SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2 ON FORM 10-K/A
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1994
[ ] 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to the
filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 27, 1995, was approximately $2,200,490,000.
As of January 27, 1995, the Registrant had 51,000,776 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1994, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 23, 1995, are incorporated by
reference into Part III.
PAGE
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FORM 10-K/A
THERMO ELECTRON CORPORATION
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(c) Exhibits
13 Annual Report to Shareholders for the year ended
December 31, 1994 (only those portions incorporated
herein by reference)
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
Attached is Exhibit 13 of the Registrant's Form 10-K for the year
ended December 31, 1994. The Registrant's financial statements have been
restated to reflect the March 15, 1995 acquisition of Coleman Research
Corporation which has been accounted for under the pooling-of-interests
method and to reflect a three-for-two stock split, effected in the form of
a 50% stock dividend, that was distributed in May 1995. This amended
information replaces the corresponding information filed originally in the
Form 10-K.
2PAGE
<PAGE>
FORM 10-K/A
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 udnersigned thereunto duly authorized, on this 1st day of August 1995.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance and
Administration
3PAGE
<PAGE>
Exhibit 13
THERMO ELECTRON CORPORATION
1994 Financial Statements
PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Income
(In thousands except per share amounts) 1994 1993 1992
--------------------------------------------------------------------------
Revenues:
Product revenues $1,418,306 $1,103,558 $ 808,928
Service revenues 141,438 121,987 114,268
Research and development contract
revenues 169,447 128,963 76,032
---------- ---------- ----------
1,729,191 1,354,508 999,228
---------- ---------- ----------
Costs and Expenses:
Cost of products 824,845 664,201 521,668
Cost of services 103,800 91,292 87,307
Expenses for research and development
and new lines of business (a) 233,099 183,965 106,466
Selling, general and administrative
expenses 384,715 289,282 213,266
Costs associated with divisional and
product restructuring (Note 12) 650 6,616 -
---------- ---------- ----------
1,547,109 1,235,356 928,707
---------- ---------- ----------
Operating Income 182,082 119,152 70,521
Gain on Issuance of Stock by
Subsidiaries (Note 10) 25,283 39,863 30,212
Other Income (Expense), Net (Note 11) (989) (27,548) 1,842
---------- ---------- ----------
Income Before Income Taxes, Minority
Interest, and Cumulative Effect of
Change in Accounting Principle 206,376 131,467 102,575
Provision for Income Taxes (Note 9) 70,703 33,513 27,750
Minority Interest Expense 30,962 21,086 13,902
---------- ---------- ----------
Income Before Cumulative Effect of
Change in Accounting Principle 104,711 76,868 60,923
Cumulative Effect of Change in
Accounting Principle, Net of
Tax (Note 8) - - 1,438
---------- ---------- ----------
Net Income $ 104,711 $ 76,868 $ 59,485
========== ========== ==========
Before Cumulative Effect of Change in
Accounting Principle:
Primary earnings per share $ 1.35 $ 1.11 $ .95
========== ========== ==========
Fully diluted earnings per share $ 1.20 $ 1.00 $ .90
========== ========== ==========
Primary Earnings per Share $ 1.35 $ 1.11 $ .93
========== ========== ==========
Fully Diluted Earnings per Share $ 1.20 $ 1.00 $ .88
========== ========== ==========
Primary Weighted Average Shares 77,667 69,468 63,874
========== ========== ==========
Fully Diluted Weighted Average Shares 100,819 87,079 74,545
========== ========== ==========
2PAGE
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Thermo Electron Corporation
Consolidated Statement of Income (continued)
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
(a) Includes costs of:
Research and development contracts $ 149,645 $ 116,733 $ 63,336
Internally funded research and
development 79,555 59,583 38,888
Other expenses for new lines of
business 3,899 7,649 4,242
---------- ---------- ----------
$ 233,099 $ 183,965 $ 106,466
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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Thermo Electron Corporation
Consolidated Balance Sheet
(In thousands) 1994 1993
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 383,005 $ 325,989
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $617,837) (Note 2) 614,915 -
Short-term investments, at cost (quoted
market value of $377,183) - 374,450
Accounts receivable, less allowances
of $21,664 and $14,174 347,444 281,223
Unbilled contract costs and fees 59,906 45,108
Inventories:
Raw materials and supplies 128,876 110,437
Work in process 44,711 38,055
Finished goods 59,795 44,330
Prepaid income taxes (Note 9) 57,824 35,996
Prepaid expenses 15,148 12,705
---------- ----------
1,711,624 1,268,293
---------- ----------
Assets Related to Projects Under Construction:
Restricted funds, at quoted market value - 34,100
Facilities under construction - 128,040
---------- ----------
- 162,140
---------- ----------
Property, Plant and Equipment, at Cost:
Land 43,990 40,570
Buildings 143,727 116,895
Alternative-energy and waste-recycling
facilities 335,064 199,800
Machinery, equipment and leasehold improvements 288,544 237,558
---------- ----------
811,325 594,823
Less: Accumulated depreciation and amortization 186,437 139,203
---------- ----------
624,888 455,620
---------- ----------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $65,218)
(Note 2) 62,451 -
---------- ----------
Long-term Marketable Securities, at Cost
(quoted market value of $45,125) - 43,630
---------- ----------
Other Assets 85,338 102,347
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 577,634 475,567
---------- ----------
$3,061,935 $2,507,597
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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Thermo Electron Corporation
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1994 1993
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (Note 6) $ 94,003 $ 70,113
Accounts payable 116,768 90,152
Accrued payroll and employee benefits 79,849 56,557
Accrued income taxes 35,845 7,713
Accrued installation and warranty costs 33,442 26,049
Other accrued expenses (Note 3) 200,985 183,870
---------- ----------
560,892 434,454
---------- ----------
Deferred Income Taxes (Note 9) 58,250 48,738
---------- ----------
Other Deferred Items 57,723 58,152
---------- ----------
Liabilities Related to Projects Under
Construction (Note 6):
Payables and accrued expenses - 10,680
Tax-exempt obligations - 142,069
---------- ----------
- 152,749
---------- ----------
Long-term Obligations (Note 6):
Senior convertible obligations 620,000 275,000
Subordinated convertible obligations 186,661 238,386
Tax-exempt obligations 130,985 -
Nonrecourse tax-exempt obligations 95,300 108,800
Other 16,904 25,406
---------- ----------
1,049,850 647,592
---------- ----------
Minority Interest 327,734 277,681
---------- ----------
Commitments and Contingencies (Note 7)
Common Stock of Subsidiary Subject to
Redemption ($15,390 redemption value) - 14,511
---------- ----------
Shareholders' Investment (Notes 4 and 5):
Preferred stock, $100 par value, 50,000
shares authorized; none issued
Common stock, $1 par value, 175,000,000
shares authorized; 53,558,248 and
50,483,488 shares issued 53,558 50,484
Capital in excess of par value 493,058 474,193
Retained earnings 472,396 367,685
Treasury stock at cost, 38,318 and 31,898
shares (1,631) (1,212)
Cumulative translation adjustment (3,557) (13,591)
Deferred compensation (Note 8) (2,657) (3,839)
5PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1994 1993
------------------------------------------------------------------------
Net unrealized loss on available-for-sale
investments (Note 2) (3,681) -
---------- ----------
1,007,486 873,720
---------- ----------
$3,061,935 $2,507,597
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
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Thermo Electron Corporation
Consolidated Statement of Cash Flows
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Operating Activities:
Net income $ 104,711 $ 76,868 $ 59,485
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of change in
accounting principle (Note 8) - - 1,438
Depreciation and amortization 65,028 44,192 30,463
Costs associated with divisional
and product restructuring
(Note 12) 650 6,616 -
Equity in losses of unconsolidated
subsidiaries 4,019 22,721 3,948
Provision for losses on accounts
receivable 4,255 2,675 2,021
Increase in deferred income taxes 9,403 14,134 12,374
Gain on sale of property, plant
and equipment (15,025) (198) (175)
Gain on sale of investments (4,851) (2,469) (4,968)
Gain on issuance of stock by
subsidiaries (Note 10) (25,283) (39,863) (30,212)
Minority interest expense 30,962 21,086 13,902
Other noncash expenses 9,809 7,850 11,549
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (8,556) (44,989) (11,030)
Inventories 10,017 (6,525) (4,753)
Other current assets (9,713) (8,319) (14,099)
Accounts payable 804 13,865 (1,676)
Other current liabilities 16,295 (6,319) (3,323)
--------- --------- ---------
Net cash provided by operating
activities 192,525 101,325 64,944
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (173,764) (142,962) (251,738)
Purchases of available-for-sale
investments (748,879) - -
Proceeds from sale and maturities of
available-for-sale investments 495,361 - -
Purchases of property, plant and
equipment (65,525) (62,704) (63,320)
Proceeds from sale of property,
plant and equipment 21,391 5,224 1,609
Purchases of long-term investments - (20,573) (70,340)
Proceeds from sale of long-term
investments - 16,651 35,899
(Increase) decrease in short-term
investments - (193,894) 68,260
Increase in assets related to
construction projects - (3,781) (132,971)
7PAGE
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Thermo Electron Corporation
Consolidated Statement of Cash Flows (continued)
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Decrease in net restricted funds 23,420 - -
Other (7,662) (3,516) (1,137)
--------- --------- ---------
Net cash used in investing
activities (455,658) (405,555) (413,738)
--------- --------- ---------
Financing Activities:
Proceeds from issuance of long-term
obligations 368,620 102,282 389,230
Repayment and repurchase of long-term
obligations (27,176) (11,732) (27,539)
Increase (decrease) in short-term
notes payable 16,683 27,343 (8,459)
Proceeds from issuance of Company
and subsidiary common stock 60,601 378,790 100,749
Purchases of Company and subsidiary
common stock (101,481) (57,198) (45,334)
Other 987 3,096 2,485
--------- --------- ---------
Net cash provided by financing
activities 318,234 442,581 411,132
--------- --------- ---------
Exchange Rate Effect on Cash 1,915 (3,374) (2,424)
--------- --------- ---------
Increase in Cash and Cash Equivalents 57,016 134,977 59,914
Cash and Cash Equivalents at
Beginning of Year 325,989 191,012 131,098
--------- --------- ---------
Cash and Cash Equivalents at End
of Year $ 383,005 $ 325,989 $ 191,012
========= ========= =========
See Note 13 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
8PAGE
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Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment
Common Capital
Stock, in Excess
$1 Par of Par Retained
(In thousands) Value Value Earnings
-------------------------------------------------------------------------
Balance December 28, 1991,
as previously reported $ 25,858 $230,251 $226,349
Acquisition through
pooling-of-interests 2,533 1,080 4,983
-------- -------- --------
Balance December 28, 1991,
as restated 28,391 231,331 231,332
Net income - - 59,485
Purchases of Company common
stock - - -
Private placement of Company
common stock 800 33,455 -
Issuance of stock under
employees' and directors'
stock plans 358 4,241 -
Tax benefit related to
employees' and directors'
stock plans - 4,773 -
Conversion of convertible
obligations 84 2,894 -
Effect of majority-owned
subsidiaries' equity
transactions - (16,509) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
--------- --------- --------
Balance January 2, 1993 29,633 260,185 290,817
Net income - - 76,868
Public offering of Company
common stock (Note 4) 4,500 241,505 -
Issuance of stock under
employees' and directors'
stock plans 216 763 -
Conversion of convertible
obligations 285 6,619 -
Effect of majority-owned
subsidiaries' equity
transactions - (19,029) -
Effect of three-for-two
stock split 15,850 (15,850) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
-------- -------- --------
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Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Common Capital
Stock, in Excess
$1 Par of Par Retained
(In thousands) Value Value Earnings
-------------------------------------------------------------------------
Balance January 1, 1994 50,484 474,193 367,685
Net income - - 104,711
Issuance of stock under
employees' and directors'
stock plans 153 2,429 -
Conversion of convertible
obligations 2,921 63,013 -
Effect of majority-owned
subsidiaries' equity
transactions - (46,577) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
Effect of change in accounting
principle (Note 2) - - -
Change in net unrealized loss
on available-for-sale
investments (Note 2) - - -
-------- -------- --------
Balance December 31, 1994 $ 53,558 $493,058 $472,396
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
10PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Net Un-
Cumulative realized
Transla- Loss on
tion Deferred Available-
Treasury Adjust- Compensa- for-sale
(In thousands) Stock ment tion Investments
---------------------------------------------------------------------------
Balance December 28, 1991,
as previously reported $ (1,038) $ 5,532 $ (6,010) $ -
Acquisition through
pooling-of-interests - - - -
-------- -------- -------- --------
Balance December 28, 1991,
as restated (1,038) 5,532 (6,010) -
Net income - - - -
Purchases of Company common
stock (6,214) - - -
Private placement of Company
common stock - - - -
Issuance of stock under
employees' and directors'
stock plans 3,442 - - -
Tax benefit related to
employees' and directors'
stock plans - - - -
Conversion of convertible
obligations - - - -
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Cumulative translation
adjustment - (13,481) - -
Amortization of deferred
compensation - - 960 -
-------- -------- -------- --------
Balance January 2, 1993 (3,810) (7,949) (5,050) -
Net income - - - -
Public offering of Company
common stock (Note 4) - - - -
Issuance of stock under
employees' and directors'
stock plans 2,598 - - -
Conversion of convertible
obligations - - - -
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Effect of three-for-two
stock split - - - -
Cumulative translation
adjustment - (5,642) - -
Amortization of deferred
compensation - - 1,211 -
-------- -------- -------- --------
11PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Net Un-
Cumulative realized
Transla- Loss on
tion Deferred Available-
Treasury Adjust- Compensa- for-sale
(In thousands) Stock ment tion Investments
---------------------------------------------------------------------------
Balance January 1, 1994 (1,212) (13,591) (3,839) -
Net income - - - -
Issuance of stock under
employees' and directors'
stock plans (419) - - -
Conversion of convertible
obligations - - - -
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Cumulative translation
adjustment - 10,034 - -
Amortization of deferred
compensation - - 1,182 -
Effect of change in accounting
principle (Note 2) - - - 2,868
Change in net unrealized loss
on available-for-sale
investments (Note 2) - - - (6,549)
-------- -------- -------- --------
Balance December 31, 1994 $ (1,631) $ (3,557) $ (2,657) $ (3,681)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
12PAGE
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Thermo Electron Corporation
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Thermo Electron Corporation and its majority- and wholly owned subsidiaries
(the Company). All material intercompany accounts and transactions have
been eliminated. Majority-owned public subsidiaries include Thermedics
Inc., Thermo Instrument Systems Inc., Thermo Process Systems Inc., Thermo
Power Corporation, ThermoTrex Corporation, Thermo Fibertek Inc., and Thermo
Ecotek Corporation (formerly Thermo Energy Systems Corporation) (Note 15).
