SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 30, 1995.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)622-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at October 27, 1995
----------------------------- -------------------------------
Common Stock, $1.00 par value 86,454,678
PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
PART I - Financial Information
Item 1 - Financial Statements
(a)Consolidated Balance Sheet - Assets as of September 30, 1995 and
December 31, 1994 (In thousands) (Unaudited)
September 30, December 31,
1995 1994
------------- ------------
Current Assets:
Cash and cash equivalents $ 441,552 $ 383,005
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $550,969 and $617,837) 557,112 614,915
Accounts receivable, less allowances
of $25,827 and $21,664 430,430 347,444
Unbilled contract costs and fees 79,505 59,906
Inventories:
Raw materials and supplies 166,615 128,876
Work in process 69,262 44,711
Finished goods 72,194 59,795
Prepaid income taxes 60,638 57,824
Prepaid expenses 20,010 15,148
---------- ----------
1,897,318 1,711,624
---------- ----------
Property, Plant and Equipment, at Cost 942,011 811,325
Less: Accumulated depreciation and
amortization 237,678 186,437
---------- ----------
704,333 624,888
---------- ----------
Long-term Available-for-sale
Investments, at Market Value
(amortized cost of $69,034 and $65,218) 70,196 62,451
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $24,219) 23,395 -
---------- ----------
Other Assets 92,694 85,338
---------- ----------
Cost in Excess of Net Assets of
Acquired Companies 719,189 577,634
---------- ----------
$3,507,125 $3,061,935
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(a)Consolidated Balance Sheet - Liabilities and Shareholders' Investment
as of September 30, 1995 and December 31, 1994 (In thousands except
share amounts) (Unaudited)
September 30, December 31,
1995 1994
------------- ------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 97,700 $ 94,003
Accounts payable 141,027 116,768
Accrued payroll and employee benefits 90,550 79,849
Accrued income taxes 33,401 35,845
Accrued installation and warranty costs 37,920 33,442
Other accrued expenses 227,154 200,985
---------- ----------
627,752 560,892
---------- ----------
Deferred Income Taxes and Other Items 137,825 115,973
---------- ----------
Long-term Obligations:
Senior convertible obligations 497,336 620,000
Subordinated convertible obligations (Note 6) 270,614 186,661
Tax-exempt obligations 129,346 130,985
Nonrecourse tax-exempt obligations 94,700 95,300
Other 85,827 16,904
---------- ----------
1,077,823 1,049,850
---------- ----------
Minority Interest 430,745 327,734
---------- ----------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,435 -
---------- ----------
Shareholders' Investment (Note 5):
Common stock, $1 par value, 175,000,000
shares authorized; 86,481,725 and
53,558,248 shares issued 86,482 53,558
Capital in excess of par value 552,929 493,058
Retained earnings 572,661 472,396
Treasury stock at cost, 33,464 and
38,318 shares (1,265) (1,631)
Cumulative translation adjustment 1,921 (3,557)
Deferred compensation (1,852) (2,657)
Net unrealized gain (loss) on available-
for-sale investments 4,669 (3,681)
---------- ----------
1,215,545 1,007,486
---------- ----------
$3,507,125 $3,061,935
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(b)Consolidated Statement of Income for the three months ended
September 30, 1995 and October 1, 1994 (In thousands except per
share amounts) (Unaudited)
Three Months Ended
-------------------------
September 30, October 1,
1995 1994
------------- ----------
Revenues:
Product revenues $466,649 $365,426
Service revenues 55,586 35,774
Research and development contract revenues 48,138 44,316
-------- --------
570,373 445,516
-------- --------
Costs and Expenses:
Cost of products 276,928 209,351
Cost of services 37,565 25,979
Expenses for research and development and
new lines of business (a) 67,491 60,185
Selling, general and administrative expenses 119,992 102,676
Restructuring and other nonrecurring costs 19,845 650
-------- --------
521,821 398,841
-------- --------
Operating Income 48,552 46,675
Gain on Issuance of Stock by Subsidiaries
(Note 2) 43,059 12,561
Other Expense, Net (Note 3) (4,323) (6,001)
-------- --------
Income Before Income Taxes and Minority Interest 87,288 53,235
Provision for Income Taxes 23,254 14,600
Minority Interest Expense 25,901 10,808
-------- --------
Net Income $ 38,133 $ 27,827
======== ========
Earnings per Share:
Primary $ .45 $ .35
======== ========
Fully diluted $ .40 $ .31
======== ========
Weighted Average Shares:
Primary 84,393 78,503
======== ========
Fully diluted 105,456 104,023
======== ========
(a) Includes costs of:
Research and development contracts $ 40,942 $ 39,072
Internally funded research and development 25,696 20,042
Other expenses for new lines of business 853 1,071
-------- --------
$ 67,491 $ 60,185
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(b)Consolidated Statement of Income for the nine months ended September
30, 1995 and October 1, 1994 (In thousands except per share amounts)
(Unaudited)
