-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HHvS/EGkKFGe8ebUfc2Aq6EmdVWD6a+FLOG+RW3Tdpw0kiC4JZsGZAMLT6msywrj LKfCzx5fZEPCLr49PpcW1w== 0001044864-99-000002.txt : 19990316 0001044864-99-000002.hdr.sgml : 19990316 ACCESSION NUMBER: 0001044864-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO VISION CORP CENTRAL INDEX KEY: 0001044864 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 043296594 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13391 FILM NUMBER: 99564853 BUSINESS ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: PO BOX 9046 CITY: WALTHANE STATE: MA ZIP: 02254 BUSINESS PHONE: 7816221000 MAIL ADDRESS: STREET 1: 8E FORGE PARKWAY CITY: FRANKLIN STATE: MA ZIP: 02038 10-K 1 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. 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. 2 (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. 3 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. 4 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 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 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 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. 8 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. 9 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. 10 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 11 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 12
SCHEDULE II THERMO VISION CORPORATION Valuation and Qualifying Accounts (In thousands) 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
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.
13 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). 14 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 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. EX-13 2 Exhibit 13 Thermo Vision Corporation Consolidated Financial Statements 1998
Thermo Vision Corporation 1998 Financial Statements Consolidated Statement of Income (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 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 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 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 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 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 ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 7 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 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:
(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 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 ====== ======
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 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 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:
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 ======== ======== ======== ========
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.
(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
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 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 4. Employee Benefit Plans (continued) A summary of the Company's stock option activity is:
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 ===== ====
A summary of the status of the Company's stock options at January 2, 1999, is:
Options Outstanding and Exercisable ------------------------------------------------------ Range of Exercise Prices Number Weighted Weighted of Average Average Shares Remaining Exercise (In thousands) Contractual Life Price - ---------------------------------------------- ------------------- -------------------- ------------------- $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 ===
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 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:
(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
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 6. Income Taxes
The components of income before provision for income taxes are: (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 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 ====== ======
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 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 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 9. Business Segment and Geographical Information (continued)
(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 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 ======= ======== =======
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 11. Unaudited Quarterly Information
(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.
22 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 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 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 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 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 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 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 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 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
Selected Financial Information (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.
32 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.
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
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 EX-21 3 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 EX-23 4 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 EX-27 5
5 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. 1,000 YEAR JAN-02-1999 JAN-02-1999 9,457 0 5,733 246 7,831 25,592 5,855 3,410 46,280 6,137 0 0 0 80 32,099 46,280 37,966 37,966 23,769 23,769 4,233 17 521 488 267 221 0 0 0 221 0.03 0.03
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