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 June 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at July 26, 1996
----------------------------- ----------------------------
Common Stock, $1.00 par value 141,366,739
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, December 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 541,195 $ 462,861
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $1,124,450 and $588,471) 1,127,877 593,802
Accounts receivable, less allowances
of $37,649 and $29,318 567,143 493,313
Unbilled contract costs and fees 72,405 74,941
Inventories:
Raw materials and supplies 244,147 175,346
Work in process 93,982 72,768
Finished goods 110,995 84,672
Prepaid income taxes 89,161 75,685
Prepaid expenses 31,549 23,204
---------- ----------
2,878,454 2,056,592
---------- ----------
Property, Plant and Equipment, at Cost 1,077,605 977,816
Less: Accumulated depreciation and
amortization 283,117 262,228
---------- ----------
794,488 715,588
---------- ----------
Long-term Available-for-sale
Investments, at Quoted Market Value
(amortized cost of $57,661 and $60,780) 60,810 61,845
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $25,212 and $24,942) 24,690 23,819
---------- ----------
Other Assets 138,627 101,138
---------- ----------
Cost in Excess of Net Assets of
Acquired Companies (Note 6) 1,003,485 827,357
---------- ----------
$4,900,554 $3,786,339
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, December 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 158,232 $ 112,280
Accounts payable 194,429 172,823
Accrued payroll and employee benefits 113,119 93,930
Accrued income taxes 54,387 52,055
Accrued installation and warranty costs 64,075 41,548
Accrued acquisition expenses (Note 6) 60,936 32,557
Other accrued expenses 280,819 234,253
---------- ----------
925,997 739,446
---------- ----------
Deferred Income Taxes and Other Deferred Items 143,839 129,926
---------- ----------
Long-term Obligations:
Senior convertible obligations 285,174 458,925
Subordinated convertible obligations (Note 5) 1,082,620 343,076
Tax-exempt obligations 127,655 128,567
Nonrecourse tax-exempt obligations 78,700 94,700
Other 83,086 92,809
---------- ----------
1,657,235 1,118,077
---------- ----------
Minority Interest 605,136 471,648
---------- ----------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,669 17,513
---------- ----------
Shareholders' Investment (Note 7):
Preferred stock, $100 par value, 50,000
shares authorized; none issued
Common stock, $1 par value, 350,000,000
shares authorized; 141,410,423 and 89,006,032
shares issued 141,410 89,006
Capital in excess of par value 726,651 614,363
Retained earnings 690,438 604,496
Treasury stock at cost, 63,783 and 11,574
shares (2,649) (536)
Cumulative translation adjustment (7,228) 608
Deferred compensation (2,069) (2,271)
Net unrealized gain on available-for-sale
investments 4,125 4,063
---------- ----------
1,550,678 1,309,729
---------- ----------
$4,900,554 $3,786,339
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues:
Product and service revenues $703,606 $493,486
Research and development contract revenues 42,153 50,685
-------- --------
745,759 544,171
-------- --------
Costs and Expenses:
Cost of products and services 427,950 293,707
Expenses for research and development and
new lines of business (a) 76,319 69,521
Selling, general and administrative expenses 179,412 122,801
Restructuring and other nonrecurring
costs (Note 4) 22,480 571
-------- --------
706,161 486,600
-------- --------
Operating Income 39,598 57,571
Gain on Issuance of Stock by Subsidiaries (Note 2) 43,495 9,690
Other Income (Expense), Net (Note 3) (1,506) 263
-------- --------
Income Before Income Taxes and Minority Interest 81,587 67,524
Provision for Income Taxes 19,974 24,221
Minority Interest Expense 16,694 10,253
-------- --------
Net Income $ 44,919 $ 33,050
======== ========
Earnings per Share:
Primary $ .32 $ .26
======== ========
Fully diluted $ .29 $ .23
======== ========
Weighted Average Shares:
Primary 140,134 125,426
======== ========
Fully diluted 175,700 158,420
======== ========
(a) Includes costs of:
Research and development contracts $ 36,112 $ 43,458
Internally funded research and development 39,596 25,182
Other expenses for new lines of business 611 881
-------- --------
$ 76,319 $ 69,521
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
-----------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues:
Product and service revenues $1,313,498 $ 940,048
Research and development contract revenues 84,646 97,297
---------- ----------
1,398,144 1,037,345
---------- ----------
Costs and Expenses:
Cost of products and services 800,095 559,287
Expenses for research and development and
new lines of business (a) 144,641 133,567
Selling, general and administrative expenses 334,547 238,506
Restructuring and other nonrecurring
costs (Note 4) 25,980 2,093
---------- ----------
1,305,263 933,453