Thermo Cardiosystems Inc. and Thermo Voltek Corp. are majority-owned public
subsidiaries of Thermedics. Thermo Remediation Inc. is a majority-owned
public subsidiary of Thermo Process. ThermoLase Corporation is a
majority-owned public subsidiary of ThermoTrex. ThermoSpectra Corporation
is a majority-owned, privately held subsidiary of Thermo Instrument. The
Company accounts for investments in businesses in which it owns between 20%
and 50% using the equity method.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1994, 1993, and 1992 are for the fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993, respectively.
Fiscal years 1994 and 1993 each included 52 weeks; 1992 included 53 weeks.
Revenue Recognition
For the majority of its operations, the Company recognizes revenues upon
shipment of its products or upon completion of services it renders. The
Company provides a reserve for its estimate of warranty and installation
costs at the time of shipment. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method.
Revenues recorded under the percentage-of-completion method were
$319,769,000 in 1994, $281,417,000 in 1993, and $236,663,000 in 1992. The
percentage of completion is determined by relating either the actual costs
or actual labor incurred to date to management's estimate of total costs or
total labor, respectively, to be incurred on each contract. If a loss is
indicated on any contract in process, a provision is made currently for the
entire loss. The Company's contracts generally provide for billing of
customers upon the attainment of certain milestones specified in each
contract. Revenues earned on contracts in process in excess of billings are
classified as "Unbilled contract costs and fees" in the accompanying
balance sheet. There are no significant amounts included in the
accompanying balance sheet that are not expected to be recovered from
existing contracts at current contract values, or that are not expected to
be collected within one year, including amounts that are billed but not
paid under retainage provisions.
In August 1993, the Company agreed, in exchange for a cash settlement,
to terminate a power sales agreement between a subsidiary of the Company
and a utility. The power sales agreement required the utility to purchase
output of a cogeneration facility that had been under development. Under
the termination agreement, the Company received $12.6 million through 1994,
with subsequent payments of $5.4 million to be made through 1997. The
Company will be obligated to return $8.2 million of this settlement if the
Company elects to proceed with the facility and it achieves commercial
operation before January 1, 2000. Accordingly, the Company has deferred
recognition of $8.2 million of revenues, pending final determination of the
project's status. During 1993, the Company recorded revenues of $9.8
13PAGE
<PAGE>
Thermo Electron Corporation
million and segment income of $5.4 million from the termination of the
power sales agreement.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain.
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary or
by the Company, gain recognition does not occur on issuances subsequent to
the date of a repurchase until such time as shares have been issued in an
amount equivalent to the number of repurchased shares. Such transactions
are reflected as equity transactions and the net effect of these
transactions is reflected in the accompanying statement of shareholders'
investment as "Effect of majority-owned subsidiaries' equity transactions."
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between
the financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Primary earnings per share have been computed based on the weighted average
number of common shares outstanding during the year. Because the effect of
common stock equivalents was not material, they have been excluded from the
primary earnings per share calculation. Fully diluted earnings per share
assumes the exercise of stock options and the conversion of the Company's
dilutive convertible obligations and elimination of the related interest
expense.
Stock Split
All share and per share information was restated to reflect a three-for-two
stock split, effected in the form of a 50% stock dividend, that was
distributed in October 1993 (Note 15).
Cash and Cash Equivalents
Cash equivalents consist principally of U.S. government agency securities,
bank time deposits, and commercial paper purchased with an original
maturity of three months or less. These investments are carried at cost,
which approximates market value.
Available-for-sale Investments
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's short- and long-term debt and marketable
equity securities are accounted for at market value (Note 2). Prior to
1994, these investments were carried at the lower of cost or market value.
The fair market value of short- and long-term investments is determined
based on quoted market prices for those investments.
14PAGE
<PAGE>
Thermo Electron Corporation
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead.
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings and
improvements -- 5 to 40 years, alternative-energy and waste-recycling
facilities -- 24 to 25 years, machinery and equipment -- 3 to 20 years, and
leasehold improvements -- the shorter of the term of the lease or the life
of the asset.
Assets Related to Projects Under Construction
"Facilities under construction" in the accompanying 1993 balance sheet
included a waste-recycling facility that was under construction in San
Diego County, California. Construction costs for this facility were
capitalized as incurred. Construction was completed in early 1994. This
facility is included in "Alternative-energy and waste-recycling facilities"
in the accompanying 1994 balance sheet.
"Restricted funds" in the accompanying 1993 balance sheet represented
unexpended proceeds from the issuance of tax-exempt obligations (Note 6),
which were invested principally in U.S. government agency securities and
municipal tax-exempt obligations. These investments were carried at cost,
which equaled market value at year-end 1993.
Other Assets
"Other assets" in the accompanying balance sheet includes the cost of
acquired trademarks, patents, and other specifically identifiable
intangible assets, as well as capitalized costs associated with the
Company's operation of certain alternative-energy facilities. These assets
are being amortized using the straight-line method over their estimated
useful lives, which range from 5 to 20 years. These assets were $39,731,000
and $41,252,000, net of accumulated amortization of $21,741,000 and
$16,699,000, at year-end 1994 and 1993, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired businesses
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $47,273,000 and $32,902,000 at year-end 1994
and 1993, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company considers the future undiscounted
cash flows of the acquired businesses in assessing the recoverability of
this asset.
Common Stock of Subsidiary Subject to Redemption
In March 1993, ThermoLase sold 6,156,000 units at $2.50 per unit, each unit
consisting of one share of ThermoLase common stock and one redemption
right. In accordance with their terms, the redemption rights expired in
November 1994 and, as a result, the Company transferred $14,765,000 of
"Common stock of subsidiary subject to redemption" to "Minority interest"
and "Capital in excess of par value."
15PAGE
<PAGE>
Thermo Electron Corporation
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains and
losses are included in the accompanying statement of income and are not
material for the three years presented.
Presentation
The historical financial information presented has been restated to reflect
the March 15, 1995 acquisition of Coleman Research Corporation (Coleman
Research), which has been accounted for under the pooling-of-interests
method (Note 15).
Certain amounts in 1993 and 1992 have been reclassified to conform to
the 1994 financial statement presentation.
2. Available-for-sale Investments
Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In accordance with
SFAS No. 115, the Company's debt and marketable equity securities are
considered "Available-for-sale investments" in the accompanying balance
sheet and are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component
of shareholders' investment titled "Net unrealized loss on available-for-
sale investments." "Effect of change in accounting principle" in the
accompanying statement of shareholders' investment represents the
unrealized gain, net of related tax effects, pertaining to available-for-
sale investments held by the Company on January 2, 1994.
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type, as of December 31, 1994, are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
---------------------------------------------------------------------------
Government agency securities $287,418 $291,342 $ - $ 3,924
Corporate bonds 298,799 301,103 74 2,378
Tax-exempt securities 33,588 33,882 - 294
Other 57,561 56,728 2,783 1,950
-------- -------- -------- --------
$677,366 $683,055 $ 2,857 $ 8,546
======== ======== ======== ========
Short- and long-term available-for-sale investments in the
accompanying 1994 balance sheet include $348,613,000 with contractual
maturities of one year or less, $289,293,000 with contractual maturities of
more than one year through five years, and $39,460,000 with contractual
maturities of more than five years. Actual maturities may differ from
contractual maturities as a result of the Company's intent to sell these
securities prior to maturity and as a result of put and call options that
enable either the Company and/or the issuer to redeem these securities at
an earlier date.
16PAGE
<PAGE>
Thermo Electron Corporation
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded
in the accompanying statement of income. Gain on sale of investments in
1994 resulted from gross realized gains of $6,666,000 and gross realized
losses of $1,815,000 relating to the sale of available-for-sale
investments.
3. Acquisitions
In 1994 and 1993, the Company's majority-owned subsidiaries made several
acquisitions for $174.3 million and $143.8 million in cash, respectively.
These acquisitions have been accounted for using the purchase method
of accounting, and the acquired companies' results of operations have been
included in the accompanying financial statements from their respective
dates of acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $232 million, which is
being amortized principally over 40 years. Allocation of the purchase price
for these acquisitions was based on estimates of the fair value of the net
assets acquired and, for acquisitions completed in fiscal 1994, is subject
to adjustment. Pro forma data is not presented since the acquisitions were
not material to the Company's results of operations.
"Other accrued expenses" in the accompanying balance sheet includes
approximately $26 million and $41 million at year-end 1994 and 1993,
respectively, for estimated severance, relocation, and other reserves
associated with acquisitions.
4. Common Stock
In 1993, the Company sold 10,125,000 shares of its common stock in a public
offering for net proceeds of $246.0 million.
At December 31, 1994, the Company had reserved 35,181,249 unissued
shares of its common stock for possible issuance under stock-based
compensation plans, for possible conversion of the Company's convertible
debentures, and for possible exchange of subsidiaries' convertible
obligations into common stock of the Company. The subsidiaries' obligations
are convertible into common stock of the Company in the event of a change
in control, as defined in the related fiscal agency agreement, that has not
been approved by the Company's Board of Directors (Note 6). The conversion
price would be equal to 50% of the price of the Company's common stock
prior to the change in control.
5. Stock-based Compensation Plans
The Company has several stock-based compensation plans for its key
employees, directors, and others, which permit the award of stock-based
incentives in the stock of the Company and its majority-owned subsidiaries.
The Company has a nonqualified stock option plan, adopted in 1974, and an
incentive stock option plan, adopted in 1981, which permit the award of
stock options to key employees. The incentive stock option plan expired in
1991 and no grants were made after that date. An equity incentive plan,
adopted in 1989, permits the grant of a variety of stock and stock-based
awards as determined by the human resources committee of the Company's
Board of Directors (the Board Committee), including restricted stock, stock
options, stock bonus shares or performance-based shares. To date, only
nonqualified stock options have been awarded under this plan. The option
17PAGE
<PAGE>
Thermo Electron Corporation
recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options presently outstanding
under these plans are exercisable immediately, but are subject to certain
transfer restrictions and the right of the Company to repurchase shares
issued upon exercise of the options at the exercise price, upon certain
events. The restrictions and repurchase rights generally lapse ratably over
periods ranging from three to ten years after the first anniversary of the
grant date, depending on the term of the option, which may range from five
to twelve years. In addition, under certain options, shares acquired upon
exercise are restricted from resale until retirement or other events.
