SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended January 3, 1998.
[ ] 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
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
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Class Outstanding at January 30, 1998
---------------------------- -------------------------------
Common Stock, $.10 par value 11,819,973
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
January 3, September 27,
(In thousands) 1998 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 39,667 $ 19,347
Available-for-sale investments, at quoted
market value (amortized cost of $9,132
and $9,129) 9,169 9,171
Accounts receivable, less allowances of
$13,699 and $757 57,975 21,012
Unbilled contract costs and fees 9,743 4,856
Inventories:
Raw materials 31,346 17,570
Work in process 4,893 1,077
Finished goods 6,407 1,237
Prepaid income taxes 4,376 3,118
Other current assets 2,112 219
Due from parent company and affiliated
companies, net (Note 3) 18,794 -
-------- --------
184,482 77,607
-------- --------
Rental Assets, at Cost 13,620 13,645
Less: Accumulated depreciation and
amortization 3,459 3,369
-------- --------
10,161 10,276
-------- --------
Property, Plant, and Equipment, at Cost 33,935 19,637
Less: Accumulated depreciation and
amortization 9,313 9,046
-------- --------
24,622 10,591
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of
$2,301 in fiscal 1997; Note 3) - 2,200
-------- --------
Other Assets 261 236
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 156,932 7,082
-------- --------
$376,458 $107,992
======== ========
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 3, September 27,
(In thousands except share amounts) 1998 1997
------------------------------------------------------------------------
Current Liabilities:
Notes payable (Note 3) $ 25,692 $ -
Accounts payable 36,697 9,622
Accrued payroll and employee benefits 9,721 3,133
Billings in excess of contract costs and fees 6,000 1,353
Accrued income taxes (Note 3) 3,568 1,620
Accrued warranty costs 5,343 3,435
Common stock of subsidiary subject to
redemption ($18,450 redemption value) 18,138 -
Accrued acquisition expenses (Note 3) 14,892 -
Other accrued expenses (Note 3) 28,131 3,240
Due to parent company and affiliated
companies - 496
-------- --------
148,182 22,899
-------- --------
Deferred Income Taxes 993 114
-------- --------
Long-term Obligations (in fiscal 1998 includes
$160,000 due to parent company; Note 3) 160,392 252
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) - 18,059
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000
shares authorized; 12,493,371 shares issued 1,249 1,249
Capital in excess of par value 55,332 55,283
Retained earnings 14,866 13,811
Treasury stock at cost, 680,148 and
578,124 shares (4,631) (3,636)
Cumulative translation adjustment 51 -
Net unrealized gain (loss) on available-
for-sale investments 24 (39)
-------- --------
66,891 66,668
-------- --------
$376,458 $107,992
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
-----------------------------------------------------------------------
Revenues $63,562 $28,786
------- -------
Costs and Operating Expenses:
Cost of revenues 45,249 24,533
Selling, general, and administrative expenses 13,435 3,780
Research and development expenses 1,729 644
------- -------
60,413 28,957
------- -------
Operating Income (Loss) 3,149 (171)
Interest Income (includes $180 from related
party in fiscal 1998; Note 3) 589 451
Interest Expense (includes $1,175 to related
party in fiscal 1998; Note 3) (1,425) (5)
------- -------
Income Before Provision for Income Taxes and
Minority Interest 2,313 275
Provision for Income Taxes 1,069 193
Minority Interest Expense 189 78
------- -------
Net Income $ 1,055 $ 4
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .09 $ -
======= =======
Weighted Average Shares (Note 2):
Basic 11,898 12,489
======= =======
Diluted 11,912 12,504
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Operating Activities:
Net income $ 1,055 $ 4
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,534 523
Minority interest expense 189 78
Increase in deferred income taxes (671) -
Other noncash items (17) (68)
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (3,354) (386)
Inventories 7,333 2,009
Unbilled contract costs and fees (1,587) (1,154)
Other current assets (38) (351)
Accounts payable 1,457 (2,438)
Other current liabilities 1,177 975
--------- ---------
Net cash provided by (used in) operating
activities 8,078 (808)
--------- ---------
Investing Activities:
Acquisition, net of cash acquired (Note 3) (143,743) -
Proceeds from sale and maturities of
available-for-sale investments - 1,000
Increase in rental assets (389) (529)
Proceeds from sale of rental assets 314 878