---------- ----------
Operating Income 92,881 103,892
Gain on Issuance of Stock by Subsidiaries (Note 2) 72,387 22,573
Other Expense, Net (Note 3) (7,421) (3,290)
---------- ----------
Income Before Income Taxes and Minority Interest 157,847 123,175
Provision for Income Taxes 42,650 42,784
Minority Interest Expense 29,255 17,657
---------- ----------
Net Income $ 85,942 $ 62,734
========== ==========
Earnings per Share:
Primary $ .63 $ .51
========== ==========
Fully diluted $ .56 $ .45
========== ==========
Weighted Average Shares:
Primary 136,884 123,721
========== ==========
Fully diluted 175,583 158,288
========== ==========
(a) Includes costs of:
Research and development contracts $ 71,971 $ 84,261
Internally funded research and development 71,532 47,617
Other expenses for new lines of business 1,138 1,689
---------- ----------
$ 144,641 $ 133,567
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
----------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net cash provided by operating activities $ 85,827 $ 68,661
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (Note 6) (306,733) (98,385)
Purchases of available-for-sale investments (815,539) (171,348)
Purchases of long-term held-to-maturity
investments - (22,300)
Proceeds from sale and maturities of
available-for-sale investments 291,446 357,557
Purchases of property, plant and equipment (57,421) (26,924)
Proceeds from sale of property, plant and
equipment 2,528 3,725
Issuance of notes receivable (13,977) (4,217)
Other (5,698) (1,084)
--------- ---------
Net cash provided by (used in) investing
activities (905,394) 37,024
--------- ---------
Financing Activities:
Increase (decrease) in short-term notes payable 10,178 (5,964)
Net proceeds from issuance of long-term
obligations (Note 5) 784,682 39,432
Repayment and repurchase of long-term
obligations (3,492) (14,191)
Proceeds from issuance of Company and
subsidiary common stock (Note 2) 130,713 70,663
Purchases of subsidiary common stock (26,360) (55,608)
Other 1,903 1,733
--------- ---------
Net cash provided by financing activities 897,624 36,065
--------- ---------
Exchange Rate Effect on Cash 277 3,240
--------- ---------
Increase in Cash and Cash Equivalents 78,334 144,990
Cash and Cash Equivalents at Beginning of Period 462,861 384,055
--------- ---------
Cash and Cash Equivalents at End of Period $ 541,195 $ 529,045
========= =========
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
----------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Noncash activities:
Conversions of Company and subsidiaries'
convertible obligations $ 236,572 $ 73,908
========= =========
Fair value of assets of acquired companies $ 540,691 $ 179,661
Cash paid for acquired companies (310,480) (102,722)
Issuance of Company and subsidiaries' common
stock and stock options for acquired
companies (345) (7,780)
Issuance of long-term obligations for
acquired company - (22,300)
--------- ---------
Liabilities assumed of acquired companies $ 229,866 $ 46,859
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMO ELECTRON CORPORATION
Notes to Consolidated Financial Statements
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 the financial position at June 29,
1996, the results of operations for the three- and six-month periods ended
June 29, 1996 and July 1, 1995, and the cash flows for the six-month
periods ended June 29, 1996 and July 1, 1995 (Note 6). Interim results are
not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 30, 1995, has
been restated to reflect the acquisition of SensorMedics Corporation
(SensorMedics) which has been accounted for under the pooling-of-interests
method (Note 6). 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 30, 1995, filed with the Securities and Exchange Commission.
2. Issuance of Stock by Subsidiaries
Gain on issuance of stock by subsidiaries in the accompanying
statement of income for the three- and six-month periods ended June 29,
1996, resulted primarily from the following:
Initial public offering of 3,450,000 shares of ThermoQuest
Corporation common stock in March and April 1996 at $15.00 per
share for net proceeds of $47.8 million resulted in a gain of
$27.0 million that was recorded by the Company's Thermo
Instrument Systems Inc. subsidiary.
Private placement of 300,000 shares of Thermedics Detection
Inc. common stock in March 1996 at $10.00 per share for net
proceeds of $3.0 million resulted in a gain of $2.5 million
that was recorded by the Company's Thermedics Inc. subsidiary.
Initial public offering of 2,875,000 shares of Thermo Sentron
Inc. common stock in April 1996 at $16.00 per share for net
proceeds of $42.4 million resulted in a gain of $18.0 million
that was recorded by Thermedics.
Initial public offering of 3,000,000 shares of Thermo Optek
Corporation common stock in June 1996 at $13.50 per share for
net proceeds of $37.3 million resulted in a gain of $22.9
million that was recorded by Thermo Instrument.