Nine Months Ended
--------------------------
September 30, October 1,
1995 1994
------------- ----------
Revenues:
Product revenues $1,278,312 $1,031,795
Service revenues 153,892 101,459
Research and development contract revenues 145,435 124,533
---------- ----------
1,577,639 1,257,787
---------- ----------
Costs and Expenses:
Cost of products 754,573 602,557
Cost of services 104,812 73,758
Expenses for research and development and
new lines of business (a) 199,283 171,203
Selling, general and administrative expenses 345,530 280,489
Restructuring and other nonrecurring costs 21,938 650
---------- ----------
1,426,136 1,128,657
---------- ----------
Operating Income 151,503 129,130
Gain on Issuance of Stock by Subsidiaries
(Note 2) 65,632 21,284
Other Expense, Net (Note 3) (7,701) (402)
---------- ----------
Income Before Income Taxes and Minority Interest 209,434 150,012
Provision for Income Taxes 65,611 51,788
Minority Interest Expense 43,558 23,054
---------- ----------
Net Income $ 100,265 $ 75,170
========== ==========
Earnings per Share:
Primary $ 1.21 $ .98
========== ==========
Fully diluted $ 1.07 $ .87
========== ==========
Weighted Average Shares:
Primary 82,610 76,814
========== ==========
Fully diluted 105,276 99,810
========== ==========
(a) Includes costs of:
Research and development contracts $ 125,203 $ 110,602
Internally funded research and development 71,538 57,731
Other expenses for new lines of business 2,542 2,870
---------- ----------
$ 199,283 $ 171,203
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(c) Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995 and October 1, 1994 (In thousands) (Unaudited)
Nine Months Ended
--------------------------
September 30, October 1,
1995 1994
------------- ----------
Operating Activities:
Net cash provided by operating activities $ 102,929 $ 110,346
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (213,359) (160,193)
Purchases of available-for-sale investments (351,906) (642,968)
Purchases of held-to-maturity investments (22,300) -
Proceeds from sale and maturities of
available-for-sale investments 420,147 354,606
Purchases of property, plant and equipment (41,686) (43,427)
Proceeds from sale of property, plant and
equipment 5,607 17,501
Decrease in net restricted funds - 23,420
Other (13,278) (7,159)
--------- ---------
Net cash provided by (used in) investing
activities (216,775) (458,220)
--------- ---------
Financing Activities:
Increase (decrease) in short-term notes payable (4,478) 8,941
Proceeds from issuance of long-term
obligations (Note 6) 130,988 370,339
Repayment and repurchase of long-term
obligations (29,168) (18,913)
Proceeds from issuance of Company and
subsidiary common stock (Note 2) 145,844 46,288
Purchases of subsidiary common stock (75,351) (76,503)
Other 1,802 (3,902)
--------- ---------
Net cash provided by financing activities 169,637 326,250
--------- ---------
Exchange Rate Effect on Cash 2,756 3,031
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 58,547 (18,593)
Cash and Cash Equivalents at Beginning of Period 383,005 325,989
--------- ---------
Cash and Cash Equivalents at End of Period $ 441,552 $ 307,396
========= =========
6PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(c)Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995 and October 1, 1994 (In thousands) (Unaudited)
(continued)
Nine Months Ended
-------------------------
September 30, October 1,
1995 1994
------------- ----------
Supplemental Cash Flow Information:
Provision for losses on accounts receivable $ 2,992 $ 2,344
Cash paid for:
Interest $ 56,256 $ 41,302
Income taxes $ 43,394 $ 18,609
Noncash activities:
Conversions of convertible obligations $ 158,457 $ 88,210
Issuance of long-term debt in connection
with acquisition $ 22,300 $ -
Acquisition of asset under capital lease $ 47,020 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - September 30, 1995
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Electron Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of (a) the results of operations for
the three- and nine-month periods ended September 30, 1995 and October
1, 1994, (b) the financial position at September 30, 1995, and (c) the cash
flows for the nine-month periods ended September 30, 1995 and October
1, 1994. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of December 31, 1994, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, as amended, filed with the
Securities and Exchange Commission.
2. Transactions in Stock of Subsidiaries
"Gain on issuance of stock by subsidiaries" in the accompanying
statement of income for the three- and nine-month periods ended September
30, 1995, resulted primarily from the following:
An initial public offering of 2,333,556 shares of Thermo
Ecotek Corporation common stock in February 1995 at $12.75 per
share for net proceeds of $27.5 million resulted in a gain of
$7.9 million.
Private placements of 1,601,500 shares of Thermo BioAnalysis
Corporation common stock in March and April 1995 at $10.00 per
share for net proceeds of $14.9 million resulted in a gain of
$9.5 million that was recorded by the Company's Thermo
Instrument Systems Inc. subsidiary.
