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 28, 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 October 25, 1996
----------------------------- -------------------------------
Common Stock, $1.00 par value 149,277,658
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 506,528 $ 462,861
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $1,202,022 and
$588,471) 1,204,981 593,802
Accounts receivable, less allowances
of $35,345 and $29,318 595,427 493,313
Unbilled contract costs and fees 73,652 74,941
Inventories:
Raw materials and supplies 228,223 175,346
Work in process 96,557 72,768
Finished goods 116,381 84,672
Prepaid income taxes 94,796 75,685
Prepaid expenses 33,829 23,204
---------- ----------
2,950,374 2,056,592
---------- ----------
Property, Plant and Equipment, at Cost 985,866 977,816
Less: Accumulated depreciation and
amortization 291,108 262,228
---------- ----------
694,758 715,588
---------- ----------
Long-term Available-for-sale
Investments, at Quoted Market Value
(amortized cost of $52,750 and $60,780) 66,556 61,845
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $25,632 and $24,942) 25,138 23,819
---------- ----------
Other Assets 128,820 101,138
---------- ----------
Cost in Excess of Net Assets of
Acquired Companies (Note 6) 1,083,854 827,357
---------- ----------
$4,949,500 $3,786,339
========== ==========
2PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 156,909 $ 112,280
Accounts payable 188,287 172,823
Accrued payroll and employee benefits 123,972 93,930
Accrued income taxes 69,164 52,055
Accrued installation and warranty costs 67,055 41,548
Accrued acquisition expenses (Note 6) 49,030 32,557
Other accrued expenses 274,710 234,253
---------- ----------
929,127 739,446
---------- ----------
Deferred Income Taxes and Other Deferred Items 163,167 129,926
---------- ----------
Long-term Obligations:
Senior convertible obligations 210,835 458,925
Subordinated convertible obligations (Note 5) 1,028,906 343,076
Tax-exempt obligations - 128,567
Nonrecourse tax-exempt obligations 77,900 94,700
Other 90,745 92,809
---------- ----------
1,408,386 1,118,077
---------- ----------
Minority Interest 677,807 471,648
---------- ----------
Common Stock of Subsidiaries Subject to
Redemption ($78,566 redemption value) 73,533 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; 149,109,766 and
89,006,032 shares issued 149,110 89,006
Capital in excess of par value 805,754 614,363
Retained earnings 741,680 604,496
Treasury stock at cost, 53,441 and 11,574
shares (2,171) (536)
Cumulative translation adjustment (5,256) 608
Deferred compensation (2,013) (2,271)
Net unrealized gain on available-for-sale
investments 10,376 4,063
---------- ----------
1,697,480 1,309,729
---------- ----------
$4,949,500 $3,786,339
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues:
Product and service revenues $700,342 $537,850
Research and development contract revenues 39,639 48,138
-------- --------
739,981 585,988
-------- --------
Costs and Expenses:
Cost of product and service revenues 409,185 321,960
Expenses for research and development and
new lines of business (a) 77,034 68,288
Selling, general and administrative
expenses 175,691 126,656
Restructuring and other nonrecurring
costs (Note 4) 6,284 19,845
-------- --------
668,194 536,749
-------- --------
Operating Income 71,787 49,239
Gain on Issuance of Stock by Subsidiaries
(Note 2) 38,470 43,059
Other Income (Expense), Net (Note 3) 1,082 (4,482)
-------- --------
Income Before Income Taxes and Minority
Interest 111,339 87,816
Provision for Income Taxes 31,939 23,371
Minority Interest Expense 28,158 25,901
-------- --------
Net Income $ 51,242 $ 38,544
======== ========
Earnings per Share:
Primary $ .36 $ .30
======== ========
Fully diluted $ .32 $ .27
======== ========
Weighted Average Shares:
Primary 142,791 127,733
======== ========
Fully diluted 175,815 159,326
======== ========
(a) Includes costs of:
Research and development contracts $ 34,169 $ 40,942
Internally funded research and
development 42,362 26,493
Other expenses for new lines of
business 503 853
-------- --------
$ 77,034 $ 68,288
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues:
Product and service revenues $2,013,840 $1,477,898
Research and development contract revenues 124,285 145,435
---------- ----------
2,138,125 1,623,333
---------- ----------
Costs and Expenses:
Cost of product and service revenues 1,209,280 881,247
Expenses for research and development and
new lines of business (a) 221,675 201,855
Selling, general and administrative
expenses 510,238 365,162
Restructuring and other nonrecurring
costs (Note 4) 32,264 21,938
---------- ----------
1,973,457 1,470,202
---------- ----------
Operating Income 164,668 153,131
Gain on Issuance of Stock by Subsidiaries
(Note 2) 110,857 65,632
Other Expense, Net (Note 3) (6,339) (7,772)
---------- ----------
Income Before Income Taxes and Minority
Interest 269,186 210,991
Provision for Income Taxes 74,589 66,155
Minority Interest Expense 57,413 43,558
---------- ----------
Net Income $ 137,184 $ 101,278
========== ==========
Earnings per Share:
Primary $ .99 $ .81
========== ==========
Fully diluted $ .89 $ .71
========== ==========
Weighted Average Shares:
Primary 138,853 125,058
========== ==========
Fully diluted 175,660 159,057
========== ==========
(a) Includes costs of:
Research and development contracts $ 106,140 $ 125,203
Internally funded research and
development 113,894 74,110
Other expenses for new lines of
business 1,641 2,542
---------- ----------
$ 221,675 $ 201,855
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
----------------------------
September 28, September 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Operating Activities:
Net cash provided by operating activities $ 167,317 $ 105,382
----------- -----------
Investing Activities:
