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 September 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-10573
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2891371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(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:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
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 November 22, 1996, was approximately $39,307,000.
As of November 22, 1996, the Registrant had 12,486,025 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 28, 1996, 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 March 21, 1997, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Power Corporation (the Company or the Registrant) develops
and commercializes environmentally sound and economically efficient power
generation, cooling, lighting, and related products. The Company's
business is divided into three segments. The Industrial Refrigeration
Systems segment develops, manufactures, markets, and services industrial
refrigeration and commercial cooling equipment, and also rents commercial
cooling and industrial refrigeration equipment. The Engines segment
develops, manufactures, markets, and services gasoline engines for
recreational boats, propane and gasoline engines for lift trucks, and
natural gas engines for fleet vehicles and industrial applications. The
Cooling and Cogeneration Systems segment develops, manufactures, markets,
and services natural gas cooling and cogeneration systems, and conducts
research and development on applications of thermal energy. Through its
78%-owned ThermoLyte Corporation (ThermoLyte) subsidiary, formed in March
1995, the Company is developing and commercializing a family of
gas-powered lighting products, including area lights, flashlights,
emergency lights, and other lighting products.
The ThermoLyte family of lighting products is based on the
Company's patented technology for a rigid mantle, the "bulb" in gas
lights. This durable mantle allows the Company to design products that
are portable and use propane as a power source instead of batteries.
Using propane offers several advantages over batteries, including a
potentially infinite shelf life, substantially longer operating hours,
constant brightness, and no battery disposal.
ThermoLyte has developed and is now preparing to introduce a
propane-powered area light to the marketplace. In preparation for
introduction of the area light, ThermoLyte conducted focus groups to
gauge consumer reaction to the light's concept, performance, and design.
The final design is a decorative, contemporary-style area light suitable
for providing an alternative to candles, oil lamps, or battery-powered
lights in the home or backyard. Late in calendar 1996, the Company plans
to make a limited initial market introduction of its area light through a
catalog for employees and shareholders of Thermo Electron Corporation
(Thermo Electron) and its subsidiaries. The Company is also engaged in
qualifying vendors for manufacturing and consulting specialty catalog
buyers.
During the first quarter of fiscal 1996*, the Company acquired the
thermoelectric cooling module business from ThermoTrex Corporation
(ThermoTrex), a majority-owned subsidiary of Thermo Electron, for
$860,000, which was the net book value of the business acquired. The
Company's thermoelectric cooling modules are used to control the
* References to fiscal 1996, 1995, and 1994 herein are for the fiscal
years ended September 28, 1996, September 30, 1995, and October 1,
1994, respectively.
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temperature of laser diodes in fiber-optic telecommunication equipment
and biomedical instruments, as well as thermal reference sources (TRSs),
which are used for calibrating infrared imaging systems. The Company is
also researching other potential applications for this technology.
The Company was originally incorporated in Massachusetts in June
1985 under the name Tecogen Inc., as a wholly owned subsidiary of Thermo
Electron to succeed the business of Thermo Electron's Thermal Products
Division. In March 1993, the Company's name was changed to Thermo Power
Corporation. As of September 28, 1996, Thermo Electron owned 7,915,306
shares of the Company's common stock, representing 63% of such stock
outstanding at that time. Thermo Electron is a world leader in
environmental monitoring and analysis instruments, biomedical products
such as heart-assist devices and mammography systems, papermaking and
paper-recycling equipment, biomass electric power generation, and other
specialized products and technologies. Thermo Electron also provides a
range of services related to environmental quality. During fiscal 1996,
Thermo Electron purchased 86,700 shares of the Company's common stock in
the open market at a total price of $1,165,000.
Forward-looking Statements
Forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. These statements involve a number of risks and
uncertainties, including those detailed under the caption "Forward-
looking Statements" in the Registrant's Fiscal 1996 Annual Report to
Shareholders incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company's business is divided into three segments. The
Industrial Refrigeration Systems segment develops, manufactures, markets,
and services industrial refrigeration and commercial cooling equipment,
and rents commercial cooling and industrial refrigeration equipment. The
Engines segment develops, manufactures, markets, and services gasoline
engines for recreational boats, propane and gasoline engines for lift
trucks, and natural gas engines for fleet vehicles and industrial
applications. The Cooling and Cogeneration Systems segment develops,
manufactures, markets, and services natural gas cooling and cogeneration
systems, conducts research and development on applications of thermal
energy, and develops gas-powered lighting products for commercialization.
Financial information concerning the Company's industry segments is
summarized in Note 12 to Consolidated Financial Statements in the
Registrant's Fiscal 1996 Annual Report to Shareholders and is
incorporated herein by reference.
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(c) Description of Business
(i) Principal Products and Services
Industrial Refrigeration Systems
Industrial Refrigeration Packages. The Company's FES division
designs, engineers, manufactures, and services industrial refrigeration
equipment used for cooling, freezing, and cold-storage applications in
the food-processing, petrochemical, pharmaceutical, and liquefied-gas
storage industries. FES produces complete industrial refrigeration
systems, and it also supplies components for use in industrial
refrigeration systems produced by others.
FES equipment for food and beverage customers is primarily standard
products, such as screw-compressor packages, liquid-refrigerant pump
packages, state-of-the-art control systems, and ASME (American Society of
Mechanical Engineers) pressure vessels. A screw-compressor package, which
consists of a screw compressor, an electric-drive motor, an oil
separator, a control panel, and piping and tubing, constitutes the
majority of this equipment. FES also provides screw-compressor packages
powered by the Company's natural gas TecoDrive(R) engines. These packages
are pre-engineered and are manufactured in quantity. Examples of
applications of industrial refrigeration equipment used by food and
beverage processors include the freezing, storing, and warehousing of
meats, fish, fruits, and vegetables; freezing of fruit juice
concentrates; or controlling process temperatures in brewing and
wine-making, and soft drink carbonization, where the temperature of water
is regulated to absorb a controlled quantity of carbon dioxide. In
addition, FES manufactures screw-compressor packages used to cool inlet
air for gas turbine generators at utilities.
FES supplies entire refrigeration packages to petrochemical,
pharmaceutical, and related industries for integration into their plants'
refrigeration systems. These higher-cost custom packages require
significant design engineering and are used in a wide variety of
applications, such as chilling brine that cools chemicals used in the
production of penicillin. In another application of a custom package, FES
units are used to chill and condense toxic effluent gases normally
released to flare.
FES systems have capacities ranging from 10 to 4,500 tons, with
evaporating temperatures ranging from +50.F to -100.F. Approximately 65%
of FES's sales are of standard units for the food and beverage industry,
and approximately 35% are of custom units for the petrochemical and
pharmaceutical industries. The average price for a standard food and
beverage refrigeration package is approximately $50,000, and a
representative price for a custom unit would be approximately $300,000,
although prices for these units can exceed $1 million. FES refrigeration
packages can be designed for use with any common refrigerant, but
approximately 80% of FES's units operate on ammonia. FES's utilization of
ammonia, a cost-effective and environmentally safe substance compared
with conventional chlorofluorocarbon (CFC)-based refrigerants, places FES
in a leadership position to target the reduction of CFC systems. The
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production of CFCs was phased out in January 1996. Ammonia does not harm
the ozone layer, costs much less than conventional refrigerants, and is
widely available on a global basis.
In 1994, FES introduced a screw-compressor package powered by a gas
engine. Powering refrigeration systems with a gas engine instead of
electricity allows FES to offer its customers in areas with high
electricity rates a more cost-effective cooling system. Many of these
systems incorporate one of the Company's TecoDrive natural gas engines.
The Company's NuTemp subsidiary serves the industrial refrigeration
and commercial cooling markets. NuTemp buys new and surplus refrigeration
equipment that it remanufactures for sale or rental. NuTemp serves
numerous markets for its industrial refrigeration equipment, including
the food-processing, petrochemical, and pharmaceutical industries. NuTemp
provides commercial cooling equipment to large institutions, commercial
building owners, and service contractors across the country. Ongoing
retrofit programs to replace CFC-based equipment continue to provide a
temporary rental business for NuTemp. One of NuTemp's key services is
responding to emergency cooling situations by providing
large-tonnage-capacity refrigeration equipment on short notice.
In 1996, NuTemp introduced its NT-Series water- and air-cooled
industrial cooling systems. NuTemp continues to custom-design industrial
refrigeration to meet customers' specific requirements, including
capacity, operating-temperature, and control-system needs. NuTemp
manufactures custom systems using both new and remanufactured components
to provide a cost-effective and timely solution for its customers. Custom
systems are offered for rental with an option to buy, providing a unique
service in this market.
Applications for NuTemp's products range from cooling water to
+60.F to cooling synthetic fluids to -60.F. The colder fluids are used in
industrial process applications, which include chemical-reaction control,
environmental testing, VOC (volatile organic compound) recovery, and
plastics production.
Revenues from industrial refrigeration packages were $66,565,000,
$55,193,000, and $53,146,000 in fiscal 1996, 1995, and 1994,
respectively.
Microprocessor Controls. FES microprocessor-based control systems
for industrial refrigeration equipment are designed to reduce energy
consumption through operating efficiencies, to anticipate problems with
built-in pre-alarms, to announce system shutdowns, to offer memory
storage, and to provide easy sensor calibration through keypads and
displays. These controls are supplied with FES products, and they can
also be fitted on refrigeration packages produced by other suppliers for
ease of integration within FES's central supervisory control system.
Other Products. FES also manufactures and sells liquid-refrigerant
recirculation systems, heat-recovery heat exchangers, and pressure
vessels for use in refrigeration packages and systems produced by others.
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FES's liquid-refrigerant recirculation systems, or "pump packages," are
used in a variety of applications such as food freezing and storage,
industrial process cooling, and thermal storage systems.
NuTemp also buys new and surplus commercial cooling equipment which
is remanufactured for sale or rental. NuTemp's customers in the
commercial cooling industry include institutions, commercial building
owners, and service contractors. The commercial cooling industry is
currently coming into compliance with the Montreal Protocol which
prohibits the production of CFC refrigerants effective January 1996. This
retrofit process is creating an increase in the rental market for
NuTemp's commercial cooling systems, which operate on alternative
refrigerants, while customers install new equipment.
Engines
Marine Engines. The Company's Crusader Engines division (Crusader)
manufactures, markets, and services inboard marine engines and
accessories both to OEM (original equipment manufacturer) boat companies
and to a network of 35 distributors who support 400 dealers servicing
Crusader's products in the field. Crusader does not customarily
manufacture engines for its own inventory, but rather in response to
orders from distributors, dealers, and boat manufacturers. Crusader's key
customers are OEM manufacturers of "cruiser" class boats generally
ranging in size from 25 to 45 feet. The purchase price of boats
containing Crusader engines typically is in the $50,000 to $250,000
range. Sales of engines to OEM customers account for approximately 86% of
Crusader's unit sales. In fiscal 1996, sales to Crusader's top three OEM
customers accounted for approximately 35% of Crusader's unit sales.
Revenues from marine engines were $18,659,000, $21,536,000, and
$18,315,000 in fiscal 1996, 1995, and 1994, respectively.
TecoDrive Natural Gas Engines for Vehicles. The Company's extensive
development work on dedicated compressed natural gas (CNG) engines has
resulted in sales of a number of its TecoDrive engines for use in school
buses, package-delivery vehicles, and other fleet vehicles. These engines
feature substantially lower emissions than currently commercially
available gasoline or natural gas engines. In November 1995, the
Company's TecoDrive 4300 engine became the first heavy-duty natural gas
engine to be certified for Ultra Low-Emission Vehicles (ULEVs) by the
U.S. Environmental Protection Agency (EPA). This certification broadens
the market for the Company's TecoDrive 4300 engines to include states
with the strictest emissions standards.
The Company has entered into a contract with the U.S. Department of
Energy to develop, emission-certify, and build a prototype 5.7-liter
TecoDrive engine. The Company expects that the prototype engine will be
emission-certified by mid-1997. In addition, the U.S. Postal Service has
ordered four of such prototype engines, subject to emission
certification, for use in mobile post office units in the New York City
vicinity.
