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 March 29, 1997.
[ ] 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 April 25, 1997
----------------------------- -----------------------------
Common Stock, $1.00 par value 150,154,290
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 341,753 $ 414,404
Short-term available-for-sale investments
at quoted market value (amortized cost
of $1,174,262 and $1,428,564) 1,174,930 1,431,881
Accounts receivable, less allowances
of $38,784 and $34,321 668,728 616,545
Unbilled contract costs and fees 82,949 77,155
Inventories:
Raw materials and supplies 248,317 236,297
Work in process 100,580 80,614
Finished goods 162,203 116,049
Prepaid income taxes 144,860 129,802
Prepaid expenses 43,552 29,082
---------- ----------
2,967,872 3,131,829
---------- ----------
Property, Plant, and Equipment, at Cost 1,073,921 1,010,189
Less: Accumulated depreciation and
amortization 319,935 305,742
---------- ----------
753,986 704,447
---------- ----------
Long-term Available-for-sale
Investments, at Quoted Market Value
(amortized cost of $47,043 and $58,500) 56,040 68,807
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $13,142 and $26,083) 13,086 25,594
---------- ----------
Other Assets 132,227 127,632
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Note 5) 1,420,377 1,082,935
---------- ----------
$5,343,588 $5,141,244
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 284,225 $ 153,787
Accounts payable 206,639 203,643
Accrued payroll and employee benefits 122,637 122,079
Accrued income taxes 83,713 61,534
Accrued installation and warranty costs 70,533 69,006
Deferred revenue 56,444 45,715
Other accrued expenses 306,066 257,448
---------- ----------
1,130,257 913,212
---------- ----------
Deferred Income Taxes and Other Deferred Items 162,192 162,746
---------- ----------
Long-term Obligations:
Senior convertible obligations 366,000 369,997
Subordinated convertible obligations 999,010 1,009,470
Nonrecourse tax-exempt obligations 59,500 77,900
Other 77,320 92,975
---------- ----------
1,501,830 1,550,342
---------- ----------
Minority Interest 714,985 684,050
---------- ----------
Common Stock of Subsidiaries Subject to
Redemption ($81,179 redemption value) 76,876 76,525
---------- ----------
Shareholders' Investment:
Preferred stock, $100 par value, 50,000
shares authorized; none issued
Common stock, $1 par value, 350,000,000
shares authorized; 150,166,843 and
149,996,979 shares issued 150,167 149,997
Capital in excess of par value 775,697 801,793
Retained earnings 847,370 795,312
Treasury stock at cost, 28,684 and 15,520
shares (1,032) (570)
Cumulative translation adjustment (20,613) (504)
Deferred compensation (48) (58)
Net unrealized gain on available-for-sale
investments 5,907 8,399
---------- ----------
1,757,448 1,754,369
---------- ----------
$5,343,588 $5,141,244
========== ==========
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
----------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues:
Product and service revenues $722,625 $609,892
Research and development contract revenues 40,880 42,493
-------- --------
763,505 652,385
-------- --------
Costs and Operating Expenses:
Cost of product and service revenues 430,802 372,145
Expenses for research and development and
new lines of business (a) 78,541 68,322
Selling, general, and administrative
expenses 185,330 155,135
Restructuring and other nonrecurring
costs (Note 4) 7,800 3,500
-------- --------
702,473 599,102
-------- --------
Operating Income 61,032 53,283
Gain on Issuance of Stock by Subsidiaries (Note 2) 33,666 28,892
Other Income (Expense), Net (Note 3) 2,897 (5,915)
-------- --------
Income Before Income Taxes and Minority Interest 97,595 76,260
Provision for Income Taxes 28,397 22,676
Minority Interest Expense 17,140 12,561
-------- --------
Net Income $ 52,058 $ 41,023
======== ========
Earnings per Share:
Primary $ .35 $ .31
======== ========
Fully diluted $ .32 $ .27
======== ========
Weighted Average Shares:
Primary 150,070 133,635
======== ========
Fully diluted 175,925 175,464
======== ========
(a) Includes costs of:
Research and development contracts $ 36,338 $ 35,859
Internally funded research and development 41,604 31,936
Other expenses for new lines of business 599 527
-------- --------
$ 78,541 $ 68,322