Acquisitions, net of cash acquired (Note 6) (371,825) (213,359)
Purchases of available-for-sale investments (1,045,868) (351,906)
Purchases of long-term held-to-maturity
investments - (22,300)
Proceeds from sale and maturities of
available-for-sale investments 462,611 420,147
Purchases of property, plant and equipment (93,280) (42,580)
Proceeds from sale of property, plant and
equipment 5,417 5,655
Issuance of notes receivable (16,684) -
Other 324 (12,885)
----------- -----------
Net cash used in investing activities (1,059,305) (217,228)
----------- -----------
Financing Activities:
Decrease in short-term notes payable (13,915) (5,022)
Net proceeds from issuance of long-term
obligations (Note 5) 799,900 132,426
Repayment and repurchase of long-term
obligations (51,792) (30,060)
Net proceeds from issuance of Company and
subsidiary common stock (Note 2) 265,114 145,844
Purchases of subsidiary common stock (54,844) (75,351)
Other (10,078) 593
----------- -----------
Net cash provided by financing activities 934,385 168,430
----------- -----------
Exchange Rate Effect on Cash 1,270 2,045
----------- -----------
Increase in Cash and Cash Equivalents 43,667 58,629
Cash and Cash Equivalents at Beginning of
Period 462,861 383,005
----------- -----------
Cash and Cash Equivalents at End of Period $ 506,528 $ 441,634
=========== ===========
6PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
----------------------------
September 28, September 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Noncash activities:
Conversions of Company and subsidiaries'
convertible obligations $ 363,475 $ 88,210
=========== ===========
Fair value of assets of acquired companies $ 648,233 $ 179,661
Cash paid for acquired companies (389,913) (102,722)
Issuance of Company and subsidiaries'
common stock and stock options for
acquired companies (2,351) (7,780)
Issuance of long-term obligations for
acquired company - (22,300)
----------- -----------
Liabilities assumed of acquired
companies $ 255,969 $ 46,859
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
<PAGE>
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 September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 30, 1995,
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/A 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 nine-month periods ended September
28, 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 $27.2 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 $42.3 million resulted in a gain of
$18.0 million that was recorded by Thermedics.
Initial public offering of 3,450,000 shares of Thermo Optek
Corporation common stock in June and July 1996 at $13.50 per
share for net proceeds of $42.9 million resulted in a gain
of $25.1 million that was recorded by Thermo Instrument.
8PAGE
<PAGE>
THERMO ELECTRON CORPORATION
2. Issuance of Stock by Subsidiaries (continued)
Initial public offering of 2,875,000 shares of Trex Medical
Corporation common stock and 871,832 shares of Trex Medical common
stock in a concurrent rights offering in July 1996 at $14.00 per
share for net proceeds of $49.1 million resulted in a gain of $25.6
million recorded by the Company's ThermoTrex Corporation subsidiary.
Initial public offering of 1,500,000 shares of Thermo BioAnalysis
Corporation common stock in September 1996 at $14.00 per share for
net proceeds of $18.6 million resulted in a gain of $8.8 million
that was recorded by Thermo Instrument.
3. Other Income (Expense), Net
The components of other income (expense), net, in the accompanying
statement of income are as follows:
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(In thousands) 1996 1995 1996 1995
--------------------------------------------------------------------------
Interest income $ 24,336 $ 16,066 $ 68,076 $ 45,657
Interest expense (21,820) (20,154) (75,056) (57,024)
Equity in income
(loss) of
unconsolidated
subsidiaries 104 (956) (162) (315)
Gain on sale of
investments 3,932 - 6,657 -
Other income
(expense), net (5,470) 562 (5,854) 3,910
-------- -------- -------- --------
$ 1,082 $ (4,482) $ (6,339) $ (7,772)
======== ======== ======== ========
4. Restructuring and Other Nonrecurring Costs
During the third quarter of 1996, the Company recorded $6.3 million
of nonrecurring costs, which included $4.4 million primarily for the
write-off of a non-trade receivable and severance costs at the Company's
wholly owned Peter Brotherhood Ltd. subsidiary; $1.3 million for the
settlement of a pre-acquisition legal dispute and severance costs for
terminated employees at the Company's wholly owned SensorMedics subsidiary;
and $0.6 million for costs to close and relocate a foreign business to the
U.S. at the Company's wholly owned Nicolet Biomedical subsidiary.
During the second quarter of 1996, the Company recorded $22.5
million of nonrecurring costs, which 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
9PAGE
<PAGE>
THERMO ELECTRON CORPORATION
4. Restructuring and Other Nonrecurring Costs (continued)
(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 (Fisons) (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.
6. Acquisitions
On March 29, 1996, Thermo Instrument completed the acquisition of a
substantial portion of the businesses comprising the Scientific Instruments
Division of Fisons, a wholly owned subsidiary of Rhone-Poulenc Rorer Inc.,
for approximately 123.7 million British pounds sterling in cash
(approximately $189.2 million) and the assumption of approximately 30.8
million British pounds sterling of indebtedness (approximately $47.1
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 of acquired companies. 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 nine months of 1996,
the Company and its majority-owned subsidiaries made several other
acquisitions for $200.7 million in cash and Company and subsidiary common
stock valued at $2.4 million, subject to post-closing adjustments.