A private placement of 500,000 shares of Thermo Remediation
Inc. common stock in May 1995 at $13.25 per share for net
proceeds of $6.6 million resulted in a gain of $1.6 million
that was recorded by the Company's Thermo Process Systems Inc.
subsidiary.
8PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
2. Transactions in Stock of Subsidiaries (continued)
Private placements of 150,000 and 50,000 shares of ThermoLase
Corporation common stock in June 1995 at $13.75 and $12.825
per share, respectively, and a public offering of 2,250,000
shares in July 1995 at $25.25 per share, for aggregate net
proceeds of $55.3 million resulted in an aggregate gain of
$34.7 million that was recorded by the Company's ThermoTrex
Corporation subsidiary.
An initial public offering of 1,725,000 shares of
ThermoSpectra Corporation common stock in August 1995 at
$14.00 per share for net proceeds of $21.9 million resulted in
a gain of $9.3 million that was recorded by the Company's
Thermo Instrument subsidiary.
Conversion of $5.6 million of Thermo Voltek Corp. 3 3/4%
subordinated convertible debentures convertible at $11.75 per
share into 480,507 shares of Thermo Voltek common stock
resulted in a gain of $2.3 million that was recorded by the
Company's Thermedics Inc. subsidiary.
3. Other Expense, Net
The components of "Other expense, net" in the accompanying statement of
income are:
Three Months Ended Nine Months Ended
------------------------- -------------------------
September 30, October 1, September 30, October 1,
(In thousands) 1995 1994 1995 1994
--------------------------------------------------------------------------
Interest income $ 16,066 $ 12,119 $ 45,657 $ 30,029
Interest expense (19,921) (16,578) (56,292) (43,406)
Equity in loss of
unconsolidated
subsidiaries (956) (1,516) (315) (3,354)
Gain on sale of land - - - 11,934
Other income (expense),
net 488 (26) 3,249 4,395
-------- -------- -------- --------
$ (4,323) $ (6,001) $ (7,701) $ (402)
======== ======== ======== ========
9PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
4. Acquisition
On March 15, 1995, the Company acquired Coleman Research Corporation
(Coleman Research) in exchange for 4,002,224 shares of Company common
stock, including 202,861 shares reserved for issuance upon exercise of
stock options. Coleman Research provides systems integration, systems
engineering, and analytical services to government customers in the fields
of information technology, energy and the environment, software
engineering, launch systems, advanced radar and imaging, and health care
systems. The acquisition has been accounted for under the
pooling-of-interests method. Accordingly, all historical financial
information presented has been restated to include the acquisition of
Coleman Research. Revenues and net income for the three- and nine-month
periods ended October 1, 1994, as previously reported by the separate
entities prior to the acquisition and as restated for the combined Company,
are as follows:
Three Months Ended Nine Months Ended
(In thousands) October 1, 1994 October 1, 1994
-----------------------------------------------------------------------
Revenues:
Previously reported $ 406,454 $1,151,896
Coleman Research 39,062 105,891
---------- ----------
$ 445,516 $1,257,787
========== ==========
Net Income:
Previously reported $ 27,744 74,435
Coleman Research 83 735
---------- ----------
$ 27,827 $ 75,170
========== ==========
5. Stock Split
In March 1995, the Company declared a three-for-two stock split in the
form of a 50% stock dividend that was distributed on May 24, 1995, to
shareholders of record as of April 26, 1995. All weighted average share and
per share amounts have been restated to reflect the stock split.
10PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - September 30, 1995
(continued)
6. Subsidiary Debenture Offerings
In August 1995, Thermo Instrument's wholly owned ThermoQuest
Corporation subsidiary issued and sold $96.3 million principal amount of 5%
subordinated convertible debentures due 2000. Subsequent to the end of the
quarter, Thermo Instrument's wholly owned Thermo Optek Corporation
subsidiary issued and sold $96.3 million principal amount of 5%
subordinated convertible debentures due 2000. The Company purchased $10.0
million of each of these debentures. The debentures are guaranteed on a
subordinated basis by the Company.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Third Quarter 1995 Compared With Third Quarter 1994
---------------------------------------------------
Sales for the third quarter of 1995 were a record $570.4 million, an
increase of $124.9 million, or 28%, over the third quarter of 1994. Segment
income, excluding restructuring and other nonrecurring costs described
below of $19.8 million in 1995 and $0.7 million in 1994, was $73.7 million,
compared with $56.0 million in 1994. (Segment income is income before
corporate general and administrative expenses, other income and expense,
minority interest expense and income taxes.) Operating income, which
includes restructuring and other nonrecurring costs, was $48.6 million,
compared with $46.7 million in 1994. Financial results for 1994 have been
restated to include Coleman Research, which was acquired in a pooling-of-
interests transaction in March 1995 (Note 4).