Purchases of property, plant, and equipment (1,497) (786)
Proceeds from sale of property, plant,
and equipment 1,210 -
Other (9) -
--------- ---------
Net cash provided by (used in) investing
activities (144,114) 563
--------- ---------
Financing Activities:
Issuance of long-term obligation to parent
company (Note 3) 160,000 -
Decrease in short-term notes payable (2,924) -
Purchases of Company common stock (1,129) -
Net proceeds from issuance of Company
common stock 183 71
Repayment of long-term obligations (44) (14)
--------- ---------
Net cash provided by financing activities $ 156,086 $ 57
--------- ---------
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THERMO POWER CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Exchange Rate Effect on Cash $ 270 $ -
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents 20,320 (188)
Cash and Cash Equivalents at Beginning of
Period 19,347 29,852
--------- ---------
Cash and Cash Equivalents at End of Period $ 39,667 $ 29,664
========= =========
Noncash Activities (Note 3):
Fair value of assets of acquired company $ 271,109 $ -
Cash paid for acquired company (159,324) -
Cash paid in prior year for acquired company (2,301) -
Cash to be paid for remaining outstanding
shares of tender offer (5,111) -
--------- ---------
Liabilities assumed of acquired company $ 104,373 $ -
========= =========
Sale of acquired business to related party $ 19,117 $ -
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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THERMO POWER CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements have been prepared by
Thermo Power Corporation (the Company) without audit and, in the opinion
of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at January 3,
1998, and the results of operations and cash flows for the three-month
periods ended January 3, 1998, and December 28, 1996. The Company's
results of operations for the three-month periods ended January 3, 1998,
and December 28, 1996, include 14 weeks and 13 weeks, respectively.
Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of September 27, 1997,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 27, 1997, filed
with the Securities and Exchange Commission.
2. Earnings per Share
During the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." As a result, all previously reported earnings per share have been
restated; however, basic and diluted earnings per share equals the
Company's previously reported earnings per share for the fiscal 1997
period. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
period. Diluted earnings per share have been computed assuming the
exercise of stock options and their related income tax effect.
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THERMO POWER CORPORATION
2. Earnings per Share (continued)
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
-----------------------------------------------------------------------
Basic
Net income $ 1,055 $ 4
------- -------
Weighted average shares 11,898 12,489
------- -------
Basic earnings per share $ .09 $ -
======= =======
Diluted
Net income $ 1,055 $ 4
------- -------
Weighted average shares 11,898 12,489
Effect of stock options 14 15
------- -------
Weighted average shares, as adjusted 11,912 12,504
------- -------
Diluted earnings per share $ .09 $ -
======= =======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of January 3, 1998, there were 874,999
of such options outstanding, with exercise prices ranging from $9.05 to
$17.53 per share.
3. Acquisition
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, including related expenses, is estimated at
approximately $166,736,000. The purchase price includes $2,301,000 that
was paid for shares acquired in fiscal 1997, classified as "Long-term
available-for-sale investments" in the accompanying September 27, 1997,
balance sheet, and $5,111,000 accrued for the purchase of the remaining
Peek ordinary shares outstanding, classified as "Other accrued expenses"
in the accompanying January 3, 1998, balance sheet. The Company made
payments for the remaining Peek ordinary shares outstanding in the second
quarter of fiscal 1998. Peek develops, markets, installs, and services
equipment to monitor and regulate traffic flow in cities and towns around
the world. In addition, through its Field Data business, Peek develops
and markets field measurement products.
8PAGE
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THERMO POWER CORPORATION
3. Acquisition (continued)
To finance the acquisition of Peek, the Company borrowed $160,000,000
from Thermo Electron Corporation pursuant to a promissory note due
November 1999, and bearing interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each
quarter.