10PAGE
<PAGE>
THERMO ELECTRON CORPORATION
6. Acquisitions (continued)
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 $302.3 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 has undertaken a restructuring of the acquired businesses. In
accordance with the requirements of Emerging Issues Task Force
Pronouncement 95-3 (EITF 95-3), Thermo Instrument is in the process of
developing a plan that is expected to include reductions in staffing
levels, abandonment of excess facilities, and possible other costs
associated with exiting certain activities of the acquired businesses. As
part of the cost of the acquisition, Thermo Instrument established reserves
totaling $35 million for estimated severance, excess facilities, and other
exit costs associated with the acquisition, $10 million of which was
expended during the first nine months of 1996, primarily for severance
costs. Unresolved issues existing at September 28, 1996 included further
identifying specific employees for termination and locations to be
abandoned or consolidated, among other decisions concerning the integration
of the acquired businesses into Thermo Instrument. In accordance with EITF
95-3, finalization of Thermo Instrument's plan for restructuring the
acquired businesses will not occur beyond one year from the date of the
acquisition. Any changes in estimates of these costs prior to such
finalization 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
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.
Accordingly, historical information for 1995 and 1996 has been restated to
include the results of SensorMedics.
11PAGE
<PAGE>
THERMO ELECTRON CORPORATION
6. Acquisitions (continued)
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:
Three Nine
Months Ended Months Ended
------------------ ------------------
(In thousands) September 30, 1995 September 30, 1995
------------------------------------------------------------------------
Revenues:
Previously reported $ 570,373 $1,577,639
SensorMedics 15,615 45,694
---------- ----------
$ 585,988 $1,623,333
========== ==========
Net Income:
Previously reported $ 38,133 $ 100,265
SensorMedics 411 1,013
---------- ----------
$ 38,544 $ 101,278
========== ==========
7. Stock Split
All share and per share information, except for share information
in the accompanying 1995 balance sheet, has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
which was distributed in June 1996.
8. Litigation
Cogeneration Joint Venture
The previously disclosed settlement agreement between Florida Power
and Light (FPL) and the joint venture of the Company and Rolls-Royce,
Inc., pertaining to the Dade County cogeneration plant, was approved by
the Florida Public Service Commission and became effective during the
third quarter of 1996. The settlement includes (i) the continued closure
of the plant but the availability of its capacity for potential dispatch
by FPL, (ii) ongoing payments by FPL of the plant's lease payments and
operation and maintenance costs, and a one-time cash payment of which the
Company's share was $1,480,000, and (iii) termination of all related
litigation and regulatory proceedings. The Company has evaluated its
reserves established for this and other legal contingencies and has
concluded that no adjustment to such reserves is necessary.
12PAGE
<PAGE>
THERMO ELECTRON CORPORATION
9. Subsequent Event
In October 1996, Thermo Instrument issued and sold $172.5 million
principal amount of 4 1/2% senior convertible debentures due 2003. The
debentures are convertible into shares of Thermo Instrument's common
stock at a price of $43.07 per share and are guaranteed by the Company.
In lieu of issuing all or a portion of Thermo Instrument's common stock
upon conversion, Thermo Instrument has the option to deliver shares of
the Company's common stock with an aggregate value equal to the market
value of Thermo Instrument's common stock otherwise issuable upon such
conversion. The Company has agreed to sell, at market prices, such number
of shares of its common stock to Thermo Instrument as Thermo Instrument
may require to exercise such option.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, are made throughout this
Management's Discussion and Analysis of Financial Condition and Results
of Operations. These statements involve a number of risks and
uncertainties, including those detailed in Item 5 of this Quarterly
Report on Form 10-Q.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Sales for the third quarter of 1996 were $740.0 million, an
increase of $154.0 million, or 26%, over the third quarter of 1995.
Segment income, excluding restructuring and other nonrecurring costs of
$6.3 million in 1996 and $19.8 million in 1995 described below, increased
15% to $85.9 million from $74.4 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, which includes restructuring and other nonrecurring costs, was
$71.8 million in 1996, compared with $49.2 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 Instruments segment were $315.3 million in 1996, an
increase of $121.4 million, or 63%, over 1995. Sales increased primarily
due to acquisitions made by Thermo Instrument Systems Inc., which added
$116.4 million of sales in 1996. The remainder of the increase resulted
primarily from greater demand experienced by Thermo Instrument's mass
spectrometry business as a result of a product introduced in the first
quarter of 1996 and, to a lesser extent, greater demand for Fourier
transform infrared and atomic absorption and atomic emission spectrometry
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 segment revenues by
$4.3 million in 1996. Segment income margin (segment income margin is
13PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
segment income as a percentage of sales) was 12.3% in 1996, compared with
13.3% in 1995. Segment income margin declined primarily due to lower
margins at acquired businesses, including the businesses formerly
included within the Scientific Instruments Division of Fisons plc.
