EXHIBIT 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations
LIQUIDITY AND CAPITAL RESOURCES
Measurex continues to maintain a strong financial position with cash and cash
equivalents, marketable securities and short-term investments of $111 million as
of the fiscal 1993 year-end. The Company believes that its existing cash
balances and lines of credit, together with cash provided by operations, will
provide adequate flexibility to fund financial requirements, including capital
expenditures, and cash dividends through fiscal year 1994.
Net cash generated by operations during 1993 totaled $2.3 million. Net income
adjusted for noncash items was $23.9 million, up from $10.7 million in 1992.
Offsetting the cash generated, accounts and contracts receivable increased by
$7.4 million, and accounts payable and accrued expenses decreased $12.3 million
from year-end 1992. Increased levels of accounts and contracts receivables were
largely attributable to higher leasing activity. Contracts receivable from two
major customers amounted to approximately $11.3 million at year-end 1993.
Inventories, net of reserves, increased from fiscal year-end 1992 due to the
acquisition of Roibox Oy. Service parts decreased due to a reduction of field
inventory resulting from improved cycle times. Accrued expenses decreased
significantly due in part to payments made for severance costs and other
expenses related to a worldwide reduction of the Company's work force, which
were accrued in 1992. In the fourth quarter of 1992, the Company took a pretax
charge of $9 million to cover restructuring costs.
Excluding marketable securities and short-term investments, net cash used for
investing activities totaled $11.8 million in 1993 compared to $6.5 million in
1992. In April 1993, the Company acquired Roibox Oy for approximately $1.7
million, net of cash acquired. Located in Kuopio, Finland, Roibox is a
worldwide supplier of web-inspection and other quality inspection products for
the paper industry. Roibox operates as a separate subsidiary of Measurex, with
manufacturing, engineering, product marketing and sales support. In August
1991, the Company acquired Devron-Hercules, Inc. for a cash payment of $21.9
million. Capitalized software decreased $2.9 million from 1992 as a result of
the general release of MXOpen software to customers. 1992 cash receipts
included proceeds from the sale of all rights to the PlantWorks software package
and other assets of its subsidiary, Measurex Automation Systems, as well as the
proceeds received in connection with the sale of the Cork facility in Ireland.
No major facilities expansions are planned for 1994.
Cash provided by financing activities during 1993 was $8.7 million. In May
1993, the Company borrowed $20.0 million pursuant to a five-year fixed-rate term
loan agreement with a bank. Proceeds from the loan were used principally to
support the Company's United States equipment lease portfolio and provide a
hedge against interest rate fluctuations. Borrowings under the loan agreement
are unsecured. The loan agreement contains certain restrictive covenants which
include the maintenance of minimum tangible net worth and certain financial
ratios. The Company was in compliance with all the covenants at year-end 1993.
In 1993, the Company paid dividends of $7.9 million and repurchased common stock
for $5.2 million. The repurchased shares will be used for issuance under the
Company's employee stock purchase and stock option plans.
As a result of the above operating, investing and financing activities and
giving effect to exchange rate fluctuations, the Company's cash and cash
equivalents increased slightly from $74.4 million in 1992 to $76.0 million in
1993 while marketable securities and short-term investments decreased $4.8
million to $35.4 million. The Company's
64
current ratio (current assets divided by current liabilities) was 2.8 at the end
of 1993 compared to 2.6 at the end of the prior year. Total debt increased to
10% of shareholders' equity at the end of 1993, compared to less than 1% a year
ago, due to the $20.0 million loan described above.
As of November 28, 1993, the Company's principal sources of liquidity included
cash, cash equivalents, marketable securities and short-term investments of $111
million and unsecured bank lines of credit of $25.0 million, expiring in 1994,
of which $8.3 million was committed to letters of credit.
RESULTS OF OPERATIONS
The Company's 1993 system revenue increased slightly from 1992 and 1991. During
this past year, the Company has closely controlled expenses and reduced the
total number of employees by approximately 3%. At the same time, the Company
invested 15% of system revenue in product development to ensure it continues to
have a strong product offering.
System orders for 1993 were $151 million, a decrease of $5 million (3%) from
$156 million in 1992, and an increase of $24 million (19%) from $127 million in
1991. In 1993, orders in Canada and Japan increased while Southern Hemisphere
and European orders were lower than the prior year. In 1992, orders increased
in the United States, Asia and Latin America while in Europe orders decreased.
Worldwide Pulp and Paper orders were $127 million in 1993, a decrease of $2
million (2%) from orders in 1992 and an increase of $31 million (32%) from 1991.
In 1993, pulp and paper orders in the United States increased 2% to $44 million
from $43 million in 1992 and 67% from $26 million in 1991, reflecting a strong
market share and paper companies' focus on upgrade and replacement of existing
systems. Industrial Systems orders were $24 million, a decrease of $3 million
(11%) from 1992 and a decline of $7 million (23%) from 1991. The Company
believes that its market share and competitive position continue to be strong.
System backlog at the end of fiscal 1993 was $91 million, down 4% from the
backlog of $95 million at the end of 1992. Approximately 80% of the $91 million
year-end 1993 backlog is scheduled to be shipped during fiscal 1994. The
reduction in European and Latin American backlog in 1993 was offset by higher
Asian backlog.
System revenue was $152.8 million in 1993, a $4.4 million (3%) increase from
$148.4 million in 1992, and a $4.6 million (3%) increase from $148.2 million in
1991. Increased shipment of cross-direction control systems from the Measurex
Devron Division has been the principal factor in revenue growth. Operating
results from this Division are included in the Company's 1991 fourth quarter and
the full years in 1992 and 1993. However, overall sales growth continued to be
restrained by a depressed market in the paper industry and ongoing price
competition. Service and other revenues of $101.2 million declined $3 million
(3%) from $104.2 million in 1992, and decreased $4.5 million (4%) from $105.7
million in 1991. The decline in service revenue is due to changes in foreign
currency exchange rates.