Subsequent to Peek's acquisition by the Company, the Company reached
an agreement with ONIX Systems Inc., a majority-owned subsidiary of
Thermo Instrument Systems Inc., to sell Peek's Field Data business,
effective November 6, 1997, for $19,117,000, which was classified as "Due
from parent company and affiliated companies" in the accompanying January
3, 1998, balance sheet. Thermo Instrument is a majority-owned subsidiary
of Thermo Electron. The Company received payment from ONIX for the sale
of the Field Data business in January 1998. The components of the sales
price for the Field Data business consist of the net tangible book value
of the Field Data business, cost in excess of net assets of acquired
company, and the estimated tax liability relating to the sale. The cost
in excess of net assets of acquired company was determined based upon a
percentage of the Company's total cost in excess of net assets of
acquired company associated with its acquisition of Peek, based on the
1997 revenues of the Field Data business relative to Peek's total 1997
consolidated revenues.
The acquisition has been accounted for using the purchase method of
accounting and its results have been included in the accompanying
financial statements from the date of acquisition. The cost of the
acquisition exceeded the estimated fair value of the acquired net assets
by $150,710,000, which is being amortized over 40 years. Allocation of
the purchase price was based on estimates of the fair value of the net
assets acquired and is subject to adjustment upon finalization of the
purchase price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company and Peek on a pro forma basis,
assuming the companies had been combined since the beginning of fiscal
1997. The results of Peek exclude the results of businesses sold by Peek
prior to its acquisition by the Company and Peek's Field Data business,
which was sold to ONIX effective November 6, 1997.
Three Months Ended
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
------------------------------------------------------------------------
Revenues $ 81,648 $108,579
Net income 376 10,072
Basic and diluted earnings per share .03 .81
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Peek been made at the beginning of fiscal 1997.
9PAGE
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THERMO POWER CORPORATION
3. Acquisition (continued)
In connection with the acquisition of Peek, the Company has
undertaken a restructuring of the acquired business. The restructuring
activities will primarily include reductions in staffing levels and
abandonment of excess facilities. In connection with these restructuring
activities the Company established reserves totaling $15,101,000 for
estimated severance, excess facilities, and other exit costs associated
with the acquisition, none of which was expended during the first quarter
of fiscal 1998. This amount was recorded as a cost of the acquisition of
Peek in accordance with Emerging Issues Task Force Pronouncement 95-3
(EITF 95-3). As of January 3, 1998, unresolved matters related to the
restructuring of Peek include completing the identification of specific
employees for termination and locations to be abandoned or consolidated,
as well as other decisions concerning the integration of the acquired
businesses into the Company. In accordance with EITF 95-3, finalization
of the Company's plan for restructuring Peek will not occur beyond one
year from the date of acquisition. Any changes to estimates of these
costs will be recorded as adjustments to cost in excess of net assets of
acquired companies.
Notes payable in the accompanying January 3, 1998, balance sheet
includes $25,060,000 of borrowings at Peek. As of January 3, 1998, Peek
had outstanding promissory notes aggregating $17,470,000 and borrowings
under a line of credit totaling $7,590,000. The promissory notes bear
interest at variable rates and are due on demand as a result of Peek's
violations of certain debt covenants. The weighted average interest rate
on the promissory notes outstanding as of January 3, 1998, was 6.40%. The
Company expects to repay the promissory notes during the second quarter
of fiscal 1998. Borrowings under the line of credit are payable on demand
and are denominated in British pounds sterling. As of January 3, 1998,
the remaining amount available under the line of credit was 400,000
British pounds sterling. Borrowings under the line of credit bear
interest at applicable London interbank market rates plus 45 basis points
(6.89% at January 3, 1998). Borrowings under the line of credit are
guaranteed by Thermo Electron.
Peek enters into forward contracts to hedge certain firm purchase and
sale commitments denominated in currencies other than its subsidiaries'
local currencies. The purpose of Peek's foreign currency hedging
activities is to protect Peek's local currency cash flows related to
these commitments from fluctuations in foreign exchange rates. Because
Peek's forward contracts are entered into as hedges against existing
foreign currency exposures, there generally is no effect on the income
statement since gains or losses on the customer contract offset gains or
losses on the forward contract.
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THERMO POWER CORPORATION
Item 2 - 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 under the heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1997, filed with the Securities and Exchange
Commission.
Overview
The Company's business is divided into four segments: Traffic
Control, Industrial Refrigeration Systems, Engines, and Cooling and
Cogeneration Systems. Through the Company's Peek subsidiary, acquired
November 1997, the Traffic Control segment 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 detectors, counter classifiers, 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. The Company's results of operations and financial
position for fiscal 1998 are expected to be affected significantly by the
acquisition of Peek.