Nonqualified options may be granted at any price determined by the Board
Committee, while incentive stock options must be granted at not less than
fair market value of the Company's stock on the date of grant. Generally,
stock options have been granted at fair market value. The Company also has
a directors' stock option plan, adopted in 1993, that provides for the
annual grant of stock options of the Company and its majority-owned
subsidiaries to nonemployee directors pursuant to a formula approved by the
Company's shareholders. Options awarded under this plan are exercisable six
months after the date of grant and expire three or seven years after the
date of grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in stock-based
compensation plans of the Company's majority-owned subsidiaries.
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including tax
benefits realized, are credited to equity.
A summary of the Company's stock option information is as follows:
1994 1993 1992
---------------- ---------------- ---------------
Range Range Range
of of of
Option Option Option
Number Prices Number Prices Number Prices
(In thousands except of per of per of per
per share amounts) Shares Share Shares Share Shares Share
--------------------------------------------------------------------------
Options outstanding, $ 4.85- $ 4.85- $ 4.85-
beginning of year 4,442 $28.21 3,111 $20.87 2,948 $19.35
25.79- 26.15-
Granted 1,094 30.07 1,838 28.21 951 20.87
6.15- 4.85- 4.85-
Exercised (210) 20.87 (476) 19.35 (720) 17.17
7.69- 7.15- 7.15-
Lapsed or canceled (74) 27.59 (31) 24.71 (68) 20.87
----- ----- -----
Options outstanding, $ 4.85- $ 4.85- $ 4.85-
end of year 5,252 $30.07 4,442 $28.21 3,111 $20.87
===== ===== =====
$ 4.85- $ 4.85- $ 4.85-
Options exercisable 5,252 $30.07 4,442 $28.21 3,101 $20.87
===== ===== =====
Options available
for grant 2,418 438 1,793
===== ===== =====
18PAGE
<PAGE>
Thermo Electron Corporation
6. Long-term Obligations and Other Financing Arrangements
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1994 1993
-------------------------------------------------------------------------
5% Senior convertible debentures,
due 2001, convertible at $31.50 per share $ 345,000 $ -
4 5/8% Senior convertible debentures,
due 1997, convertible at $21.50 per share 205,000 205,000
4 7/8% Subordinated convertible debentures,
due 1997, convertible at $21.50 per share 55,000 55,000
6 3/4% Subordinated convertible debentures,
due 2001, convertible at $15.33 per share - 67,173
3 3/4% Senior convertible debentures,
due 2000, convertible into shares of
Thermo Instrument at $21.17 per share 70,000 70,000
6 5/8% Subordinated convertible debentures,
due 2001, convertible into shares of
Thermo Instrument at $11.72 per share 36,862 49,569
6 1/2% Subordinated convertible debentures,
due 1998, convertible into shares of
Thermedics at $10.42 per share 10,252 12,997
6 1/2% Subordinated convertible debentures,
due 1997, convertible into shares of
Thermo Process at $10.33 per share 16,597 18,547
Noninterest-bearing subordinated convertible
debentures, due 1997, convertible into shares
of Thermo Cardiosystems at $21.74 per share 33,000 -
5 1/2% Subordinated convertible notes,
due 2002, convertible into shares of
Thermo Cardiosystems at $9.88 per share 450 600
3 3/4% Subordinated convertible debentures,
due 2000, convertible into shares of Thermo
Voltek at $11.75 per share 34,500 34,500
8.1% Nonrecourse tax-exempt obligation, payable
in semi-annual installments commencing 1995,
with final payment in 2000 62,500 62,500
6.0% Nonrecourse tax-exempt obligation, payable
in semi-annual installments, with final
payment in 2000 49,700 57,500
Tax-exempt obligations, payable in semi-annual
installments commencing 1995, with final
payment in 2017 133,670 -
10.23% Mortgage loan secured by property with a
net book value of $16,564, payable in monthly
installments, with a final payment in 2004 10,855 11,535
Other 8,498 21,558
---------- ----------
1,071,884 666,479
Less: Current maturities of long-term
obligations 22,034 18,887
---------- ----------
$1,049,850 $ 647,592
========== ==========
19PAGE
<PAGE>
Thermo Electron Corporation
The debentures that are convertible into subsidiary common stock have
been issued by the respective subsidiaries and are guaranteed by the
Company.
In the event of a change in control of the Company, as defined in the
related fiscal agency agreement, that has not been approved by the
Company's Board of Directors, each holder of the 5%, 4 5/8%, and 4 7/8%
convertible debentures issued by the Company will have the right to require
the Company to buy all or part of the holders' debentures, at par value
plus accrued interest, within 50 calendar days after the date of expiration
of a specified approval period. In addition, the obligations convertible
into subsidiary common stock become convertible into common stock of the
Company at a conversion price equal to 50% of the price of the Company's
common stock prior to the change in control.
"Nonrecourse tax-exempt obligations" represent obligations issued by
the California Pollution Control Financing Authority (CPCFA), the proceeds
of which were used to finance two alternative-energy facilities (Delano I
and Delano II) located in Delano, California. Delano I was previously
leased to a subsidiary of Thermo Ecotek by a third-party owner/lessor and
was purchased by Thermo Ecotek in 1993. Construction of Delano II was
completed in 1993. The obligations are payable only by a subsidiary of
Thermo Ecotek and are not guaranteed by the Company, except under limited
circumstances. As required by the financing bank group, Thermo Ecotek
entered into interest rate swap agreements that effectively convert these
obligations from floating rates to the fixed rates described above. These
swaps have terms expiring in 2000, commensurate with the final maturity of
the debt. The interest rate swap agreements are with a different
counterparty than the holders of the underlying debt. The Company believes,
however, that the credit risks associated with these swaps are minimal
since the agreements are with a large, reputable bank. The notional amount
of debt subject to the swap agreements is $110.0 million at December 31,
1994.
"Tax-exempt obligations" represent obligations issued by the CPCFA in
January 1992, the proceeds of which were loaned to the Company to finance
the construction of a waste-recycling facility in San Diego County,
California. Construction of this facility was completed in 1994 and the
debt was reclassified from "Liabilities related to projects under
construction" to "Long-term obligations" in the accompanying balance sheet.
Of these tax-exempt obligations, $95 million carry fixed rates of interest
ranging from 6.75% to 8.2%, and $39 million carry a floating rate of
interest, which varies weekly based on short-term, tax-exempt markets. The
interest rate ranged from 3.1% to 7.2% in 1994 and 4.25% to 6.85% in 1993.
"Tax-exempt obligations" in the accompanying 1993 balance sheet also
includes $8.5 million of tax-exempt obligations issued by the CPCFA in
October 1991, the proceeds of which were loaned to the Company to finance
the construction of the Delano II alternative-energy facility. These
tax-exempt obligations were repaid in February 1994. Prior to the
repayment, these obligations carried a floating rate of interest, which
varied daily based on short-term, tax-exempt markets. The interest rate
ranged from 2.45% to 5.55% in 1994 and 2.5% to 6.1% in 1993.
The Company capitalized interest expense, net of interest income,
incurred in connection with the construction of the Delano II and San Diego
County facilities discussed above. These amounts were $2.1 million and $8.4
million in 1994 and 1993, respectively.
20PAGE
<PAGE>
Thermo Electron Corporation
The annual requirements for long-term obligations are as follows:
(In thousands)
--------------------------------------------------------
1995 $ 22,034
1996 21,773
1997 333,190
1998 36,611
1999 26,597
2000 and thereafter 631,679
----------
$1,071,884
==========
Certain of the Company's obligations include requirements to maintain
predetermined financial ratios. At December 31, 1994, the Company was in
compliance with these requirements.
Based on quoted market prices and on borrowing rates currently
available to the Company for debt of the same remaining maturities, the
fair market value of the Company's long-term obligations, excluding
interest rate swap agreements, was approximately $1.24 billion and $1.03
billion at December 31, 1994 and January 1, 1994, respectively. The fair
market value of interest rate swap agreements entered into in connection
with the nonrecourse tax-exempt obligations was a net receivable of
approximately $2.1 million and a net payable of approximately $6.1 million
at December 31, 1994 and January 1, 1994, respectively. During 1994, the
average variable rate received under the interest rate swap agreements was
4.9%.
"Notes payable and current maturities of long-term obligations" in the
accompanying balance sheet include $71.9 million and $51.3 million in 1994
and 1993, respectively, of short-term bank borrowings at several of the
Company's subsidiaries. The weighted average interest rates for these
borrowings were 6.2% at both year-end 1994 and 1993.
7. Commitments and Contingencies
Litigation
The Company participates in the operation of the Dade County Downtown
Government Center cogeneration facility in Miami, Florida, through a 50/50
joint venture of subsidiaries of the Company and Rolls-Royce, Inc. Because
the demand for power and chilled water at the Dade County Downtown
Government Center complex has been substantially less than anticipated
since the plant's startup in 1987, and because the plant has had difficulty
disposing of the rest of its output, the joint venture has experienced
continuing losses.
The joint venture sells electricity to Dade County pursuant to an
energy purchase contract signed in 1983. The joint venture historically has
sold more than half of its actual output to Dade County and the balance to
Florida Power and Light (FPL), the local utility. In 1992, the joint
venture sued Dade County in Florida state court, alleging that Dade County
was in breach of the energy purchase contract and had misrepresented its
demand for electrical power. Dade County asserted counterclaims against the
joint venture, the Company, and Rolls-Royce, alleging, among other things,
failure to properly maintain and operate the facility and to use its best
efforts to maximize use of the facility's output. In May 1993, Dade County
filed a petition with the Florida Public Service Commission (FPSC),
21PAGE
<PAGE>
Thermo Electron Corporation
asserting that the joint venture was engaged in the retail sale of
electricity without complying with rules governing public utilities. If
FPSC determines that the joint venture was engaged in illegal retail sales
of electricity, it could impose refund or other liabilities on the joint
venture and/or enjoin future sales.
In May 1993, Dade County also brought a parallel proceeding before the
Federal Energy Regulatory Commission (FERC) seeking to terminate the
project's qualifying facility status under the Public Utility Regulatory
Policies Act of 1978 (PURPA) for failure to meet certain required
efficiency standards at various times from 1987 to the present. (PURPA
generally obligates utilities, such as FPL, to purchase electricity from
qualifying facilities at the utilities' avoided cost and exempts qualifying
facilities from various federal and state regulations, such as the Federal
Power Act (FPA).) The Company believes the project currently meets the
efficiency standards and therefore currently has qualifying facility
status. However, on October 21, 1993, FERC issued an order finding that,
although the project met the efficiency standards for 1992, the project did
not meet such standards from 1987 through 1991. FERC denied the joint
venture's request for a waiver of the efficiency standards for that period
and also directed the joint venture to show cause why FERC should not find
that the joint venture was a public utility for FPA purposes during that
period. If the joint venture is retroactively deemed a public utility under
FPA, FERC could impose refund liabilities and other penalties to the extent
FERC does not find either that the joint venture complied with relevant
FERC regulations or that the regulations should be waived. The joint
venture has been granted a rehearing of the FERC decision and has asserted
various grounds for reversal. The joint venture is also entitled to appeal
FERC's final decision, if necessary. In the rehearing, the County and FPL
have argued before FERC that the project did not meet the efficiency
standards for 1992.
In 1994, the joint venture's lawsuit against Dade County, including
counterclaims by Dade County, was dismissed with prejudice by agreement of
the parties. The terms of the dismissal included: (a) payment by Dade
County, net of amounts paid by the joint venture, of $1,500,000, (b) a
joint request that FERC terminate its proceedings and vacate its previous
order, and (c) a joint request that FPSC dismiss the petition brought
before it by Dade County. FERC has not acted upon the request made to it by
the joint venture. FPSC granted the request for dismissal. Since the
settlement with the County, FPL has filed (a) a motion at FERC opposing the
request made to FERC by the joint venture, and (b) a motion at FPSC,
similar to one previously filed at FPSC by Dade County, seeking a
declaration that the joint venture was engaged in the retail sale of
electricity without complying with the rules governing public utilities.
The joint venture also is pursuing an antitrust lawsuit against FPL.