Sales from the Instruments segment were $193.9 million in 1995, an
increase of $32.3 million, or 20%, over 1994. Sales increased $21.9 million
due to Thermo Instrument's acquisitions, which included the Analytical
Instruments Division of Baird Corporation in January 1995 and Gould
Instruments Systems, Inc. in May 1995, and increased approximately $3.8
million due to the favorable effects of currency translation due to a
weaker U.S. dollar in 1995. An increase in revenues at certain existing
businesses at Thermo Instrument was offset in part by a decline in sales at
Thermo Instrument's air monitoring instruments subsidiary, as most orders
in response to Phases I and II of the Clean Air Act of 1990 have been
completed. Segment income margin (segment income margin is segment income
as a percentage of sales) was 13.3% in 1995, compared with 15.2% in 1994.
Segment income margin declined due to lower margins at acquired businesses
and reduced shipments at Thermo Instrument's air monitoring instruments
subsidiary.
11PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
Sales from the Alternative-energy Systems segment were $89.2 million in
1995, an increase of $7.8 million, or 10%, over 1994. Within this segment,
revenues from Thermo Ecotek Corporation, which consist of revenues from
alternative-energy power plant operations, were $42.1 million in 1995,
compared with $40.2 million in 1994. This increase results from higher
contractual energy rates in 1995 at all of Thermo Ecotek's facilities,
excluding the Hemphill facility in New Hampshire, offset in part by
utility-imposed curtailment of power output at the Woodland and Mendota
plants in California. Revenues from the Company's waste-recycling facility
in southern California declined by $1.9 million due to a reduction in the
amounts paid by the facility's customer. The Company wrote off its net
investment in this facility during the third quarter of 1995, as described
below. Sales at Peter Brotherhood Ltd. increased $4.0 million to $14.3
million as a result of increased demand for steam turbines and, to a lesser
extent, increased demand for special purpose machinery over depressed 1994
levels. Sales from Thermo Power Corporation increased $4.3 million to $28.5
million, due to increased demand for refrigeration packages and, to a
lesser extent, increased demand for marine engine-related products.
Segment income from the Alternative-energy Systems segment, excluding
restructuring and other nonrecurring costs of $11.5 million in 1995, was
$19.4 million in 1995, compared with $15.0 million in 1994. Thermo Ecotek
had segment income of $16.0 million in 1995, compared with $12.1 million in
1994. This improvement results from lower fuel costs at two of the
California plants and higher contractual energy rates in 1995, offset in
part by utility-imposed curtailment of power output at the Woodland and
Mendota plants. Segment income at Thermo Power was $2.3 million in 1995,
compared with $1.7 million in 1994. This improvement results from increased
sales, lower warranty costs at Thermo Power's Nutemp, Inc. subsidiary and,
to a lesser extent, a change in sales mix to higher-margin business. These
increases at Thermo Power were offset in part by increased research and
development costs associated with gas-fueled lighting products. Peter
Brotherhood incurred a segment loss of $0.6 million in 1995, compared with
breakeven in 1994, as a result of increased costs to complete jobs in
process. In the third quarter of 1995, the Company recorded restructuring
and other nonrecurring costs of $11.5 million for this segment. This amount
represents the Company's net investment in a waste-recycling facility in
southern California that processes waste for San Diego County (the County).
The County had previously advised the Company that it was attempting to
raise funds to purchase the facility and had entered into discussions with
the Company regarding termination of its long-term service agreement with
the Company. Termination of the service agreement would have required the
County to pay the Company a termination fee and reimburse the Company for
certain other items connected with the facility. To date, the County has
been unable to raise the necessary funds on terms acceptable to the County.
12PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
During the third quarter of 1995, the County paid the Company less than the
amount due under the service agreement. In October 1995, the Company
notified the County that the County was in default of the service agreement
and that, pursuant to that agreement, the County had 45 days to cure the
default. The County is also in default of certain terms of its agreement
with the bank group which provided financing for the project. If the County
does not cure these defaults, it could be declared in default under the
financing agreements. Based upon County assertions, its financial
obligation in a default situation would be limited to the funds it has
available from the day-to-day operation of the County's solid
waste-disposal system, which would be insufficient for the Company to
recover any of its investment.
Sales in the Process Equipment segment were $92.6 million in 1995, an
increase of $46.3 million, or 100%, over 1994. Sales increased $33.8
million as a result of sales recorded under a $145 million contract for
engineering, procurement, and construction services for an office
wastepaper de-inking facility in Menominee, Michigan. The facility is
expected to be completed by the end of 1996. Sales also increased $6.2
million at Thermo Fibertek Inc.'s North American accessories business and
$3.5 million at its paper-recycling business in France, due to increased
demand. Segment income margin, excluding restructuring and nonrecurring
costs of $7.5 million in 1995, was 11.7% in 1995, compared with 10.7% in
1994. This improvement results from increased sales. During the third
quarter of 1995, this segment recorded restructuring and other nonrecurring
costs of $7.5 million to write off "Cost in excess of net assets of
acquired companies," of which $5.0 million was recorded by Thermo Process
Systems Inc. and $2.5 million was recorded by the Company's wholly owned
Napco, Inc. subsidiary. Thermo Process has decided to focus its resources
on growing the environmental infrastructure services part of its business
and, therefore, no longer expects to reinvest in the thermal-processing
equipment business to the extent necessary to recover this investment.