Margins on systems revenue were 35% in fiscal 1993 compared to 33% and 37% in
1992 and 1991, respectively. The system margin improvement in 1993 was related
to lower spending at the Company's Irish manufacturing facility and more
efficient use of existing capacity at Measurex's Devron Division. However, the
Company has been experiencing project overruns on systems produced by its
Management Systems Division, which negatively impacted system margins. Compared
to 1991, gross margins in 1992 declined as a result of high sales discount
levels, low margins on custom integration services, and to a lesser extent,
higher receivable reserves.
65
Service and other margins were 36% in 1993 compared to 35% in 1992, and 32% in
1991. The improvement in service margins in 1993 reflected ongoing cost
controls. The increase in margins in 1992 compared to 1991 was due to reduced
costs as a result of restructuring actions at the end of 1991.
Product development costs were $22.9 million in 1993, down from $25.2 million in
1992 and $25.3 million in 1991. Of this total, Measurex capitalized $1.7
million, $4.6 million, and $2.3 million of software development costs in fiscal
1993, 1992 and 1991, respectively. Measurex amortized $3.4 million, $1.7
million and $2.8 million of capitalized software to systems costs in 1993, 1992
and 1991, respectively. The decrease in capitalized software and increase in
amortization in 1993 were attributable to the general release of MXOpen software
discussed previously. To maintain its competitive position in the industry, the
Company expects to continue to invest a significant amount of its resources in
new product development, enhancements to existing products and software
development. The Company strongly believes the continued investment in new
product development is critical to its long-term success.
Selling and administrative expenses were $61.1 million in 1993, a $2.6 million
(4%) decrease from $63.7 million in 1992 and a $0.5 million (1%) decrease from
$61.6 million in 1991. This decrease reflects the Company's continued progress
in its ongoing efforts to manage expense growth relative to revenue growth. The
lower selling and administrative expenses in 1993 compared to 1992 were in part
due to reduced spending and a $0.8 million insurance claim settlement received.
The increase in expenditures in 1992 over 1991 was attributable to the inclusion
of Devron operations, amortization of goodwill as a result of the Devron
acquisition, as well as the marketing costs incurred to successfully launch the
new MXOpen product line.
To reduce annual spending and improve efficiency, the Company provided
restructuring reserves of $9.0 million and $11.7 million, in 1992 and 1991,
respectively, for personnel reductions and plant consolidations.
Interest income decreased $1.6 million (20%) to $6.5 million in 1993 from 1992
and $4.4 million (40%) from 1991. Both lower average cash balances and lower
interest rates, especially in Europe, contributed to the decline in interest
income. Interest income in 1994 is dependent upon interest rates and cash flow
from operations.
The Company's effective tax rate in 1993 was 35% compared with 57% and 25% in
1992 and 1991, respectively. This decrease reflects changes in the geographic
mix of earnings in countries in which the Company operates. The increase in the
effective tax rate from 1991 to 1992 was in part due to losses incurred by
several subsidiaries which could not be benefitted for tax purposes. Comparing
1993 to 1991, the Company experienced high tax rates in its Canadian operations,
while the profits in the Company's Irish manufacturing facility, which has a low
tax rate, decreased.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Statement will be effective for the Company's fiscal year 1994. The estimated
cumulative effect of implementing the Statement will be to reduce the deferred
tax liability by approximately $0.5 million in the first quarter of 1994.
Net income for 1993 was $8.2 million, an increase of $6.6 million from $1.6
million in 1992 and a increase of $7.8 million from $0.4 million in 1991. Net
income was $0.46 per share compared to $0.09 and $0.02 per share in 1992 and
1991, respectively.
66
CONSOLIDATED STATEMENTS OF INCOME
Three years ended November 28, 1993
(Dollar amounts in thousands except per share data)
1993 1992 1991
- ---------------------------------------------------------------------------
REVENUES:
Systems $152,839 $148,367 $148,249
Service and other 101,158 104,220 105,730
-------- -------- --------
Total revenues 253,997 252,587 253,979
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Systems 99,728 99,244 93,715
Service and other 64,501 67,814 72,418
Product development 21,146 20,612 22,999
Selling and administrative 61,122 63,695 61,600
Restructuring charges - 8,974 11,695
-------- -------- --------
Total operating costs and expenses 246,497 260,339 262,427
-------- -------- --------
Earnings (loss) from operations 7,500 (7,752) (8,448)
OTHER INCOME (EXPENSE):
Interest expense (948) (810) (834)
Interest income and other 6,127 7,831 9,801
Gain on sale of technology and assets - 2,409 -
-------- -------- --------
Total other income, net 5,179 9,430 8,967
-------- -------- --------
Income before income taxes and
extraordinary credit 12,679 1,678 519
Provision for income taxes 4,464 964 130
-------- -------- --------
Income before extraordinary credit 8,215 714 389
Extraordinary credit from utilization of
tax loss carryforwards - 911 -
-------- -------- --------
Net income $ 8,215 $ 1,625 $ 389
-------- -------- --------
Net income per share:
Income before extraordinary credit $.46 $ .04 $.02
Extraordinary credit - .05 -
-------- -------- --------
Net income per share $.46 $ .09 $.02
-------- -------- --------
Dividends per share $.44 $ .44 $.44
-------- -------- --------
Average number of common and
common equivalent shares (thousands) 18,051 18,296 18,213
-------- -------- --------
The accompanying notes are an integral part of the financial statements.
