued patents held by parties not affiliated with the
Company that relate to the Company's products or technologies. The Company may
need to acquire licenses to, or contest the validity of, any such patents. There
can be no assurance that any license required under any such patent would be
made available on acceptable terms, if at all, or that the Company would prevail
in any such contest. The Company could incur substantial costs in defending
itself in suits brought against it or in suits in which the Company may assert
its patent rights against others. If the outcome of any such litigation is
unfavorable to the Company, the Company's results of operations, financial
condition, and business could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks to
protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.
Dependence on Semiconductor Industry; Industry Volatility. A significant
portion of the Company's total revenues is attributable to the sale of products
and related services to customers in the semiconductor industry. The
semiconductor industry has historically been cyclical and is characterized by
sudden and sharp changes in supply and demand. Demand for the Company's products
and services within the semiconductor industry is dependent upon, among other
factors, the level of capital spending by semiconductor companies. The
semiconductor industry is currently experiencing a downturn in demand for its
products as a result of the current economic crisis in Asia, excess
manufacturing capacity, and slowdowns in sales of high-end personal computers.
Many semiconductor manufacturers have delayed construction or expansion of their
production facilities in response to the foregoing conditions. These conditions
have materially adversely affected the Company's business and results of
operations. Further decreases in semiconductor activities could continue to
adversely affect the demand for the Company's products and related services,
which could continue to materially adversely affect the Company's results of
operations, financial condition, and business.
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 results of operations, financial condition, and business in amounts
that cannot be reasonably estimated at this time.
31
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Information
<S> <C> <C> <C> <C> <C>
(In thousands except per share amounts) 1998(a) 1997(b) 1996(c) 1995 1994
- ----------------------------------------------------------- --------- -------- --------- --------- --------
Statement of Income Data
Revenues $ 37,966 $39,694 $ 30,434 $ 6,026 $ 4,242
Net Income 221 2,348 1,418 147 146
Basic and Diluted Earnings per Share .03 .34 .21 .02 .02
Balance Sheet Data
Working Capital $ 19,455 $19,639 $ 5,601 $ 570 $ (359)
Total Assets 46,280 47,401 28,362 6,778 6,776
Long-term Obligations 7,747 7,747 - - -
Shareholders' Investment 32,179 32,055 20,252 4,697 4,083
(a) Reflects a $2.2 million pretax charge for an inventory write-down and
restructuring costs. (b) Reflects the Company's December 1997 initial public
offering of common stock and the July 1997 and
February 1997 acquisitions of Centro Vision and LSI, respectively.
(c) Reflects the February 1996 acquisitions of Oriel and Corion.
</TABLE>
32
<PAGE>
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol VIZ. The following table sets forth the high and low sales prices of
the Company's common stock since December 10, 1997, the date the Company's
common stock began trading on that exchange, as reported in the consolidated
transaction reporting system.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 1997
------------------ -------------
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ---------- -----------
First $8 1/16 $5 5/8 $ - $ -
Second 7 5/8 6 13/16 - -
Third 7 1/8 2 11/16 - -
Fourth 3 3/16 2 1/16 8 1/8 7 1/2
</TABLE>
As of January 29, 1999, the Company had 85 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 $3 per share.
Shareholder Services
Shareholders of Thermo Vision Corporation who desire information about the
Company are invited to contact the Investor Relations Department, Thermo Vision
Corporation, 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/viz1.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 Vision
Corporation, 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 11 a.m. at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts.
33
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
At February 28, 1999, Thermo Vision Corporation owned the following
companies:
Name State or Registrant's
Jurisdiction of % of
Incorporation Ownership
- ----------------------------------------------------------------------------
Centro Vision, Inc. Delaware 100%
CID Technologies Inc. New York 100%
Hilger Crystals Limited United Kingdom 100%
Laser Science, Inc. Delaware 100%
Oriel Instruments Delaware 100%
Corporation
Thermo Vision Opticon Delaware 100%
Corporation
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 16, 1999, included in or incorporated by
reference into Thermo Vision Corporation's Annual Report on Form 10-K for the
year ended January 2, 1999, into the Company's previously filed Registration
Statement No. 333-67873 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
VISION CORPORATION'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> 9,457
<SECURITIES> 0
<RECEIVABLES> 5,733
<ALLOWANCES> 246
<INVENTORY> 7,831
<CURRENT-ASSETS> 25,592
<PP&E> 5,855
<DEPRECIATION> 3,410
<TOTAL-ASSETS> 46,280
<CURRENT-LIABILITIES> 6,137
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 32,099
<TOTAL-LIABILITY-AND-EQUITY> 46,280
<SALES> 37,966
<TOTAL-REVENUES> 37,966
<CGS> 23,769
<TOTAL-COSTS> 23,769
<OTHER-EXPENSES> 4,233
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 521
<INCOME-PRETAX> 488
<INCOME-TAX> 267
<INCOME-CONTINUING> 221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