======== ========
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)
Three Months Ended
--------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net cash provided by operating activities $ 32,131 $ 41,984
----------- -----------
Investing Activities:
Acquisitions, net of cash acquired (Note 5) (349,038) (265,203)
Purchases of available-for-sale investments (207,237) (278,094)
Proceeds from sale and maturities of
available-for-sale investments 485,800 199,963
Purchases of property, plant, and equipment (23,103) (24,728)
Proceeds from sale of property, plant, and
equipment 2,673 1,183
Issuance of notes receivable (4,765) -
Other 1,942 (999)
----------- -----------
Net cash used in investing activities (93,728) (367,878)
----------- -----------
Financing Activities:
Increase (decrease) in short-term notes
payable 11,858 (625)
Net proceeds from issuance of long-term
obligations - 609,049
Repayment and repurchase of long-term
obligations (28,068) (3,487)
Net proceeds from issuance of Company and
subsidiary common stock 62,816 44,676
Purchases of subsidiary common stock (51,870) (12,789)
Other (1,894) 713
----------- -----------
Net cash provided by (used in) financing
activities (7,158) 637,537
----------- -----------
Exchange Rate Effect on Cash (3,896) 301
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents (72,651) 311,944
Cash and Cash Equivalents at Beginning of
Period 414,404 462,861
----------- -----------
Cash and Cash Equivalents at End of Period $ 341,753 $ 774,805
=========== ===========
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
--------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Noncash activities:
Conversions of Company and subsidiaries'
convertible obligations $ 9,612 $ 95,933
=========== ===========
Fair value of assets of acquired companies $ 619,372 $ 523,392
Cash paid for acquired companies (395,709) (278,789)
Issuance of Company and subsidiaries'
common stock and stock options for
acquired companies (2,080) -
----------- -----------
Liabilities assumed of acquired
companies $ 221,583 $ 244,603
=========== ===========
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 March 29, 1997, and the results of operations and cash flows for the
three-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996, 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-month period ended March 29, 1997,
resulted primarily from the following:
Initial public offering of 2,671,292 shares of Thermedics
Detection Inc. common stock in March 1997 at $11.50 per
share for net proceeds of $28.1 million resulted in a gain
of $17.1 million that was recorded by the Company's
Thermedics Inc. subsidiary.
Private placement of 1,768,500 shares of ThermoQuest
Corporation common stock in March 1997 at $15.00 per share
for net proceeds of $24.8 million resulted in a gain of
$12.0 million that was recorded by the Company's Thermo
Instrument Systems Inc. subsidiary.
Private placement of 850,000 shares of Thermo Information
Solutions Inc. common stock in March 1997 at $9.00 per share
for net proceeds of $7.0 million resulted in a gain of $4.6
million.
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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
----------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Interest income $ 24,952 $ 21,988
Interest expense (21,412) (27,636)
Equity in income (loss) of unconsolidated
subsidiaries 290 (341)
Gain on sale of investments 550 270
Other expense, net (1,483) (196)
-------- --------
$ 2,897 $ (5,915)
======== ========
4. Restructuring and Other Nonrecurring Costs
During the first quarter of 1997, the Company's Thermo Remediation
Inc. subsidiary recorded $7.8 million of nonrecurring costs to write-down
certain capital equipment and intangible assets, including cost in excess
of net assets of acquired companies, in response to a recent severe
downturn in Thermo Remediation's soil-recycling business which will
result in the closure of two soil-remediation sites. In addition, the
Company's analysis indicates that the future cash flows from certain
other soil-remediation sites that will remain open will be insufficient
to recover Thermo Remediation's investment in these business units, thus
requiring a write-down of certain assets, which is included in the $7.8
million charge.