67
CONSOLIDATED BALANCE SHEETS
November 28, 1993 and November 29, 1992
(Dollar amounts in thousands except per share data) 1993 1992
- --------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 76,040 $ 74,368
Marketable securities and short-term investments 35,371 40,237
Accounts receivable 55,126 53,886
Inventories 35,697 34,790
Prepaid and other 11,473 14,809
-------- --------
Total current assets 213,707 218,090
-------- --------
Contracts receivable 26,651 21,793
Service parts, net 3,178 5,699
Property, plant and equipment, net 53,161 55,493
Other assets 21,619 21,809
-------- --------
Total assets $318,316 $322,884
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,516 $ 49
Accounts payable 6,732 5,816
Accrued expenses 62,594 77,189
Income taxes payable 2,145 1,731
-------- --------
Total current liabilities 75,987 84,785
-------- --------
Long-term debt 16,783 842
Deferred income taxes 13,682 18,804
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
authorized: 10,000,000 shares;
issued and outstanding: none
Common stock, $.01 par value;
authorized: 50,000,000 shares; outstanding
1993 - 19,036,948 shares, 1992 - 19,036,948 shares 190 190
Additional capital 75,202 75,181
Retained earnings 167,211 168,098
Cumulative translation adjustments (5,707) (2,019)
Less: Treasury stock at cost: 1993 - 1,192,726
shares, 1992 - 1,009,229 shares (25,032) (22,997)
-------- --------
Total shareholders' equity 211,864 218,453
-------- --------
Total liabilities and shareholders' equity $318,316 $322,884
======== ========
The accompanying notes are an integral part of the financial statements.
68
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three years ended November 28, 1993
(Dollar amount in thousands except per share data)
Cumulative
Common Additional Retained Translation Treasury
Stock Capital Earnings Adjustments Stock Total
--------- ---------- -------- ----------- -------- -----
Balance December 2, 1990 $ 191 $ 74,762 $ 186,363 $ 6,654 $(29,330) $ 238,640
Proceeds from treasury stock
issued under employee
stock purchase and stock
option plans (203,899 shares)
including related tax benefits (1) 312 - - 5,764 6,075
Excess of cost of treasury shares
issued over proceeds received - - (3,053) - (3,053)
Foreign currency translation - - - (2,417) - (2,417)
Net income - - 389 - - 389
Dividends ($.44 per share) - - (7,916) - (7,916)
--------- ---------- ----------- ----------- -------- --------
Balance December 1, 1991 190 75,074 175,783 4,237 (23,566) 231,718
========= ========== =========== =========== ======== ========
Proceeds from treasury stock
issued under employee
stock purchase and stock
option plans (104,539 shares)
including related tax benefits - 107 - - 2,953 3,060
Excess of cost of treasury shares
issued over proceeds received - - (1,334) - - (1,334)
Foreign currency translation - - - (6,256) - (6,256)
Net income - - 1,625 - - 1,625
Dividends ($.44 per share) - - (7,976) - (7,976)
Treasury stock acquired
(152,500 shares) - - - - (2,384) (2,384)
--------- ---------- ----------- ----------- --------- --------
Balance November 29, 1992 190 75,181 168,098 (2,019) (22,997) 218,453
========= ========== =========== =========== ========= ========
Proceeds from treasury stock
issued under employee
stock purchase and stock
option plans (115,103 shares)
including related tax benefits - 21 - - 3,125 3,146
Excess of cost of treasury shares
issued over proceeds received - - (1,216) - - (1,216)
Foreign currency translation - - - (3,688) - (3,688)
Net income - - 8,215 - - 8,215
Dividends ($.44 per share) - - (7,886) - - (7,886)
Treasury stock acquired
(298,600 shares) - - - - (5,160) (5,160)
-------- ---------- ---------- ---------- --------- --------
Balance November 28, 1993 $ 190 $ 75,202 $ 167,211 $ (5,707) $ (25,032) $211,864
======== ========== ========== ========== ========== ========
The accompanying notes are an integral part of the financial statements.
69
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three years ended November 28, 1993
(Dollar amounts in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,215 $ 1,625 $ 389
Non-cash items included in net income:
Depreciation and amortization:
Service parts 1,055 1,331 1,988
Property, plant and equipment 9,997 9,933 10,130
Capitalized software and goodwill 3,935 2,318 3,325
Deferred income taxes (2,307) (5,875) (5,826)
Translation (gain) loss (506) 775 2,876
Inventory reserves 3,473 2,954 2,001
Gain on sale of technology - (2,409) -
Net (increase) decrease in:
Accounts and contracts receivable (7,420) (4,998) 4,313
Inventories and service parts (3,912) (3,687) (5,409)
Prepaid and other 792 2,533 1,010
Net increase (decrease) in:
Accounts payable and accrued expenses (12,333) 8,068 8,805
Income taxes payable 468 (674) (1,166)
Other, net 822 (351) 1,177
--------- -------- --------
Net cash provided by operating activities 2,279 11,543 23,613
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and
short-term
investments (100,255) (98,144) (36,309)
Sale of marketable securities and short-term
investments 59,945 29,797 36,164
Maturities of short-term investments 45,176 42,535 -
Acquisition of property, plant and equipment (8,329) (7,781) (8,211)
Acquisition of subsidiary, net of cash
acquired (1,668) - (21,422)
Proceeds from sale of facility and other
assets - 5,955 -
Capitalized software (1,725) (4,636) (2,332)
--------- -------- --------
Net cash used in investing activities (6,856) (32,274) (32,110)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 21,971 - -
Reductions of long-term debt (2,191) (3,967) (370)
Dividends (7,886) (7,976) (7,916)
Stock issued under employee stock purchase and
stock option plans 1,930 1,726 3,022
Payment for treasury stock (5,160) (2,384) -
--------- -------- --------
Net cash provided by (used in) financing
activities 8,664 (12,601) (5,264)
--------- -------- --------
Effect of exchange rate fluctuations on cash
and cash equivalents (2,415) (5,008) (2,387)
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents 1,672 (38,340) (16,148)
Cash and cash equivalents at beginning of year 74,368 112,708 128,856
--------- -------- --------
Cash and cash equivalents at end of year $ 76,040 $ 74,368 $112,708
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 948 $ 810 $ 834
Income taxes 5,509 8,172 7,408
The accompanying notes are an integral part of the financial statements.
