Item 1. Business
(a) General Development of Business
Thermo Sentron Inc. (the Company or the Registrant) designs, develops, manufactures, and sells high-speed precision-weighing and inspection equipment for industrial production and packaging lines. The Company serves two principal markets: packaged goods and bulk materials. The Company's products for the packaged-goods market include a broad line of checkweighing equipment and metal detectors that can be integrated at various stages in production lines for process control and quality assurance. The Company's bulk-materials product line includes conveyor-belt scales, solid level-measurement and conveyor-monitoring systems, and sampling systems.
The Company was incorporated in Delaware in November 1995 as a wholly owned subsidiary of Thermedics Inc. (Thermedics), a publicly traded subsidiary of Thermo Electron Corporation (Thermo Electron). The Company was operated as Ramsey Technology Inc., a wholly owned subsidiary of Baker Hughes Incorporated (Baker Hughes), prior to its March 16, 1994, acquisition by Thermedics. In January 1996, the Company acquired Hitech Electrocontrols Limited (Hitech), a U.K.-based manufacturer of metal- detection equipment and specialty checkweighing equipment for the baking industry, and in April 1996, the assets of the solids flow-measurement product line of Endress + Hauser, Inc. (Endress + Hauser).
In April 1996, the Company sold 2,875,000 shares of its common stock in an initial public offering at $16.00 per share for net proceeds of $42.3 million. As of December 28, 1996, Thermedics owned 7,000,000 shares of the Company's common stock, representing 71% of such stock outstanding. In addition to the Company's products, Thermedics develops, manufactures, and markets product quality- assurance systems, electrochemistry and microweighing products, electronic-test instruments, explosives-detection devices, and moisture-analysis systems, as well as implantable heart-assist systems and other biomedical products. As of December 28, 1996, Thermo Electron owned 250,000 shares of the Company's common stock, representing 3% of such stock outstanding. These shares were purchased during 1996* in the open market for a total price of $4,006,000. Thermo Electron is a world leader in environmental monitoring and analysis instruments, papermaking and recycling equipment, biomedical products such as heart-assist devices and mammography systems, biomass electric power generation, and other specialized products and technologies. Thermo Electron also provides a range of services related to environmental quality.
* References to 1996, 1995, and 1994 herein are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. The fiscal year ended December 31, 1994, includes the Company's financial results for the period from March 16, 1994, the date Ramsey Technology Inc. was acquired by Thermedics, through December 31, 1994. 2PAGE
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 caption "Forward-looking Statements" in the Registrant's 1996 Annual Report to Shareholders incorporated herein by reference.
(b) Information About Industry Segments
The Company is engaged in one business segment: the design, manufacture, and marketing of precision-weighing and inspection equipment.
(c) Description of Business
Products for Packaged Goods
Sales of products for the packaged-goods market represented approximately 37% of the Company's total revenues in 1996 and account for an increasing portion of the Company's business. These products are sold primarily to customers in the food-processing and pharmaceutical industries.
Checkweighing Equipment. The Company's checkweighing products weigh, classify, and reject packages moving at high speeds (more than 600 packages per minute) with accuracy to the three-gram level. The Company also offers checkweighing products that are accurate to the 50-milligram level for pharmaceutical and other high-accuracy applications. By assuring that packages contain designated quantities of materials, the Company's checkweighing equipment is used to satisfy customer demand and regulatory requirements for quality standards and to improve productivity by minimizing product giveaway.
The Company has developed a proprietary database of methodologies and designs that it uses to create custom weighing solutions for particular applications, such as retrofitting packaging lines in response to changes in package size, type, and design. The Company believes that its proprietary database provides it with a competitive advantage by allowing it to deliver customized weighing equipment on a timely and cost-effective basis.
The Company produces a complete line of electronic in-line checkweighing products ranging from devices designed solely to reject underweight products, to sophisticated machines with comprehensive statistical data-collection and production-monitoring capabilities, allowing customers to monitor the deviation from target weight, the
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number of rejections, and the amount of product giveaway. The Company also produces the only checkweighing products specifically designed to satisfy the Good Manufacturing Practices (GMP) requirements of the pharmaceutical industry.
