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 27, 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 September 27, 1997
----------------------------- ---------------------------------
Common Stock, $1.00 par value 151,328,000
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
Sept. 27, Dec. 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 493,287 $ 414,404
Short-term available-for-sale investments
at quoted market value (amortized cost
of $1,031,087 and $1,428,564) 1,036,917 1,431,881
Accounts receivable, less allowances of
$43,235 and $34,321 746,840 616,545
Unbilled contract costs and fees 92,612 77,155
Inventories:
Raw materials and supplies 248,070 236,297
Work in process 108,205 80,614
Finished goods 165,330 116,049
Prepaid income taxes 138,367 129,802
Prepaid expenses 40,551 29,082
---------- ----------
3,070,179 3,131,829
---------- ----------
Property, Plant, and Equipment, at Cost 1,119,306 1,010,189
Less: Accumulated depreciation and
amortization 359,902 305,742
---------- ----------
759,404 704,447
---------- ----------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $63,742 and $58,500) 75,563 68,807
---------- ----------
Long-term Held-to-maturity Investments
(quoted market value of $26,083) - 25,594
---------- ----------
Other Assets 153,129 127,632
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Note 5) 1,529,856 1,082,935
---------- ----------
$5,588,131 $5,141,244
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
Sept. 27, Dec. 28,
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 173,523 $ 153,787
Accounts payable 212,033 203,643
Accrued payroll and employee benefits 142,567 122,079
Accrued income taxes 81,713 61,534
Accrued installation and warranty costs 73,413 69,006
Deferred revenue 51,785 45,715
Other accrued expenses 273,788 257,448
---------- ----------
1,008,822 913,212
---------- ----------
Deferred Income Taxes and Other Deferred Items 164,366 162,746
---------- ----------
Long-term Obligations:
Senior convertible obligations (Note 6) 344,705 369,997
Subordinated convertible obligations 1,373,198 1,009,470
Nonrecourse tax-exempt obligations 51,800 77,900
Other 49,742 92,975
---------- ----------
1,819,445 1,550,342
---------- ----------
Minority Interest 695,638 684,050
---------- ----------
Common Stock of Subsidiaries Subject to
Redemption ($113,712 and $81,179 redemption
value) 111,124 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; 151,359,405 and
149,996,979 shares issued 151,359 149,997
Capital in excess of par value 705,780 801,793
Retained earnings 965,387 795,312
Treasury stock at cost, 31,405 and 15,520
shares (1,181) (570)
Cumulative translation adjustment (43,588) (504)
Deferred compensation (29) (58)
Net unrealized gain on available-for-sale
investments 11,008 8,399
---------- ----------
1,788,736 1,754,369
---------- ----------
$5,588,131 $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
----------------------
Sept. 27, Sept. 28,
(In thousands except per share amounts) 1997 1996
----------------------------------------------------------------------
Revenues:
Product and service revenues $869,424 $700,342
Research and development contract revenues 40,426 39,639
-------- --------
909,850 739,981
-------- --------
Costs and Operating Expenses:
Cost of product and service revenues 500,739 409,185
Expenses for research and development and
new lines of business (a) 84,097 77,034
Selling, general, and administrative
expenses 205,761 175,691
Restructuring and other nonrecurring
costs (Note 4) 2,517 6,284
-------- --------
793,114 668,194
-------- --------
Operating Income 116,736 71,787
Gain on Issuance of Stock by Subsidiaries
(Note 2) 18,587 38,470
Other Income (Expense), Net (Note 3) (4,763) 1,082
-------- --------
Income Before Income Taxes and Minority
Interest 130,560 111,339
Provision for Income Taxes 47,950 31,939
Minority Interest Expense 20,751 28,158
-------- --------
Net Income $ 61,859 $ 51,242
======== ========
Earnings per Share:
Primary $ .41 $ .36
======== ========
Fully diluted $ .38 $ .32
======== ========
Weighted Average Shares:
Primary 150,345 142,791
======== ========
Fully diluted 176,255 175,815
======== ========
(a) Includes costs of:
Research and development contracts $ 35,070 $ 34,169
Internally funded research and
development 48,904 42,362
Other expenses for new lines of business 123 503
-------- --------
$ 84,097 $ 77,034
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
Sept. 27, Sept. 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues:
Product and service revenues $2,426,797 $2,013,840
Research and development contract revenues 121,574 124,285
---------- ----------
2,548,371 2,138,125
---------- ----------
Costs and Operating Expenses:
Cost of product and service revenues 1,413,400 1,209,280
Expenses for research and development and
new lines of business (a) 244,118 221,675
Selling, general, and administrative
expenses 604,258 510,238
Restructuring and other nonrecurring
costs (Note 4) 7,468 32,264
---------- ----------
2,269,244 1,973,457
---------- ----------
Operating Income 279,127 164,668
Gain on Issuance of Stock by Subsidiaries
(Note 2) 67,467 110,857
Other Expense, Net (Note 3) (5,489) (6,339)
---------- ----------
Income Before Income Taxes and Minority
Interest 341,105 269,186
Provision for Income Taxes 118,373 74,589
Minority Interest Expense 52,657 57,413
---------- ----------
Net Income $ 170,075 $ 137,184
========== ==========
Earnings per Share:
Primary $ 1.13 $ .99
========== ==========
Fully diluted $ 1.05 $ .89
========== ==========
Weighted Average Shares:
Primary 150,196 138,853
========== ==========
Fully diluted 176,163 175,660
========== ==========
(a) Includes costs of:
Research and development contracts $ 106,027 $ 106,140
Internally funded research and
development 136,738 113,894
Other expenses for new lines of business 1,353 1,641
---------- ----------
$ 244,118 $ 221,675
========== ==========
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)