70
Notes to Consolidated Financial Statements
(Dollar amounts in thousands unless otherwise noted)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company uses a 52-53 week fiscal year. References to 1993,
1992, and 1991 are for fiscal years ended November 28, 1993, November 29, 1992,
and December 1, 1991, respectively. Fiscal years 1993, 1992 and 1991 were 52
week years.
Consolidation - The consolidated financial statements include the accounts of
all subsidiaries after elimination of intercompany balances and transactions.
The Company has reclassified the presentation of certain prior year information
to conform with the current year presentation format.
Foreign Currency Translation - Gains and losses resulting from foreign currency
translation of the Company's foreign operations (except certain manufacturing
operations and operations in hyperinflationary countries) were recorded directly
to a separate component of shareholders' equity. For certain manufacturing
operations and sales operations in hyperinflationary countries, the functional
currency is deemed to be U.S. dollars, and translation gains or losses are
reflected in interest income and other.
Foreign Exchange Contracts - The Company hedges certain international system
orders using foreign exchange forward contracts to reduce the risk of loss due
to foreign currency fluctuations. In addition, the Company hedges the U.S.
dollar value of net asset or liability positions denominated in currencies other
than the functional currency of its foreign subsidiaries and records any
resulting gains or losses in interest income and other. At November 28, 1993,
the Company had foreign exchange forward contracts valued at $29.8 million
maturing from December 1993 through July 1994, of which 50% were denominated in
European currencies and 35% denominated in Yen. The carrying amount of the
foreign exchange contracts approximates fair value, which has been estimated
based on the amount the Company would have had to pay to terminate these
agreements at year-end. At year-end 1992 and 1991, the Company had forward
contracts valued at $29.5 million and $65.3 million, respectively.
Approximately 70% of these contracts are with one financial institution.
Revenue Recognition - The Company generally recognizes revenue from system sales
at the time of shipment provided any remaining obligations are insignificant and
collection is probable. Revenue on certain software contracts are recognized on
a percentage-of-completion basis. Service and other revenues are recognized as
the services are provided or ratably over the life of the contracts.
Product Development Expenses - The Company is actively engaged in basic
technology and applied research and development programs which are designed to
develop new or improved products and process applications. The cost of these
programs is charged to expense as incurred except for certain software
development costs which are capitalized as described below (see Capitalized
Software).
Capitalized Software - Costs related to the conceptual formulation and design
of software products are expensed as product development. Costs incurred
subsequent to establishing the technological feasibility of software products
are capitalized.
Amortization of capitalized software costs, which begins when products are
available for general release to customers, is computed on a straight-line basis
over the expected product lives, generally estimated to be three years.
Income Taxes - Taxes are provided for items included in the consolidated
statements of income regardless of the period when such items may be reported
for tax purposes.
71
The Company provides U.S. and foreign income taxes on the portion of the
accumulated earnings of the Company's foreign subsidiaries which are intended to
be remitted to the parent Company within the foreseeable future.
Cash and Cash Equivalents - Cash equivalents generally consist of certificates
of deposit, time deposits, treasury notes and municipal bonds. The Company
considers all highly liquid debt instruments with an original maturity of 90
days or less to be a cash equivalent. A substantial portion of the Company's
cash and cash equivalents are held by foreign subsidiaries and are generally
held in U.S. dollar denominated holdings. Amounts held by foreign subsidiaries
would be subject to U.S. income taxation, net of available foreign tax credits,
upon repatriation to the U.S.
Marketable Securities and Short-term Investments - Marketable securities and
short-term investments are stated at cost, which approximates market based on
quoted market prices. Short-term investments are comprised primarily of time
deposits with original maturities between three and twelve months. Marketable
securities are comprised of a managed portfolio of preferred stocks and futures
contracts. The Company enters into futures contracts to hedge the risk
associated with the impact of interest rate fluctuations on its current
marketable securities portfolio. Gains and losses on such contracts are
recognized in income when changes in the value of the marketable securities are
realized.
Inventory Valuation - Inventories are stated at the lower of standard cost
(which approximates actual cost determined on a first-in, first-out basis) or
market. Inventory costs include raw materials, direct labor and manufacturing
overhead.
Depreciation - Property, plant and equipment are depreciated on a straight-line
basis over estimated useful lives which range as follows: buildings and
improvements - 3 to 40 years; machinery and equipment - 3 to 20 years. Service
parts are depreciated on a 7-year declining balance basis. When assets are sold
or retired, the cost and related accumulated depreciation are removed from the
accounts and the resulting gains or losses are included in income.
Net Income Per Share - Net income per share is computed based on the weighted
average number of common shares outstanding during the year adjusted to reflect
the assumed exercise of outstanding employee stock options to the extent these
items had a dilutive effect on the computation.
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1993 1992
------- -------
Accounts receivable $52,037 $53,340
Contracts receivable, current
portion 8,579 6,606
Less:
Allowances for noncollection
and system returns (5,490) (6,060)
------- -------
$55,126 $53,886
======= =======
72
CONTRACTS RECEIVABLE
Contracts receivable consist of the following:
1993 1992
-------- -------
Contracts receivable $43,362 $34,628
Less:
Unearned financing income (6,475) (5,039)
Allowance for noncollection
and system returns (1,657) (1,190)
-------- -------
35,230 28,399
Current portion (8,579) (6,606)
-------- -------
$26,651 $21,793
======== =======
The aggregate amount of payments receivable by the Company in fiscal years
subsequent to 1993 is set forth below:
1994 - $11,021 1997 - $6,014
1995 - $10,457 1998 - $4,311
1996 - $8,037 Thereafter - $3,522
Customer financing for systems is collaterialized by security in the related
asset. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations. Contracts receivable from
two major customers amounted to approximately $11.3 million at year-end 1993.