5. Acquisitions
In March 1997, Thermo Instrument acquired 166,557,897 shares (or
approximately 95%) of Life Sciences International PLC (Life Sciences), a
London Stock Exchange-listed company, for 135 pence per share
(approximately $2.15 per share or an aggregate of approximately $362.7
million, including related expenses) in completion of Thermo Instrument's
offer to acquire all of the outstanding shares of Life Sciences. Thermo
Instrument expects to acquire the Life Sciences shares that remain
outstanding for 135 pence per share pursuant to the compulsory
acquisition rules applicable to United Kingdom companies. The
accompanying balance sheet as of March 29, 1997, includes $21.1 million
accrued for the purchase of the remaining Life Sciences shares
outstanding plus shares issuable upon exercise of outstanding stock
options. Subsequent to the end of the quarter, Thermo Instrument repaid
approximately $75 million of Life Sciences' debt. Life Sciences
manufactures laboratory science equipment, appliances, instruments,
consumables, and reagents for the research, clinical, and industrial
markets. In addition, the Company and its majority-owned subsidiaries
made several other acquisitions during the first quarter of 1997 for
$33.0 million in cash and subsidiary stock options valued at $2.1
million, subject to post-closing adjustments.
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THERMO ELECTRON CORPORATION
5. Acquisitions (continued)
These acquisitions have been accounted for using the purchase method
of accounting and their results have been included in the accompanying
financial statements from their respective dates of acquisition. The cost
of these acquisitions exceeded the estimated fair value of the acquired
net assets by $352.5 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.
During 1996, Thermo Instrument had undertaken a restructuring of a
substantial portion of the businesses comprising the Scientific
Instruments division of Fisons plc, acquired in March 1996. During the
first quarter of 1997, Thermo Instrument expended $5.1 million for
restructuring costs, primarily for severance and abandoned facility
payments. In connection with finalizing its restructuring plans for the
businesses acquired from Fisons, Thermo Instrument recorded an additional
$8.1 million of acquisition reserves in the first quarter of 1997,
primarily for the abandonment of excess facilities, as well as severance.
This amount was recorded as an increase in cost in excess of net assets
of acquired companies. The remaining reserve for restructuring these
businesses was $20.6 million at March 29, 1997, which primarily
represents ongoing severance and abandoned facility payments.
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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996, filed with the Securities and Exchange
Commission.
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Sales in the first quarter of 1997 were $763.5 million, an increase
of $111.1 million, or 17%, over the first quarter of 1996. Segment
income, excluding restructuring and other nonrecurring costs of $7.8
million in 1997 and $3.5 million in 1996, described below, increased 21%
to $77.2 million from $63.9 million in 1996. (Segment income is income
9PAGE
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THERMO ELECTRON CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
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 $61.0
million in 1997, compared with $53.3 million in 1996.
Instruments
Sales from the Instruments segment were $329.1 million in 1997, an
increase of $103.5 million, or 46%, over 1996. Sales increased due to
acquisitions made by Thermo Instrument Systems Inc., which added $110.9
million of sales in 1997. The unfavorable effects of currency translation
due to the strengthening of the U.S. dollar relative to foreign
currencies in countries in which Thermo Instrument operates decreased
revenues by $8.0 million in 1997. An increase in revenues from
ThermoQuest Corporation's existing mass spectrometry business as a result
of the continued success of a new product introduced in the first quarter
of 1996 was offset by a decrease in revenues at certain of the Company's
other existing businesses, principally Thermo Optek Corporation. Revenues
from Thermo Optek's existing businesses decreased due to the inclusion in
1996 of several large nonrecurring sales to the Chinese and Japanese
governments and the elimination of certain unprofitable acquired product
lines. Segment income margin (segment income margin is segment income as
a percentage of sales), excluding restructuring and other nonrecurring
costs of $3.5 million in 1996, improved to 14.0% in 1997 from 12.2% in
1996, primarily due to increased sales of higher-margin mass spectrometry
products, efforts to reduce selling and administrative costs at certain
acquired businesses, and the integration of products from businesses
acquired into existing distribution channels. This improvement was offset
in part by lower gross profit margins at certain acquired businesses,
including Life Sciences International PLC, which recorded an adjustment
to expense of $2.7 million relating to the revaluation of the finished
goods inventories acquired by Thermo Instrument. Restructuring and other
nonrecurring costs of $3.5 million in 1996 represents the write-off of
acquired technology relating to the acquisition of a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc.