Funding patterns of governmental entities, as well as seasonality,
are expected to result in fluctuations in quarterly revenues and income
of the Traffic Control segment. As a result of these factors, Peek has
historically experienced relatively higher sales and net income in the
second and fourth calendar quarters and relatively lower sales and net
income in the first and third calendar quarters. Additionally, a portion
of the Traffic Control segment's revenues result from the sale of large
systems, the timing of which can lead to variability in the Company's
quarterly revenues and income.
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THERMO POWER CORPORATION
Overview (continued)
A significant portion of the Traffic Control segment's revenues
originate outside the U.S., principally in Europe. Foreign divisions and
subsidiaries principally sell in their local currencies and generally
seek to charge their customers in the same currency as their operating
costs. However, the Company's financial performance and competitive
position can be affected by currency exchange rate fluctuations affecting
the relationship between the U.S. dollar and foreign currencies. The
Company reduces its exposure to currency fluctuations through the use of
forward contracts. Since the operations of the Traffic Control segment
are conducted principally in Europe, the Company's operating results
could be adversely affected by capital spending and economic conditions
in Europe.
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 months 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.
12PAGE
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THERMO POWER CORPORATION
Overview (continued)
The Company's revenues by industry segment are as follows:
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Traffic Control $38,752 $ -
Industrial Refrigeration Systems 17,009 19,146
Engines 5,124 5,407
Cooling and Cogeneration Systems 2,958 4,616
Intersegment sales elimination (281) (383)
------- -------
$63,562 $28,786
======= =======
The Company will be required to modify or replace portions of its
software and hardware, including the software and hardware of Peek, so
that it will function properly in the year 2000. Costs associated with
purchasing software and hardware that is year 2000 compliant, excluding
costs associated with Peek, is included in estimated capital expenditures
for the remainder of fiscal 1998, disclosed in liquidity and capital
resources. The cost of such new software and hardware will be capitalized
and amortized over it'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
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
Total revenues increased to $63,562,000 in the first quarter of
fiscal 1998 from $28,786,000 in the first quarter of fiscal 1997, due to
the inclusion of $38,752,000 of revenues from Peek, acquired November
1997. Peek's revenues are not necessarily indicative of future quarterly
operating results due to funding patterns of governmental entities and
seasonality. Industrial Refrigeration Systems segment revenues decreased
to $17,009,000 in fiscal 1998 from $19,146,000 in fiscal 1997, primarily
due to lower demand for standard industrial refrigeration packages at FES
and lower demand for reconditioned cooling equipment at NuTemp. Engines
segment revenues decreased to $5,124,000 in fiscal 1998 from $5,407,000
in fiscal 1997, primarily due to decreased sales of marine-engine related
products. Cooling and Cogeneration Systems segment revenues decreased to
$2,958,000 in fiscal 1998 from $4,616,000 in fiscal 1997, principally due
to decreased revenues from gas-fueled cooling systems.
13PAGE
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THERMO POWER CORPORATION
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
The gross profit margin increased to 29% in the first quarter of
fiscal 1998 from 15% in the first quarter of fiscal 1997, primarily due
to a 35% gross profit margin at Peek. The gross profit margin at Peek is
not necessarily indicative of future quarterly operating results for the
reasons discussed above. The gross profit margin for the Industrial
Refrigeration Systems segment increased to 22% in fiscal 1998 from 18% in
fiscal 1997, primarily due to lower warranty expenses and manufacturing
efficiencies at FES. The gross profit margin for the Engines segment
increased to 8% in fiscal 1998 from 3% in fiscal 1997, primarily due to a
decrease in sales of lower-margin marine-engine related products. The
gross profit margin for the Cooling and Cogeneration Systems segment
increased to 19% in fiscal 1998 from 18% in fiscal 1997, primarily due to
a decrease in sales of lower-margin gas-fueled cooling systems.
Selling, general, and administrative expenses as a percentage of
revenues increased to 21% in the first quarter of fiscal 1998 from 13% in
the first quarter of fiscal 1997, principally due to relatively higher
selling, general, and administrative expenses as a percentage of revenues
at Peek. Research and development expenses increased to $1,729,000 in
fiscal 1998 from $644,000 in fiscal 1997, due to the inclusion of
$1,154,000 of research and development expenses at Peek.