INVENTORIES
Inventories consist of the following:
1993 1992
-------- --------
Purchased parts and
components $ 18,217 $ 16,549
Work in process 10,733 11,895
Finished subassemblies
and systems 6,747 6,346
-------- --------
$ 35,697 $ 34,790
======== ========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and consist of the following:
1993 1992
-------- --------
Land $ 5,592 $ 5,646
Buildings and improvements 39,463 39,989
Machinery and equipment 64,950 63,327
-------- --------
110,005 108,962
Less:
Accumulated depreciation (56,844) (53,469)
-------- --------
$ 53,161 $ 55,493
======== ========
OTHER ASSETS
Other assets consist of the following:
1993 1992
-------- --------
Capitalized software, net $ 7,246 $ 8,886
Goodwill and other 14,373 12,923
-------- --------
$ 21,619 $ 21,809
======== ========
73
The decrease in capitalized software in 1993 reflects the amortization of the
new MXOpen software released during late 1992. Amortization expense of
capitalized software was $3.4 million, $1.7 million and $2.8 million in 1993,
1992 and 1991, respectively. The increase in goodwill and other is mainly
attributable to the acquisition of Roibox Oy in April 1993. Goodwill is
amortized on a straight-line basis over 15 to 40 years.
ACQUISITION
On April 7, 1993, the Company acquired Roibox Oy for approximately 1.7 million,
net of cash acquired. Located in Kuopio, Finland, Roibox Oy is a worldwide
supplier of web-inspection and other quality inspection products for the paper
industry. The acquisition was accounted for using the purchase method.
Accordingly, the cost of the acquisition was allocated to assets acquired and
liabilities assumed based on their estimated fair values. The net assets and
results of operations of Roibox Oy are included in the consolidated financial
statements from the date of acquisition. The results of operations of Roibox Oy
in 1993 and 1992 were not material to the Company's consolidated results of
operations. Roibox operates as a separate subsidiary of Measurex, with
manufacturing, engineering, product marketing and sales support continuing in
Finland.
On August 30, 1991, Measurex Inc. (Canadian subsidiary of Measurex Corporation)
acquired Devron-Hercules, Inc. for $21.9 million in cash. The acquisition was
accounted for using the purchase method.
ACCRUED EXPENSES
Accrued expenses consist of the following:
1993 1992
------- -------
Accrued payroll and related
items $22,333 $22,282
Accrued initial service 7,059 6,881
Customer deposits 12,078 17,280
Restructuring charges 4,779 11,742
Other 16,345 19,004
------- -------
$62,594 $77,189
======= =======
LINES OF CREDIT AND LONG-TERM DEBT
As of November 28, 1993, the Company had unsecured bank line of credit
agreements of $25.0 million, which provide for domestic and foreign currency
borrowings, advances and guarantees, Bankers' Acceptances, and letters of
credit. There was $16.7 million available in connection with these agreements
at November 28, 1993.
The agreements, which expire during fiscal year 1994, require the Company to
adhere to certain covenants regarding working capital, indebtedness, and minimum
shareholders' equity.
A revolving credit agreement ($20 million) provides for variable interest rates
based on the London Interbank Offer Rate (LIBOR). Under a multicurrency credit
agreement ($5 million), the Company may obtain loans at the lending bank's base
rate plus 3/8%.
Long-term debt consists of the following:
1993 1992
------- -----
Term loan $19,000 $ -
Other borrowings 2,299 891
------- -----
21,299 891
Less amounts due within
one year (4,516) (49)
-------- -----
$16,783 $ 842
======== =====
74
In May 1993, the Company borrowed $20 million under a 5.35% five-year term loan
agreement with a bank. Proceeds from the loan are used principally to support
the Company's United States equipment lease portfolio. Borrowings under the
loan agreement are unsecured. Interest is payable quarterly, with principal
payable in equal quarterly installments of $1.0 million through June 1998. The
loan agreement contains certain restrictive covenants which include the
maintenance of minimum consolidated cash balances of $40 million, minimum
tangible net worth, and certain financial ratios. The Company was in compliance
with all covenants at year-end 1993.
The Company believes that as of November 28, 1993, the fair value of its long-
term debt approximates the carrying value of those obligations. The fair value
of the Company's long-term debt is estimated based on interest rates currently
available to the Company for debt with similar terms and maturities.
COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under noncancellable lease
agreements. Rent expense under all operating leases was approximately $4.4
million, $3.9 million, and $3.6 million in 1993, 1992 and 1991, respectively.
Future minimum lease payments under these noncancellable operating leases as of
November 28, 1993 are approximately $4.1 million, $2.6 million, $1.4 million,
$1.2 million, and $1.1 million for fiscal years 1994, 1995, 1996, 1997 and 1998,
respectively, and approximately $3.2 million in total for years following 1998.
At November 28, 1993, the Company was contingently liable for approximately $8.3
million relating principally to letters of credit issued to support European
collections as well as $0.6 million relating to lease guarantees and other
contingent liabilities.
The Company is subject to legal proceedings and claims that arise in the normal
course of its business. In the opinion of management, these proceedings will
not have a material adverse effect on the financial position and results of
operations of the Company.
RESTRUCTURING CHARGES
In 1992 the Company recorded a $9.0 million pretax charge for restructuring
operations to reduce costs and improve efficiency. Provision was made for
severance costs and other expenses related to a worldwide reduction in work
force.
In 1991 the Company recorded an $11.7 million pretax charge for cost-reduction
actions which included consolidating the plants in Ireland to a single site in
Waterford, as well as closing the Jyvaskyla, Finland, Safecontrol facility and
transferring these activities to Cupertino. In addition, provision was made for
severance payments to terminated employees and employee relocation expenses.
INTEREST INCOME AND OTHER
Interest income and other consist of the following:
1993 1992 1991
------- ------- -------
Interest income $6,523 $8,117 $10,962
Foreign exchange loss (396) (286) (1,161)
------- ------- -------
$6,127 $7,831 $ 9,801
======= ======= =======
STOCK OPTION AND STOCK PURCHASE PLANS
Under the Company's stock option plan, 5,110,240 shares of common stock have
been reserved for issuance to officers and key employees.
