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 July 1, 1995.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)622-1000
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 July 28, 1995
----------------------------- ----------------------------
Common Stock, $1.00 par value 83,122,563
PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
PART I - Financial Information
Item 1 - Financial Statements
(a)Consolidated Balance Sheet - Assets as of July 1, 1995 and
December 31, 1994 (In thousands)
July 1, December 31,
1995 1994
---------- ------------
Current Assets:
Cash and cash equivalents $ 528,872 $ 383,005
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $435,343 and $617,837) 440,570 614,915
Accounts receivable, less allowances
of $24,504 and $21,664 395,182 347,444
Unbilled contract costs and fees 74,060 59,906
Inventories:
Raw materials and supplies 146,714 128,876
Work in process 67,246 44,711
Finished goods 68,861 59,795
Prepaid income taxes 53,295 57,824
Prepaid expenses 19,567 15,148
---------- ----------
1,794,367 1,711,624
---------- ----------
Property, Plant and Equipment, at Cost 921,073 811,325
Less: Accumulated depreciation and
amortization 213,234 186,437
---------- ----------
707,839 624,888
---------- ----------
Long-term Available-for-sale
Investments, at Market Value
(amortized cost of $64,237 and $65,218) 64,803 62,451
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $23,887) 22,978 -
---------- ----------
Other Assets 88,036 85,338
---------- ----------
Cost in Excess of Net Assets of
Acquired Companies 637,639 577,634
---------- ----------
$3,315,662 $3,061,935
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(a)Consolidated Balance Sheet - Liabilities and Shareholders' Investment
as of July 1, 1995 and December 31, 1994 (In thousands except share
amounts)
July 1, December 31,
1995 1994
---------- ------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 99,677 $ 94,003
Accounts payable 131,902 116,768
Accrued payroll and employee benefits 84,426 79,849
Accrued income taxes 39,100 35,845
Accrued installation and warranty costs 36,597 33,442
Other accrued expenses 221,284 200,985
---------- ----------
612,986 560,892
---------- ----------
Deferred Income Taxes and Other Items 121,970 115,973
---------- ----------
Long-term Obligations:
Senior convertible obligations 568,037 620,000
Subordinated convertible obligations 198,216 186,661
Tax-exempt obligations 131,016 130,985
Nonrecourse tax-exempt obligations 94,700 95,300
Other 80,058 16,904
---------- ----------
1,072,027 1,049,850
---------- ----------
Minority Interest 367,870 327,734
---------- ----------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,357 -
---------- ----------
Shareholders' Investment (Note 5):
Common stock, $1 par value, 175,000,000
shares authorized; 83,178,307 and
53,558,248 shares issued 83,178 53,558
Capital in excess of par value 497,911 493,058
Retained earnings 534,528 472,396
Treasury stock at cost, 97,991 and
38,318 shares (3,268) (1,631)
Cumulative translation adjustment 9,380 (3,557)
Deferred compensation (1,990) (2,657)
Net unrealized gain (loss) on available-
for-sale investments 3,713 (3,681)
---------- ----------
1,123,452 1,007,486
---------- ----------
$3,315,662 $3,061,935
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(b)Consolidated Statement of Income for the three months ended July
1, 1995 and July 2, 1994 (In thousands except per share amounts)
Three Months Ended
--------------------
July 1, July 2,
1995 1994
-------- ----------
Revenues:
Product revenues $423,638 $355,161
Service revenues 54,398 33,299
Research and development contract revenues 50,685 40,087
-------- --------
528,721 428,547
-------- --------
Costs and Expenses:
Cost of products 249,769 208,530
Cost of services 36,676 24,391
Expenses for research and development and
new lines of business (a) 68,649 57,360
Selling, general and administrative expenses 115,955 94,025
Costs associated with divisional and product
restructuring 571 -
-------- --------
471,620 384,306
-------- --------
Operating Income 57,101 44,241
Gain on Issuance of Stock by Subsidiaries
(Note 2) 9,690 229
Other Income (Expense), Net (Note 3) (31) 9,299
-------- --------
Income Before Income Taxes and Minority Interest 66,760 53,769
Provision for Income Taxes 23,923 22,653
Minority Interest Expense 10,253 6,698
-------- --------
Net Income $ 32,584 $ 24,418
======== ========
Earnings per Share:
Primary $ .39 $ .32
======== ========
Fully diluted $ .35 $ .28
======== ========
Weighted Average Shares:
Primary 82,856 76,203
======== ========
Fully diluted 104,852 102,094
======== ========
(a) Includes costs of:
Research and development contracts $ 43,458 $ 35,890
