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 3, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9567
THERMEDICS INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2788806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2999
Woburn, Massachusetts 01888-1799
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 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, 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 30, 1998, was approximately $234,966,000.
As of January 30, 1998, the Registrant had 36,725,953 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Shareholders for the year
ended January 3, 1998, 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 June 1, 1998, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
The businesses of Thermedics Inc. (the Company or the Registrant) are
divided into two segments: Instruments and Other Equipment, and
Biomedical Products. The Company's Instruments and Other Equipment
segment includes Thermo Sentron Inc., which designs, develops,
manufactures, and sells high-speed precision-weighing and inspection
equipment for industrial production and packaging lines. Also part of the
Instruments and Other Equipment segment is the Company's Orion laboratory
products division, which manufactures electrode-based
chemical-measurement products that determine the quality of a wide
variety of substances by measuring components, such as pH, ion, dissolved
oxygen, and conductivity levels and are used in the agricultural,
biomedical research, food-processing, pharmaceutical, and many other
industries. Through the Company's Thermedics Detection Inc. subsidiary,
the Instruments and Other Equipment segment also develops, manufactures,
and markets high-speed, on-line detection instruments used in a variety
of industrial process applications, security applications, and laboratory
analysis. In March and November 1996, Thermedics Detection issued shares
of its common stock in private placements for net proceeds of $7.0
million, and in March 1997, Thermedics Detection completed the sale of
shares of common stock in its initial public offering for net proceeds of
$28.1 million. The Instruments and Other Equipment segment, through the
Company's Thermo Voltek Corp. subsidiary, also designs, manufactures, and
markets electronic-test instruments, and a range of products related to
power amplification, conversion, and quality.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. subsidiary has developed two implantable left
ventricular-assist systems (LVAS): a pneumatic, or air-driven, system and
an electric version. Thermo Cardiosystems' Nimbus Medical Inc.
subsidiary, the business of which was acquired in December 1996, has been
involved in artificial heart technology for more than 20 years and has
carried out research in two primary fields: ventricular-assist devices
and total artificial hearts. Nimbus was instrumental in developing the
basic technology for high-speed rotary blood pumps. On May 2, 1997,
Thermo Cardiosystems acquired International Technidyne Corporation from
Thermo Electron Corporation in exchange for the right to receive
3,355,705 shares of Thermo Cardiosystems' common stock. International
Technidyne is a leading manufacturer of near-patient, whole-blood
coagulation testing equipment and related disposables and also
manufacturers premium-quality, single-use skin-incision devices. The
3,355,705 shares of Thermo Cardiosystems' common stock issuable in the
merger will not be issued until the listing of such shares for trading
upon the American Stock Exchange has been approved by Thermo
Cardiosystems' shareholders. Because the Company is the majority
shareholder and intends to vote its shares in favor of such listing, the
approval is assured. In addition, as part of its Biomedical Products
segment, the Company also develops, manufactures, and markets enteral
nutrition-delivery systems and a line of medical-grade polymers used in
medical disposables and nonmedical, industrial applications, including
safety glass and automotive coatings.
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The Company was incorporated in 1983 under the laws of Massachusetts
as a wholly owned subsidiary of Thermo Electron. Prior to that time, the
business of the Company was conducted by the R & D/New Business Center of
Thermo Electron. As of January 3, 1998, Thermo Electron owned 21,141,471
shares of the Company's common stock, representing 58% of such stock
outstanding. Thermo Electron provides analytical and monitoring
instruments; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; paper recycling and
papermaking equipment; alternative-energy systems; industrial process
equipment; and other specialized products. Thermo Electron also provides
industrial outsourcing, particularly in environmental-liability
management, laboratory analysis, and metallurgical processing, and
conducts advanced-technology research and development.
Thermo Electron intends, for the foreseeable future, to maintain at
least 50% ownership of the Company. This may require Thermo Electron to
purchase additional shares of the Company's common stock (or debentures
convertible into common stock) from time to time, as the number of the
Company's outstanding shares increases. These or any other purchases may
be made either in the open market or directly from the Company. See Notes
4 and 7 to Consolidated Financial Statements in the Company's 1997*
Annual Report to Shareholders for a description of the Company's
outstanding stock options and convertible debentures. During 1997, Thermo
Electron purchased 852,264 shares of the Company's common stock in the
open market for $17.4 million. Additionally, during 1997, Thermo Electron
purchased in the open market 50,400 shares, 186,500 shares, and 426,900
shares of the common stock of Thermo Cardiosystems, Thermo Voltek, and
Thermo Sentron, respectively, for $1.4 million, $1.8 million, and $4.8
million, respectively.
On February 5, 1998, the Company's Board of Directors voted to issue
4,880,533 shares of its common stock to Thermo Electron in exchange for
100% of the stock of TMO TCA Holdings Inc., which is the beneficial owner
of 3,355,705 shares of Thermo Cardiosystems' common stock. The issuance
of the 3,355,705 shares of Thermo Cardiosystems common stock is subject
to the approval by Thermo Cardiosystems' shareholders for the acquisition
of International Technidyne from Thermo Electron. The Company's issuance
of the 4,880,533 shares of its common stock to Thermo Electron is subject
to approval by the Company's shareholders. However, because Thermo
Electron is the majority shareholder and intends to vote its shares in
favor of the transaction, approval is assured. The shares of common stock
will be exchanged at their respective fair market values as of February
5, 1998.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities and 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
* References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
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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 1997 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
Financial information concerning the Company's industry segments is
summarized in Note 14 to Consolidated Financial Statements in the
Registrant's 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
(c) Description of Business
Instruments and Other Equipment
Precision-weighing and Inspection Equipment. Thermo Sentron serves
two principal markets: packaged goods and bulk materials. Thermo
Sentron's products for the packaged-goods market include a broad range of
checkweighing equipment and metal detectors that can be integrated at
various stages in production lines for process control and quality
assurance. These products are sold primarily to customers in the
food-processing, pharmaceutical, mail-order, and other industries.
Products in Thermo Sentron's bulk-material line include conveyor belt
scales, solid level-measurement and conveyor-monitoring systems, sampling
systems, and small-capacity feeders. These products are sold primarily to
customers in the mining and material-processing industries, as well as
electric utilities, chemical, and other manufacturing companies. In
February 1997, the Company acquired the business of RCC Industrial
Electronics Pty. Limited (RCCI), an Australia-based manufacturer of
in-motion checkweighers for the food and pharmaceutical industries. In
July 1997, the Company acquired Westerland Engineering Ltd., a United
Kingdom-based manufacturer of process-weighing and control equipment.
During 1997, 1996, and 1995, the Company derived revenues of $78.7
million, $70.0 million, and $67.5 million, respectively, from its
precision-weighing and inspection equipment.
Laboratory Products. To expand its product quality assurance
offerings, the Company acquired Orion in December 1995. Orion
manufactures electrode-based chemical-measurement products that determine
the quality of a wide variety of substances by measuring components, such
as pH, ion, dissolved oxygen, and conductivity levels. Orion's products
are used in the agricultural, biomedical research, food-processing,
pharmaceutical, and many other industries. Pure water monitors, also
marketed under the Orion name, use ion-selective technology to monitor
parameters required for the control of high-purity water systems in power
generation and other industrial applications. Other products include Cahn
microweighing and moisture balances and Lear/Fischer filtration/moisture
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analysis products, all marketed under the Orion brand name. Orion also
markets consumable products for its earlier instruments line.
During 1997 and 1996, the Company derived revenues from laboratory
products of approximately $53.1 million and $50.9 million, respectively.
Process Detection Instruments. Thermedics Detection designs,
manufactures, and markets high-speed on-line trace (parts-per-trillion)
measurement, detection, and rejection equipment that uses particle- and
vapor-detection and other technologies for product quality and
productivity applications. The Alexus(R) system detects trace amounts of
constituents that affect product quality in refillable plastic soft
drink, water and other beverage containers. In 1996, the Company began
selling its high-speed X-ray imaging system, marketed under the brand
name InScan(TM), which uses high-speed X-ray imaging technology to
determine accurate fill volume, net volume, and package integrity of
containers for the beverage, food, and other industries. In 1996, the
Company also introduced a high-speed gas chromatography instrument,
marketed under the brand name Flash-GC(TM), which analyzes chemical
samples at speeds 20 to 50 times faster than conventional gas
chromatography. Thermedics Detection's Moisture Systems division,
acquired in 1996, designs, manufactures, and markets equipment that uses
near-infrared (NIR) spectroscopy to measure moisture and other product
constituents, including fats, proteins, oils, flavorings, solvents,
adhesives, and coatings, in a variety of manufacturing processes. These
systems are used across the food, pharmaceutical, chemical,
petrochemical, tobacco, forest products, paper converting, plastics,
textiles, corrugating, and other industries.
During 1997, 1996, and 1995, the Company derived revenues of
approximately $37.8 million, $34.0 million, and $18.5 million,
respectively, from its process detection instrument business.
Security Instruments. Also through Thermedics Detection, the Company
designs, manufactures, and markets security instruments that use trace
particle- and vapor-detection techniques for forensics, search and
screening applications under the direction of police, border police,
transportation authorities, and carriers. The Company's principal
security instrument is the EGIS(R) system, a highly sensitive particle-
and vapor-detection system for screening people, baggage, packages,
freight, and electronic equipment such as personal computers for the
presence of a wide range of explosives, including plastic explosives that
have proven difficult to detect using conventional methods. The EGIS
system is designed for stand-alone use in the detection of explosives in
carry-on items and on personnel, and can be used in conjunction with
enhanced X-ray and other advanced imaging systems to provide a
comprehensive explosives-detection system for checked luggage. Initially
developed with internal funds and contract funding from the Federal
Aviation Administration (FAA) and the U.S. Department of State, more than
200 EGIS units have been deployed to date. The EGIS system is currently
operational in 24 countries and is in use in carry-on and checked-luggage
screening at more than 45 international airports. EGIS is also used in
government buildings and embassies, and at border crossings and other
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locations where there is a high degree of concern for security. The EGIS
system has assisted in identifying explosives used in terrorist bombings,
including those in the Federal Building in Oklahoma City and the World
Trade Center in New York, as well as in Israel, Buenos Aires, and the
United Kingdom. In March 1996, the Company supplied the U.S. government
with eight EGIS systems to provide counter-terrorism support in Israel.
Most recently, the Bureau of Alcohol, Tobacco and Firearms and the
Federal Bureau of Investigation used EGIS systems in their attempt to
identify the cause of the crash of TWA Flight 800.
In September 1996, the Company entered into a development contract
with the FAA to develop EGIS II, a lower-cost EGIS unit for use in more
portable applications such as remote security checkpoints and
counter-terrorism activities. In November 1996, the Company introduced
its new SecurScan, a prototype of a walk-through trace detector designed
to screen 10 passengers per minute, and introduced its Rampart system, a
lower-cost unit for airport applications, in 1997. In addition, in 1997,
the Company entered into a development contract with the British Ministry
of Defense to develop an explosives-detection system that is even more
sensitive than the EGIS system.
Test Instruments and Power Products. Through its Thermo Voltek
subsidiary, the Company designs, manufactures, and markets
electronic-test instruments and a range of products related to power
amplification, conversion, and quality. The Company's test instruments
simulate pulsed electromagnetic interference, radio frequency
interference, and changes in AC voltage, to allow manufacturers of
electronic systems and integrated circuits to test for electromagnetic
compatibility (EMC). These products are used in the product-development,
design-verification, and quality-assurance stages, enabling customers to
optimize performance, reliability, and safety in the final design, and to
meet industry standards and regulatory requirements, including a European
Union directive that took effect in January 1996. The Company's power
products include radio frequency (RF) and microwave power amplifiers,
power-conversion equipment, and high-voltage and application-specific
power supplies. These power products are used in communications,
broadcast, research, and medical imaging applications. During 1997, the
Company experienced lower demand for its EMC test products, due to the
declining influence of IEC 801, the European Union directive on
electromagnetic compatibility that took effect January 1, 1996, and, to a
lesser extent, a decline in the component-reliability market for
electrostatic discharge test equipment that resulted from a slowdown in
capital expenditures by the semiconductor industry. Due in part to these
developments, during 1997 the Company implemented certain operational,
organizational, and personnel changes.
During 1997, 1996, and 1995, the Company derived revenues of $44.6
million, $48.5 million, and $36.3 million, respectively, from its test
instruments and power products.
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Biomedical Products
Left Ventricular-assist Systems. The Company, through its Thermo
Cardiosystems subsidiary, has developed two versions of its LVAS: an
implantable pneumatic, or air-driven, system that can be controlled by
either a bedside or portable console; and an electric system that
features an internal electric motor powered by an external battery pack
worn by the patient. Both of the Company's systems employ the Company's
HeartMate(R) blood pump, and are designed for long-term use. This pump is
implanted just below the diaphragm in a position that minimizes
interference with normal circulation and other bodily functions. An inlet
tube is inserted into the apex of the left ventricle to drain blood into
the pump chamber. Blood is then forced out of the pump through an animal
tissue valve and back into the aorta. The HeartMate blood pump works with
the biological control mechanism of the natural heart to increase pumping
capability when required for activities such as climbing stairs. The
Company's LVAS devices are at various stages of regulatory approval.
Air-driven LVAS. In October 1994, the FDA approved the air-driven
system as a bridge to transplant for patients awaiting heart
transplantation. This approval allows the Company to sell the air-driven
LVAS to any of the nearly 900 cardiac surgery centers in the United
States. In April 1994, the Company received the CE Mark for commercial
sale of the air-driven LVAS in all European Community countries. In the
air-driven LVAS, the HeartMate blood pump is coupled to an external
console connected to the body by a tube. The Company has also developed
the HeartPak(TM), a lightweight portable console that can be carried over
the shoulder. The portable console received the CE Mark for commercial
sale in European Community countries in February 1995. In July 1995, the
FDA approved the beginning of Phase I clinical trials of the HeartPak
portable pneumatic driver. The HeartPak is currently in Phase I clinical
trials in the U.S. Phase I of the study is evaluating the safety of the
system in the hospital; Phase II will evaluate the system in the home
environment.
Electric LVAS. The Company has also developed an electric LVAS that
uses the HeartMate blood pump driven by an internal electric motor
mounted in the blood pump housing. The system is connected to its
external battery pack by wires that exit the body. Since the power source
and control elements are worn on a battery belt, the system allows the
patient complete mobility. In August 1995, the electric LVAS was awarded
the CE Mark, allowing commercial sale of this system in all European
Community countries. The electric system is used as a bridge to
transplant in the United States and Europe, and is also implanted as an
alternative to heart transplant in Europe. The electric LVAS may not be
sold commercially in the United States until it has received approval
from the FDA. The electric LVAS is currently being used in the United
States in clinical trials for patients awaiting heart transplants. In
June 1997, the Company submitted a PMA supplemental application to
receive FDA approval of the electric LVAS as a bridge to transplant. This
application is currently under review; however, no assurance can be given
that the FDA will review this application on a timely basis or will grant
approval once it completes its review.
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During 1997, 1996, and 1995, the Company derived revenues of $25.0
million, $30.0 million, and $20.6 million, respectively, from its LVAS.
Blood-testing Equipment and Skin-incision Devices. The Company's
International Technidyne subsidiary manufacturers and supplies
whole-blood coagulation testing equipment and related disposables, as
well as skin-incision devices. International Technidyne's product lines
offer whole-blood coagulation systems for bedside anticoagulation
management, coagulation screening, and transfusion management. Each
analyzes small blood samples, then processes and quickly displays
comprehensive patient homeostasis information. Blood management of this
type is essential as the number of invasive medical procedures, such as
cardiopulmonary bypass surgery and angioplasty, increase. The ProTime(R)
Microcoagulation System is designed to allow long-term oral anticoagulant
patient self-testing. International Technidyne also manufactures a family
of single-use skin-incision devices for drawing blood from adults,
children, and infants.
Medical-grade Polymers and Enteral Nutrition-delivery Systems. The
Company's research relating principally to the development of its LVAS
has resulted in the development of proprietary medical-grade plastics
marketed under the names Tecoflex(R) and Tecothane(R). Tecoflex and
Tecothane are thermoplastic polyurethanes used in medical disposables and
industrial products. The Company sells Tecoflex and Tecothane in bulk
form for fabrication by the customer, and the Company also extrudes
precision tubing to customer specifications.
In 1993, the Company introduced Scent Seal fragrance samplers, which
were developed from the Company's polymer technology. Scent Seal
fragrance samplers are used to hermetically seal a fragrance rendition in
perfume advertisements for magazines, and are an alternative to commonly
used fragrance strips. In June 1995, Thermedics entered into an agreement
granting Arcade, Inc., the leading manufacturer of scent-sampling
products, an exclusive, worldwide license to manufacture and distribute
the Company's fragrance samplers under Thermedics' patents and know-how.
Under the license agreement, Arcade pays royalties to Thermedics on
licensed fragrance samplers sold by Arcade, and Thermedics continues to
provide the polymer gels needed to produce the fragrance samplers.
The Company's Corpak Inc. subsidiary designs, manufactures, and
markets enteral feeding systems that introduce special nutritional
solutions into the stomach or the small intestine through tubes entering
the nose or stomach. Enteral therapy is used for patients who are unable
to feed themselves but who do not require parenteral (intravenous)
feeding. Corpak's products include bags for nutritional fluids, delivery
pumps, associated pump sets that hook up to the pumps, and feeding tubes.
In addition, Corpak markets a range of enteral feeding supplements.
(ii) and (xi) New Products; Research and Development
The Company maintains research and development capability to support
its existing products and to develop new products. A number of programs
are underway, funded by the Company solely or jointly with an outside
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source. These programs include development of new products to perform
substantially all or part of the pumping function of the left ventricle
of the natural heart, process detection and security instruments,
electronic test instruments, and high voltage power supply products. The
Company also develops new grades of polymers to meet specific customer
requirements for industrial and medical applications.
During 1997, 1996, and 1995, the Company expended $24,270,000,
$21,363,000, and $14,874,000, respectively, on internally sponsored
research and development programs, and $2,890,000, $1,410,000, and
$3,125,000, respectively, on research and development programs sponsored
by others. As of January 3, 1998, 213 professional employees were engaged
full-time in research and development activities.
(iii) Raw Materials
Certain raw materials used in the manufacture of the Company's LVAS
are available from only one or two suppliers. The Company is making
efforts to minimize the risks associated with sole sources and ensure
long-term availability, including qualifying alternative materials and
components or developing alternative sources for the materials and
components supplied by a single source. Although the Company believes
that it has adequate supplies of materials and components to meet demand
for the LVAS for the foreseeable future, no assurance can be given that
the Company will not experience shortages of certain materials or
components in the future that could delay shipments of the LVAS.
The cost to the Company to evaluate and test alternative materials
and components and the time necessary to obtain FDA approval for these
materials and components are inherently difficult to determine because
both time and cost are dependent on at least two factors: the similarity
of the alternative material or component to the original material or
component, and the amount of third-party testing that may have already
been completed on alternative materials or components. There can be no
assurance that the substitution of alternative materials or components
will not cause delays in the Company's LVAS development program or
adversely affect the Company's ability to manufacture and ship LVAS to
meet demand.