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THERMO ELECTRON CORPORATION
3. Other Income (Expense), Net
The components of other income (expense), net, in the accompanying
statement of income are as follows:
Three Months Ended Six Months Ended
--------------------- --------------------
June 29, July 1, June 29, July 1,
(In thousands) 1996 1995 1996 1995
--------------------------------------------------------------------------
Interest income $ 21,752 $ 15,077 $ 43,740 $ 29,591
Interest expense (25,601) (18,246) (53,236) (36,870)
Equity in income
(loss) of
unconsolidated
subsidiaries 75 636 (266) 641
Gain on sale of
investments 2,455 - 2,725 -
Other income
(expense), net (187) 2,796 (384) 3,348
-------- -------- -------- --------
$ (1,506) $ 263 $ (7,421) $ (3,290)
======== ======== ======== ========
4. Restructuring and Other Nonrecurring Costs
During the second quarter of 1996, the Company recorded $22.5 million
of nonrecurring costs that included a write-off of $12.7 million of cost in
excess of net assets of acquired company and certain other intangible
assets at Thermedics' Corpak Inc. subsidiary and $9.8 million of costs
incurred by SensorMedics as a result of its merger with the Company
(Note 6). The write-off at Corpak was a result of Thermedics no longer
intending to further invest in this business and analysis that indicates
that the expected future undiscounted cash flows from this business will be
insufficient to recover Thermedics' investment. The SensorMedics costs
include employee compensation that became payable as a result of the merger
with the Company, as well as certain investment banking fees and related
transaction costs.
During the first quarter of 1996, the Company wrote off $3.5 million
of acquired technology in connection with the acquisition of a substantial
portion of the businesses comprising the Scientific Instruments Division of
Fisons plc (Note 6).
5. Debenture Offering
In January 1996, the Company issued and sold $585 million principal
amount of 4 1/4% subordinated convertible debentures due 2003. The
debentures are convertible into shares of the Company's common stock at a
price of $37.80 per share.
9PAGE
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THERMO ELECTRON CORPORATION
6. Acquisitions
On March 29, 1996, the Company's Thermo Instrument subsidiary
completed the acquisition of a substantial portion of the businesses
comprising the Scientific Instruments Division of Fisons plc (Fisons), a
wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123
million British pounds sterling in cash (approximately $187 million) and
the assumption of approximately 24 million British pounds sterling of
indebtedness (approximately $36 million). The purchase price is subject to
post-closing adjustments equal to the amounts by which the net tangible
assets and net debt of the acquired businesses on the closing date are
greater or less than certain target amounts agreed to by the parties.
Thermo Instrument and Fisons are attempting to agree on the required
adjustment to the purchase price. Thermo Instrument is seeking a reduction
in the purchase price based on its calculation of the net tangible assets
of the acquired businesses. If the parties are unable to reach agreement, a
firm of independent public accountants will be appointed to determine the
adjustment. Although there can be no assurance that Thermo Instrument will
receive a reduction in the purchase price from Fisons, any such adjustment
would affect the purchase price allocation, including the amount allocated
to cost in excess of net assets acquired. In the first quarter of 1996,
Thermo Instrument wrote off $3.5 million of acquired technology in
connection with this acquisition. The businesses acquired are involved in
the research, development, manufacture, and sale of analytical instruments
to industrial and research laboratories worldwide. During the first six
months of 1996, the Company's majority-owned subsidiaries made several
other acquisitions for $123.5 million in cash, subject to post-closing
adjustments.
These acquisitions have been accounted for using the purchase method
of accounting and the results of their operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The cost of the acquisitions exceeded the estimated fair value
of the acquired net assets by $211.4 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 is subject to adjustment upon finalization of the purchase
price allocation. Pro forma data is not presented since the acquisitions
were not material to the Company's results of operations.
In connection with the acquisition of a substantial portion of the
businesses comprising the Scientific Instruments Division of Fisons, Thermo
Instrument established reserves totaling $34 million for estimated
severance, excess facilities, and other exit costs associated with the
acquisition, $3 million of which was expended during the first six months
of 1996. Thermo Instrument expects to substantially complete its review and
restructuring of these businesses over the one-year period following the
acquisition. Any changes in estimates of these costs will be recorded as
adjustments to cost in excess of net assets of acquired companies.
In June 1996, the Company acquired SensorMedics in exchange for
1,133,191 shares of Company common stock, in addition to 156,590 shares
reserved for issuance upon exercise of stock options and warrants.
SensorMedics provides systems for pulmonary function and sleep disorder
10PAGE
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THERMO ELECTRON CORPORATION
6. Acquisitions (continued)
diagnosis, as well as high-frequency ventilation for pediatric and neonatal
care. SensorMedics also manufactures and markets respiratory gas analyzers,
physiological testing equipment and recorders, and pulse oximeters. The
acquisition has been accounted for under the pooling-of-interests method.
Historical information for 1995 and 1996 has been restated to include the
results of SensorMedics.