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The natural gas vehicle (NGV) market is still in a formative stage.
The use of NGVs in the United States results primarily from governmental
regulations and incentive programs requiring the use of alternative fuels
in certain situations. The Clean Air Act Amendments of 1990 and the
Energy Policy Act of 1992, as well as numerous state regulations, require
the increased use of alternative fuels over a period of time. There can
be no assurance that NGVs will be the most popular alternative-fuel
vehicles under the various mandates. The Company believes that many NGVs
currently in use do not comply with regulations in the United States, the
wide majority being equipped with aftermarket gasoline-to-natural-gas
conversion kits that do not provide the low emissions offered by the
Company's factory-built dedicated engines. Producing a natural gas engine
with reduced emissions and adequate power at a cost that is not
prohibitive is a key factor in the development of the market.
TecoDrive Natural Gas Engines for Irrigation and Industrial
Applications. The Company manufactures natural gas engines for the
irrigation pump engine market. The Company is the first supplier to offer
agricultural users extended warranties and total service support similar
to that offered to the Company's marine engine, cooling, and cogeneration
customers. As a result of the positive response the Company has received
from its customers in the irrigation market, the Company has developed
TecoDrive engines for other stationary applications, such as powering air
and gas compressors. There are now four OEM manufacturers incorporating
the Company's TecoDrive engines into their natural gas compressors for
NGV refueling. In fiscal 1996, the Company received orders for a total of
90 engines for pipeline gas compressors in Western Canadian gas fields.
The Company also provides engines for stationary applications for
Climaveneta, a manufacturing firm in Italy, S.A.T. Trading Company in the
United Arab Emirates, and Paramo in Columbia. In addition, the Company
offers a range of optional equipment that broadens the industrial
applications for its engines.
Propane and Gasoline Engines for Lift Trucks. The Company has
embarked on a significant program to engineer and manufacture 2.2-, 3.0-,
and 4.3-liter propane and gasoline engines for installation into lift
trucks. The Company is also developing 5.7- and 7.4-liter engines for
lift trucks. Currently, the Company is shipping approximately 100 engines
per month to Clark Materials Handling Company, one of the largest
suppliers of lift trucks in the United States. The Company is also
shipping approximately 120 3.0-liter engines per month to Toyota
Industrial Equipment Manufacturing Inc. (Toyota) for installation into
Toyota's lift trucks. In fiscal 1996, the Company received an order from
Daewoo for 600 engines, and it is also engineering lift-truck engines for
Royal Tractor Company, Taylor Machines Works, Inc., and Hoist Lift-truck
MSG., Inc.
Cooling and Cogeneration Systems
The Company designs, develops, manufactures, markets, and services
packaged cooling and cogeneration systems fueled principally by natural
gas for sale to a wide range of commercial, institutional, industrial,
and multi-unit residential users. Many of these products are powered by
the Company's dedicated TecoDrive natural gas engines.
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The Company's Tecochill commercial cooling and Tecogen(R)
cogeneration products incorporate several proprietary features that are
the result of the Company's advances in engine, thermal, and control
technologies. One such proprietary feature is the Company's
microprocessor-based control module, which automates the operation of
such systems and can also include remote control, monitoring, and
diagnostic capabilities. The standardized designs of the Company's
products also enable rapid installation and startup, facilitate
maintenance, and allow competitive delivery time. The Company supports
its customers by offering a comprehensive maintenance contract under
which the Company assumes responsibility for substantially all
maintenance, repairs, and replacement parts.
The cost savings that result from use of the Company's packaged
cooling and cogeneration systems are directly related to the retail price
of electricity. In the past few years, electricity prices have declined
in many areas and rates remain relatively low on a historical basis in
most regions. Given prevailing rate structures, demand for the Company's
cooling and cogeneration systems has been less than anticipated.
Tecochill Cooling Systems. The Company entered the gas-fueled
cooling business by introducing its 150-ton gas-fueled cooling unit in
1988. The Company's Tecochill units are powered by the same TecoDrive
engine used in the Company's small-scale cogeneration systems. Tecochill
products are equipped with microprocessor controls allowing fully
automated, unattended operation. Tecochill units can be programmed to run
at different speeds to follow variable cooling loads for greater
efficiency than conventional electric motor-driven air conditioners that
run at a constant speed. These units are self-contained packages that are
delivered to customer sites as finished products for standard
installation. Tecochill units can be fitted with optional heat-recovery
packages yielding hot water. The Company has sold approximately 350 of
its Tecochill units to date, which are operating in 26 states and four
foreign countries. The Company is currently offering additional
gas-fueled air conditioning equipment, ranging in size from 50 to 1,000
tons, for use in multi-unit residential buildings, nursing homes,
hospitals, and similar institutions. Although the purchase price of the
Company's Tecochill units is approximately 100-200% higher than that of
electric motor-driven air conditioners of comparable sizes, lower
operating costs associated with the use of Tecochill units generally lead
to payback of the incremental capital cost in approximately four years.
The average expected useful life of a Tecochill unit is comparable to
that of an electric motor-driven air conditioner, typically 15 years.
Revenues from cooling systems were $9,135,000, $4,956,000, and
$3,772,000 in fiscal 1996, 1995, and 1994, respectively.
Tecogen Cogeneration Systems. In 1983, the Company introduced its
first Tecogen packaged cogeneration system, the 60-kilowatt (kW) CM-60
model powered by the Company's TecoDrive engine. Approximately 600 CM-60
and CM-75 units have been installed at approximately 350 sites across the
United States. These systems are automated, self-contained cogeneration
packages that are delivered as finished units to customer sites. In
general, these systems are manufactured to standard designs and are
assembled and tested on a production-line basis. The Company's
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cogeneration systems use a single fuel source, natural gas, to
simultaneously produce electricity and thermal energy in the form of hot
water. By using energy that would otherwise be wasted, the Company's
cogeneration systems operate at a cost that can be comparable to the cost
of producing hot water alone in conventional systems. The electricity
produced is used principally to meet on-site energy requirements and
replaces electricity that would otherwise be purchased from a utility.
Revenues from cogeneration systems were $761,000, $1,594,000, and
$873,000 in fiscal 1996, 1995, and 1994, respectively.
Sponsored Research and Development. The Company conducts research
and development supported by outside sponsors. Revenues from sponsored
research and development contracts were $5,836,000, $4,917,000, and
$5,209,000 in fiscal 1996, 1995, and 1994, respectively. See "Research
and Development."
Regulation
The demand for most of the Company's products is affected by
various federal, state, and local energy and environmental laws and
regulations. All of these laws and regulations are subject to revocation
or amendment, and the Company cannot predict what effect revocation or
amendment may have on the Company's sales, business, or operations.
Industrial Refrigeration Systems
The Company's ammonia-based refrigeration equipment and
alternative-refrigerant commercial cooling systems benefit from the
worldwide phaseout of CFC refrigerants. The Montreal Protocol was
negotiated in 1987 under the sponsorship of the United Nations
Environmental Program (UNEP) to protect the ozone layer. This agreement
establishes a process to control substances that could deplete the ozone
layer, including CFCs. Regulations have been promulgated by the EPA
implementing these protocols in this country through limits on the
production and consumption of CFCs and other ozone-depleting substances.
Engines
The market for the Company's TecoDrive natural gas engine is
influenced by federal legislation that allows states to establish
programs encouraging the use of alternative fuels, including natural gas,
methanol, and ethanol. More than half of the states have some type of
alternative-fuel vehicles commission, legislation, or tax incentives. In
addition, many U.S. cities have been classified by the EPA as not meeting
acceptable air quality standards. By model year 1998, 50% of heavy-duty
vehicles bought for fleets with 10 or more vehicles capable of refueling
in these smoggiest cities must be clean-fuel vehicles.
Under the Clean Air Act Amendments of 1990, the EPA issued
regulations that delineate clean fuel requirements and vehicle emissions
standards. In September 1994, the EPA published its final rule on
certification for propane and natural gas vehicles. In November 1995,
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the Company became the first engine manufacturer to receive EPA
certification of a heavy-duty natural gas engine for ULEVs. This
certification certifies that a certain vehicle type or engine meets
requirements of the most current applicable emissions regulations.
Natural gas is one of many alternative fuels that is addressed by
these laws and regulations. Others include methanol, ethanol, liquefied
petroleum gas, hydrogen, electricity, and reformulated gasoline. There
can be no assurance that natural gas will become a preferred alternative
fuel for vehicles or that existing and future laws or regulations or
their enforcement will create material long-term demand for NGVs.
Cooling and Cogeneration Systems
The passage by Congress of the Public Utility Regulatory Policies
Act of 1978 (PURPA), the adoption of regulations thereunder by the
Federal Energy Regulatory Commission (FERC), and related state laws and
regulations provide incentives for the development of qualifying
small-power production and cogeneration systems such as those offered by
the Company. PURPA and FERC regulations promulgated thereunder address
three issues of importance to users that own or operate cogeneration
systems, including those sold by the Company. First, PURPA exempts
qualifying users from many federal and state regulations that pertain to
electric utilities. Second, PURPA requires electric utilities to allow
qualifying cogeneration providers to connect their cogeneration
facilities to utilities' electric power systems. This mandatory
connection enables users to purchase utility-generated electricity to
start their cogeneration systems and assures users of a back-up source of
electricity during peak periods of use and when the cogeneration systems
are shut down for maintenance and repair. Third, PURPA requires utilities
to purchase electricity produced by qualifying cogeneration providers at
a price equivalent to utilities' avoided costs.
Like all electric power-generating and other fossil fuel-burning
systems, the Company's cooling and cogeneration products must comply with
federal, state, and local environmental laws and regulations. Regulation
of systems such as those sold by the Company is conducted primarily at
the state and local level, where standards can vary. In particular,
applicable environmental standards in California are stricter than
comparable federal guidelines. The Company believes that its existing
Tecochill and other Tecogen products comply with applicable federal and
state environmental standards, including those currently in effect in
California, although the Company cannot predict whether its products will
comply with all environmental standards promulgated in the future.
(ii) New Products
In March 1995, the Company formed its ThermoLyte subsidiary to
develop and commercialize a line of gas-powered area lights, flashlights,
emergency lights, and other lighting products. ThermoLyte's lighting
products are based on the Company's patented technology for a
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rigid mantle, the "bulb" in gas lights. This mantle is more durable than
the mantles typically used in gas lighting and therefore, the Company can
design its products to be highly portable.
ThermoLyte has delayed market introduction of its propane-powered
flashlight to optimize the product's final design. ThermoLyte has
developed and is now preparing to introduce a propane-powered area light
to the marketplace. In preparation for introduction of the area light,
ThermoLyte conducted focus groups to gauge consumer reaction to the
light's concept, performance, and design. The final design is a
decorative, contemporary-style area light suitable for providing an
alternative to candles, oil lamps, or battery-powered lights in the home
or backyard. Late in calendar 1996, the Company plans to make a limited
initial market introduction of its area light through a catalog for
employees and shareholders of Thermo Electron and its subsidiaries. The
Company is also engaged in qualifying vendors for manufacturing and
consulting specialty catalog buyers.
(iii) Raw Materials
The Company purchases engine blocks for its marine and certain
other engines, as well as engines for certain of its smaller cooling and
cogeneration products, from one supplier. It does not have a firm
contract with this supplier. The Company generally maintains inventories
of engine blocks sufficient to meet its needs for a three-month period.
However, the inability of the Company to obtain either engines or engine
blocks from this supplier would have a material adverse effect upon the
Company's operations.
(iv) Patents, Licenses, and Trademarks
The Company considers its patents and licenses to be important in
the present operation of its business. The Company, however, does not
consider any one of its patents or related group of patents to be of such
importance that its expiration, termination, or invalidity would
materially affect the Company's business.
The Company has research and development arrangements with the
natural gas industry and various governmental agencies, and is required
to pay royalties for any technologies developed or products
commercialized under several of these arrangements.
(v) Seasonal Influences
Crusader's marine engine sales historically have been stronger in
the first quarter of each calendar year, when boat builders purchase
engines for boats to be sold for the upcoming boating season. Sales of
marine engines generally decline gradually during the last three quarters
of the calendar year, reaching their lowest levels in the fourth quarter.