(iv) Patents, Licenses, and Trademarks
The Company considers its intellectual property important in the
operation and growth of its business, and its policy is to protect this
property through patents, license and confidentiality agreements,
trademarks, and trade secret protection. The Company applies for and
maintains patents in the U.S. and in foreign countries, particularly in
the areas of biomedical materials, medical products, and analytical
instruments. Although some of these patent rights may provide the Company
with a competitive advantage, the Company primarily relies on its
know-how and trade secrets. In addition, there can be no assurance that
third parties will not assert claims against the Company that the Company
infringes the intellectual property rights of such parties. The Company
could incur substantial costs and diversion of management resources with
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respect to the defense of any such claims, which could have a material
adverse effect on the Company's business, financial condition, and
results of operations. Furthermore, parties making such claims could
secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief, which could effectively block the Company's
ability to make, use, sell, distribute, or market its products and
services in the U.S. or abroad. In the event that a claim relating to
intellectual property is asserted against the Company, the Company may
seek licenses to such intellectual property. There can be no assurance,
however, that such licenses could be obtained on commercially reasonable
terms, if at all. The failure to obtain the necessary licenses or other
rights could preclude the sale, manufacture, or distribution of the
Company's products and, therefore, could have a material adverse effect
on the Company's business, financial condition, and results of
operations. Thermo Cardiosystems has received correspondence from a third
party alleging that the textured surface of the LVAS housing infringes
certain patent rights of such third party. The third party has offered
Thermo Cardiosystems a license, which Thermo Cardiosystems has elected
not to accept. Although Thermo Cardiosystems believes that it has
meritorious defenses to the claims of the third party, due to the
inherent uncertainty of litigation, no assurance can be made that Thermo
Cardiosystems would be successful if any litigation were to begin.
The Company also has certain licenses to the technology resulting
from its customer-sponsored development of the Alexus system. The
Company's patents and agreements have varying lives ranging from one year
to approximately twenty years, and the Company does not believe that the
expiration or termination of any one of these patents or agreements would
materially affect the Company's business.
(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 customer represented 10% or more of the Company's total revenues
in 1997, 1996, and 1995.
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(viii) Backlog
The Company's backlog of firm orders at year-end 1997 and 1996 was as
follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Instruments and Other Equipment $32,735 $39,000
Biomedical Products 3,847 2,729
------- -------
$36,582 $41,729
======= =======
Certain of these orders are cancellable by the customer upon payment
of a cancellation charge. The Company anticipates that substantially all
of the backlog at the end of 1997 will be shipped or completed during
1998. The Company does not believe the size of its backlog is necessarily
indicative of intermediate or long-term trends in its business.
(ix) Government Contracts
Not applicable.
(x) Competition
Instruments and Other Equipment
Precision-weighing and Inspection Equipment. The Company's Thermo
Sentron subsidiary encounters and expects to continue to encounter
intense competition in the sale of its products. Thermo Sentron'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, Thermo Sentron competes on a worldwide basis primarily with Carl
Schenck AG and Milltronics Corporation. Thermo Sentron 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.
Laboratory Products. The Company's Orion division competes with
several international companies. The Company competes on the basis of
performance, service, technology, and price.
Process Detection Instruments. The Company's process detection
instruments compete with systems manufactured by numerous companies. The
Company believes that these companies are generally focused on particular
niches in the process detection systems market, only in some of which
does the Company compete. Competition in the markets for each of the
Company's process detection systems is based primarily on performance,
durability, service and, to a lesser extent, price. The Company believes
that its systems' performance and speed, as well as the Company's
reputation for developing superior new technologies and for the
innovative application of existing technologies to a variety of
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high-speed production environments and product quality-assurance
problems, are competitive advantages.
Security Instruments. In the explosives-detection market, the Company
competes with a small number of companies, including other makers of
chemical trace-detection instruments, and, to a lesser degree, makers of
enhanced X-ray detectors. Competition in this market is based primarily
on performance, including speed, accuracy, and the range of explosives
that can be detected; ease of use; service; and price. The Company's
principal competitor in the trace detection market is Barringer
Technologies Inc., a Canadian firm that has placed several trace
detectors in airport applications.
Test Instruments and Power Products. The Company is a leading
supplier of EMC testing equipment. There are numerous companies worldwide
that independently manufacture and market pulsed EMC test equipment for
electronic products, and several more that independently manufacture and
market component-reliability test equipment. In the market for RF power
amplifiers and programmable power amplifiers, the Company competes with
several companies worldwide. In the market for high-voltage power supply
systems of the general type manufactured and marketed by the Company, the
Company competes with numerous companies for both contract and commercial
sales. The Company competes in these markets primarily on the basis of
performance, technical expertise, reputation, and price. Substantially
all of the Company's contract and commercial revenues are subject to
intense competitive bidding. Some of the Company's competitors have
substantially greater financial resources than those of the Company.
Biomedical Products
Left Ventricular-assist Systems. The Company is aware of one other
company that has submitted a PMA application with the FDA for an
implantable LVAS. The Company is unaware whether this PMA application has
been accepted for filing by the FDA. Also, the Company is aware of one
other company that has received approval by the FDA Advisory Panel on
Circulatory System Devices and subsequent commercial approval for its
cardiac-assist device. This is an external device, positioned on the
outside of the patient's chest, and is intended for short-term use in the
hospital environment. In addition, the Company is aware that a total
artificial heart is currently undergoing clinical trials. The requirement
of obtaining FDA approval for commercial sale of an LVAS in the United
States is a significant barrier to entry into the United States market
for these devices. There can be no assurance, however, that FDA
regulations will not change in the future, reducing the time and testing
required for others to obtain FDA approval for commercial sale. In
addition, other research groups and companies, some that have
significantly greater resources than those of the Company, are developing
cardiac systems using alternative technologies or concepts, one or more
of which might prove functionally equivalent to, or more suitable than,
the Company's systems. Among products that have been approved for
commercial sale, the Company competes primarily on the basis of
performance, service capability, and price. Competition in the market for
medical devices is also significantly affected by the reimbursement
12PAGE
<PAGE>
policies of government and private insurers. Any product for which
reimbursement is not available from such third-party payers will be at a
significant competitive disadvantage.
Blood-testing Equipment and Skin-incision Devices. International
Technidyne's principal competitor in the market for coagulation
monitoring instruments such as HEMOCHRON is the HemoTec division of
Medtronic, which manufactures a whole-blood ACT instrument as well as the
Hepcon Hemostatic Monitoring System. International Technidyne also
competes with CDI, which is attempting to compete with HEMOCHRON.
Boehringer Mannheim Corporation has developed a patient blood coagulation
self-testing device similar to the ProTime, which is marketed to
professionals. Boehringer Mannheim has also recently received FDA
clearance for patient self-testing for this product. International
Technidyne's incision devices compete with products offered by a number
of companies, including Organon Teknika; Becton, Dickinson and Company;
and Sherwood Medical Company. International Technidyne's products compete
primarily on the basis of quality, reliability, price, and reputation.
Medical-grade Polymers and Enteral Nutrition-delivery Systems. In the
market for medical-grade polymers and enteral nutrition-delivery systems,
the Company competes primarily with large pharmaceutical, medical-device,
and chemical companies, many of which have substantially greater
financial, technical, and human resources than those of the Company.
Competition within these markets is intense, and is based primarily on
price, efficacy, and technological advances.
(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 3, 1998, the Company's Instruments and Other Equipment
and Biomedical Products segments employed 1,313 and 563 people,
respectively.
(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 14 to Consolidated Financial
Statements in the Registrant's 1997 Annual Report to Shareholders, which
information is incorporated herein by reference.
13PAGE
<PAGE>
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
-------------------- --- ---------------------------------------
John T. Keiser 62 President (1998)
Victor L. Poirier 56 Senior Vice President (1983)
John N. Hatsopoulos* 63 Chief Financial Officer and Senior Vice
President (1983)
David H. Fine 55 Vice President (1993)
Paul F. Kelleher 55 Chief Accounting Officer (1985)
----------
*John N. Hatsopoulos and George N. Hatsopoulos, a director of the
Company, are brothers.
Each executive officer serves until his successor is chosen or
appointed and qualified, or until earlier resignation, death, or removal.
All executive officers have held comparable positions for at least five
years, either with the Company or with its parent company, Thermo
Electron. Mr. Keiser was appointed senior vice president of the Company
in 1994. At the same time he was named president of Thermo Biomedical, a
newly created subsidiary of Thermo Electron, and named President of the
Company in March 1998. From 1985 until 1994, Mr. Keiser was President of
the Eberline Instrument division of Thermo Instrument Systems Inc., a
majority-owned public subsidiary of Thermo Electron. Dr. Fine is a
full-time employees of the Company. Messrs. Hatsopoulos and Kelleher are
full-time employees of Thermo Electron, and Mr. Poirier is a full-time
employee of Thermo Cardiosystems, but they devote such time to the
affairs of the Company as the Company's needs reasonably require.
Item 2. Properties
The Company believes that its facilities are in good condition and
are adequate to meet its current needs and that other suitable space is
readily available if any leases are not extended. The location and
general character of the Company's properties by industry segment as of
January 3, 1998, are as follows:
Instruments and Other Equipment
The Company owns approximately 81,200 square feet of office,
engineering, laboratory, and production space primarily in New York,
England, and Scotland, and leases approximately 607,000 square feet of
office, engineering, laboratory, and production space principally in
Minnesota, Massachusetts, California, Washington, Florida, Puerto Rico,
Mexico, Italy, The Netherlands, Australia, Germany, Spain, South Africa,
and the United Kingdom, under leases expiring from 1998 through 2010.
14PAGE
<PAGE>
Biomedical Products
The Company owns approximately 66,000 square feet of office,
engineering, laboratory, and production space in New Jersey and leases
approximately 195,000 square feet of office, engineering, laboratory, and
production space in Illinois and Massachusetts, under leases expiring in
1998 through 2004.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
15PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.10 par value, and dividend policy are
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
Information concerning the Registrant's selected financial data is
included under the sections labeled "Selected Financial Information" and
"Dividend Policy" in the Registrant's 1997 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 1997 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 3,
1998, are included in the Registrant's 1997 Annual Report to Shareholders
and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Public Accountants on
Accounting and Financial Disclosure
Not applicable.
16PAGE
<PAGE>
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.
17PAGE
<PAGE>
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 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.
18PAGE
<PAGE>
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 by the undersigned, thereunto duly authorized.
Date: March 18, 1998 THERMEDICS INC.
By: John T. Keiser
------------------------------
John T. Keiser
President
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 18, 1998.
Signature Title
--------- -----
By: John T. Keiser President and Director
-------------------------
John T. Keiser
By: John N. Hatsopoulos Chief Financial Officer, Senior Vice
-------------------------
John N. Hatsopoulos President, and Director
By: Paul F. Kelleher Chief Accounting Officer
-------------------------
Paul F. Kelleher
By: Peter O. Crisp Director
-------------------------
Peter O. Crisp
By: Paul F. Ferrari Director
-------------------------
Paul F. Ferrari
By: George N. Hatsopoulos Director
-------------------------
George N. Hatsopoulos
By: John W. Wood Jr. Chairman of the Board and Director
-------------------------
John W. Wood Jr.
By: Nicholas T. Zervas Director
-------------------------
Nicholas T. Zervas
19PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermedics Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermedics
Inc.'s Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 12, 1998.
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 18 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. The
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 12, 1998
20PAGE
<PAGE>
SCHEDULE II
THERMEDICS INC.
Valuation and Qualifying Accounts
(In thousands)
Balance at Provision Accounts Balance
Beginning Charged Accounts Written at End
Description of Year to Expense Recovered Off Other (a) of Year
----------------------------------------------------------------------------
Allowance for
Doubtful Accounts
Year Ended
Jan. 3, 1998 $ 4,903 $ 815 $ - $(1,406) $ (105) $ 4,207
Year Ended
Dec. 28, 1996 $ 4,244 $ 1,352 $ 206 $(1,048) $ 149 $ 4,903
Year Ended
Dec. 30, 1995 $ 3,908 $ 689 $ 2 $ (720) $ 365 $ 4,244
---------------
(a) Includes allowance of businesses acquired during the year as described
in Note 3 to Consolidated Financial Statements in the Registrant's 1997
Annual Report to Shareholders and the effect of foreign currency
translation.
21PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Asset and Stock Purchase Agreement dated as of January 28,
1994, between Thermo Electron and Baker Hughes
Incorporated (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K relating to events occurring on
March 16, 1994 [File No. 1-9567] and incorporated herein
by reference).
2.2 Assignment and Assumption Agreement dated March 16, 1994,
among Thermo Electron, the Registrant, and Thermo
Instrument Systems Inc. (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K relating to events
occurring on March 16, 1994 [File No. 1-9567] and
incorporated herein by reference).
2.3 Agreement and Plan of Merger dated as of November 29,
1995, by and among the Registrant, ATI Merger Corp.,
Analytical Technology, Inc., and, for certain limited
purposes, Thermo Instrument Systems Inc. (filed as Exhibit
2 to the Registrant's Current Report on Form 8-K relating
to events occurring on November 29, 1995 [File No. 1-9567]
and incorporated herein by reference).
2.4 Asset and Share Purchase Agreement dated as of November
29, 1995, by and among Thermo Instrument Systems Inc., ATI
Acquisition Corp., Analytical Technology, Inc., and, for
certain limited purposes, the Registrant (filed as Exhibit
10(a) to the Registrant's Current Report on Form 8-K
relating to events occurring on November 29, 1995 [File
No. 1-9567] and incorporated herein by reference).
2.5 Asset Purchase Agreement dated as of January 25, 1996,
among Thermedics Detection Limited, Moisture Systems
Corporation, Moisture Systems Limited, and Anacon
Corporation (filed as Exhibit 2.5 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 [File No. 1-9567] and incorporated
herein by reference). Schedules to this Agreement have
been omitted pursuant to Rule 601(b)(2) of Regulation S-K.
The Registrant hereby undertakes to furnish supplementally
a copy of any omitted schedule to the Commission upon
request.
2.6 Agreement and Plan of Reorganization among Thermo
Cardiosystems Inc., ITC Acquisition Corp., Thermo Electron
Corporation, ITC Holdings Inc., and International
Technidyne Corporation dated as of May 2, 1997 (filed as
Exhibit 2.1 to Thermo Cardiosystems' Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997 [File
No. 1-10114] and incorporated herein by reference).
22PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
3.1 Articles of Organization (filed as Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 [File No. 1-9567] and
incorporated herein by reference).
3.2 Amendment to Articles of Organization dated October 25,
1993 (filed as Exhibit 3(c) to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended October
2, 1993 [File No. 1-9567] and incorporated herein by
reference).
3.3 Amended and Restated Articles of Incorporation of the
Registrant (filed as Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 29, 1996 [File No. 1-9567] and incorporated herein by
reference).
3.4 Amended and Restated By-laws of the Registrant (filed as
Exhibit 3(c) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1992 [File No.
1-9567] and incorporated herein by reference).
4.1 Fiscal Agency Agreement dated January 5, 1994, among
Thermo Cardiosystems, Thermo Electron, and Chemical Bank
(filed as Exhibit 4.11 to Thermo Cardiosystems' Annual
Report on Form 10-K for the fiscal year ended January 1,
1994 [File No. 1-10114] and incorporated herein by
reference).
4.2 Fiscal Agency Agreement dated November 19, 1993, among
Thermo Voltek, Thermo Electron, and Chemical Bank (filed
as Exhibit 4.3 to Thermo Voltek's Annual Report on Form
10-K for the fiscal year ended January 1, 1994 [File No.
1-10574] and incorporated herein by reference).
4.3 Fiscal Agency Agreement dated as of June 3, 1996, among
Thermedics, Thermo Electron, and Chemical Bank, as fiscal
agent (filed as Exhibit 4 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 29,
1996 [File No. 1-9567] and incorporated herein by
reference).
4.4 Guarantee Reimbursement Agreement dated February 7, 1994,
among Thermo Cardiosystems, Thermo Voltek, the Registrant,
and Thermo Electron (filed as Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-9567] and
incorporated herein by reference).
23PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
4.5 Fiscal Agency Agreement dated as of May 14, 1997, among
Thermo Cardiosystems Inc., Thermo Electron Corporation,
and Bankers Trust Company as fiscal agent relating to
$70 million principal amount of 4 3/4% Convertible
Subordinated Debentures due 2004 (filed as Exhibit 4 to
Thermo Cardiosystems' Quarterly Report on Form 10-Q for
the quarter ended June 28, 1997 [File No. 1-10114] and
incorporated herein by reference).
The Registrant hereby agrees, pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K, to furnish to the
Commission upon request, a copy of each other instrument
with respect to other long-term debt of the Company or its
subsidiaries.
10.1 Amended and Restated Corporate Services Agreement between
Thermo Electron and the Registrant dated as of January 3,
1993 (filed as Exhibit 10(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 2,
1993 [File No. 1-9567] and incorporated herein by
reference).
10.2 Lease dated November 1983 between WGO Limited Partnership,
as Lessor and the Registrant, as Lessee (filed as Exhibit
10(l) to the Registrant's Registration Statement on Form
S-1 [Reg. No. 2-96962] and incorporated herein by
reference; amendments thereto filed as Exhibit 10(l) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 [File No. 1-9567] and
incorporated herein by reference).
10.3 Thermo Electron Corporate Charter as amended and restated
effective January 3, 1993 (filed as Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993 [File No. 1-9567] and
incorporated herein by reference).
10.4 Lease dated August 25, 1978, between National Boulevard
Bank of Chicago and Walpak Company (filed as Exhibit 10(p)
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 [File No. 1-9567] and
incorporated herein by reference).
10.5 Exclusive Base Technology License Agreement between Thermo
Electron and the Registrant dated January 8, 1988 (filed
as Exhibit 10(q) to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 2, 1988 [File
No. 1-9567] and incorporated herein by reference).
24PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.6 Research and Development Contract between Thermo Electron
and the Registrant dated January 8, 1988 (filed as Exhibit
10(r) to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 1988 [File No.
1-9567] and incorporated herein by reference).
10.7 Exclusive License and Marketing Agreement between Thermo
Electron and the Registrant dated January 8, 1988 (filed
as Exhibit 10(s) to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 2, 1988 [File
No. 1-9567] and incorporated herein by reference).
10.8 Intellectual Property Cross-license Agreement between the
Registrant and Thermo Cardiosystems (filed as Exhibit
10(i) to Thermo Cardiosystems' Registration Statement on
Form S-1 [Reg. No. 33-25144] and incorporated herein by
reference).
10.9 Amendment No. 1 dated March 29, 1991, to Exclusive License
and Marketing Agreement between the Registrant and Thermo
Electron (filed as Exhibit 10(r) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 30, 1991 [File No. 1-9567] and incorporated herein
by reference).
10.10 Management Agreement by and between Thermo Electron and
the Registrant dated November 15, 1991 (filed as Exhibit
10(t) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991 [File No. 1-9567]
and incorporated herein by reference).
10.11 Agreement dated May 26, 1993, between Thermo Cardiosystems
and The Polymer Technology Group, Incorporated (filed as
Exhibit 10(nn) to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 3, 1993 [File
No. 1-9567] and incorporated herein by reference).
10.12 Amended and Restated Master Repurchase Agreement dated as
of July 2, 1996, between the Registrant and Thermo
Electron (filed as Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 [File No. 1-9567] and incorporated
herein by reference).