Alternative-energy Systems
Sales from the Alternative-energy Systems segment were $78.7 million
in 1997, compared with $81.5 million in 1996. Within this segment,
revenues from Thermo Ecotek Corporation were $38.7 million in 1997,
compared with $33.5 million in 1996. This increase resulted primarily
from the inclusion of $3.7 million in sales from two businesses acquired
in 1996 and 1997 by Thermo Ecotek, as well as higher contractual energy
rates at all of Thermo Ecotek's facilities, except the Hemphill plant in
New Hampshire. Pursuant to Thermo Ecotek's utility contracts for its four
plants in California, there will be no further contractual energy rate
increases beginning in 1998. In 1996, the Company recorded sales from its
waste-recycling facility in southern California of $4.9 million. This
facility was sold in July 1996. Sales at Peter Brotherhood Ltd. declined
to $11.2 million from $13.4 million in 1996 as a result of decreased
demand for steam turbines. Sales from Thermo Power Corporation were $28.8
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THERMO ELECTRON CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
million in 1997, compared with $29.8 million in 1996. This decline
primarily resulted from lower demand for commercial cooling rental
equipment, decreased shipments of remanufactured commercial cooling
equipment, and lower sales at Thermo Power's engine business.
Segment income from the Alternative-energy Systems segment was $4.8
million in 1997, compared with $6.3 million in 1996. Thermo Ecotek had
segment income of $4.4 million in 1997, compared with $4.5 million in
1996. Increased income resulting from the higher energy rates was more
than offset by higher business development costs and a small loss from
operations at Thermo Ecotek's biopesticides business. Segment income in
1996 from the Company's waste-recycling facility in southern California,
which was sold in July 1996, was $2.3 million. Results from this
facility, net of related interest expense (not included in segment
income), were approximately breakeven in 1996. Segment income at Thermo
Power improved to $0.7 million from a slight loss in 1996, primarily due
to improved margins at the industrial refrigeration and engines
businesses. Peter Brotherhood incurred a nominal segment loss in both
periods.
Certain of Thermo Ecotek's plants have power-sales agreements under
which the rates paid for power will convert from fixed rates to
"avoided-cost" rates at specified dates. Avoided-cost rates are currently
substantially less than the fixed rates. The Woodland, California, plant,
which converts to avoided-cost rates in March 2000, has conditions in its
nonrecourse lease agreement that require the funding of a "power reserve"
in years prior to 2000, based on projections of operating cash flow
shortfalls in 2000 and thereafter. The power reserve represents funds
available to make lease payments in the event that revenues are not
sufficient after the plant converts to avoided-cost rates. Without
sufficient increases in avoided-cost rates or reductions in fuel costs
and other operating expenses by the year 2000, Thermo Ecotek expects to
either renegotiate its nonrecourse lease agreement or forfeit its
interest in the Woodland plant. Beginning in the fourth quarter of 1996,
Thermo Ecotek began to expense the funding of reserves required under the
nonrecourse lease agreement. As a result, the Company expects that the
plant will be reduced to approximately breakeven in 1997 and thereafter.
In the full year of 1996, Thermo Ecotek recorded $4.6 million of segment
income from operation of the Woodland plant.
The resolution of Thermo Ecotek's rate order renegotiations with
Public Service Company of New Hampshire (PSNH) is still pending. In
January 1997, PSNH's parent company, Northeast Utilities, disclosed in a
filing with the Securities and Exchange Commission that if a proposed
deregulation plan for the New Hampshire electric utility industry were
adopted, PSNH could default on certain financial obligations and seek
bankruptcy protection. In February 1997, the New Hampshire Public
Utilities Commission (PUC) voted to adopt a deregulation plan, and in
March 1997, PSNH filed suit to block the plan. In March 1997, the federal
district court issued a temporary restraining order, which temporarily
prohibits the PUC from implementing the deregulation plan as it affects
PSNH, pending a determination by the court whether PSNH's claim is ripe
to be heard by the court. In April 1997, the court ruled that the case
was ripe for adjudication and ordered that this restraining order would
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THERMO ELECTRON CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
continue indefinitely pending the outcome of the suit. In addition, in
March 1997, Thermo Ecotek, along with a group of other biomass power
producers, filed a motion with the PUC seeking clarification of the PUC's
proposed deregulation plan regarding several issues, including purchase
requirements and payment of current rate order prices with respect to the
Company's energy output. The effect of a PSNH bankruptcy or deregulation
of the electric utility industry in New Hampshire on Thermo Ecotek's rate
orders for its two New Hampshire plants is uncertain.