In addition, the demand for NuTemp's equipment typically has been highest
in the summer period. However, cool summer weather can adversely affect
NuTemp's business since the Company's cooling systems are used primarily
to reduce temperatures below ambient air temperatures. There are no
significant seasonal influences in the Company's other lines of business.
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(vi) Working Capital Requirements
There are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the
Company's working capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's
total revenues in fiscal 1996. In fiscal 1996, revenues from two
customers accounted for 16% and 10% of Engines segment revenues. The loss
of one or both of these customers would have a material adverse effect on
the Engines segment.
(viii) Backlog
The backlog of firm orders for the Industrial Refrigeration Systems
segment was $22.2 million as of September 28, 1996, compared with $17.4
million as of September 30, 1995. The backlog of firm orders for the
Engines segment was $1.0 million as of September 28, 1996, compared with
$4.2 million as of September 30, 1995. The backlog of firm orders for the
Cooling and Cogeneration Systems segment was $4.0 million as of September
28, 1996, compared with $6.0 million as of September 30, 1995. The
Company believes that the majority of this backlog will be shipped during
fiscal 1997. The Company does not believe that the size of its backlog is
necessarily indicative of intermediate- or long-term trends in its
business.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company experiences competition in most of its product lines.
Additional competition may arise if markets in which the Company is
active develop significantly. The Company is aware of several competitors
for its product lines, some of whom have financial, marketing, and other
resources greater than those of the Company.
Industrial Refrigeration Systems
The Company's sale of industrial refrigeration systems is subject
to intense competition. The industrial refrigeration market is mature,
highly fragmented, and extremely dependent on close customer contacts.
Major industrial refrigeration companies, of which FES is one, account
for approximately one-half of worldwide sales, with the balance generated
by many smaller companies. The Company believes that FES competes on the
basis of its advanced control systems and overall quality, reliability,
service, and to a lesser extent, price.
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The worldwide market is characterized by strong local
manufacturers. The market leader worldwide as well as in North America is
Frick Company and its affiliates, subsidiaries of York International
Corporation (York). Though comprehensive surveys on the industrial
refrigeration market do not exist, the Company believes it accounts for
approximately 20% of the North American market, 2% of the European
market, 4% of the Asia-Pacific market, and 1% of the Latin American
market.
The Company believes NuTemp is the world leader in remanufactured
refrigeration equipment. As part of its rental program, NuTemp offers an
option to buy its equipment, a service that is unique in the industry.
NuTemp's largest competitor is Aggreko, a subsidiary of Christian
Salverson Company. Aggreko is a major supplier of rental equipment for
the industrial refrigeration and commercial cooling markets. The Company
believes that NuTemp competes on the basis of price, delivery time, and
customized equipment.
Engines
Competition in the CNG vehicle and alternative-fuel engine markets
is intense, and current or potential competitors in some or all segments
of these markets include major automotive and natural gas companies and
other companies that have greater financial resources than those of the
Company.
The Company believes it has the second largest share of the inboard
marine engine market for cruiser class boats in the United States, with
about 25% market share, behind the Mercury division of Brunswick
Corporation. Crusader has experienced intense competition in the marine
engine business in recent years, primarily from vertical integration of
boat and engine manufacturers that has led to the acquisition of former
Crusader customers by competing engine manufacturers. The Company
believes that Crusader competes on the basis of quality, reliability,
service, and pricing.
Cooling and Cogeneration Systems
The Company's Tecochill products are subject to competition from
absorption air conditioning systems and electric motor-driven vapor
compressor systems. Other manufacturers of natural gas-fueled
engine-driven cooling systems have also entered the market. The Company
believes it competes with producers of conventional cooling equipment on
the basis of relative operating costs at times of peak electrical demand,
and with other producers of natural gas-fueled cooling systems on the
basis of quality, reliability, service, operational savings, and track
record.
In 1995, Enchill by MKW Power Systems, one of the Company's major
competitors, ceased operations in the gas-cooling market. Also in 1995,
York entered the gas-engine cooling market, in partnership with
Caterpillar, and is a major competitor in large-capacity (+400 tons)
cooling equipment. However, the Company's most competitive range is in
smaller-capacity equipment.
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The Company's sale of cogeneration systems is subject to intense
competition, both direct and indirect. Direct competitors consist of
companies that sell cogeneration products resembling those sold by the
Company. In addition, electric utility pricing programs provide
competition for the Company's cogeneration products. Indirect competitors
include manufacturers of conventional water heaters, air conditioners,
and electric generator sets, since the economic benefits of the Company's
cogeneration and cooling systems depend on the cost of conventional
energy systems. The Company believes that it competes on the basis of
several factors, including product quality and reliability, operational
savings, ease of installation, service, and pricing.
The Company's sponsored research and development is also subject to
intense competition from many larger and smaller firms, universities, and
other private and public research facilities. The Company competes for
sponsored research and development contracts on the basis of several
factors, including technical expertise, market experience, and past
performance.
(xi) Research and Development
The Company has conducted research and development on applications
of thermal energy for more than 30 years. The Company's research and
development capability and expertise in engine, instrumentation, control,
and heat-recovery technologies have enabled it to obtain support from
outside sponsors, develop new products, and support existing products.
The Company's sponsored programs have been supported principally by
the domestic natural gas industry and the federal government. Within the
natural gas industry, the Company's principal sponsors have been the Gas
Research Institute (GRI) and the Southern California Gas Company, which
is the nation's largest gas utility. The Company has also obtained
research and development funding from federal and state governments,
industrial companies, and from the Electric Power Research Institute.
Sponsors of the Company's research and development generally own the
rights to technology that is developed under these programs.
As part of the Company's research and development of combustion
technology, ThermoLyte is developing a family of gas-powered lighting
products, including area lights, flashlights, emergency lights, and other
lighting products. ThermoLyte's lighting products are based on the
Company's patented technology for a rigid mantle, the "bulb" in gas
lights. By incorporating this durable mantle into its lights, the Company
can use propane as a power source instead of batteries.
The Company is developing a unique thermophotovoltaics (TPV)
technology with funding from the U.S. Department of Defense. TPV is a
solid-state system that converts a gaseous or liquid fuel such as diesel
to electric power without the aid of any moving parts. The goal is to
replace conventional diesel engine generators with a more reliable and
lightweight system to recharge batteries used in electronic devices.
Potential commercial applications for TPV are power generation for
recreational, commercial, and military uses, as well as power cells for
electronic equipment. However, the development of TPV is in the
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very preliminary stages, and no assurance can be given that the Company
will be able to develop a commercially viable TPV product.
The Company is also continuing to develop additional applications
for its thermoelectric cooling modules. Currently, these cooling modules
are used to control the temperature of laser diodes in fiber-optic
telecommunication equipment and biomedical instruments, as well as TRSs,
which are used for calibrating infrared imaging systems.
During fiscal 1996, 1995, and 1994, the Company spent $3,214,000,
$3,065,000, and $1,622,000, respectively, on internally funded research
and development, and $4,444,000, $3,548,000, and $4,197,000,
respectively, on research and development sponsored by others.
(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 September 28, 1996, the Company employed approximately 550
people. Approximately 39 employees at the Company's Crusader division are
represented by a labor union under a three-year collective bargaining
agreement expiring on October 15, 1997. The Company has experienced no
work stoppages in the past, and considers its relations with employees to
be good.
(xiv) Marketing
Industrial Refrigeration Systems
FES's products are distributed primarily through independent sales
representatives who are typically specialists in industrial
refrigeration, and they are also sold directly to end users.
Approximately 75% of FES's sales are in North America. Of the sales
generated in North America, 90% are made by independent sales
representatives, 5% by FES sales employees, and 5% through direct orders
from existing customers. FES has 12 independent sales offices serving all
business regions throughout the United States. All of the independent
sales representatives are engineers who have the ability to provide
customers with quotes on entire refrigeration plants. The representatives
make sales contacts with refrigeration contractors, end users, and
consulting engineers. Sales of FES's standard food and beverage packages
are generally made to refrigeration contractors who are responsible for
installation of the total refrigeration plant at the facility of an end
user. Sales of FES's custom systems are generally made directly to end
users.
Export sales accounted for approximately 20% of FES's fiscal 1996
revenues. FES uses a combination of FES employees with demonstrated
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<PAGE>
industrial refrigeration expertise and several independent
representatives located in various countries, including Thailand, Taiwan,
the People's Republic of China, and Russia.
NuTemp markets its products through direct marketing techniques,
including direct mailing, and sends representatives to numerous trade
shows each year. NuTemp is also marketing its products through FES sales
employees and independent sales representatives. NuTemp's sales are made
solely in the United States.
Engines
The Company markets its TecoDrive natural gas engines principally
through a series of nonexclusive OEM and distributor arrangements. The
Company also sells its TecoDrive engines for stationary applications to
manufacturers in Europe, South America, and the Middle East, and is
actively pursuing the distribution of TecoDrive engines in Canada. The
Company has sales representatives who market the Company's engines
through an expanded network of distributors. By working through a
distributor with comprehensive overhaul, repair, spare parts, field
service, and training capabilities, the Company's engine customers in the
United States and Canada can receive aftermarket support.
The Company has marketed TecoDrive engines for irrigation
applications through a variety of channels. The engines have been
exhibited at a number of agriculture industry trade shows, and they have
been featured in advertisements in agricultural trade journals. The
Company has organized a network of dealers in large agricultural states,
including Arizona, California, Nebraska, Kansas, and Oklahoma, which is
independent of the distribution network discussed above, specifically for
the distribution of TecoDrive engines for irrigation applications.
Southwest Gas Company in Arizona and Southern California Gas Company in
California are also supporting the Company's marketing effort for
irrigation engines by offering cash rebates to farmers purchasing
TecoDrive engines to replace electric motors or diesel engines in pumping
service.
Cooling and Cogeneration Systems
The Company markets its Tecochill cooling units primarily through a
network of distributors located throughout the United States. The Company
has established its own network of sales representatives, and the
Company's marketing effort in the United States is also supported by a
consortium of gas and combined gas-electric utilities. The Company
markets its cogeneration units in the United States through its own sales
force, and in certain areas, through a team of distributors. The Company
has commenced some sales of its smaller cogeneration products outside the
United States.
(d) Financial Information about Exports by Domestic Operations
Financial information about exports by domestic operations is
summarized in Note 12 to Consolidated Financial Statements in the
Registrant's Fiscal 1996 Annual Report to Shareholders and is
incorporated herein by reference.
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(e) Executive Officers of the Registrant
Present Title (Year First Became Executive
Name Age Officer)
--------------------- --- --------------------------------------------
J. Timothy Corcoran 50 President and Chief Executive Officer (1992)
John N. Hatsopoulos 62 Vice President and Chief Financial
Officer (1988)
Paul F. Kelleher 54 Chief Accounting Officer (1985)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until earlier
resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have
held these positions for at least five years either with the Company or
with its parent company, Thermo Electron. Mr. Corcoran has been Chief
Executive Officer of the Company since October 1996, and President since
April 1995. From November 1992 to April 1995, Mr. Corcoran was a Vice
President of the Company, and has been President of FES since June 1990.
Mr. Corcoran is a full-time employee of the Company and Mr. Hatsopoulos
and Mr. Kelleher are full-time employees of Thermo Electron, but devote
such time to the affairs of the Company as the Company's needs reasonably
require.
Item 2. Properties
The location and general character of the Company's principal
properties by industry segment as of September 28, 1996, are as follows:
Industrial Refrigeration Systems
The Company owns approximately 157,000 square feet of office and
manufacturing space in York, Pennsylvania, subject to a mortgage on the
property, and approximately 15,000 square feet of manufacturing space in
Humble, Texas. The Company also occupies approximately 164,000 square
feet of office and manufacturing space in Chicago, Illinois, under a
lease expiring in 2006.
Engines
The Company occupies approximately 104,000 square feet of
manufacturing, engineering, and office space in Sterling Heights,
Michigan, under leases expiring in 2000 and 2004.
