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 27, 1997
[ ] 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: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.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 October 31, 1997, was approximately $30,918,000.
As of October 31, 1997, the Registrant had 11,916,247 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 27, 1997, 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 13, 1998, 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. At fiscal year-end
1997, the Company's business was 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 and pollution control. The Company's thermoelectric cooling
modules are used to control the 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. Through its 78%-owned ThermoLyte
Corporation (ThermoLyte) subsidiary, formed in March 1995, the Company is
developing and commercializing various gas-powered lighting products.
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for the outstanding ordinary shares of
Peek plc (Peek). The aggregate cost to acquire all outstanding Peek
ordinary shares is estimated at approximately $163 million. The Company
paid $2.3 million for shares acquired in fiscal 1997 and $147.9 million
for shares acquired from September 28, 1997, through November 19, 1997.
The Company owned 92% of the outstanding ordinary shares of Peek as of
November 19, 1997. The Company expects to make payments for the remaining
ordinary shares outstanding during the first quarter of fiscal 1998. To
finance the acquisition of Peek, the Company used internal funds and
borrowed $160.0 million from Thermo Electron.
Peek, a London Stock Exchange-listed company, develops, markets,
installs, and services equipment to monitor and regulate traffic flow,
ease roadway congestion, improve safety, and collect data. Peek also
manufactures density and flow meters, primarily used by the water and oil
industries. Peek had revenues in calendar 1996, excluding revenues from
businesses sold in 1996 and 1997, of approximately 140 million pounds
sterling, or approximately $219 million, and profit on ordinary
activities after taxation, excluding profits from businesses sold in 1996
and 1997, of approximately 8 million pounds sterling, or approximately
$12 million. Peek's results of operations in calendar 1996 are unaudited
and were accounted for in accordance with generally accepted accounting
principles in the United Kingdom, which differ in certain respects from
U.S. generally accepted accounting principles.
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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 27, 1997, Thermo Electron owned 8,127,906
shares of the Company's common stock, representing 68% 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
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 19971,
Thermo Electron purchased 213,100 shares of the Company's common stock in
the open market at a total price of $1,815,000.
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. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in the Registrant's Fiscal 1997 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
Financial information concerning the Company's industry segments is
summarized in Note 11 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders, which information
is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Traffic Products
The Company's Peek subsidiary develops, markets, installs, and
services equipment to monitor and regulate traffic flow in cities and
towns around the world. Peek offers hardware products and traffic
management systems to ease roadway congestion, improve safety, and
collect data. In addition, Peek develops and markets a series of field
measurement products.
1 References to fiscal 1997, 1996, and 1995 herein are for the fiscal
years ended September 27, 1997, September 28, 1996, and September 30,
1995, respectively.
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Hardware Products. Peek's hardware products include detectors,
counter classifiers, traffic signals, controllers, and enforcement
equipment. Peek offers a variety of detectors, including loop detectors,
microwave detectors, and its Videotrak(R) video camera detectors.
Detectors determine the speed, size, and direction of vehicles for use in
traffic control. Counter classifiers analyze the data provided by
detectors in order to determine traffic flow patterns and the types of
vehicles on roadways for traffic planning. Peek manufactures and markets
traffic signals with advanced optical designs for both vehicle
intersections and pedestrian crossways. Controllers are electronic
devices that automatically control the timing of signals to optimize the
flow of traffic and coordinate pedestrian crossings in order to improve
safety. Peek has also developed the Peek Guardian(TM) camera for law
enforcement agencies. This product uses cameras to detect and record
motor vehicle violations such as speeding and red light violations.
Prices for Peek's hardware products range from approximately $60 for a
simple loop detector to approximately $20,000 for a large Videotrak video
camera. In addition, Peek supplies variable message signs, which display
messages advising drivers of roadway hazards. The price for a large
message sign can be more than $60,000.
Traffic Systems. Peek produces three types of traffic systems: urban
traffic control, motorway management, and public transport management.
Urban Traffic Control (UTC). Peek offers two types of UTC systems:
real-time adaptive control systems and traffic responsive systems.
- Real-time Adaptive Control Systems. These systems measure flow of
traffic and use the collected information to optimize the timing
of traffic signals to achieve maximum traffic capacity across a
city. Peek's SCOOT system runs algorithms on a central computer
and communicates traffic signal timing to controllers to optimize
traffic flow. Prices for a SCOOT system vary greatly depending on
the size, complexity, and scope of the project, and can range from
$150,000 to $25 million. Peek's SPOT system uses a distributed
approach to optimize traffic flow, whereby signal timing is
calculated by an individual controller using data from that
controller and nearby controllers. Prices for relatively simple
SPOT systems typically range from $50,000 to $150,000.
- Traffic Responsive Systems. These systems analyze current traffic
information provided by detectors and then select appropriate
signal timing for intersections from a set of patterns that have
been generated off-line. The Multi-Arterial Traffic System (MATS)
is sold predominantly in the United States. The Electronic Traffic
Control system (ETC), which is installed predominantly in
Scandinavia, caters to asymmetrical town plans. Prices for traffic
responsive systems generally range from $30,000 to $1.6 million
depending on the scope and complexity of the project.
Motorway Management. These systems identify when congestion,
accidents, or other traffic disruptions occur using detectors, and
generate information for message signs which can be used to broadcast
messages imposing speed restrictions or advising travelers of lane
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closures and hazards. Peek provides systems that have direct control over
message signs, predominantly in The Netherlands. Peek also offers systems
in the United Kingdom that provide central control over message signs and
are controlled by an operator. The third type of motorway management
system is a low-cost PC-based system, which directly controls message
signs and is sold predominantly in developing markets. Prices for
Motorway Management Systems typically range from $500,000 to $8 million
depending on the scope and the complexity of the project.
Public Transport. Peek provides a range of public transport systems,
including intersection priority systems, passenger information systems,
fleet management systems, and bus terminal systems. Intersection priority
systems use electronic tags on buses, which communicate with intersection
controllers to ensure that buses are not delayed. The level of priority
can be adjusted based on occupancy levels and adherence to schedules.
Passenger information systems track the position of buses along a route
in order to provide anticipated arrival times to passengers waiting at
stops. Fleet management systems use electronic tags on buses to monitor
the adherence to bus schedules and occupancy levels of buses in order to
monitor the operating performance of the fleet, set vehicle maintenance
schedules, and optimize the size of the fleet to achieve a desired level
of service. Peek also designs and supplies electronic systems to bus
terminals to provide information to waiting passengers and to allow the
size of the terminals to be minimized. Prices for public transport
systems vary greatly depending on the scope and complexity of the project
and can range from $5,000 for a simple intersection priority system to
several million dollars for an integrated public transportation solution
for a city.
Approximately 90 percent of Peek's revenues in calendar 1996,
excluding revenues from businesses sold in 1996 and 1997, were from sales
of traffic products.
Field Measurement Products. Peek offers a series of field data
products, including density meters, which measure the density of liquids
and gases; flow meters, which are attached either to the inside or the
outside of pipes to measure liquid or gas flow rates; current to pressure
transducers, which are used in process control systems to convert
electrical signals to pressure levels for direct control of valves; and
alarm monitors, which are used in power stations to monitor turbine
engines so that they do not overheat. Prices for Peek's field measurement
products typically range from $400 to $10,000. In calendar 1996,
approximately 10 percent of Peek's revenues, excluding revenues from
businesses sold in 1996 and 1997, were from sales of field measurement
products.
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
primarily in the food-processing, petrochemical, pharmaceutical, and
liquefied-gas storage industries. FES supplies complete industrial
refrigeration systems and various components for these systems.
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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, plate and frame heat
exchangers, and ASME (American Society of Mechanical Engineers) pressure
vessels. The 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 manufactures screw-compressor packages powered by the Company's
natural gas TecoDrive(R) engines. 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; and controlling process
temperatures in brewing and wine-making, and in 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 custom-designed industrial refrigeration packages to
petrochemical, pharmaceutical, and related industries for integration
into their plants' refrigeration systems. These higher-cost 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.
Approximately 83% of FES sales are of industrial refrigeration
packages, of which 63% are standard units for the food and beverage
industry, and approximately 37% 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 $400,000,
although prices for these units often exceed $1 million. FES
refrigeration packages can be designed for use with any common
refrigerant, but the majority 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 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.
The Company's NuTemp subsidiary is a supplier of both remanufactured
and new industrial refrigeration equipment for sale or rental. NuTemp
serves numerous markets with its industrial refrigeration equipment,
including the food-processing, petrochemical, and pharmaceutical
industries. 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.
The demand for NuTemp's equipment is typically highest in the summer
period and can be adversely affected by cool summer weather.
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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. Its commercial
cooling equipment is used primarily in institutions and commercial
buildings, as well as by service contractors.
Revenues from industrial refrigeration packages were $65,205,000,
$66,565,000, and $55,193,000 in fiscal 1997, 1996, and 1995,
respectively.