Sales from the Alternative-energy Systems segment were $91.9
million in 1996, an increase of $2.7 million, or 3%, over 1995. Within
this segment, revenues from Thermo Ecotek Corporation, which consist
primarily of revenues from biomass power plant operations, were $47.0
million in 1996, compared with $42.1 million in 1995. This increase
resulted from higher contractual energy rates at all of Thermo Ecotek's
facilities, except the Hemphill plant in New Hampshire, an increase in
revenues at the Delano plants in California resulting from full operation
for the quarter compared with a paid curtailment program negotiated with
the power purchaser in 1995, and an acquisition that added $1.2 million
in revenues. In July 1996, the Company sold its waste-recycling facility
in southern California, which had revenues of $4.9 million in 1995. Sales
from Thermo Power Corporation were $31.1 million in 1996, compared with
$28.5 million in 1995. This increase resulted primarily from greater
demand for custom-designed industrial refrigeration packages and, to a
lesser extent, increased demand for remanufactured commercial cooling
equipment, offset in part by lower demand for rental equipment resulting
from generally lower temperatures in 1996 compared with 1995. Sales at
Peter Brotherhood Ltd. declined 3% to $13.9 million due to lower demand.
Segment income from the Alternative-energy Systems segment was
$16.0 million in 1996, compared with $19.4 million in 1995, excluding
restructuring and other nonrecurring costs of $4.4 million in 1996 and
$11.5 million in 1995. Thermo Ecotek had segment income of $16.8 million
in 1996, compared with $16.0 million in 1995. This improvement resulted
primarily from increased revenues. Segment income from the Company's
waste-recycling facility in Southern California was $1.7 million in 1995.
Results for this facility, net of related interest expense (not included
in segment income), were approximately at a breakeven level for the third
quarter of 1996. Segment income at Thermo Power declined to $0.4 million
from $2.3 million due to changes in sales mix, higher depreciation
expense incurred at its NuTemp subsidiary as a result of an increase in
NuTemp's rental assets, and higher warranty expenses for marine-engine
products. Thermo Power has experienced a cost increase in one of the
major components of its industrial refrigeration packages, which is
expected to adversely affect the gross profit margin contributed by these
products. Peter Brotherhood incurred a segment loss of $1.1 million in
1996, compared with a loss of $0.6 million in 1995. This decline results
from lower sales, increased costs to complete jobs in process, and
competitive pricing pressures. Restructuring and other nonrecurring costs
of $4.4 million in 1996 primarily represent the write-off of a non-trade
receivable and severance costs incurred at Peter Brotherhood. The 1995
costs of $11.5 million represents the write-off of the Company's net
investment in its waste-recycling facility in southern California. This
facility was sold in July 1996, with no material additional gain or loss
resulting from the sale.
14PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
Sales in the Process Equipment segment were $56.2 million in 1996,
compared with $92.6 million in 1995. A wholly owned subsidiary of the
Company recorded revenues from an office wastepaper de-inking contract of
$1.6 million in 1996 and $28.1 million in 1995. This contract was
substantially completed in the first quarter of 1996. Sales from Thermo
Fibertek Inc. decreased to $46.1 million in 1995 from $56.2 million in
1995, primarily due to a decrease of $4.7 million in revenues earned
under a subcontract with the Company to supply equipment and services for
the office wastepaper de-inking facility described above, and a $4.5
million decrease in recycling revenues primarily due to a decrease in
demand resulting from depressed de-inked pulp prices. Revenues from
Thermo Fibertek's accessories business decreased $0.4 million due to a
$1.5 million decrease from the North American business, which primarily
reflects a large order shipped in the third quarter of 1995, offset in
part by a $1.1 million increase from Thermo Fibertek's Lamort subsidiary,
primarily as a result of increased demand. Sales of Thermo TerraTech
Inc.'s thermal-processing equipment increased $1.1 million primarily due
to an increase in demand, while sales from the Company's wholly owned
Napco Inc. subsidiary's automated electroplating equipment business
declined $1.0 million. Segment income margin, excluding restructuring and
other nonrecurring costs of $7.5 million in 1995, was 15.1% in 1996,
compared with 11.7% in 1995. This improvement resulted primarily from a
nonrecurring payment received under the office wastepaper de-inking
contract in 1996, which represents certain cost savings on the contract,
and increased revenues from Thermo TerraTech's thermal-processing
equipment business. Restructuring and other nonrecurring costs of $7.5
million in 1995 represents the write-off of costs in excess of net assets
of acquired companies, of which $5.0 million was recorded by Thermo
TerraTech and $2.5 million was recorded by Napco.
Sales in the Biomedical Products segment were $115.2 million in
1996, an increase of $38.1 million, or 49%, over 1995. This increase is
primarily due to the inclusion of $33.6 million in revenues from acquired
businesses. Segment income margin, excluding restructuring and other
nonrecurring costs of $1.9 million in 1996, improved to 13.5% in 1996
from 10.6% in 1995, primarily as a result of increased sales, offset in
part by lower margins at certain acquired businesses. Restructuring and
other nonrecurring costs of $1.9 million include $1.3 million recorded by
SensorMedics for settlement of a pre-acquisition legal dispute and
severance costs for terminated employees, and $0.6 million recorded by
Nicolet Biomedical to close and relocate a foreign business to the U.S.
The Company's Thermo Cardiosystems Inc. subsidiary has signed a letter of
intent to acquire a company principally engaged in research and
development, for a purchase price of $5.0 million. Should Thermo
Cardiosystems complete the acquisition, it expects that a substantial
portion of the purchase price would represent acquired technology under
development and, accordingly, would be recorded as an expense in the
period in which the acquisition occurs.