Thermo Ecotek experienced a fire in December 1996 at its coal-
beneficiation facility under construction in Gillette, Wyoming. Damage
was limited to an oil heater and auxiliary oil storage tank and did not
affect the plant's four coal processors. Substantially all repair costs
are expected to be covered by insurance proceeds. The fire has caused
certain delays with respect to commencement of commercial operations of
the facility. In addition, Thermo Ecotek is currently experiencing
certain start-up problems, including issues relating to the flow of
materials within the facility, which may further delay commercial
operations. Thermo Ecotek expects to complete repairs caused by the fire
and resolve these start-up problems by the end of the third quarter of
1997, however, because the technology being developed at the facility is
new and untested, no assurance can be given that these start-up problems
will be corrected and that the plant will be able to achieve commercial
operations at that time.
Process Equipment
Sales in the Process Equipment segment were $56.0 million in 1997,
compared with $93.3 million in 1996. A wholly owned subsidiary of the
Company recorded revenues from an office wastepaper de-inking contract of
$35.0 million in the first quarter of 1996. This contract was
substantially completed at that time. Sales from Thermo Fibertek Inc.
declined 9% to $44.7 million. Revenues from Thermo Fibertek's recycling
business declined $3.9 million due to lower demand resulting from a
severe drop in de-inked pulp prices. The timing of the recovery of the
financial condition of the paper industry cannot be predicted. This
decline was offset in part by $1.5 million of revenues from a business
acquired in July 1996. Sales of Thermo TerraTech Inc.'s thermal-
processing equipment increased $1.6 million due to increased demand, and
sales of automated electroplating equipment by the Company's wholly owned
Napco subsidiary increased 11% to $3.4 million. Segment income was $6.4
million in 1997, compared with $9.6 million in 1996. This decline results
primarily from lower sales at Thermo Fibertek, as well as increased costs
at Thermo Fibertek's Thermo Fibergen subsidiary, which is developing and
commercializing equipment and systems to recover materials from
papermaking sludge.
Biomedical Products
Sales from the Biomedical Products segment were $136.9 million in
1997, an increase of $33.3 million, or 32%, over 1996. Sales increased
due to the inclusion of $24.2 million in sales from acquired businesses,
increased demand for certain products at Trex Medical Corporation, and
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THERMO ELECTRON CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
the opening of new spas and, to a lesser extent, an increase in licensing
revenues at ThermoLase Corporation's hair-removal business. Segment
income declined to $8.8 million in 1997 from $11.6 million in 1996. This
decline results primarily from an increased loss at ThermoLase and, to a
lesser extent, lower margins at Thermo Cardiosystems Inc. ThermoLase, as
expected, was impacted by the early operations of its Spa Thira
hair-removal business, which has been operating below maximum capacity as
it develops a client base and continues refining its operating
procedures, and due to pre-opening and advertising costs incurred in
connection with new spa openings. Thermo Cardiosystems' margins declined
due to increased warranty costs resulting from a modification, initiated
by Thermo Cardiosystems, of certain LVAS systems in the field, as well as
higher marketing expenses as a result of an increase in its sales force.