The joint venture leases its generating equipment from Florida Energy
Partners Limited Partnership (FEP). If the energy purchase contract were to
be held illegal, FEP could declare a default by the joint venture under the
lease with FEP, and Dade County could be released from its obligation to
buy electricity from the joint venture. In the lease, the joint venture
also covenanted that the project would maintain PURPA qualifying facility
status. If the joint venture is deemed to have breached this covenant, FEP
could declare a default under the lease. In the event of a default, among
other things, FEP could seek to sell or re-lease the equipment and the
Company generally would be liable for one-half of any deficiency between
(a) in the event of a sale, approximately $45 million and the amount
realized from the sale or (b) in the case of re-lease, the present value of
future rentals and prepayment penalty under the lease (approximately $31
22PAGE
<PAGE>
Thermo Electron Corporation
million) and the present value of a fair rental value to be collected from
a new tenant.
The joint venture's revenues for the year ended December 31, 1994 and
the cumulative period from 1987 through 1991 were $3.4 million and $26.3
million, respectively. The Company reports its interest in the joint
venture's results of operations using the equity method of accounting.
Under this method, the Company records 50% of the joint venture's loss, but
does not report as revenues any of the joint venture's revenues.
The Company is contingently liable with respect to other lawsuits and
matters. In the opinion of management, these contingencies will not have a
material adverse effect on the financial condition of the Company.
Operating Leases
The Company leases portions of its office and operating facilities under
various noncancelable operating lease arrangements. The accompanying
statement of income includes expenses from operating leases of $24,268,000
in 1994, $17,233,000 in 1993, and $13,031,000 in 1992. Minimum rental
commitments under noncancelable operating leases at December 31, 1994, are
as follows:
(In thousands)
-----------------------------------------------------
1995 $22,779
1996 19,233
1997 14,404
1998 10,614
1999 6,416
2000 and thereafter 23,203
-------
$96,649
=======
8. Employee Benefit Plans
401(k) Savings Plan
The Company's 401(k) savings plan covers the majority of the Company's
eligible full-time U.S. employees. Contributions to the plan are made by
both the employee and the Company. Company contributions are based on the
level of employee contributions. For this plan, the Company contributed and
charged to expense $6,450,000, $4,517,000, and $3,460,000 in 1994, 1993,
and 1992, respectively.
Employee Stock Ownership Plan
The Company's Employee Stock Ownership Plan (ESOP) covers eligible
full-time U.S. employees. The Company borrowed funds from a financial
institution and then loaned these funds to the ESOP to purchase shares of
common stock of the Company and its majority-owned subsidiaries. The loan
balance between the Company and the financial institution was paid off in
1992. The loan between the Company and the ESOP is still outstanding. The
shares purchased are reported as "Deferred compensation" in the
accompanying balance sheet. The Company makes annual contributions to the
ESOP and shares are allocated to plan participants based on employee
compensation. For this plan, the Company charged to expense $1,123,000,
$1,125,000, and $1,103,000 in 1994, 1993, and 1992, respectively. The 1992
amount includes interest expense of $228,000.
23PAGE
<PAGE>
Thermo Electron Corporation
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in employee stock purchase plans sponsored by the Company or by
the Company's majority-owned public subsidiaries. Under these plans, shares
of the Company's common stock may be purchased at the end of a 12-month
plan year at 85% of the fair market value at the beginning of the plan
year, and the shares purchased are subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. Participants of employee
stock purchase plans sponsored by the Company's majority-owned public
subsidiaries may also elect to purchase shares of the common stock of the
subsidiary by which they are employed. During 1994, 1993, and 1992, the
Company issued 145,836 shares, 187,902 shares, and 127,950 shares of its
common stock, respectively, under these plans.
Coleman Research Plans
Coleman Research has defined contribution pension and 401(k) employee stock
ownership plans covering eligible employees. For these plans, Coleman
Research charged to expense $3,601,000, $3,184,000, and $2,224,000 in 1994,
1993, and 1992, respectively.
Postretirement Benefits
Two of the Company's subsidiaries provide postretirement medical benefits
for employees who meet certain age and length-of-service requirements. As
of the beginning of fiscal 1992, the Company adopted SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions," which
required the Company to change to the accrual method of accounting for
postretirement medical benefits.
The Company elected to recognize the cumulative effect of its
accumulated postretirement benefit obligation in 1992, which resulted in a
charge of $1,438,000, net of tax benefits of $844,000. The annual expense
incurred under SFAS No. 106 and the related obligations required under this
statement are not material to the Company's financial statements.
Postemployment Benefits
The Company provides certain postemployment benefits to former and inactive
employees. Effective January 2, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires
the recognition of the cost of postemployment benefits if certain criteria
are met and the amount of benefits can be reasonably estimated. The
adoption of this statement did not have a material impact on the Company's
financial statements.
9. Income Taxes
The components of income before income taxes, minority interest, and
cumulative effect of change in accounting principle are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Domestic $165,761 $113,500 $ 84,548
Foreign 40,615 17,967 18,027
-------- -------- --------
$206,376 $131,467 $102,575
======== ======== ========
24PAGE
<PAGE>
Thermo Electron Corporation
The components of the provision for income taxes are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Currently payable:
Federal $ 30,089 $ 10,270 $ 12,280
Foreign 16,343 8,643 7,058
State 9,672 5,320 3,923
-------- -------- --------
56,104 24,233 23,261
-------- -------- --------
Deferred (prepaid), net:
Federal 11,355 6,922 4,248
Foreign (243) 931 1,010
State 3,487 1,427 (769)
-------- -------- --------
14,599 9,280 4,489
-------- -------- --------
$ 70,703 $ 33,513 $ 27,750
======== ======== ========
The provision for income taxes that is currently payable does not
reflect $3,531,000, $3,354,000, and $7,579,000 of tax benefits of the
Company and its public subsidiaries allocated to "Capital in excess of par
value" or $112,000, $2,280,000, and $3,137,000 of tax benefits used to
reduce "Cost in excess of net assets of acquired companies" in 1994, 1993,
and 1992, respectively.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 to income before
income taxes, minority interest, and cumulative effect of change in
accounting principle due to the following:
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Provision for income taxes at statutory rate $ 72,232 $ 46,013 $ 34,876
Increases (decreases) resulting from:
Gain on issuance of stock by
subsidiaries (8,849) (13,770) (10,272)
State income taxes, net of federal tax 8,317 4,307 2,081
Tax-exempt and tax-preferred investment
income (465) (1,207) (251)
Investment and research and development
tax credits (2,786) (6,625) -
Foreign tax rate and tax law differential 1,422 3,969 1,916
Tax benefit of foreign sales corporation (2,411) (1,366) (989)
Minority interest in partnership losses (1,454) (1,057) (1,157)
Amortization of cost in excess of net
assets of acquired companies 3,450 3,400 1,674
Nondeductible expenses 1,121 1,055 238
Other, net 126 (1,206) (366)
-------- -------- --------
$ 70,703 $ 33,513 $ 27,750
======== ======== ========
25PAGE
<PAGE>
Thermo Electron Corporation
Deferred and short- and long-term prepaid income taxes in the
accompanying balance sheet consist of the following:
(In thousands) 1994 1993
----------------------------------------------------------------
Deferred income taxes:
Depreciation $ 49,313 $ 38,459
Intangible assets 7,373 8,214
Other 1,564 2,065
-------- --------
$ 58,250 $ 48,738
======== ========
Prepaid income taxes:
Other reserves and accruals $ 31,369 $ 26,593
Inventory basis difference 16,756 10,801
Capitalized costs and joint venture equity 3,727 7,071
Accrued compensation 8,599 7,653
Allowance for doubtful accounts 5,470 4,108
Net operating loss carryforwards 6,182 5,200
Federal tax credit carryforwards 7,869 3,193
Available-for-sale investments 1,025 -
Other, net 6,185 7,270
-------- --------
87,182 71,889
Less: Valuation allowance 29,358 20,402
-------- --------
$ 57,824 $ 51,487
======== ========
The valuation allowance relates to the uncertainty surrounding the
realization of tax loss and credit carryforwards and the realization of tax
benefits attributable to purchase accounting reserves and certain other tax
assets of the Company and certain subsidiaries. Of the year-end 1994
valuation allowance, $8.6 million will be used to reduce "Cost in excess of
net assets of acquired companies" when any portion of the related deferred
tax asset is recognized and $7.5 million will increase "Capital in excess
of par value" when previously unrealized stock option benefits are
recognized.
The increase in the valuation allowance is primarily attributable to
the establishment of valuation allowances for tax loss and credit
carryforwards, net of utilization of previously unbenefited tax attributes.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its domestic subsidiaries because the Company
does not expect these earnings to be remitted and become subject to tax.
The Company believes it can implement certain tax strategies to recover its
share of all undistributed earnings of its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on
$109 million of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company plans to
keep these amounts permanently reinvested overseas. The Company believes
that any additional U.S. tax liability due upon remittance of such earnings
would be immaterial due to available U.S. foreign tax credits.
26PAGE
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Thermo Electron Corporation
10. Transactions in Stock of Subsidiaries
"Gain on issuance of stock by subsidiaries" in the accompanying statement
of income results primarily from the following transactions:
1994
----
Public offering of 1,610,000 shares of ThermoTrex common stock at
$15.375 per share for net proceeds of $23,034,000 resulted in a gain of
$7,906,000.
Initial public offering of 5,349,572 shares of ThermoLase common stock
at $3.00 per share for net proceeds of $14,784,000 resulted in a gain of
$8,609,000.
Private placements of 1,505,000 shares of ThermoSpectra common stock
at $10.00 per share for net proceeds of $13,993,000 resulted in a gain of
$6,469,000.
Conversion of $3,725,000 of Thermedics 6 1/2% subordinated convertible
debentures convertible at $10.42 per share into 357,597 shares of
Thermedics common stock resulted in a gain of $992,000.
1993
----
Public offering of 3,225,000 shares of Thermedics common stock at
$10.00 per share for net proceeds of $29,980,000 resulted in a gain of
$10,707,000.
Public offering of 4,312,500 shares of Thermo Power common stock at
$9.00 per share for net proceeds of $35,998,000 resulted in a gain of
$10,578,000.
Private placements of 2,062,500 shares of ThermoTrex common stock at
$11.17 and $14.50 per share for net proceeds of $27,463,000 resulted in a
gain of $11,400,000.
Private placement of 300,000 shares and initial public offering of
1,650,000 shares of Thermo Remediation common stock at $6.59 and $8.33 per
share, respectively, for net proceeds of $14,554,000 resulted in a gain of
$4,239,000.
Conversion of $7,270,000 of Thermedics 6 1/2% subordinated convertible
debentures convertible at $10.42 per share into 697,919 shares of
Thermedics common stock resulted in a gain of $2,506,000.
1992
----
Private placement of 2,709,356 shares and initial public offering of
3,000,000 shares of Thermo Fibertek common stock at $6.70 to $8.00 per
share for net proceeds of $39,748,000 resulted in a gain of $23,303,000.
Issuance of 1,566,480 restricted shares of ThermoTrex common stock
valued at $6.17 per share, or $9,673,000, to acquire Lorad Corporation
resulted in a gain of $3,081,000.
Private placement of 375,000 shares of ThermoTrex common stock at
$10.67 per share for net proceeds of $3,556,000 resulted in a gain of
$1,745,000.
The Company's ownership percentage in these subsidiaries changed
primarily as a result of the transactions listed above, as well as the
Company's purchases of shares of its majority-owned subsidiaries' stock,
the subsidiaries' purchases of their own stock, the issuance of
subsidiaries' stock by the Company or by the subsidiaries under stock-based
compensation plans or in other transactions, and the conversion of
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Thermo Electron Corporation
convertible obligations held by the Company, its subsidiaries, or by third
parties.
The Company's ownership percentages at year-end were as follows:
1994 1993 1992
---- ---- ----
Thermedics 51% 52% 59%
Thermo Instrument 83% 81% 81%
Thermo Process 80% 72% 71%
Thermo Power 60% 52% 81%
ThermoTrex 50% 55% 62%
Thermo Fibertek 81% 80% 80%
Thermo Ecotek (Note 15) 97% 88% 87%
Thermo Cardiosystems (a) 58% 57% 58%
Thermo Voltek (a) 71% 67% 57%
Thermo Remediation (b) 65% 67% 85%
ThermoLase (c) 69% 81% 100%
ThermoSpectra (d) 86% 100% 100%
(a) Reflects combined ownership by Thermo Electron and Thermedics.
(b) Reflects ownership by Thermo Process.
(c) Reflects ownership by ThermoTrex.
(d) Reflects ownership by Thermo Instrument.