Internally funded research and development 24,310 20,674
Other expenses for new lines of business 881 796
-------- --------
$ 68,649 $ 57,360
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(b)Consolidated Statement of Income for the six months ended July 1, 1995
and July 2, 1994 (In thousands except per share amounts)
Six Months Ended
----------------------
July 1, July 2,
1995 1994
---------- ----------
Revenues:
Product revenues $ 811,663 $ 666,369
Service revenues 98,306 65,685
Research and development contract revenues 97,297 80,217
---------- ----------
1,007,266 812,271
---------- ----------
Costs and Expenses:
Cost of products 477,645 393,206
Cost of services 67,247 47,779
Expenses for research and development and
new lines of business (a) 131,792 111,018
Selling, general and administrative expenses 225,538 177,813
Costs associated with divisional and product
restructuring 2,093 -
---------- ----------
904,315 729,816
---------- ----------
Operating Income 102,951 82,455
Gain on Issuance of Stock by Subsidiaries
(Note 2) 22,573 8,723
Other Income (Expense), Net (Note 3) (3,378) 5,599
---------- ----------
Income Before Income Taxes and Minority Interest 122,146 96,777
Provision for Income Taxes 42,357 37,188
Minority Interest Expense 17,657 12,246
---------- ----------
Net Income $ 62,132 $ 47,343
========== ==========
Earnings per Share:
Primary $ .76 $ .62
========== ==========
Fully diluted $ .67 $ .56
========== ==========
Weighted Average Shares:
Primary 81,719 75,970
========== ==========
Fully diluted 104,764 97,437
========== ==========
(a) Includes costs of:
Research and development contracts $ 84,261 $ 71,530
Internally funded research and development 45,842 37,689
Other expenses for new lines of business 1,689 1,799
---------- ----------
$ 131,792 $ 111,018
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(c)Condensed Consolidated Statement of Cash Flows for the six months ended
July 1, 1995 and July 2, 1994 (In thousands)
Six Months Ended
--------------------
July 1, July 2,
1995 1994
--------- ---------
Operating Activities:
Net cash provided by operating activities $ 66,416 $ 65,588
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (98,385) (141,289)
Purchases of available-for-sale investments (171,348) (543,893)
Purchases of held-to-maturity investments (22,300) -
Proceeds from sale and maturities of
available-for-sale investments 357,557 234,722
Purchases of property, plant and equipment (26,184) (28,374)
Proceeds from sale of property, plant and
equipment 3,725 17,245
Decrease in net restricted funds - 23,420
Other (4,939) (5,430)
--------- ---------
Net cash provided by (used in) investing
activities 38,126 (443,599)
--------- ---------
Financing Activities:
Increase (decrease) in short-term notes payable (4,945) 1,194
Proceeds from issuance of long-term
obligations 37,994 378,105
Repayment and repurchase of long-term
obligations (Note 2) (13,619) (12,112)
Proceeds from issuance of Company and
subsidiary common stock 70,649 26,139
Purchases of subsidiary common stock (54,357) (53,217)
Other 1,733 128
--------- ---------
Net cash provided by financing activities 37,455 340,237
--------- ---------
Exchange Rate Effect on Cash 3,870 1,818
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 145,867 (35,956)
Cash and Cash Equivalents at Beginning of Period 383,005 325,989
--------- ---------
Cash and Cash Equivalents at End of Period $ 528,872 $ 290,033
========= =========
6PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(c)Condensed Consolidated Statement of Cash Flows for the six months ended
July 1, 1995 and July 2, 1994 (In thousands) (continued)
Six Months Ended
-------------------
July 1, July 2,
1995 1994
--------- ---------
Supplemental Cash Flow Information:
Provision for losses on accounts receivable $ 2,046 $ 2,026
Cash paid for:
Interest $ 22,478 $ 22,644
Income taxes $ 25,626 $ 12,925
Noncash activities:
Conversions of convertible obligations $ 73,908 $ 18,560
Issuance of long-term debt in connection
with acquisition $ 22,300 $ -
Acquisition of asset under capital lease $ 47,020 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 1, 1995
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Electron 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 (a) the results of operations for
the three- and six-month periods ended July 1, 1995 and July 2, 1994, (b)
the financial position at July 1, 1995, and (c) the cash flows for the
six-month periods ended July 1, 1995 and July 2, 1994. Interim results are
not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1994, 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 December 31, 1994, as amended, filed with the
Securities and Exchange Commission.