Metal Detectors. Metal detectors are used to inspect packaged products for metal contaminants. The Company offers metal detectors capable of detecting a small metal particle (approximately one millimeter in diameter) in a package moving on a conveyor belt at speeds in excess of 300 feet per minute.
In connection with its acquisition of Hitech, the Company acquired patented self-testing technology for use with metal-detection products. This technology allows an operator to program a metal detector to automatically route a metal object through the device at preset intervals without operator assistance or interruption to the production process. The results of these tests can be tracked by computer and incorporated into quality- and process-control reports. The Company introduced this new patented feature as part of its metal-detection product line in 1996.
Other Products for Packaged Goods. Other complementary packaged- goods products offered by the Company include canned-goods label inspectors and various conveying and product-handling devices to assist in the presentation of products to the Company's checkweighing equipment and metal detectors and the rejecting and handling of unacceptable products from the customer's production line.
Revenues from products for packaged goods were $25,861,000, $23,700,000, and $17,321,000 in 1996, 1995, and the period from March 16, 1994, through December 31, 1994, respectively.
Products for Bulk Materials
Sales of products for the bulk-materials market represented approximately 63% of the Company's total revenues in 1996. These products are sold primarily to customers in the mining and material-processing industries, as well as to electric utilities, chemical, and other manufacturing companies.
Conveyor-Belt Scales. The Company offers a wide variety of conveyor-belt scales for use in industrial and other applications. A conveyor-belt scale is a device that measures the speed at which bulk material is being conveyed and delivered on a moving conveyor belt, as well as the total mass of material conveyed over a given time.
The Company's conveyor-belt scales are typically used to measure production rates and monitor inventory, to control the speed of flow of measured materials or other related materials for blending purposes, and to monitor process performance. Conveyor-belt scales are used in many industries, including mining, construction materials, power, food- processing, pulp and paper, chemicals, and solids recycling. By eliminating a separate weighing procedure from the production process, conveyor-belt scales are used to streamline operations in these industries. 4PAGE
The Company's conveyor-belt scales are well-suited for the weighing of materials traveling at high speeds and for processes requiring high accuracy. These products make use of the Company's proprietary algorithms and applications expertise to measure material moving at speeds in excess of 10,000 tons per hour with accuracy to within the 0.125% level. The Company's conveyor-belt scales may also be linked to a computer for system process-control. This communications capability is designed to assist customers in monitoring inventory, preparing quality- control reports, and operating production lines more efficiently.
The Company incorporates its conveyor-belt scales into short-length conveyors called weigh belt-feeders. These products are used both to weigh materials in motion and to adjust the speed of the conveyor belt to control the amount of material fed in connection with a production process.
The Company's conveyor-belt scales include models for process monitoring (with accuracy to within 1%), models for plant-control and inventory and stock piling services (with accuracy to within 0.5%), and high-precision models for use in the transfer of custody of goods requiring government agency certification and approvals (with accuracy to within 0.125%).
Sampling Systems. The Company provides a number of different systems that extract and collect statistically representative samples of bulk materials for quality-control purposes. Sampling systems are typically used to mechanically extract a small amount of material (the sample) from a moving conveyor so that the material can be taken to an analytical laboratory for testing. The Company's sampling systems are used at mine sites, shipping facilities, transfer stations, steel mills, cement plants, and coal-fired power plants. The Company's sampling systems are used by manufacturers and their customers to ensure that products conform to desired specifications at the time of both shipment and delivery.
The Company offers a variety of sampling solutions, including "sweep" samplers, which extract samples from any location on a moving conveyor belt, and self-contained sampling units, which provide a modular approach to sampling without expensive integration into the user's material-handling system.
Other Bulk-Material Products. The Company's solid level-measurement and conveyor-monitoring products include safety pull, belt run-off, and tilt switches; speed-monitoring devices; contents-monitoring systems; and grade, slope, and material feed controls for asphalt paving machines. The Company's other complementary bulk-material products include tramp metal detectors, front-end loader scales, and static weighing and batching equipment. These products are often incorporated into complete weighing solutions the Company provides to its customers.