10.13 $38,000,000 Promissory Note dated as of December 11, 1995,
issued by the Registrant to Thermo Electron (filed as
Exhibit 10(b) to the Registrant's Current Report on Form
8-K relating to events occurring on November 29, 1995
[File No. 1-9567] and incorporated herein by reference).
25PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.14 $15,000,000 Promissory Note dated as of February 13, 1996,
issued by the Company to Thermo Electron (filed as Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 30, 1996 [File No. 1-9567]
and incorporated herein by reference).
10.15-17 Reserved.
10.18 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10(d) to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-84380] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's
Nonqualified Stock Option Plan is 1,931,923 shares, after
adjustment to reflect share increases approved in 1986 and
1992, 5-for-4 stock split effected in January 1985,
4-for-3 stock split effected in September 1985, and
3-for-2 stock splits effected in October 1986 and November
1993.)
10.19 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 10(e) to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-84380] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Incentive
Stock Option Plan is 1,931,923 shares, after adjustment to
reflect share increases approved in 1986 and 1992, 5-for-4
stock split effected in January 1985, 4-for-3 stock split
effected in September 1985, and 3-for-2 stock splits
effected in October 1986 and November 1993.)
10.20 Equity Incentive Plan of the Registrant (filed as Appendix
A to the Proxy Statement dated May 10, 1993, of the
Registrant [File No. 1-9567] and incorporated herein by
reference). (Maximum number of shares issuable is
1,500,000 shares, after adjustment to reflect 3-for-2
stock split effected in November 1993.)
10.21 Thermedics Inc. - Thermedics Detection Inc. Nonqualified
Stock Option Plan (filed as Exhibit 10.20 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).
10.22 Thermedics Inc. - Thermo Sentron Inc. Nonqualified Stock
Option Plan (filed as Exhibit 10.51 to Thermo
Cardiosystems' Annual Report on Form 10-K for the fiscal
year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
26PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.23 Thermedics Inc. - Thermo Cardiosystems Inc. Nonqualified
Stock Option Plan (filed as Exhibit 4(b) to Thermo
Cardiosystems' Registration Statement on Form S-8 [Reg.
No. 33-45282] and incorporated herein by reference).
10.24 Thermedics Inc. - Thermo Voltek Corp. Nonqualified Stock
Option Plan.
10.25 Directors Stock Option Plan of the Registrant (filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 [File No.
1-9567] and incorporated herein by reference).
10.26 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10(g) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-96962] 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 for services rendered to the Registrant or
to such affiliated corporations. The terms of such plans
are substantially the same as those of the Registrant's
Equity Incentive Plan.
10.27 Restated Stock Holdings Assistance Plan and Form of
Promissory Note.
10.28 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement, dated December 10, 1997, between Thermo
Electron and the Registrant.
13 Annual Report to Shareholders for the year ended January
3, 1998 (only those portions incorporated herein by
reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended January 3,
1998.
27.2 Financial Data Schedule for the year ended December 30,
1995 (restated for the adoption of SFAS No. 128 and the
acquisition of International Technidyne Corporation).
27.3 Financial Data Schedule for the quarter ended March 29,
1996 (restated for the adoption of SFAS No. 128 and the
acquisition of International Technidyne Corporation).
27PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27.4 Financial Data Schedule for the quarter ended June 28,
1996 (restated for the adoption of SFAS No. 128 and the
acquisition of International Technidyne Corporation).
27.5 Financial Data Schedule for the quarter ended September
28, 1996 (restated for the adoption of SFAS No. 128 and
the acquisition of International Technidyne Corporation).
27.6 Financial Data Schedule for the year ended December 28,
1996 (restated for the adoption of SFAS No. 128 and the
acquisition of International Technidyne Corporation).
27.7 Financial Data Schedule for the quarter ended March 29,
1997 (restated for the adoption of SFAS No. 128).
27.8 Financial Data Schedule for the quarter ended June 28,
1997 (restated for the adoption of SFAS No. 128).
27.9 Financial Data Schedule for the quarter ended September
27, 1997 (restated for the adoption of SFAS No. 128).
Exhibit 10.24
THERMEDICS INC.
THERMO VOLTEK CORP. NONQUALIFIED STOCK OPTION PLAN
1. Purpose
-------
This Nonqualified Stock Option Plan (the "Plan") is intended
to encourage ownership of Common Stock, $0.01 par value (the
"Common Stock"), of Thermo Voltek Corp. ("Subsidiary"), a
subsidiary of Thermedics Inc. (the "Company"), by persons
selected by the Board of Directors (or a committee thereof) in
its sole discretion, including directors, executive officers, key
employees and consultants of the Company and its subsidiaries,
and to provide additional incentive for them to promote the
success of the business of the Company and Subsidiary. The Plan
is intended to be a nonstatutory stock option plan.
2. Effective Date of the Plan
--------------------------
The Plan shall become effective when adopted by the Board of
Directors of the Company.
3. Stock Subject to Plan
---------------------
At no time shall the number of shares of the Common Stock
then outstanding which are attributable to the exercise of
options granted under the Plan plus the number of shares then
issuable upon the exercise of outstanding options granted under
the Plan exceed 100,000 shares, subject
provisions of paragraph 11 of the Plan. Shares to be issued upon
the exercise of options granted under the Plan shall be shares of
Subsidiary beneficially owned by the Company. If any option
expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
again be available for options thereafter to be granted.
4. Administration
--------------
The Plan shall be administered by a committee (the
"Committee") composed of the members of the Board of Directors of
the Company, no member of which shall act upon any matter
exclusively affecting any option granted or to be granted to
himself or herself under the Plan. Subject to the provisions of
the Plan, the Committee shall have complete authority, in its
discretion, to make the following determinations with respect to
each option to be granted by the Company: (a) the person to
receive the option (the "Optionee"); (b) the time of granting the
option; (c) the number of shares subject thereto; (d) the option
price; (e) the option period; and (f) the terms of the option and
form of option agreement (which need not be identical, but which
shall conform to the applicable terms and conditions of the Plan
and contain such other provisions as the Board of Directors deems
advisable and not inconsistent with the Plan). In making such
PAGE
<PAGE>
determinations, the Committee may take into account the nature of
the services rendered by the Optionees, their present and
potential contributions to the success of the Company and/or one
or more of its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, to determine the terms and
provisions of the respective option agreements (which need not be
identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this paragraph 4
shall be conclusive.
5. Eligibility
-----------
An option may be granted to any person selected by the
Committee in its sole discretion.
6. Time of Granting Options
------------------------
The granting of an option shall take place at the time
specified by the Committee. Only if expressly so provided by the
Committee shall the granting of an option be regarded as taking
place at the time when a written option agreement shall have been
duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement
shall provide, among other things, that it does not confer upon
an Optionee any right to continue in the employ of the Company
and/or one or more of its subsidiaries or to continue as a
director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such
subsidiary to terminate the employment of the Optionee at any
time if the Optionee is an employee, to remove the Optionee as a
director of the Company if the Optionee is a director, or to
terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
-------------
An option may become exercisable immediately or in such
installments, cumulative or noncumulative, as the Committee may
determine.
8. Exercise of Option
------------------
An option may be exercised in accordance with its terms by
written notice of intent to exercise the option, specifying the
number of shares of stock with respect to which the option is
then being exercised. The notice shall be accompanied by payment
in the form of cash or shares of Subsidiary Common Stock (the
"Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however,
that such Tendered Shares shall have been acquired by the
PAGE
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Optionee more than six months prior to the date of exercise,
unless such requirement is waived in writing by the Company.
Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares
then being purchased, registered in the name of the Optionee or
other person exercising the option. If any law or applicable
regulation of the Securities and Exchange Commission or other
body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in
connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or
certificates for such shares shall be postponed until completion
of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
---------------
Except as may be authorized by the Committee , in its sole
discretion, no Option may be transferred other than by will or
the laws of descent and distribution, and during a Optionee's
lifetime an option requiring exercise may be exercised only by
him or her (or in the event of incapacity, the person or persons
properly appointed to act on his or her behalf). The Committee
may, in its discretion, determine the extent to which options
granted to an Optionee shall be transferable, and such provisions
permitting or acknowledging transfer shall be set forth in the
written agreement evidencing the option executed and delivered by
or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
------------------------------------------------
The Committee, in its sole discretion, may determine the
manner in which options shall vest, the rights of the Company to
repurchase the shares issued upon the exercise of any option and
the manner in which such rights shall lapse, and the terms upon
which any option granted shall terminate. The Board of Directors
shall have the right to accelerate the date of exercise of any
installment or to accelerate the lapse of the Company's
repurchase rights. All of such terms shall be specified in a
written option agreement executed and delivered by or on behalf
of the Company and the Optionee to whom such option shall be
granted.
11. Adjustment of Number of Shares
------------------------------
Each stock option agreement shall provide that in the event
of any stock dividend payable in the Common Stock or any split-up
or contraction in the number of shares of the Common Stock
occurring after the date of the agreement and prior to the
exercise in full of the option, the number of shares for which
the option may thereafter be exercised shall be proportionately
adjusted and the price to be paid for each share subject to the
option shall be proportionately adjusted. Each such agreement
shall also provide that in case of any reclassification or change
PAGE
<PAGE>
of outstanding shares of the Common Stock or in case of any
consolidation or merger of Subsidiary with or into another
company or in case of any sale or conveyance to another company
or entity of the property of Subsidiary as a whole or
substantially as a whole, the Optionee shall, upon exercise of
the option, be entitled to receive shares of stock or other
securities in its place equivalent in kind and value to those
shares which he would have received if he had exercised the
option in full immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and had
continued to hold the shares subject to the option (together with
all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the option;
provided, that if any recapitalization is to be effected through
an increase in the par value of the Common Stock without an
increase in the number of authorized shares and such new par
value will exceed the option price under such agreement, the
Company shall notify the Optionee of such proposed
recapitalization, and the Optionee shall then have the right,
exercisable at any time prior to such recapitalization becoming
effective, to purchase all of the shares subject to the option
which he has not theretofore purchased (anything in such
agreement to the contrary notwithstanding), but if the Optionee
fails to exercise such right before such recapitalization becomes
effective, the option price under such agreement shall be
appropriately adjusted. Each such agreement shall further
provide that upon dissolution or liquidation of Subsidiary, the
option shall terminate, but the Optionee (if at the time an
employee or director of the Company and/or any one or more of its
subsidiaries) shall have the right, immediately prior to such
dissolution or liquidation, to exercise the option to the full
extent not theretofore exercised; that no adjustment provided for
above shall apply to any share with respect to which the option
has been exercised prior to the effective date of such
adjustment; and that no fraction of a share or fractional shares
shall be purchasable or deliverable under such agreement, but in
the event any adjustment thereunder of the number of shares
covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the
nearest smaller whole number of shares. In the event of changes
in the outstanding Common Stock by reason of any stock dividend,
split-up, contraction, reclassification, or change of outstanding
shares of the Common Stock of the nature contemplated by this
paragraph 11, the number of shares of Common Stock available for
the purpose of the Plan as stated in paragraph 3 hereof shall be
correspondingly adjusted by the Committee.
12. Limitation of Rights in Option Stock
------------------------------------
The Optionees shall have no rights as stockholders in
respect of shares as to which their options shall not have been
exercised, certificates issued and delivered and payment as
herein provided made in full, and shall have no rights with
respect to such shares not expressly conferred by this Plan.
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<PAGE>
13. Stock Reserved
--------------
The Company shall at all times during the term of the
options reserve and keep available such number of shares of the
Common Stock as will be sufficient to satisfy the requirements of
this Plan and shall pay all other fees and expenses necessarily
incurred by the Company in connection therewith.
14. Securities Laws Restrictions
----------------------------
Each Optionee exercising an option, at the request of the
Company, will be required to give a representation in form
satisfactory to counsel for the Company that he will not
transfer, sell or otherwise dispose of the shares received upon
exercise of the option at any time purchased by him, upon
exercise of any portion of the option, in a manner which would
violate the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission thereunder
and the Company may, if required or at its discretion, make a
notation on any certificates issued upon exercise of options to
the effect that such certificate may not be transferred except
after receipt by the Company of an opinion of counsel
satisfactory to it to the effect that such transfer will not
violate such Act and such regulations.
15. Tax Withholding
---------------
The Company shall have the right to deduct from payments of
any kind otherwise due to an Optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan (the
"withholding requirements"). The Committee will have the right
to require that the Optionee or other appropriate person remit to
the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery
of any Common Stock pursuant to exercise of an option. If and to
the extent that such withholding is required, the Committee may
permit the Optionee or such other person to elect at such time
and in such manner as the Committee provides to have the Company
hold back from the shares to be delivered, or to deliver to the
Company, Common Stock having a value calculated to satisfy the
withholding requirements.
16. Termination and Amendment of Plan
---------------------------------
The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect, except that if at
any time the approval of the Stockholders of the Company is
required as to such modification or amendment under Rule 16b-3,
the Board of Directors may not effect such modification or
amendment without such approval.
PAGE
<PAGE>
The termination or any modification or amendment of the Plan
shall not, without the consent of an Optionee, affect his or her
rights under an option previously granted to him or her. With
the consent of the Optionees affected, the Board of Directors may
amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to
amend or modify the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
Notwithstanding any other provisions hereof, the Plan shall
terminate on December 31, 2008 and no options shall be granted
hereunder thereafter.
Exhibit 10.27
THERMEDICS INC.
---------------
RESTATED STOCK HOLDING ASSISTANCE PLAN
--------------------------------------
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermedics Inc. (the
"Company") and its stockholders by encouraging Key Employees to
acquire and maintain share ownership in the Company, by
increasing such employees' proprietary interest in promoting the
growth and performance of the Company and its subsidiaries and by
providing for the implementation of the Stock Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermedics Inc., a Massachusetts corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermedics Inc. Stock Holding Assistance Plan,
as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
PAGE
<PAGE>
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
absolute discretion, authorize such other maturity and repayment
PAGE
<PAGE>
schedule as the Committee may determine. Each Loan shall also
become immediately due and payable in full, without demand, upon
the occurrence of any of the events set forth in the Note;
provided that the Committee may, in its sole and absolute
discretion, authorize an extension of the time for repayment of a
Loan upon such terms and conditions as the Committee may
determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMEDICS INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermedics Inc. (the "Company"), or
assigns, ON DEMAND, but in any case on or before [insert date
which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without
interest. Principal shall be payable in lawful money of the
United States of America, in immediately available funds, at the
principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), beginning with the first such bonus payment to
occur after the date of this Note and on each of the next four
bonus payment dates occurring prior to the Maturity Date, such
amount as may be designated by the Company. Any amount remaining
unpaid under this Note shall be due and payable on the Maturity
Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
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<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of
Massachusetts and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
AA980750014
EXHIBIT 10.28
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 10th day of
December, 1997 by and among Thermo Electron Corporation (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second
Tier Majority Owned Subsidiary's Underlying Obligations may be
demanded and given without the respective First Tier Majority
Owned Subsidiary also issuing a guarantee of such Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other
credit to a Second Tier Majority Owned Subsidiary or its
wholly-owned subsidiaries under circumstances where the
applicable First Tier Majority Owned Subsidiary does not provide
such credit; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
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<PAGE>
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
PAGE
<PAGE>
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
PAGE
<PAGE>
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
an assignment or trust mortgage for the benefit of creditors
or the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
PAGE
<PAGE>
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO ELECTRON CORPORATION
By: _____________________________
Melissa F.Riordan
Title: Treasurer
THERMEDICS INC.
By: _____________________________
John W. Wood Jr.
Title: President
Exhibit 13
THERMEDICS INC.