Cooling and Cogeneration Systems
The Company occupies approximately 40,000 square feet of office and
laboratory space in Waltham, Massachusetts, under an agreement providing
for the sublease of the facility from Thermo Electron expiring in 1997.
In addition, the Company leases approximately 14,000 square feet of
engine testing and office space in Marlborough, Massachusetts, under a
lease agreement with an unrelated party expiring in 1997.
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In addition, the Company leases approximately 300 square feet of
office space in Thermo Electron's corporate headquarters in Waltham,
Massachusetts. The Company believes that its facilities are in good
condition and are suitable and adequate for its present operations.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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 is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's Fiscal 1996 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 Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and
Supplementary Data are included in the Registrant's Fiscal 1996 Annual
Report to Shareholders and are incorporated herein by reference.
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
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" in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A, not later than 120 days after the close of the fiscal
year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a), (d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the
list below are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by
reference are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of 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.
20PAGE
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed by the undersigned, thereunto duly authorized.
Date: December 6, 1996 THERMO POWER CORPORATION
By: J. Timothy Corcoran
--------------------------
J. Timothy Corcoran
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated, as of December
6, 1996.
Signature Title
--------- -----
By:J. Timothy Corcoran President, Chief Executive Officer
----------------------- and Director
J. Timothy Corcoran
By:John N. Hatsopoulos Vice President, Chief Financial
----------------------- Officer and Director
John N. Hatsopoulos
By:Paul F. Kelleher Chief Accounting Officer
-----------------------
Paul F. Kelleher
By:Marshall J. Armstrong Chairman of the Board and Director
-----------------------
Marshall J. Armstrong
By:Peter O. Crisp Director
-----------------------
Peter O. Crisp
By:Robert C. Howard Director
-----------------------
Robert C. Howard
By:Donald E. Noble Director
-----------------------
Donald E. Noble
By:Paul E. Tsongas Director
-----------------------
Paul E. Tsongas
21PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of Thermo Power Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo Power
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated November 1,
1996. 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 20 is
the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
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SCHEDULE II
THERMO POWER CORPORATION
Valuation and Qualifying Accounts
(In thousands)
Provision
Balance at Charged Bad Accounts Balance
Beginning to Debts Written at End
Description of Year Expense Recovered Off Other(a) of Year
--------------------------------------------------------------------------
Year Ended
September 28, 1996
Allowance for
Doubtful
Accounts $ 530 $ 191 $ 26 $ (158) $ - $ 589
Year Ended
September 30, 1995
Allowance for
Doubtful
Accounts $ 590 $ 3 $ 16 $ (79) $ - $ 530
Year Ended
October 1, 1994
Allowance for
Doubtful
Accounts $ 561 $ (2) $ 83 $ (102) $ 50 $ 590
(a) Allowance of business acquired during the year as described in Note 3
to Consolidated Financial Statements in the Registrant's Fiscal 1996
Annual Report to Shareholders.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
--------- -----------------------------------------------------------
3.1 Articles of Organization of the Registrant, as amended
(filed as Exhibit 3(a) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended April 3, 1993 [File No.
1-10573] and incorporated herein by reference).
3.2 By-laws of the Registrant, as amended (filed as Exhibit 3(b)
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1993 [File No. 1-10573] and
incorporated herein by reference).
4.1 Specimen Common Stock Certificate (filed as Exhibit 4(b) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 2, 1993 [File No. 1-10573] and
incorporated herein by reference).
10.1 Stock Purchase Agreement among the Registrant, NuTemp, Inc.
and Michael S. Lazar, dated May 13, 1994 (filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K relating
to events occurring on May 13, 1994 [File No. 1-10573] and
incorporated herein by reference).
10.2 Amended and Restated Corporate Services Agreement between
the Registrant and Thermo Electron, dated as of January 3,
1993 (filed as Exhibit 10(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 26,
1992 [File No. 1-10573] and incorporated herein by
reference).
10.3 First Amendment to Lease dated September 30, 1994, between
the Registrant and Thermo Electron Corporation (filed as
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 1, 1994 [File No. 1-10573]
and incorporated herein by reference).
10.4 Form of Indemnification Agreement between the Registrant and
its directors and officers (filed as Exhibit 10(e) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-14017] and incorporated herein by reference).
10.5 Tax Allocation Agreement dated September 25, 1985, between
the Registrant and Thermo Electron (filed as Exhibit 10(f)
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 3, 1987 [File No. 0-15920] and
incorporated herein by reference).
10.6 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10(n) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 26, 1992 [File No. 1-10573] and incorporated
herein by reference).
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
--------- -----------------------------------------------------------
10.7 Master Repurchase Agreement dated January 1, 1994 between
the Registrant and Thermo Electron Corporation (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 1, 1994 [File No. 1-10573]
and incorporated herein by reference).
10.8 Master Reimbursement Agreement dated as of January 2, 1994
between the Registrant and Thermo Electron Corporation
(filed as Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 1, 1994 [File
No. 1-10573] and incorporated herein by reference).
10.9 Lease, dated as of January 20, 1988, between Thermo Electron
Corporation and Michael I. Gilson, Trustee (subsequently
assigned to the Registrant) (filed as Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 26, 1992 [File No. 1-10573] and incorporated
herein by reference).
10.10 Agreement, dated October 15, 1991, between Thermo Electron
Corporation and International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America
Local 203 (subsequently assigned to the Registrant) (filed
as Exhibit 10(r) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 26, 1992 [File No.
1-10573] and incorporated herein by reference).
10.11 Form of Redemption Rights of ThermoLyte Corporation and
related Guarantee of Thermo Electron Corporation (filed as
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 [File No.
1-10573] and incorporated herein by reference).
10.12 Guarantee Agreement between ThermoLyte Corporation and
Thermo Electron Corporation (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 [File No. 1-10573] and incorporated
herein by reference).
10.13 Incentive Stock Option Plan of the Registrant, as amended
(filed as Exhibit 10(h) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended April 3, 1993 [File No.
1-10573] 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
950,000 shares, after adjustment to reflect share increases
approved in 1990, 1992 and 1993).
25PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
--------- -----------------------------------------------------------
10.14 Nonqualified Stock Option Plan of the Registrant, as amended
(filed as Exhibit 10(i) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended April 3, 1993 [File No.
1-10573] 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 950,000
shares, after adjustment to reflect share increases approved
in 1990, 1992 and 1993).
10.15 Equity Incentive Plan of the Registrant (filed as Attachment
A to the Proxy Statement dated February 18, 1994 of the
Registrant [File No. 1-10573] and incorporated herein by
reference).
10.16 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10(k) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-14017] and incorporated
herein by reference).
10.17 Directors' Stock Option Plan of the Registrant, as amended
(filed as Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended April 1, 1995 [File No.
1-10573] and incorporated herein by reference).
10.18 ThermoLyte Corporation Equity Incentive Plan (filed as
Exhibit 10.71 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 [File No.
1-10573] and incorporated herein by reference).
10.19 Thermo Power - ThermoLyte Corporation Nonqualified Stock
Option Plan (filed as Exhibit 10.84 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).
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 Corporation, for services rendered to the
Registrant or such affiliated corporations. Such plans were
filed as Exhibits 10.21 through 10.44 to the Annual Report
on Form 10-K of Thermo Electron Corporation for the fiscal
year ended December 30, 1995 [File No. 1-8002] and as
Exhibit 10.19 to Trex Medical Corporation's Annual Report on
Form 10-K for the fiscal year ended September 28, 1996 [File
No. 1-11827] and are incorporated herein by reference.
10.20 Stock Holding Assistance Plan and Form of Promissory Note.
26PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
--------- -----------------------------------------------------------
13 Annual Report to Shareholders for the fiscal year ended
September 28, 1996 (only those portions incorporated herein
by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
EXHIBIT 10.20
THERMO POWER CORPORATION
STOCK HOLDING ASSISTANCE PLAN
(As adopted on July 19, 1996)
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Power
Corporation (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: Thermo Power Corporation, 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 Thermo Power Corporation 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
PAGE
<PAGE>
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
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
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
2PAGE
<PAGE>
become due and payable in five equal annual installments from the
payment of annual cash incentive compensation (referred to as
bonus) to the Key Employee by the Company, beginning with the
first such bonus payment to occur after the date of the Note
evidencing the Loan, and on each of the next four bonus payment
dates. 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.
3PAGE
<PAGE>
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMO POWER CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Power Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), 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 the Company an
amount equal to 20% of the initial principal amount of the Note
from the payment of annual cash incentive compensation (referred
to as bonus) to the Employee by the Company, 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. Any amount
remaining unpaid under this Note, if no demand has been made by
the Company, 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;
5PAGE
<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 Commonwealth of
Massachusetts and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 13
THERMO POWER CORPORATION
Consolidated Financial Statements
Fiscal Year 1996
PAGE
<PAGE>
Thermo Power Corporation
Consolidated Statement of Income
Year Ended
----------------------------------------
(In thousands except September 28, September 30, October 1,
per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues (Note 12) $120,736 $103,255 $ 89,334
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 100,379 79,823 70,026
Selling, general and administrative
expenses (Note 8) 16,739 15,886 14,203
Research and development expenses 3,214 3,065 1,622
-------- -------- --------
120,332 98,774 85,851
-------- -------- --------
Operating Income 404 4,481 3,483
Interest Income 1,714 1,919 1,278
Interest Expense (26) (23) (61)
Gain on Sale of Investments, Net
(includes $469, $768 and $616 on
sale of related party investments)
(Note 8) 208 730 582
-------- -------- --------
Income Before Provision for Income
Taxes and Minority Interest 2,300 7,107 5,282
Provision for Income Taxes (Note 7) 1,103 2,737 2,034
Minority Interest Expense 312 182 -
-------- -------- --------
Net Income $ 885 $ 4,188 $ 3,248
======== ======== ========
Earnings per Share $ .07 $ .34 $ .26
======== ======== ========
Weighted Average Shares 12,466 12,372 12,291
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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Thermo Power Corporation
Consolidated Balance Sheet
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 29,852 $ 23,504
Available-for-sale investments, at quoted
market value (amortized cost of $6,022 and
$10,624) (includes $429 of related party
investments in 1995) (Notes 2 and 8) 6,028 10,666
Accounts receivable, less allowances of $589
and $530 18,054 18,203
Unbilled contract costs and fees 7,110 6,228
Inventories 18,637 22,249
Prepaid income taxes (Note 7) 2,921 3,213
Other current assets 324 752
-------- --------
82,926 84,815
-------- --------
Rental Assets, at Cost, Net 9,980 6,406
-------- --------
Property, Plant and Equipment, at Cost, Net 9,767 8,467
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost of $210
and $471) (includes $339 invested in parent
company common stock in 1995)
(Notes 2 and 8) 184 733
-------- --------
Other Assets 345 223
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 7,509 7,773
-------- --------
$110,711 $108,417
======== ========
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<PAGE>
Thermo Power Corporation
Consolidated Balance Sheet (continued)
September 28, September 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 14,005 $ 13,262
Accrued payroll and employee benefits 2,832 2,732
Customer advances 1,096 971
Accrued warranty costs 2,323 2,100
Accrued income taxes 713 1,368
Other accrued expenses 3,727 4,242
Due to Thermo Electron Corporation and
affiliated companies 511 -
-------- --------
25,207 24,675
-------- --------
Deferred Income Taxes (Note 7) 84 118
-------- --------
Long-term Obligations (Notes 10 and 11) 305 364
-------- --------
Commitments (Notes 8 and 9)
Common Stock of Subsidiary Subject to Redemption
($18,450 redemption value) 17,747 17,435
-------- --------
Shareholders' Investment (Notes 4 and 5):
Common stock, $.10 par value, 30,000,000
shares authorized; 12,487,149 and 12,478,544