2. Transactions in Stock of Subsidiaries
"Gain on issuance of stock by subsidiaries" in the accompanying
statement of income for the three- and six-month periods ended July 1,
1995, resulted primarily from the following:
An initial public offering of 2,333,556 shares of Thermo
Ecotek Corporation common stock in February 1995 at $12.75 per
share for net proceeds of $27.5 million resulted in a gain of
$7.9 million.
Private placements of 1,601,500 shares of Thermo BioAnalysis
Corporation common stock in March and April 1995 at $10.00 per
share for net proceeds of $14.9 million resulted in a gain of
$9.5 million that was recorded by the Company's Thermo
Instrument Systems Inc. subsidiary.
A private placement of 500,000 shares of Thermo Remediation
Inc. common stock in May 1995 at $13.25 per share for net
proceeds of $6.6 million resulted in a gain of $2.7 million
that was recorded by the Company's Thermo Process Systems Inc.
subsidiary.
Private placements of 150,000 and 50,000 shares of ThermoLase
Corporation common stock in June 1995 at $13.75 and $12.825
per share, respectively, for net proceeds of $2.6 million
resulted in a gain of $1.7 million that was recorded by the
Company's ThermoTrex Corporation subsidiary.
8PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 1, 1995
(continued)
3. Other Income (Expense), Net
The components of "Other income (expense), net" in the accompanying
statement of income are:
Three Months Ended Six Months Ended
------------------ -------------------
July 1, July 2, July 1, July 2,
(In thousands) 1995 1994 1995 1994
----------------------------------------------------------------------
Interest income $ 15,077 $ 10,711 $ 29,591 $ 17,910
Interest expense (17,980) (16,481) (36,371) (26,828)
Equity in income (loss) of
unconsolidated subsidiaries 636 (631) 641 (1,838)
Gain on sale of land - 11,934 - 11,934
Other income, net 2,236 3,766 2,761 4,421
-------- -------- -------- --------
$ (31) $ 9,299 $ (3,378) $ 5,599
======== ======== ======== ========
4. Acquisition
On March 15, 1995, the Company acquired Coleman Research Corporation
(Coleman Research) in exchange for 4,002,224 shares of Company common
stock, including 202,861 shares reserved for issuance upon exercise of
stock options. Coleman Research provides systems integration, systems
engineering, and analytical services to government customers in the fields
of information technology, energy and the environment, software
engineering, launch systems, advanced radar and imaging, and health care
systems. The acquisition has been accounted for under the
pooling-of-interests method. Accordingly, all historical financial
information presented has been restated to include the acquisition of
Coleman Research. Revenues and net income for the three- and six-month
periods ended July 2, 1994, as previously reported by the separate entities
prior to the acquisition and as restated for the combined Company, are as
follows:
Three Months Ended Six Months Ended
(In thousands) July 2, 1994 July 2, 1994
----------------------------------------------------------------------
Revenues:
Previously reported $394,966 $745,442
Coleman Research 33,581 66,829
-------- --------
$428,547 $812,271
======== ========
Net Income:
Previously reported $ 24,150 46,691
Coleman Research 268 652
-------- --------
$ 24,418 $ 47,343
======== ========
9PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 1, 1995
(continued)
5. Stock Split
In March 1995, the Company declared a three-for-two stock split in the
form of a 50% stock dividend that was distributed on May 24, 1995, to
shareholders of record as of April 26, 1995. Common shares outstanding as
of July 1, 1995, and all weighted average share and per share amounts have
been restated to reflect the stock split.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Second Quarter 1995 Compared With Second Quarter 1994
Sales for the second quarter of 1995 were a record $528.7 million, an
increase of $100.2 million, or 23%, over the second quarter of 1994.
Segment income was $64.3 million, compared with $49.5 million, an increase
of 30%. (Segment income is income before corporate general and
administrative expenses, costs associated with divisional and product
restructuring, other income and expense, minority interest expense and
income taxes.) Operating income was $57.1 million, compared with $44.2
million in 1994, an increase of 29%. Financial results for 1994 have been
restated to include Coleman Research, which was acquired in a
pooling-of-interests transaction in March 1995 (Note 4).