Consolidated Financial Statements
1997
PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Note 14) $307,666 $292,077 $208,041
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 155,680 148,137 110,935
Selling, general, and administrative
expenses (Note 8) 86,308 85,045 55,951
Research and development expenses 24,270 21,363 14,874
Nonrecurring costs (Notes 3 and 13) - 17,637 -
-------- -------- --------
266,258 272,182 181,760
-------- -------- --------
Operating Income 41,408 19,895 26,281
Interest Income 13,326 10,765 9,073
Interest Expense (3,398) (3,770) (3,677)
Gain on Issuance of Stock by
Subsidiaries (Note 11) 17,075 23,651 3,455
Gain on Sale of Investments, Net
(includes gain on sale of related-
party investments of $428 in 1997;
Notes 2 and 8) 432 956 421
Other Income 54 - 14
-------- -------- --------
Income Before Provision for Income
Taxes and Minority Interest 68,897 51,497 35,567
Provision for Income Taxes (Note 5) 19,675 13,969 11,781
Minority Interest Expense 7,730 8,390 6,612
-------- -------- --------
Net Income $ 41,492 $ 29,138 $ 17,174
======== ======== ========
Earnings per Share (Note 15):
Basic $ 1.13 $ .80 $ .51
======== ======== ========
Diluted $ 1.07 $ .75 $ .48
======== ======== ========
Weighted Average Shares (Note 15):
Basic 36,700 36,417 33,660
======== ======== ========
Diluted 38,911 38,202 35,036
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $187,012 $ 82,800
Short-term available-for-sale investments,
at quoted market value (amortized cost of
$58,144 and $64,950; includes $3,336 of
related-party investments in 1996;
Notes 2 and 8) 58,317 65,054
Accounts receivable, less allowances of
$4,207 and $4,903 61,488 62,783
Inventories 59,574 54,230
Prepaid income taxes and expenses (Note 5) 12,769 14,713
-------- --------
379,160 279,580
-------- --------
Property, Plant, and Equipment, at Cost, Net 21,611 21,550
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of
$12,655 and $33,929; Note 2) 12,665 33,920
-------- --------
Other Assets (Note 5) 12,139 7,885
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3, 5, and 13) 110,977 113,764
-------- --------
$536,552 $456,699
======== ========
3PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturity of
long-term obligation (Note 7) $ 7,498 $ 9,017
Accounts payable 18,020 19,615
Accrued payroll and employee benefits 12,576 11,951
Accrued income taxes 6,815 5,438
Accrued warranty costs 3,784 3,971
Other accrued expenses 18,838 19,818
Due to parent company and affiliates 2,266 1,600
-------- --------
69,797 71,410
-------- --------
Deferred Income Taxes and Other Deferred Items
(Note 5) 177 1,382
-------- --------
Long-term Obligations (Note 7) 142,771 74,359
-------- --------
Minority Interest 96,461 97,966
-------- --------
Commitments and Contingency (Notes 6 and 9)
Shareholders' Investment (Notes 4, 8, 10, and 17):
Common stock, $.10 par value, 100,000,000
shares authorized; 36,846,175 and 36,842,500
shares issued 3,685 3,684
Capital in excess of par value 113,913 138,433
Retained earnings 116,034 74,542
Treasury stock at cost, 134,172 and 166,144
shares (3,449) (4,729)
Cumulative translation adjustment (2,954) (409)
Net unrealized gain on available-for-sale
investments (Note 2) 117 61
-------- --------
227,346 211,582
-------- --------
$536,552 $456,699
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 41,492 $ 29,138 $ 17,174
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,361 10,431 6,766
Gain on issuance of stock by
subsidiaries (Note 11) (17,075) (23,651) (3,455)
Nonrecurring costs (Notes 3
and 13) - 17,637 -
Provision for losses on accounts
receivable 815 1,352 689
Gain on sale of investments, net
(Note 2) (432) (956) (421)
Minority interest expense 7,730 8,390 6,612
Increase (decrease) in deferred
income taxes 45 (601) 766
Other noncash expenses 780 938 990
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable 491 (13,906) 53
Inventories (5,367) (839) (11,675)
Prepaid income taxes and
expenses (845) 16 (2,367)
Accounts payable (2,042) 892 3,643
Other current liabilities 2,906 (1,162) 2,704
Other - (270) (182)
-------- -------- --------
Net cash provided by operating
activities 38,859 27,409 21,297
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (5,658) (37,044) (56,560)
Acquisition of product lines - (4,737) -
Purchases of property, plant, and
equipment (7,087) (8,621) (6,691)
Purchases of available-for-sale
investments (89,900) (99,800) (101,246)
Proceeds from sale and maturities of
available-for-sale investments 118,413 118,356 104,786
Other 275 (754) 371
-------- -------- --------
Net cash provided by (used in)
investing activities $ 16,043 $(32,600) $(59,340)
-------- -------- --------
5PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company
and subsidiaries' common stock
(Note 10) $ 29,122 $ 49,780 $ 4,515
Purchases of Company and subsidiaries'
common stock (51,091) (15,665) (179)
Proceeds from issuance of note payable
to parent company (Notes 3 and 7) - 15,000 38,000
Repayment of notes payable to parent
company (Notes 3 and 7) - (53,000) -
Net proceeds from issuance of
subordinated convertible
obligations (Note 7) 68,028 63,249 -
Repayment and repurchase of long-term
obligations (700) (2,432) (132)
Net increase (decrease) in short-term
borrowings 2,699 (1,944) (1,961)
International Technidyne transfers
(to) from Thermo Electron 350 (5,567) (2,158)
Other - (146) 740
-------- -------- --------
Net cash provided by financing
activities 48,408 49,275 38,825
-------- -------- --------
Exchange Rate Effect on Cash 902 1,303 (502)
-------- -------- --------
Increase in Cash and Cash Equivalents 104,212 45,387 280
Cash and Cash Equivalents at Beginning
of Year 82,800 37,413 37,133
-------- -------- --------
Cash and Cash Equivalents at End
of Year $187,012 $ 82,800 $ 37,413
======== ======== ========
6PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Cash Paid For:
Interest $ 2,467 $ 5,333 $ 3,328
Income taxes $ 14,588 $ 7,108 $ 6,489
Noncash Activities:
Fair value of assets of acquired
companies $ 9,351 $ 42,955 $ 67,394
Cash paid for acquired companies (6,291) (37,445) (56,879)
-------- -------- --------
Liabilities assumed of acquired
companies $ 3,060 $ 5,510 $ 10,515
======== ======== ========
Issuance of Company common stock to
parent company in exchange for
subsidiary common stock (Note 8) $ - $ 4,236 $ -
======== ======== ========
Conversions of Company and
subsidiary convertible
obligations (Note 7) $ 4,650 $ 31,562 $ 37,317
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 3,684 $ 3,399 $ 3,330
Issuance of stock under employees'
and directors' stock plans 1 12 7
Conversions of subordinated
convertible debentures - 74 62
Issuance of Company common stock to
parent company in exchange for
common stock of subsidiaries
(Note 8) - 199 -
-------- -------- --------
Balance at end of year 3,685 3,684 3,399
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 138,433 120,665 102,975
Issuance of stock under employees'
and directors' stock plans (1,239) 737 378
Tax benefit related to employees'
and directors' stock plans 55 1,218 434
Conversions of subordinated
convertible debentures (Note 7) - 7,631 6,259
Issuance of Company common stock to
parent company in exchange for
common stock of subsidiaries
(Note 8) - 4,037 -
Effect of majority-owned subsidiaries'
equity transactions (23,336) 4,145 9,858
Capital contribution from parent
company - - 761
-------- -------- --------
Balance at end of year 113,913 138,433 120,665
-------- -------- --------
Retained Earnings
Balance at beginning of year 74,542 47,928 32,084
Net income 41,492 29,138 17,174
International Technidyne transfers
to Thermo Electron - (2,524) (1,330)
-------- -------- --------
Balance at end of year 116,034 74,542 47,928
-------- -------- --------
Treasury Stock
Balance at beginning of year (4,729) (42) (310)
Issuance of stock under employees'
and directors' stock plans 1,572 58 268
Purchases of Company common stock (292) (4,745) -
-------- -------- --------
Balance at end of year $ (3,449) $ (4,729) $ (42)
-------- -------- --------
8PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Cumulative Translation Adjustment
Balance at beginning of year $ (409) $ (88) $ 326
Translation adjustment (2,545) (321) (414)
-------- -------- --------
Balance at end of year (2,954) (409) (88)
-------- -------- --------
Net Unrealized Gain on Available-
for-sale Investments
Balance at beginning of year 61 889 (1,622)
Change in net unrealized gain (loss)
on available-for-sale investments
(Note 2) 56 (828) 2,511
-------- -------- --------
Balance at end of year 117 61 889
-------- -------- --------
Total Shareholders' Investment $227,346 $211,582 $172,751
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
9PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermedics Inc. (the Company) develops, manufactures, and markets
precision weighing and inspection equipment, electrochemistry and
microweighing products, product quality assurance systems, electronic
test instruments and a range of power electronics, and security devices,
as well as implantable heart-assist systems, whole-blood coagulation
testing equipment, skin-incision devices, and other biomedical products.
Relationship with Thermo Electron Corporation
The Company was incorporated in 1983 as a wholly owned subsidiary of
Thermo Electron Corporation. As of January 3, 1998, Thermo Electron owned
21,141,471 shares of the Company's common stock, representing 58% of such
stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company; its wholly owned subsidiaries; and its majority-owned public
subsidiaries, Thermo Cardiosystems Inc., Thermo Voltek Corp., Thermo
Sentron Inc., and Thermedics Detection Inc. 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 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal 1997 included 53 weeks; 1996 and 1995 each included
52 weeks.
Cash and Cash Equivalents
At year-end 1997 and 1996, $175,101,000 and $74,625,000,
respectively, of the Company's cash equivalents were invested in a
repurchase agreement with Thermo Electron. Under this agreement, the
Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of
corporate notes, commercial paper, U.S. government-agency securities,
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 and
have an original maturity of three months or less. The repurchase
agreement earns a rate based on the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. At
year-end 1997 and 1996, the Company's cash equivalents were also invested
in U.S. government-agency discount notes and money market preferred
stock. Cash equivalents are carried at cost, which approximates market
value.
10PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $23,857 $28,210
Work in process 18,218 10,719
Finished goods 17,499 15,301
------- -------
$59,574 $54,230
======= =======
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 and
improvements, 5 to 31.5 years; machinery and equipment, 2 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 the
following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Land and buildings $ 6,154 $ 5,778
Machinery, equipment, and leasehold improvements 49,443 43,114
------- -------
55,597 48,892
Less: Accumulated depreciation and amortization 33,986 27,342
------- -------
$21,611 $21,550
======= =======
Other Assets
Other assets in the accompanying balance sheet includes the cost of
acquired patents, trademarks, acquired technology, and other specifically
identifiable intangible assets. These assets are amortized using the
straight-line method over their estimated useful lives, which range from
4 to 40 years. These assets were $4,400,000 and $4,146,000, net of
accumulated amortization of $3,253,000 and $2,798,000, at year-end 1997
and 1996, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over periods not
exceeding 40 years. Accumulated amortization was $12,116,000 and
$9,343,000 at year-end 1997 and 1996, respectively. The Company assesses
11PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as
a separate component of shareholders' investment, titled "Cumulative
translation adjustment." There were no material foreign currency
transaction gains or losses in the accompanying statement of income.
Revenue Recognition
The Company recognizes the majority of its revenues upon shipment of
its products. The Company provides a reserve for its estimate of warranty
costs at the time of shipment. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method.
Revenues recorded under the percentage-of-completion method were
$8,735,000 in 1997, $6,564,000 in 1996, and $8,521,000 in 1995. The
percentage of completion is determined by relating either the actual
costs or actual labor incurred to date to management's estimate of total
costs or total labor, respectively, to be incurred on each contract. If a
loss is indicated on any contract in process, a provision is made
currently for the entire loss. The Company's contracts generally provide
for customer billing on a cost-plus-fixed-fee basis when certain
milestones are attained, or monthly, as costs are incurred. Revenues
earned on contracts in process in excess of billings are included in
inventories in the accompanying balance sheet and were not material at
year-end 1997 and 1996. There are no significant amounts included in the
accompanying balance sheet that are not expected to be recovered from
existing contracts at current contract values, or that are not expected
to be collected within one year, including amounts that are billed but
not paid under retainage provisions.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Company's net investment in that
subsidiary increases. If at that time the subsidiary is an operating
entity and not engaged principally in research and development, the
Company records the increase as a gain.
If gains have been recognized on issuances of a subsidiary's stock
and shares of the subsidiary are subsequently repurchased by the
subsidiary, the Company, or Thermo Electron, gain recognition does not
occur on issuances subsequent to the date of a repurchase until such time
12PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
as shares have been issued in an amount equivalent to the number of
repurchased shares. Such transactions are reflected as equity
transactions, and the net effect of these transactions is reflected in
the accompanying statement of shareholders' investment as "Effect of
majority-owned subsidiaries' equity transactions."
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 equity.
Income Taxes
In accordance with 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
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 15). As a result, all previously reported
earnings per share have been restated and the Company is required to
report diluted 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 conversion of convertible obligations and the
elimination of the related interest expense, and the exercise of stock
options, as well as their related income tax effects.
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
The historical information for all periods presented has been
restated to reflect the May 2, 1997, acquisition of International
Technidyne Corporation by Thermo Cardiosystems from Thermo Electron,
which has been accounted for at historical cost in a manner similar to a
pooling of interests (Note 3).
13PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt and equity securities
are considered available-for-sale investments in the accompanying balance
sheet and are carried at market value, with the difference between cost
and market value, net of related tax effects, recorded currently as a
component of shareholders' investment titled "Net unrealized gain on
available-for-sale investments."
The aggregate market value, cost basis, and gross unrealized gains
and losses of short- and long-term available-for-sale investments by
major security type, are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
-----------------------------------------------------------------------
1997
Government-agency securities $55,391 $55,334 $ 66 $ (9)
Corporate bonds 11,547 11,521 26 -
Other 4,044 3,944 174 (74)
------- ------- ------- -------
$70,982 $70,799 $ 266 $ (83)
======= ======= ======= =======
1996
Government-agency securities $86,403 $86,412 $ 7 $ (16)
Corporate bonds 6,806 6,634 172 -
Money market preferred stock 1,060 1,071 - (11)
Other 4,705 4,762 - (57)
------- ------- ------- -------
$98,974 $98,879 $ 179 $ (84)
======= ======= ======= =======
Short- and long-term available-for-sale investments in the
accompanying 1997 balance sheet include $57,356,000 with contractual
maturities of one year or less and $13,626,000 with contractual
maturities of more than one year through five years. Actual maturities
may differ from contractual maturities as a result of the Company's
intent to sell these securities prior to maturity and as a result of put
and call options that enable either the Company, the issuer, or both to
redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification in determining realized gains and losses
recorded in the accompanying statement of income. Gain on sale of
investments, net, resulted from gross realized gains of $432,000,
$1,086,000, and $439,000 in 1997, 1996, and 1995, respectively, and gross
realized losses of $130,000 and $18,000 in 1996 and 1995, respectively,
relating to the sale of available-for-sale investments.
14PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions
On May 2, 1997, Thermo Cardiosystems acquired International Technidyne
from Thermo Electron in exchange for the right to receive 3,355,705 shares
of Thermo Cardiosystems' common stock. International Technidyne is a
leading manufacturer of near-patient, whole-blood coagulation testing
equipment and related disposables, and also manufactures premium-quality,
single-use skin-incision devices.
Because the Company, Thermo Cardiosystems, and International Technidyne
were deemed for accounting purposes to be under control of their common
majority owner, Thermo Electron, the transaction has been accounted for at
historical cost in a manner similar to a pooling of interests.
Accordingly, all historical financial information presented has been
restated to reflect the acquisition of International Technidyne. The
3,355,705 shares of Thermo Cardiosystems' common stock issuable in
connection with the acquisition will not be issued until the listing of
such shares for trading upon the American Stock Exchange has been approved
by Thermo Cardiosystems' shareholders. Because the Company is the majority
shareholder and intends to vote its shares in favor of such listing, the
approval is assured and, therefore, the results of International
Technidyne are included in the Company's results for all periods
presented.
Revenues and net income, as previously reported by the separate
entities prior to the acquisition and as restated for the combined
Company, are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Revenues:
Historical $258,085 $175,754
International Technidyne 33,992 32,287
-------- --------
$292,077 $208,041
======== ========
Net income:
Historical $ 26,831 $ 15,121
International Technidyne 4,672 4,210
Minority interest expense not
previously reported (2,365) (2,157)
-------- --------
$ 29,138 $ 17,174
======== ========
15PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
In addition, during 1997, two of the Company's majority-owned
subsidiaries made acquisitions for $6,291,000 in cash.
In December 1996, Thermo Cardiosystems acquired substantially all of
the assets, subject to certain liabilities, of Nimbus Medical,
Inc.(Nimbus), a research and development organization specializing in
ventricular-assist devices and total artificial hearts, for $5,013,000 in
cash. Nimbus is engaged strictly in research and development activities
and, through its acquisition date, had not completed development of any
commercial products for which it retains ownership rights. Nimbus' assets
acquired by Thermo Cardiosystems included certain technology in
development. The feasibility of the technology in development had not been
conclusively established at the acquisition date and such technology had no
future use other than in potential future generations of heart-assist
devices or in total artificial hearts. In connection with the acquisition
of Nimbus, Thermo Cardiosystems wrote off $4,909,000, which represents the
portion of the purchase price allocated to technology in development based
on estimated replacement cost.
In January 1996, Thermedics Detection acquired the assets and certain
liabilities of Moisture Systems Corporation and certain affiliated
companies (collectively, Moisture Systems), and the stock of Rutter & Co.
B.V. (Rutter) for a total purchase price of $21,668,000 in cash, which
included the repayment of $700,000 of debt. The cost of these acquisitions
exceeded the estimated fair value of the acquired net assets by
$16,905,000, which is being amortized over 40 years. In connection with
these acquisitions, the Company borrowed $15,000,000 from Thermo Electron
pursuant to a promissory note due March 1997, and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. The Company repaid the $15,000,000 promissory
note to Thermo Electron in September 1996 (Note 7). Moisture Systems and
Rutter design, manufacture, and sell instruments that use near-infrared
spectroscopy to measure moisture and other product components. During 1996,
the Company's majority-owned subsidiaries made other acquisitions for
$15,501,000 in cash.
In December 1995, the Company acquired the Orion laboratory products
division (Orion) of Analytical Technology, Inc. for $52,724,000 in cash,
which included the repayment of $8,585,000 of debt. The cost of this
acquisition exceeded the estimated fair value of the acquired net assets by
$42,681,000, which is being amortized over 40 years. To partially finance
this acquisition, the Company borrowed $38,000,000 from Thermo Electron
pursuant to a promissory note due December 1996, and bearing interest at
the 90-day Commercial Paper Composite Rate plus 25 basis points. The
balance of the purchase price was funded from the Company's working
capital. The Company repaid the $38,000,000 promissory note to Thermo
Electron in September 1996 (Note 7). Orion manufactures electrochemistry,
microweighing, process, and other instruments used to analyze the chemical
composition of food, beverage, and pharmaceutical products and detect
contaminants in high-purity water. In 1995, one of the Company's
majority-owned subsidiaries made an acquisition for $3,755,000 in cash.
16PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
These acquisitions, excluding Thermo Cardiosystems' acquisition of
International Technidyne, have been accounted for using the purchase method
of accounting, and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The aggregate cost of all of these acquisitions exceeded the
estimated fair value of the acquired net assets by $76,845,000, which is
being amortized over periods not exceeding 40 years. Allocation of the
purchase price for these acquisitions was based on estimates of the fair
value of the net assets acquired and, for acquisitions completed in 1997,
is subject to adjustment upon finalization of the purchase price
allocation. The Company has gathered no information that indicates the
final allocation of purchase price will differ materially from the
preliminary estimates.
Based on unaudited data, the following table presents selected
financial information on a pro forma basis, assuming the Company and Orion
had been combined since the beginning of 1995. The effect of the
acquisitions not included in the pro forma data was not material to the
Company's results of operations.
(In thousands except per share amounts) 1995
------------------------------------------------------------------------
Revenues $251,207
Net income 19,239
Earnings per share:
Basic .57
Diluted .54
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Orion been made at the beginning of 1995.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1983, permitted the
grant of nonqualified and incentive stock options. These plans expired
during 1993. Two other plans, adopted in 1993 and 1997, permit the grant of
a variety of stock and stock-based awards as determined by the human
resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus shares,
or performance-based shares. To date, only nonqualified stock options have
been awarded under these plans. The option recipients and the terms of
options granted under these plans are determined by the Board Committee.
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
17PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
generally lapse ratably over a five- to ten-year period, depending on the
term of the option, which may range from seven 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. To date, all options have been granted at fair market value. The
Company also has a directors' stock option plan, adopted in 1991, that
provides for the grant of stock options to outside directors pursuant to a
formula approved by the Company's shareholders. Options awarded under this
plan are exercisable six months after the date of grant and expire three or
seven years after the date of grant. In addition to the Company's
stock-based compensation plans, certain officers and key employees may also
participate in stock-based compensation plans of Thermo Electron.
A summary of the Company's stock option activity is as follows:
1997 1996 1995
----------------- ---------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
(Shares in of Exercise of Exercise of Exercise
thousands) Shares Price Shares Price Shares Price
--------------------------------------------------------------------------
Options outstanding,
beginning of year 1,664 $14.99 1,557 $12.38 1,773 $12.14
Granted 111 19.00 303 27.17 27 17.65
Exercised (63) 7.92 (137) 9.12 (74) 8.16
Forfeited (128) 22.75 (59) 22.42 (169) 12.57
----- ----- -----
Options outstanding,
end of year 1,584 $14.93 1,664 $14.99 1,557 $12.38
===== ====== ===== ====== ===== ======
Options exercisable 1,584 $14.93 1,664 $14.99 1,557 $12.38
===== ====== ===== ====== ===== ======
Options available
for grant 296 284 545
===== ===== =====
18PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at January 3,
1998, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Number Weighted Average Average
of Remaining Exercise
Range of Exercise Prices Shares Contractual Life Price
-------------------------------------------------------------------------
(Shares in thousands)
$ 4.70 - $10.96 398 1.5 years $ 7.13
10.97 - 17.21 878 7.8 years 15.22
17.22 - 23.47 134 7.8 years 19.07
23.48 - 29.73 174 5.5 years 28.10
-----
$ 4.70 - $29.73 1,584 6.0 years $14.93
=====
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 or its majority-owned public subsidiaries and Thermo Electron.
Under this program, shares of the Company's or its majority-owned public
subsidiaries', and shares of Thermo Electron's, common stock can be
purchased at 95% of the fair market value at the beginning of the period,
and the shares purchased are subject to a six-month resale restriction.
Prior to November 1, 1995, the applicable shares of common stock could be
purchased at the end of a 12-month period at 85% of the fair market value
at the beginning of the period, and the shares purchased were subject to a
one-year resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
During 1997, 1996, and 1995, the Company issued 9,445 shares, 9,503 shares,
and 14,552 shares, respectively, of its common stock under this program.