11. Other Income (Expense), Net
The components of "Other income (expense), net" in the accompanying
statement of income are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Interest income $ 43,280 $ 23,905 $ 24,728
Interest expense (59,844) (31,736) (24,322)
Equity in losses of unconsolidated
subsidiaries (4,019) (22,721) (3,948)
Gain on sale of investments 4,851 2,469 4,968
Other income, net 14,743 535 416
-------- -------- --------
$ (989) $(27,548) $ 1,842
======== ======== ========
12. Costs Associated with Divisional and Product Restructuring
"Costs associated with divisional and product restructuring" in the
accompanying 1994 statement of income represents severance costs and, to a
lesser extent, the costs to write-off leasehold improvements at
ThermoTrex's East Coast division.
The 1993 amount primarily represents a $1,900,000 reserve for the
write-off of machinery and equipment and costs to phase out a product line
in the Company's metal-fabrication services business, a $1,200,000 reserve
for restructuring at the Company's steam turbines and compressors business,
and $2,660,000 for the write-off of mobile soil-remediation assets and
other related expenses.
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Thermo Electron Corporation
13. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Cash Paid For:
Interest $ 47,745 $ 29,529 $ 18,313
Income taxes $ 27,456 $ 9,909 $ 16,751
Noncash Activities:
Conversions of convertible obligations $ 89,625 $ 50,403 $ 13,863
Purchase of alternative-energy
facility through assumption of debt $ - $ 66,900 $ -
Fair value of assets of acquired
companies $ 250,404 $ 208,193 $ 429,113
Cash paid for acquired companies (174,330) (143,790) (255,340)
Issuance of subsidiary common stock
for acquired business - - (9,673)
--------- --------- ---------
Liabilities assumed of acquired
companies $ 76,074 $ 64,403 $ 164,100
========= ========= =========
14. Business Segment and Geographical Information
The Company's business segments include the following:
Instruments: environmental-monitoring, analytical, and process-control
instruments
Alternative-energy Systems: alternative-energy power plants,
waste-recycling facility, industrial refrigeration systems, natural gas
engines, cooling and cogeneration units, turbines and compressors
Process Equipment: paper-recycling equipment, papermaking systems and
accessories, metallurgical processing systems, electroplating equipment
Biomedical Products: biomedical materials, mammography and needle-biopsy
systems, skin-incision devices, blood coagulation-monitoring equipment,
left ventricular-assist systems, neurophysiology monitoring instruments,
personal-care products
Environmental Services: thermal soil-remediation, industrial-fluids
recycling, metallurgical heat treating and fabrication, laboratory
analysis, environmental sciences
Advanced Technologies: process detection systems, security instruments,
electronic test equipment, power-conversion instruments, long-term hair
removal system, development of avionics products and medical systems
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Thermo Electron Corporation
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Revenues:
Instruments $ 650,114 $ 516,712 $ 349,261
Alternative-energy Systems 285,410 242,662 221,877
Process Equipment 189,862 167,524 160,459
Biomedical Products 180,318 127,533 58,167
Environmental Services 141,793 121,987 114,268
Advanced Technologies 286,523 181,094 96,331
Intersegment Sales Elimination (a) (4,829) (3,004) (1,135)
---------- ---------- ----------
$1,729,191 $1,354,508 $ 999,228
========== ========== ==========
Segment Income (b):
Instruments $ 105,440 $ 91,412 $ 59,758
Alternative-energy Systems 34,451 14,434 1,767
Process Equipment 20,730 13,924 13,891
Biomedical Products 17,601 5,758 1,252
Environmental Services 14,853 9,263 8,411
Advanced Technologies 13,213 8,260 2,516
---------- ---------- ----------
Total Segment Income 206,288 143,051 87,595
Equity in Losses of Unconsolidated
Subsidiaries (4,019) (22,721) (3,948)
Corporate (c) 4,107 11,137 18,928
---------- ---------- ----------
Income Before Income Taxes,
Minority Interest, and Cumulative
Effect of Change in Accounting
Principle $ 206,376 $ 131,467 $ 102,575
========== ========== ==========
Identifiable Assets:
Instruments $1,011,916 $ 850,688 $ 531,320
Alternative-energy Systems 577,781 593,247 406,515
Process Equipment 191,846 179,251 172,984
Biomedical Products 348,199 285,715 228,781
Environmental Services 192,523 146,658 129,656
Advanced Technologies 236,543 203,375 101,127
Corporate (d) 503,127 248,663 267,600
---------- ---------- ----------
$3,061,935 $2,507,597 $1,837,983
========== ========== ==========
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Thermo Electron Corporation
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Depreciation and Amortization:
Instruments $ 22,070 $ 18,059 $ 10,786
Alternative-energy Systems 16,078 4,982 3,511
Process Equipment 4,780 4,277 3,792
Biomedical Products 6,292 5,328 2,922
Environmental Services 8,382 6,641 5,845
Advanced Technologies 6,193 3,679 2,512
Corporate 1,233 1,226 1,095
---------- ---------- ----------
$ 65,028 $ 44,192 $ 30,463
========== ========== ==========
Capital Expenditures:
Instruments $ 7,574 $ 6,347 $ 4,650
Alternative-energy Systems (e) 31,717 92,862 38,097
Process Equipment 3,231 2,631 3,721
Biomedical Products 7,284 9,042 2,245
Environmental Services 7,559 7,583 8,550
Advanced Technologies 8,019 8,898 4,994
Corporate 141 2,241 1,063
---------- ---------- ----------
$ 65,525 $ 129,604 $ 63,320
========== ========== ==========
Export Sales Included Above (f) $ 265,298 $ 219,914 $ 131,755
========== ========== ==========
Foreign Operations Included Above:
Revenues:
Europe $ 295,203 $ 223,707 $ 198,066
Other 61,586 32,835 22,941
---------- ---------- ----------
$ 356,789 $ 256,542 $ 221,007
========== ========== ==========
Income Before Income Taxes,
Minority Interest, and Cumulative
Effect of Change in Accounting
Principle:
Europe $ 30,490 $ 11,305 $ 17,627
Other 10,125 6,662 400
---------- ---------- ----------
$ 40,615 $ 17,967 $ 18,027
========== ========== ==========
Identifiable Assets:
Europe $ 386,645 $ 299,091 $ 239,431
Other 60,697 41,068 36,877
---------- ---------- ----------
$ 447,342 $ 340,159 $ 276,308
========== ========== ==========
(a) Intersegment sales are accounted for at prices that are representative
of transactions with unaffiliated parties.
(b) 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.
(c) Includes corporate general and administrative expenses, costs
associated with divisional and product restructuring, other income and
expense, and gain on issuance of stock by subsidiaries.
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Thermo Electron Corporation
(d) Primarily cash and cash equivalents, short- and long-term investments,
and property and equipment at the Company's Waltham, Massachusetts,
headquarters.
(e) Includes $88.4 million in 1993 for the purchase of an alternative-
energy facility in Delano, California, and $30.5 million in 1992 for
the purchase of an alternative-energy facility in Whitefield, New
Hampshire.
(f) In general, export revenues are denominated in U.S. dollars.
15. Subsequent Event
Acquisitions
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, advance radar and imaging, and healthcare
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 1994 and 1993, as previously reported by the separate entities
prior to the acquisition and as restated for the combined Company, are as
follows:
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Revenues:
Previously reported $1,585,348 $1,249,718 $ 948,972
Coleman Research 143,843 104,790 50,256
---------- ---------- ----------
$1,729,191 $1,354,508 $ 999,228
========== ========== ==========
Net Income:
Previously reported $ 103,410 $ 76,633 $ 59,156
Coleman Research 1,301 235 329
---------- ---------- ----------
$ 104,711 $ 76,868 $ 59,485
========== ========== ==========
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, subject to a post-closing adjustment based on the net asset value
of the Division as of the closing date. The Division is principally
composed of operations that are involved in the research, development,
manufacture, and sale of analytical instruments to industrial and research
laboratories worldwide. For the fiscal year ended December 31, 1994, the
Division had unaudited revenues of approximately 262 million British pounds
sterling and an unaudited net loss of approximately 19 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
32PAGE
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Thermo Electron Corporation
certain product lines to be acquired by Thermo Instrument. 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. 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.
Stock Split
All weighted average share and per share amounts have been restated to
reflect a three-for-two stock split, effected in the form of a 50% stock
dividend, that was distributed in May 1995.
33PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors
of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and January 1, 1994, and the related consolidated
statements of income, shareholders' investment, and cash flows for each of
the three years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Electron Corporation and subsidiaries as of December 31, 1994 and
January 1, 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements,
effective December 29, 1991, the Company changed its method of accounting
for postretirement benefits other than pensions. Also, as discussed in Note
2 to the consolidated financial statements, effective January 2, 1994, the
Company changed its method of accounting for investments in debt and
marketable equity securities.
Arthur Andersen LLP
Boston, Massachusetts
February 10, 1995
(Except with respect to the matters
discussed in Note 15 as to which the
date is July 20, 1995)
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Thermo Electron Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company develops and manufactures a broad range of products that are
sold worldwide. The Company expands the product lines and services it
offers by developing and commercializing its own core technologies and by
making strategic acquisitions of complementary businesses. The majority of
the Company's businesses fall into four broad markets: environmental,
energy, process control, and selected health and safety instrumentation.
An important component of the Company's strategy is to establish
leading positions in its markets through the application of proprietary
technology, whether developed internally or acquired. A key contribution to
the growth of the Company's segment income (as defined in the results of
operations below), particularly over the last three years, has been the
ability to identify attractive acquisition opportunities, complete those
acquisitions, and derive a growing income contribution from the newly
acquired businesses as they are integrated into the Company's business
segments.
The Company seeks to minimize its dependence on any specific product
or market by maintaining and diversifying its portfolio of businesses and
technologies. Similarly, the Company's goal is to maintain a balance in its
businesses between those affected by various regulatory cycles and those
more dependent on the general level of economic activity. Although the
Company is diversified in terms of technology, product offerings, and
geographic markets served, the future financial performance of the Company
as a whole is largely affected by the strength of worldwide economies and
the continued adoption and diligent enforcement of environmental
regulations, among other factors.
The Company believes that maintaining an entrepreneurial atmosphere is
essential to its continued growth and development. In order to preserve
this atmosphere, the Company has adopted a strategy of spinning out certain
of its businesses into separate subsidiaries and having these subsidiaries
sell a minority interest to outside investors. The Company believes that
this strategy provides additional motivation and incentives for the
management of the subsidiaries through the establishment of subsidiary-
level stock option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by subsidiaries, the
issuance of stock by subsidiaries upon conversion of convertible
debentures, and similar transactions, the Company records gains that
represent the increase in the Company's net investment in the subsidiaries
and are classified as "Gain on issuance of stock by subsidiaries" in the
accompanying statement of income. These gains have represented a
substantial portion of the net income reported by the Company in recent
years. 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 generated by the sale of stock by its subsidiaries will
represent a decreasing portion of total 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 generate gains from such transactions in the
future.
35PAGE
<PAGE>
Thermo Electron Corporation
Results of Operations
1994 Compared With 1993
-----------------------
Sales in 1994 were $1,729.2 million, an increase of $374.7 million, or
28%, over 1993. Segment income was $206.3 million, compared with $143.1
million in 1993, an increase of 44%. (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 $182.1 million,
compared with $119.2 million in 1993, an increase of 53%.
Sales from the Instruments segment were $650.1 million in 1994, an
increase of $133.4 million, or 26%, over 1993. Sales increased due to
acquisitions made by Thermo Instrument during 1993 and its acquisition of
several businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated in March 1994. Segment income margin (segment
income margin is segment income as a percentage of sales) was 16.2%,
compared with 17.7% in 1993. Segment income margin declined principally due
to lower margins at the acquired businesses within the EnviroTech
Measurements & Controls group.
Sales from the Alternative-energy Systems segment were $285.4 million,
an increase of $42.7 million, or 18%, over 1993. Within this segment,
revenues from Thermo Ecotek (formerly Thermo Energy Systems), which consist
of revenues from alternative-energy power plant operations, were $134.3
million, compared with $117.7 million in 1993. This increase results from
an additional plant in operation in 1994 and, to a lesser extent, the
absence of utility-imposed curtailments of power output as well as improved
performance at two California plants and annual contractual energy rate
increases under certain power sales contracts. The 1993 period included
$9.8 million of revenues recorded as a result of the termination of a power
sales contract, and $3.1 million from the one-time sale of gas pipeline
rights. Sales from the Company's wholly owned Energy Systems division
increased $10.7 million as a result of a waste-recycling facility in San
Diego County that commenced operations in the first quarter of 1994. Sales
from Thermo Power increased 19%, to $91.9 million, as a result of the
inclusion of $8.4 million in sales from its NuTemp, Inc. subsidiary, which
was acquired in May 1994, and due to increased demand for refrigeration
packages at its FES division.