Revenues from products for bulk materials were $44,166,000, $43,774,000, and $32,795,000 in 1996, 1995, and the period from March 16, 1994, through December 31, 1994, respectively. 5PAGE
Distribution of Products
The Company markets and distributes its products primarily through manufacturer's representatives. It also relies upon a direct sales force, distributors, and original equipment manufacturers.
Raw Materials
The C-level sensor used as a component of one of the Company's bulk-materials products is supplied by a sole-source vendor. Although the Company has not experienced any difficulty in obtaining adequate supplies from this vendor, there can be no assurance that the licensor will be able to furnish the Company with a suffiencient number of C-level sensors to meet customer demand. The Company believes that the unanticipated loss of this vendor would not result in a material adverse effect on the Company's business.
Patents, Licenses, and Trademarks
The Company's proprietary methodologies, designs, and other proprietary intellectual rights are important to the Company's operations. The Company relies upon a combination of patent, trade secret, nondisclosure, and other contractual arrangements, as well as copyright and trademark laws, to protect its proprietary rights. The Company seeks to limit access to and distribution of its proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information, that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights, or that competitors will not be able to develop similar technology independently.
The Company currently holds issued U.S. patents expiring at various dates ranging from December 1997 to September 2010. The Company also has applications pending for additional U.S. patents and a number of foreign counterparts for its patents in various foreign countries. In addition, the Company has certain registered and other trademarks and is a licensee of a patent for its C-level sensors. The Company believes that its products, trademarks, and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future.
Backlog
The Company's backlog of unfilled orders was $14.2 million and $11.2 million as of December 28, 1996, and December 30, 1995, respectively. The Company anticipates that substantially all of the backlog at December 28, 1996, will be shipped during 1997. The Company does not believe that the size of its backlog is necessarily indicative of intermediate or long-term trends in its business.
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Competition
The Company encounters and expects to continue to encounter intense competition in the sale of its products. The Company's principal competitors in the packaged-goods market are Ishida Scales Mfg. Co., Ltd. and Mettler-Toledo AG. In the more fragmented bulk-materials market, the Company competes on a worldwide basis primarily with Carl Schenck AG and Milltronics Corporation. The Company believes that the principal competitive pressures affecting the market for precision-weighing and inspection equipment include customer service and support, quality and reliability, price, accuracy, ease of use, distribution channels, technical features, compatibility with customers' manufacturing processes, and regulatory approvals. Certain of the Company's competitors have greater resources, manufacturing and marketing capabilities, technical staff, and production facilities than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products, than can the Company. Competition could increase if new companies enter the market or if existing competitors expand their product lines.
Research and Development
Research and development expenses for the Company were $1,881,000, $1,920,000, and $1,228,000 in 1996, 1995, and the period from March 16, 1994, through December 31, 1994, respectively.
Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position.
Number of Employees
As of December 28, 1996, the Company employed approximately 425 people.
(d) Financial Information About Exports by Domestic Operations and About Foreign Operations
Financial information about exports by domestic operations and about foreign operations is summarized in Note 10 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference.
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(e) Executive Officers of the Registrant
Present Title (Year First Became Name Age Executive Officer) ------------------------ --- ---------------------------------- Lewis J. Ribich 52 President and Chief Executive Officer (1995) John N. Hatsopoulos 62 Vice President and Chief Financial Officer (1996) Paul F. Kelleher 54 Chief Accounting Officer (1995) M. Preston Luman 41 Vice President, Finance and Operations (1995)
Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until his earlier resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have held comparable positions for at least five years with Thermedics or Thermo Electron. Mr. Ribich has been Chief Executive Officer, President, and a Director of the Company since its inception in 1995 and President of Ramsey since 1990. Mr. Luman has been Vice President, Finance and Operations of the Company since its inception in 1995. For nine years, Mr. Luman has held various financial and operations positions at Ramsey. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require.
Item 2.
Item 2. Properties
Under a lease expiring in March 1999, the Company leases approximately 90,000 square feet of office and final-assembly space in Minneapolis, Minnesota, from which it conducts its principal U.S. operations. The Company conducts its international operations primarily from approximately 130,000 square feet of additional facilities under leases expiring at various dates through 2013. The Company believes that these facilities are in good condition and are suitable and adequate to meet its current needs.
Item 3.