Sales from the Instruments segment were $185.7 million in 1995, an
increase of $23.1 million, or 14%, over 1994. Sales increased $18.6 million
due to Thermo Instrument's acquisitions of the Analytical Instruments
Division of Baird Corporation in January 1995 and Gould Instrument Systems,
Inc. in May 1995. An increase in revenues of $8.3 million as a result of
the favorable effects of currency translation due to a weaker U.S. dollar
in 1995 was offset in part by a decline in sales at Thermo Instrument's air
monitoring instruments subsidiary and, to a lesser extent, certain other
subsidiaries. The air monitoring instruments subsidiary's sales decreased
as most orders in response to Phases I and II of the Clean Air Act of 1990
have been completed. Orders booked by Thermo Instrument during the second
quarter of 1995 exceeded its shipments by $10.7 million. Segment income
margin (segment income margin is segment income as a percentage of sales)
was 14.8% in 1995, compared with 16.5% in 1994. Segment income margin
declined due to lower margins at acquired businesses and reduced shipments
at the air monitoring instruments subsidiary.
Sales from the Alternative-energy Systems segment were $81.3 million in
1995, an increase of $10.4 million, or 15%, over 1994. Within this segment,
revenues from Thermo Ecotek Corporation, which consist of revenues from
alternative-energy power plant operations, were $34.0 million in 1995,
compared with $32.7 million in 1994. The increase is primarily due to the
Whitefield, New Hampshire, plant operating for the full quarter in 1995.
During 1994, this plant did not operate for most of the quarter due to
major damage to the turbine-generator. The plant returned to normal
10PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Second Quarter 1995 Compared With Second Quarter 1994 (continued)
operations late in the second quarter of 1994. Higher contractual energy
rates in 1995 at all of Thermo Ecotek's facilities, except the Hemphill
facility in New Hampshire, were substantially offset by utility-imposed
curtailment of power output at the Woodland and Mendota plants in
California. Sales at Peter Brotherhood Ltd. increased $5.1 million as a
result of increased demand for turbine products and, to a lesser extent,
increased demand for special machinery products from depressed 1994 levels.
Sales from Thermo Power Corporation increased $4.1 million, to $27.5
million. Within Thermo Power, sales increased $2.1 million at FES due to
increased demand for refrigeration packages, and increased $1.1 million at
Crusader Engines due to increased demand for marine engine-related
products. Sales at Thermo Power's NuTemp, Inc. subsidiary, which was
acquired in May 1994, increased $0.7 million.
Segment income from the Alternative-energy Systems segment was $8.4
million in 1995, compared with $7.4 million in 1994. Thermo Ecotek had
segment income of $7.0 million, compared with $5.4 million in 1994. This
improvement results from lower fuel costs at two of Thermo Ecotek's
California plants and lower maintenance costs at certain facilities. In
addition, higher contractual energy rates in 1995 were substantially offset
by utility-imposed curtailment of power output at the Woodland and Mendota
facilities. Lower lease expense in 1995 due to the conversion of the
Mendota plant's operating lease to a capital lease was offset by higher
depreciation expense on this facility. Thermo Ecotek's increased efforts to
develop its international and domestic business lowered segment income
margins by approximately 1%. Segment income margins at Thermo Power
declined to 3.3% in 1995 from 6.3% in 1994 due to lower margins at NuTemp
resulting from a change in the sales mix from higher-margin rental to
lower-margin equipment sales. Rental revenues were adversely affected by
the relatively cool spring season in certain of NuTemp's markets. Margins
also declined approximately 1.7% as a result of increased research and
development costs associated with gas-fueled lighting products and, to a
lesser extent, natural gas-engine products. Margins were also slightly
affected by an increase in warranty costs at Thermo Power's Crusader
Engines division. Peter Brotherhood incurred a segment loss of $0.5 million
in 1995, compared with a loss of $0.3 million in 1994, as a result of
increased costs to complete jobs in process.
Sales in the Process Equipment segment were $72.4 million in 1995, an
increase of $26.6 million, or 58%, over 1994. Sales increased $22.0 million
as a result of sales recorded under a $145 million contract for
engineering, procurement, and construction services for an office
wastepaper de-inking facility in Menominee, Michigan. The facility is
expected to be completed in 1996. Sales also increased $2.5 million at
Thermo Fibertek Inc.'s North American accessories business and increased
$1.4 million at the Company's wholly owned Napco, Inc. subsidiary, which
sells automated electroplating equipment, as a result of increased demand.
Thermo Fibertek's sales also increased, to a lesser extent, due to the
favorable effects of currency translation due to the weaker U.S. dollar in
11PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Second Quarter 1995 Compared With Second Quarter 1994 (continued)
1995. Segment income was $8.3 million in 1995, compared with $4.5 million
in 1994. This improvement results from increased sales.