Sales in the Environmental Services segment were $68.4 million in
1996, an increase of $12.9 million, or 23%, over 1995. Revenues from
Thermo TerraTech's remediation and recycling services were $30.8 million
in 1996, compared with $17.1 million in 1995, primarily due to the
15PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
inclusion of $13.7 million in revenues from acquired businesses and, to a
lesser extent, higher revenues from health physics services. Revenues
from soil-remediation services decreased 21% resulting from declines in
the volume of soil processed due to reduced compliance requirements
and/or enforcement activities in several states and competitive pricing
pressures. Revenues from laboratory-testing services, excluding the
radiochemistry laboratory services included in remediation and recycling
services, decreased to $8.3 million in 1996 from $10.2 million in 1995,
largely due to reduced federal spending. Sales of metallurgical services
increased to $11.4 million in 1996, compared with $9.9 million in 1995
primarily due to increased demand. Segment income declined to $3.1
million in 1996, compared with $6.8 million in 1995, primarily due to a
decline in traditionally higher-margin soil-remediation revenues due to
lower volumes of soil processed and to lower margins resulting from
competitive pricing pressures for this business, and costs incurred
within laboratory testing services to eliminate redundant capabilities at
regional laboratories.
Sales from the Advanced Technologies segment were $94.7 million in
1996, compared with $78.9 million in 1995. Sales increased $19.3 million
due to the inclusion of revenues from acquired businesses. Sales from
ThermoLase Corporation's hair-removal business were $2.0 million, which
includes $0.7 million in SoftLight(SM) licensing fees from a Japanese
joint venture established in January 1996. Lower U.S. government contract
funding resulted in a 14% decline in sales at Coleman Research
Corporation to $34.3 million. Segment income, excluding restructuring and
other nonrecurring costs of $0.9 million in 1995, was $4.1 million in
1996, compared with $3.3 million in 1995. Segment income provided by
acquired companies and additional income from certain businesses were
offset in part by a loss at ThermoTrex Corporation's advanced technology
research center, resulting from cost overruns and higher expenses to
develop new lines of business and, to a lesser extent, the decline in
contract revenues at Coleman Research. Restructuring and other
nonrecurring costs of $0.9 million in 1995 were recorded by ThermoTrex
and represent primarily the write-off of 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, the issuance of
stock by subsidiaries upon conversion of convertible debentures, and
similar transactions, the Company recorded gains of $38.5 million in 1996
and $43.1 million in 1995 (Note 2). Minority interest expense increased
to $28.2 million in 1996 from $25.9 million in 1995. Minority interest
expense includes $15.1 million in 1996 and $18.5 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.
16PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1996 Compared With First Nine Months 1995
Sales for the first nine months of 1996 were $2,138.1 million, an
increase of $514.8 million, or 32%, over the 1995 period. Segment income,
excluding restructuring and other nonrecurring costs of $32.3 million in
1996 and $21.9 million in 1995, was $219.9 million in the 1996 period and
$192.3 million in the 1995 period. Operating income, which includes
restructuring and other nonrecurring costs, was $164.7 million in 1996
and $153.1 million in 1995.
Sales from the Instruments segment were $862.4 million, an increase
of $309.8 million, or 56%, over 1995. Sales increased primarily due to
acquisitions made by Thermo Instrument, which added $287.0 million of
sales in 1996. The remainder of the increase resulted from greater demand
at 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 $14.3 million in 1996. Segment income
margin declined to 11.1% in 1996 from 14.2% in 1995, excluding the effect
of a $3.5 million write-off of acquired technology resulting from an
acquisition, primarily due to lower margins at acquired businesses.
Sales from the Alternative-energy Systems segment were $258.9
million in 1996, compared with $244.6 million in 1995. Within this
segment, revenues from Thermo Ecotek were $115.8 million in 1996,
compared with $107.1 million in 1995. This increase resulted from higher
contractual energy rates at all of Thermo Ecotek's facilities, except the
Hemphill plant in New Hampshire, increased revenues at the Delano plants
in California resulting from fewer days of scheduled and unscheduled
outages, and an acquisition, which added $1.7 million in revenues.
Revenues from the Company's waste-recycling facility in southern
California were $9.2 million in 1996, compared with $17.4 million in
1995. This facility was sold in July 1996. Sales at Peter Brotherhood
increased 2% to $40.8 million as a result of increased demand for steam
turbines. Sales from Thermo Power were $93.3 million in 1996, compared
with $80.9 million in 1995. This increase resulted from increased demand
for custom-designed industrial refrigeration packages, remanufactured
commercial cooling equipment, natural gas TecoDrive(R) engines, and the
inclusion of revenues from lift-truck engines, offset in part by declines
in revenues from rental equipment and marine-engine products.
Segment income from the Alternative-energy Systems segment was
$32.6 million in 1996, compared with $33.9 million in 1995, excluding
restructuring and other nonrecurring costs of $4.4 million in 1996 and
$11.5 million in 1995, discussed in the results of operations for the
third quarter. Thermo Ecotek had segment income of $29.5 million in 1996,
compared with $26.5 million in 1995. This improvement results from
increased revenues and also lower fuel costs at Thermo Ecotek's
California plants. Segment income from the Company's waste-recycling
facility was $4.6 million in 1996 and $3.9 million in 1995. Results from
this facility, net of related interest expense (not included in segment
income), were approximately at the breakeven level for both periods.