Napco is appealing a jury verdict rendered against it for approximately
$10.6 million in a contract dispute arising out of an allegedly defective
waste-treatment system installed in 1984. This verdict exceeds Napco's
financial ability to pay, and could force the sale of Napco's assets to
partially satisfy this judgment. The Company believes that it will be
unable to recover its investment in Napco. Napco's sales and income are not
significant to the Company's consolidated results of operations.
Sales in the Biomedical Products segment were $62.1 million in 1995, an
increase of $16.3 million, or 36%, over 1994 due primarily to increased
demand for a number of the Company's biomedical products and the inclusion
of $6.8 million in sales from Bird Medical Technologies, Inc. and Bennett
X-Ray Corporation, which were acquired in the third quarter of 1995. Sales
of ThermoTrex Corporation's mammography and needle-biopsy systems increased
43% to $20.2 million; Thermo Cardiosystems Inc.'s implantable left
13PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
ventricular-assist systems (LVAS) increased 100% to $5.1 million; skin-care
products from CBI Laboratories, Inc., a subsidiary of ThermoLase
Corporation, increased 33% to $5.8 million; neuro-diagnostic monitoring
equipment sold by the Company's wholly owned Nicolet Biomedical Inc.
subsidiary increased 10% to $13.1 million; and sales of blood
coagulation-monitoring products and skin-incision devices sold by the
Company's wholly owned International Technidyne Corporation subsidiary
increased 10% to $7.9 million. Segment income margin improved to 12.3% from
10.5% in 1994 as a result of increased sales and, to a lesser extent, price
increases for Thermo Cardiosystems' air-driven LVAS.
Sales in the Environmental Services segment were $55.6 million in 1995,
an increase of $19.8 million, or 55%, over 1994. Within this segment, sales
from Thermo Remediation Inc. were $14.5 million, compared with $12.6
million in 1994. Thermo Remediation's soil-remediation and fluids recycling
services sales increased due to the inclusion of $2.5 million in sales from
acquired businesses, offset in part by lower sales resulting from ongoing
regulatory uncertainties at one site and competitive pricing pressures at
several locations. Thermo Remediation's nuclear services sales increased
due primarily to sales from a long-term environmental restoration contract
for the U.S. Department of Energy's (DOE's) Hanford site (Hanford), offset
in part by a decrease in radiochemistry laboratory work, reflecting a
reduction in spending at the DOE. Sales of analytical laboratory and
environmental consulting services increased $18.0 million, to $28.6
million, due to the inclusion of sales from acquired businesses. Sales of
metallurgical services declined $1.1 million to $9.9 million, due to the
effect of closing a small operation at the end of the second quarter in
1995. Segment income margin improved to 12.3% from 10.5% in 1994 due to
increased sales and, to a lesser extent, the favorable impact of closing
the small metallurgical services operation. This improvement was offset in
part by lower margins from soil-remediation and fluids recycling services
due to competitive pricing pressures, lower margins associated with sales
from the Hanford contract, and decreased sales from radiochemistry
laboratory work.
Sales from the Advanced Technologies segment were $78.3 million in
1995, compared with $75.9 million in 1994. Within this segment, sales from
Thermo Voltek Corp. increased $3.7 million to $9.4 million, due primarily
to the introduction of a new product line and the inclusion of $1.4 million
in sales from an acquired business. Sales at ThermoTrex Corporation and the
Company's wholly owned Coleman Research Corporation and Thermo Technology
Ventures subsidiaries increased $2.8 million due to increased contract
funding. Sales from Ramsey Technology Inc., a wholly owned subsidiary of
Thermedics Inc., increased by $2.6 million due to increased demand.
Revenues at Thermedics Detection declined to $6.0 million in 1995 from
$12.7 million in 1994. Sales of Thermedics Detection's process detection
systems declined $4.2 million due to lower demand from its principal
14PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
customer, which has substantially completed its deployment of these
systems, and sales of EGIS systems declined $3.3 million to $0.9 million,
due primarily to the completion of an order from a major European customer.
Segment income, excluding restructuring and other nonrecurring costs of
$0.9 million in 1995 and $0.7 million in 1994, increased 9.1% to $3.1
million as a result of improved margins at Coleman Research and Ramsey
Technology, due primarily to efforts to control costs. These improvements
were offset in part by a decline in segment income from Thermedics
Detection, primarily as a result of lower sales and, to a lesser extent,
increased expenses incurred by ThermoLase, a majority-owned subsidiary of
ThermoTrex, to develop and commercialize its laser-based hair removal
process. Restructuring and other nonrecurring costs of $0.9 million were
recorded by ThermoTrex in the third quarter of 1995, of which $0.6 million
represented intangible assets of a small operation.