Revenues and net income as previously reported by the separate
entities prior to the acquisition and as restated for the combined Company,
are as follows:
Six
Three Months Ended Months Ended
---------------------------- ------------
March 30, July 1, July 1,
(In thousands) 1996 1995 1995
-------------------------------------------------------------------------
Revenues:
Previously reported $ 635,094 $ 528,721 $1,007,266
SensorMedics 17,291 15,450 30,079
---------- ---------- ----------
$ 652,385 $ 544,171 $1,037,345
========== ========== ==========
Net Income:
Previously reported $ 40,442 $ 32,584 $ 62,132
SensorMedics 581 466 602
---------- ---------- ----------
$ 41,023 $ 33,050 $ 62,734
========== ========== ==========
7. Stock Split
In March 1996, the Company declared a three-for-two stock split in the
form of a 50% stock dividend that was distributed on June 5, 1996, to
shareholders of record as of May 22, 1996. All share and per share
information, except for share information in the accompanying 1995 balance
sheet, has been restated to reflect the stock split.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Second Quarter 1996 Compared With Second Quarter 1995
Sales for the second quarter of 1996 were a record $745.8 million, an
increase of $201.6 million, or 37%, over the second quarter of 1995.
Segment income, excluding restructuring and other nonrecurring costs of
$22.5 million in 1996 and $0.6 million in 1995 described below, increased
8% to $70.2 million from $64.8 million in 1995. (Segment income is income
before corporate general and administrative expenses, other income and
expense, minority interest expense, and income taxes.) Operating income,
11PAGE
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THERMO ELECTRON CORPORATION
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
which includes restructuring and other nonrecurring costs, was $39.4
million in 1996, compared with $58.1 million in 1995. Financial results for
1995 have been restated to include SensorMedics Corporation, which was
acquired in a pooling-of-interests transaction in June 1996 (Note 6).
Sales from the Instrument segment were $321.6 million in 1996, an
increase of $135.8 million, or 73%, over 1995. Sales increased primarily
due to acquisitions made by Thermo Instrument Systems Inc., which added
$130 million of sales in 1996. The remainder of the increase results
primarily from greater demand experienced by Thermo Instrument's mass
spectrometry and Fourier transform infrared businesses as a result of
recently introduced products. The unfavorable effects of currency
translation due to the strengthening of the U.S. dollar relative to foreign
currencies in countries in which the Company operates decreased revenues by
$7.9 million. Segment income margin (segment income margin is segment
income as a percentage of sales) was 9.2% in 1996, compared with 14.8% in
1995. Segment income margin declined primarily due to lower margins at
acquired businesses, including the businesses acquired from Fisons. The
businesses acquired from Fisons were marginally profitable in the second
quarter of 1996.
Sales from the Alternative-energy Systems segment were $85.5 million
in 1996, an increase of $4.2 million, or 5%, over 1995. Within this
segment, revenues from Thermo Ecotek Corporation, which consist primarily
of revenues from biomass power plant operations, were $35.3 million in
1996, compared with $34.0 million in 1995. This increase results primarily
from higher contractual energy rates at all of Thermo Ecotek's facilities,
except the Hemphill plant in New Hampshire. Revenues from the Company's
waste-recycling facility in southern California were $4.2 million in 1996,
compared with $5.8 million in 1995. Although this facility ceased
processing waste and the Company wrote off its net investment in the
facility in 1995, the customer had continued to pay a portion of its
obligation under the service agreement. This facility was sold to the
customer in July 1996. No material gain or loss resulted from the sale.
Sales at Peter Brotherhood Ltd. declined to $13.5 million in 1996 from
$14.1 million in 1995 as a result of lower demand. Sales from Thermo Power
Corporation were $32.4 million in 1996, compared with $27.5 million in
1995. This increase resulted primarily from greater demand for
custom-designed industrial refrigeration packages and gas-fueled cooling
systems.
Segment income from the Alternative-energy Systems segment was $10.4
million in 1996, compared with $8.4 million in 1995. Thermo Ecotek had
segment income of $8.1 million in 1996, compared with $7.0 million in 1995.
This improvement results from higher revenues as well as lower fuel and
other operating costs at two of Thermo Ecotek's California plants. Segment
income from the Company's waste-recycling facility was $2.3 million in
1996, compared with $0.9 million in 1995. Results for this facility, net of
related interest expense (not included in segment income), were at a
breakeven level for the second quarter of 1996. Peter Brotherhood incurred
a segment loss of $0.8 million in 1996, compared with a loss of $0.5
million in 1995. This decline results from lower sales, increased costs to
complete jobs in process, and competitive pricing pressures. Segment income
12PAGE
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THERMO ELECTRON CORPORATION
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
at Thermo Power declined to $0.7 million from $0.9 million due to a change
in sales mix and higher depreciation expense incurred at NuTemp as a result
of an increase in NuTemp's rental assets. Thermo Power expects a cost
increase in one of the major components of its industrial refrigeration
packages to adversely affect the gross profit margin contributed by these
products beginning in the third quarter of 1996.