Interest income increased to $589,000 in the first quarter of fiscal
1998 from $451,000 in the first quarter of fiscal 1997, principally due
to interest earned on the receivable from ONIX Systems Inc. relating to
the sale of Peek's Field Data business (Note 3). Interest expense
increased $1,420,000 due to borrowings in November 1997 from Thermo
Electron Corporation to finance the acquisition of Peek (Note 3), and the
inclusion of $245,000 of interest expense at Peek.
The effective tax rate decreased to 46% in the first quarter of
fiscal 1998 from 70% in the first quarter of fiscal 1997. These rates
exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired
companies, 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. The effective tax rate
declined from fiscal 1997 to fiscal 1998 principally due to the smaller
relative effect of the valuation allowance required at ThermoLyte.
Minority interest expense increased to $189,000 in the first quarter
of fiscal 1998 from $78,000 in the first quarter of fiscal 1997 due to
minority interest expense on Peek's earnings relating to Peek shares
tendered after November 6, 1997, through January 16, 1998. As of January
16, 1998, the Company had acquired all of the Peek outstanding ordinary
shares.
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THERMO POWER CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $36,300,000 at January 3, 1998,
compared with $54,708,000 at September 27, 1997. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$48,836,000 at January 3, 1998, compared with $28,518,000 at
September 27, 1997. Of the $48,836,000 balance at January 3, 1998,
$15,037,000 was held by ThermoLyte, and the remainder was held by the
Company and its wholly owned subsidiaries. At January 3, 1998,
$13,611,000 of the Company's cash and cash equivalents was held by its
foreign subsidiaries. While this cash can be used outside of the United
States, repatriation of this cash into the United States would be subject
to a United States tax. Additionally, working capital at January 3, 1998,
was reduced by common stock of subsidiary subject to redemption of
$18,138,000, which represents ThermoLyte's common stock, redeemable in
December 1998 or 1999, the redemption value of which is $18,450,000.
During the first quarter of fiscal 1998, $8,078,000 of cash was
provided by operating activities. Cash provided by the Company's
operating results was improved by a reduction in inventories of
$7,333,000, offset in part by an increase in accounts receivable of
$3,354,000. The decrease in inventories and increase in accounts
receivable resulted primarily at Peek, due to the timing of shipments.
The increase in accounts receivable at Peek was offset in part by a
decrease in accounts receivable principally at Crusader, NuTemp, and FES,
due to a decrease in sales.
During the first quarter of fiscal 1998, the Company's primary
investing activities included $143,743,000 expended for the Peek
acquisition (Note 3), net of cash acquired, $1,886,000 expended for
purchases of rental assets and property, plant, and equipment, and
$1,524,000 in proceeds received from the sale of rental assets and
property, plant, and equipment. At January 3, 1998, $5,111,000 was
accrued for Peek shares acquired in the second quarter of fiscal 1998 in
completion of the Company's acquisition of Peek (Note 3). The Company
received payment of $19,117,000, relating to the sale of Peek's Field
Data business, from ONIX in January 1998 (Note 3). During the remainder
of fiscal 1998, the Company expects to make capital expenditures for the
purchase of rental assets and property, plant, and equipment of
approximately $13,600,000, including approximately $550,000 for software
and hardware that is year 2000 compliant.
The Company's financing activities provided $156,086,000 of cash in
the first quarter of fiscal 1998. The Company borrowed $160,000,000 from
Thermo Electron to finance the acquisition of Peek (Note 3) and expended
$1,129,000 of cash 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
would be funded from working capital. As of January 3, 1998, $258,000
remained under the Company's authorization.
15PAGE
<PAGE>
THERMO POWER CORPORATION
Liquidity and Capital Resources (continued)
The Company's $160,000,000 promissory note to Thermo Electron is due
in November 1999. Thermo Electron has indicated its intention to require
that the Company's indebtedness to Thermo Electron be repaid only to the
extent the Company's liquidity and cash flow permit. The Company believes
its existing resources are sufficient to meet the capital requirements of
its existing operations for the foreseeable future, except for repayment
of the promissory note to Thermo Electron as discussed above.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding the exhibits.