shares issued 1,249 1,248
Capital in excess of par value 54,448 53,898
Retained earnings 11,707 10,822
Treasury stock at cost, 2,724 and 49,758
shares (23) (341)
Net unrealized gain (loss) on available-for-
sale investments (Note 2) (13) 198
-------- --------
67,368 65,825
-------- --------
$110,711 $108,417
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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Thermo Power Corporation
Consolidated Statement of Cash Flows
Year Ended
----------------------------------------
September 28, September 30, October 1,
(In thousands) 1996 1995 1994
---------------------------------------------------------------------------
Operating Activities:
Net income $ 885 $ 4,188 $ 3,248
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,033 2,082 1,867
Provision for losses on
accounts receivable 191 3 (2)
Gain on sale of investments,
net (Note 8) (208) (730) (582)
Minority interest expense 312 182 -
Deferred income tax expense
(benefit) 372 62 (392)
Other noncash items - (191) 85
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable 216 (4,568) (1,236)
Inventories and unbilled
contract costs and fees 1,003 (8,881) 693
Other current assets 428 (786) 758
Accounts payable 740 3,333 767
Other current liabilities 238 196 (677)
-------- -------- --------
Net cash provided by
(used in) operating
activities 7,210 (5,110) 4,529
-------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) (860) (2,500) (7,947)
Purchases of available-for-sale
investments (5,000) (365) -
Proceeds from sale and maturities
of available-for-sale investments 8,982 9,074 -
Proceeds from sale of related party
investments (Note 8) 852 1,599 1,462
Decrease in short-term investments - - 9,326
Purchases of long-term investments - - (453)
Increase in rental assets (2,581) (2,848) (1,856)
Purchases of property, plant and
equipment (2,713) (2,101) (875)
Other 140 273 66
-------- -------- --------
Net cash provided by
(used in) investing
activities $ (1,180) $ 3,132 $ (277)
-------- -------- --------
5PAGE
<PAGE>
Thermo Power Corporation
Consolidated Statement of Cash Flows (continued)
Year Ended
-----------------------------------------
September 28, September 30, October 1,
(In thousands) 1996 1995 1994
--------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
Company and subsidiary common
stock $ 377 $ 18,064 $ 266
Repayment of obligations to
parent company - - (3,000)
Repayment of long-term obligations (59) (56) (198)
-------- -------- --------
Net cash provided by
(used in) financing
activities 318 18,008 (2,932)
-------- -------- --------
Increase in Cash and Cash Equivalents 6,348 16,030 1,320
Cash and Cash Equivalents at
Beginning of Year 23,504 7,474 6,154
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 29,852 $ 23,504 $ 7,474
======== ======== ========
Cash Paid For:
Interest $ 26 $ 23 $ 61
Income taxes $ 894 $ 2,796 $ 1,575
Noncash Investing Activities:
Fair value of assets of acquired
companies $ 860 $ 2,500 $ 10,571
Cash paid for acquired companies (860) (2,500) (7,947)
-------- -------- --------
Liabilities assumed of acquired
companies $ - $ - $ 2,624
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
<PAGE>
Thermo Power Corporation
Consolidated Statement of Shareholders' Investment
Net
Unrealized
Gain
Common (Loss) on
Stock, Capital in Available-
$.10 Par Excess of Retained Treasury for-sale
(In thousands) Value Par Value Earnings Stock Investments
- --------------------------------------------------------------------------------
Balance October 2, 1993 $ 1,242 $52,727 $ 3,386 $ (756) $ -
Net income - - 3,248 - -
Issuance of stock under
employees' and directors'
stock plans 1 122 - 143 -
Tax benefit related to
employees' and directors'
stock plans - 362 - - -
------- ------- ------- ------- ---------
Balance October 1, 1994 1,243 53,211 6,634 (613) -
Net income - - 4,188 - -
Issuance of stock under
employees' and directors'
stock plans 5 534 - 272 -
Tax benefit related to
employees' and directors'
stock plans - 153 - - -
Effect of change in
accounting principle
(Note 2) - - - - 268
Change in net unrealized
gain (loss) on available-
for-sale investments
(Note 2) - - - - (70)
------- ------- ------- ------- ---------
Balance September 30, 1995 1,248 53,898 10,822 (341) (198)
Net income - - 885 - -
Issuance of stock under
employees' and directors'
stock plans 1 58 - 318 -
Tax benefit related to
employees' and directors'
stock plans - 492 - - -
Change in net unrealized
gain (loss) on available-
for-sale investments
(Note 2) - - - - (211)
------- ------- ------- ------- ---------
Balance September 28, 1996 $ 1,249 $54,448 $11,707 $ (23) $ (13)
======= ======= ======= ======= =========
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Power Corporation (the Company) manufactures, markets, and
services industrial refrigeration equipment, natural gas engines for
vehicular and stationary applications, marine engines, fork-lift engines,
and natural gas-fueled commercial cooling and cogeneration systems. The
Company also conducts research and development on applications of thermal
energy and rents commercial cooling and industrial refrigeration
equipment. In addition, the Company develops gas-powered lighting
products for commercialization.
Relationship with Thermo Electron Corporation
The Company was incorporated on June 6, 1985, as a wholly owned
subsidiary of Thermo Electron Corporation (Thermo Electron). As of
September 28, 1996, Thermo Electron owned 7,915,306 shares of the
Company's common stock, representing 63% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company, its wholly owned subsidiaries, and its 78%-owned privately held
subsidiary, ThermoLyte Corporation (ThermoLyte). All material
intercompany accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
September 30. References to fiscal 1996, 1995, and 1994 are for the
fiscal years ended September 28, 1996, September 30, 1995, and October 1,
1994, respectively.
Revenue Recognition
The Company recognizes revenues upon shipment of its products or
upon completion of services it renders, and recognizes rental revenues on
a straight-line basis over the term of the rental contract. The Company
provides a reserve for its estimate of warranty costs at the time of
shipment. Revenues and profits on contracts are recognized using the
percentage-of-completion method. Revenues recorded under the percentage-
of-completion method, including revenues from research and development
contracts, were $57,842,000 in fiscal 1996, $53,045,000 in fiscal 1995,
and $51,862,000 in fiscal 1994. The percentage of completion is
determined by relating the actual costs incurred to date to management's
estimate of total costs 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. Contracts at the Company's FES division generally
provide for the billing of customers on a fixed-price basis upon contract
completion. Contracts at the Company's Tecogen division generally provide
for the billing of customers on a cost-plus-fixed-fee basis as costs are
incurred. Revenues earned on contracts in process in excess of billings
are classified as unbilled contract costs and fees in the accompanying
8PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
balance sheet. 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.
Research and Development Arrangements
The Company has research and development arrangements with the
natural gas industry and various governmental agencies. Revenues in the
accompanying statement of income include $5,836,000, $4,917,000, and
$5,209,000 and cost of revenues include $4,475,000, $3,548,000, and
$4,197,000 related to these arrangements in fiscal 1996, 1995, and 1994,
respectively. The Company is required to pay royalties for any
technologies developed or products commercialized under several of these
arrangements. Selling, general and administrative expenses in the
accompanying statement of income include royalty expense related to these
arrangements of $71,000, $51,000, and $75,000 in fiscal 1996, 1995, and
1994, respectively.
Income Taxes
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes
deferred income taxes based on the expected future tax consequences of
differences between the financial statement basis and the tax basis of
assets and liabilities calculated using enacted tax rates in effect for
the year in which the differences are expected to be reflected in the tax
return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the year. Because the effect of the
assumed exercise of stock options would be immaterial, they have been
excluded from the earnings per share calculation.
Cash and Cash Equivalents
As of September 28, 1996, $28,399,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government agency securities, corporate
notes, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Cash equivalents are
carried at cost, which approximates market value.
9PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Available-for-sale Investments
Pursuant to SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective October 2, 1994, the Company's
debt and marketable equity securities are accounted for at market value
(Note 2). Prior to fiscal 1995, these investments were carried at the
lower of cost or market value.
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) 1996 1995
------------------------------------------------------------------------
Raw materials and supplies $16,233 $17,453
Work in process and finished goods 2,404 4,796
------- -------
$18,637 $22,249
======= =======
Rental Assets
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation over the estimated useful lives of the rental
assets, which range from five to seven years. Accumulated depreciation
was $2,378,000 and $985,000 at fiscal year-end 1996 and 1995,
respectively.
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 -
40 years; machinery and equipment - 3 to 12 years; and leasehold
improvements - the shorter of the term of the lease or the life of the
asset. Property, plant and equipment consist of the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
Land and buildings $ 5,810 $ 4,993
Machinery, equipment and leasehold improvements 11,770 10,239
------- -------
17,580 15,232
Less: Accumulated depreciation and amortization 7,813 6,765
------- -------
$ 9,767 $ 8,467
======= =======
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<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over 40 years.
Accumulated amortization was $512,000 and $300,000 at fiscal year-end
1996 and 1995, respectively. The Company assesses the future useful life
of this asset whenever events or changes in circumstances indicate that
the current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset.
Common Stock of Subsidiary Subject to Redemption
In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting
of one share of ThermoLyte common stock, $.001 par value, and one
redemption right, at $10.00 per unit, for net proceeds of $17,253,000.
Holders of the common stock purchased in the offering will have the
option to require ThermoLyte to redeem in December 1998 or 1999 any or
all of their shares at $10.00 per share. The redemption rights 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 the guarantee. The difference between
the redemption value and the original carrying amount of common stock of
subsidiary subject to redemption is accreted using the straight-line
method over the period ending December 1998, which corresponds to the
first redemption period. The accretion is charged to minority interest
expense in the accompanying statement of income. ThermoLyte is developing
a line of gas-powered lighting products for commercialization. Following
the offering, the Company owned 78% of ThermoLyte's outstanding common
stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation
Certain amounts in fiscal 1995 and 1994 have been reclassified to
conform to the presentation in the fiscal 1996 financial statements.
2. Available-for-sale Investments
Effective October 2, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company's debt and marketable equity
11PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
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 (loss) on available-for-sale investments." Effect of
change in accounting principle in the accompanying fiscal 1995 statement
of shareholders' investment represents the unrealized gain, net of
related tax effects, pertaining to available-for-sale investments held by
the Company on October 2, 1994.
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, as of fiscal year-end 1996 and 1995, are as follows:
1996
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
------------------------------------------------------------------------
Government agency securities $ 5,992 $ 5,986 $ 6 $ -
Other 220 246 - (26)
------- ------- ------- -------
$ 6,212 $ 6,232 $ 6 $ (26)
======= ======= ======= =======
1995
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
------------------------------------------------------------------------
Tax-exempt securities $ 5,002 $ 5,000 $ 2 $ -
Government agency securities 5,082 5,106 - (24)
Corporate bonds 429 365 64 -
Other 886 624 322 (60)
------- ------- ------- -------
$11,399 $11,095 $ 388 $ (84)
======= ======= ======= =======
Short- and long-term available-for-sale investments in the
accompanying fiscal 1996 balance sheet have contractual maturities of one
year or less. 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 and/or the issuer 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, in the accompanying fiscal 1996 statement of income
resulted from gross realized gains of $469,000 and gross realized losses
of $18,000 relating to the sale of available-for-sale investments, and
12PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
a write-down of other investments of $243,000. Gain on sale of
investments, net, in the accompanying fiscal 1995 statement of income
resulted from gross realized gains of $768,000 and gross realized losses
of $38,000 relating to the sale of available-for-sale investments.
3. Acquisitions
In the first quarter of fiscal 1996, the Company acquired the
thermoelectric cooling module business of ThermoTrex Corporation
(ThermoTrex) for $860,000, which was the net book value of the business
acquired. ThermoTrex is a majority-owned subsidiary of Thermo Electron.
Because the Company and the thermoelectric cooling module business 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 the pooling-of-interests
method. The results of the thermoelectric cooling module business were
not material to the Company's results, and therefore the Company's
historical financial information for periods prior to fiscal 1996 has not
been restated. The results of the thermoelectric cooling module business
have been included in the accompanying financial statements from the date
of acquisition.
Effective May 1, 1994, the Company acquired NuTemp, Inc. (NuTemp)
for $7,947,000 in cash. In fiscal 1995, the Company paid an additional
$2,500,000 as a result of NuTemp having achieved certain previously
agreed upon performance goals through the period ending May 1, 1995.