Environmental Services
Sales in the Environmental Services segment were $68.5 million in
1997, an increase of $9.3 million, or 16%, over 1996. Revenues from
Thermo TerraTech's remediation and recycling services increased to $30.5
million in 1997 from $24.8 million in 1996, primarily due to the
inclusion of sales from acquired businesses, offset in part by a decline
in revenues from Thermo Remediation Inc.'s soil-remediation services of
20% to $4.9 million, due to declines in the volume of soil processed as a
result of more relaxed regulatory standards in several states and
competitive pricing pressures. Sales of metallurgical services increased
to $13.3 million in 1997 from $10.0 million in 1996, due to increased
demand for existing services and the inclusion of $0.9 million of sales
from an acquired business. Segment income margin, excluding restructuring
and other nonrecurring costs of $7.8 million in 1997, was 6.5% in 1997,
compared with 5.5% in 1996. Segment income margin improved due to
increased sales, including higher-margin sales from acquired businesses,
offset in part by a decline in margins from soil-remediation services due
to lower sales and price competition as discussed above. Restructuring
and other nonrecurring costs of $7.8 million in 1997 were recorded to
write-down certain capital equipment and intangible assets, including
cost in excess of net assets of acquired companies, in response to a
recent severe downturn in Thermo Remediation's soil-recycling business
which will result in the closure of two soil-remediation sites. In
addition, the Company's analysis indicates that the future cash flows
from certain other soil-remediation sites that will remain open will be
insufficient to recover Thermo Remediation's investment in these business
units, thus requiring a write-down of certain assets, which is included
in the $7.8 million charge.
Advanced Technologies
Sales from the Advanced Technologies segment were $96.5 million in
1997, compared with $90.7 million in 1996. Sales at Thermedics Detection
Inc. increased 33% to 12.4 million in 1997 primarily due to sales from
the continued fulfillment of a mandated product-line upgrade from The
Coca-Cola Company, which is expected to continue through the third
quarter of 1997 and, to a lesser extent, increased shipments of InScan
systems, which were introduced in 1996. These increases were offset in
13PAGE
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THERMO ELECTRON CORPORATION
First Quarter 1997 Compared With First Quarter 1996 (continued)
part by a decline in sales of EGIS explosives-detection systems and
related services of $1.9 million. In May 1997, Thermedics Detection was
awarded a $6.2 million contract for its EGIS systems from the Federal
Aviation Administration. Sales at Thermo Sentron Inc. increased to $18.0
million in 1997 from $16.7 million in 1996, primarily due to sales at
acquired businesses. Sales at Thermo Voltek Corp. declined to $9.7
million in 1997 from $10.6 million in 1996, primarily due to a decline in
sales at its Comtest and Keytek businesses, offset in part by the
inclusion of $1.7 million in sales from a business acquired in July 1996.
The decline in sales resulted primarily from a decrease in demand for EMC
test products as many companies have come into compliance with European
directives concerning electromagnetic compatibility and, to a lesser
extent, a decline in the component reliability market for electrostatic
discharge test equipment caused by a slowdown in spending for capital
equipment by the semiconductor industry. Sales at Coleman Research
Corporation were $38.9 million in 1997, compared with $37.2 million in
1996. This increase resulted primarily from a contract to supply kiosk
units to a customer and, to a lesser extent, sales of $0.5 million from
an acquired business. Segment income margin was 7.0% in 1997, compared
with 6.3% in 1996. This improvement resulted from increased sales, a
change in sales mix, and the impact on the 1996 period of nonrecurring
costs related to a reduction in personnel and other adjustments.
Gain on Issuance of Stock by 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. 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 $33.7 million in 1997
and $28.9 million in 1996 (Note 2). Minority interest expense increased
to $17.1 million in 1997 from $12.6 million in 1996. Minority interest
expense includes $9.5 million in 1997 and $5.6 million in 1996 related to
gains recorded by the Company's majority-owned subsidiaries as a result
of the sale of stock and the issuance of stock upon conversion of
indebtedness by their subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $1,837.6 million at March 29, 1997,
compared with $2,218.6 million at December 28, 1996. Included in working
capital were cash, cash equivalents, and short-term available-for-sale
investments of $1,516.7 million at March 29, 1997, compared with $1,846.3
million at December 28, 1996. In addition, at March 29, 1997, the Company
had $56.0 million of long-term available-for-sale investments and $13.1
million of long-term held-to-maturity investments, compared with $68.8
million of long-term available-for-sale investments and $25.6 million of
long-term held-to-maturity investments at December 28, 1996. Of the total
$1,585.8 million of cash, cash equivalents, and short- and long-term
14PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Liquidity and Capital Resources (continued)
available-for-sale and held-to-maturity investments at March 29, 1997,
$1,076.2 million was held by the Company's majority-owned subsidiaries
and the balance was held by the Company and its wholly owned
subsidiaries. During the first quarter of 1997, $32.1 million of cash was
provided by the Company's operating activities.