Options may be granted at prices not lower than the fair market value of the
Company's common stock at the date of grant. Options generally become
exercisable in four equal annual
75
installments commencing one year from the date of grant. Options generally
expire, if not exercised, within five years from the date of grant. The stock
option plan includes an automatic option grant program for the Company's non-
employee directors. Such options expire 10 years from the date of grant.
The stock option program also allows selected employees to elect to have a
portion of their base salary reduced in return for options to purchase common
stock. The option price represents the difference between the fair market value
of the Company's common stock at the date of grant and the salary reduction. In
1991 and 1990, options were granted for 13,000 and 6,600 shares at option prices
of $5.63 and $7.02 per share, respectively, under this program. Options under
this plan are fully vested one year from date of grant and expire if not
exercised within 10 years.
A summary of transactions relating to options during fiscal years 1991, 1992 and
1993 is set forth below:
Options Outstanding
- ------------------------
(Amounts in thousands
except per share data)
Shares Price Per Share Amount
-------- --------------- --------
December 2, 1990 1,850.0 $ 7.02-$33.75 $ 41,920
Granted 1,788.9 5.63- 23.63 31,543
Terminated (1,491.8) 5.63- 33.75 (33,759)
Exercised (121.4) 14.00- 17.41 ( 1,831)
-------- --------------- --------
December 1, 1991 2,025.7 $ 5.63-$32.44 $ 37,873
Granted 535.5 15.63- 22.75 9,814
Terminated (129.6) 16.25- 31.88 (2,561)
Exercised (31.3) 16.25- 16.88 (528)
-------- --------------- --------
November 29, 1992 2,400.3 $ 5.63-$32.44 $ 44,598
Granted 594.7 16.31- 19.69 11,099
Terminated (290.5) 5.63- 32.44 (5,791)
Exercised (44.5) 15.63- 17.00 (749)
-------- --------------- --------
November 28, 1993 2,660.0 $ 5.63-$31.13 $ 49,157
======== =============== ========
Included in the 1991 activity is the cancellation and regrant of 1,327,190
options at $16.87 per share. Regranted options vest over a four-year period
irrespective of vested status of cancelled options.
At year end 1993 and 1992, options to purchase 1,003,416 shares and 591,556
shares, respectively, were exercisable at prices ranging from $5.63 to $31.13
and from $5.63 and $32.44, respectively.
Shares available for option grants at year end 1993 and 1992 were 2,407,345 and
711,515, respectively.
The Company has a remaining reserve of approximately 98,000 shares of its
authorized but unissued common stock for issuance under an employee stock
purchase plan.
The stock purchase plan covers substantially all employees of the parent company
and its domestic subsidiaries. Common stock purchases are paid through periodic
payroll deductions of up to 10% of eligible compensation. The participant's
purchase price is 85% of the lower of the closing market price on the first
trading day or the last trading day of the quarter
76
in which the stock is purchased by the employee. The Company has issued 901,179
shares of its stock (including 345,339 treasury shares) under this plan as of
November 28, 1993.
EMPLOYEE BENEFIT PLANS
The Company has a Savings and Deferred Profit Sharing Plan qualified under
section 401(k) and 401(a) of the Internal Revenue Code. This Plan is designed
to enable eligible U.S. employees to share in the profits of the Company and
supplement their retirement income. The Company contributes to the Plan up to
10% of consolidated pretax income before contributions under the Plan. Profit
sharing expenses under this plan were $0.7 million, $0.6 million and $0.5
million in fiscal years 1993, 1992 and 1991, respectively. The Company matches
up to $1,000 of each employee's contributions to the Plan, depending on length
of service. Measurex's matching contributions to the Plan were $0.8 million,
$0.9 million and $0.8 million in 1993, 1992 and 1991, respectively.
Certain foreign employees are eligible to participate in similar profit sharing
programs or local pension plans. With respect to these plans, the pension
benefit obligations and plan assets were not material. Total pension expense
under these foreign pension plans was $1.2 million, $1.5 million and $1.5
million for 1993, 1992 and 1991, respectively.
77
INCOME TAXES
The provision (credit) for income taxes consists of the following:
1993 1992 1991
------- ------- -------
Current income taxes:
United States $ 386 $ 1,695 $ 1,923
Foreign 6,059 3,838 3,718
State 326 395 315
------- ------- -------
6,771 5,928 5,956
------- ------- -------
Deferred income taxes:
United States (3,862) (2,986) (4,716)
Foreign 1,555 (2,889) (1,110)
------- ------- -------
(2,307) (5,875) (5,826)
------- ------- -------
Extraordinary credit from
utilization of foreign
tax loss carryforwards - 911 -
------- ------- -------
Provision for income taxes $ 4,464 $ 964 $ 130
======= ======= =======
The foreign provision for income taxes is based on foreign pretax earnings of
approximately $19.3 million, $4.6 million and $8.1 million in 1993, 1992 and
1991, respectively.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
Statement is effective for the Company's fiscal year 1994. The estimated
cumulative effect of implementing the Statement will be to reduce the deferred
tax liability by approximately $0.5 million in the first quarter of 1994.
The major components of the provision not currently payable result from:
1993 1992 1991
-------- -------- --------
Taxes provided on
undistributed earnings of
foreign subsidiaries $ 1,472 $ - $ 510
Tax accounting for:
Finance leases 927 749 642
Depreciation (537) (898) (187)
Inventory reserves (930) (700) (703)
Noncollection and system
return reserves (638) (73) (25)
Deferred compensation 376 137 (220)
Capitalized software (557) 818 (140)
Installment sales 857 (427) (116)
Restructuring costs 1,510 (1,702) (1,424)
Other accrued expenses 1,358 (854) (259)
Repatriation of earnings from
foreign subsidiaries paid out
of previously provided taxes (5,277) (2,471) (3,388)
Unrealized foreign exchange gain (loss) (225) 118 272
Other (643) (572) (788)
------- ------- -------
$(2,307) $(5,875) $(5,826)
======= ======= =======
The Company has not provided for United States income taxes on the earnings of
certain foreign subsidiaries that are considered invested indefinitely outside
the United States. The cumulative earnings of the foreign subsidiaries that are
considered permanently invested outside the United States amounted to $64.0
million at November 28, 1993.