NuTemp is a supplier of both remanufactured and new industrial
refrigeration and commercial cooling equipment for sale or rental.
The acquisition of NuTemp has been accounted for using the purchase
method of accounting, and its results have been included in the
accompanying financial statements from the effective date of acquisition.
The cost of this acquisition exceeded the estimated fair value of the
acquired net assets by $6,465,000, which is being amortized over 40
years. Allocation of the purchase price for this acquisition was based on
an estimate of the fair value of the net assets acquired. Pro forma data
is not presented since the acquisition of NuTemp was not material to the
Company's financial condition or results of operations.
4. Stock-based Compensation Plans
The Company has stock-based compensation plans for its key
employees, directors, and others. The Company's equity incentive plan,
adopted in fiscal 1994, permits the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted
stock, stock options, stock bonus shares, or performance-based shares. 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
13PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
4. Stock-based Compensation Plans (continued)
to date are exercisable immediately, but are subject to certain transfer
restrictions and the right of the Company to repurchase shares issued upon
exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally lapse ratably over periods
ranging from three to ten years after the first anniversary of the grant
date, depending on the term of the option, which may range from five to
twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must be
granted at not less than the fair market value of the Company's stock on
the date of grant. To date, all options have been granted at fair market
value. The Company also has a directors' stock option plan, adopted in 1991
and amended in fiscal 1995, that provides for the grant of stock options in
the Company and its majority-owned subsidiary to outside directors pursuant
to a formula approved by the Company's shareholders. Options in the Company
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 the stock-based compensation plans of
Thermo Electron or its majority-owned subsidiaries.
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including tax
benefits realized, are credited to equity. A summary of the Company's stock
option information is as follows:
1996 1995 1994
---------------- --------------- ---------------
Range of Range of Range of
Option Option Option
(In thousands Number Prices Number Prices Number Prices
except per of per of per of per
share amounts) Shares Share Shares Share Shares Share
--------------------------------------------------------------------------
Options outstanding, $ 4.20- $ 4.20- $ 2.92-
beginning of year 1,406 $17.53 1,259 $10.15 536 $10.15
11.90- 8.95- 7.90-
Granted 12 14.15 296 17.53 788 9.18
4.20- 4.20- 2.92-
Exercised (40) 9.58 (111) 9.58 (64) 7.58
7.58- 7.45- 4.20-
Lapsed or cancelled (36) 9.58 (38) 9.58 (1) 8.33
----- ----- -----
Options outstanding, $ 5.45- $ 4.20- $ 4.20-
end of year 1,342 $17.53 1,406 $17.53 1,259 $10.15
===== ===== =====
$ 5.45- $ 4.20- $ 4.20-
Options exercisable 1,342 $17.53 1,406 $17.53 1,258 $10.15
===== ===== =====
Options available
for grant 75 97 355
===== ===== =====
14PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
5. Common Stock
At September 28, 1996, the Company had reserved 1,674,059 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
6. Employee Benefit Plans
Employee Stock Purchase Plan
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase plan sponsored by the
Company. Under this plan, shares of the Company's and Thermo Electron's
common stock can be purchased at the end of a 12-month plan year at 95%
of the fair market value at the beginning of the plan year, 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 85% of the fair market value at the beginning of the plan
year, 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 fiscal 1996, 1995,
and 1994, the Company issued 18,012 shares, 25,859 shares, and 40,219
shares, respectively, of its common stock under this plan.
401(k) Savings Plan and Employee Stock Ownership Plan
The majority of the Company's employees are eligible to participate
in Thermo Electron's 401(k) savings plan and, prior to January 1, 1995,
certain employees were eligible to participate in Thermo Electron's
employee stock ownership plan (ESOP). Contributions to the 401(k) savings
plan are made by both the employee and the Company. Company contributions
are based upon the level of employee contributions. For these plans, the
Company contributed and charged to expense $674,000, $653,000, and
$656,000 in fiscal 1996, 1995, and 1994, respectively. Effective December
31, 1994, the ESOP was split into two plans: ESOP I, covering employees
of Thermo Electron's corporate office and its wholly owned subsidiaries,
and ESOP II, covering employees of certain of Thermo Electron's
majority-owned subsidiaries, including the Company. Also, effective
December 31, 1994, the ESOP II plan was terminated, and as a result, the
Company's employees are no longer eligible to participate in an ESOP.
15PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
7. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable:
Federal $ 599 $2,150 $1,933
State 132 525 493
------ ------ ------
731 2,675 2,426
------ ------ ------
Deferred (prepaid), net:
Federal 305 54 (333)
State 67 8 (59)
------ ------ ------
372 62 (392)
------ ------ ------
$1,103 $2,737 $2,034
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $492,000, $153,000, and $362,000 of such benefits that have
been allocated to capital in excess of par value in fiscal 1996, 1995,
and 1994, respectively.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 34% to income before provision for income
taxes and minority interest due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $ 782 $2,416 $1,796
Increases (decreases) resulting from:
State income taxes, net of
federal benefit 131 353 286
Increase in valuation allowance 214 - -
Income from tax-preferred securities (46) (122) (213)
Nondeductible expenses 100 83 73
Other (78) 7 92
------ ------ ------
$1,103 $2,737 $2,034
====== ====== ======
16PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
-------------------------------------------------------------
Prepaid income taxes:
Inventory basis difference $ 730 $1,031
Accrued warranty costs 906 819
Accrued compensation 596 590
Reserves and accruals 459 496
Allowance for doubtful accounts 230 207
Federal and state loss carryforwards 214 -
Other - 70
------ ------
3,135 3,213
Less: Valuation allowance (214) -
------ ------
$2,921 $3,213
====== ======
Deferred income taxes:
Available-for-sale investments $ (7) $ 107
Other 91 11
------ ------
$ 84 $ 118
====== ======
The valuation allowance relates to the uncertainty surrounding the
realization of net operating loss carryforwards and other tax assets of
the Company's ThermoLyte subsidiary.
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 pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
calendar year 1995 and 1994, respectively. The annual fee is reviewed and
adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $1,262,000, $1,250,000, and $1,117,000 in fiscal
1996, 1995, and 1994, respectively. 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).
17PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
8. Related Party Transactions (continued)
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the
Company would have incurred on a stand-alone basis. 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.
Other Related Party Services
The Company provides contract administration and other services and
data processing services to certain companies affiliated with Thermo
Electron. The Company is reimbursed for costs incurred based on actual
usage. For these services, the Company was reimbursed $167,000, $209,000,
and $107,000 in fiscal 1996, 1995, and 1994, respectively. Prior to
January 1995, the Company used contract administration and other services
of a company affiliated with Thermo Electron which were charged based on
actual usage. For these services, the Company was charged $31,000 and
$117,000 in fiscal 1995 and 1994, respectively.
Leases
The Company leases an office and laboratory facility from Thermo
Electron under an agreement expiring in September 1997. The accompanying
statement of income includes expenses from this operating lease of
$170,000 in fiscal 1996, 1995, and 1994. The future minimum payment due
under this operating lease as of September 28, 1996, is $170,000 in
fiscal 1997.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
Sale of Related Party Investments
In February 1996, the Company sold $365,000 principal amount of 6.5%
subordinated convertible debentures to an unrelated party for net
proceeds of $490,000, which resulted in a gain of $125,000. The
debentures were issued by Thermo TerraTech Inc., a majority-owned
subsidiary of Thermo Electron.
In December 1995, the Company sold 10,969 shares of its Thermo
Electron common stock to an unrelated party for net proceeds of $362,000,
which resulted in a gain of $344,000. Share information for Thermo
Electron has been restated to reflect a three-for-two stock split,
effected in the form of a 50% stock dividend, distributed in June 1996.
18PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
9. Commitments
In addition to the lease described in Note 8, the Company leases
equipment and manufacturing, engine testing, service, and office
facilities under operating leases expiring at various dates through
fiscal 2004. The accompanying statement of income includes expenses from
these operating leases of $1,166,000, $1,044,000, and $711,000 in fiscal
1996, 1995, and 1994, respectively. Future minimum payments due under
these operating leases as of September 28, 1996, are $956,000 in fiscal
1997; $874,000 in fiscal 1998; $853,000 in fiscal 1999; $853,000 in
fiscal 2000; $839,000 in fiscal 2001; and $3,340,000 in fiscal 2002 and
thereafter. Total future minimum lease payments are $7,715,000.
10. Long-term Obligations
At September 28, 1996, the Company's long-term obligations included
a $263,000 mortgage loan, which is secured by property at the Company's
FES division with a net book value of $4,688,000. The loan is payable in
equal monthly installments with the final payment in fiscal 2002. The
interest rate on this loan is 75% of the prime rate, and averaged 6.39%
and 6.42% in fiscal 1996 and 1995, respectively.
The annual requirements for long-term obligations as of September
28, 1996, are $57,000 in fiscal 1997; $58,000 in fiscal 1998; $60,000 in
fiscal 1999; $59,000 in fiscal 2000; $51,000 in fiscal 2001; and $77,000
in fiscal 2002 and thereafter. Total requirements of long-term
obligations are $362,000.
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
accounts payable, due to Thermo Electron and affiliated companies, and
long-term obligations. The carrying amounts of these financial
instruments, with the exception of available-for-sale investments and
long-term obligations, approximate 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 carrying amounts of the Company's long-term obligations, which
approximate fair value, were $305,000 and $364,000 as of September 28,
1996 and September 30, 1995, respectively. The fair value of the
Company's long-term obligations was determined based on borrowing rates
available to the Company at the respective year-ends.
19PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
12. Segment Data, Export Sales and Concentrations of Risk
The Company's business is divided into three segments. The
Industrial Refrigeration Systems segment develops, manufactures, markets,
and services industrial refrigeration and commercial cooling equipment,
and rents commercial cooling and industrial refrigeration equipment. The
Engines segment develops, manufactures, markets, and services gasoline
engines for recreational boats, propane and gasoline engines for lift
trucks, and natural gas engines for fleet vehicles and industrial
applications. The Cooling and Cogeneration Systems segment develops,
manufactures, markets, and services natural gas cooling and cogeneration
systems, conducts research and development on applications of thermal
energy, and develops gas-powered lighting products for commercialization.
Export revenues to Asia accounted for 7%, 10%, and 10% of the
Company's total revenues in fiscal 1996, 1995, and 1994, respectively.
Other export revenues accounted for 6%, 5%, and 6% of the Company's total
revenues in fiscal 1996, 1995, and 1994, respectively. In general, export
sales are denominated in U.S. dollars.
The Company purchases engine blocks for its marine and certain
other engines, as well as engines for certain of its smaller cooling and
cogeneration products, from one supplier. While the Company believes that
it has adequate supplies of materials to meet its needs for a three-month
period, no assurance can be given that the Company will not experience
shortages of engine blocks in the future that could delay shipments of
the Company's marine and certain other engines and its cooling and
cogeneration products.
Information for fiscal 1996, 1995, and 1994, with respect to the
Company's business segments, is shown in the following table.
20PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
12. Segment Data and Export Sales (continued)
(In thousands) 1996 1995 1994
--------------------------------------------------------------------------
Revenues:
Industrial Refrigeration Systems $ 73,312 $ 64,708 $ 57,372
Engines 28,857 24,848 20,204
Cooling and Cogeneration Systems 20,477 15,873 13,192
Intersegment sales elimination (a) (1,910) (2,174) (1,434)
-------- -------- --------
$120,736 $103,255 $ 89,334
======== ======== ========
Income before provision for income
taxes and minority interest:
Industrial Refrigeration Systems $ 4,403 $ 6,689 $ 5,206
Engines (1,584) (120) 188
Cooling and Cogeneration Systems 122 961 820
Corporate (b) (2,537) (3,049) (2,731)
-------- -------- --------
Total operating income 404 4,481 3,483
Interest and other income, net 1,896 2,626 1,799
-------- -------- --------
$ 2,300 $ 7,107 $ 5,282
======== ======== ========
Identifiable assets:
Industrial Refrigeration Systems $ 52,707 $ 48,249 $ 36,980
Engines 13,917 17,193 10,402
Cooling and Cogeneration Systems (c) 22,953 23,549 5,691
Corporate (d) 21,134 19,426 29,548
-------- -------- --------
$110,711 $108,417 $ 82,621
======== ======== ========
Depreciation and amortization:
Industrial Refrigeration Systems $ 2,501 $ 1,551 $ 1,350
Engines 295 329 314
Cooling and Cogeneration Systems 214 192 203
Corporate 23 10 -
-------- -------- --------
$ 3,033 $ 2,082 $ 1,867
======== ======== ========
Capital expenditures:
Industrial Refrigeration Systems $ 4,691 $ 4,393 $ 2,396
Engines 329 344 223
Cooling and Cogeneration Systems 240 150 112
Corporate 34 62 -
-------- -------- --------
$ 5,294 $ 4,949 $ 2,731
======== ======== ========
(a) Intersegment sales are accounted for at prices that are representative
of transactions with unaffiliated parties.