Sales in the Biomedical Products segment were $55.1 million in 1995, an
increase of $11.8 million, or 27%, over 1994 due primarily to increased
demand for a number of the Company's biomedical products. Sales of
ThermoTrex Corporation's mammography and needle-biopsy systems increased
30% to $17.2 million; Thermo Cardiosystems Inc.'s implantable left
ventricular-assist systems (LVAS) increased more than 100% to $5.6 million;
skin-care products from CBI Laboratories, Inc., a subsidiary of ThermoLase
Corporation, increased 22% to $5.6 million; neuro-diagnostic monitoring
equipment sold by the Company's wholly owned Nicolet Biomedical Inc.
subsidiary increased 14% to $13.2 million; and sales of blood
coagulation-monitoring products and skin-incision devices sold by the
Company's wholly owned International Technidyne Corporation subsidiary
increased 24% to $8.6 million. Segment income margin improved to 14.4% from
9.3% in 1994 as a result of increased sales and, to a lesser extent, price
increases for Thermo Cardiosystems' air-driven LVAS.
Sales in the Environmental Services segment were $54.4 million in 1995,
an increase of $21.1 million, or 63%, over 1994. Within this segment, sales
from Thermo Remediation Inc. were $13.2 million, compared with $11.6
million in 1994. Thermo Remediation's soil-remediation sales increased 10%
to $7.4 million due to the inclusion of $2.1 million in sales from acquired
businesses. This increase was offset in part by lower revenues resulting
from a decline in the volume of soil processed due to severe weather at one
site, regulatory uncertainties at a second site, and competitive pressures
at several locations. Thermo Remediation's nuclear services revenues
increased 18% to $5.8 million due to a long-term environmental restoration
contract for the U.S. Department of Energy's (DOE's) Hanford site
(Hanford), offset in part by a decrease in radiochemistry laboratory work,
reflecting a reduction in spending at the DOE. Sales of analytical
laboratory and environmental consulting services increased $17.6 million,
to $27.3 million, due to the inclusion of sales from acquired businesses.
Sales of metallurgical services increased 11% to $11.8 million, due to
increased demand. Segment income margin improved to 11.6% from 10.1% in
1994 due to increased sales, offset in part by lower margins from nuclear
services, primarily due to lower margins on sales under the Hanford
contract and a decrease in sales from radiochemistry laboratory work.
Sales from the Advanced Technologies segment were $80.9 million in
1995, compared with $74.0 million in 1994. Sales increased due to the
inclusion of revenues from acquired businesses and an increase of $8.5
million in sales from Coleman Research due to increased contract funding.
These increases were offset in part by a decline of $5.8 million in sales
from Thermedics Detection Inc. Sales of Thermedics Detection's process
detection systems declined to $4.2 million in 1995, from $9.9 million in
1994 due to a decline in demand from its principal customer, which has
substantially implemented its initial deployment of Alexus (TM) systems.
Segment income margin improved to 7.2% from 4.7% in 1994, due to improved
12PAGE
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FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Second Quarter 1995 Compared With Second Quarter 1994 (continued)
margins at Coleman Research and Ramsey Technology Inc., primarily due to
efforts to control costs. These improvements were offset in part by a
decline in segment income margin from Thermedics Detection, as a result of
lower sales.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell a
minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the subsidiaries'
growth. As a result of the sale of stock by subsidiaries and the issuance
of stock by subsidiaries upon conversion of convertible debentures, the
Company recorded gains of $9.7 million in 1995 and $0.2 million in 1994
(Note 2). Although the Company expects to continue this strategy in the
future, its goal is to continue increasing segment income over the next few
years so that gains resulting from the sale of stock by its subsidiaries
will represent a decreasing portion of net income. The size and timing of
these transactions are dependent on market and other conditions that are
beyond the Company's control. Accordingly, there can be no assurance that
the Company will be able to realize gains from such transactions in the
future.
First Six Months 1995 Compared With First Six Months 1994
Sales for the first six months of 1995 were $1,007.3 million, an
increase of $195.0 million, or 24%, over the 1994 period. Segment income
was $117.0 million, an increase of $24.7 million, or 27%, over 1994.
Operating income was $103.0 million in 1995, compared with $82.5 million in
1994.
Sales for the Instruments segment were $358.7 million, an increase of
$48.4 million, or 16%, over 1994. Sales increased due primarily to
acquisitions, which added revenues of $46.7 million in the first six months
of 1995. An increase in revenues of $15.7 million due to the favorable
effects of currency translation due to a weaker U.S. dollar in 1995 was
substantially offset by a decline in revenues from Thermo Instrument's air
monitoring instruments subsidiary and, to a lesser extent, certain other
subsidiaries. The decline in the air monitoring instruments subsidiary's
revenues is discussed in the results for the second quarter. Orders booked
by Thermo Instrument during the first six months of 1995 exceeded its
shipments by $16.9 million. Segment income margin declined to 14.6% in
1995, compared with 17.1% in 1994 due to lower margins at acquired
businesses and reduced shipments of air monitoring products.