Sales in the Process Equipment segment were $77.3 million in 1996,
compared with $72.4 million in 1995. Sales from Thermo Fibertek Inc.
decreased 2% to $48.6 million in 1996 from $49.6 million in 1995, primarily
due to a decrease of $6.7 million in revenues earned by Thermo Fibertek
under a subcontract with Thermo Electron for an office wastepaper de-inking
facility in Menominee, Michigan. This subcontract was substantially
complete prior to the second quarter of 1996. Revenues increased $4.8
million at Thermo Fibertek's accessories business due to increased demand
and $1.5 million at its recycling business, excluding the effect of the
previously described subcontract in 1995. Revenues from Thermo Fibertek
were offset in part by a $1.0 million decrease due to the unfavorable
effects of currency translation as the result of a stronger U.S. dollar. A
wholly owned subsidiary of the Company recorded revenues from the
Menominee, Michigan project of $20.5 million in 1996 and $15.0 million in
1995. This facility achieved mechanical completion in July 1996 and is
entering the early stages of startup. Sales of Thermo TerraTech Inc.'s
thermal-processing equipment increased $2.2 million from depressed 1995
levels, while sales from Napco's automated electroplating equipment
business declined $1.7 million. The results of Napco's appeal of the jury
verdict against it for approximately $11.0 million in a contract dispute
arising out of its installation of an allegedly defective waste-treatment
system was a reduction in the award to approximately $4.7 million. Segment
income margin was 11.4% in 1996, compared with 11.5% in 1995, with the
decrease primarily resulting from a change in sales mix.
Sales in the Biomedical Products segment were $101.4 million in 1996,
an increase of $30.8 million, or 44%, over 1995. This increase is primarily
due to the inclusion of $26.7 million in sales from Bird Medical
Technologies, Inc. and Bennett X-Ray Corporation, which were acquired in
the third quarter of 1995, and XRE Corporation, which was acquired in May
1996, and, to a lesser extent, increased demand for a number of the
Company's biomedical products. Sales of Trex Medical Corporation's
mammography, biopsy, and nondestructive-testing systems increased 24% to
$21.2 million, excluding the effect of acquisitions; sales of Thermo
Cardiosystems Inc.'s implantable left ventricular-assist systems (LVAS)
increased 33% to $7.4 million; and neurodiagnostic monitoring equipment
sold by the Company's wholly owned Nicolet Biomedical Inc. subsidiary
increased 5% to $13.8 million. Sales of blood coagulation-monitoring
products and skin-incision devices sold by the Company's wholly owned
International Technidyne Corporation were $8.5 million in 1996, compared
with $8.6 million in 1995. Sales of skin-care products by ThermoLase
Corporation's CBI Laboratories, Inc. subsidiary declined 15% to $4.8
million as a result of lower demand as distribution is shifted towards
larger retailers, which have a slower buying cycle, and increased
competition. Segment income margin, excluding restructuring and other
nonrecurring costs of $22.5 million in 1996, declined to 10.8% in 1996 from
13PAGE
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THERMO ELECTRON CORPORATION
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
11.9% in 1995 primarily due to lower margins at recently acquired Bennett
and XRE. Restructuring and other nonrecurring costs of $22.5 million
consists of $12.7 million recorded by Thermedics' Corpak Inc. subsidiary
and $9.8 million incurred by SensorMedics in connection with its merger
with the Company (Note 6).
Sales in the Environmental Services segment were $69.1 million in
1996, an increase of $14.7 million, or 27%, over 1995. Revenues from Thermo
TerraTech's remediation and recycling services were $27.5 million in 1996,
compared with $15.4 million in 1995, primarily due to the inclusion of
$10.5 million in revenues from Remediation Technologies, Inc. (ReTec),
which was acquired in December 1995, an increase in revenues at Thermo
EuroTech and, to a lesser extent, higher revenues from a long-term
environmental restoration contract. These results were largely offset by a
decrease in radiochemistry laboratory work, reflecting a reduction in
spending at the Department of Energy (DOE), and delays in federal
government budget appropriations. Revenues from soil-remediation services
declined $0.5 million to $6.0 million resulting from declines in the volume
and price of soil processed due to competitive pricing pressures. Revenues
from consulting and design services increased to $21.5 million in 1996 from
$19.8 million in 1995, primarily due to increased revenues from two major
contracts, offset in part by lower revenues from federal government
contracts, reflecting a reduction in spending and delays in budget
appropriations. Revenues from laboratory-testing services, excluding the
radiochemistry laboratory revenues included in remediation and recycling
services, increased to $8.8 million in 1996 from $7.5 million in 1995, due
to the inclusion of an additional $2.8 million of revenues from Lancaster
Laboratories, acquired in May 1995, offset in part by a decline in revenues
due to reduced federal spending. Sales of metallurgical services decreased
to $11.4 million from $11.8 million in 1995 as a result of decreased demand
for heat-treating services. Segment income margin declined to 9.0% in 1996
from 11.6% in 1995 primarily due to the inclusion of lower-margin revenues
from ReTec and lower margins for remediation and recycling services due to
competitive pricing pressures.