(b) Primarily corporate general and administrative expenses and other
expenses for new lines of business.
(c) Includes $17.3 million in fiscal 1995 of net proceeds from the private
placement of shares of ThermoLyte.
(d) Primarily cash, cash equivalents, and short-term investments.
21PAGE
<PAGE>
Thermo Power Corporation
Notes to Consolidated Financial Statements
13. Quarterly Information (Unaudited)
(In thousands except per share amounts)
1996 First Second Third Fourth
-------------------------------------------------------------------------
Revenues $ 27,452 $ 29,756 $ 32,429 $ 31,099
Gross profit 4,787 4,661 5,323 5,586
Net income (loss) 577 43 448 (183)
Earnings (loss) per share .05 - .04 (.01)
1995 First Second Third Fourth
-------------------------------------------------------------------------
Revenues $ 22,314 $ 24,912 $ 27,514 $ 28,515
Gross profit 5,266 5,493 5,868 6,805
Net income 787 805 1,106 1,490
Earnings per share .06 .07 .09 .12
22PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Power Corporation:
We have audited the accompanying consolidated balance sheet of
Thermo Power Corporation (a Massachusetts corporation and 63%-owned
subsidiary of Thermo Electron Corporation) and subsidiaries as of
September 28, 1996 and September 30, 1995, and the related consolidated
statements of income, shareholders' investment, and cash flows for each
of the three years in the period ended September 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Power Corporation and subsidiaries as of September 28, 1996 and
September 30, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended September 28, 1996,
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements,
effective October 2, 1994, the Company changed its method of accounting
for investments in debt and marketable equity securities.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
23PAGE
<PAGE>
Thermo Power Corporation
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.
These statements involve a number of risks and uncertainties, including
those detailed immediately after this Management's Discussion and
Analysis of Financial Condition and Results of Operations under the
caption "Forward-looking Statements."
Overview
The Company's business is divided into three segments: Industrial
Refrigeration Systems, Engines, and Cooling and Cogeneration Systems.
Through the Company's FES division, the Industrial Refrigeration Systems
segment supplies standard and custom-designed industrial refrigeration
systems used primarily by the food-processing, petrochemical, and
pharmaceutical industries. NuTemp, Inc. (NuTemp), which was acquired in
May 1994, is a supplier of both remanufactured and new industrial
refrigeration and commercial cooling equipment for sale or rental.
NuTemp's industrial refrigeration equipment is used primarily in the
food-processing, petrochemical, and pharmaceutical industries, and its
commercial cooling equipment is used primarily in institutions and
commercial buildings, as well as by service contractors. The demand for
NuTemp's equipment is typically highest in the summer period. Cool summer
weather can adversely affect the Company's NuTemp business since the
Company's cooling systems are used primarily to reduce temperatures below
ambient air temperatures.
Within the Engines segment, the Company's Crusader Engines division
(Crusader) manufactures gasoline engines for recreational boats; propane
and gasoline engines for lift trucks; and natural gas engines for
vehicular, cooling, pumping, refrigeration, and other industrial
applications.
The Cooling and Cogeneration Systems segment consists of the
Company's Tecogen division and the Company's ThermoLyte Corporation
(ThermoLyte) subsidiary, formed in March 1995. Tecogen designs, develops,
markets, and services packaged cooling and cogeneration systems fueled
principally by natural gas for sale to a wide range of commercial,
institutional, industrial, and multi-unit residential users. Certain
large-capacity cooling systems are manufactured by FES, and the
cogeneration systems are manufactured by Crusader. Tecogen also conducts
research and development of natural gas-engine technology and on
applications of thermal energy. ThermoLyte is developing and
commercializing a family of gas-powered lighting products, including area
lights, flashlights, emergency lights, and other lighting products.
Results of Operations
Fiscal 1996 Compared With Fiscal 1995
Total revenues increased 17% to $120,736,000 in fiscal 1996 from
$103,255,000 in fiscal 1995. Industrial Refrigeration Systems segment
24PAGE
<PAGE>
Thermo Power Corporation
Fiscal 1996 Compared With Fiscal 1995 (continued)
revenues increased 13% to $73,312,000 in 1996 from $64,708,000 in 1995.
Revenues at FES increased $7,717,000 in 1996 primarily due to greater
demand for custom-designed industrial refrigeration packages, offset in
part by lower sales of standard refrigeration systems. Revenues at NuTemp
increased $887,000 primarily due to increased demand for remanufactured
commercial cooling equipment, offset in part by lower demand for rental
equipment resulting from generally milder summer temperatures in 1996
compared with 1995. Engines segment revenues increased 16% to $28,857,000
in 1996 from $24,848,000 in 1995 primarily due to the inclusion of
revenues from lift-truck engines and increased demand for gasoline and
TecoDrive(R) natural gas engines, offset in part by a decrease of
$2,877,000 in revenues from marine-engine related products. Revenues from
marine-engine related products declined primarily due to increased
competition and a decrease in demand. These trends are expected to
continue. Cooling and Cogeneration Systems segment revenues increased 29%
to $20,477,000 in 1996 from $15,873,000 in 1995 primarily due to an
increase in revenues from gas-fueled cooling systems. Results for the
Cooling and Cogeneration Systems segment in 1995 include a fee of
$1,187,000 received from one of the Company's distributors of packaged
cogeneration systems to satisfy the financial obligations under a minimum
purchase contract.
The gross profit margin decreased to 17% in fiscal 1996 from 23% in
fiscal 1995. The gross profit margin for the Industrial Refrigeration
Systems segment decreased to 20% in 1996 from 25% in 1995 primarily due
to lower margins at FES resulting from a change in sales mix. FES' sales
to the petrochemical industry, which have inherently lower margins,
increased in 1996 from 1995. To a lesser extent, the gross profit margin
decreased due to an increase in depreciation expense at NuTemp resulting
from an increase in rental assets, lower manufacturing efficiencies at
FES, and higher warranty expenses at NuTemp in 1996 compared with 1995.
The Company has experienced a cost increase in one of the major
components of its industrial refrigeration packages which is expected to
adversely affect the gross profit margin in fiscal 1997. The gross profit
margin for the Engines segment decreased to 5% in 1996 from 11% in 1995
primarily due to unusually high warranty expenses and, to a lesser
extent, startup costs associated with the introduction of lift-truck
engines. The gross profit margin for the Cooling and Cogeneration Systems
segment decreased to 22% in 1996 from 29% in 1995 primarily due to the
inclusion in 1995 of a fee received from one of the Company's
distributors of packaged cogeneration systems discussed above.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14% in fiscal 1996 from 15% in fiscal 1995
primarily due to an increase in total revenues. Research and development
expenses as a percentage of revenues remained unchanged at 3% in 1996 and
1995. An increase in research and development expenses for gas-fueled
lighting products was offset by a decrease in spending on research and
development of natural gas-engine products.
Interest income decreased to $1,714,000 in fiscal 1996 from
$1,919,000 in fiscal 1995. Interest income earned on invested proceeds
from ThermoLyte's March 1995 private placement was more than offset by a
25PAGE
<PAGE>
Thermo Power Corporation
Fiscal 1996 Compared With Fiscal 1995 (continued)
decrease in interest income earned on the Company's other investments due
to lower average invested balances. Gain on sale of investments, net, in
1996 primarily represents a gain of $344,000 relating to the sale of the
Company's remaining investment in Thermo Electron Corporation (Thermo
Electron) common stock and a gain of $125,000 relating to the sale of the
Company's remaining investment in 6.5% subordinated convertible
debentures, which were issued by Thermo TerraTech Inc., a majority-owned
subsidiary of Thermo Electron (Note 8). These gains were largely offset
by a write-down of other investments.
The effective tax rate was 48% in fiscal 1996, compared with 39% in
fiscal 1995. These rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes and, in fiscal 1996, a
valuation allowance established for net operating loss carryforwards and
other tax assets of the Company's ThermoLyte subsidiary.
Fiscal 1995 Compared With Fiscal 1994
Total revenues increased 16% to $103,255,000 in fiscal 1995 from
$89,334,000 in fiscal 1994. Industrial Refrigeration Systems segment
revenues increased 13% to $64,708,000 in 1995 from $57,372,000 in 1994.
Industrial Refrigeration Systems segment revenues increased $5,577,000
due to the inclusion of sales for a full year from NuTemp, which was
acquired in May 1994. Engines segment revenues increased 23% to
$24,848,000 in 1995 from $20,204,000 in 1994 primarily due to increased
demand for Crusader's inboard marine-engine related products and, to a
lesser extent, natural gas-fueled TecoDrive engines. Results for 1994
included $1,632,000 of revenues from sterndrive marine engine-related
products. The Company's sterndrive customer exited that market in fiscal
1994. Cooling and Cogeneration Systems segment revenues increased 20% to
$15,873,000 in 1995 from $13,192,000 in 1994 due to the inclusion of a
fee of $1,187,000 received from one of the Company's distributors of
packaged cogeneration systems to satisfy the financial obligations under
a minimum purchase contract and an increase of $1,184,000 in revenues
from gas-fueled cooling systems. These increases were offset in part by a
decrease in revenues from packaged cogeneration systems.
The gross profit margin increased to 23% in fiscal 1995 from 22% in
fiscal 1994. The gross profit margin for the Industrial Refrigeration
Systems segment increased to 25% in 1995 from 24% in 1994 primarily due
to the inclusion of higher-margin NuTemp revenues for the full year of
1995 compared with five months in 1994. The gross profit margin for the
Engines segment decreased to 11% in 1995 from 12% in 1994 primarily due
to startup costs associated with new products and, to a lesser extent,
higher warranty expenses in 1995 compared with 1994. The gross profit
margin for the Cooling and Cogeneration Systems segment increased to 29%
in 1995 from 25% in 1994 primarily due to the fee received from one of
the Company's distributors of packaged cogeneration systems discussed
above.
Selling, general and administrative expenses as a percentage of
revenues decreased to 15% in fiscal 1995 from 16% in fiscal 1994
26PAGE
<PAGE>
Thermo Power Corporation
Fiscal 1995 Compared With Fiscal 1994 (continued)
primarily due to an increase in total revenues. Research and development
expenses as a percentage of revenues increased to 3% in 1995 from 2% in
1994 primarily due to development costs associated with natural
gas-engine products and, to a lesser extent, gas-fueled lighting
products.
Interest income increased to $1,919,000 in fiscal 1995 from
$1,278,000 in fiscal 1994, reflecting interest income earned on invested
proceeds from ThermoLyte's March 1995 private placement and, to a lesser
extent, higher prevailing interest rates in 1995. The increase was offset
in part by lower average invested amounts as a result of the cash
expended for the acquisition of NuTemp in May 1994. Interest expense
decreased to $23,000 in 1995 from $61,000 in 1994 due to the repayment of
a $3,000,000 principal amount 6.2% subordinated convertible note to
Thermo Electron in the first quarter of fiscal 1994. Gain on sale of
investments, net, primarily represents a gain of $768,000 in 1995 and
$616,000 in 1994 relating to the sale of the Company's investment in
subordinated convertible debentures issued by Thermedics Inc., a
majority-owned subsidiary of Thermo Electron.
The effective tax rate was 39% in fiscal 1995 and 1994. This rate
exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes.