Engines
Marine Engines. The Company's Crusader Engines division manufactures,
markets, and services inboard marine engines and accessories both to OEM
(original equipment manufacturer) boat companies and to a network of
distributors who support dealers servicing Crusader's products in the
field. Crusader's key customers are OEM manufacturers of the "cruiser"
class boats and yachts, generally ranging in size from 25 to 45 feet in
length. The purchase price of boats containing Crusader engines typically
is in the $50,000 to $250,000 range. In fiscal 1997, sales to Crusader's
top two customers accounted for approximately 44% of Crusader's marine
engine sales.
Revenues from marine engines were $17,007,000, $18,659,000, and
$21,536,000 in fiscal 1997, 1996, and 1995, respectively.
TecoDrive Gasoline and Natural Gas Engines for Vehicles. The
Company's extensive development work on gasoline and 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. The CNG engines feature substantially lower
emissions than other commercially available gasoline or natural gas
engines.
TecoDrive Natural Gas Engines for Industrial Applications. The
Company manufactures natural gas engines for stationary and industrial
applications. As a result of the positive response the Company has
received from its customers in the industrial 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.
Propane and Gasoline Engines for Lift Trucks. The Company
manufactures 3.0-, 4.3-, 5.7-, and 7.4-liter propane and gasoline engines
for installation into lift trucks. The Company sells lift truck engines
to material handling equipment manufacturers and other lift-truck
manufacturers.
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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.
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 design 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 is currently offering additional
gas-fueled air conditioning equipment 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.
Sponsored Research and Development. The Company conducts research and
development supported by outside sponsors. Revenues from sponsored
research and development contracts were $4,688,000, $5,836,000, and
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$4,917,000 in fiscal 1997, 1996, and 1995, 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.
Traffic Products
Demand for the Company's traffic products in the U.S. may be
influenced by the Intermodal Surface Transportation Efficiency Act
(ISTEA), which provides significant funding in the U.S. for intermodal
surface transportation and advanced traffic management systems. The ISTEA
has been extended through March 31, 1998. The failure of ISTEA to be
further extended or reauthorized could adversely effect the Company's
business.
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. Many states have some type of alternative-fuel
vehicles commission, legislation, or tax incentives.
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
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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
The Company acquired Peek in November 1997. Peek's principal products
are described above under "Description of Business--Principal Products
and Services."
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 introduced a line of propane-powered accent lights to
the marketplace through the L.L. Bean store in Freeport, Maine. The
accent light 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. The Company is in the process of developing
trade channels through which the Company will sell its accent lights,
such as through home shopping - both through catalogs and television,
partnerships with other major retailers, and selling over the Internet.
(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
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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 is typically highest in the
summer period and can be adversely affected by cool summer weather. There
are no significant seasonal influences in the Company's other lines of
business.
(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 1997. In fiscal 1997, revenues from two customers
accounted for 13% and 12% 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 Company's Peek subsidiary was
approximately $80.2 million as of October 31, 1997. The backlog of firm
orders for the Industrial Refrigeration Systems segment was $15.7 million
as of September 27, 1997, compared with $22.2 million as of September 28,
1996. The backlog of firm orders for the Engines segment was $1.7 million
as of September 27, 1997, compared with $1.0 million as of September 28,
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1996. The backlog of firm orders for the Cooling and Cogeneration Systems
segment was $2.5 million as of September 27, 1997, compared with $4.0
million as of September 28, 1996. The decrease in backlog for the
Industrial Refrigeration Systems segment was primarily due to two large
orders at fiscal year-end 1996. A significant portion of the Company's
sales within the Industrial Refrigeration and Engines segments are large
orders, the timing of which can lead to variability in the Company's
quarterly revenues and net income.
The Company believes that the majority of this backlog will be
shipped during fiscal 1998. 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
Certain of the Company's contracts or subcontracts, in particular
those of the Company's recently acquired Peek subsidiary, are with
governmental entities and are subject to renegotiation of profits or
termination. There are, however, no pending or, to the Company's
knowledge, threatened renegotiations or terminations that are material to
the Company.
(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.
Traffic Products
The market for traffic products and services is extremely
competitive, and the Company expects that competition will continue to
increase. The Company believes that the principal competitive factors in
the traffic industry are price, functionality, reliability, service and
support, and vendor and product reputation. The Company believes that its
ability to compete successfully will depend on a number of factors both
within and outside its control, including the pricing policies of its
competitors and suppliers, the timing and quality of products introduced
by the Company and others, the Company's ability to maintain a strong
reputation in the traffic industry, and industry and general economic
trends. The Company believes that it is a leading manufacturer and
supplier of traffic products and considers its major competitor to be
Siemens AG. However, the traffic market is highly fragmented and
competition varies significantly depending on the individual product. The
Company's competitors in the field measurement market include Air Monitor
Corporation, Milltronics Limited, Panametrics, Inc., and Solartron
Limited, a subsidiary of The Roxboro Group PLC.
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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 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). 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.
The Company believes NuTemp is a 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
Salvesen PLC. 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 and yachts in the United
States, 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.
13PAGE
<PAGE>
In 1995, York entered the gas-engine cooling market, in partnership
with Caterpillar Inc., and is a major competitor in large-capacity (+400
tons) cooling equipment. However, the Company's most competitive range is
in smaller-capacity equipment.
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 has experienced a decrease in sponsored research and
development due to a reduction in funding. See "Description of Business
-- Principle Products and Services -- Cooling and Cogeneration Systems."
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 state governments and industrial
companies. Sponsors of the Company's research and development generally
own the rights to technology that is developed under these programs.
During fiscal 1997, 1996, and 1995, the Company spent $2,296,000,
$3,214,000, and $3,065,000, respectively, on internally funded research
and development, and $3,776,000, $4,475,000, and $3,548,000,
respectively, on research and development sponsored by others.
In addition, in calendar 1996, Peek continued development of
Videotrak video camera and commenced development of Peek Guardian camera
and a motorway outstation to meet new Dutch specifications. Peek also
continued to develop and enhance other traffic and field measurement
products. In calendar 1996, Peek spent approximately $11.1 million on
14PAGE
<PAGE>
internally funded research and development, excluding research and
development from businesses sold in 1996 and 1997.
(xii) Environmental Protection Regulations
The Company believes that compliance 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 27, 1997, the Company employed approximately 486
people. Approximately 36 employees at the Company's Crusader division are
represented by a labor union under a three-year collective bargaining
agreement which expired on October 15, 1997, and has been extended for
one year. The Company has experienced no work stoppages, and considers
its relations with employees to be good.
In addition, the Company's Peek subsidiary employed 1,486 employees
as of September 27, 1997. Of these employees, 382 were located in The
Netherlands, Denmark, Finland, and Sweden, and, in accordance with
applicable law, were represented by a labor union. Peek has experienced
no work stoppages and believes that its relations with its employees are
good.
(d) Financial Information about Exports by Domestic Operations
Financial information about exports by domestic operations is
summarized in Note 11 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders, which information
is incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First Became Executive
Name Age Officer)
----------------------------------------------------------------------
J. Timothy Corcoran 51 President and Chief Executive Officer (1992)
John N. Hatsopoulos 63 Chief Financial Officer and Vice
President (1988)
Paul F. Kelleher 55 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. 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 Messrs. Hatsopoulos
and Kelleher are full-time employees of Thermo Electron, but devote such
time to the affairs of the Company as the Company's needs reasonably
require.
15PAGE
<PAGE>
Item 2. Properties
The location and general character of the Company's principal
properties by industry segment as of September 27, 1997, 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 2002.
In addition, the Company leases approximately 8,000 square feet of office
and manufacturing space in Salisbury, Maryland, under a lease agreement
with an unrelated party expiring in 1999.
In addition, the location and general character of the principal
properties of the Company's Peek subsidiary, which was acquired in
November 1997, are as follows:
Peek owns an office and manufacturing facility of approximately
37,846 square feet in Winchester, Hampshire, in the United Kingdom. Peek
also occupies approximately 78,585 square feet of office and
manufacturing space in Hilversum, The Netherlands, pursuant to a lease
agreement expiring in 1998. Peek intends to relocate its Hilversum
operations to Amersfoort, The Netherlands, in 1998 and is currently
negotiating a lease. Peek leases approximately 32,500 square feet of
office and manufacturing space in Tallahassee, Florida, pursuant to a
lease agreement expiring in 2004, and approximately 28,800 square feet of
office and manufacturing space in Houston, Texas, pursuant to a lease
agreement expiring in 2000. In addition, Peek owns approximately 96,300
additional square feet of manufacturing and office space worldwide and
leases approximately 261,200 additional square feet of manufacturing and
office space worldwide pursuant to lease arrangements that expire between
1998 and 2020.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
16PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.10 par value, and related matters, is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1997 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 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's Fiscal 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of September
27, 1997, and Supplementary Data are included in the Registrant's Fiscal
1997 Annual Report to Shareholders and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
17PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
18PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a, d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2)The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
19PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: December 4, 1997 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 4, 1997.