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 subsidiary through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the subsidiary's
growth. As a result of the sale of stock by subsidiaries and the issuance
of stock by subsidiaries upon conversion of convertible debentures, the
Company recorded gains of $43.1 million in the third quarter of 1995 and
$12.6 million in the third quarter of 1994 (Note 2). Minority interest
expense increased to $25.9 million in 1995 from $10.8 million in 1994.
Minority interest expense includes $18.5 million in 1995 and $5.0 million
in 1994 related to gains recorded by the Company's majority-owned
subsidiaries as a result of the sale of stock by their subsidiaries.
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 through the sale of stock by its subsidiaries will
represent a decreasing portion of net income. The size and timing of these
transactions are dependent on market and other conditions that are beyond
the Company's control. Accordingly, there can be no assurance that the
Company will be able to realize gains from such transactions in the future.
First Nine Months 1995 Compared With First Nine Months 1994
-----------------------------------------------------------
Sales for the first nine months of 1995 were $1,577.6 million, an
increase of $319.9 million, or 25%, over the 1994 period. Segment income,
excluding restructuring and other nonrecurring costs described below of
$21.9 million in 1995 and $0.7 million in 1994, was $190.7 million, an
increase of $42.4 million, or 29%, over 1994. Operating income, which
includes restructuring and other nonrecurring costs, was $151.5 million,
compared with $129.1 million in 1994.
15PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994 (continued)
-----------------------------------------------------------
Sales from the Instruments segment were $552.6 million in 1995, an
increase of $80.7 million, or 17%, over 1994. Sales increased due primarily
to acquisitions, which added $68.2 million of sales in 1995. Sales
increased approximately $19.5 million due to the favorable effects of
currency translation due to a weaker U.S. dollar in 1995. Increased sales
at certain existing businesses were more than offset by a decline in
revenues from Thermo Instrument's air monitoring instruments subsidiary due
to reasons discussed in the results of operations for the third quarter.
Orders booked by Thermo Instrument in the first nine months of 1995
exceeded its shipments by $16.0 million. Segment income margin declined to
14.2% in 1995 from 16.5% in 1994 due to lower margins at acquired
businesses and reduced shipments at Thermo Instrument's air monitoring
instruments subsidiary.
Sales from the Alternative-energy Systems segment were $244.6 million
in 1995, an increase of $30.4 million, or 14%, over 1994. Within this
segment, sales from Thermo Ecotek were $107.1 million in 1995, compared
with $102.1 million in 1994. This increase is due primarily to the
Whitefield, New Hampshire, plant operating for the full 1995 period. During
1994, this plant did not operate for most of the first six months due to
major damage to the turbine-generator. The plant returned to normal
operations late in the second quarter of 1994. Sales also increased due to
higher contractual energy rates in 1995, largely offset by utility-imposed
curtailment of power output at the Woodland and Mendota plants. Sales of
Peter Brotherhood steam turbines and special purpose machinery increased
$12.8 million, to $40.0 million, due to increased demand over depressed
1994 levels. Sales from Thermo Power increased $11.4 million, to $80.9
million, as a result of increased demand for marine products, the
acquisition of NuTemp in May 1994, which increased sales by $3.0 million
over the 1994 period and, to a lesser extent, increased demand for cooling
and cogeneration systems and refrigeration packages.
Segment income from the Alternative-energy Systems segment, excluding
restructuring and other nonrecurring costs of $11.5 million in 1995, was
$33.9 million in 1995, compared with $25.9 million in 1994. Thermo Ecotek
had segment income of $26.5 million in 1995, compared with $20.5 million in
1994. This improvement results from lower fuel costs at two of the
California plants. Higher contractual energy rates in 1995 were
substantially offset by utility-imposed curtailment of power output at the
Woodland and Mendota plants. Segment income from the Company's Energy
Systems division increased $2.0 million to $3.9 million in 1995 as a result
of a waste-recycling facility that commenced operations in the first
quarter of 1994. The Company's net investment in this facility was written
off in the third quarter of 1995, as discussed in the results of operations
16PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994 (continued)
-----------------------------------------------------------
for the third quarter. Peter Brotherhood incurred a segment loss of $0.9
million in 1995, compared with a loss of $0.5 million in 1994, as a result
of increased costs to complete jobs in process and competitive pricing
pressures. Segment income margin at Thermo Power was about the same in both
periods.
Sales in the Process Equipment segment were $222.5 million in 1995,
compared with $135.1 million in 1994. Sales from Thermo Fibertek increased
$34.2 million to $149.6 million, due primarily to an increase of $19.9
million in sales of paper-recycling equipment, which includes $13.4 million
of sales under a subcontract with Thermo Electron to supply equipment for
the office wastepaper de-inking facility discussed in the results of
operations for the third quarter, and due to increased demand at Thermo
Fibertek's paper-recycling business in France. Sales at Thermo Fibertek
also increased $11.6 million due to greater demand for its North American
accessories products and increased $2.9 million due to the favorable
effects of currency translation. In addition to sales recorded by Thermo
Fibertek under the de-inking facility project, a wholly owned subsidiary of
the Company recorded revenues from the project of $47.6 million in 1995.