Liquidity and Capital Resources
Working capital was $57,719,000 at September 28, 1996, compared with
$60,140,000 at September 30, 1995. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $35,880,000 at
September 28, 1996, compared with $34,170,000 at September 30, 1995. Of
the $35,880,000 balance at September 28, 1996, $16,474,000 was held by
ThermoLyte and the remainder was held by the Company and its wholly owned
subsidiaries. During fiscal 1996, $7,210,000 of cash was provided by
operating activities.
During the first quarter of fiscal 1996, the Company acquired the
thermoelectric cooling module business of ThermoTrex Corporation
(ThermoTrex) for $860,000, which was the net book value of the business
acquired (Note 3). ThermoTrex is a majority-owned subsidiary of Thermo
Electron.
In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting
of one share of ThermoLyte common stock and one redemption right, in a
private placement. Holders of the common stock purchased in the offering
will have the option to require ThermoLyte to redeem in December 1998 or
1999 any or all of their shares at $10.00 per share. The redemption
rights 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 the guarantee.
During fiscal 1996, the Company expended an aggregate of $5,294,000
for purchases of rental assets and property, plant and equipment. In
27PAGE
<PAGE>
Thermo Power Corporation
Liquidity and Capital Resources (continued)
fiscal 1997, the Company expects to make capital expenditures of
approximately $5,200,000. The Company believes its existing resources are
sufficient to meet the capital requirements of its existing operations
for the foreseeable future.
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 fiscal 1997 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. Although the
Company has a proprietary position with respect to certain features of
its products, the core technologies relating to its cooling and
cogeneration products are mature and available to other companies. A
number of companies, including companies with greater financial resources
than those of the Company, offer products that compete with those offered
by the Company, and there can be no assurance that other companies will
not develop competitive products. In addition, electric utility pricing
programs provide competition for the Company's cooling and cogeneration
products.
The Company's sale of industrial refrigeration systems is subject
to intense competition. The industrial refrigeration market is mature,
highly fragmented, and extremely dependent on close customer contacts.
Competition in the compressed natural gas (CNG) vehicle and
alternative-fuel engine markets is intense, and current and potential
competitors in some or all segments of these markets include major
automotive and natural gas companies and other companies that have
greater financial resources than the Company. If the CNG vehicle business
is to succeed, natural gas will need to be economically attractive
compared with other alternative fuels, such as ethanol and methanol, and
compared with improved gasoline formulas.
Several companies offer marine engines that compete with those
manufactured by Crusader. In addition, in recent years, certain large
manufacturers of marine engines have vertically integrated their
respective businesses by acquiring boat manufacturers that previously had
been independent purchasers of engines from Crusader and other engine
manufacturers. The number of potential buyers of Crusader's engines has
decreased accordingly.
Dependence of Markets on Government Regulation. The natural gas
vehicle market is in its formative stage. The use of CNG engines in
vehicles in the United States results primarily from governmental
regulations mandating or encouraging the use of alternative fuels. The
Company's CNG engine business is subject to the demand driven by various
28PAGE
<PAGE>
Thermo Power Corporation
Forward-looking Statements (continued)
provisions of the 1990 Clean Air Act, as well as energy and environmental
legislation that has been or may be enacted at state and local levels,
which may be more stringent than federal laws. Natural gas is one of many
alternative fuels that are addressed by the regulations. Others include
methanol, ethanol, propane, hydrogen, electricity, and reformulated
gasoline. There can be no assurance that natural gas will become a
preferred alternative fuel for vehicles or that existing and future
regulations or their enforcement will create material long-term demand
for natural gas-powered vehicles.
The Public Utility Regulatory Policies Act of 1978 (PURPA) and
state laws and regulations implementing PURPA prohibit discrimination by
electric utilities against cogeneration providers and require utilities
to purchase cogenerated electricity under certain conditions. Under these
regulations, certain classes of facilities are exempt from the provisions
of the Public Utility Holding Company Act, as well as many state laws and
regulations regarding the setting of electricity rates and the financial
and organizational regulation of electric utilities, and certain
provisions of the Federal Power Act. Because the Company's current
customers typically do not sell power to electric utilities, the Company
does not rely to a significant extent on the provisions of PURPA that
require utilities to purchase electricity from cogeneration providers.
However, recent bills in Congress have proposed amendments to, and in
some cases, the repeal of, certain of these laws or regulations. Any such
amendment or repeal could have a material adverse effect on the Company's
cogeneration business.
Importance of Energy Prices. The cost savings that result from use
of the Company's packaged cooling and cogeneration systems are directly
related to the retail price of electricity. In the past several years,
electricity prices have declined in many areas and rates remain
relatively low on a historical basis in many regions. Given prevailing
rate structures, demand for the Company's cooling and cogeneration
systems has been less than anticipated. Although the Company believes
that increases in demand, as well as potential increases in the cost of
fuel, will lead to eventual increases in electricity rates, there can be
no assurance that electricity prices will increase in the future. The
economic benefits of the Company's natural gas engine products and
packaged cooling and cogeneration systems are also affected by the cost
of natural gas. A significant increase in the relative cost of natural
gas could also have a material adverse effect on the sale of certain of
the Company's products.
Incentives for Cooling Systems. Purchasers of the Company's
Tecochill(R) cooling systems often receive investment incentives for the
purchase of Tecochill equipment from gas utilities or state or municipal
governments. Although the Company has no reason to believe these
incentives will be discontinued, elimination of these incentives could
have a material adverse effect on sales of the Company's Tecochill
systems.
29PAGE
<PAGE>
Thermo Power Corporation
Forward-looking Statements (continued)
Risks Associated with Acquisition Strategy; No Assurance of a
Successful Acquisition Strategy. The Company's growth strategy is to
supplement its internal growth with the acquisition of businesses and
technologies that complement or augment the Company's existing product
lines. Businesses that the Company may seek to acquire in the future may
be marginally profitable or unprofitable. In order for any acquired
businesses to achieve the level of profitability desired by the Company,
the Company must successfully reduce expenses and improve market
penetration. No assurance can be given that the Company will be
successful in this regard. In addition, promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. There can be no assurance that
the Company will be able to complete pending or future acquisitions. In
order to finance any such acquisitions, it may be necessary for the
Company to raise additional funds either 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.
Risks Associated with Protection, Defense and Use of Intellectual
Property and Ownership of Technology Rights. The Company holds several
patents relating to various aspects of its products, and believes that
proprietary technical know-how is critical to many of its products.
Proprietary rights relating to the Company's products are protected from
unauthorized use by third parties only to the extent that they are
covered by valid and enforceable patents or are maintained in confidence
as trade secrets. There can be no assurance that patents will be issued
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 and, in the
absence of patent protection, the Company may be vulnerable to
competitors who attempt to copy the Company's products or gain access to
its trade secrets and know-how. Proceedings initiated by the Company to
protect its proprietary rights could result in substantial costs to the
Company. There can be no assurance that competitors of the Company will
not initiate litigation to challenge the validity of the Company's
patents, or that they will not use their resources to design comparable
products that do not infringe the Company's patents. There may 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
30PAGE
<PAGE>
Thermo Power Corporation
Forward-looking Statements (continued)
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.
In addition, a significant percentage of the Company's research and
development is sponsored by third parties. Sponsors of these programs
generally own the rights to technology that is developed as a result of
the Company's work under the programs. These rights could limit the
Company's ability to commercialize any technological breakthroughs made
in the course of such work.
No Assurance of Development and Commercialization of ThermoLyte
Products; Uncertain Market Acceptance; Potential Product Liability. The
Company's ThermoLyte subsidiary is developing propane-fueled lighting
products. Product development involves a high degree of risk, and returns
to investors are dependent upon successful development and
commercialization of the ThermoLyte products. There can be no assurance
that the Company will be able to build the sales and marketing
organization necessary for the successful commercialization of its
products. In addition, as with any new technology, there is substantial
risk that the marketplace may not accept or be receptive to the potential
benefits of such technology. Market acceptance of the Company's proposed
products will depend, in large part, upon the ability of the Company to
demonstrate the safety of such products and their advantages over
commercially available alternatives. There can be no assurance that the
ThermoLyte products will be accepted by the public. Finally, because the
ThermoLyte products will be powered by propane or a similar fuel that is
combustible, the Company may be subject to potential product liability
damages. The Company intends to design the ThermoLyte products to
minimize these effects and believes that it will be able to obtain
insurance against such liabilities on terms acceptable to the Company.
However, no assurance can be given that damages from product liability
will not have a material adverse impact on the results of operations,
financial condition, or reputation of the Company.
31PAGE
<PAGE>
Thermo Power Corporation
Selected Financial Information
(In thousands except
per share amounts) 1996 1995(a) 1994(b) 1993(c) 1992
---------------------------------------------------------------------------
Statement of Income Data:
Revenues $120,736 $103,255 $ 89,334 $ 75,429 $ 34,137
Net income 885 4,188 3,248 1,923 355
Earnings per share .07 .34 .26 .18 .04
Balance Sheet Data:
Working capital $ 57,719 $ 60,140 $ 43,143 $ 50,467 $ 19,173
Total assets 110,711 108,417 82,621 79,513 28,675
Long-term
obligations 305 364 344 3,395 3,000
Common stock of
subsidiary subject
to redemption 17,747 17,435 - - -
Shareholders'
investment 67,368 65,825 60,475 56,599 18,302
(a) Reflects the net proceeds from the private placement of shares of
ThermoLyte Corporation in March 1995.
(b) Reflects the May 1994 acquisition of NuTemp, Inc.
(c) Reflects the October 1992 acquisition of FES and the net proceeds of
the Company's February 1993 public offering of common stock.
32PAGE
<PAGE>
Thermo Power Corporation
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the American Stock Exchange
(symbol THP) for fiscal 1996 and 1995.
1996 1995
----------------- -----------------
Quarter High Low High Low
--------------------------------------------------------------------
First $16 1/4 $12 1/4 $ 9 7/8 $ 8 5/8
Second 16 1/8 11 3/8 10 3/8 8 7/8
Third 17 3/8 11 3/4 18 7/8 9 3/4
Fourth 12 5/8 9 5/16 19 1/2 15 1/8
As of November 22, 1996, the Company had 481 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 November 22, 1996, was $8 3/4 per share.
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuances of stock certificates, changes of ownership, lost
stock certificates, and changes of address. For these and similar
matters, please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Shareholder Services
Shareholders of Thermo Power Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, Vice
President and Chief Financial Officer, Thermo Power Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 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.
Beginning with the fiscal 1997 fiscal year, quarterly distribution will
be limited to the second quarter report only. All quarterly reports and
press releases are also available through the Internet at the Company's
home page on the World Wide Web (http://www.thermo.com/subsid/thp.html).
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
33PAGE
<PAGE>
Thermo Power Corporation
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Vice
President and Chief Financial Officer, Thermo Power Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Friday, March 21,
1997, at 10:00 a.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
34PAGE
<PAGE>
Exhibit 21
THERMO POWER CORPORATION
Subsidiaries of the Registrant
At November 30, 1996, Thermo Power Corporation owned the following
companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
-------------------------------- ---------------- ------------
Takepine Limited United Kingdom 100%
Tecogen Securities Corporation Massachusetts 100%
NuTemp, Inc. Illinois 100%
ThermoLyte Corporation Delaware 78%
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated November 1, 1996, included
in or incorporated by reference into Thermo Power Corporation's Annual
Report on Form 10-K for the year ended September 28, 1996, into the
Company's previously filed Registration Statements as follows:
Registration Statement No. 33-19061 on Form S-8, Registration Statement No.
33-19062 on Form S-8, Registration Statement No. 33-25051 on Form S-8,
Registration Statement No. 33-52814 on Form S-8, Registration Statement No.
33-87674 on Form S-8, Registration Statement No. 33-87686 on Form S-8,
Registration Statement No. 33-87692 on Form S-8, and Registration Statement
No. 33-65273 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
December 5, 1996
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<RECEIVABLES> 18,643
<ALLOWANCES> 589
<INVENTORY> 18,637
<CURRENT-ASSETS> 82,926
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