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:Arvin H. Smith Chairman of the Board and Director
---------------------------
Arvin H. Smith
By:Marshall J. Armstrong Director
---------------------------
Marshall J. Armstrong
By:Peter O. Crisp Director
---------------------------
Peter O. Crisp
By:Donald E. Noble Director
---------------------------
Donald E. Noble
20PAGE
<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 October 31, 1997
(except with respect to the matter discussed in Note 13 as to which the
date is November 19, 1997). Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule
listed in Item 14 on page 19 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
October 31, 1997
21PAGE
<PAGE>
SCHEDULE II
THERMO POWER CORPORATION
Valuation and Qualifying Accounts
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Accounts Written at End
Description of Year Expense Recovered Off of Year
---------------------------------------------------------------------------
Allowance for Doubtful
Accounts
Year Ended
September 27, 1997 $ 589 $ 252 $ 3 $ (87) $ 757
Year Ended
September 28, 1996 $ 530 $ 191 $ 26 $ (158) $ 589
Year Ended
September 30, 1995 $ 590 $ 3 $ 16 $ (79) $ 530
22PAGE
<PAGE>
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 $160,000,000 Promissory Note dated as of November 17, 1997,
issued by the Registrant to Thermo Electron (filed as Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated
November 6, 1997 [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).
23PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.7 Master Repurchase Agreement dated January 1, 1994, between the
Registrant and Thermo Electron Corporation.
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.)
24PAGE
<PAGE>
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, for services rendered to the Registrant or such
affiliated corporations. Thermo Electron's plans were filed as
Exhibits 10.21 through 10.45 to the Annual Report on Form 10-K
of Thermo Electron for the year ended December 28, 1996 [File
No. 1-8002] and are incorporated herein by reference.
10.20 Amended and Restated Stock Holding Assistance Plan and Form of
Promissory Note.
25PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
13 Annual Report to Shareholders for the fiscal year ended
September 27, 1997 (only those portions incorporated herein by
reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Scehdule.
EXHIBIT 10.7
MASTER REPURCHASE AGREEMENT
AGREEMENT dated as of the 1st day of January, 1994 between
Thermo Electron Corporation, a Delaware corporation ("Seller"),
and Thermo Power Corporation, a Massachusetts corporation (the
"Buyer").
1. Applicability
From time to time Buyer and Seller may enter into
transactions in which Seller agrees to transfer to Buyer certain
securities and/or financial instruments ("Securities") against
the transfer of funds by Buyer, with a simultaneous agreement by
Buyer to transfer to Seller such Securities on demand, against
the transfer of funds by Seller. Each such transaction shall be
referred to herein as a "Transaction" and shall be governed by
this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i)
the commencement by such party as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar
official for such party or any substantial part of its property;
or (ii) the commencement of any such case or proceeding against
such party, or another seeking such an appointment, which (A) is
consented to or not timely contested by such party, (B) results
in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not
dismissed within 15 days; or (iii) the making by a party of a
general assignment for the benefit of creditors; or (iv) the
admission in writing by a party of such party's inability to pay
such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or
other distributions thereon;
(d) "Market Value", with respect to any Securities as of
any date, the price for such Securities on such date obtained
from a generally recognized source agreed to by the parties or
the most recent closing bid quotation from such a source, plus
accrued Income to the extent not included therein (other than any
Income transferred to Seller pursuant to Paragraph 6 hereof) as
of such date (unless contrary to market practice for such
Securities);
PAGE
<PAGE>
(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this
Agreement;
(f) "Pricing Rate", a rate equal to the Commercial Paper
Composite rate for 90-day maturities provided by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (or, if such rate is not
available, a substantially equivalent rate agreed to by Buyer and
Seller) plus 25 basis points, which rate shall be adjusted on
the first business day of each fiscal quarter and shall be in
effect for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased
Securities are transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by
Seller to Buyer in a Transaction hereunder, and any Securities
substituted therefor in accordance with Paragraph 9 hereof. The
term "Purchased Securities" with respect to any Transaction at
any time also shall include Additional Purchase Securities
transferred pursuant to Paragraph 4(a) and shall exclude
Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account
maintained by Seller containing, among other Securities, the
Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an
amount equal to the Purchase Price paid by Buyer to Seller for
such Purchased Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the
transfer of the Purchase Price to Seller's account. Upon such
transfer, Seller shall transfer to Buyer Purchased Securities
having a Market Value equal to 103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer
by Seller in the Repurchase Collateral Account. Seller shall
indicate on its books for such account Buyer's ownership of the
Purchased Securities. Upon reasonable request from Buyer, Seller
shall provide Buyer with a complete list of Purchased Securities
owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase
from Buyer, and Buyer shall sell to Seller, for the Repurchase
Price all or any part of the Purchased Securities then owned by
Buyer.
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4. Margin Maintenance
(a) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer is less than 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller shall transfer to Buyer additional Securities ("Additional
Purchased Securities"), so that the aggregate Market Value of
such Purchased Securities, including any such Additional
Purchased Securities, will thereupon equal or exceed 103% of
such aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer exceeds 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller may transfer Purchased Securities to Seller, so that the
aggregate Market Value of such Purchased Securities will
thereupon not exceed 103% of such aggregate Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities,
then on the first day of the next following fiscal month Seller
shall pay to Buyer an amount equal to the sum of the aggregate
Repurchase Prices of the Purchased Securities owned by Buyer at
the close of each day during the preceding fiscal month divided
by the number of days in such month and the product multiplied by
the Pricing Rate times the number of days in such month divided
by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income
payment date on the Purchased Securities subject to that
Transaction, Buyer shall, on the date such Income is payable,
transfer to Seller an amount equal to such Income payment or
payments with respect to any Purchased Securities subject to such
Transaction. Seller shall retain all voting rights with respect
to Purchased Securities sold to Buyer under this Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such
Transactions are deemed to be loans, Seller shall be deemed to
have pledged to Buyer as security for the performance by Seller
of its obligations under each such Transaction and this
Agreement, and shall be deemed to have granted to Buyer a
security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
3PAGE
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8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds
hereunder shall be in immediately available funds. As used
herein with respect to Securities, "transfer" is intended to have
the same meaning as when used in Section 8-313 of the
Massachusetts Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
9. Substitution
Buyer hereby grants Seller the authority to manage, in
Seller's sole discretion, the Purchased Securities held in
custody for Buyer by Seller in the Repurchase Collateral Account.
Buyer expressly agrees that Seller may (i) substitute other
Securities for any Purchased Securities and (ii) commingle
Purchased Securities with other Securities held in the Repurchase
Collateral Account. Substitutions shall be made by transfer to
Buyer of such other Securities and transfer to Seller of the
Purchased Securities for which substitution is being made. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities. Securities which are substituted for
Purchased Securities shall have a Market Value at the time of
substitution equal to or greater than the Market Value of the
Purchase Securities for which such Securities were substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the
other that (i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder
and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and
performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so on its behalf, (iii) it has obtained
all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and
such authorizations are in full force and effect and (iv) the
execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by
which it is bound or by which any of its assets are affected. On
the date for any Transaction Buyer and Seller shall each be
deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer
fails to transfer Purchased Securities upon demand for repurchase
from either Buyer or Seller, (ii) Seller or Buyer fails, after
one business day's notice, to comply with Paragraph 4 hereof,
(iii) Buyer fails to make payment to Seller pursuant to
Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5
hereof, (v) an Act of Insolvency occurs with respect to Seller
4PAGE
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or Buyer, (vi) any representation made by Seller or Buyer shall
have been incorrect or untrue in any material respect when made
or repeated or deemed to have been made or repeated, or (vii)
Seller or Buyer shall admit to the other its inability to, or its
intention not to, perform any of its obligations hereunder (each
an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by
written notice to the defaulting party (which option shall be
deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of any Act of Insolvency), Seller
shall become obligated to repurchase, and Buyer shall become
obligated to sell, all Purchased Securities then owned by Buyer
for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises
or is deemed to have exercised the option referred to in
subparagraph (a) of this Paragraph, (i) the Seller's obligations
hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable,
(ii) all Income paid after such exercise or deemed exercise shall
be retained by Buyer and applied to the aggregate unpaid
Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to
such Transactions then in Seller's possession.
(c) In all Transactions in which Buyer is the defaulting
party, upon tender by Seller of payment of the aggregate
Repurchase Prices for all such Transactions, Buyer's right, title
and interest in all Purchased Securities subject to such
Transactions shall be deemed transferred to Seller, and Buyer
shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party
(which notice need not be given if an Act of Insolvency shall
have occurred, and which may be the notice given under
subparagraph (a) of this Paragraph or the notice referred to in
clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which Seller is the
defaulting party, (A) immediately sell, in a recognized market at
such price or prices as Buyer may reasonably deem satisfactory,
any or all Purchased Securities subject to such Transactions and
apply the proceeds thereof to the aggregate unpaid Repurchase
Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of
such Purchased Securities, to give Seller credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder; and
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(ii) as to Transactions in which Buyer is the
defaulting party, (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased
Securities that are not delivered by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which Buyer is the defaulting
party , Buyer shall be liable to Seller (i) with respect to
Purchased Securities (other than Additional Purchased
Securities), for any excess of the price paid (or deemed paid) by
Seller for Replacement Securities therefor over the Repurchase
Price for such Purchased Securities and (ii) with respect to
Additional Purchased Securities, for the price paid (or deemed
paid) by Seller for the Replacement Securities therefor.