Segment income from the Alternative-energy Systems segment was $34.5
million, compared with $14.4 million in 1993. Thermo Ecotek had segment
income of $26.9 million, compared with $13.2 million in 1993. This
improvement results from an additional power plant in operation during
1994, the absence of utility-imposed curtailments of power output and
improved performance at two California plants, and annual contractual
energy rate increases under certain power sales contracts. The utility that
purchases the output of two of the Company's California plants has the
right to curtail the plants' power output up to 1,000 hours per year during
periods of low demand. The utility commonly experiences low demand
following periods of heavy rain or snow, when hydroelectric power is
available. Due to abnormally heavy rainfall during January 1995, utility
curtailment of two of the Company's California plants is likely to reach
the contractually allowable maximum of 1000 hours at each of the plants in
1995. Thermo Ecotek's segment income also improved as a result of lower
lease expense, offset in part by depreciation expense, resulting from the
December 1993 purchase of the Delano I facility in California. The 1993
period included $8.6 million of income from the termination of a power
sales contract and the one-time sale of gas pipeline rights. Segment income
from the Company's Energy Systems division increased $3.4 million as a
36PAGE
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Thermo Electron Corporation
result of the waste-recycling facility that commenced operation in the
first quarter of 1994. Segment income increased at Thermo Power by $2.6
million as a result of increased sales, as well as lower expenses at its
Crusader Engines division.
Certain of Thermo Ecotek's plants have power sales agreements with
utilities under which the rates paid for power will convert from fixed
rates to "avoided cost" rates in the year 2000. Avoided cost rates are
currently substantially less than the fixed rates. Two of these plants have
conditions in their nonrecourse lease agreements that require funding of
"power reserves" in years prior to 2000, based on projections of operating
cash flow shortfalls in the year 2000 and thereafter. The power reserves
represent funds available to make lease payments in the event that revenues
are not sufficient after the plants convert to avoided cost rates. Without
sufficient increases in avoided cost rates or reductions in fuel costs and
other operating expenses by the year 2000, Thermo Ecotek expects to either
renegotiate its nonrecourse lease agreements or forfeit its interests in
the plants. Beginning in 1996, if projected avoided cost rates remain at
current levels, Thermo Ecotek will expense the funding of reserves required
under the nonrecourse lease agreements. As a result, the income from the
two plants is expected to be reduced to approximately break-even beginning
in 1996. The plants contributed $9.6 million of segment income in 1994.
Sales in the Process Equipment segment were $189.9 million, compared
with $167.5 million in 1993. Within this segment, sales from Thermo
Fibertek increased to $162.6 million from $137.1 million in 1993 due to an
increase of $17.6 million in sales as a result of the acquisition of AES
Engineered Systems in June 1993, an increase of $7.9 million in sales from
the Company's paper-recycling equipment business as a result of three large
contracts received earlier in the year, and an increase of $4.1 million in
sales from the Company's U.S. accessories business due to greater demand.
These increases were offset in part by a decline of $4.4 million in sales
of environmental process systems sold by the Company's U.K. subsidiary, to
$1.3 million in 1994, as a result of changes in U.K. environmental
regulations that required modifications to that subsidiary's equipment.
Thermo Fibertek intends to exit this business during 1995. In December
1994, a wholly owned subsidiary of the Company entered into a $145 million
contract for engineering, procurement, and construction services for an
office wastepaper de-inking facility to be located in Menominee, Michigan.
Construction is expected to take place over approximately two years. Thermo
Fibertek will supply approximately $15 million of equipment and services
for this project over the next two years. Sales of Holcroft heat-treating
systems, which remain depressed, declined $1.5 million in 1994, and sales
of automated electroplating equipment from the Company's wholly owned
Napco, Inc. subsidiary declined $1.5 million due to weak demand. The
Process Equipment segment income margin was 10.9%, compared with 8.3% in
1993. Thermo Fibertek's segment income margin improved to 12.9% from 11.6%
in 1993, primarily due to increased sales and an improved sales mix.
Holcroft operations were just above the break-even level while Napco
operations resulted in a segment loss of $0.3 million due to lower sales
levels.
Sales in the Biomedical Products segment were $180.3 million, an
increase of $52.8 million, or 41%, over 1993. Sales increased $18.1 million
due to the inclusion for a full year of sales from CBI Laboratories, Inc.,
which was acquired by the Company's ThermoLase subsidiary in December 1993.
Sales of a number of the Company's biomedical products also contributed to
the increase, including ThermoTrex's mammography and needle-biopsy systems,
which increased 45% to $54.4 million; Thermo Cardiosystems' implantable
left ventricular-assist systems, which increased $6.9 million; blood
coagulation-monitoring products and skin incision devices sold by the
37PAGE
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Thermo Electron Corporation
Company's wholly owned International Technidyne Corporation subsidiary,
which increased 18% to $28.6 million; and Thermedics' Scent Seal fragrance
samplers, which increased $3.0 million, due primarily to increased demand.
Segment income margin improved to 9.8% from 4.5% in 1993 as a result of
increased sales and efforts to reduce costs.
Sales in the Environmental Services segment were $141.8 million,
compared with $122.0 million in 1993. Within this segment, sales from
Thermo Remediation increased $8.6 million, to $29.7 million, primarily due
to an increase in the volume of soil processed at its soil-remediation
centers and, to a lesser extent, the inclusion of revenues from businesses
acquired during 1994 and late 1993. Sales of analytical laboratory and
environmental consulting services increased 10.9% to $61.2 million, due to
the inclusion of sales from businesses acquired during 1994 and, to a
lesser extent, the addition of a long-term environmental restoration
contract for the U.S. Department of Energy's Hanford, Washington site.
Sales of metallurgical services increased 9.1%, to $44.8 million, due to
increased demand. Segment income margin improved to 10.5% from 7.6% in
1993, due to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $286.5 million,
compared with $181.1 million in 1993. Sales increased $54.7 million due to
the inclusion of sales from Ramsey Technology Inc., which was acquired by
Thermedics in March 1994, and Comtest, which was acquired by Thermo Voltek
in August 1993. Revenues from Coleman Research's government-sponsored
research and development contracts increased $39.1 million, while revenues
from ThermoTrex's government-sponsored research and development contracts
increased $1.8 million. Sales of Thermedics' EGIS explosives-detection
systems increased $4.1 million, and sales of Thermedics' process detection
instruments, principally to one customer, increased $3.6 million. Segment
income margin was 4.6% in both 1994 and 1993. Improved segment income
margin at Coleman Research as a result of increased revenues was offset by
lower margins at ThermoTrex as a result of increased research and
development expenses to develop and commercialize new products and, to a
lesser extent, lower margins at newly acquired businesses.
The Company's wholly owned Napco subsidiary is challenging a jury
verdict rendered against it during the third quarter of 1994 for $12.2
million plus prejudgement interest in a contract dispute arising out of an
allegedly defective waste-treatment system installed by Napco in 1984. The
Company believes the verdict is in error and is vigorously pursuing all
available post-trial remedies. These remedies include seeking to have the
verdict set aside or substantially reduced and, if necessary, taking an
appeal. In the third quarter of 1994, the Company increased its reserve for
potential losses from pending litigation by approximately $4.0 million,
which is reflected in Corporate general and administrative expenses.
As a result of the sale of stock by subsidiaries, the issuance of
stock by subsidiaries upon conversion of indebtedness, and similar
transactions, the Company recorded gains of $25.3 million in 1994 and $39.9
million in 1993. Such gains represent the increase in the Company's
proportionate share of the subsidiaries' equity and are classified as "Gain
on issuance of stock by subsidiaries" in the accompanying statement of
income. See Notes 1 and 10 to Consolidated Financial Statements for a more
complete description of these transactions. Minority interest expense
increased to $31.0 million in 1994 from $21.1 million in 1993. Minority
interest expense includes $5.6 million in 1994 and $1.3 million in 1993
relating to gains recorded by the Company's majority-owned subsidiaries as
a result of the sale of stock by their subsidiaries.
"Other income (expense), net" in the accompanying statement of income
includes a gain of $14.7 million resulting from the sale of the Peter
Brotherhood Ltd. facility in the United Kingdom. Peter Brotherhood was
38PAGE
<PAGE>
Thermo Electron Corporation
relocated to a new and more efficient facility. Also included is equity in
losses of unconsolidated subsidiaries, which represents the Company's
portion of results from entities in which the Company's ownership is 50% or
less, primarily the operation of the Dade County cogeneration facility,
and, beginning in 1994, the Company's share of the profit from a 50%-owned
joint venture that is responsible for the operation and maintenance of the
Company's waste-recycling facility in San Diego. The loss associated with
the Dade County facility was $5.2 million in 1994, compared with a loss of
$5.7 million in 1993, excluding the $15.0 million provision recorded in
1993.
Because the demand for power and chilled water at the Dade County
Downtown Government Center complex has been substantially less than
anticipated since the plant's startup in 1987, and because the plant has
had difficulty disposing of the remainder of its output, the joint venture
continues to experience losses. Although the joint venture pursues
alternatives to improve the profitability of this plant, such actions to
date have not been effective, and there is no assurance that this situation
will improve. In September 1994, the joint venture temporarily suspended
operation of this plant for an indefinite period of time although it will
continue to be responsible for lease and other fixed costs. The $15.0
million reserve established in 1993 represents management's estimate,
discounted to present value, of the Company's share of estimated future
negative cash flows of the joint venture. The Company is involved in
regulatory proceedings that could require additional reserves, if the
outcome of one or more of these matters is adverse to the Company (see Note
7 to Consolidated Financial Statements).
A wholly owned subsidiary of the Company owns a waste-recycling
facility in southern California that processes waste for San Diego County
(the County). The subsidiary has contracted the operation and maintenance
of the facility to a 50%-owned joint venture. In February 1995, the
subsidiary was notified by the lead financing bank that the County was not
in compliance with a covenant contained in the financing arrangements for
the tax-exempt obligations issued in connection with construction of the
facility. The financing arrangements are nonrecourse to the Company for
issues relating to County defaults. Were the County to remain out of
compliance, the bank group could declare a default on the tax-exempt
obligations and foreclose on the facility. Such a default would result in
the bank group and the subsidiary having claims against the County for
damages, however, the County's responsibility to pay these damages could be
limited to the funds it has available from the day-to-day operation of the
County's solid waste-disposal system. Accordingly, the ultimate outcome of
this matter could result in an impairment of the subsidiary's investment in
the facility. The subsidiary's investment in the facility, including
unfunded equity commitments of $5.5 million, was approximately $16.5
million at December 31, 1994.
In a lawsuit relating to the waste-recycling facility discussed above,
a third party from whom the Company's subsidiary acquired certain
development rights alleges that fees totaling $7.9 million plus interest
and legal costs are due and payable from the subsidiary in connection with
construction of the facility. The Company contends that no additional fees
are payable because the facility actually built was substantially different
from the one contemplated in the agreement with the third party developer.
A jury trial is expected to commence in 1995. There can be no assurance as
to the outcome of this matter.
39PAGE
<PAGE>
Thermo Electron Corporation
1993 Compared With 1992
-----------------------
Sales in 1993 were $1,354.5 million, an increase of $355.3 million, or 36%,
over 1992. Segment income was $143.1 million, compared with $87.6 million
in 1992, an increase of 63%. Operating income was $119.2 million, compared
with $70.5 million in 1993, an increase of 69%.
Sales from the Instruments segment were $516.7 million, an increase of
$167.5 million, or 48%, over 1992. Sales increased approximately $153
million due to additional revenues from acquired businesses, including
Nicolet Instrument Corporation in August 1992, Gamma-Metrics in January
1993, Spectra-Physics Analytical in February 1993, and divisions of FAG
Kugelfischer Georg Shafer AG in October 1993. The remainder of the increase
was due to increased demand for products from existing businesses. Segment
income margin was 17.7%, compared with 17.1% in 1992. Segment income margin
improved principally due to changes in product mix and continuing efforts
to reduce costs.