78
The manufacturing profits from the Company's subsidiary in the Republic of
Ireland are subject to a 10% tax until the year 2010.
At November 28, 1993, the Company has in various foreign subsidiaries net
operating loss carryforwards of approximately $13.7 million and tax credit
carryforwards of approximately $1.8 million at current exchange rates. $8.9
million of the net operating loss carryforwards and $0.9 million of the tax
credit carryforwards will expire in varying amounts between 1994 and 2000.
These carryforwards will reduce net tax expense for financial report purposes if
utilized.
The principal items accounting for the difference between income taxes computed
at the United States statutory rate and the provision for income taxes are as
follows:
1993 1992 1991
-------- ------ -------
United States statutory tax $4,310 $ 571 $ 176
Effect of:
Undistributed earnings of
foreign subsidiaries deemed
permanently reinvested (77) (479) (1,243)
Tax credits 35 33 (310)
Foreign sales corporation (322) (879) -
Income of foreign subsidiaries
taxed at differing statutory
rates 35 637 364
Losses of foreign subsidiaries not
providing tax benefit 634 2,029 1,767
Tax exempt investment income (288) (268) (606)
State income taxes 215 230 158
Reduction in taxes due to favorable
settlement and closing of prior
tax years - (864) -
Other items (78) (46) (176)
------ ------ -------
Provision for income taxes $4,464 $ 964 $ 130
Extraordinary credit from
utilization of foreign
tax loss carryforwards - (911) -
------ ------ -------
Net tax expense $4,464 $ 53 $ 130
====== ====== =======
GAIN ON SALE OF TECHNOLOGY AND ASSETS
In January 1992, Measurex sold all rights to the PlantWorks(TM): Application
Automation Edition(TM) software package and certain other assets of its
subsidiary, Measurex Automation Systems, to International Business Machines
Corporation (IBM), which resulted in a pretax gain of $2.4 million.
TRANSACTIONS WITH AFFILIATED COMPANY
In the second quarter of 1990, the Company entered into a cooperative
arrangement with Beloit Corporation for integrated marketing and sales of all
Measurex controls with Beloit's full line of pulp and paper machinery.
Simultaneously executed, was a seven-year "standstill" agreement between
Measurex and Harnischfeger Industries Inc., Beloit's parent company, whereby
Harnischfeger purchased 20% of Measurex's common stock on the open market.
Revenues and ending accounts receivable with Beloit for the year ending November
28, 1993 were immaterial.
79
BUSINESS SEGMENTS
The Company operates in one principal industry segment: the design, development,
manufacture, sales and service of computer-integrated manufacturing systems.
The Company sells these products to the pulp and paper, plastics, metals, rubber
and chemical industries. Approximately 80% of the Company's system revenue is
from the pulp and paper industry in 1993, 1992 and 1991.
No single customer accounted for 10% or more of revenues during 1993, 1992 or
1991.
The Company's products are principally distributed and serviced through its own
marketing and service organizations. Operations are conducted worldwide and are
grouped into three geographic areas: United States, Europe, and Other
International (primarily Canada, the Pacific Rim, and the Southern Hemisphere
countries).
The following table summarizes the geographic operations of the Company:
(Dollar amounts in millions) 1993 1992 1991
- ------------------------------ ------- ------- -------
Revenues from unaffiliated
customers:
United States $ 94.5 $ 88.6 $ 80.4
Europe 79.5 93.4 111.2
Other International 80.0 70.6 62.4
------ ------ ------
Consolidated $254.0 $252.6 $254.0
------ ------ ------
Earnings (loss) from
operations:
United States $ (3.4) $ (4.0) $ (3.8)
Europe 4.7 (2.4) 3.5
Other International 11.5 4.8 (1.9)
Corporate (5.3) (6.2) (6.2)
------ ------ ------
Consolidated $ 7.5 $ (7.8) $ (8.4)
------ ------ ------
Identifiable assets:
United States $116.6 $117.1 $ 92.9
Europe 48.5 56.9 77.6
Other International 55.1 45.9 54.7
Corporate 98.1 103.0 114.3
------ ------ ------
Consolidated $318.3 $322.9 $339.5
------ ------ ------
The Company's manufacturing operations sell systems to its sales and service
operations. Sales to non-U.S. subsidiaries from U.S. manufacturing operations
were $43.7 million in 1993, $46.6 million in 1992 and $50.4 million in 1991.
Sales to United States and European affiliates from the Canadian manufacturing
operations acquired in 1991 were $21.4 million and $16.9 million in 1993 and
1992, respectively. Sales to affiliates from other geographic areas were not
significant. Internal selling prices are designed to allocate manufacturing
profits to manufacturing entities and sales and service profits to sales and
service entities.
The United States revenues from unaffiliated overseas customers in 1993, 1992
and 1991, were not significant.
Corporate identifiable assets include short-term cash investments and marketable
securities.