Sales from the Alternative-energy Systems segment were $155.5 million
in 1995, an increase of $22.6 million, or 17%, over 1994. Within this
segment, revenues from Thermo Ecotek were $65.1 million in 1995, compared
with $61.9 million in 1994. This increase is primarily due to the
Whitefield, New Hampshire plant operating for the full 1995 period, and
higher contractual energy rates in 1995, largely offset by utility-imposed
13PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Six Months 1995 Compared With First Six Months 1994 (continued)
curtailment of power output at the Woodland and Mendota plants in
California. Sales from the Company's wholly owned Energy Systems division
increased $3.7 million to $12.5 million as a result of a waste-recycling
facility in San Diego County (the County) that commenced operations in the
first quarter of 1994. The County has announced its desire to purchase the
facility and terminate the service agreement under which the Company
derives revenues from the operation of the facility. Termination of the
service agreement would require the County to pay the Company a termination
fee and reimburse the Company for certain other expenses incurred in
connection with the facility. The Company is currently negotiating the
terms of this termination, however, no assurance can be given that the
Company will reach an agreement with the County. Sales from Thermo Power
increased 16% to $52.4 million as a result of increased demand for marine
products, the acquisition of NuTemp in May 1994, which increased sales by
$2.6 million and, to a lesser extent, increased demand for cooling and
cogeneration systems and refrigeration packages. Sales of Peter Brotherhood
steam turbines and special purpose machinery increased $8.8 million due to
higher demand, as discussed in the results for the second quarter.
Segment income from the Alternative-energy Systems segment was $14.5
million in 1995, compared with $10.9 million in 1994. Thermo Ecotek had
segment income of $10.4 million in 1995, compared with $8.4 million in
1994. This improvement results primarily from lower fuel expense at two of
the California plants. In addition, higher contractual energy rates and
higher generated output were substantially offset by utility-imposed
curtailment of power output and increased spending on new business
development. Segment income from the Company's Energy Systems division
increased $1.4 million in 1995 as a result of the waste-recycling facility
that commenced operations in the first quarter of 1994. Segment income at
Thermo Power and Peter Brotherhood were about the same level as in 1994.
Sales in the Process Equipment segment were $129.9 million in 1995,
compared with $88.8 million in 1994. Sales from Thermo Fibertek increased
$18.4 million to $93.3 million in 1995, due primarily to an increase of
$11.2 million in sales of paper-recycling equipment, which includes $7.6
million of sales under a subcontract with Thermo Electron to supply
equipment for the office wastepaper de-inking facility discussed in the
results for the second quarter. Sales also increased $5.4 million due to
increased demand for accessories in North America and, to a lesser extent,
the favorable effects of currency translation resulting from the weaker
U.S. dollar in 1995. In addition to sales recorded by Thermo Fibertek under
the office wastepaper de-inking facility project, Thermo Electron had sales
of $19.5 million from the project. Sales of automated electroplating
equipment from the Company's Napco subsidiary were $9.6 million, compared
with a depressed level of $6.5 million in 1994. Segment income margin
improved to 11.2%, compared with 9.7% in 1994 as a result of increased
sales.
Sales in the Biomedical Products segment were $109.3 million in 1995,
an increase of $25.0 million, or 30%, over 1994, due primarily to increased
demand for a number of the Company's biomedical products. Sales of
14PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Six Months 1995 Compared With First Six Months 1994 (continued)
ThermoTrex's mammography and needle-biopsy systems increased 33% to $33.3
million; Thermo Cardiosystems' LVAS increased more than 100% to $10.0
million; skin-care products from CBI Laboratories, a subsidiary of
ThermoLase, increased 38% to $11.8 million; neuro-diagnostic monitoring
equipment sold by the Company's wholly owned Nicolet Biomedical subsidiary
increased 15% to $26.3 million; and sales of blood coagulation-monitoring
products and skin-incision devices sold by the Company's wholly owned
International Technidyne subsidiary increased 21% to $16.5 million. Segment
income margin improved to 13.2% from 7.8% in 1994 as a result of increased
sales and, to a lesser extent, price increases for Thermo Cardiosystems'
air-driven LVAS.