Sales of automated electroplating equipment from the Company's Napco
subsidiary were $12.9 million, compared with a depressed level of $9.1
million in 1994. Segment income margin, excluding restructuring and other
nonrecurring costs of $7.5 million in 1995, discussed in the results of
operations for the third quarter, improved to 11.4% from 10.1% in 1994 as a
result of increased sales.
Sales in the Biomedical Products segment were $171.4 million in 1995,
an increase of $41.2 million, or 32%, over 1994, due primarily to increased
demand for a number of the Company's biomedical products. Sales of
ThermoTrex's mammography and needle-biopsy systems increased 37% to $53.5
million; Thermo Cardiosystems' LVAS increased more than 100% to $15.0
million; skin-care products from CBI, a subsidiary of ThermoLase, increased
36% to $17.5 million; neuro-diagnostic monitoring equipment sold by the
Company's wholly owned Nicolet Biomedical subsidiary increased 14% to $39.4
million; and sales of blood coagulation-monitoring products and
skin-incision devices sold by the Company's wholly owned International
Technidyne subsidiary increased 17% to $24.4 million. Segment income margin
improved to 12.9% in 1995 from 8.7% in 1994 as a result of increased sales
and, to a lesser extent, price increases for Thermo Cardiosystems'
air-driven LVAS.
Sales in the Environmental Services segment were $153.9 million in
1995, an increase of $52.4 million, or 52%, over 1994. Within this segment,
sales from Thermo Remediation were $41.2 million, compared with $36.4
million in 1994. Thermo Remediation's soil-remediation and fluids recycling
services sales increased due to the inclusion of sales from acquired
businesses, offset in part by lower sales from existing sites, as discussed
17PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994 (continued)
-----------------------------------------------------------
in the results of operations for the third quarter. Thermo Remediation's
nuclear services sales increased due primarily to sales from a long-term
environmental restoration contract at the DOE's Hanford site, as discussed
in the results of operations for the third quarter. Sales of analytical
laboratory and environmental consulting services increased to $72.9 million
in 1995 from $28.8 million, due to the inclusion of sales from acquired
businesses. Sales of metallurgical services increased 4% to $33.4 million.
Segment income margin, excluding restructuring and other nonrecurring costs
of $2.0 million in 1995, improved to 11.0% from 10.4% in 1994, due
primarily to higher sales, offset in part by higher legal expenses incurred
within the environmental consulting services operations. The restructuring
and nonrecurring costs included $1.5 million as a result of the decision to
close a metallurgical services division located in Albuquerque, New Mexico.
The costs primarily represent severance costs and the write-off of "Cost in
excess of net assets of acquired companies" and "Leasehold improvements."
The facility was closed by the end of June 1995. The remaining $0.5 million
represents adjustments to previously established reserves.
Sales from the Advanced Technologies segment were $236.5 million in
1995, compared with $208.5 million in 1994. Sales increased due primarily
to the inclusion of sales from acquired businesses and an increase of $15.9
million in sales from Coleman Research due to increased contract funding.
These increases were offset in part by a decline in sales from Thermedics
Detection, as discussed in the results of operations for the third quarter.
Segment income margin improved to 6.0% from 4.4% in 1994, due to increased
sales and efforts to reduce costs. This improvement was offset in part by a
decline in segment income margin from Thermedics Detection primarily as a
result of lower sales, and increased expenses incurred by ThermoLase to
develop and commercialize its hair removal process.
The Company recorded gains as a result of the sale of stock by
subsidiaries of $65.6 million in 1995 and $21.3 million in 1994 (Note 2).
Minority interest expense increased to $43.6 million in 1995 from $23.1
million in 1994. Minority interest expense includes $21.6 million in 1995
and $5.1 million in 1994, related to gains recorded by the Company's
majority-owned subsidiaries as a result of the sale of stock by their
subsidiaries.
18PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Financial Condition
Liquidity and Capital Resources
-------------------------------
Consolidated working capital was $1,269.6 million at September 30,
1995, compared with $1,150.7 million at December 31, 1994. Included in
working capital were cash and available-for-sale investments of $998.7
million at September 30, 1995, compared with $997.9 million at December 31,
1994. In addition, at September 30, 1995, the Company had $70.2 million of
long-term available-for-sale investments and $23.4 million of long-term
held-to-maturity investments, compared with $62.5 million of long-term
available-for-sale investments at December 31, 1994. During the first nine
months of 1995, certain of the Company's majority-owned subsidiaries issued
long-term obligations of $131.0 million. Proceeds from the issuance of
Company and subsidiary common stock totaled $145.8 million in the first
nine months of 1995.