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 in 1997, 1996, and 1995 under the Company's
stock-based compensation plans been determined based on the fair value at
19PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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 as follows:
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Net income:
As reported $41,492 $29,138 $17,174
Pro forma 39,454 27,960 17,004
Basic earnings per share:
As reported 1.13 .80 .51
Pro forma 1.08 .77 .51
Diluted earnings per share:
As reported 1.07 .75 .48
Pro forma 1.01 .72 .48
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Pro forma compensation expense for options
granted is reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The weighted average fair value per share of options granted was
$8.81, $11.49, and $6.50 in 1997, 1996, and 1995, 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:
1997 1996 1995
------------------------------------------------------------------------
Volatility 39% 39% 39%
Risk-free interest rate 6.2% 5.7% 6.1%
Expected life of options 5.6 years 5.0 years 3.7 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 Plan
The majority 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 to the 401(k) plan are based upon the level of
20PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
employee contributions. For these plans, the Company contributed and
charged to expense $1,758,000, $1,460,000, and $1,289,000 in 1997, 1996,
and 1995, respectively.
5. Income Taxes
The components of income before provision for income taxes and
minority interest are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Domestic $63,053 $43,172 $31,857
Foreign 5,844 8,325 3,710
------- ------- -------
$68,897 $51,497 $35,567
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $13,256 $12,058 $ 9,850
State 3,008 2,327 2,202
Foreign 2,049 3,618 1,783
------- ------- -------
18,313 18,003 13,835
------- ------- -------
Net deferred (prepaid):
Federal 496 (3,843) (1,633)
State 145 24 (421)
Foreign 721 (215) -
------- ------- -------
1,362 (4,034) (2,054)
------- ------- -------
$19,675 $13,969 $11,781
======= ======= =======
The Company and its majority-owned subsidiaries receive a tax
deduction upon exercise of nonqualified stock options by employees for
the difference between the exercise price and the market price of the
Company's common stock on the date of exercise. The provision for income
taxes that is currently payable does not reflect $1,591,000, $3,520,000,
and $3,935,000 of such benefits of the Company and its majority-owned
subsidiaries that have been allocated to capital in excess of par value,
directly or through the effect of majority-owned subsidiaries' equity
transactions, in 1997, 1996, and 1995, respectively. The provision for
income taxes that is currently payable also does not reflect $1,800,000
of tax benefits used to reduce cost in excess of net assets of acquired
companies in 1996.
21PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% to income before provision for income
taxes and minority interest due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at statutory
rate $24,114 $18,024 $12,448
Increases (decreases) resulting from:
Gain on issuance of stock by subsidiaries (5,976) (8,278) (1,206)
State income taxes, net of federal tax 2,057 1,534 1,163
Amortization and write-off of cost in
excess of net assets of acquired
companies 401 3,256 232
Reduction in valuation allowance - (684) (854)
Tax-exempt investment income - (11) (115)
Tax benefit of foreign sales corporation (698) (437) (426)
Foreign tax rate and regulation
differential (125) (132) 485
Nondeductible expenses 107 228 137
Other, net (205) 469 (83)
------- ------- -------
$19,675 $13,969 $11,781
======= ======= =======
Prepaid and deferred income taxes in the accompanying balance sheet
consist of the following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid (deferred) income taxes:
Reserves and accruals $ 3,732 $ 4,455
Inventory reserves 3,869 2,234
Depreciation and amortization 1,912 958
Accrued compensation 1,988 1,380
Write-off of acquired technology (Note 3) 1,834 1,865
Tax loss and credit carryforwards 1,180 652
Trademarks and other intangible assets (1,069) (962)
Allowance for doubtful accounts 328 1,079
Warranty reserves 107 934
Other, net 72 264
------- -------
$13,953 $12,859
======= =======
22PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Thermo Voltek has federal tax net loss carryforwards, subject to the
limitations described below. These net operating loss carryforwards will
begin to expire in 1999. Pursuant to U.S. Internal Revenue Code Sections
382 and 383, the utilization of the net operating loss carryforwards is
limited to the tax benefit of a deduction of approximately $240,000 per
year with any unused portion of this annual limitation carried forward to
future years. As of January 3, 1998, net operating loss carryforwards
totaled $2,500,000, including $600,000 that have not been benefited since
they will expire unused.
The Company has not recognized a deferred tax liability for the
difference between the book basis and tax basis of its investment in the
common stock of its domestic subsidiaries (such difference relates
primarily to unremitted earnings and gains on issuance of stock by
subsidiaries) because the Company does not expect this basis difference
to become subject to tax at the parent level. The Company believes it can
implement certain tax strategies to recover its investment in its
domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on
$10,769,000 of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company
currently plans to keep these amounts permanently reinvested overseas.
6. Commitments
The Company and its subsidiaries lease various office and
manufacturing facilities under operating lease arrangements expiring from
1998 through 2003. The accompanying statement of income includes expenses
from operating leases of $5,470,000, $5,689,000, and $3,416,000 in 1997,
1996, and 1995, respectively. Future minimum payments due under
noncancellable operating leases as of January 3, 1998, are $5,345,000 in
1998; $4,030,000 in 1999; $3,224,000 in 2000; $2,281,000 in 2001;
$2,077,000 in 2002; and $6,506,000 in 2003 and thereafter. Total future
minimum lease payments are $23,463,000.
23PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Short- and Long-term Obligations and Other Financing Arrangements
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Noninterest-bearing subordinated convertible
debentures, due 2003, convertible at
$32.68 per share $ 65,000 $ 65,000
3 3/4% Subordinated convertible debentures,
due 2000, convertible into shares of
Thermo Voltek at $7.83 per share 7,750 9,345
4 3/4% Subordinated convertible debentures,
due 2004, convertible into shares of
Thermo Cardiosystems at $31.415 per share 70,000 -
Noninterest-bearing subordinated convertible
debentures, due 1997, convertible into shares
of Thermo Cardiosystems at $14.49 per share - 3,755
Other 52 14
-------- --------
142,802 78,114
Less: Current maturity of long-term obligation 31 3,755
-------- --------
$142,771 $ 74,359
======== ========
The Company's convertible obligations are guaranteed on a
subordinated basis by Thermo Electron. The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under its guarantee of the Company's, Thermo Voltek's, or
Thermo Cardiosystems' obligations.
In lieu of issuing shares of Thermo Voltek common stock upon the
conversion of the 3 3/4% subordinated convertible debentures due 2000,
Thermo Voltek has the option to pay holders of the debentures cash equal
to the weighted average market price of its common stock on the last
trading date prior to conversion.
During 1997, 1996, and 1995, convertible obligations of $4,650,000,
$31,562,000, and $37,317,000, respectively, were converted into common
stock of the Company or its subsidiaries.
See Note 12 for fair value information pertaining to the Company's
long-term obligations.
Short-term Obligations and Other Financing Arrangements
In September 1996, the Company repaid its $15,000,000 and $38,000,000
promissory notes to Thermo Electron with proceeds from its 1996
issuance of $65,000,000 principal amount of noninterest-bearing
subordinated convertible debentures.
Several of the Company's foreign subsidiaries have lines of credit
outstanding of $5,506,000 and $5,262g,000 as of year-end 1997 and 1996,
respectively. Amounts borrowed under these agreements are included in
notes payable and current maturity of long-term obligation in the
24PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Short- and Long-term Obligations and Other Financing Arrangements
(continued)
accompanying balance sheet, and are guaranteed by either the Company or
Thermo Electron. The weighted average interest rate on these borrowings
was 7.4% and 6.3% at year-end 1997 and 1996, respectively. Unused lines
of credit were $12,305,000 as of year-end 1997. In addition, included in
notes payable and current maturity of long-term obligation in 1997 is a
$1,961,000 promissory note relating to an acquisition by Thermo Sentron,
bearing interest at 7.94%. The promissory note was repaid in January
1998.
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 paid Thermo Electron
annually an amount equal to 1.0% of the Company's revenues in 1997 and
1996 and 1.20% of the Company's revenues in 1995. Beginning in fiscal
1998, the Company will pay an annual fee equal to 0.8% of the Company's
revenues. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. The corporate services agreement is renewed
annually but can be terminated upon 30 days' prior notice by the Company
or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationships
among Thermo Electron and its majority-owned subsidiaries). In addition,
the Company uses data processing and contract administration services of
two majority-owned subsidiaries of Thermo Electron, and is charged based
on actual usage. For these services, as well as the administrative
services provided by Thermo Electron, the Company was charged $3,143,000,
$2,953,000, and $2,529,000 in 1997, 1996, and 1995, respectively.
Management believes that the service fees charged by Thermo Electron and
its subsidiaries are reasonable and that such fees are representative of
the expenses the Company would have incurred on a stand-alone basis. For
additional items such as employee benefit plans, insurance coverage, and
other identifiable costs, Thermo Electron charges the Company based upon
costs attributable to the Company.
Research and Development Agreement
Pursuant to a subcontract entered into in October 1993, Thermedics
Detection performs research and development services for Thermo Coleman
Corporation, which is the prime contractor under a contract with the U.S.
Department of Energy. Thermo Coleman is a wholly owned subsidiary of
Thermo Electron. Thermo Coleman paid Thermedics Detection $533,000,
$619,000, and $829,000 for services rendered in 1997, 1996, and 1995,
respectively.
25PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Related-party Transactions (continued)
Distribution Agreement
Pursuant to an international distributorship agreement, Thermedics
Detection appointed Arabian Business Machines Co. (ABM) as its exclusive
distributor of the Company's security instruments in certain Middle
Eastern countries. ABM is a member of The Olayan Group. Ms. Hutham S.
Olayan, a director of Thermo Electron, is the president and a director of
Olayan America Corporation, another member of The Olayan Group, which is
indirectly controlled by Suliman S. Olayan, Ms. Olayan's father. Revenues
recorded under this agreement totaled $480,000, $652,000, and $3,000 in
1997, 1996, and 1995, respectively.
Management Contract
One of the Company's executive employees in 1997 and two of the
Company's executive employees in 1996 allocated a portion of their
salary, bonus, and travel expenses for the time they devote to Thermo
Electron in connection with certain management responsibilities relating
to Thermo Electron's wholly owned biomedical businesses. In 1997, 1996,
and 1995, the Company was reimbursed $194,000, $707,000, and $402,000,
respectively, under this arrangement.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short-term Available-for-sale Investments
As of December 28, 1996, the Company's short-term available-for-sale
investments included $3,336,000 (amortized cost of $3,182,000) of 6 1/2%
subordinated convertible debentures due 1997, which were purchased on the
open market. The debentures have a par value of $3,100,000 and were
issued by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo
Electron. The debentures were sold in 1997, resulting in a gain of
$428,000, included in gain on sale of investments in the accompanying
statement of income.
Common Stock
In January and April 1996, the Company issued an aggregate of
1,987,273 shares of its common stock to Thermo Electron in exchange for
634,049 shares of common stock of Thermo Voltek and 929,947 shares of
common stock of Thermo Cardiosystems. The shares of common stock were
exchanged at their respective fair market values on the dates of the
transactions. See Note 17 for additonal information pertaining to
related-party common stock activity.
9. Contingency
Thermo Cardiosystems has received correspondence alleging that the
textured surface of the left ventricular-assist system's (LVAS) housing
infringed the intellectual property rights of another party. In general,
an owner of intellectual property can prevent others from using such
property without a license and is entitled to damages for unauthorized
26PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Contingency (continued)
past usage. The Company has investigated the bases of the allegation and,
based on the opinion of its counsel, believes that if Thermo
Cardiosystems were sued on these bases, it would have meritorious
defenses.
10. Common Stock
At January 3, 1998, the Company had reserved 4,250,895 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and possible issuance upon conversion of the
noninterest-bearing subordinated convertible debentures.
11. Transactions in Stock of Subsidiaries
In March 1997, Thermedics Detection sold 2,671,292 shares of its
common stock in an initial public offering at $11.50 per share, for net
proceeds of $28,078,000, resulting in a gain of $17,075,000.
In March 1996, Thermedics Detection sold 300,000 shares of its common
stock in a private placement at $10.00 per share, for net proceeds of
$3,000,000, resulting in a gain of $2,516,000. In November 1996,
Thermedics Detection sold 383,500 shares of its common stock in a private
placement at $10.75 per share, for net proceeds of $3,964,000, resulting
in a gain of $3,165,000.
In April 1996, Thermo Sentron sold 2,875,000 shares of its common
stock in an initial public offering at $16.00 per share, for net proceeds
of $42,335,000, resulting in a gain of $17,970,000.
During 1995, $9,111,000 principal amount of Thermo Voltek's
subordinated convertible debentures was converted into 1,163,098 shares
of Thermo Voltek common stock, resulting in a gain of $3,455,000.
During 1997, 1996, and 1995, a large portion of Thermo Cardiosystems'
subordinated convertible obligations was converted into shares of Thermo
Cardiosystems common stock. No gains were recorded on the conversions of
these convertible obligations as Thermo Cardiosystems was principally
engaged in research and development at the time the convertible
obligations were issued.
The Company's percentage ownership of its majority-owned subsidiaries
at year end was as follows:
1997 1996 1995
-----------------------------------------------------------------------
Thermo Cardiosystems 51% 54% 52%
Thermo Voltek 65% 51% 50%
Thermo Sentron 71% 71% 100%
Thermedics Detection 76% 94% 100%
27PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, notes
payable and current maturity of long-term obligation, accounts payable,
due to parent company and affiliates, and long-term obligations. The
carrying amount of these financial instruments, with the exception of
available-for-sale investments, current maturity of long-term obligation,
and long-term obligations, approximates fair value due to their
short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for fair value information pertaining to
these financial instruments.
The fair value of long-term obligations was determined based on
quoted market prices. The carrying amount and fair value of the Company's
long-term obligations are as follows:
1997 1996
------------------- --------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
---------------------------------------------------------------------
Current maturity of
long-term
obligation $ - $ - $ 3,755 $ 7,435
======== ======== ======== ========
Convertible
obligations $142,750 $130,201 $ 74,345 $ 62,666
Other long-term
obligations 21 21 14 14
-------- -------- -------- --------
$142,771 $130,222 $ 74,359 $ 62,680
======== ======== ======== ========
13. Nonrecurring Costs
The Company recorded nonrecurring costs of $12,728,000 in 1996 for
the write-off of cost in excess of net assets of acquired company and
certain other intangible assets associated with its Corpak subsidiary.
The primary growth focus of the Company's biomedical products segment has
become technology for improved product quality and implantable left
ventricular-assist systems. The Company no longer expects to reinvest in
its enteral nutrition-delivery business. The Company's analysis indicates
that the expected future undiscounted cash flow from this business would
be insufficient to recover the Company's investment.
In addition, in 1996, the Company wrote off $4,909,000 of acquired
technology associated with the acquisition of Nimbus by Thermo
Cardiosystems (Note 3).
28PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information, and Concentrations
of Risk
The Company's principal businesses can be divided into two segments.
The Company's Instruments and Other Equipment segment develops,
manufactures, sells, and distributes precision equipment that weighs and
inspects bulk materials and packaged goods; electrochemistry,
microweighing, and other laboratory instruments; process detection
instruments; security instruments; instruments that test electronic and
electrical systems and components for immunity to electromagnetic
interference; and a range of power electronics, including programmable
power amplifiers and high-voltage power-conversion systems. The Company's
Biomedical Products segment develops, manufactures, and sells LVAS;
whole-blood, coagulation testing equipment, and skin-incision devices;
and other biomedical products.
The Company's Instruments and Other Equipment segment derived
revenues from precision weighing and inspection equipment of $78,695,000,
$70,027,000, and $67,474,000 in 1997, 1996, and 1995, respectively, and
from laboratory products of $53,054,000 and $50,854,000 in 1997 and 1996,
respectively. In addition, this segment derived revenues from electronic
test instruments and power products of $44,648,000, $48,507,000, and
$36,326,000 in 1997, 1996, and 1995, respectively.
The Company's Biomedical Products segment derived revenues from LVAS
devices of $24,969,000, $29,970,000, and $20,593,000 in 1997, 1996, and
1995, respectively. In addition, this segment derived revenues from
blood-coagulation testing equipment and skin-incision devices of
$35,873,000, $33,992,000, and $32,287,000 in 1997, 1996, and 1995,
respectively.
Certain raw materials used in the manufacture of Thermo
Cardiosystems' LVAS are available from only one or two suppliers. Thermo
Cardiosystems is making efforts to minimize the risks associated with
sole sources and ensure long-term availability, including qualifying
certain other alternative materials and components or developing
alternative sources for materials or components supplied by a single
source. Although the Company believes that it has adequate supplies of
materials and components to meet demand for the LVAS for the foreseeable
future, no assurance can be given that the Company will not experience
shortages of certain materials or components in the future that could
delay shipments of the LVAS.
29PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information, and Concentrations
of Risk (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Business Segment Information
Revenues:
Instruments and Other Equipment $227,717 $213,138 $136,742
Biomedical Products 79,949 78,939 71,299
-------- -------- --------
$307,666 $292,077 $208,041
======== ======== ========
Income before provision for income
taxes and minority interest:
Instruments and Other Equipment $ 29,371 $ 22,725 $ 14,778
Biomedical Products 14,141 (718) 13,965
Corporate (a) (2,104) (2,112) (2,462)
-------- -------- --------
Total operating income 41,408 19,895 26,281
Interest and other income, net 27,489 31,602 9,286
-------- -------- --------
$ 68,897 $ 51,497 $ 35,567
======== ======== ========
Identifiable assets:
Instruments and Other Equipment $325,219 $297,141 $213,755
Biomedical Products 183,734 133,048 146,269
Corporate (b) 27,599 26,510 26,225
-------- -------- --------
$536,552 $456,699 $386,249
======== ======== ========
Depreciation and amortization:
Instruments and Other Equipment $ 7,115 $ 7,304 $ 4,040
Biomedical Products 3,232 3,115 2,697
Corporate 14 12 29
-------- -------- --------
$ 10,361 $ 10,431 $ 6,766
======== ======== ========
Capital expenditures:
Instruments and Other Equipment $ 3,530 $ 5,185 $ 2,669
Biomedical Products 3,539 3,436 3,999
Corporate 18 - 23
-------- -------- --------
$ 7,087 $ 8,621 $ 6,691
======== ======== ========
30PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information, and Concentrations
of Risk (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Geographical Information
Revenues:
United States $245,682 $227,077 $160,016
Europe 56,827 61,894 43,018
Other 18,362 14,311 13,084
Transfers among geographical areas (c) (13,205) (11,205) (8,077)
-------- -------- --------
$307,666 $292,077 $208,041
======== ======== ========
Income before provision for income
taxes and minority interest:
United States $ 37,231 $ 12,863 $ 23,961
Europe 3,461 7,366 3,170
Other 2,820 1,778 1,612
Corporate (a) (2,104) (2,112) (2,462)
-------- -------- --------
Total operating income 41,408 19,895 26,281
Interest and other income, net 27,489 31,602 9,286
-------- -------- --------
$ 68,897 $ 51,497 $ 35,567
======== ======== ========
Identifiable assets:
United States $445,839 $371,326 $319,712
Europe 51,520 51,376 33,259
Other 11,594 7,487 7,053
Corporate (b) 27,599 26,510 26,225
-------- -------- --------
$536,552 $456,699 $386,249
======== ======== ========
Export revenues included in United States
revenues above (d):
Europe $ 30,723 $ 24,769 $ 21,432
Other 49,001 42,233 25,602
-------- -------- --------
$ 79,724 $ 67,002 $ 47,034
======== ======== ========
____________
(a) Primarily general and administrative expenses.