80
Report of Independent Accountants
TO THE SHAREHOLDERS, MEASUREX CORPORATION
We have audited the accompanying consolidated balance sheets of Measurex
Corporation as of November 28, 1993 and November 29, 1992 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended November 28, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audits to
obtain reasonable assurance about whether the 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 aforementioned financial statements present fairly, in all
material respects, the consolidated financial position of Measurex Corporation
as of November 28, 1993 and November 29, 1992, and the consolidated results of
their operations and their cash flows for each of the three fiscal years in the
period ended November 28, 1993, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND
San Jose, California
December 15, 1993
81
SUPPLEMENTAL FINANCIAL DATA
Interim Financial Information (Unaudited)
(Dollar amounts in thousands 1993 Quarter Ended
------------------------------------
except per share data) Feb. 28 May 30 Aug. 29 Nov. 28
- ------------------------------- ------- ------- -------- --------
Revenues $61,839 $66,141 $64,268 $61,749
Gross margin 20,009 23,678 23,607 22,474
Income before income taxes 2,713 3,344 3,604 3,018
Net income 1,736 2,174 2,343 1,962
Net income per share .10 .12 .13 .11
Dividends per share .11 .11 .11 .11
(Dollar amounts in thousands 1992 Quarter Ended
------------------------------------
except per share data) Mar. 1 May 31 Aug. 30 Nov. 29
- ------------------------------- ------- ------- -------- -------
Revenues $62,105 $62,869 $61,823 $65,790
Gross margin 22,190 21,839 22,158 19,342
Income (loss) before
income taxes and
extraordinary credit 5,179 3,092 2,470 (9,063)
Income (loss) before
extraordinary credit 3,625 2,103 1,581 (6,595)
Extraordinary credit - - - 911
Net income (loss) 3,625 2,103 1,581 (5,684)
Income (loss) per share
before extraordinary credit .20 .11 .09 (.36)
Extraordinary credit
per share - - - .05
Net income (loss)
per share .20 .11 .09 (.31)
Dividends per share .11 .11 .11 .11
In the fourth quarter of 1992, the Company recorded pretax provisions of $9.0
million for worldwide restructuring programs.
Market For The Registrant's Common Stock and Related Security Holder Matters
The Company's common shares are listed on the New York and Pacific Stock
Exchanges.
As of November 28, 1993, there were 1,486 shareholders of record. Dividends of
$.44 per share were paid in 1993 and 1992.
1993 Price 1992 Price
---------------- ----------------
High Low High Low
---------------- ----------------
1st Quarter $20 $17 3/8 $23 $15 3/8
2nd Quarter 18 7/8 16 1/8 24 3/4 18 7/8
3rd Quarter 19 7/8 17 1/8 19 5/8 18 1/4
4th Quarter 20 3/4 18 18 3/4 15 3/8
82
Selected Financial Data
Six years ended November 28, 1993
(Dollar amounts in thousands
except per share data) 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------
Revenues:
Systems $152,839 $148,367 $148,249 $170,619 $195,508 $184,220
Service and other 101,158 104,220 105,730 95,579 89,839 81,020
Total revenues 253,997 252,587 253,979 266,198 285,347 265,240
- -------------------------------------------------------------------------------------------------------
Gross Margin:
Systems $ 53,111 $ 49,123 $ 54,534 $ 71,712 $ 95,201 $ 94,075
Service and other 36,657 36,406 33,312 33,400 33,206 27,338
- -------------------------------------------------------------------------------------------------------
Total gross margin 89,768 85,529 87,846 105,112 128,407 121,413
- -------------------------------------------------------------------------------------------------------
Earnings (loss) from operations $ 7,500 $ (7,752) $ (8,448) $ 19,460 $ 37,915 $ 39,855
Income before income taxes and
extraordinary credit 12,679 1,678 519 30,374 50,923 48,747
Income before extraordinary credit 8,215 714 389 22,522 40,682 37,066
Net income 8,215 1,625 389 22,522 40,682 37,066
Income per share before
extraordinary credit .46 .04 .02 1.26 2.17 1.95
Net income per share .46 .09 .02 1.26 2.17 1.95
Dividends per share .44 .44 .44 .43 .37 .27
System orders 151,000 156,000 127,000 168,000 189,000 203,000
System backlog 91,000 95,000 91,000 109,000 109,000 120,000
- -------------------------------------------------------------------------------------------------------
Gross margin:
Systems 34.7% 33.1% 36.8% 42.0% 48.7% 51.1%
Service and other 36.2% 34.9% 31.5% 34.9% 37.0% 33.7%
Total gross margin 35.3% 33.9% 34.6% 39.5% 45.0% 45.8%
Earnings (loss) from operations 3.0% (3.1%) (3.3%) 7.3% 13.3% 15.0%
Net income 3.2% 0.6% 0.2% 8.5% 14.3% 14.0%
Income tax rate 35.2% 57.4% 25.0% 25.9% 20.1% 24.0%
- -------------------------------------------------------------------------------------------------------
Working capital $137,720 $133,305 $154,744 $185,237 $186,798 $176,429
Total assets 318,316 322,884 339,539 337,477 333,010 303,875
Total debt 21,299 891 5,033 5,196 5,257 6,721
Shareholders' equity 211,864 218,453 231,718 238,640 230,074 204,487
- -------------------------------------------------------------------------------------------------------
Current ratio 2.8:1 2.6:1 2.9:1 3.7:1 3.5:1 3.4:1
Return on beginning equity 3.8% .7% .2% 9.8% 19.9% 21.8%
Return on beginning assets 2.5% .5% .1% 6.8% 13.4% 14.2%
Book value per share $ 11.87 $ 12.12 $ 12.82 $ 13.33 $ 12.51 $ 11.02
- -------------------------------------------------------------------------------------------------------
Total product development costs $ 22,871 $ 25,292 $ 26,258 $ 28,226 $ 29,970 $ 26,177
Reimbursement from
co-development programs - (44) (927) (3,451) (5,105) (3,965)
Capitalized software costs (a) (1,725) (4,636) (2,332) (4,535) (3,180) (3,027)
- -------------------------------------------------------------------------------------------------------
Product development expense $ 21,146 $ 20,612 $ 22,999 $ 20,240 $ 21,685 $ 19,185
- -------------------------------------------------------------------------------------------------------
Capital expenditures $ 8,329 $ 7,781 $ 8,211 $ 15,484 $ 25,010 $ 10,265
Number of employees 2,250 2,310 2,530 2,580 2,770 2,620
Shares outstanding (thousands) 17,844 18,028 18,077 17,897 18,394 18,561
=======================================================================================================
(a) Computer software costs capitalized in accordance with Statement of
Financial Accounting Standards No. 86.
83