Sales in the Environmental Services segment were $98.3 million in 1995,
an increase of $32.6 million, or 50%, over 1994. Within this segment, sales
from Thermo Remediation were $26.8 million, compared with $19.4 million in
1994. Thermo Remediation's soil-remediation sales increased 6%, to $15.3
million, due to the inclusion of sales from acquired businesses, offset in
part by lower revenues at existing sites, as discussed in the results for
the second quarter. Thermo Remediation's nuclear services revenues
increased 23% to $11.4 million, primarily due to revenues from the
long-term environmental restoration Hanford contract. Sales of analytical
laboratory and environmental consulting services increased $26.0 million,
to $44.3 million, due primarily to the inclusion of sales from acquired
businesses. Sales of metallurgical services increased 11% due to increased
demand. Segment income was $10.1 million in 1995, compared with $6.7
million in 1994. Segment income increased due to higher sales, offset in
part by higher legal expenses incurred within the environmental consulting
services operations.
Sales from the Advanced Technologies segment were $158.2 million in
1995, compared with $132.6 million in 1994. Sales increased primarily due
to the inclusion of sales from acquired businesses and an increase of $15.0
million in sales from Coleman Research due to increased contract funding.
These increases were offset in part by a decline in sales from Thermedics
Detection, as discussed in the results for the second quarter. Segment
income margin improved to 7.0% from 4.8% in 1994, due to increased sales
and efforts to reduce costs. This improvement was offset in part by a
decline in segment income margin from Thermedics Detection, as a result of
lower sales.
In the first six months of 1995, the Company recorded restructuring
charges, classified as "Costs associated with divisional and product
restructuring" in the accompanying statement of income, of $2.1 million, of
which $1.5 million resulted from the decision to close its metallurgical
services division located in Albuquerque, New Mexico. The costs primarily
represent severance costs and the write-off of costs in excess of net
assets of acquired companies and leasehold improvements. The facility was
closed by the end June 1995. The remaining $0.6 million represents
adjustments to previously established reserves.
15PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Six Months 1995 Compared With First Six Months 1994 (continued)
The Company recorded gains as a result of the sale of stock by
subsidiaries of $22.6 million in 1995 and $8.7 million in 1994 (Note 2).
Minority interest expense increased to $17.7 million in 1995 from $12.2
million in 1994. Minority interest expense includes $3.1 million in 1995
and $0.1 million in 1994, relating to gains recorded by the Company's
majority-owned subsidiaries as a result of the sale of stock by their
subsidiaries.
Financial Condition
Liquidity and Capital Resources
Consolidated working capital was $1,181.4 million at July 1, 1995,
compared with $1,150.7 million at December 31, 1994. Included in working
capital were cash and available-for-sale investments of $969.4 million at
July 1, 1995, compared with $997.9 million at December 31, 1994. In
addition, at July 1, 1995, the Company had $64.8 million of long-term
available-for-sale investments and $23.0 million of long-term
held-to-maturity investments, compared with $62.5 million of long-term
available-for-sale investments at December 31, 1994.
On March 1, 1995, the Company's Thermo Instrument subsidiary entered
into an agreement to acquire the Scientific Instruments Division (the
Division) of Fisons plc for approximately 202 million British pounds
sterling. On April 13, 1995, Thermo Instrument announced that it had
received a "second request" for information regarding the transaction from
the U.S. Federal Trade Commission (FTC). The FTC and other national
regulatory competition authorities have expressed concern that completion
of the transaction in its original form would affect competition in markets
for certain product lines to be acquired by Thermo Instrument, including
the market for mass spectrometers. On June 30, 1995, Thermo Instrument and
Fisons plc agreed to extend the termination date under the agreement from
June 30, 1995 to August 15, 1995 to allow for the negotiation of potential
modifications to the transaction. The Company anticipates that this date
will be further extended prior to August 15. In addition to receipt of
required antitrust regulatory approvals, completion of the transaction is
subject to consent of certain third parties, and the satisfaction of other
customary closing conditions.
During the first six months of 1995, the Company expended $98.4 million
for acquisitions and $26.2 million for purchases of property, plant and
equipment. Including the Fisons transaction discussed above, the Company
has agreements or letters of intent to expend approximately $522 million on
the acquisition of new businesses. These transactions are subject to
various conditions to closing, and there can be no assurance that all of
the transactions will be consummated. The Company has no material
commitments for purchases of property, plant and equipment and expects
that, for 1995, such expenditures will approximate the 1994 level.
16PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
During the first six months of 1995, the Company and its majority-owned
subsidiaries issued long-term obligations of $38.0 million and repaid and
repurchased long-term obligations of $13.6 million. Proceeds from the
issuance of Company and subsidiary common stock totaled $70.6 million in
the first six months of 1995. In addition, the Company and its
majority-owned subsidiaries expended $54.4 million to purchase common stock
of the Company's subsidiaries during the first six months of 1995. The
Company expects that these purchases will continue although the amount of
repurchases in a given reporting period may vary significantly.