(b) Reports on Form 8-K
On November 21, 1997, the Company filed a Current Report on Form 8-K
pertaining to its tender offer for all of the outstanding shares of Peek
plc. On January 20, 1998, the Company filed an amendment on Form 8-K/A,
the purpose of which was to file the financial information required by
Form 8-K concerning this acquisition.
16PAGE
<PAGE>
THERMO POWER CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 5th day of February
1998.
THERMO POWER CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
17PAGE
<PAGE>
THERMO POWER CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Share Purchase Agreement dated as of January 29, 1998,
among the Company, ONIX Systems Inc., Radley Services Ltd.,
and Peek Corporation.
10.1 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated as of December 10, 1997, between the
Company and Thermo Electron Corporation.
27 Financial Data Schedule.
EXHIBIT 2.1
SHARE PURCHASE AGREEMENT
This AGREEMENT is dated as of January 29, 1998 by and among
(i) Radley Services Ltd. ("Radley") and Peek Corporation ("PC"),
on the one hand, (ii) ONIX Systems Inc., on the other hand
("Buyer"), and (iii) Thermo Power Corporation, a Massachusetts
corporation ("Thermo"). Thermo, Radley and PC are sometimes
referred to herein collectively as the Sellers.
WHEREAS, Sellers desire to sell all of the issued and
outstanding shares of each of (i) Peek Measurement Ltd., a
company organized under the laws of England ("PML"), (ii) Brandt
Instruments Inc., a company organized under the laws of the State
of Delaware ("Brandt") and (iii) Peek Measurement Inc., a company
organized under the laws of the State of Texas ("PMI") to Buyer,
and Buyer desires to purchase such shares from the Sellers;
NOW, THEREFORE, in consideration of the premises and mutual
promises and agreements set forth herein, the parties hereto
hereby agree as follows:
1. Purchase and Sale of Shares.
(a) PC hereby sells, assigns, transfers, conveys, and
delivers to Buyer 100% of the issued and outstanding shares of
capital stock of each of Brandt (the "Brandt Shares") and PMI
(the "PMI Shares") and (ii) Radley hereby sells, assigns,
transfers, conveys, and delivers to Buyer 100% of the issued and
outstanding share capital of PML (the "PML Shares," collectively
with the Brandt Shares and PMI Shares, the "Shares"). In
consideration for the Shares, Buyer shall pay to Sellers an
aggregate of $19,116,825 in cash (the "Purchase Price") plus
interest on such amount for the period beginning November 6, 1997
and ending on the date of payment of the Purchase Price, at a
rate equal to the 90-day Commercial Paper Composite Rate for
90-day maturities as reported by Merrill Lynch Capital Markets,
as an average of the last five business days of the Buyer's
latest fiscal quarter, plus 25 basis points, reset each quarter.
The parties acknowledge and agree that the Purchase Price
represents the sum of (i) the aggregate net tangible assets of
PML, Brandt and PMI (collectively, the "Peek Measurement
Business") (assumed to be $5,559,000) as of the date of Thermo's
acquisition of the Peek Measurement Business as part of the
acquisition on November 6, 1997, by Thermo of Peek plc (the "Peek
plc Business"), plus (ii) a percentage of the total goodwill
associated with Thermo's acquisition of the Peek plc Business
equal to the total revenues of the Peek Measurement Business for
the 1997 fiscal year relative to the total revenues of the Peek
plc Business for such period, plus (iii) $1,038,825, representing
the estimated tax liability of Thermo relating to the transfer of
the Peek Measurement Business to Buyer.
PAGE
<PAGE>
2. Further Assurances. At the request of Buyer at any
time on or after the date hereof, Sellers will execute and
deliver such further instruments of transfer and conveyance and
take such other action as Buyer reasonably may request
effectively to assign and transfer to Buyer any of the Shares.
3. Sellers' Representations and Warranties. Each Seller
represents and warrants that:
(a) Organization and Existence. Such Seller is a
company organized and existing under the laws of its respective
jurisdiction of organization.
(b) Approval of Transactions. Each Seller has
obtained all necessary corporate authorizations and approvals,
and has taken all actions required for the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby.