(f) The defaulting party shall be liable to the
nondefaulting party for the amount of all reasonable legal or
other expenses incurred by the nondefaulting party in connection
with or as a consequence of an Event of Default.
(g) The nondefaulting party shall have, in addition to its
rights hereunder, any rights otherwise available to it under any
other agreement or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto
and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder
constitute a single business and contractual relationship and
have been made in consideration of each other. Accordingly, each
of Buyer and Seller agrees (i) to perform all of its obligations
in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that
each of them shall be entitled to set off claims and apply
property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers
made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries
and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other
and netted.
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13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for
repurchase transactions. Each provision and agreement and
agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such
other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this
Agreement and under any Transactions shall not be assigned by
either party without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. This
Agreement may be canceled by either party upon giving written
notice to the other, except that this Agreement shall,
notwithstanding such notice, remain applicable to any
Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without giving effect to the
conflict of law principles thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by
either party shall constitute a waiver of any other Event of
Default and no exercise of any remedy hereunder by any party
shall constitute a wavier of its right to exercise any other
remedy hereunder. No modification or waiver of any provision of
this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
19. Intent
(a) The parties recognize that each Transaction is a
"repurchase agreement" as that term is defined in Section 101 of
Title 11 of the United States Code, as amended (except insofar as
the type of Securities subject to such Transaction or the term of
such Transaction would render such definition inapplicable), and
a "securities contract" as that term is defined in Section 741 of
Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions
hereunder or to exercise any other remedies pursuant to Paragraph
11 hereof, is a contractual right to liquidate such Transaction
7PAGE
<PAGE>
as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THERMO ELECTRON CORPORATION THERMO POWER CORPORATION
By: /s/ Melissa F. Riordan By: /s/ J. Timothy Corcoran
Melissa F. Riordan J. Timothy Corcoran
Treasurer President
EXHIBIT 10.20
THERMO POWER CORPORATION
RESTATED STOCK HOLDING ASSISTANCE PLAN
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
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
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<PAGE>
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 in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
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absolute discretion, authorize such other maturity and repayment
schedule as the Committee may determine. Each Loan shall also
become immediately due and payable in full, without demand, upon
the occurrence of any of the events set forth in the Note;
provided that the Committee may, in its sole and absolute
discretion, authorize an extension of the time for repayment of a
Loan upon such terms and conditions as the Committee may
determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
3PAGE
<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 to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), beginning with the first such bonus payment to
occur after the date of this Note and on each of the next four
bonus payment dates occurring prior to the Maturity Date, such
amount as may be designated by the Company but which shall not
exceed 20% of the Employee's bonus payment. 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;
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(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 1997
PAGE
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Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Income
Year Ended
------------------------------------
(In thousands except Sept. 27, Sept. 28, Sept. 30,
per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Note 12) $121,046 $120,736 $103,255
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 99,154 100,379 79,823
Selling, general, and
administrative expenses (Note 6) 16,926 16,739 15,886
Research and development expenses 2,296 3,214 3,065
-------- -------- --------
118,376 120,332 98,774
-------- -------- --------
Operating Income 2,670 404 4,481
Interest Income 1,829 1,714 1,919
Interest Expense (18) (26) (23)
Gain on Sale of Investments, Net
(includes $53, $469, and $768 on
sale of related-party investments;
Notes 2 and 6) 53 208 730
-------- -------- --------
Income Before Income Taxes
and Minority Interest 4,534 2,300 7,107
Provision for Income Taxes (Note 5) 2,118 1,103 2,737
Minority Interest Expense 312 312 182
-------- -------- --------
Net Income $ 2,104 $ 885 $ 4,188
======== ======== ========
Earnings per Share $ .17 $ .07 $ .34
======== ======== ========
Weighted Average Shares 12,212 12,466 12,372
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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Thermo Power Corporation 1997 Financial Statements
Consolidated Balance Sheet
Sept. 27, Sept. 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 19,347 $ 29,852
Available-for-sale investments, at quoted
market value (amortized cost of $9,129 and
$6,022; Notes 2 and 6) 9,171 6,028
Accounts receivable, less allowances of $757
and $589 21,012 18,054
Unbilled contract costs and fees 4,856 7,110
Inventories 19,884 18,637
Prepaid income taxes (Note 5) 3,118 2,921
Other current assets 219 324
-------- --------
77,607 82,926
-------- --------
Rental Assets, at Cost, Net 10,276 9,980
-------- --------
Property, Plant, and Equipment, at Cost, Net 10,591 9,767
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost of
$2,301 and $210; Notes 2, 6, and 13) 2,200 184
-------- --------
Other Assets 236 345
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,082 7,509
-------- --------
$107,992 $110,711
======== ========
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Thermo Power Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
Sept. 27, Sept. 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 9,622 $ 14,005
Accrued payroll and employee benefits 3,133 2,832
Billings in excess of contract costs and fees 1,353 1,017
Accrued warranty costs 3,435 2,323
Accrued income taxes 1,620 713
Other accrued expenses 3,240 3,806
Due to parent company and affiliated companies 496 511
-------- --------
22,899 25,207
-------- --------
Deferred Income Taxes (Note 5) 114 84
-------- --------
Long-term Obligations (Notes 9 and 10) 252 305
-------- --------
Commitments (Notes 6 and 7)
Common Stock of Subsidiary Subject to Redemption
($18,450 redemption value) 18,059 17,747
-------- --------
Shareholders' Investment (Notes 4 and 8):
Common stock, $.10 par value, 30,000,000
shares authorized; 12,493,371 and 12,487,149
shares issued 1,249 1,249
Capital in excess of par value 55,283 54,448
Retained earnings 13,811 11,707
Treasury stock at cost, 578,124 and 2,724
shares (3,636) (23)
Net unrealized loss on available-for-sale
investments (Note 2) (39) (13)
-------- --------
66,668 67,368
-------- --------
$107,992 $110,711
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
-----------------------------------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities
Net income $ 2,104 $ 885 $ 4,188
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization 3,156 3,033 2,082
Provision for losses on
accounts receivable 252 191 3
Minority interest expense 312 312 182
Gain on sale of investments,
net (Notes 2 and 6) (53) (208) (730)
Deferred income tax expense
(benefit) (403) 372 62
Other noncash items 3 - (191)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (3,210) 216 (4,568)
Inventories (1,247) 1,769 (7,889)
Unbilled contract costs
and fees 2,254 (766) (992)
Other current assets 105 428 (786)
Accounts payable (4,383) 740 3,333
Other current liabilities 3,318 238 196
-------- -------- --------
Net cash provided by (used in)
operating activities 2,208 7,210 (5,110)
-------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) - (860) (2,500)
Purchases of available-for-sale
investments (11,301) (5,000) (365)
Proceeds from sale and maturities
of available-for-sale investments 6,000 8,982 9,074
Proceeds from sale of related-party
investments (Note 6) 262 852 1,599
Increase in rental assets (3,191) (4,849) (3,865)
Proceeds from sale of rental
assets 1,522 2,268 1,017
Purchases of property, plant,
and equipment (2,431) (2,713) (2,101)
Other 21 140 273
-------- -------- --------
Net cash provided by (used in)
investing activities $ (9,118) $ (1,180) $ 3,132
-------- -------- --------
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Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
------------------------------------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
Company and subsidiary common
stock $ 71 $ 377 $ 18,064
Repurchases of Company common
stock (3,613) - -
Repayment of long-term obligations (53) (59) (56)
-------- -------- --------
Net cash provided by (used in)
financing activities (3,595) 318 18,008
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (10,505) 6,348 16,030
Cash and Cash Equivalents at
Beginning of the Year 29,852 23,504 7,474
-------- -------- --------
Cash and Cash Equivalents at End
of Year $ 19,347 $ 29,852 $ 23,504
======== ======== ========
Cash Paid for:
Interest $ 18 $ 26 $ 23
Income taxes $ 445 $ 894 $ 2,796
Noncash Investing Activities:
Fair value of assets of acquired
companies $ - $ 860 $ 2,500
Cash paid for acquired companies - (860) (2,500)
-------- -------- --------
Liabilities assumed of
acquired companies $ - $ - $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 1,249 $ 1,248 $ 1,243
Issuance of stock under employees'
and directors' stock plans - 1 5
------- ------- -------
Balance at end of year 1,249 1,249 1,248
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 54,448 53,898 53,211
Issuance of stock under employees'
and directors' stock plans 71 58 534
Tax benefit related to employees'
and directors' stock plans
(Note 5) 764 492 153
------- ------- -------
Balance at end of year 55,283 54,448 53,898
------- ------- -------
Retained Earnings
Balance at beginning of year 11,707 10,822 6,634
Net income 2,104 885 4,188
------- ------- -------
Balance at end of year 13,811 11,707 10,822
------- ------- -------
Treasury Stock
Balance at beginning of year (23) (341) (613)
Purchases of Company common stock (3,613) - -
Issuance of stock under employees'
and directors' stock plans - 318 272
------- ------- -------
Balance at end of year (3,636) (23) (341)
------- ------- -------
Net Unrealized Loss on Available-for-
sale Investments
Balance at beginning of year (13) 198 -
Effect of change in accounting
principle (Note 2) - - 268
Change in net unrealized loss on
available-for-sale investments
(Note 2) (26) (211) (70)
------- ------- -------
Balance at end of year (39) (13) 198
------- ------- -------
Total Shareholders' Investment $66,668 $67,368 $65,825
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
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Thermo Power Corporation 1997 Financial Statements
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 is developing and commercializing
various gas-powered lighting products.