(b) Primarily cash, cash equivalents, and short- and long-term
available-for-sale investments.
(c) Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(d) In general, export sales are denominated in U.S. dollars.
31PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
15. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Basic
Net income $ 41,492 $ 29,138 $ 17,174
-------- -------- --------
Weighted average shares 36,700 36,417 33,660
-------- -------- --------
Basic earnings per share $ 1.13 $ .80 $ .51
======== ======== ========
Diluted
Net income $ 41,492 $ 29,138 $ 17,174
Effect of:
Convertible obligations - 50 428
Majority-owned subsidiaries'
dilutive securities (39) (441) (651)
-------- -------- --------
Income available to common
shareholders, as adjusted $ 41,453 $ 28,747 $ 16,951
-------- -------- --------
Weighted average shares 36,700 36,417 33,660
Effect of:
Convertible obligations 1,989 1,346 1,055
Stock options 222 439 321
-------- -------- --------
Weighted average shares, as adjusted 38,911 38,202 35,036
-------- -------- --------
Diluted earnings per share $ 1.07 $ .75 $ .48
======== ======== ========
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of January 3, 1998, there were 496,380
of such options outstanding, with exercise prices ranging from $17.73 to
$29.73 per share.
32PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
16. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First(a) Second Third Fourth
---------------------------------------------------------------------
Revenues $72,057 $75,996 $76,217 $83,396
Gross profit 35,096 37,856 37,784 41,250
Net income 21,966 5,506 6,664 7,356
Earnings per share:
Basic .60 .15 .18 .20
Diluted .56 .14 .17 .19
1996(b) First Second Third Fourth
---------------------------------------------------------------------
Revenues $68,994 $71,094 $74,202 $77,787
Gross profit 33,185 34,121 37,668 38,966
Net income 5,257 9,754 6,359 7,768
Earnings per share:
Basic .15 .27 .17 .21
Diluted .14 .25 .16 .20
____________
(a) Results include a nontaxable gain of $17,075,000 from the issuance of
stock by subsidiaries.
(b) Results include nontaxable gains of $2,516,000, $17,970,000, and
$3,165,000 in the first, second, and fourth quarters, respectively,
from the issuance of stock by subsidiaries.
17. Subsequent Event
On February 5, 1998, the Company's Board of Directors voted to issue
4,880,533 shares of its common stock to Thermo Electron in exchange for
100% of the stock of TMO TCA Holdings Inc., which is the beneficial
owner of 3,355,705 shares of Thermo Cardiosystems' common stock. The
issuance of the 3,355,705 shares of Thermo Cardiosystems common stock is
subject to the approval by Thermo Cardiosystems' shareholders for the
acquisition of International Technidyne from Thermo Electron (Note 3).
The Company's issuance of the 4,880,533 shares of its common stock to
Thermo Electron is subject to approval by the Company's shareholders.
However, because Thermo Electron is the majority shareholder and intends
to vote its shares in favor of the transaction, approval is assured. The
shares of common stock will be exchanged at their respective fair market
values as of February 5, 1998.
33PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermedics Inc.:
We have audited the accompanying consolidated balance sheet of
Thermedics Inc. (a Massachusetts corporation and 58%-owned subsidiary of
Thermo Electron Corporation) and subsidiaries as of January 3, 1998, and
December 28, 1996, and the related consolidated statements of income,
shareholders' investment, and cash flows for each of the three years in
the period ended January 3, 1998. 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
Thermedics Inc. and subsidiaries as of January 3, 1998, and December 28,
1996, and the results of their operations and their cash flows for each
of the three years in the period ended January 3, 1998, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1998
34PAGE
<PAGE>
Thermedics Inc. 1997 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's business are divided into two segments: Instruments and
Other Equipment, and Biomedical Products. The Instruments and Other
Equipment segment includes the Company's Thermo Sentron Inc. subsidiary,
which designs, develops, manufactures, and sells high-speed precision
weighing and inspection equipment for industrial production and packaging
lines; its Orion laboratory products division (Orion), which manufactures
electrode-based chemical-measurement products that determine the quality
of a wide variety of substances by measuring components, such as pH, ion,
dissolved oxygen, and conductivity levels and are used in the
agricultural, biomedical research, food-processing, pharmaceutical, and
many other industries; its Thermedics Detection Inc. subsidiary, which
develops, manufactures, and markets high-speed, on-line detection
instruments used in a variety of industrial process applications,
security applications, and laboratory analysis; and its Thermo Voltek
Corp. subsidiary, which manufactures electronic-test instruments and a
range of products related to power amplification, conversion, and
quality.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. subsidiary manufactures two implantable left
ventricular-assist systems (LVAS): a pneumatic, or air-driven, system and
an electric version. Thermo Cardiosystems' electric LVAS is being used in
Europe as a bridge to transplant and as an alternative to medical
therapy. According to terms set by the U.S. Food and Drug Administration
(FDA), no profit can be earned from the sale of an LVAS in the U.S. until
the FDA has approved the device for commercial sale. With the FDA's
approval, the Company began earning a profit on the sale of its
air-driven LVAS in 1994. Until FDA approval has been obtained, the
Company may not earn a profit on the sale in the U.S. of other products,
such as the electric LVAS, currently used in clinical studies. Thermo
Cardiosystems' International Technidyne Corporation subsidiary is a
leading manufacturer of near-patient, whole-blood coagulation testing
equipment and related disposables and also manufactures single-use,
premium-quality, skin-incision devices. The Company also develops and
manufactures and markets enteral nutrition-delivery systems and a line of
medical-grade polymers used in medical disposables and nonmedical,
industrial applications, including safety glass and automotive coatings.
35PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
Approximately 46% of the Company's revenues in 1997 were derived from
sales of products outside of the U.S., through export sales and sales by
the Company's foreign subsidiaries. During 1997, the Company had exports
from its U.S. and foreign operations to Asia of approximately 8% of total
revenues. Exports to Asia in 1997 were primarily to Japan, China, and
South Korea. Asia is experiencing a severe economic crisis, which has
been characterized by sharply reduced economic activity and liquidity,
highly volatile foreign-currency-exchange and interest rates, and
unstable stock markets. The Company's export sales could be adversely
affected by the unstable economic conditions in Asia. The Company expects
an increase in the percentage of revenues derived from international
operations. 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 between the U.S. dollar and foreign currencies. Where
appropriate, the Company uses forward contracts to reduce its exposure to
currency fluctuations.
Results of Operations
1997 Compared With 1996
Total revenues increased to $307.7 million in 1997 from $292.1
million in 1996. Instruments and Other Equipment segment revenues
increased to $227.7 million in 1997 from $213.1 million in 1996,
primarily due to increases in revenues of $7.6 million, $8.7 million, and
$2.2 million at Thermedics Detection, Thermo Sentron, and Orion,
respectively, offset in part by a $3.9 million decrease in revenues at
Thermo Voltek.
Revenues at Thermedics Detection increased to $51.3 million in 1997
from $43.8 million in 1996. Revenues from Thermedics Detection's process
detection instruments and related services increased to $22.4 million in
1997 from $16.0 million in 1996, primarily as a result of the fulfillment
of a mandated product-line upgrade from The Coca-Cola Company to its
existing installed base and, to a lesser extent, increased shipments of
its InScan systems, introduced in 1996. The mandated product-line upgrade
was completed in 1997. These increases were offset in part by a decrease
in demand from The Coca-Cola Company for new installations in 1997. As a
result of this decrease in demand and the completion of the product-line
upgrade, the Company anticipates that sales of Alexus systems will slow
in 1998, which is the primary reason for the $5.1 million decrease in the
Company's backlog in 1997. Revenues from Thermedics Detection's EGIS
security systems and related services increased to $10.3 million in 1997
from $7.1 million in 1996, primarily due to $3.2 million of shipments
under a contract with the Federal Aviation Administration (FAA). Revenues
from Thermo Sentron increased to $78.7 million in 1997 from $70.0 million
in 1996, primarily due to an increase of $7.2 million related to an
increase in product demand and $4.2 million due to acquisitions. These
increases were offset in part by a decrease of $2.7 million due to the
impact of a stronger U.S. dollar relative to currencies in foreign
36PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
countries in which Thermo Sentron operates. Revenues from Thermo Voltek
decreased to $44.6 million in 1997 from $48.5 million in 1996, primarily
due to a lower demand for EMC test products, resulting from the declining
influence of IEC 801, the European Union directive on electromagnetic
compatibility that took effect January 1, 1996, and, to a lesser extent,
a decline in the component-reliability market for electrostatic discharge
test equipment resulting from a slowdown in capital expenditures by the
semiconductor industry. These decreases in revenues at Thermo Voltek were
offset in part by an increase in revenues of $5.8 million due to
acquisitions.
Biomedical Products segment revenues increased slightly to
$79.9 million in 1997 from $78.9 million in 1996. Revenues from Thermo
Cardiosystems decreased to $62.8 million in 1997 from $64.0 million in
1996, primarily due to a $6.6 million decrease in revenues from its
air-driven LVAS, offset in part by a $1.9 million increase in revenues
from its electric LVAS. Thermo Cardiosystems expects that revenues from
sales of its LVAS will stabilize at approximately current levels until
the electric system is approved in the U.S. for commercial sale. Thermo
Cardiosystems believes that this approval could occur within the first
six months of 1998; however, there can be no assurance that the Company
will receive this approval within the expected time period, or at all.
The decrease in revenues at Thermo Cardiosystems in 1997 was also offset
in part by the inclusion of $2.0 million in revenues from an acquisition.
In addition, revenues from International Technidyne and the Company's
Polymer Products division increased $1.9 million and $1.8 million,
respectively, during 1997 due to an increase in demand.
The gross profit margin remained constant at 49% in 1997 and 1996.
The gross profit margin for the Instruments and Other Equipment segment
was 48% in both 1997 and 1996. The gross profit margin at Thermedics
Detection increased primarily due to a change in product mix to
higher-margin revenues from The Coca-Cola Company's mandated product line
upgrade, field service efficiencies in 1997, and a change in sales mix to
higher-margin revenues at Moisture Systems and Rutter. To a lesser
extent, the gross profit margin improved at Thermedics Detection due to
the effect in 1996 of a charge for inventory obsolescence in connection
with planned product changes. In addition, the gross profit margin
improved at Orion in 1997, primarily due to lower overhead costs at its
new operating location. These increases were offset in part by a decrease
in the gross profit margin at Thermo Voltek, primarily due to a decrease
in sales of certain higher-margin EMC test products, as well as the
effect of a decrease in total revenues.
The gross profit margin for the Biomedical Products segment remained
constant at 54% in 1997 and 1996. The gross profit margin at Thermo
Cardiosystems decreased primarily due to a shift in the sales mix to the
lower-margin electric LVAS and, to a lesser extent, increased warranty
costs due to a company-initiated modification of certain of its LVAS,
completed in the first quarter of 1997. This decrease was offset by
improved margins at International Technidyne, primarily due to
manufacturing efficiencies. Thermo Cardiosystems announced an overall
37PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
price increase of approximately 10% in the electric LVAS product line,
effective June 28, 1997, to help offset increased production costs.
Thermo Cardiosystems will continue to be unable to earn a profit on sales
of the electric LVAS in the U.S. until FDA approval of that system is
obtained. The gross profit margin increased at the Company's Polymer
Products division due in part to the effect of establishing certain
inventory and related reserves in 1996.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 28% in 1997 from 29% in 1996. Selling, general, and
administrative expenses as a percentage of revenues decreased at
Thermedics Detection due to $0.4 million of nonrecurring costs in 1996
and, to a lesser extent, an increase in revenues in 1997, offset in part
by increased selling expenses as Thermedics Detection developed a sales
force for its InScan and Flash-GC systems. Selling, general, and
administrative expenses as a percentage of revenues increased at Thermo
Cardiosystems due to higher marketing expenses as a result of an increase
in its LVAS sales force and, to a lesser extent, promotional expenses at
International Technidyne. Selling, general, and administrative expenses
as a percentage of revenues also increased at Thermo Voltek due to the
effect of a decrease in revenues, and severance and related costs
incurred as part of a continuing evaluation of its lines of business.
Research and development expenses increased to $24.3 million in 1997
from $21.4 million in 1996, primarily due to increased research and
development expenses at Orion to develop new products and at Thermo
Cardiosystems. The increase in research and development expenses at
Thermo Cardiosystems primarily relates to a clinical trial being
conducted to evaluate the electric LVAS as an alternative to medical
therapy and, to a lesser extent, the inclusion of expenditures at Nimbus,
acquired in December 1996. Thermo Cardiosystems expects research and
development expenses to continue to increase over the life of the
clinical trial, estimated at two to three years. There can be no
assurance that the Company will complete this study or that it will
receive FDA approval of the electric LVAS as an alternative to medical
therapy during this time period, or at all.
In 1996, the Company recorded nonrecurring expenses of $12.7 million
for the write-off of cost in excess of net assets of acquired company and
certain other intangible assets associated with its Corpak subsidiary. In
addition, in connection with the December 1996 acquisition of Nimbus, the
Company wrote off $4.9 million, which represents the portion of the
purchase price allocated to technology in development (Note 3).
Interest income increased to $13.3 million in 1997 from $10.8 million
in 1996, due to higher average invested balances at Thermedics Detection
and Thermo Sentron as a result of their initial public offerings of
common stock in March 1997 and April 1996, respectively, and at Thermo
Cardiosystems as a result of the issuance of $70.0 million principal
amount of 4 3/4% subordinated convertible debentures in May 1997.
Interest expense decreased to $3.4 million in 1997 from $3.8 million in
1996, primarily due to the repayment of $53.0 million of notes payable to
Thermo Electron in September 1996, conversions of subordinated
convertible obligations, and a reduction in short-term borrowings at
38PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
Thermo Sentron, offset in part by Thermo Cardiosystems' issuance of
debentures.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell
a minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by subsidiaries,
the Company recorded gains of approximately $17.1 million and
$23.7 million in 1997 and 1996, respectively (Note 11). These gains
represent an increase in the Company's proportionate share of the
subsidiary's equity and are classified as "Gain on issuance of stock by
subsidiaries" in the accompanying statement of income. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future. In addition, in October 1995, the Financial
Accounting Standards Board (FASB) issued an exposure draft of a Proposed
Statement of Financial Accounting Standards, "Consolidated Financial
Statements: Policy and Procedures" (the Proposed Statement). The Proposed
Statement would establish new rules for how consolidated financial
statements should be prepared. If the Proposed Statement is adopted,
there would be significant changes in the way the Company records certain
transactions of its controlled subsidiaries. Among those changes, any
sale of the stock of a subsidiary that does not result in a loss of
control would be accounted for as a transaction in equity of the
consolidated entity with no gain or loss being recorded. The exposure
draft addresses the consolidation issues in two parts: consolidation
procedures, which includes proposed rule changes affecting the Company's
ability to recognize gains on issuances of subsidiary stock, and
consolidation policy, which does not address accounting for such gains.
During 1997, the FASB decided to focus its efforts on the consolidation
policy part of the exposure draft and to consider resuming discussion on
consolidation procedures after completion of the efforts on consolidation
policy. The timing and content of any final statement are uncertain.
The effective tax rates were 29% and 27% in 1997 and 1996,
respectively. The effective tax rates were below the statutory federal
income tax rate primarily due to nontaxable gains on issuance of stock by
subsidiaries, offset in part by the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Minority interest expense decreased to $7.7 million in 1997 from
$8.4 million in 1996, primarily due to lower profits at Thermo
Cardiosystems and Thermo Voltek, offset in part by the minority interest
associated with Thermedics Detection and Thermo Sentron.
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal
39PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
information systems and current products are either year 2000 compliant
or will be so prior to the year 2000 without incurring material costs.
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its
internal information systems and current products, which could result in
a material adverse effect on the Company's future results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
1996 Compared With 1995
Total revenues increased 40% to $292.1 million in 1996 from $208.0
million in 1995. Instruments and Other Equipment segment revenues
increased to $213.1 million in 1996 from $136.7 million in 1995,
primarily due to the inclusion of $73.5 million in revenues from acquired
businesses (Note 3), principally Orion, acquired in December 1995,
Moisture Systems and Rutter, acquired by Thermedics Detection in January
1996 and, to a lesser extent, acquisitions by Thermo Sentron and Thermo
Voltek. Thermedics Detection's process detection instrument sales to the
beverage industry declined to $16.0 million in 1996 from $18.5 million in
1995, primarily due to a decrease in product demand from Thermedics
Detection's principal customer, which has substantially completed its
initial deployment of Alexus systems. Revenues from Thermedics
Detection's EGIS security systems increased to $7.1 million in 1996 from
$4.6 million in 1995, primarily due to the sale of eight EGIS units to
the U.S. government to provide counter-terrorism support in Israel.
Revenues from Thermo Voltek increased $12.2 million to $48.5 million in
1996 due in part to an increase in revenues at its Comtest subsidiary
from sales of electrostatic-discharge test equipment and its introduction
of a new product line in 1995. In addition, Thermo Voltek's revenues
increased due to the inclusion of $3.0 million in revenues from Pacific
Power Source Corporation, acquired in July 1996, and increased demand for
electromagnetic compatibility test equipment at its Keytek division.
Biomedical Products segment revenues increased to $78.9 million in
1996 from $71.3 million in 1995. Revenues from Thermo Cardiosystems
increased $11.1 million to $64.0 million in 1996, primarily due to a $9.4
million increase in LVAS sales and, to a lesser extent, a $1.7 million
increase in sales of International Technidyne products. International
Technidyne revenue growth resulted primarily from a $1.4 million increase
in sales of skin-incision devices due to an increase in demand. These
increases were offset in part by a decline of $4.3 million in revenues
from Scent Seal fragrance samplers. In June 1995, the Company entered
into an agreement with a third party granting an exclusive license to all
of its patents and know-how relating to the Scent Seal fragrance samplers
to a third party in consideration for royalty payments on future sales by
40PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
the licensee. The Company recorded royalty income of $426,000 in 1996 and
$197,000 in 1995 related to this agreement.
The gross profit margin was 49% in 1996, compared with 47% in 1995.
The gross profit margin for the Instruments and Other Equipment segment
increased to 48% in 1996 from 43% in 1995, primarily due to the inclusion
of higher-margin revenues at Orion, Moisture Systems, and Rutter.
The gross profit margin for the Biomedical Products segment increased
to 54% in 1996 from 53% in 1995, primarily from an increase in revenues
in Thermo Cardiosystems' LVAS product line due to higher-margin
implementation programs, an increase in sales volume and, to a lesser
extent, improvements in manufacturing efficiencies. These increases were
offset in part by inventory write-offs at the Company's Corpak subsidiary
associated with discontinued product lines. In addition, 1995 included
lower-margin revenues from the sale of Scent Seal fragrance samplers.
Selling, general, and administrative expenses as a percentage of
revenues increased to 29% in 1996 from 27% in 1995, primarily due to
higher expenses as a percentage of revenues at Orion, Moisture Systems,
and Rutter and, to a lesser extent, $0.4 million of costs incurred by
Thermedics Detection related to a reduction in personnel and leased space
in response to the lower sales volume of process detection instruments to
the beverage industry.