Sales from the Advanced Technologies segment were $93.3 million in
1996, compared with $80.9 million in 1995. Sales increased $16.7 million
due to the inclusion of revenues from acquired businesses, primarily the
Orion laboratory products division of Analytical Technology, Inc. in
December 1995, and Moisture Systems Corporation and Rutter & Co. in January
1996. Sales from Thermo Voltek Corp. increased $3.3 million primarily as a
result of increased demand overseas for electrostatic discharge test
equipment and the introduction of a new product line. Sales from
ThermoLase's hair-removal business were $1.5 million, which includes $0.7
million in SoftLight licensing fees from a Japanese joint venture
established in January 1996. Lower U.S. government contract funding
resulted in a 14% decrease in sales at Coleman Research Corporation to
$36.0 million. Segment income was $4.3 million in 1996, compared with $5.8
million in 1995. Segment income provided by acquired companies and
additional income from certain businesses was more than offset by a decline
in segment income at Thermedics Detection Inc. resulting from a write-down
of certain inventory due to planned product changes and a decline of $1.4
million due to lower contract revenues.
14PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
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, the issuance of
stock by subsidiaries upon conversion of convertible debentures, and
similar transactions, the Company recorded gains of $43.5 million in 1996
and $9.7 million in 1995 (Note 2). Minority interest expense increased to
$16.7 million in 1996 from $10.3 million in 1995. Minority interest expense
includes $13.3 million in 1996 and $2.3 million in 1995 relating to gains
recorded by the Company's majority-owned subsidiaries as a result of the
sale of stock by their subsidiaries.
First Six Months 1996 Compared With First Six Months 1995
Sales for the first six months were $1,398.1 million, an increase of
$360.8 million, or 35%, over the 1995 period. Segment income, excluding
restructuring and other nonrecurring costs of $26.0 million in 1996 and
$2.1 million in 1995, was $134.1 million in the 1996 period and $118.0
million in the 1995 period. Operating income, which includes restructuring
and other nonrecurring costs, was $92.5 million in 1996 and $104.5 million
in 1995.
Sales from the Instruments segment were $547.1 million, an increase of
$188.4 million, or 53%, over 1995. Sales increased primarily due to
acquisitions, which added revenues of $171 million in 1996. The remainder
of the increase resulted from greater demand at Thermo Instrument's
existing businesses as discussed in the results of operations for the
second quarter. The unfavorable effects of currency translation due to the
strengthening of the U.S. dollar relative to foreign currencies in
countries in which the Company operates decreased revenues by $10.0
million. Segment income margin declined to 10.4% in 1996, excluding the
effect of a $3.5 million write-off of acquired technology resulting from
the March 1996 acquisition of a substantial portion of the businesses
comprising the Scientific Instruments Division of Fisons plc, from 14.6% in
1995, primarily due to lower margins at acquired businesses.
Sales from the Alternative-energy Systems segment were $167.0 million
in 1996, compared with $155.5 million in 1995. Within this segment,
revenues from Thermo Ecotek were $68.8 million in 1996, compared with $65.1
million in 1995. This increase results from higher contractual energy rates
at all of Thermo Ecotek's facilities, except the Hemphill plant, as well as
fewer days of scheduled and unscheduled outages at the Delano plants in
California. Revenues from the Company's waste-recycling facility in
southern California were $9.2 million in 1996, compared with $12.5 million
in 1995. This facility was sold in July 1996. Sales at Peter Brotherhood
increased 5% to $26.9 million as a result of increased demand for steam
turbines and, to a lesser extent, increased demand for special-purpose
machinery. Sales from Thermo Power were $62.2 million in 1996, compared
with $52.4 million in 1995. This increase resulted primarily from greater
15PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Six Months 1996 Compared With First Six Months 1995 (continued)
demand for gas-fueled cooling systems and gasoline and natural gas
TecoDrive(R) engines, the inclusion of revenues from lift-truck engines,
and increased demand for custom-designed industrial refrigeration packages,
offset in part by lower revenues from marine-engine related products.
Segment income from the Alternative-energy Systems segment was $16.6
million in 1996, compared with $14.5 million in 1995. Thermo Ecotek had
segment income of $12.6 million in 1996, compared with $10.4 million in
1995. This improvement results from higher revenues as well as lower fuel
and other operating costs at two of Thermo Ecotek's California plants.
Segment income from the Company's waste-recycling facility was $4.6 million
in 1996, compared with $2.2 million in 1995. Results for this facility, net
of related interest expense (not included in segment income), were at a
breakeven level in the first six months of 1996. Peter Brotherhood incurred
a segment loss of $1.3 million in 1996, compared with a loss of $0.3
million in 1995. This decline results from increased costs to complete jobs
in process and competitive pricing pressures. Segment income at Thermo
Power declined by $1.5 million due to a change in sales mix, lost
production time during severe winter storms and, to a lesser extent, higher
warranty expenses at NuTemp.