Segment income at Thermo Power declined by $3.4 million due to a change
17PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
in sales mix, lost production time at FES during severe winter storms,
higher depreciation expense at NuTemp, and higher marine-engine warranty
expenses. Peter Brotherhood incurred a segment loss of $2.4 million in
1996, compared with a loss of $0.9 million in 1995. The decline resulted
from increased costs to complete jobs in process as well as competitive
pricing pressures.
Sales in the Process Equipment segment were $226.9 million in 1996,
compared with $222.5 million in 1995. Sales from Thermo Fibertek declined
4%, to $143.7 million. Revenues under a subcontract from Thermo Electron
decreased $11.6 million as discussed in the results of operations for the
third quarter. Revenues from Thermo Fibertek's recycling business
declined an additional $3.6 million due to lower demand resulting from
depressed de-inked pulp prices. Revenues from Thermo Fibertek's North
American and Lamort subsidiaries' accessories business increased $8.6
million principally due to increased demand. The effects of currency
translation reduced Thermo Fibertek's revenue by $1.3 million in 1996. A
wholly owned subsidiary of the Company recorded revenues from an office
wastepaper de-inking contract of $57.1 million in 1996 and $47.6 million
in 1995. This contract was substantially completed in the first quarter
of 1996. Sales of Thermo TerraTech's thermal-processing equipment
increased $5.8 million due to increased demand, while sales of automated
electroplating equipment from Napco declined $5.1 million. Segment income
margin, excluding restructuring and other nonrecurring costs of $7.5
million in 1995, was 11.9% in 1996, compared with 11.4% in 1995. The
restructuring and other nonrecurring costs were discussed in the results
of operations for the third quarter.
Sales in the Biomedical Products segment were $318.7 million in
1996, an increase of $102.7 million, or 48%, over 1995. Sales were
primarily affected by the factors discussed in the results of operations
for the third quarter, including an increase of $86.4 million due to
acquisitions. Segment income margin improved to 12.3% in 1996 from 10.9%
in 1995, excluding restructuring and other nonrecurring costs of $24.4
million in 1996. This improvement in margin resulted from increased
sales. In addition to the $1.9 million of restructuring and other
nonrecurring costs discussed in the results of operations for the third
quarter, the Company recorded $22.5 million of such costs in the second
quarter of 1996, which consisted of a write-off of $12.7 million of costs
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. 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 its investment.
Sales in the Environmental Services segment were $196.8 million, an
increase of $42.9 million, or 28%, over 1995. Revenues from Thermo
TerraTech's remediation and recycling services were $83.5 million in
18PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
1996, compared with $47.8 million in 1995, primarily due to the inclusion
of $35.3 million in revenues from acquired businesses. This increase was
offset in part by declines at Thermo EuroTech and Thermo TerraTech's
radiochemistry laboratory businesses, reflecting a reduction in spending
at the Department of Energy and reduced federal government budget
appropriations. Revenues from soil-remediation services declined $2.6
million in 1996 due to the reasons discussed in the results of operations
for the third quarter. Sales of metallurgical services were $32.7 million
in 1996, compared with $33.4 million in 1995. Sales declined $2.9 million
as a result of closing a small plant in 1995, mostly offset by increased
demand for existing products. Segment income, before restructuring and
other nonrecurring costs of $1.5 million in 1995, was $12.6 million in
1996, compared with $16.9 million in 1995. Segment income from
acquisitions was more than offset by a loss of $2.9 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, and due to lower income from
soil-remediation services, which was affected by the factors discussed in
the results of operations for the third quarter. In 1995, a wholly owned
subsidiary of the Company recorded restructuring and other nonrecurring
costs of $1.5 million as a result of the decision to close a
metallurgical services division located in Albuquerque, New Mexico.
Sales from the Advanced Technologies segment were $280.3 million in
1996, compared with $237.7 million in 1995. Sales increased $53.1 million
due to the inclusion of sales from acquired businesses and increased $4.6
million due to sales from ThermoLase's hair-removal business. These
increases were offset in part by a decline of $10.7 million in sales of
Thermedics' process-detection instruments to the beverage industry,
resulting from a major customer substantially completing its deployment
of product quality assurance systems, and declines due to lower U.S.
government contract funding at Coleman Research and ThermoTrex. Segment
income declined $1.3 million in 1996 to $13.1 million due to the reasons
discussed in the results of operations for the third quarter.
The Company recorded gains as a result of the sale of stock by
subsidiaries of $110.9 million in 1996 and $65.6 million in 1995.
(Note 2). Minority interest expense increased to $57.4 million in 1996
from $43.6 million in 1995. Minority interest expense includes $33.9
million in 1996 and $21.6 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.
Liquidity and Capital Resources
Consolidated working capital was $2,021.2 million at September 28,
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 $1,711.5 million at September 28, 1996,
compared with $1,056.7 million at December 30, 1995. In addition, at
September 28, 1996, the Company had $66.6 million of long-term
available-for-sale investments and $25.1 million of long-term
held-to-maturity investments, compared with $61.8 million of long-term
19PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Liquidity and Capital Resources (continued)
available-for-sale investments and $23.8 million of long-term
held-to-maturity investments at December 30, 1995. Of the $1,803.2
million of cash, cash equivalents, short- and long-term available-
for-sale investments, and long-term held-to-maturity investments at
September 28, 1996, $1,031.0 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 $265.1 million in the first nine months
of 1996. Net proceeds from the issuance of long-term obligations by the
Company and its majority owned subsidiaries totaled $799.9 million during
the first nine months of 1996 (Note 5). The Company and its
majority-owned subsidiaries expended $51.8 million for the repayment and
repurchase of long-term obligations.