Subsequent to the end of the second quarter, Thermo Instrument's
ThermoSpectra subsidiary sold 1,725,000 shares of its common stock in an
initial public offering at $14.00 per share for net proceeds of
approximately $21.7 million. In addition, Thermo Instrument's wholly owned
ThermoQuest Corporation subsidiary issued and sold $96.2 million principal
amount of 5% subordinated convertible debentures due 2000. The Company
purchased $10 million of these debentures.
PART II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On May 23, 1995, at the Annual Meeting of Shareholders, the
shareholders elected a class of four incumbent directors to a three-year
term expiring in 1998. The Directors reelected at the meeting were:
Dr. Elias P. Gyftopoulos, Mr. Frank Jungers, Dr. Frank E. Morris, and
Mr. Donald E. Noble. Dr. Gyftopoulos received 43,285,914 shares voted in
favor of his election and 111,218 shares against, Mr. Jungers received
43,283,470 shares voted in favor of his election and 113,662 shares
against, Dr. Morris received 43,270,202 shares voted in favor of his
election and 126,930 shares against, and Mr. Noble received 43,254,599
shares voted in favor of his election and 142,533 shares against. No broker
nonvotes were recorded on the election of directors.
The shareholders also approved a proposal to amend the Company's
Directors Stock Option Plan to change the formula for the award to outside
Directors of stock options to purchase common stock of the Company's
majority-owned subsidiaries as follows: 39,353,160 shares voted in favor,
3,102,500 shares voted against, 687,277 shares abstained, and there were
254,195 broker nonvotes.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
17PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON 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 9th day of August 1995.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
18PAGE
<PAGE>
FORM 10-Q
July 1, 1995
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit Number Document Page
-------------- -------- ----
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
19<PAGE>
Exhibit 11
THERMO ELECTRON CORPORATION
Computation of Earnings per Share
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------------ ------------ ----------- ------------
Computation of Fully
Diluted Earnings
per Share:
Income:
Net income $ 32,584,000 $ 24,418,000 $ 62,132,000 $ 47,343,000
Add: Convertible
debenture interest,
net of tax 3,997,000 4,549,000 8,301,000 7,009,000
------------ ------------ ------------ ------------
Income applicable to
common stock assuming
full dilution (a) $ 36,581,000 $ 28,967,000 $ 70,433,000 $ 54,352,000
------------ ------------ ------------ ------------
Shares:
Weighted average shares
outstanding 82,855,623 76,203,177 81,718,750 75,970,212
Add: Shares issuable
from assumed
conversion of
convertible
debentures 20,717,286 25,307,268 21,765,900 20,881,440
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 1,278,908 583,395 1,278,908 585,026
------------ ------------ ------------ ------------
Weighted average
shares outstanding,
as adjusted (b) 104,851,817 102,093,840 104,763,558 97,436,678
------------ ------------ ------------ ------------
Fully Diluted Earnings
per Share (a) / (b) $ .35 $ .28 $ .67 $ .56
============ ============ ============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JULY
1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 528,872
<SECURITIES> 440,570
<RECEIVABLES> 395,182
<ALLOWANCES> 24,504
<INVENTORY> 282,821
<CURRENT-ASSETS> 1,794,367
<PP&E> 921,073
<DEPRECIATION> 213,234
<TOTAL-ASSETS> 3,315,662
<CURRENT-LIABILITIES> 612,986
<BONDS> 1,072,027
<COMMON> 83,178
0
0
<OTHER-SE> 1,040,274
<TOTAL-LIABILITY-AND-EQUITY> 3,315,662
<SALES> 811,663
<TOTAL-REVENUES> 1,007,266
<CGS> 477,645
<TOTAL-COSTS> 629,153<F1>
<OTHER-EXPENSES> 49,624<F2>
<LOSS-PROVISION> 2,046
<INTEREST-EXPENSE> 36,371
<INCOME-PRETAX> 122,146
<INCOME-TAX> 42,357
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<NET-INCOME> 62,132
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<FN>
<F1>THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF
PRODUCTS" , "COST OF SERVICES", AND "RESEARCH AND DEVELOPMENT CONTRACTS".
<F2>THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COSTS
ASSOCIATED WITH DIVISIONAL AND PRODUCT RESTRUCTURING", "INTERNALLY FUNDED
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</FN>
</TABLE>