Sales in the Process Equipment segment were $170.7 million in 1996,
compared with $129.9 million in 1995. Sales from Thermo Fibertek increased
$4.3 million to $97.6 million in 1996 from $93.3 million in 1995. Revenues
increased $8.9 million at Thermo Fibertek's accessories business due
principally to increased demand and $1.4 million at its recycling business,
excluding the effect of a decrease in recycling revenues of $6.9 million
relating to the Menominee, Michigan subcontract with Thermo Electron
described in the results of operations for the second quarter. A wholly
owned subsidiary of the Company recorded revenues from the Menominee,
Michigan project of $55.5 million in 1996 and $19.5 million in 1995. Sales
of Thermo TerraTech's thermal-processing equipment increased $4.7 million
from depressed 1995 levels, while sales from Napco's automated
electroplating equipment business declined $4.1 million. Segment income
increased $3.9 million to $18.5 million in 1996 as a result of higher
sales.
Sales in the Biomedical Products segment were $204.4 million in 1996,
an increase of $65 million, or 47%, over 1995. Sales were primarily
affected by the same factors as discussed in the results of operations for
the second quarter. Segment income margin, excluding restructuring and
other nonrecurring costs of $22.5 million in 1996, improved to 11.6% in
1996 from 11.0% in 1995 as a result of increased sales and, to a lesser
extent, price increases for Thermo Cardiosystems' air-driven LVAS, offset
in part by lower margins at recently required Bennett and XRE.
Sales in the Environmental Services segment were $128.4 million in
1996, an increase of $30.1 million, or 31%, over 1995. Revenues from Thermo
TerraTech's remediation and recycling services were $52.7 million in 1996,
compared with $30.7 million in 1995, primarily due to the inclusion of
$21.6 million in revenues from ReTec, which was acquired in December 1995,
16PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Six Months 1996 Compared With First Six Months 1995 (continued)
and an increase in revenues at Thermo EuroTech, offset in part by a decline
in revenues from radiochemistry laboratory work, reflecting a reduction in
spending at the DOE and delays in federal government budget appropriations.
Revenues from soil-remediation services declined $1.1 million to $12.1
million in 1996 due to the reasons discussed in the results of operations
for the second quarter. Revenues from consulting and design services
increased to $39.5 million in 1996 from $34.7 million in 1995, primarily
due to the inclusion of revenues for a full six months from a business
acquired and for the reasons discussed in the results of operations for the
quarter. Revenues from laboratory-testing services, excluding the
radiochemistry laboratory services included in remediation and recycling
services, increased primarily due to the inclusion of an additional $9.8
million of revenues from Lancaster Laboratories, acquired in May 1995,
offset in part by a decline in revenues due to reduced federal spending.
Sales of metallurgical services were $21.4 million in 1996, compared with
$23.5 million in 1995. Sales declined due to the impact of closing a small
plant during 1995 and, to a lesser extent, competitive pricing pressures.
Segment income was $9.5 million in 1996, compared with $10.1 million in
1995. Segment income declined due to a loss of $2.3 million incurred at
Thermo EuroTech, resulting primarily from the settlement of several
contract disputes, as well as severe winter weather, which affected all
phases of Thermo EuroTech's business.
Sales from the Advanced Technologies segment were $184.6 million in
1996, compared with $158.2 million in 1995. Sales increased $32.8 million
due to the inclusion of sales from acquired businesses, primarily the Orion
laboratory products division of Analytical Technology, Inc. in December
1995, and Moisture Systems Corporation and Rutter & Co. in January 1996.
Sales from Thermo Voltek increased $6.6 million due to the reasons
discussed in the results of operations for the second quarter and the
inclusion of $1.1 million in sales for a full six months from Kalmus
Engineering Incorporated, which was acquired in March 1995. These increases
were offset in part by a decline of $6.6 million in sales of Thermedics
Detection's process-detection instruments, primarily due to a decline in
demand from one customer, which has substantially completed its deployment
of Alexus product quality assurance systems, and a decrease in sales of
$9.8 million at Coleman Research due to lower U.S. government contract
funding. Segment income declined $2.1 million in 1996 to $9.0 million due
to the reasons discussed in the results of operations for the second
quarter.
The Company recorded gains as a result of the sale of stock by
subsidiaries of $72.4 million in 1996 and $22.6 million in 1995 (Note 2).
Minority interest expense increased to $29.3 million in 1996 from $17.7
million in 1995. Minority interest expense includes $18.8 million in 1996
and $3.1 million in 1995 related to gains recorded by the Company's
majority-owned subsidiaries as a result of the sale of stock by their
subsidiaries.
17PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $1,952.5 million at June 29, 1996,
compared with $1,317.1 million at December 30, 1995. Included in working
capital were cash, cash equivalents, and short-term available-for-sale
investments of $1,669.1 million at June 29, 1996, compared with $1,056.7
million at December 30, 1995. In addition, at June 29, 1996, the Company
had $60.8 million of long-term available-for-sale investments and $24.7
million of long-term held-to-maturity investments, compared with $61.8
million of long-term available-for-sale investments and $23.8 million of
long-term held-to-maturity investments at December 30, 1995. Of the
$1,754.6 million of cash, cash equivalents, short-term and long-term
available-for-sale investments, and long-term held-to-maturity investments
at June 29, 1996, $1,003.3 million was held by the Company's majority-owned
subsidiaries, and the remainder by the Company and its wholly owned
subsidiaries. Net proceeds from the issuance of Company and subsidiary
common stock totaled $130.7 million in the first six months of 1996. Net
proceeds from the issuance of subordinated convertible debentures by the
Company and its majority owned subsidiaries totaled $784.7 million during
the first six months of 1996 (Note 5).
During the first six months of 1996, the Company expended $310.5
million for acquisitions and $57.4 million for purchases of property, plant
and equipment. In July 1996, the Company sold its waste-recycling facility
in southern California to the facility's customer, the County of San Diego.
In connection with the sale the Company paid the outstanding debt,
classified as "tax-exempt obligations" in the accompanying balance sheet,
on this facility. The Company has agreements or letters of intent to expend
approximately $29 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. In the
remainder of 1996, the Company plans to make capital expenditures of
approximately $90 million.
During the first six months of 1996, the Company expended $26.4
million to purchase the common stock of certain of its subsidiaries. The
Company expects that these purchases will continue, although the amount of
purchases in a given reporting period may vary significantly.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On May 21, 1996, at the Annual Meeting of Shareholders, the
shareholders reelected a class of three incumbent directors to a three-year
term expiring in 1999. The directors reelected at the meeting were: Dr.
George N. Hatsopoulos, Robert A. McCabe, and Hutham S. Olayan. Dr.
Hatsopoulos received 68,774,775 shares voted in favor of election and
289,504 shares withheld; Mr. McCabe received 68,775,878 shares voted in
favor of election and 288,401 shares withheld; and Ms. Olayan received
68,771,768 shares voted in favor of election and 292,511 shares withheld.
No abstentions or broker nonvotes were recorded on the election of
directors.
18PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Item 4 - Submission of Matters to a Vote of Security Holders (continued)
The shareholders also approved a proposal to amend the Company's
Restated Certificate of Incorporation to increase the Company's authorized
common stock, $1.00 par value per share, from 175 million shares to 350
million shares as follows: 67,649,194 shares voted in favor, 968,052 shares
voted against, and 447,033 shares abstained. No broker nonvotes were
recorded on the proposal.
Item 6 - Exhibits
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
19PAGE
<PAGE>
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 August 1996.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance and
Administration
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
20PAGE
<PAGE>
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
3(i) Amendment to Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-4
(Reg. No. 333-05179) and incorporated herein by
reference).
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
----------------------------
June 29, July 1,
1996 1995
--------------------------------------------------------------------------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $ 44,919,000 $ 33,050,000
Add: Convertible debenture
interest, net of tax 5,998,000 3,997,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $ 50,917,000 $ 37,047,000
------------ ------------
Shares:
Weighted average shares outstanding 140,133,601 125,426,152
Add: Shares issuable from assumed
conversion of convertible
debentures 33,050,279 31,075,930
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,516,587 1,918,361
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 175,700,467 158,420,443
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .29 $ .23
============ ============
PAGE
<PAGE>
Exhibit 11
THERMO ELECTRON CORPORATION
Computation of Earnings per Share (continued)
Six Months Ended
----------------------------
June 29, July 1,
1996 1995
------------------------------------------------------------------------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $ 85,942,000 $ 62,734,000
Add: Convertible debenture
interest, net of tax 12,834,000 8,301,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $ 98,776,000 $ 71,035,000
------------ ------------
Shares:
Weighted average shares outstanding 136,884,346 123,720,842
Add: Shares issuable from assumed
conversion of convertible
debentures 36,151,867 32,648,850
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,546,829 1,918,362
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 175,583,042 158,288,054
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .56 $ .45
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 541,195
<SECURITIES> 1,127,877
<RECEIVABLES> 604,792
<ALLOWANCES> 37,649
<INVENTORY> 449,124
<CURRENT-ASSETS> 2,878,454
<PP&E> 1,077,605
<DEPRECIATION> 283,117
<TOTAL-ASSETS> 4,900,554
<CURRENT-LIABILITIES> 925,997
<BONDS> 1,657,235
0
0
<COMMON> 141,410
<OTHER-SE> 1,409,268
<TOTAL-LIABILITY-AND-EQUITY> 4,900,554
<SALES> 1,269,793
<TOTAL-REVENUES> 1,398,144
<CGS> 702,491
<TOTAL-COSTS> 872,066<F1>
<OTHER-EXPENSES> 98,650<F2>
<LOSS-PROVISION> 2,150
<INTEREST-EXPENSE> 53,236
<INCOME-PRETAX> 157,847
<INCOME-TAX> 42,650
<INCOME-CONTINUING> 85,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,942
<EPS-PRIMARY> .63
<EPS-DILUTED> .56
<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>