During the first nine months of 1996, the Company expended $389.9
million for acquisitions and $93.3 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 County assumed the
outstanding debt on this facility, classified as "tax-exempt obligations"
in the accompanying 1995 balance sheet. The Company has agreements or
letters of intent to expend approximately $12 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 $57 million.
During the first nine months of 1996, the Company and its majority-
owned subsidiaries expended $54.8 million to purchase the common stock of
certain of the Company's 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 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing products and services. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. Any acquisitions completed by
the Company may be made at substantial premiums over the fair value of
the net assets of the acquired companies. There can be no assurance that
20PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Item 5 - Other Information (continued)
the Company will be able to complete future acquisitions or that the
Company will be able to successfully integrate any acquired businesses.
In order to finance such acquisitions, it may be necessary for the
Company to raise additional funds through public or private financings.
Any equity or debt financing, if available at all, may be on terms which
are not favorable to the Company and, in the case of equity financing,
may result in dilution to the Company's stockholders.
Risks Associated with Spinout of Subsidiaries. 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. As a result of the sale of stock by
subsidiaries, the issuance of stock by subsidiaries upon conversion of
convertible debentures and similar transactions, the Company records
gains that represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the "Proposed Statement"). The Proposed Statement
would establish new rules for how consolidated financial statements
should be prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The FASB expects to issue a final
statement or a revised exposure draft in 1997.
Competition. The Company encounters and expects to continue to
encounter significant competition in the sale of its products and
services. The Company's competitors include a number of large
multinational corporations, some of which may be able to adapt more
quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of
their products than the Company. Competition could increase if new
companies enter the market or if existing competitors expand their
product lines or intensify efforts within existing product lines. There
can be no assurance that the Company's current products, products under
development, or ability to develop new technologies will be sufficient to
enable it to compete effectively.
Risks Associated With International Operations. International sales
account for a substantial portion of Company's revenues, and the Company
intends to continue to expand its presence in international markets.
International revenues are subject to a number of risks, including the
following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign
21PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Item 5 - Other Information (continued)
customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs, or adopt other restrictions on foreign trade;
fluctuations in exchange rates may affect product demand and adversely
affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the
Company's products and services is made in the local currency; U.S.
export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to
enforce. There can be no assurance that any of these factors will not
have a material adverse impact on the Company's business and results of
operations.
Rapid and Significant Technological Change and New Products. The
markets for the Company's products are characterized by rapid and
significant technological change, evolving industry standards and
frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and
testing, at the technological, product and manufacturing process levels.
These activities require significant capital commitments and investment
by the Company. In addition, products that are competitive in the
Company's markets are characterized by rapid and significant
technological change due to industry standards that may change on short
notice and by the introduction of new products and technologies that
render existing products and technologies uncompetitive or obsolete.
There can be no assurance that any of the products currently being
developed by the Company, or those to be developed in the future, will be
technologically feasible or accepted by the marketplace, that any such
development will be completed in any particular time frame, or that the
Company's products or proprietary technologies will not become
uncompetitive or obsolete.
Possible Adverse Effect from Changes in Governmental Regulations.
The Company competes in several markets which involve compliance by its
customers with Federal, state, local, and foreign regulations, such as
environmental, health and safety, and food and drug regulations. The
Company develops, configures, and markets its products to meet customer
needs created by such regulations. These regulations may be amended or
eliminated in response to new scientific evidence or political or
economic considerations. Any significant change in regulations could
adversely affect demand for the Company's products in regulated markets.
Risks Associated with Dependence on Capital Spending Policies and
Government Funding. The Company's customers include pharmaceutical and
chemical companies, laboratories, universities, health care providers,
paper manufacturers, consumer product companies, government agencies, and
public and private research institutions. The capital spending of these
entities can have a significant effect on the demand for the Company's
products. Such spending is based on a wide variety of factors, including
the resources available to make purchases, the spending priorities among
various types of equipment, public policy, and the effects of different
economic cycles. Any decrease in capital spending by any of the customer
22PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Item 5 - Other Information (continued)
groups that account for a significant portion of the Company's sales
could have a material adverse effect on the Company's business and
results of operations.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection
for significant new technologies, products and processes because of the
length of time and expense associated with bringing new products through
the development process and to the marketplace. The Company's success
depends in part on its ability to develop patentable products and obtain
and enforce patent protection for its products both in the United States
and in other countries. The Company owns numerous U.S. and foreign
patents, and intends to file additional applications for patents as
appropriate to cover its products. No assurance can be given that patents
will issue from any pending or future patent applications owned by or
licensed to the Company or that the claims allowed under any issued
patents will be sufficiently broad to protect the Company's technology.
In addition, no assurance can be given that any issued patents owned by
or licensed to the Company will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company could incur
substantial costs in defending itself in suits brought against it or in
suits in which the Company may assert its patent rights against others.
If the outcome of any such litigation is unfavorable to the Company, the
Company's business and results of operations could be materially
adversely affected.
The Company relies on trade secrets and proprietary know-how which
it seeks to protect, in part, by confidentiality agreements with its
collaborators, employees, and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently developed by
competitors.