Sales from the Alternative-energy Systems segment were $242.7 million,
an increase of $20.8 million, or 9%, over 1992. Sales from Thermo Ecotek
were $117.7 million, compared with $104.8 million in 1992. Included in
Thermo Ecotek's 1993 sales was $9.8 million recorded as a result of the
termination of a power sales contract, and $3.1 million from the one-time
sale of gas pipeline rights. The 1992 period included $2.0 million received
in settlement of a dispute over lost development fees. Excluding the
nonrecurring items from both years, revenues from plant operations
increased 2% as a result of annual contractual energy rate increases under
certain power sales contracts, offset in part by increased utility-imposed
curtailments of power output at two California plants. Construction
revenues from an alternative-energy facility, which was completed in 1993,
were $10.9 million, compared with $35.8 million in 1992. Sales from Thermo
Power were $77.4 million, compared with $43.9 million in 1992. This
increase results principally from the acquisition of FES by Thermo Power in
October 1992, offset in part by slight declines in revenues from its
Crusader Engines and Tecogen divisions. Sales of Peter Brotherhood steam
turbines and compressors were slightly below 1992 levels.
Segment income from the Alternative-energy Systems segment was $14.4
million, compared with $1.8 million in 1992. Thermo Ecotek segment income
was $13.2 million, compared with $5.7 million in 1992. The 1993 period
included $8.6 million of income from the termination of a power sales
contract and the one-time sale of gas pipeline rights. The 1992 period
included $2.0 million received in settlement of a dispute over lost
development fees. Excluding the nonrecurring items in both years, segment
income from Thermo Ecotek was $4.6 million in 1993 and $3.7 million in
1992. This improvement resulted from lower lease expense, offset in part by
depreciation expense, resulting from the September 1992 purchase of the
Whitefield, New Hampshire plant and the December 1993 purchase of the
Delano I facility. In addition, segment income from Thermo Ecotek was
favorably affected by contractual energy rate increases. These improvements
were partially offset by utility-imposed curtailments of power output at
two California plants, and higher maintenance costs in 1993 to implement
equipment modifications at one California plant. Total curtailments of
power output in 1993 were approximately 90% of the maximum allowable
curtailments under the Company's agreements with the utility, compared with
less than 10% in 1992. In 1992, Alternative-energy Systems segment income
reflected the establishment of a reserve of $5.0 million for probable cost
overruns on projects under construction. Segment income at Thermo Power
improved principally as a result of increased revenues at FES and efforts
to reduce costs, offset by a decline at Peter Brotherhood due to lower
sales and increased price competition.
40PAGE
<PAGE>
Thermo Electron Corporation
Sales in the Process Equipment segment were $167.5 million, compared
with $160.5 million in 1992. Within this segment, sales from Thermo
Fibertek were $137.1 million, compared with $125.6 million in 1992. Sales
at Thermo Fibertek increased by $18.6 million as a result of the
acquisition of AES in June 1993, by $9.7 million due to the inclusion for a
full year of Vickerys Holdings Limited, which was acquired in September
1992, and by $4.5 million from the North American accessories,
flotation-dryer, and pollution-control equipment businesses. These
increases were partially offset by a decline in sales of $14.6 million in
Thermo Fibertek's paper-recycling equipment business, which was affected by
the poor financial condition of the paper industry, particularly in Europe,
and by the unfavorable effects of a stronger U.S. dollar upon currency
translation, which decreased sales by approximately $3.7 million. Sales of
Holcroft heat-treating systems, which remain depressed, were $16.1 million,
compared with $15.4 million in 1992. Sales of automated electroplating
equipment from Napco declined to $14.3 million from $19.5 million in 1993,
due to continuing weak demand. The Process Equipment segment income margin
was 8.3%, compared with 8.7% in 1992. Thermo Fibertek's segment income
margin was 11.6%, compared with 12.5% in 1992. This decline was primarily
due to lower sales of paper-recycling equipment and, to a lesser extent,
competitive pricing pressure experienced by foreign paper-recycling
operations. Segment income improved at Holcroft, resulting from reduced
costs, offset by a decline at Napco. Napco incurred a segment loss of $1.5
million, compared with income of $0.6 million in 1992, as a result of lower
sales, pricing pressure, and increased costs to complete jobs.
Sales in the Biomedical Products segment were $127.5 million, compared
with $58.2 million in 1992. Sales increased $59.1 million due to the
inclusion of sales for a full year from Lorad Corporation, a manufacturer
of mammography and needle-biopsy systems acquired by the Company's
ThermoTrex subsidiary in November 1992, and from the acquisition of
Nicolet's biomedical products business as part of the acquisition of
Nicolet in August 1992. Sales also increased $4.2 million from the
introduction of Thermedics' Scent Seal fragrance samplers, which were
developed from the Company's polymer technology, with the balance of the
increase primarily from higher demand for blood coagulation-monitoring
products at International Technidyne. Segment income improved to $5.8
million from $1.3 million in 1992, principally as a result of increased
sales.
Sales in the Environmental Services segment were $122.0 million,
compared with $114.3 million in 1992. Within this segment, sales from
Thermo Remediation increased by $8.9 million, primarily as a result of
higher production at soil-remediation centers. Sales of metallurgical
services declined by $1.3 million due to continuing weakness in aerospace
and defense-related businesses. Sales from analytical laboratory and
environmental consulting services were about the same level as in 1992.
Segment income margin improved to 7.6%, compared with 7.4% in 1992, due to
an improved sales mix and efforts to reduce costs.
Sales from the Advanced Technologies segment were $181.1 million,
compared with $96.3 million in 1992. Revenues from Coleman Research's
government-sponsored research and development contracts increased $54.5
million. Sales increased $24.4 million due to increased demand, principally
from one customer, for Thermedics' process detection instruments. Sales
also increased $7.2 million at Thermo Voltek, due to the inclusion, for a
full year, of revenues from KeyTek Instrument, which was acquired in June
1992, and the inclusion of revenues from Comtest, which was acquired in
August 1993. These increases were offset in part by a decline in sales from
a specific contract at Thermo Voltek's Universal Voltronics division, which
41PAGE
<PAGE>
Thermo Electron Corporation
was essentially complete in 1993. Segment income was $8.3 million, compared
with $2.5 million in 1992, resulting primarily from increased sales.
In 1993, the Company recorded $6.6 million of "Costs associated with
divisional and product restructuring," which is described in Note 12 to
Consolidated Financial Statements. Of the $6.6 million, the Alternative-
energy Systems segment recorded $1.5 million, the Process Equipment segment
recorded $0.5 million, and the Environmental Services segment recorded $4.6
million. There were no such costs recorded in 1992. Such amounts were not
included in segment income discussed above.
As a result of the sale of stock by subsidiaries, the issuance of
stock by subsidiaries upon conversion of indebtedness, and similar
transactions, the Company recorded gains of $39.9 million in 1993 and $30.2
million in 1992. See Notes 1 and 10 to Consolidated Financial Statements
for a more complete description of these transactions.
"Other income (expense), net" in the accompanying statement of income
includes equity in losses of unconsolidated subsidiaries, which represents
the Company's portion of results from entities in which the Company's
ownership is 50% or less, primarily the operation of the Dade County
cogeneration facility. The loss in 1993 was $22.7 million, compared with a
loss of $3.9 million in 1992, with the Dade County cogeneration facility
accounting for $20.7 million and $3.4 million of these losses,
respectively. The Dade County loss for 1993 includes a provision of $15.0
million which is discussed above in the 1994 results of operations. The
remaining increase resulted from higher fuel costs and legal expenses
pertaining to the legal actions described in Note 7 to Consolidated
Financial Statements.
Financial Condition
Liquidity and Capital Resources
-------------------------------
Consolidated working capital was $1,150.7 million at December 31, 1994,
compared with $833.8 million at January 1, 1994. Included in working
capital were cash and short-term investments of $997.9 million at December
31, 1994, compared with $700.4 million at January 1, 1994. In addition, at
December 31, 1994, the Company had $62.5 million of long-term marketable
securities, compared with $43.6 million at January 1, 1994. In April 1994,
the Company issued $345.0 million principal amount of 5% senior convertible
debentures due 2001.
In 1994, the Company expended $174.3 million for acquisitions and
$65.5 million for purchases of property, plant and equipment. 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. On March 1, 1995, the Company's Thermo Instrument subsidiary entered
into an agreement to acquire the Scientific Instruments Division of Fisons
plc for 202 million British pounds sterling, subject to the satisfaction of
certain conditions to closing (see Note 15 to Consolidated Financial
Statements).
A substantial percentage of the Company's consolidated cash and
short-term investments is held by subsidiaries that are not wholly owned by
the Company. This percentage may vary significantly over time. Pursuant to
the Thermo Electron Corporate Charter (the Charter), to which each of the
majority-owned subsidiaries of the Company is a party, the combined
financial resources of Thermo Electron Corporation and its subsidiaries
allow the Company to provide banking, credit, and other financial services
to its subsidiaries so that each member of the Thermo Electron group of
companies may benefit from the financial strength of the entire
42PAGE
<PAGE>
Thermo Electron Corporation
organization. Toward that end, the Charter states that each member of the
group may be required to provide certain credit support to the consolidated
entity. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions
is subject in each instance to a fiduciary duty owed to the minority
shareholders of the relevant subsidiary. In addition, dividends received by
Thermo Electron from a subsidiary that does not consolidate with Thermo
Electron for tax purposes are subject to tax. Therefore, under certain
circumstances, a portion of the Company's consolidated cash and short-term
investments may not be readily available to Thermo Electron or certain of
its subsidiaries.
The Company intends for the foreseeable future to maintain at least
80% ownership of its Thermo Instrument, Thermo Fibertek, and Thermo Ecotek
subsidiaries, which is required in order to continue to file a consolidated
federal income tax return with these subsidiaries. In addition, the Company
intends to maintain greater than 50% ownership of its other majority-owned
subsidiaries so that the Company may continue to consolidate these
subsidiaries for financial reporting purposes. This may require the
purchase by the Company of additional shares or convertible debentures of
these companies from time to time as the number of outstanding shares
issued by these companies increases, either in the open market or directly
from the subsidiaries. See Note 6 to Consolidated Financial Statements for
a description of outstanding convertible debentures issued by Thermo
Instrument. In addition, at December 31, 1994, Thermo Instrument, Thermo
Fibertek, and Thermo Ecotek had outstanding stock options of 2,026,000
shares, 1,681,000 shares, and 1,026,000 shares, respectively, exercisable
at various prices and subject to certain vesting schedules. The Company's
other majority-owned subsidiaries also have outstanding stock options
and/or convertible debentures. If the Company were to lose its ability to
consolidate for tax purposes with Thermo Instrument, the Company would
incur an additional tax liability, which could be substantial.
During 1994, the Company and its majority-owned subsidiaries expended
$101.5 million to purchase common stock of the Company's subsidiaries. The
Company expects that these purchases will continue in 1995.
43PAGE
<PAGE>
Thermo Electron Corporation
Information as to Publicly Owned Businesses (Unaudited)
(In thousands) 1994 1993 1992
----------------------------------------------------------------------
Revenues:
Thermo Instrument Systems Inc. $ 662,187 $ 584,176 $ 423,199
Thermo Fibertek Inc. 162,625 137,088 125,577
Thermedics Inc. (a) 155,111 80,220 45,778
Thermo Ecotek Corporation 134,261 117,691 104,785
Thermo Process Systems Inc. (b) 111,268 53,839 47,082
Thermo Power Corporation 91,873 77,360 43,904
ThermoTrex Corporation (c) 91,052 54,329 19,843
---------- ---------- ----------
1,408,377 1,104,703 810,168
Wholly owned nonpublic companies 320,814 249,805 189,060
---------- ---------- ----------
$1,729,191 $1,354,508 $ 999,228
========== ========== ==========
Segment Income (d):
Thermo Instrument Systems Inc. $ 106,241 $ 96,786 $ 63,373
Thermo Fibertek Inc. 20,948 15,902 15,716
Thermedics Inc. (a) 16,909 8,292 841
Thermo Ecotek Corporation 26,928 13,184 5,735
Thermo Process Systems Inc. (b) 9,219 1,338 371
Thermo Power Corporation 5,263 2,707 715
ThermoTrex Corporation (c) 1,467 485 (1,185)
---------- ---------- ----------
186,975 138,694 85,566
Wholly owned nonpublic companies 19,313 4,357 2,029
---------- ---------- ----------
206,288 143,051 87,595
Equity in Losses of
Unconsolidated Subsidiaries (4,019) (22,721) (3,948)
Corporate 4,107 11,137 18,928
---------- ---------- ----------
Income Before Income Taxes,
Minority Interest, and
Cumulative Effect of Change
in Accounting Principle $ 206,376 $ 131,467 $ 102,575
========== ========== ==========
(a) Includes Thermo Cardiosystems Inc. and Thermo Voltek Corp.