(c) No Conflict. Neither the execution nor delivery
of this Agreement, nor the consummation of the transactions
herein contemplated, nor the fulfillment of or compliance with
the terms and provisions hereof will (1) conflict with the
charter documents or by-laws of such Seller, (2) violate any
current provisions of law, administrative regulation, or court
decree applicable to such Seller or (3) conflict with or result
in a breach of any of the terms, conditions or provisions of or
constitute default under any material agreement or instrument to
which such Seller, or any Peek Measurement Business entity, is a
party or by which each is bound.
(d) Ownership of Assets and Shares; Authority to
Transfer. The Shares are not encumbered and are freely
transferable by the respective Seller. PC holds good and
marketable title to the Brandt Shares and the PMI Shares and no
third party is entitled to claim any right thereto or make any
claim thereon. Radley holds good and marketable title to the PML
Shares and no third party is entitled to claim any right thereto
or make any claim thereon. The transfer of the Shares to Buyer
pursuant to this Agreement will vest in Buyer title to the
Shares, free and clear of all liens, claims, equities, options,
calls, voting trusts, agreements, commitments and encumbrances
whatsoever.
4. Buyer's Representations and Warranties.
(a) Organization and Existence. The Buyer is a
company organized and existing under the laws of its jurisdiction
of organization.
(b) Approval of Transactions. The Buyer has obtained
all necessary corporate authorizations and approvals, and has
taken all actions required for the execution and delivery of this
2PAGE
<PAGE>
Agreement and the consummation of the transactions contemplated
hereby.
(c) No Conflict. Neither the execution nor delivery
of this Agreement, nor the consummation of the transactions
herein contemplated, nor the fulfillment of or compliance with
the terms and provisions hereof will (1) conflict with the
charter documents or by-laws of the Buyer, (2) violate any
current provisions of law, administrative regulation, or court
decree applicable to the Buyer or (3) conflict with or result in
a breach of any of the terms, conditions or provisions of or
constitute default under any material agreement or instrument to
which the Buyer is a party or by which it is bound.
3PAGE
<PAGE>
5. Indemnification.
(a) Sellers jointly and severally agree to indemnify
and hold harmless Buyer from any and all damages, losses,
liabilities, costs and expenses (including, without limitation,
settlement costs and any reasonable legal, accounting or other
expenses for investigating or defending any actions or threatened
actions) incurred by Buyer as a result of (i) the inaccuracy of
any representation or warranty contained in Section 3 hereof or
(ii) the breach by Sellers of any provision hereof.
(b) Buyer agrees to indemnify and hold harmless
Sellers from any and all damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any
reasonable legal, accounting or other expenses for investigating
or defending any actions or threatened actions) incurred by
Sellers as a result of (i) the inaccuracy of any representation
or warranty contained in Section 4 hereof or (ii) the breach by
Buyer of any provision hereof.
(c) Whenever any claim shall arise for indemnification
hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the other party or parties from
whom indemnification is sought (as the case may be, the
"Indemnifying Party") of the claim and, when known, the facts
constituting the basis for such claim. In the event of any such
claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party,
the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising
therefrom. The Indemnified Party shall not settle or compromise
any claim by a third party for which the Indemnified Party is
entitled to indemnification hereunder without the prior consent
of the Indemnifying Party, unless suit shall have been instituted
against the Indemnified Party and the Indemnifying Party shall
not have taken control of such suit after notification thereof as
provided in Section 5(d) of this Agreement.
(d) In connection with any claim giving rise to
indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this
Agreement, the Indemnifying Party at its sole cost and expense
may, upon notice to the Indemnified Party, assume the defense of
any such claim or legal proceeding if it acknowledges to the
Indemnified Party its obligations to indemnify the Indemnified
Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at
its own expense. If the Indemnifying Party does not assume the
defense of any such claim or litigation resulting therefrom
within 30 days after the date the Indemnifying Party is notified
of such claim pursuant to Paragraph 5(c) hereof, (i) the
Indemnified Party may defend against such claim or litigation,
4PAGE
<PAGE>
after giving notice of the same to the Indemnifying Party, on
such terms as are appropriate in the Indemnified Party's
reasonable judgment, and (ii) the Indemnifying Party shall be
entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense.
6. Effective Date. The transfer of the Shares shall be
deemed to be effective as of November 6, 1997.
7. Captions. The captions and headings to the various
sections, paragraphs and exhibits of this Agreement are for
convenience of reference only and shall not affect or control the
meaning or interpretation of any of the provisions of this
Agreement.