Item 6 - Exhibits
See Exhibit Index on page immediately preceding exhibits.
23PAGE
<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 6th day of
November 1996.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
-------------------------
Paul F. Kelleher
Vice President, Finance and
Administration
John N. Hatsopoulos
-------------------------
John N. Hatsopoulos
President and Chief Financial
Officer
24PAGE
<PAGE>
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------------------------------------------------------------------------
10.1 Stock Holdings Assistance Plan and Form of
Promissory Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
THERMO ELECTRON CORPORATION
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Electron
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the
Guidelines.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermo Electron Corporation, a Delaware
corporation.
Guidelines: The Stock Holdings Guidelines for Key Employees
of the Company, as established by the Committee from time to
time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermo Instrument Systems Inc. Stock Holdings
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Guidelines shall be administered by the
Committee, which shall have authority to interpret the Plan and
the Guidelines and, subject to their provisions, to prescribe,
amend and rescind any rules and regulations and to make all other
determinations necessary or desirable for the administration
thereof. The Committee's interpretations and decisions with
regard to the Plan and the Guidelines and such rules and
PAGE
<PAGE>
regulations as may be established thereunder shall be final and
conclusive. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or the
Guidelines, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Guidelines that is made in good
faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Guidelines is, in the
judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Guidelines. Such Loans
may be used solely for the purpose of acquiring Common Stock
(other than upon the exercise of stock options or under employee
stock purchase plans) in open market transactions or from the
Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Guidelines,
as the Committee shall determine in its sole and absolute
discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments
commencing on the first anniversary date of the making of such
Loan. Each Loan shall also become immediately due and payable in
2PAGE
<PAGE>
full, without demand, upon the occurrence of any of the events
set forth in the Note; provided that the Committee may, in its
sole and absolute discretion, authorize an extension of the time
for repayment of a Loan upon such terms and conditions as the
Committee may determine.
3PAGE
<PAGE>
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Guidelines in any respect, or terminate the Plan or the
Guidelines at any time. No such amendment or termination,
however, shall alter or otherwise affect the terms and conditions
of any Loan then outstanding to Key Employee without such Key
Employee's written consent, except as otherwise provided herein
or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Guidelines by the Company, the Board of Directors of the
Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Guidelines shall become effective upon
approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A
THERMO ELECTRON CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Electron Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company, on
each of the first four anniversary dates of the date hereof, an
amount equal to 20% of the initial principal amount of the Note.
Payment of the final 20% of the initial principal amount, if no
demand has been made by the Company, shall be due and payable on
the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holdings Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
5PAGE
<PAGE>
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holdings Assistance Plan and shall be governed by and construed
in accordance with, such Plan and the laws of the State of
Delaware and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMO ELECTRON CORPORATION
Computation of Earnings per Share
Three Months Ended
----------------------------
September 28, September 30,
1996 1995
------------------------------------------------------------------------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $ 51,242,000 $ 38,544,000
Add: Convertible debenture
interest, net of tax 5,688,000 3,798,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $ 56,930,000 $ 42,342,000
------------ ------------
Shares:
Weighted average shares outstanding 142,791,369 127,732,874
Add: Shares issuable from assumed
conversion of convertible
debentures 30,555,401 29,041,494
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,468,459 2,552,078
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 175,815,229 159,326,446
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .32 $ .27
============ ============
PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Computation of Earnings per Share (continued)
Nine Months Ended
-----------------------------
September 28, September 30,
1996 1995
------------------------------------------------------------------------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $137,184,000 $101,278,000
Add: Convertible debenture
interest, net of tax 18,522,000 12,099,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $155,706,000 $113,377,000
------------ ------------
Shares:
Weighted average shares outstanding 138,853,385 125,058,179
Add: Shares issuable from assumed
conversion of convertible
debentures 34,286,379 31,446,397
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,520,701 2,552,078
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 175,660,465 159,056,654
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .89 $ .71
============ ============
<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 SEPTEMBER
28, 1996 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-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 506,528
<SECURITIES> 1,204,981
<RECEIVABLES> 630,772
<ALLOWANCES> 35,345
<INVENTORY> 441,161
<CURRENT-ASSETS> 2,950,374
<PP&E> 985,866
<DEPRECIATION> 291,108
<TOTAL-ASSETS> 4,949,500
<CURRENT-LIABILITIES> 929,127
<BONDS> 1,408,386
0
0
<COMMON> 149,110
<OTHER-SE> 1,548,370
<TOTAL-LIABILITY-AND-EQUITY> 4,949,500
<SALES> 2,013,840
<TOTAL-REVENUES> 2,138,125
<CGS> 1,209,280
<TOTAL-COSTS> 1,315,419<F1>
<OTHER-EXPENSES> 147,800<F2>
<LOSS-PROVISION> 4,343
<INTEREST-EXPENSE> 75,056
<INCOME-PRETAX> 269,186
<INCOME-TAX> 74,589
<INCOME-CONTINUING> 137,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,184
<EPS-PRIMARY> .99
<EPS-DILUTED> .89
<FN>
<F1>THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF
PRODUCT AND SERVICE REVENUES" AND "RESEARCH AND DEVELOPMENT CONTRACTS".
<F2>THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS:
"RESTRUCTURING AND OTHER NONRECURRING COSTS", "INTERNALLY FUNDED
RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
</FN>
</TABLE>