Research and development expenses increased to $21.4 million in 1996
from $14.9 million in 1995, primarily due to the inclusion of expenses
from Orion for a full year in 1996 and, to a lesser extent, increased
research and development expenses at Thermo Voltek and Thermedics
Detection.
In 1996, the Company recorded nonrecurring costs of $12.7 million for
the write-off of cost in excess of net assets of acquired company and
certain other intangible assets associated with its Corpak subsidiary. In
addition, in connection with the December 1996 acquisition of Nimbus, the
Company wrote off $4.9 million, which represents the portion of the
purchase price allocated to technology in development (Note 3).
Interest income increased to $10.8 million in 1996 from $9.1 million
in 1995, primarily due to interest income earned on invested proceeds
from the Company's May 1996 issuance of $65.0 million principal amount of
noninterest-bearing subordinated convertible debentures and Thermo
Sentron's April 1996 initial public offering of common stock. These
increases were offset in part by cash used for the repayment of an
aggregate of $53.0 million of promissory notes to Thermo Electron (Note
3). Interest expense increased to $3.8 million in 1996 from $3.7 million
in 1995, as a result of additional borrowings by the Company to fund
acquisitions, largely offset by a decrease in interest expense due to
conversions of the Company's and its subsidiaries' subordinated
convertible obligations.
The Company recorded gains of $23.7 million and $3.5 million in 1996
and 1995, respectively, from issuance of stock by subsidiaries (Note 11).
The effective tax rate was 27% in 1996, compared with 33% in 1995.
The effective tax rate in 1996 was below the statutory federal income tax
rate primarily due to the nontaxable gain on issuance of stock by
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Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
subsidiaries and the elimination of the valuation allowance no longer
required, offset in part by the nondeductible write-off of certain
intangible assets at the Company's Corpak subsidiary, the impact of state
income taxes, and nondeductible amortization of cost in excess of net
assets of acquired companies. The effective tax rate in 1995 was below
the statutory federal income tax rate primarily due to nontaxable gain on
issuance of stock by subsidiaries.
Minority interest expense increased to $8.4 million in 1996 from $6.6
million in 1995 due to higher profits at the Company's Thermo Voltek
subsidiary, and to a lesser extent, the minority interest associated with
the Company's newly public Thermo Sentron subsidiary.
Liquidity and Capital Resources
Consolidated working capital was $309.4 million at January 3, 1998,
compared with $208.2 million at December 28, 1996. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$258.0 million at January 3, 1998, compared with $181.8 million at
December 28, 1996. Of the $258.0 million balance at January 3, 1998,
$231.7 million was held by the Company's majority-owned subsidiaries and
the remainder by the Company and its wholly owned subsidiaries.
During 1997, $38.9 million of cash was provided by operating
activities. Cash of $2.9 million, provided by an increase in other
current liabilities, was more than offset by the use of $5.4 million of
cash to fund an increase in inventories. The increase in inventories
related to an order received from the FAA, which resulted in increased
inventory purchases at Thermedics Detection. Inventories at Orion
increased to normal operating levels from a low level at year-end 1996,
which was due to its relocation in the fourth quarter of 1996.
Excluding available-for-sale investment activity, the Company's
primary investing activities during 1997 included expenditures of $5.7
million for acquisitions (Note 3) and $7.1 million for purchases of
property, plant, and equipment. During 1998, the Company expects to make
capital expenditures of approximately $10.0 million.
During 1997, the Company's financing activities provided
$48.4 million in cash. In March 1997, Thermedics Detection issued shares
of its common stock in an initial public offering for net proceeds of
approximately $28.1 million (Note 11). In addition, in May 1997, Thermo
Cardiosystems issued and sold $70.0 million principal amount of 4 3/4%
subordinated convertible debentures due 2004 for net proceeds of $68.0
million (Note 7).
The Company intends, for the foreseeable future, to maintain at least
50% ownership of its majority-owned subsidiaries. This may require the
Company to purchase additional shares of common stock or, if applicable,
convertible debentures (which are then converted) of these companies from
time to time, as the number of these companies' outstanding shares
increases, whether as a result of conversion of convertible notes
orexercise of stock options issued by them, or otherwise. These or any
other purchases may be made (i) in the open market or in negotiated
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Thermedics Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
transactions, (ii) directly from Thermo Electron or the relevant
subsidiary, or (iii) in the case of Thermo Voltek, pursuant to the
conversion of all or part of its subordinated convertible notes held by
the Company.
During 1997, the Company and certain of its majority-owned
subsidiaries expended $9.1 million and $42.7 million, respectively, to
purchase securities of the Company and certain of its majority-owned
subsidiaries. These purchases were made pursuant to authorizations by the
Company's and the applicable majority-owned subsidiaries' Boards of
Directors. As of January 3, 1998, $0.8 million and $21.7 million remained
under the Company's and its majority-owned subsidiaries' authorizations,
respectively. In March 1998, the Company's Board of Directors authorized
the repurchase, through March 5, 1999, of up to an additional $10.0
million of its own securities and those of its majority-owned
subsidiaries in private and open markets, or in negotiated transactions.
Any such purchases are funded from working capital.
The Company expects to continue to pursue its strategy of expanding
its business both through the continued development, manufacture, and
sale of new products, and through the possible acquisition of companies
that will provide additional marketing or manufacturing capabilities and
new products. In March 1998, Thermo Sentron reached a definitive
agreement with Smiths Industries plc to acquire the three businesses that
constitute the product-monitoring group of its Graseby plc division, for
approximately $43.0 million in cash, net of cash acquired. The purchase
price is subject to a post-closing adjustment. Graseby plc designs,
manufactures, and distributes specialized packaged-goods equipment,
including checkweighers, metal detectors, and thermal printers, primarily
for use by food producers and pharmaceutical companies. The completion of
this transaction is subject to the receipt of approvals from anti-trust
authorities in the United States and Germany. While the Company currently
has no other agreements to make any acquisitions, it expects that it
would finance any acquisitions through a combination of internal funds,
additional debt or equity financing from the capital markets, or
short-term borrowings from Thermo Electron, although its has no agreement
with Thermo Electron that assures 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 operations
for the foreseeable future.
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Thermedics Inc. 1997 Financial Statements
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 1998 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Risks Associated With Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement
or augment its existing product lines. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory
approval, including antitrust approvals. There can be no assurance that
the Company will be able to complete future acquisitions or that it will
be able to successfully integrate any acquired business. In order to
finance such acquisitions, it may be necessary for the Company to raise
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable
to the Company and, in the case of equity financing, may result in
dilution to the Company's stockholders.
Risks Associated with Spin-Out of Subsidiaries. The Company has
adopted a strategy of spinning out certain of its businesses into
separate subsidiaries and having these subsidiaries sell a minority
interest to outside investors. As a result of the sale of stock by
subsidiaries, the issuance of stock by subsidiaries upon conversion of
convertible debentures and similar transactions, the Company records
gains that represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the Proposed Statement). The Proposed Statement
would establish new rules for how consolidated financial statements
should be prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The exposure draft addresses the
consolidation issues in two parts: consolidation procedures, which
includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation
policy, which does not address accounting for such gains. During 1997,
the FASB decided to focus its efforts on the consolidation policy part of
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
the exposure draft and to consider resuming discussion on consolidation
procedures after completion of the efforts on consolidation policy. The
timing and content of any final statement are uncertain.
International Operations. Sales outside the U.S. have accounted for a
significant percentage of the Company's total revenues. The Company
intends to continue to expand its presence in international markets.
International sales are subject to a number of risks, including the
following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign
customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs, or adopt other restrictions on foreign trade;
fluctuations in exchange rates may affect product demand and adversely
affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the
Company's products and services is made in the local currency; U.S.
export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to
enforce. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business and results of
operations. During 1997, the Company had exports from its U.S. and
foreign operations to Asia of approximately 8% of total revenues. Exports
to Asia in 1997 were primarily to Japan, China, and South Korea. Asia is
experiencing a severe economic crisis, which has been characterized by
sharply reduced economic activity and liquidity, highly volatile
foreign-currency-exchange and interest rates, and unstable stock markets.
The Company's export sales could be adversely affected by the unstable
economic conditions in Asia.
Technological Change and Competition. The market for many of the
Company's products is characterized by changing technology, evolving
industry standards, and new product introductions. The Company's future
success will depend, in part, upon its ability to enhance its existing
products and to develop and introduce new products and technologies to
meet changing customer requirements. The Company is currently devoting
significant resources toward the enhancement of its existing products and
the development of new products and technologies. There can be no
assurance that the Company will successfully complete the enhancement and
development of these products in a timely fashion, or that these products
will compete successfully with those of the Company's competitors.
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.
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
Intellectual Property Rights. The Company relies upon trade secret
protection and patents to protect its proprietary rights. 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. The Company has
received correspondence from a third party alleging that the textured
surface of the LVAS infringes certain patent rights of such third party.
The Company believes that it has meritorious defenses to the claims of
the third party. However, no assurance can be given that the Company
would be successful if litigation were commenced or that others will not
claim that the Company infringes their intellectual property rights.
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 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, 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 business
and results of operations 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.
Uncertainty of Regulatory Approval for Biomedical Devices. Thermo
Cardiosystems' biomedical devices, including its LVAS, are subject to
approval by the FDA before they may be sold for profit in the United
States. Thermo Cardiosystems is also subject to regulatory requirements
in foreign countries in which it markets its devices. The process of
obtaining regulatory approvals is lengthy, expensive, and inherently
uncertain. Even after FDA approval has been obtained, such approval can
be suspended or revoked if the FDA does not continue to be satisfied with
the safety and efficacy of a product. Failure to comply with applicable
regulatory requirements can result in, among other things, fines,
suspensions of approvals, recalls of products, operating restrictions,
and criminal prosecutions.
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
In October 1994, Thermo Cardiosystems received FDA approval for the
commercial sale of its pneumatic LVAS. In April 1994, Thermo
Cardiosystems received the CE Mark for commercial sale of the pneumatic
LVAS in all European Union countries. Thermo Cardiosystems has developed
the HeartPak(TM), a lightweight, portable console that can be carried
over the shoulder and which can be used as an alternative to the larger
external console approved for use with the pneumatic LVAS. The HeartPak
received the CE Mark in February 1995 and is currently in Phase I
clinical trials in the U.S. Thermo Cardiosystems' electric LVAS is
currently in use in clinical trials in the U.S. These trials are testing
the safety and efficacy of the device as both a bridge to transplant and
as an alternative to transplant. The electric LVAS received the CE Mark
in August 1995.
In June 1997, Thermo Cardiosystems submitted a PMA supplemental
application to receive FDA approval of its electric system for use as a
bridge to transplant. This application is currently under review;
however, no assurance can be given that the FDA will review this
application on a timely basis or will grant approval once it completes
its review. Significant design changes to Thermo Cardiosystems' LVAS,
including use of the portable console for the pneumatic LVAS, must be
approved pursuant to a supplement to an approved PMA application. Failure
of Thermo Cardiosystems to obtain FDA approval for the commercial sale of
the electric LVAS, either as a bridge to transplant or as an alternative
to transplant, would have a material adverse effect on Thermo
Cardiosystems' long-term growth prospects. In addition, failure of Thermo
Cardiosystems to obtain approval for the HeartPak portable console would
likely require patients supported by the pneumatic LVAS to remain
hospitalized. This could materially decrease the market for the pneumatic
LVAS.
Uncertainty of Patient Reimbursement. The cost of implanting a
cardiac support system is substantial. In addition, the Company's
coagulation-testing equipment can cost several thousand dollars per
instrument. Without the financial support of the government or
third-party insurers, the market for Thermo Cardiosystems' devices will
be limited. Medicare and Medicaid limit the reimbursement that U.S.
hospitals receive for treating certain medical conditions by setting
maximum fees that can be charged to their patients. Under these systems,
hospitals are paid a fixed amount for treating each patient with a
particular diagnosis. Private insurers also have initiated reimbursement
systems designed to slow the escalation of health care costs. In
addition, the federal government is considering, and certain state
governments are considering or have adopted, new health care policies
intended to curb rising health care costs. Such policies include
rationing of government-funded reimbursement for health care services and
imposing price controls upon providers of medical products and services.
These policies could have the effect of limiting the availability of
reimbursement for procedures, such as the implantation of an LVAS, that
involve prolonged treatment of critically ill patients.
In November 1995, the U.S. Health Care Finance Administration (HCFA)
issued a decision that extends Medicare coverage to Thermo Cardiosystems'
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
HeartMate pneumatic LVAS. Several major nongovernment insurers have
already agreed to offer coverage for the pneumatic LVAS. HCFA's coverage
policy could also extend to the electric LVAS once approved, although
there can be no assurance such coverage will extend to the electric LVAS.
In addition, some major nongovernment insurers currently offer coverage
for the electric LVAS because of its investigational device exemption
status as a category B device (eligible for Medicare coverage and
payment). Even though reimbursement has been established by HCFA and by
certain nongovernment insurers for the pneumatic LVAS, the amount of
available reimbursement may change, and reimbursement may be denied by an
insurer under certain circumstances, including if it is determined that a
procedure was not the most cost-effective treatment method, was
experimental, or was used for an unapproved indication. No assurance can
be given that additional third-party reimbursement for the pneumatic LVAS
will be granted within a reasonable period of time, or at all. The
unavailability of third-party reimbursement for procedures involving
Thermo Cardiosystems' systems would have a material adverse effect on
Thermo Cardiosystems' business.
Uncertainty of Opinion Leader Acceptance and Support. A limited
number of cardiac surgeons and cardiologists influences medical device
selection and purchase decisions for a large portion of the target
patient population. Thermo Cardiosystems will achieve its business
objectives only if its LVAS are recommended for use by such opinion
leaders. In addition, acceptance by these physicians of Thermo
Cardiosystems' whole-blood coagulation monitoring systems and Coumadin
monitors is also important to the success of Thermo Cardiosystems'
business. Thermo Cardiosystems has developed working relationships with a
number of leading medical centers, and its existing and proposed LVAS and
its blood-coagulation monitoring systems have been well received by
opinion leaders in cardiac surgery and cardiology. Moreover, since the
inception of its work on cardiac support systems in 1966, Thermo
Cardiosystems has relied upon surgical teams at medical institutions to
perform clinical trials that are necessary to obtain FDA approvals. A
continuing working relationship with those and other institutions will be
important to the success of Thermo Cardiosystems. No assurance can be
given that existing relationships and arrangements can be maintained or
that new relationships will be established. Furthermore, economic,
psychological, ethical, and other concerns may limit acceptance of heart
assist devices in general, and there can be no assurance that markets of
sufficient size will develop for Thermo Cardiosystems' LVAS.
Availability of Components and Raw Materials. Thermo Cardiosystems
relies on a number of custom-designed components and materials supplied
by other companies to manufacture its LVAS. Thermo Cardiosystems is
making efforts to minimize the risks associated with sole sources and
ensure long-term availability, including qualifying alternative materials
and components or developing alternative sources for the materials and
components supplied by a single source. Although Thermo Cardiosystems
believes that it has adequate supplies of materials and components to
meet demand for its products for the foreseeable future, no assurance can
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
be given that Thermo Cardiosystems will not experience in the future
shortages of certain materials or components that could delay shipments
of its products. The cost to Thermo Cardiosystems to evaluate and test
alternative materials and components and the time necessary to obtain FDA
approval for these materials and components are inherently difficult to
determine because both time and cost are dependent on at least two
factors: the similarity of the alternative material or component to the
original material or component, and the amount of third-party testing
that may have already been completed on alternative materials or
components. There can be no assurance that the substitution of
alternative materials or components would not cause delays in Thermo
Cardiosystems' LVAS development programs or adversely affect Thermo
Cardiosystems' ability to manufacture and ship LVAS to meet demand.
Limited Manufacturing and Marketing Experience of Thermo
Cardiosystems. Prior to FDA approval of commercial sale of the pneumatic
LVAS, Thermo Cardiosystems' LVAS business was engaged only in the
research and development. Since that time, Thermo Cardiosystems has been
building its manufacturing, marketing, and sales capabilities. While
Thermo Cardiosystems has not experienced difficulties in manufacturing
its LVAS at volume, cost, and quality levels sufficient to satisfy the
increased demand resulting from commercial approval, no assurance can be
given that Thermo Cardiosystems will not encounter difficulties as sales
volumes increase or new products and/or components are approved for
commercial sale. Thermo Cardiosystems does not have experience in the
large-scale commercialization of LVAS medical devices. Although Thermo
Cardiosystems has added sales and marketing staff and is expanding its
distribution capabilities worldwide, no assurance can be given that
Thermo Cardiosystems will be able to market and sell its LVAS
successfully in high volumes.
Product Liability. Thermo Cardiosystems faces an inherent business
risk of exposure to product liability claims relating to the use of its
products. Although Thermo Cardiosystems currently maintains product
liability insurance against this risk, there can be no assurance that it
will continue to be able to obtain such coverage at economically feasible
rates, if at all, or that such coverage will be adequate in terms and
scope to protect Thermo Cardiosystems completely in the event of a
successful product liability claim.
Effect of Government Regulations and Approvals on Market for Thermo
Sentron's Products. The market for certain of Thermo Sentron's products,
both in the United States and abroad, is subject to or influenced by
various domestic and foreign clean air and consumer protection laws.
Thermo Sentron designs, develops, and markets its products to meet
customer needs created by existing and anticipated regulations, and any
changes in these regulations may adversely affect consumer demand for
Thermo Sentron's products. In addition, the marketing of certain of
Thermo Sentron's products is dependent upon the receipt of regulatory and
other approvals, including industry association approvals of the design,
construction, and accuracy of Thermo Sentron's products. Delays in
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
obtaining, or the failure to obtain, any such approvals could have a
material adverse effect on Thermo Sentron's business and results of
operations.
Effect of Electrical Standards on Demand for Thermo Voltek's
Products. Demand for Thermo Voltek's EMC testing products and services is
driven to a large extent by mandatory government standards and voluntary
industry standards relating to electromagnetic compatibility. In
particular, demand for many of Thermo Voltek's products results from
efforts by manufacturers to comply with IEC 801, an EU directive that
became effective on January 1, 1996. As the number of noncomplying
manufacturers is reduced over time, demand for Thermo Voltek's products
is likely to be adversely affected. In addition, if new EMC standards
requiring new testing capabilities are enacted less frequently or if EMC
standards become less strict or not strictly enforced, demand for Thermo
Voltek's products could be adversely affected.
Dependence of Explosives-Detection Market on Government Regulation
and Airline Industry. Sales of Thermedics Detection's explosives-
detection systems for use in airports has been and will continue to be
dependent on governmental initiatives to require, or support, the
screening of checked luggage, carry-on items, and personnel with advanced
explosives-detection equipment. Substantially all of such systems have
been installed at airports in countries other than the United States in
which the applicable government or regulatory authority overseeing the
operations of the airport has mandated such screening. Such mandates are
influenced by many factors outside of the control of Thermedics
Detection, including political and budgetary concerns of governments,
airlines, and airports. Of the more than 600 commercial airports
worldwide, more than 400 are located in the United States. Accordingly,
Thermedics Detection believes that the size of the market for
explosives-detection equipment is, and will increasingly be,
significantly influenced by United States government regulation. In the
United States, the Aviation Security Act of 1990 directed the Federal
Aviation Administration (FAA) to develop a standard for
explosives-detection systems and required airports in the United States
to deploy systems meeting this standard in 1993. The Company beleives the
FAA is of the opinion that, to date, no system has demonstrated that it
meets all FAA standards under realistic airport operating conditions. As
a result, the FAA has not mandated the installation of automated
explosives-detection systems, and only a limited number of these systems
have been deployed in the United States. The FAA first certified a
computed X-ray tomography system for checked luggage in December 1994.