Relationship with Thermo Electron Corporation
The Company was incorporated on June 6, 1985, as a wholly owned
subsidiary of Thermo Electron Corporation. As of September 27, 1997,
Thermo Electron owned 8,127,906 shares of the Company's common stock,
representing 68% 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. 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 1997, 1996, and 1995 are for the
fiscal years ended September 27, 1997, September 28, 1996, and September
30, 1995, 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 $60,590,000 in fiscal 1997, $57,842,000 in fiscal 1996,
and $53,045,000 in fiscal 1995. 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, and amounts billed in
excess of revenues are classified as billings in excess of contract costs
and fees in the accompanying balance sheet. There are no significant
amounts included in the accompanying balance sheet that are not expected
8PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 government agencies. Revenues in the
accompanying statement of income include $4,688,000, $5,836,000, and
$4,917,000 and cost of revenues include $3,776,000, $4,475,000, and
$3,548,000 related to these arrangements in fiscal 1997, 1996, and 1995,
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 $65,000, $71,000, and $51,000 in fiscal 1997, 1996, and
1995, respectively.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans
(Note 4). Accordingly, no accounting recognition is given to stock
options granted at fair market value until they are exercised. Upon
exercise, net proceeds, including tax benefits realized, are credited to
equity.
Income Taxes
In accordance with 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 27, 1997, $17,994,000 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
9PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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.
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).
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
------------------------------------------------------------------------
Raw materials and supplies $17,570 $16,233
Work in process and finished goods 2,314 2,404
------- -------
$19,884 $18,637
======= =======
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 on rental assets over an estimated useful life
of seven years. Accumulated depreciation was $3,369,000 and $2,378,000 at
fiscal year-end 1997 and 1996, 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 consists of the following:
(In thousands) 1997 1996
------------------------------------------------------------------------
Land $ 252 $ 252
Buildings 5,731 5,558
Machinery, equipment, and leasehold improvements 13,654 11,770
------- -------
19,637 17,580
Less: Accumulated depreciation and amortization 9,046 7,813
------- -------
$10,591 $ 9,767
======= =======
10PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
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 $710,000 and $512,000 at fiscal year-end
1997 and 1996, respectively. The Company assesses the future useful life
of this asset whenever events or changes in circumstances indicate that
the current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of
carrying value over fair value is recorded as a loss.
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
various 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 1996 and 1995 have been reclassified to
conform to the presentation in the fiscal 1997 financial statements.
2. Available-for-sale Investments
The Company's debt and marketable equity securities are considered
available-for-sale investments in the accompanying balance sheet and are
carried at market value, with the difference between cost and market
value, net of related tax effects, recorded currently as a component of
11PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
shareholders' investment titled "Net unrealized 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 are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
------------------------------------------------------------------------
1997
Government-agency securities $ 5,008 $ 4,982 $ 26 $ -
Corporate bonds 4,068 4,052 16 -
Other 2,295 2,396 - (101)
------- ------- ------- -------
$11,371 $11,430 $ 42 $ (101)
======= ======= ======= =======
1996
Government-agency securities $ 5,992 $ 5,986 $ 6 $ -
Other 220 246 - (26)
------- ------- ------- -------
$ 6,212 $ 6,232 $ 6 $ (26)
======= ======= ======= =======
Short- and long-term available-for-sale investments in the
accompanying fiscal 1997 balance sheet include equity securities of
$2,200,000 and debt securities of $9,171,000 with contractual maturities
of more than one year through five years. Actual maturities may differ
from contractual maturities as a result of the Company's intent to sell
these securities prior to maturity and as a result of put and call
options that enable either the Company, the issuer, or both, to redeem
these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification in determining realized gains and losses
recorded in the accompanying statement of income. Gain on sale of
investments, net, in the accompanying fiscal 1997 statement of income
resulted from gross realized gains relating to the sale of available-for-
sale investments. Gain on sale of investments, net, in the accompanying
fiscal 1996 and 1995 statement of income resulted from gross realized
gains of $469,000 and 768,000, respectively, and gross realized losses of
$18,000 and $38,000, respectively, relating to the sale of
available-for-sale investments, and a write-down of other investments of
$243,000 in fiscal 1996.
12PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions
In the first quarter of fiscal 1996, the Company acquired the
thermoelectric cooling module business of ThermoTrex Corporation 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. 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. The
additional payment was recorded as an increase in cost in excess of net
assets of acquired companies, which is being amortized over 40 years.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. The Company's equity incentive plan 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 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 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
13PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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.
A summary of the Company's stock option information is as follows:
1997 1996 1995
----------------- ---------------- ---------------
Range of
Weighted Weighted Option
Number Average Number Average Number Prices
(Shares in of Exercise of Exercise of per
thousands) Shares Price Shares Price Shares Share
-----------------------------------------------------------------------
Options outstanding, $ 4.20-
beginning of year 1,342 $ 9.35 1,406 $ 9.24 1,259 $10.15
8.95-
Granted 68 8.07 12 13.07 296 17.53
4.20-
Exercised (1) 5.45 (40) 6.76 (111) 9.58
7.45-
Forfeited (126) 9.03 (36) 8.98 (38) 9.58
----- ----- -----
Options outstanding, $ 4.20-
end of year 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53
===== ====== ===== ====== ===== ======
Options $ 4.20-
exercisable 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53
===== ====== ===== ====== ===== ======
Options available
for grant 49 75 97
===== ===== =====
Weighted average
fair value per
share of options
granted during
year $ 3.45 $ 4.83
====== ======
14PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at September
27, 1997, is as follows:
Options Outstanding and Exercisable
-------------------------------------------
Number Weighted Average
of Remaining Weighted Average
Range of Exercise Prices Shares Contractual Life Exercise Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 6.40 - $ 9.18 1,068 6.8 years $ 8.86
9.19 - 11.96 157 2.2 years 9.62
11.97 - 14.75 8 3.8 years 13.65
14.76 - 17.53 50 0.8 years 17.53
-----
$ 6.40 - $17.53 1,283 6.0 years $ 9.32
=====
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase program sponsored by the
Company and Thermo Electron. Under this program, shares of the Company's
and Thermo Electron's common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased 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 period, and the shares purchased were subject to a one year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During fiscal 1997, 1996,
and 1995, the Company issued 4,622 shares, 18,012 shares, and 25,859
shares, respectively, of its common stock under this program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Net income:
As reported $2,104 $ 885
Pro forma 1,883 708
Earnings per share:
As reported .17 .07
Pro forma .15 .06
15PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1997 1996
-----------------------------------------------------------------------
Volatility 43% 43%
Risk-free interest rate 6.0% 5.7%
Expected life of options 4.2 years 3.3 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plan 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 $666,000, $674,000, and
$653,000 in fiscal 1997, 1996, and 1995, 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.
16PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $2,067 $ 599 $2,150
State 454 132 525
------ ------ ------
2,521 731 2,675
------ ------ ------
Deferred (prepaid), net:
Federal (316) 305 54
State (87) 67 8
------ ------ ------
(403) 372 62
------ ------ ------
$2,118 $1,103 $2,737
====== ====== ======
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 $764,000, $492,000, and $153,000 of such benefits that have
been allocated to capital in excess of par value in fiscal 1997, 1996,
and 1995, 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) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $1,542 $ 782 $2,416
Increases (decreases) resulting from:
State income taxes, net of federal
benefit 242 131 353
Losses not benefited 258 214 -
Income from tax-preferred securities - (46) (122)
Nondeductible expenses 176 100 83
Other (100) (78) 7
------ ------ ------
$2,118 $1,103 $2,737
====== ====== ======
17PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Prepaid income taxes in the accompanying balance sheet consists of
the following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid income taxes:
Inventory basis difference $ 807 $ 730
Accrued warranty costs 1,340 906
Accrued compensation 650 596
Reserves and accruals 164 459
Allowance for doubtful accounts 295 230
Federal and state loss carryforwards 444 214
------ ------
3,700 3,135
Less: Valuation allowance (582) (214)
------ ------
$3,118 $2,921
====== ======
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. As of September 27, 1997, ThermoLyte
had net operating loss carryforwards of approximately $1.1 million that
begin to expire in fiscal 2011.
6. 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 $1,210,000, $1,262,000, and $1,250,000 in fiscal
1997, 1996, and 1995, 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).
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.
18PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Related-party Transactions (continued)
Related Party Revenues
The Company sells products in the ordinary course of business to a
wholly owned subsidiary of Thermo Electron. Sales of such products
totaled $423,000, $104,000, and $987,000 in fiscal 1997, 1996, and 1995,
respectively.