During the first quarter of 1997, the Company's primary investing
activities, excluding purchases, sales, and maturities of
available-for-sale investments, included acquisitions and capital
expenditures. During the first quarter of 1997, the Company expended
$349.0 million, net of cash acquired, for acquisitions and $23.1 million
for purchases of property, plant, and equipment.
The Company's financing activities used $7.2 million of cash in the
first quarter of 1997. Net proceeds from the issuance of Company and
subsidiary common stock totaled $62.8 million. In addition, the Company
repaid long-term obligations of $28.1 million.
During the first quarter of 1997, an aggregate principal amount of
$9.6 million of subsidiaries' convertible obligations was converted into
shares of subsidiaries' common stock.
During the first quarter of 1997, the Company and its majority-owned
subsidiaries expended $51.9 million to purchase common stock of certain
of the Company's majority-owned subsidiaries. These purchases were made
pursuant to authorizations by the Company's and certain of its
majority-owned subsidiaries' Boards of Directors. As of March 29, 1997,
$20 million and $26 million remained under the Company's and the
majority-owned subsidiaries' authorizations, respectively. In April 1997,
an additional $25.0 million was authorized by the Boards of Directors of
certain of the Company's majority-owned subsidiaries. The amount of
purchases in a given reporting period may vary significantly.
In the remainder of 1997, the Company plans to make capital
expenditures of approximately $117 million. In addition, as of May 6,
1997, the Company had agreements or nonbinding letters of intent to
acquire new businesses totaling approximately $122 million. Proposed
acquisitions of new businesses are subject to various conditions to
closing, and there can be no assurance that all proposed transactions
will be consummated.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page immediately preceding exhibits.
(b) Reports on Form 8-K
On January 22, 1997, the Company filed a Current Report on Form 8-K
pertaining to Thermo Instrument Systems Inc.'s tender offer for all of
the outstanding shares of Life Sciences International PLC.
15PAGE
<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 May 1997.
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
16PAGE
<PAGE>
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------------------------------------------------------------------------
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
----------------------------
March 29, March 30,
1997 1996
------------------------------------------------------------------------
Computation of Fully Diluted Earnings per
Share:
Income:
Net income $ 52,058,000 $ 41,023,000
Add: Convertible debenture
interest, net of tax 4,959,000 6,836,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $ 57,017,000 $ 47,859,000
------------ ------------
Shares:
Weighted average shares outstanding 150,069,864 133,635,211
Add: Shares issuable from assumed
conversion of convertible
debentures 23,819,810 39,251,282
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,035,030 2,577,058
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 175,924,704 175,463,551
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .32 $ .27
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH
29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-27-1997
<CASH> 341,753
<SECURITIES> 1,174,930
<RECEIVABLES> 707,512
<ALLOWANCES> 38,784
<INVENTORY> 511,100
<CURRENT-ASSETS> 2,967,872
<PP&E> 1,073,921
<DEPRECIATION> 319,935
<TOTAL-ASSETS> 5,343,588
<CURRENT-LIABILITIES> 1,130,257
<BONDS> 1,501,830
0
0
<COMMON> 150,167
<OTHER-SE> 1,607,281
<TOTAL-LIABILITY-AND-EQUITY> 5,343,588
<SALES> 722,625
<TOTAL-REVENUES> 763,505
<CGS> 430,802
<TOTAL-COSTS> 467,140<F1>
<OTHER-EXPENSES> 50,003<F2>
<LOSS-PROVISION> 2,558
<INTEREST-EXPENSE> 21,412
<INCOME-PRETAX> 97,595
<INCOME-TAX> 28,397
<INCOME-CONTINUING> 52,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,058
<EPS-PRIMARY> .35
<EPS-DILUTED> .32
<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
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