On March 1, 1995, the Company's Thermo Instrument subsidiary entered
into an agreement with Fisons plc (Fisons) to acquire the Scientific
Instruments Division of Fisons for approximately 202 million British pounds
sterling. On April 13, 1995, Thermo Instrument announced that it had
received a "second request" for information regarding the transaction from
the U.S. Federal Trade Commission (FTC). The FTC and competition regulatory
authorities in certain other countries have expressed concern that
completion of the transaction in its original form would affect competition
in markets for certain product lines to be acquired by Thermo Instrument,
in particular the market for mass spectrometers. On November 1, 1995,
Thermo Instrument and Fisons entered into an amendment to the agreement.
Among other things, the amendment extends the termination date of the
agreement to March 31, 1996, and establishes a framework for modifying the
transaction to satisfy the concerns of the FTC and other competition
regulatory authorities. In addition to receipt of required antitrust
regulatory approvals, completion of the transaction is subject to consent
of certain third parties and the satisfaction of other customary closing
conditions.
During the first nine months of 1995, the Company expended $213.4
million for acquisitions and $41.7 million for purchases of property, plant
and equipment. Including the Fisons transaction discussed above, the
Company has agreements or letters of intent to expend approximately $435
million on the acquisition of new businesses. These transactions are
subject to various conditions to closing, and there can be no assurance
that all of the transactions will be consummated. The Company has no other
material commitments for purchases of property, plant and equipment and
expects that, for 1995, such expenditures will approximate the 1994 level.
19PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
During the first nine months of 1995, the Company, excluding its
majority-owned subsidiaries, expended $75.4 million to purchase common
stock of certain of the Company's subsidiaries. The Company expects that
these purchases will continue although the amount of repurchases in a given
reporting period may vary significantly. In addition, the Company repaid
and repurchased long-term obligations of $29.2 million during the first
nine months of 1995.
PART II - Other Information
---------------------------
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
20PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 7th day of November
1995.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance and
Administration
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
21
PAGE
<PAGE>
FORM 10-Q
September 30, 1995
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit Number Document Page
-------------- -------- ----
2 Amendment No. 2 to Asset and Stock Purchase
Agreement dated as of November 1, 1995 among
Thermo Instrument, the Company, and Fisons plc
(filed as Exhibit 2 to Thermo Instrument Systems
Inc. Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 [File No. 1-9786]
and incorporated herein by reference). Pursuant
to Item 601(b)(2) of Regulation S-K, schedules to
this Agreement have been omitted. The Company
hereby undertakes to furnish supplementally a
copy of such schedules to the Commission upon
request.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMO ELECTRON CORPORATION
Computation of Earnings per Share
Three Months Ended Nine Months Ended
-------------------------- -------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
Computation of Fully
Diluted Earnings
per Share:
Income:
Net income $ 38,133,000 $ 27,827,000 $100,265,000 $ 75,170,000
Add: Convertible
debenture interest,
net of tax 3,798,000 4,586,000 12,099,000 11,595,000
------------ ------------ ------------ ------------
Income applicable to
common stock assuming
full dilution (a) $ 41,931,000 $ 32,413,000 $112,364,000 $ 86,765,000
------------ ------------ ------------ ------------
Shares:
Weighted average shares
outstanding 84,393,438 78,502,671 82,610,308 76,814,367
Add: Shares issuable
from assumed
conversion of
convertible
debentures 19,360,996 24,667,135 20,964,265 22,143,337
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 1,701,385 852,740 1,701,385 852,740
------------ ------------ ------------ ------------
Weighted average
shares outstanding,
as adjusted (b) 105,455,819 104,022,546 105,275,958 99,810,444
------------ ------------ ------------ ------------
Fully Diluted Earnings
per Share (a) / (b) $ .40 $ .31 $ 1.07 $ .87
============ ============ ============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 441,552
<SECURITIES> 557,112
<RECEIVABLES> 430,430
<ALLOWANCES> 25,827
<INVENTORY> 308,071
<CURRENT-ASSETS> 1,897,318
<PP&E> 942,011
<DEPRECIATION> 237,678
<TOTAL-ASSETS> 3,507,125
<CURRENT-LIABILITIES> 627,752
<BONDS> 1,077,823
<COMMON> 86,482
0
0
<OTHER-SE> 1,129,063
<TOTAL-LIABILITY-AND-EQUITY> 3,507,125
<SALES> 1,278,312
<TOTAL-REVENUES> 1,577,639
<CGS> 754,573
<TOTAL-COSTS> 984,588<F1>
<OTHER-EXPENSES> 96,018<F2>
<LOSS-PROVISION> 2,992
<INTEREST-EXPENSE> 56,292
<INCOME-PRETAX> 209,434
<INCOME-TAX> 65,611
<INCOME-CONTINUING> 100,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,265
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.07
<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>