Other Related-party Services
The Company provides contract administration, data processing, and
other 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 $105,000, $167,000, and $209,000 in
fiscal 1997, 1996, and 1995, respectively.
Leases
The Company leases an office and laboratory facility from Thermo
Electron under an agreement expiring in 2002. The accompanying statement
of income includes expenses from this operating lease of $170,000 in
fiscal 1997, 1996, and 1995. The future minimum payments due under this
operating lease as of September 27, 1997, are $326,000 per year through
fiscal 2002. Total future minimum lease payments are $1,630,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Other Related-party Transactions
In May 1997, the Company sold 420,000 shares of common stock of The
Randers Group Incorporated to Thermo TerraTech Inc., a majority-owned
subsidiary of Thermo Electron, for proceeds of $262,000, resulting in a
gain of $53,000.
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.
In December 1995, the Company sold 10,969 shares of Thermo Electron
common stock to an unrelated party for net proceeds of $362,000, which
resulted in a gain of $344,000.
In May 1995, the Company sold $920,000 principal amount of 6 1/2%
subordinated convertible debentures to an unrelated party for net
proceeds of $1,578,000, which resulted in a gain of $768,000. The
debentures were issued by Thermedics Inc., a majority-owned subsidiary of
Thermo Electron.
7. Commitments
In addition to the lease described in Note 6, the Company leases
equipment and manufacturing, engine testing, service, and office
facilities under various operating leases. The accompanying statement of
income includes expenses from operating leases of $1,219,000, $1,166,000,
and $1,044,000 in fiscal 1997, 1996, and 1995, respectively. Future
19PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Commitments (continued)
minimum payments due under noncancellable operating leases as of
September 27, 1997, are $970,000 in fiscal 1998; $952,000 in fiscal 1999;
$916,000 in fiscal 2000; $849,000 in fiscal 2001; $839,000 in fiscal
2002; and $2,502,000 in fiscal 2003 and thereafter. Total future minimum
lease payments are $7,028,000.
8. Common Stock
At September 27, 1997, the Company had reserved 1,487,860 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
9. Long-term Obligations
At September 27, 1997, the Company's long-term obligations included
a $222,000 mortgage loan, which is secured by property at the Company's
FES division with a net book value of $4,709,000. The loan is payable in
equal monthly installments with the final payment in fiscal 2001. The
interest rate on this loan is 75% of the prime rate, which was 6.38% and
6.19% at fiscal year-end 1997 and 1996, respectively.
The annual requirements for long-term obligations as of September
27, 1997, are $58,000 in fiscal 1998; $61,000 in fiscal 1999 and 2000;
and $130,000 in fiscal 2001. Total requirements of long-term obligations
are $310,000.
10. 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 parent company 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 $252,000 and $305,000 at September 27, 1997,
and September 28, 1996, 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.
11. 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
20PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Segment Data, Export Sales, and Concentrations of Risk (continued)
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 develops, manufactures, markets, and
services natural gas cooling and cogeneration systems, conducts research
and development on applications of thermal energy, and is developing and
commercializing a family of gas-powered lighting products.
Export revenues to Asia accounted for 13%, 7%, and 10% of the
Company's total revenues in fiscal 1997, 1996, and 1995, respectively.
Other export revenues accounted for 7%, 6%, and 5% of the Company's total
revenues in fiscal 1997, 1996, and 1995, 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 1997, 1996, and 1995, with respect to the
Company's business segments, is shown in the following table.
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Revenues:
Industrial Refrigeration Systems $ 74,843 $ 73,312 $ 64,708
Engines 30,324 28,857 24,848
Cooling and Cogeneration Systems 17,819 20,477 15,873
Intersegment sales elimination (a) (1,940) (1,910) (2,174)
-------- -------- --------
$121,046 $120,736 103,255
======== ======== ========
Income before provision for income
taxes and minority interest:
Industrial Refrigeration Systems $ 5,331 $ 4,403 $ 6,689
Engines (23) (1,584) (120)
Cooling and Cogeneration Systems (647) 122 961
Corporate (b) (1,991) (2,537) (3,049)
-------- -------- --------
Total operating income 2,670 404 4,481
Interest and other income, net 1,864 1,896 2,626
-------- -------- --------
$ 4,534 $ 2,300 $ 7,107
======== ======== ========
Identifiable assets:
Industrial Refrigeration Systems $ 52,157 $ 52,707 $ 48,249
Engines 16,528 13,917 17,193
Cooling and Cogeneration Systems 22,178 22,953 23,549
Corporate (c) 17,129 21,134 19,426
-------- -------- --------
$107,992 $110,711 $108,417
======== ======== ========
21PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Segment Data, Export Sales, and Concentrations of Risk (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Depreciation and amortization:
Industrial Refrigeration Systems $ 2,606 $ 2,501 $ 1,551
Engines 319 295 329
Cooling and Cogeneration Systems 198 214 192
Corporate 33 23 10
-------- -------- --------
$ 3,156 $ 3,033 $ 2,082
======== ======== ========
Capital expenditures:
Industrial Refrigeration Systems $ 4,558 $ 6,959 $ 5,410
Engines 653 329 344
Cooling and Cogeneration Systems 382 240 150
Corporate 29 34 62
-------- -------- --------
$ 5,622 $ 7,562 $ 5,966
======== ======== ========
(a) Intersegment sales are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Primarily corporate general and administrative expenses.
(c) Primarily cash, cash equivalents, and short-term investments.
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third Fourth
-----------------------------------------------------------------------
Revenues $28,786 $28,825 $33,839 $29,596
Gross profit 4,253 5,494 5,945 6,200
Net income 4 375 716 1,009
Earnings per share - .03 .06 .08
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)
22PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Subsequent Event
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for the outstanding ordinary shares of
Peek plc (Peek). The aggregate cost to acquire all outstanding Peek
ordinary shares is estimated at approximately $163 million. The Company
paid $2.3 million for shares acquired in fiscal 1997, which are
classified as long-term available-for-sale investments in the
accompanying fiscal 1997 balance sheet, and $147.9 million for shares
acquired from September 28, 1997, through November 19, 1997. The Company
owned 92% of the outstanding ordinary shares of Peek as of November 19,
1997. The Company expects to make payments for the remaining ordinary
shares outstanding during the first quarter of fiscal 1998.
Pursuant to a promissory note, the Company borrowed $160.0 million
from Thermo Electron to finance the acquisition of Peek. The promissory
note is due November 1999, and bears interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set of the beginning of each
quarter.
Peek, a London Stock Exchange-listed company, develops, markets,
installs, and services equipment to monitor and regulate traffic flow in
cities and towns around the world. Peek offers a wide range of products,
including hardware, such as loop detectors, traffic signals and
controllers, and variable message signs, as well as traffic management
systems that integrate these products to ease roadway congestion, improve
safety, and collect data. Traffic management systems include variable
message systems to advise drivers of accidents and other roadway hazards;
traffic signal-timing systems that adapt continuously to changing
conditions to minimize delays; video systems to give real-time analysis
of traffic flows at intersections and on highways; and automatic
toll-collection systems. The Company also offers high-resolution video
equipment to aid police officers in capturing the information necessary
to charge individuals with motor vehicle violations such as speeding and
red light violations.
23PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
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 68%-owned subsidiary
of Thermo Electron Corporation) and subsidiaries as of September 27,
1997, and September 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three
years in the period ended September 27, 1997. 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 27, 1997, and
September 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 27, 1997,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
October 31, 1997
(except with respect to the
matter discussed in Note 13
as to which the date is
November 19, 1997)
24PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operation under the
heading "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. 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 and can be adversely affected by cool summer weather.
Within the Engines segment, the Company's Crusader Engines division
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
subsidiary. 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 for Tecogen by FES, and the cogeneration systems are
manufactured for Tecogen by Crusader. Tecogen also conducts research and
development of natural gas-engine technology and on applications of
thermal energy. ThermoLyte is developing and commercializing various
gas-powered lighting products.
The Company acquired Peek plc (Peek), a London Stock Exchange-listed
company, in November 1997. Peek develops, markets, installs, and services
equipment to monitor and regulate traffic flow in cities and towns around
the world. Peek offers a wide range of products, including hardware, such
as loop detectors, traffic signals and controllers, and variable message
signs, as well as traffic management systems that integrate these
products to ease roadway congestion, improve safety, and collect data.
25PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
Traffic management systems include variable message systems to advise
drivers of accidents and other roadway hazards; traffic signal-timing
systems that adapt continuously to changing conditions to minimize
delays; video systems to give real-time analysis of traffic flows at
intersections and on highways; and automatic toll-collection systems. The
Company also offers high-resolution video equipment to aid police
officers in capturing the information necessary to charge individuals
with motor vehicle violations such as speeding and red light violations.
Peek had revenues in calendar 1996, excluding revenues from businesses
sold in 1996 and 1997, of approximately 140 million pounds sterling, or
approximately $219 million, and profit on ordinary activities after
taxation, excluding profit from businesses sold in 1996 and 1997, of
approximately 8 million pound sterling, or approximately $12 million.