Item 3. Legal Proceedings
Not applicable.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5.
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 1996 Annual Report to Shareholders and is incorporated herein by reference.
Item 6.
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 1996 Annual Report to Shareholders and is incorporated herein by reference.
Item 7.
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 1996 Annual Report to Shareholders and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 28, 1996, and Supplementary Data are included in the Registrant's 1996 Annual Report to Shareholders and are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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PART III
Item 10.
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.
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.
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.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year.
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PART IV
Item 14.
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 Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 1997 THERMO SENTRON INC.
By: Lewis J. Ribich ------------------------- Lewis J. Ribich President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, as of March 14, 1997.
Signature Title --------- ----- By: Lewis J. Ribich President, Chief Executive Officer, --------------------- Lewis J. Ribich and Director
By: John N. Hatsopoulos Vice President and Chief Financial --------------------- John N. Hatsopoulos Officer
By: Paul F. Kelleher Chief Accounting Officer --------------------- Paul F. Kelleher
By: Marshall J. Armstrong Director --------------------- Marshall J. Armstrong
By: Donald E. Noble Director --------------------- Donald E. Noble
By: Peter Richman Director --------------------- Peter Richman
By: John W. Wood Jr. Chairman of the Board and Director --------------------- John W. Wood Jr. 12PAGE
Report of Independent Public Accountants ----------------------------------------
To the Shareholders and Board of Directors of Thermo Sentron Inc.:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Sentron Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 1997. 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 11 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 6, 1997
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SCHEDULE II
THERMO SENTRON INC.
Valuation And Qualifying Accounts (In thousands)
Balance Provision Balance at Charged Accounts at Beginning to Accounts Written End of Description of Period Expense Recovered Off Other(a) Period ----------------------------------------------------------------------------- Year Ended December 28, 1996
Allowance for Doubtful Accounts $2,291 $ 217 $ 3 $ (679) $ (20) $1,812
Year Ended December 30, 1995
Allowance for Doubtful Accounts $2,302 $ 229 $ 1 $ (229) $ (12) $2,291
For the Period from March 16, 1994, through December 31, 1994
Allowance for Doubtful Accounts $1,814 $ 585 $ 4 $ (88) $ (13) $2,302
(a)Includes allowance of business acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders and the effect of foreign currency translation.
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EXHIBIT INDEX
Exhibit Number Description of Exhibit ------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of the Registrant (filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.1 Corporate Services Agreement dated as of January 31, 1996, between Thermo Electron Corporation (Thermo Electron) and the Registrant (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of January 31, 1996, between Thermedics Inc. and the Registrant (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.4 Amended and Restated Master Repurchase Agreement dated as of January 31, 1996, between Thermo Electron and the Registrant.
10.5 Master Guarantee Reimbursement Agreement dated as of January 31, 1996, between Thermo Electron and the Registrant (filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.6 Master Guarantee Reimbursement Agreement dated as of January 31, 1996, between Thermedics and the Registrant (filed as Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.7 Equity Incentive Plan of the Registrant (filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
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EXHIBIT INDEX
Exhibit Number Description of Exhibit ------------------------------------------------------------------------
In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron and Thermedics for services rendered to the Registrant or such affiliated corporations. Thermo Electron's plans were filed as Exhibits 10.21 through 10.44 to the Annual Report on Form 10-K of Thermo Electron for the fiscal year ended December 30, 1995 [File No. 1-8002] and as Exhibit 10.19 to the Annual Report on Form 10-K of Trex Medical Corporation for the fiscal year ended September 28, 1996 [File No. 1-11827], and Thermedics' plans were filed as Exhibits 10.18 through 10.22 to the Annual Report on Form 10-K of Thermedics for the fiscal year ended December 28, 1996 [File No. 1-9567], and are incorporated herein by reference.
10.8 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.9 Directors Stock Option Plan of the Registrant (filed as Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.10 Form of Indemnification Agreement for Officers and Directors (filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated herein by reference).
10.11 Restated Stock Holdings Assistance Plan and Form of Promissory Note.
11 Statement re: Computation of Earnings per Share.
13 Annual Report to Shareholders for the year ended December 28, 1996 (only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.