(b) Includes Thermo Remediation Inc.
(c) Includes ThermoLase Corporation.
(d) 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.
44PAGE
<PAGE>
Thermo Electron Corporation
Quarterly Information (Unaudited)
(In thousands except per share amounts)
1994(a) First Second Third Fourth
-------------------------------------------------------------------------
Revenues $383,724 $428,547 $445,516 $471,404
Gross profit 140,020 159,736 171,114 180,031
Net income 22,925 24,418 27,827 29,541
Earnings per share:
Primary .30 .32 .35 .37
Fully diluted .27 .28 .31 .33
1993(b) First Second Third Fourth
-------------------------------------------------------------------------
Revenues $310,294 $324,805 $350,360 $369,049
Gross profit 106,904 112,233 126,966 136,179
Net income 15,515 17,682 20,977 22,694
Earnings per share:
Primary .24 .27 .29 .30
Fully diluted .22 .25 .26 .27
(a) Results include nontaxable gains of $8,494,000, $229,000, $12,561,000,
and $3,999,000 in the first, second, third, and fourth quarters,
respectively, from the issuance of stock by subsidiaries.
(b) Results include nontaxable gains of $11,101,000, $10,617,000,
$3,461,000, and $14,684,000 in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
Common Stock Market Information
--------------------------------------------------------------------------
The following table shows the market range for the Company's common stock
based on reported sales prices on the New York Stock Exchange (symbol TMO)
for 1994 and 1993. Prices were restated in 1993 to reflect a three-for-two
stock split distributed in October 1993.
1994 1993
---------------- ----------------
Quarter High Low High Low
-----------------------------------------------------------------------
First $29 3/5 $25 1/3 $25 1/3 $20 8/9
Second 27 3/5 24 27 4/9 24 2/9
Third 30 3/5 25 1/4 28 5/6 24 5/6
Fourth 31 11/12 27 1/6 28 2/3 25 2/5
The closing market price on the New York Stock Exchange for the
Company's common stock on January 27, 1995 was $29 3/5 per share.
As of January 27, 1995, the Company had 6,666 holders of record of its
common stock. This does not include holdings in street or nominee names.
45PAGE
<PAGE>
Thermo Electron Corporation
Common stock of the following majority-owned public subsidiaries is
traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo
Instrument Systems Inc. (THI), Thermo Process Systems Inc. (TPI), Thermo
Power Corporation (THP), ThermoTrex Corporation (TKN), Thermo Fibertek Inc.
(TFT), Thermo Ecotek Corporation (TCK), Thermo Cardiosystems Inc. (TCA),
Thermo Voltek Corp. (TVL), Thermo Remediation Inc. (THN), and ThermoLase
Corporation (TLZ).
Transfer Agent and Common Stock Registrar
--------------------------------------------------------------------------
The Bank of Boston is the stock transfer agent and maintains shareholder
activity records. The agent will respond to questions on issuances of stock
certificates, changes of ownership, lost stock certificates, and changes of
address. For these and similar matters, please direct inquiries to:
The Bank of Boston
Post Office Box 644
Mail Stop: 45-02-09
Boston, Massachusetts 02102-0644
(617) 575-3120
Shareholder Services
--------------------------------------------------------------------------
Shareholders of Thermo Electron Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046, by letter or telephone at
(617) 622-1111.
A mailing list is maintained to enable shareholders whose stock is
held in street name, and other interested individuals, to receive quarterly
and annual reports as quickly as possible. If you would like your name
added to the list, please notify this office.
Dividend Policy
--------------------------------------------------------------------------
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use
earnings to finance expansion and growth. Payment of dividends will rest
within the discretion of the Board of Directors and will depend upon, among
other factors, the Company's earnings, capital requirements, and financial
condition.
Annual Meeting
--------------------------------------------------------------------------
The annual meeting of shareholders will be held on Tuesday, May 23, 1995 at
5:00 p.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina.
46PAGE
<PAGE>
Thermo Electron Corporation
Form 10-K Report
--------------------------------------------------------------------------
A copy of the Annual Report on Form 10-K for the fiscal year ended December
31, 1994, as filed with the Securities and Exchange Commission, may be
obtained at no charge by writing to John N. Hatsopoulos, Chief Financial
Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Corporate Office
--------------------------------------------------------------------------
Thermo Electron Corporation
81 Wyman Street
Post Office Box 9046
Waltham, Massachusetts 02254-9046
47PAGE
<PAGE>
Thermo Electron Corporation
<TABLE>
Ten Year Financial Summary
(In millions except per share amounts)
<CAPTION>
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,729.2 $1,354.5 $ 999.2 $ 842.5 $ 744.5 $ 640.3 $ 553.7 $ 430.8 $ 368.0 $ 291.1
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Costs and Expenses:
Cost of revenues 928.6 755.5 609.0 532.9 465.1 424.2 359.6 280.3 244.8 194.9
Expenses for R&D
and new lines of
business 233.1 183.9 106.5 84.6 74.5 60.7 54.3 40.9 33.9 25.3
Selling, general
and administra-
tive expenses 384.7 289.3 213.2 177.7 163.0 129.6 113.1 90.4 71.7 56.3
Costs associated
with divisional
and product
restructuring .7 6.6 - 3.7 1.0 2.2 0.9 3.4 7.1 4.3
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
1,547.1 1,235.3 928.7 798.9 703.6 616.7 527.9 415.0 357.5 280.8
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Income 182.1 119.2 70.5 43.6 40.9 23.6 25.8 15.8 10.5 10.3
Gain on Issuance
of Stock by
Subsidiaries 25.3 39.8 30.2 27.4 20.3 16.8 6.0 16.1 15.9 9.1
Other Income
(Expense), Net (1.0) (27.5) 1.8 10.6 (0.5) 1.1 2.8 (2.5) (5.1) (5.9)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before
Income Taxes,
Minority Interest,
and Cumulative
Effect of Change
in Accounting
Principle 206.4 131.5 102.5 81.6 60.7 41.5 34.6 29.4 21.3 13.5
Provision for
Income Taxes 70.7 33.5 27.7 25.8 18.1 10.9 9.2 6.3 4.4 2.7
Minority Interest
Expense 31.0 21.1 13.9 7.3 7.1 3.3 2.1 1.9 0.5 (0.1)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
48PAGE
<PAGE>
Thermo Electron Corporation
Ten Year Financial Summary (continued)
(In millions except per share amounts)
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before
Cumulative Effect
of Change in
Accounting
Principle 104.7 76.9 60.9 48.5 35.5 27.3 23.3 21.2 16.4 10.9
Cumulative Effect
of Change in
Accounting Prin-
ciple, Net of
Tax (f) - - 1.4 - - - - - - -
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 104.7 $ 76.9 $ 59.5 $ 48.5 $ 35.5 $ 27.3 $ 23.3 $ 21.2 $ 16.4 $ 10.9
======== ======== ======= ======= ======= ======= ======= ======= ======= =======
Earnings per
Share Before
Cumulative
Effect of
Change in
Accounting
Principle:
Primary $ 1.35 $ 1.11 $ .95 $ .84 $ .68 $ .55 $ .48 $ .43 $ .34 $ .27
Fully
diluted $ 1.20 $ 1.00 $ .90 $ .79 $ .65 $ .53 $ .48 $ .43 $ .34 $ .26
Earnings per
Share:
Primary $ 1.35 $ 1.11 $ .93 $ .84 $ .68 $ .55 $ .48 $ .43 $ .34 $ .27
Fully
diluted $ 1.20 $ 1.00 $ .88 $ .79 $ .65 $ .53 $ .48 $ .43 $ .34 $ .26
49PAGE
<PAGE>
Thermo Electron Corporation
Ten Year Financial Summary (continued)
(In millions except per share amounts)
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Balance Sheet
Data:
Working
capital $1,150.7 $ 833.8 $ 508.7 $ 468.4 $ 244.1 $ 277.6 $ 220.1 $ 211.8 $ 124.5 $ 79.6
Total assets 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 528.5 465.0 336.0 243.1
Net assets
related to
construc-
tion
projects - 9.4 23.8 29.4 - - - - - -
Long-term
obligations 1,049.9 647.6 494.2 255.1 210.5 177.0 152.9 136.1 61.4 49.5
Minority
interest 327.7 277.7 164.3 122.5 83.9 51.8 22.6 25.8 20.1 6.6
Common stock
of subsid-
iaries
subject to
redemption - 14.5 5.5 5.5 8.7 13.1 - - - -
Shareholders'
investment 1,007.5 873.7 563.8 489.5 314.1 229.2 196.4 175.3 154.5 107.7
<FN>
(a) Reflects the issuance of $345.0 million principal amount of convertible debentures.
(b) Reflects the Company's 1993 public offering of common stock for net proceeds of $246.0 million.
(c) Reflects the August 1992 acquisition of Nicolet Instrument Corporation and the issuance of $260.0
million principal amount of convertible debentures.
(d) Reflects the issuance of $164.0 million principal amount of convertible debentures.
(e) Reflects the May 1990 acquisition of Finnigan Corporation.
(f) Reflects the adoption in fiscal 1992 of Statement of Financial Accounting Standards No. 106,
"Accounting for Post-retirement Benefits Other Than Pensions".
</TABLE>
50<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 10, 1995 (except with respect to
the matters discussed in Note 15 as to which the date is July 20, 1995)
included in or incorporated by reference into Thermo Electron Corporation's
Annual Report on Amendment No. 2 on Form 10-K/A for the year ended December
31, 1994 into the Company's previously filed Registration Statement
No. 33-00182 on Form S-8, Registration Statement No. 33-8993 on Form S-8,
Registration Statement No. 33-8973 on Form S-8, Registration Statement
No. 33-16460 on Form S-8, Registration Statement No. 33-16466 on Form S-8,
Registration Statement No. 33-25052 on Form S-8, Registration Statement
No. 33-37865 on Form S-8, Registration Statement No. 33-37867 on Form S-8,
Registration Statement No. 33-36223 on Form S-8, Registration Statement
No. 33-52826 on Form S-8, Registration Statement No. 33-52804 on Form S-8,
Registration Statement No. 33-52806 on Form S-8, Registration Statement
No. 33-52800 on Form S-8, Registration Statement No. 33-37868 on Form S-3,
Registration Statement No. 33-35657 on Form S-3, Registration Statement
No. 33-34752 on Form S-3, Registration Statement No. 33-39434 on Form S-3,
Registration Statement No. 33-12748 on Form S-3, Registration Statement
No. 33-39773 on Form S-3, Registration Statement No. 33-40669 on Form S-3,
Registration Statement No. 33-41256 on Form S-3, Registration Statement
No. 33-42694 on Form S-3, Registration Statement No. 33-43706 on Form S-3,
Registration Statement No. 33-45401 on Form S-3, Registration Statement
No. 33-45603 on Form S-3, Registration Statement No. 33-50924 on Form S-3,
Registration Statement No. 33-51187 on Form S-8, Registration Statement
No. 33-51189 on Form S-8, Registration Statement No. 33-54185 on Form S-3,
Registration Statement No. 33-54347 on Form S-8, Registration Statement
No. 33-54453 on Form S-8, Registration Statement No. 33-57129 on Form S-4,
Registration Statement No. 33-59544 on Form S-3, and Registration Statement
No. 33-58487 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
August 1, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 383,005
<SECURITIES> 614,915
<RECEIVABLES> 347,444
<ALLOWANCES> 21,664
<INVENTORY> 233,382
<CURRENT-ASSETS> 1,711,624
<PP&E> 811,325
<DEPRECIATION> 186,437
<TOTAL-ASSETS> 3,061,935
<CURRENT-LIABILITIES> 560,892
<BONDS> 1,049,850
<COMMON> 53,558
0
0
<OTHER-SE> 953,928
<TOTAL-LIABILITY-AND-EQUITY> 3,061,935
<SALES> 1,418,306
<TOTAL-REVENUES> 1,729,191
<CGS> 824,845
<TOTAL-COSTS> 1,078,290<F1>
<OTHER-EXPENSES> 84,104<F2>
<LOSS-PROVISION> 4,255
<INTEREST-EXPENSE> 59,844
<INCOME-PRETAX> 206,376
<INCOME-TAX> 70,703
<INCOME-CONTINUING> 104,711
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<CHANGES> 0
<NET-INCOME> 104,711
<EPS-PRIMARY> 1.35
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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
RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
</FN>
</TABLE>