Peek's results of operations in calendar 1996 are unaudited and were
accounted for in accordance with generally accepted accounting principles
in the United Kingdom, which differ in certain respects from U.S.
generally accepted accounting principles. The Company's results of
operations and financial position for fiscal 1998 are expected to be
affected significantly by the acquisition of Peek.
The Company will be required to modify or replace portions of its
software and the software of Peek so that it will function properly in
the year 2000. Costs associated with purchasing software which is year
2000 compliant, excluding costs associated with Peek, is included in
estimated capital expenditures for fiscal 1998, disclosed in liquidity
and capital resources. The cost of such new software will be capitalized
and amortized over the software's useful life, and is not expected to
have a material effect on the Company's results of operations. The
Company is in the process of assessing the impact of the year 2000 issue
on the operations of Peek, including the development of cost estimates
for, and the extent of any programming changes that might be required to
address, this issue. At this time, the Company is unable to determine the
materiality of the year 2000 issue at Peek.
Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Total revenues were $121,046,000 in fiscal 1997 and $120,736,000 in
fiscal 1996. Industrial Refrigeration Systems segment revenues increased
to $74,843,000 in 1997 from $73,312,000 in 1996, primarily due to greater
demand for custom-designed industrial refrigeration packages and product
services at FES and, to a lesser extent, increased demand for rental
equipment at NuTemp. These improvements were offset in part by a decrease
in demand for standard industrial refrigeration packages at FES. Engines
segment revenues increased to $30,324,000 in 1997 from $28,857,000 in
1996, primarily due to an increase in lift-truck and TecoDrive(R) engine
sales, offset in part by a decrease in sales of marine-engine related
products. The increase in TecoDrive engine sales was principally due to a
large nonrecurring order of $3.6 million from one customer. Cooling and
26PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
Cogeneration Systems segment revenues were $17,819,000 in 1997, compared
with $20,477,000 in 1996. Decreased revenues from sponsored research and
development, gas-fueled cooling systems, and thermoelectric devices were
offset in part by increased service revenues in 1997.
The gross profit margin increased to 18% in fiscal 1997 from 17% in
fiscal 1996. The gross profit margin for the Industrial Refrigeration
Systems segment increased to 21% in 1997 from 20% in 1996, primarily due
to higher margins at FES, resulting from lower warranty expenses,
manufacturing efficiencies, and a decrease in the cost of a major
component, and higher margins at NuTemp resulting from increased
revenues. FES experienced a cost increase in the major component in
fiscal 1996, for which the Company has begun receiving deliveries from an
additional supplier at a lower cost. The gross profit margin for the
Engines segment increased to 9% in 1997 from 5% in 1996, primarily due to
a reduction in warranty expenses and lower overhead expenses resulting
from the consolidation of two manufacturing facilities at Crusader and,
to a lesser extent, startup costs in fiscal 1996 associated with the
introduction of lift-truck engines. The gross profit margin for the
Cooling and Cogeneration Systems segment decreased to 19% in 1997 from
22% in 1996, primarily due to lower revenues and higher warranty expenses
for gas-fueled cooling systems.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 14% in fiscal 1997 and 1996. Research and
development expenses decreased to $2,296,000 in 1997 from $3,214,000 in
1996, primarily due to lower spending on natural gas-engine products and
gas-powered lighting products, primarily due to the completion of the
current phase of development efforts for these products.
Net gain on sale of investments in fiscal 1996 primarily represents a
gain of $344,000 relating to the sale of the Company's remaining
investment in Thermo Electron common stock and a gain of $125,000
relating to the sale of the Company's remaining investment in
subordinated convertible debentures issued by Thermo TerraTech Inc., a
majority-owned subsidiary of Thermo Electron (Note 6). These gains were
largely offset by a write-down of other investments.
The effective tax rate was 47% in fiscal 1997 and 48% in fiscal 1996.
The effective tax rate exceeded the statutory federal income tax rate
primarily due to an increase in the valuation allowance for net operating
loss carryforwards and other tax assets of the Company's ThermoLyte
subsidiary, and the impact of state income taxes.
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
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
27PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
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 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. 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 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 were $3,214,000 in fiscal 1996, compared with $3,065,000 in
fiscal 1995. An increase in research and development expenses for
gas-fueled lighting products was largely 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
decrease in interest income earned on the Company's other investments due
to lower average invested balances. The net gain on sale of investments
in fiscal 1996 is described in the results of operations for fiscal 1997.
The net gain on sale of investments in fiscal 1995 primarily represents a
gain of $768,000 relating to the sale of the Company's investment in
subordinated convertible debentures issued by Thermedics Inc., a
majority-owned subsidiary of Thermo Electron (Note 6).
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
28PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
valuation allowance established for net operating loss carryforwards and
other tax assets of the Company's ThermoLyte subsidiary.
Liquidity and Capital Resources
Working capital was $54,708,000 at September 27, 1997, compared with
$57,719,000 at September 28, 1996. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $28,518,000 at
September 27, 1997, compared with $35,880,000 at September 28, 1996. Of
the $28,518,000 balance at September 27, 1997, $15,519,000 was held by
ThermoLyte and the remainder was held by the Company and its wholly owned
subsidiaries.
During fiscal 1997, $2,208,000 of cash was provided by operating
activities. Cash provided by the Company's operating results was reduced
by a decrease in accounts payable of $4,383,000, an increase in accounts
receivable of $3,210,000, and an increase in inventories of $1,247,000.
These reductions in cash were offset in part by an increase in other
current liabilities of $3,318,000 and a decrease in unbilled contract
costs and fees of $2,254,000. The decrease in accounts payable was
principally due to the timing of purchases of materials for large
contracts. The increase in accounts receivable was primarily due to the
timing of billings on percentage-of-completion contracts, reflected in
the decrease in unbilled contract costs and fees, as well as increased
shipments at the end of fiscal 1997. Other current liabilities increase
principally due to an increase in accrued warranty costs and accrued
income taxes. Inventories increased primarily due to expanded purchases
of one component prior to its expected redesign by its manufacturer.
During fiscal 1997, the Company's primary investing activities,
excluding available-for-sale investment activity, included $5,622,000
expended for purchases of rental assets and property, plant, and
equipment and $1,522,000 in proceeds received from the sale of rental
assets.
The Company's financing activities used $3,595,000 of cash in fiscal
1997, primarily due to $3,613,000 of cash expended for the purchase of
Company common stock. The Company's Board of Directors has authorized the
repurchase, through March 17, 1998, of up to $5,000,000 of its own
securities. Any such purchases are funded from working capital. As of
September 27, 1997, $1,387,000 remained under the Company's
authorization.
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for all outstanding ordinary shares of
Peek. The aggregate cost to acquire all outstanding Peek ordinary shares
is estimated at approximately $163 million. The Company paid $2.3 million
for shares acquired in fiscal 1997 and $147.9 million for shares acquired
from September 28, 1997, through November 19, 1997. The Company owned 92%
of the outstanding ordinary shares of Peek as of November 19, 1997. The
Company expects to make payments for the remaining ordinary shares
outstanding during the first quarter of fiscal 1998. To finance the
acquisition of Peek, the Company used internal funds and borrowed $160.0
million from Thermo Electron. (Note 13)
29PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
ThermoLyte's common stock is subject to redemption in December 1998
or 1999, the redemption value of which is $18,450,000 (Note 1).
In fiscal 1998, the Company expects to make capital expenditures for
the purchase of rental assets and property, plant, and equipment of
approximately $3.5 million, excluding capital expenditures of Peek which
have yet to be determined by the Company. The Company believes its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future.
30PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in fiscal 1998 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Ability to Manage Change. The Company has recently experienced
significant growth in the number of its employees, the demands on its
operating and financial systems, and the geographic area of its
operations. In November 1997, the Company acquired Peek plc (Peek), a
public company in the United Kingdom, which has more than 1,200 employees
located throughout Europe, Asia, and the United States, and had revenues
in calendar 1996, excluding revenues of businesses sold in 1996 and 1997,
of approximately 140 million pounds sterling, or approximately
$219 million. This acquisition has resulted in new and increased
responsibilities for the Company's administrative, operational,
development, and financial personnel. In order to manage the Company's
changing business, Peek's management and other employees must be
assimilated into the Company's existing operations. There can be no
assurance that the Company will be successful in retaining Peek's key
employees and integrating them into the Company. The Company's success
depends to a significant extent on the ability of its officers and key
employees to operate effectively, both independently and as a group, and
this ability may be impeded by the Company's rapid geographic expansion,
potential disruption of the Company's business, and diversion of
management's attention from other business concerns due to the Peek
acquisition. In addition, there can be no assurance that the Company's
systems, procedures, and controls will be adequate to support the
significant expansion of the Company's operations. Any failure of the
Company's management to manage change effectively could have a material
adverse effect on the Company's business, financial condition, and
results of operations.