Thermedics Detection's systems are trace detectors for which no FAA
certification process for checked baggage, carry-on, or personal
screening exists to date. Currently, Thermedics Detection is seeking FAA
approval for Thermedics Detection's EGIS and Ramport systems for use by
airlines in screening carry-on electronic items and luggage searches,
however, there can be no assurance that such FAA approvals will be
obtained. Each airline must seek this approval for each application.
Although the FAA has provided significant funding to Thermedics Detection
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
in connection with the development of its explosives-detection
technology, there can be no assurance that any of Thermedics Detection's
systems will ever meet this or any other United States certification
standard. Any product utilizing a technology ultimately recommended or
required by the FAA will have a significant competitive advantage in the
market for explosives-detection devices. Unless the FAA takes action with
respect to a particular explosives-detection product or technology,
airlines will not be required to purchase or upgrade their security
systems, including upgrading existing metal-detection equipment. Earnings
of U.S. air carriers tends to fluctuate significantly from time to time.
Any depression in the financial condition of such carriers would likely
result in lower capital spending for discretionary items. Moreover, there
can be no assurance that additional countries will mandate the
implementation of effective explosives screening for airline baggage,
carry-on items or personal, or that, if mandated, Thermedics Detection's
systems will meet the certification or other requirements of the
applicable government authority. Even if Thermedics Detection's systems
were to meet the applicable requirements, there can be no assurance that
Thermedics Detection would be able to market its systems effectively.
In October 1996, the United States enacted legislation which includes
a $144.2 million allocation to purchase explosives-detection systems and
other advanced security equipment, including trace detection equipment
such as the systems manufactured by Thermedics Detection, for carry-on
and checked baggage screening. The FAA has made purchases of, or placed
orders for the purchase of, security equipment under this legislation,
including an order to purchase $5.8 million of Thermedics Detection's
EGIS systems. There can be no assurance, however, that this legislation
will not be modified to reduce the funding for advanced explosives
equipment, that the necessary appropriations will be made to fund further
purchases of advanced explosives-detection equipment contemplated by the
legislation, that trace-detection equipment such as the systems
manufactured by Thermedics Detection will be mandated, or that, even if
further appropriations are made and such equipment is mandated, any of
Thermedics Detection's explosives-detection systems will be purchased for
installation at any airports in the United States. Further, there can be
no assurance that the U.S. will mandate the widespread use of these
systems after completion of the initial purchases.
Significance of Certain Customers to Thermedics Detection. Sales of
process detection instruments and related services to bottlers licensed
by The Coca-Cola Company (Coca-Cola Bottlers) were $13,194,000,
$10,641,000, and $9,974,000 in 1997, 1996, and 1995, respectively. In
1997, Thermedics Detection completed the fulfillment of a mandated
product-line upgrade for The Coca-Cola Bottlers. Although the Company
anticipates that Thermedics Detection will continue to derive revenues
from the sale of upgrades and new systems to new plants, as well as
services to the Coca-Cola Bottlers, the Company does not expect that
revenues derived from these customers will continue at a rate comparable
to prior years. Further, the Company intends to continue to develop and
introduce new process detection products for the food, beverage, and
other markets; however, there can be no assurance that Thermedics
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Thermedics Inc. 1997 Financial Statements
Forward-looking Statements
Detection will be successful in the introduction of new process detection
products or that any sales of these products will be sufficient to
maintain a rate of growth equivalent to prior years.
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems and on products sold as well
as products purchased by the Company. The Company believes that its
internal information systems and current products are either year 2000
compliant or will be so prior to the year 2000 without incurring material
costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance
for its internal information systems and current products, which could
result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
52PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993
------------------------------------------------------------------------
Statement of Income
Data:
Revenues $307,666 $292,077 $208,041 $183,753 $104,545
Net income 41,492 29,138 17,174 12,695 7,633
Earnings per share:
Basic 1.13 .80 .51 .39 .25
Diluted 1.07 .75 .48 .38 .25
Balance Sheet Data:
Working capital $309,363 $208,170 $114,340 $131,578 $135,992
Total assets 536,552 456,699 386,249 306,691 251,874
Long-term
obligations 142,771 74,359 45,201 82,551 59,130
Shareholders'
investment 227,346 211,582 172,751 136,783 122,186
------------
(a)Reflects a nontaxable gain of $17.1 million from the issuance of
stock by subsidiaries and the May 1997 issuance of $70.0 million
principal amount of 4 3/4% subordinated convertible debentures by
Thermo Cardiosystems.
(b)Reflects the January 1996 acquisition of Moisture Systems and Rutter,
the May 1996 issuance of $65.0 million principal amount of
noninterest-bearing subordinated convertible debentures, and
nontaxable gains of $23.7 million from the issuance of stock by
subsidiaries.
(c)Reflects the December 1995 acquisition of Orion.
(d)Reflects the January 1994 issuance of $33.0 million principal amount
of noninterest-bearing subordinated convertible debentures by Thermo
Cardiosystems and the March 1994 acquisition of Ramsey Technology,
Inc.
53PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol TMD. The following table sets forth the high and low
sale prices of the Company's common stock for 1997 and 1996, as reported
in the consolidated transaction reporting system.
1997 1996
------------------- ------------------
Quarter High Low High Low
--------------------------------------------------------------------
First $21 1/4 $16 5/8 $30 1/2 $23 1/4
Second 19 7/16 15 31 7/8 24 5/8
Third 19 7/8 15 1/8 31 1/8 20 1/8
Fourth 20 1/2 15 1/16 26 3/8 17 5/8
As of January 30, 1998, the Company had 2,358 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 30, 1998, was $15 1/4 per share.
Common stock of the Company's majority-owned public subsidiaries is
traded on the American Stock Exchange: Thermo Cardiosystems Inc. (symbol
TCA), Thermo Voltek Corp. (symbol TVL), Thermo Sentron Inc. (symbol TSR),
and Thermedics Detection Inc. (symbol TDX).
Shareholder Services
Shareholders of Thermedics Inc. who desire information about the
Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermedics Inc., 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046, (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 report only. All material will
be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/tmd1.html).
Stock Transfer Agent
BankBoston 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:
BankBoston
c/o Boston EquiServe Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02266-8040
(617) 575-3120
54PAGE
<PAGE>
Thermedics Inc. 1997 Financial Statements
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 Company's 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 3, 1998, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermedics Inc., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 1,
1998, at 1:30 p.m., at the Hyatt Regency Hotel, Scottsdale, Arizona.
55PAGE
<PAGE>
Exhibit 21
THERMEDICS INC.
As of January 30, 1998, the Registrant owned the following subsidiaries:
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Corpak Inc. Massachusetts 100
Walpak Company Illinois 100
Orion Research, Inc. Massachusetts 100
Advanced Sensor Technology Massachusetts 100
Orion Research Limited United 100
Kingdom
Orion Research Puerto Rico, Inc. Delaware 100
Russell pH Limited Scotland 100
Thermedics Detection Inc. Massachusetts 75.83
Detection Securities Corporation Massachusetts 100
Moisture Systems Corporation Ltd. United 100
Kingdom
Rutter & Co. Netherlands 100
Rutter Instrumentation S.A.R.L. France 90
Systech B.V. Netherlands 50
ThermedeTec Corporation Delaware 100
Thermedics Detection de Argentina S.A.Argentina 100
(1% of which shares are owned
directly by Thermedics Detection Inc.)
Thermedics Detection de Mexico, S.A. Mexico 100
de C.V.
Thermedics Detection GmbH Germany 100
Thermedics Detection Limited United 100
Kingdom
Thermedics Detection Scandinavia AS Norway 100
Thermo Sentron Inc. Delaware 70.95
(additionally, 6.86% of the shares are
owned directly by The Thermo Electron
Companies Inc.)
Ramsey France S.A.R.L. France 100
Ramsey Ingenieros S.A. Spain 100
Ramsey Italia S.R.L. Italy 100
Tecno Europa Elettromeccanica S.R.L. Italy 100
Ramsey Technology Inc. Massachusetts 100
Xuzhou Ramsey Technology Co., Limited China 50*
Page 1PAGE
<PAGE>
Exhibit 21
THERMEDICS INC.
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Thermo Sentron Australia Pty. Ltd.. Australia 100
Thermo Sentron B.V. Netherlands 100
Thermo Sentron Canada Inc. Canada 100
Thermo Sentron GmbH Germany 100
Thermo Sentron Limited United 100
Kingdom
Hitech Electrocontrols Limited United 100
Kingdom
Hitech Licenses Ltd. United 100
Kingdom
Hitech Metal Detectors Ltd. United 100
Kingdom
Westerland Engineering Ltd. United 100
Kingdom
Thermo Sentron SEC Corporation Massachusetts l00
Thermo Sentron (South Africa) Pty. Ltd. South Africa 100
TMD Securities Corporation Massachusetts 100
Thermo Cardiosystems Inc. Massachusetts 50.64
(additionally, 8.84% of the shares are
owned directly by The Thermo Electron
Companies Inc.)
International Technidyne Corporation Delaware 100
International Technidyne United 100
Corporation Limited Kingdom
Nimbus Inc. Massachusetts 100
TCA Securities Corporation Massachusetts 100
Thermo Voltek Corp. Delaware 65.28
(additionally, 2.69% of the shares are
owned directly by The Thermo Electron
Companies Inc.)
Thermo Voltek Europe B.V. Netherlands 100
Comtest Instrumentation, B.V. Netherlands 100
Comtest Italia S.R.L. Italy 100
Comtest Limited United 100
Kingdom
Milmega Limited United 100
Kingdom
TVL Securities Corporation Delaware 100
UVC Realty Corp. New York 100
* Joint Venture/Partnership
Page 2
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our report for Thermedics Inc. dated
February 12, 1998, included in or made a part of this Form 10-K, into the
Company's previously filed Registration Statement No. 2-93746 on Form
S-8, Registration Statement No. 33-00183 on Form S-8, Registration
Statement No. 2-93747 on Form S-8, Registration Statement No. 33-8992 on
Form S-8, Registration Statement No. 33-31621 on Form S-8, Registration
Statement No. 33-9215 on Form S-8, Registration Statement No. 33-43707 on
Form S-3, Registration Statement No. 33-40866 on Form S-3, Registration
Statement No. 33-64070 on Form S-8, Registration Statement No. 33-86972
on Form S-8, Registration Statement No. 33-86974 on Form S-8,
Registration Statement No. 033-65279 on Form S-8, Registration Statement
No. 033-61435 on Form S-8, Registration No. 333-2149 on Form S-3, and
Registration No. 333-32035 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONATAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 187,012
<SECURITIES> 58,317
<RECEIVABLES> 65,695
<ALLOWANCES> 4,207
<INVENTORY> 59,574
<CURRENT-ASSETS> 379,160
<PP&E> 55,597
<DEPRECIATION> 33,986
<TOTAL-ASSETS> 536,552
<CURRENT-LIABILITIES> 69,797
<BONDS> 142,771
0
0
<COMMON> 3,685
<OTHER-SE> 223,661
<TOTAL-LIABILITY-AND-EQUITY> 536,552
<SALES> 307,666
<TOTAL-REVENUES> 307,666
<CGS> 155,680
<TOTAL-COSTS> 155,680
<OTHER-EXPENSES> 24,270
<LOSS-PROVISION> 815
<INTEREST-EXPENSE> 3,398
<INCOME-PRETAX> 68,897
<INCOME-TAX> 19,675
<INCOME-CONTINUING> 41,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,492
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 37,413
<SECURITIES> 77,916
<RECEIVABLES> 50,813
<ALLOWANCES> 4,244
<INVENTORY> 47,947
<CURRENT-ASSETS> 219,768
<PP&E> 40,899
<DEPRECIATION> 21,452
<TOTAL-ASSETS> 386,249
<CURRENT-LIABILITIES> 105,428
<BONDS> 45,201
0
0
<COMMON> 3,399
<OTHER-SE> 169,352
<TOTAL-LIABILITY-AND-EQUITY> 386,249
<SALES> 208,041
<TOTAL-REVENUES> 208,041
<CGS> 110,935
<TOTAL-COSTS> 110,935
<OTHER-EXPENSES> 14,874
<LOSS-PROVISION> 689
<INTEREST-EXPENSE> 3,677
<INCOME-PRETAX> 35,567
<INCOME-TAX> 11,781
<INCOME-CONTINUING> 17,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,174
<EPS-PRIMARY> .51
<EPS-DILUTED> .48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINACIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 48,745
<SECURITIES> 75,850
<RECEIVABLES> 59,319
<ALLOWANCES> 4,493
<INVENTORY> 52,908
<CURRENT-ASSETS> 242,954
<PP&E> 43,988
<DEPRECIATION> 23,486
<TOTAL-ASSETS> 422,415
<CURRENT-LIABILITIES> 136,924
<BONDS> 32,706
0
0
<COMMON> 3,647
<OTHER-SE> 185,959
<TOTAL-LIABILITY-AND-EQUITY> 422,415
<SALES> 68,994
<TOTAL-REVENUES> 68,994
<CGS> 35,809
<TOTAL-COSTS> 35,809
<OTHER-EXPENSES> 4,974
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 1,278
<INCOME-PRETAX> 10,659
<INCOME-TAX> 3,332
<INCOME-CONTINUING> 5,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,257
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 131,416
<SECURITIES> 85,823
<RECEIVABLES> 60,189
<ALLOWANCES> 4,747
<INVENTORY> 54,011
<CURRENT-ASSETS> 337,220
<PP&E> 44,880
<DEPRECIATION> 25,031
<TOTAL-ASSETS> 504,601
<CURRENT-LIABILITIES> 121,118
<BONDS> 88,073
0
0
<COMMON> 3,679
<OTHER-SE> 198,771
<TOTAL-LIABILITY-AND-EQUITY> 504,601
<SALES> 140,088
<TOTAL-REVENUES> 140,088
<CGS> 72,782
<TOTAL-COSTS> 72,782
<OTHER-EXPENSES> 23,090
<LOSS-PROVISION> 606
<INTEREST-EXPENSE> 2,537
<INCOME-PRETAX> 24,775
<INCOME-TAX> 5,060
<INCOME-CONTINUING> 15,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,011
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THEMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 89,189
<SECURITIES> 67,262
<RECEIVABLES> 62,722
<ALLOWANCES> 4,384
<INVENTORY> 54,468
<CURRENT-ASSETS> 280,079
<PP&E> 46,701
<DEPRECIATION> 26,689
<TOTAL-ASSETS> 452,466
<CURRENT-LIABILITIES> 69,301
<BONDS> 82,543
0
0
<COMMON> 3,682
<OTHER-SE> 198,987
<TOTAL-LIABILITY-AND-EQUITY> 452,466
<SALES> 214,290
<TOTAL-REVENUES> 214,290
<CGS> 109,316
<TOTAL-COSTS> 109,316
<OTHER-EXPENSES> 28,554
<LOSS-PROVISION> 883
<INTEREST-EXPENSE> 3,530
<INCOME-PRETAX> 39,582
<INCOME-TAX> 10,629
<INCOME-CONTINUING> 21,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,370
<EPS-PRIMARY> .59
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 82,800
<SECURITIES> 65,054
<RECEIVABLES> 67,686
<ALLOWANCES> 4,903
<INVENTORY> 54,230
<CURRENT-ASSETS> 279,580
<PP&E> 48,892
<DEPRECIATION> 27,342
<TOTAL-ASSETS> 456,699
<CURRENT-LIABILITIES> 71,410
<BONDS> 74,359
0
0
<COMMON> 3,684
<OTHER-SE> 207,898
<TOTAL-LIABILITY-AND-EQUITY> 456,699
<SALES> 292,077
<TOTAL-REVENUES> 292,077
<CGS> 148,137
<TOTAL-COSTS> 148,137
<OTHER-EXPENSES> 39,000
<LOSS-PROVISION> 1,352
<INTEREST-EXPENSE> 3,770
<INCOME-PRETAX> 51,497
<INCOME-TAX> 13,969
<INCOME-CONTINUING> 29,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,138
<EPS-PRIMARY> .80
<EPS-DILUTED> .75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 130,252
<SECURITIES> 65,272
<RECEIVABLES> 63,436
<ALLOWANCES> 4,891
<INVENTORY> 56,105
<CURRENT-ASSETS> 325,438
<PP&E> 50,560
<DEPRECIATION> 28,897
<TOTAL-ASSETS> 488,312
<CURRENT-LIABILITIES> 69,906
<BONDS> 73,465
0
0
<COMMON> 3,685
<OTHER-SE> 225,585
<TOTAL-LIABILITY-AND-EQUITY> 488,312
<SALES> 72,057
<TOTAL-REVENUES> 72,057
<CGS> 36,961
<TOTAL-COSTS> 36,961
<OTHER-EXPENSES> 5,584
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 269
<INCOME-PRETAX> 26,991
<INCOME-TAX> 3,764
<INCOME-CONTINUING> 21,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,966
<EPS-PRIMARY> .60
<EPS-DILUTED> .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 168,344
<SECURITIES> 57,576
<RECEIVABLES> 65,426
<ALLOWANCES> 4,851
<INVENTORY> 59,905
<CURRENT-ASSETS> 361,576
<PP&E> 52,220
<DEPRECIATION> 30,643
<TOTAL-ASSETS> 533,903
<CURRENT-LIABILITIES> 79,011
<BONDS> 143,464
0
0
<COMMON> 3,685
<OTHER-SE> 212,085
<TOTAL-LIABILITY-AND-EQUITY> 533,903
<SALES> 148,053
<TOTAL-REVENUES> 148,053
<CGS> 75,101
<TOTAL-COSTS> 75,101
<OTHER-EXPENSES> 11,811
<LOSS-PROVISION> 285
<INTEREST-EXPENSE> 983
<INCOME-PRETAX> 39,659
<INCOME-TAX> 8,938
<INCOME-CONTINUING> 27,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,472
<EPS-PRIMARY> .75
<EPS-DILUTED> .71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFEENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 165,419
<SECURITIES> 60,404
<RECEIVABLES> 66,802
<ALLOWANCES> 4,151
<INVENTORY> 61,505
<CURRENT-ASSETS> 365,308
<PP&E> 53,917
<DEPRECIATION> 32,385
<TOTAL-ASSETS> 535,601
<CURRENT-LIABILITIES> 75,983
<BONDS> 143,464
0
0
<COMMON> 3,685
<OTHER-SE> 216,911
<TOTAL-LIABILITY-AND-EQUITY> 535,601
<SALES> 224,270
<TOTAL-REVENUES> 224,270
<CGS> 113,534
<TOTAL-COSTS> 113,534
<OTHER-EXPENSES> 17,752
<LOSS-PROVISION> 486
<INTEREST-EXPENSE> 2,185
<INCOME-PRETAX> 53,923
<INCOME-TAX> 14,391
<INCOME-CONTINUING> 34,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,136
<EPS-PRIMARY> .93
<EPS-DILUTED> .88
</TABLE>