8. Integration. This Agreement contains the entire
understanding of the parties hereto with respect to the subject
matter contained herein.
9 Notices and Communications. Any notice or other
communication shall be in writing and shall be personally
delivered, or sent by overnight or second day courier or by first
class mail, return receipt requested, to the party to whom such
notice or other communication is to be given or made at such
party's address set forth below, or to such other address as such
party shall designate by written notice to the other party as
follows:
If to Sellers or Thermo Power Corporation:
Thermo Power Corporation
c/o Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02254-9046
Attn.: General Counsel
If to Buyer:
ONIX Systems Inc.
c/o Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02254-9046
Attn.: General Counsel
provided that any notice of change of address, and any notice or
other communication given otherwise than as specified above shall
be effective only upon receipt; and further that any presumption
of receipt by the addressee shall be inoperable during the period
of any interruption in Postal Service.
10. Survival of Representations and Warranties. All
representations and warranties made by Sellers or Buyer in this
5PAGE
<PAGE>
Agreement shall survive the execution and delivery of this
Agreement.
11. Governing Law; Assignment. This Agreement is to be
construed, interpreted, applied and governed in all respects in
accordance with the laws of the Commonwealth of Massachusetts,
without regard to its conflict of laws provisions, is to take
effect as a sealed instrument, is binding upon and inures to the
benefit of the parties hereto and their respective successors and
assigns and may be canceled, modified or amended only by a
written instrument executed by Thermo, Sellers and Buyer. No
party hereto may assign its rights hereunder without prior
written consent of the other party.
12. Guaranty. Thermo hereby unconditionally guarantees all
of the obligations of the other Sellers under this Agreement.
13. Counterparts. This Agreement may be executed in
counterparts, all of which together shall for all purposes
constitute one Agreement, binding on the parties hereto
notwithstanding that such parties have not signed the same
counterpart.
[Remainder of Page Intentionally Left Blank]
6PAGE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
SELLERS:
RADLEY SERVICES LTD. PEEK CORPORATION
By: J. Timothy Corcoran By: J. Timothy Corcoran
---------------------------- --------------------------
Title: Authorized Signatory Title: Chariman
------------------------- -----------------------
BUYER: THERMO:
ONIX SYSTEMS INC. THERMO POWER CORPORATION
By: William J. Zolner By: J. Timothy Corcoran
----------------------- ---------------------
Title: President & CEO Title: President & CEO
-------------------- ------------------
EXHIBIT 10.1
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 10th day of
December, 1997 by and among Thermo Electron Corporation (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second
Tier Majority Owned Subsidiary's Underlying Obligations may be
demanded and given without the respective First Tier Majority
Owned Subsidiary also issuing a guarantee of such Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other
credit to a Second Tier Majority Owned Subsidiary or its
wholly-owned subsidiaries under circumstances where the
applicable First Tier Majority Owned Subsidiary does not provide
such credit; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
PAGE
<PAGE>
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
PAGE
<PAGE>
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
PAGE
<PAGE>
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
an assignment or trust mortgage for the benefit of creditors
or the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
PAGE
<PAGE>
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO ELECTRON CORPORATION
By: Melissa F. Riordan
------------------------------
Title: Treasurer
THERMO POWER CORPORATION
By: J. Timothy Corcoran
------------------------------
Title: President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JANUARY 3,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 39,667
<SECURITIES> 9,169
<RECEIVABLES> 71,674
<ALLOWANCES> 13,699
<INVENTORY> 42,646
<CURRENT-ASSETS> 184,482
<PP&E> 33,935
<DEPRECIATION> 9,313
<TOTAL-ASSETS> 376,458
<CURRENT-LIABILITIES> 148,182
<BONDS> 160,392
0
0
<COMMON> 1,249
<OTHER-SE> 65,642
<TOTAL-LIABILITY-AND-EQUITY> 376,458
<SALES> 63,562
<TOTAL-REVENUES> 63,562
<CGS> 45,249
<TOTAL-COSTS> 45,249
<OTHER-EXPENSES> 1,729
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 1,425
<INCOME-PRETAX> 2,313
<INCOME-TAX> 1,069
<INCOME-CONTINUING> 1,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,055
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