Transition of Product Focus; Dependence on New Products. Since its
inception, the Company has derived a substantial majority of its revenues
from development and commercialization of power generation, refrigeration
and cooling, engines, and related products. While these products are
expected to continue to generate a significant amount of the Company's
revenues for the foreseeable future, a substantial portion of the
Company's revenues is now expected to be derived from the sale of
electronics and associated hardware and software for the traffic
industry, as well as from providing integration services for such
electronics, hardware, and software, through the Company's recently
acquired Peek subsidiary. A substantial portion of the Company's efforts,
particularly its product development and marketing efforts, will be
focused on the traffic market. The Company has had no prior experience in
the traffic industry, and there can be no assurance that the Company will
be able to successfully market and sell its newly acquired products and
services. The Company's future success will depend significantly on its
ability to develop, introduce, and integrate new products in the traffic
31PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
market and to continue to improve the performance, features, and
reliability of Peek's current products. In order for Peek to achieve the
level of profitability desired by the Company, the Company must
successfully reduce Peek's expenses and improve market penetration. No
assurance can be given that the Company will be successful in this
regard. Any failure or inability of the Company's traffic products to
perform substantially as anticipated or to achieve market acceptance
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
Risks Associated With International Operations. The Company intends
to continue to expand its presence in international markets. In calendar
1996, sales originating outside of the United States accounted for
approximately 70% of the Company's recently acquired Peek subsidiary's
revenues. International revenues are subject to a number of risks,
including the following: fluctuations in exchange rates may affect
product demand and adversely affect the profitability in U.S. dollars of
products and services provided by the Company in foreign markets where
payment for the Company's products and services is made in the local
currency; agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign
customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs, or adopt other restrictions on foreign trade;
U.S. export licenses, if required, may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more
difficult to enforce. There can be no assurance that any of these factors
will not have a material adverse impact on the Company's business,
financial condition, and results of operations.
Reliance on Sales to Governmental Entities and Custom Contracts. The
majority of Peek's sales are to governmental entities. Sales to
governmental entities generally account for approximately 70% of Peek's
revenues. The Company intends to focus its marketing of Peek's products
and services on various governmental entities, including the U.S. Federal
Highway Administration and comparable overseas agencies, regional
counties of governments, state, and city traffic engineers, public
transit authorities, public toll operators, law enforcement agencies, and
tunnel and bridge authorities. Any decrease in purchases by these
government bodies, including, without limitation, decreases as the result
of a shift in priorities or overall budgeting limitations, could have an
adverse effect on the Company's business, financial condition, and
results of operations. In addition, most of Peek's contracts require the
development and integration of customized products for a fixed fee.
Contracts with governmental entities often permit the purchaser to cancel
the agreement at any time. A significant overrun in Peek's expenses or
cancellation of a significant contract could also result in a material
adverse effect on the Company's business, financial condition, and
results of operations.
32PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
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 market for traffic products and services is extremely
competitive, and the Company expects that competition will continue to
increase. The Company believes that the principal competitive factors in
the traffic industry are price, functionality, reliability, service and
support, and vendor and product reputation. The Company believes that its
ability to compete successfully will depend on a number of factors both
within and outside its control, including the pricing policies of its
competitors and suppliers, the timing and quality of products introduced
by the Company and others, the Company's ability to maintain a strong
reputation in the traffic industry, and industry and general economic
trends. In the traffic market, the Company currently competes with
companies with greater financial resources and name recognition. The
introduction by one of these competitors or a new competitor of a
technologically superior product would have a material adverse effect on
the Company's business, financial condition, and results of operations.
There can be no assurance that the Company will be able to compete
successfully with existing or new competitors.
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
33PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
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 co-generated 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.
The Intermodal Surface Transportation Efficiency Act (ISTEA) provides
significant funding in the United States for intermodal surface
transportation and advanced traffic management systems. The ISTEA has
been extended until March 31, 1998. The failure to further extend or
reauthorize ISTEA could have a material adverse effect on demand for the
Company's traffic products in the United States.
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
34PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
incentives will be discontinued, elimination of these incentives could
have a material adverse effect on sales of the Company's Tecochill
systems.
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. 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 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 and commercializing
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
35PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
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.
36PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997 1996 1995(a) 1994(b) 1993
--------------------------------------------------------------------------
Statement of Income
Data:
Revenues $121,046 $120,736 $103,255 $ 89,334 $ 75,429
Net income 2,104 885 4,188 3,248 1,923
Earnings per share .17 .07 .34 .26 .18
Balance Sheet Data:
Working capital $ 54,708 $ 57,719 $ 60,140 $ 43,143 $ 50,467
Total assets 107,992 110,711 108,417 82,621 79,513
Long-term
obligations 252 305 364 344 3,395
Common stock of
subsidiary subject
to redemption 18,059 17,747 17,435 - -
Shareholders'
investment 66,668 67,368 65,825 60,475 56,599
(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.
37PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
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 1997 and 1996.
1997 1996
----------------- ------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $11 1/4 $ 7 3/4 $16 1/4 $12 1/4
Second 9 1/4 6 1/8 16 1/8 11 3/8
Third 7 5 1/2 17 3/8 11 3/4
Fourth 9 7/8 5 5/8 12 5/8 9 5/16
As of October 31, 1997, the Company had 459 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 October 31, 1997, was $8 3/8 per share.
Shareholder Services
Shareholders of Thermo Power Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer and Vice President, Thermo Power Corporation, 81 Wyman Street,
P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A
mailing list is maintained to enable shareholders whose stock is held in
street name, and other interested individuals, to receive quarterly
reports, annual reports, and press releases as quickly as possible.
Quarterly distribution of printed reports is limited to the second
quarter report only. All quarterly reports and press releases are
available through the Internet from Thermo Electron's home page
(http://www.thermo.com/subsid/thp.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
38PAGE
<PAGE>
Thermo Power Corporation 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 27, 1997, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer and Vice President, 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 13,
1998, at 10:00 a.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
39
Exhibit 21
THERMO POWER CORPORATION
Subsidiaries of the Registrant
At November 19, 1997, Thermo Power Corporation owned the following
companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
--------------------------------------- ---------------- ------------
NuTemp, Inc. Illinois 100%
Peek plc Scotland 92
Peek Data Limited England and Wales 100
Peek Group Services Limited England and Wales 100
Dubilier Warminster Limited England and Wales 100
International Resistance Co Limited England and Wales 100
Minicircuits Limited England and Wales 100
Peek International Limited England and Wales 100
Peek Corporation Delaware 100
Brandt Instruments,Inc. Delaware 100
Peek Traffic USA, Inc. Florida 100
Peek Measurement, Inc. Texas 100
Peek Traffic, Inc. Delaware 100
Polysonics International, Inc. U.S. Virgin Islands 100
Saratec Measurement, Inc. Florida 100
Signal Control Company Delaware 100
Signal Maintenance, Inc. Delaware 100
Transyt Corporation Florida 100
Peek Traffic GmbH Germany 100
Peek International B.V. The Netherlands 100
Peek Traffic AB Sweden 100
Peek Trafik a-s Denmark 100
Peek Trafikk AS Norway 100
Peek Traffic OY Finland 100
Peek Traffic B.V. The Netherlands 100
Peek Fleetlogic B.V. The Netherlands 100
Peek Traffic Projects B.V. The Netherlands 100
Peek Limited Hong Kong 85
Peek Trafikk Sendirian Berhad Malaysia 100
Peek Traffic (Thailand) Limited Thailand 100
Sichuan Modern Control System
Engineering Company Limited China 41*
PAGE
<PAGE>
Exhibit 21
THERMO POWER CORPORATION
Subsidiaries of the Registrant (continued)
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
--------------------------------------- ---------------- ------------
Peek Investments Limited England and Wales 100
Dubilier America Inc. Delaware 100
ACI Holdings, Inc. New York 100
Peek Systems Limited England and Wales 100
Sotwell Limited England and Wales 100
Peek Technology Limited England and Wales 100
Peek Measurement Limited England and Wales 100
Peek Environmental Limited England and Wales 100
Sarasota Data Products Limited England and Wales 100
Sarasota Instrumentation Limited England and Wales 100
Peek Traffic Limited England and Wales 100
GK Instruments Limited England and Wales 100
Sarasota Traffic Limited England and Wales 100
Streeteramet Limited England and Wales 100
Weighwrite Limited England and Wales 100
Radley Services Limited England and Wales 100
Atest Electronics Limited England and Wales 100
Bartsign Limited England and Wales 100
Greenpar Holdings Limited England and Wales 100
Helvetia Automatic Products Limited England and Wales 100
Peek Field Services Limited England and Wales 100
Peek Traffic Systems B.V. The Netherlands 100
Radley (1) Limited England and Wales 100
Smartways Limited England and Wales 100
Tollstar Limited England and Wales 100
Takepine Limited United Kingdom 100
Tecogen Securities Corporation Massachusetts 100
ThermoLyte Corporation Delaware 78
* Participating interest
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated October 31, 1997 (except
with respect to the matter discussed in Note 13 as to which the date is
November 19, 1997), included in or incorporated by reference into Thermo
Power Corporation's Annual Report on Form 10-K for the year ended
September 27, 1997, 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 4, 1997
<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 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<INVENTORY> 19,884
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