Nine Months Ended
-----------------------
Sept. 27, Sept. 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 170,075 $ 137,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 99,223 86,720
Restructuring and other nonrecurring
costs (Note 4) 7,468 32,264
Provision for losses on accounts
receivable 6,974 4,343
Gain on issuance of stock by
subsidiaries (Note 2) (67,467) (110,857)
Gain on sale of investments (1,310) (6,657)
Minority interest expense 52,657 57,413
Equity in losses of unconsolidated
subsidiaries 722 162
Other noncash expenses 6,314 12,402
Increase in deferred income taxes 2,296 10,655
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (76,165) 7,975
Inventories (20,543) (13,058)
Other current assets (9,838) (4,945)
Accounts payable (13,896) (27,372)
Other current liabilities (14,043) (18,912)
----------- ---------
Net cash provided by operating activities 142,467 167,317
----------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 5) (636,858) (371,825)
Purchases of available-for-sale
investments (717,850) (1,045,868)
Proceeds from sale and maturities of
available-for-sale investments 1,147,287 462,611
Purchases of property, plant, and
equipment (78,319) (93,280)
Proceeds from sale of property, plant,
and equipment 11,276 5,417
Increase in other assets (6,329) (22,970)
Other 13,455 6,610
----------- -----------
Net cash used in investing activities $ (267,338) $(1,059,305)
----------- -----------
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
---------------------------
Sept. 27, Sept. 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Financing Activities:
Decrease in short-term notes payable $ (4,385) $ (13,915)
Net proceeds from issuance of long-term
obligations 378,331 799,900
Repayment and repurchase of long-term
obligations (45,858) (51,792)
Net proceeds from issuance of Company
and subsidiary common stock 134,614 265,114
Purchases of subsidiary common stock (246,185) (54,844)
Other (3,876) (10,078)
----------- -----------
Net cash provided by financing activities 212,641 934,385
----------- -----------
Exchange Rate Effect on Cash (8,887) 1,270
----------- -----------
Increase in Cash and Cash Equivalents 78,883 43,667
Cash and Cash Equivalents at Beginning of
Period 414,404 462,861
----------- -----------
Cash and Cash Equivalents at End of Period $ 493,287 $ 506,528
=========== ===========
Noncash activities:
Conversions of Company and subsidiary
convertible obligations $ 65,239 $ 363,475
=========== ===========
Fair value of assets of acquired
companies $ 828,425 $ 648,233
Cash paid for acquired companies (691,288) (389,913)
Issuance of Company and subsidiary
common stock and stock options for
acquired companies (4,093) (2,351)
----------- -----------
Liabilities assumed of acquired
companies $ 133,044 $ 255,969
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
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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 September 27, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the nine-month periods ended September 27, 1997, and
September 28, 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 nine-month period ended September 27, 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.
Sale 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 and conversion of $12.0 million of ThermoQuest
5% subordinated convertible debentures in August and
September 1997, convertible at $16.50 per share into 727,272
shares of ThermoQuest common stock, resulted in a gain of
$12.0 million and $6.1 million, respectively, that was
recorded by the Company's Thermo Instrument Systems Inc.
subsidiary.
Private placements of 1,212,260 shares in March and April
1997 and 94,000 shares in June 1997 of Thermo Information
Solutions Inc. common stock at $9.00 and $10.00 per share,
respectively, for aggregate net proceeds of $11.0 million
resulted in a gain of $6.6 million.
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THERMO ELECTRON CORPORATION
2. Issuance of Stock by Subsidiaries (continued)
Initial public offering of 2,300,000 shares of Metrika
Systems Corporation common stock in June 1997 at $15.50 per
share for net proceeds of $32.5 million resulted in a gain of
$13.2 million that was recorded by the Company's Thermo
Instrument subsidiary.
Private placement of 1,133,000 shares of Trex Communications
Corporation common stock in September 1997 at $10.00 per
share for net proceeds of $10.6 million resulted in a gain of
$5.9 million that was recorded by the Company's ThermoTrex
Corporation subsidiary.
Private placement of 2,210,521 shares of ONIX Systems Inc.
common stock in September 1997 at $9.50 per share for net
proceeds of $19.6 million resulted in a gain of $6.6 million
that was recorded by the Company's Thermo Instrument
subsidiary.
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. 27, Sept. 28, Sept. 27, Sept. 28,
(In thousands) 1997 1996 1997 1996
------------------------------------------------------------------------
Interest income $ 20,332 $ 24,336 $ 63,451 $ 68,076
Interest expense (24,896) (21,820) (67,794) (75,056)
Equity in income (loss)
of unconsolidated
subsidiaries (475) 104 (722) (162)
Gain on sale of
investments 714 3,932 1,310 6,657
Other expense, net (438) (5,470) (1,734) (5,854)
-------- -------- -------- --------
$ (4,763) $ 1,082 $ (5,489) $ (6,339)
======== ======== ======== ========
4. Restructuring and Other Nonrecurring Costs
During the third quarter of 1997, the Company's ThermoTrex
subsidiary recorded $1.4 million of nonrecurring costs to write off
acquired technology in connection with an acquisition. This amount
represents the portion of the purchase price allocated to technology in
development at the acquired business, based upon estimated replacement
costs. In addition, the Company's Thermo Fibertek Inc. subsidiary
recorded $1.1 million of restructuring costs relating to the
consolidation of the operations of two subsidiaries into the operations
of its Thermo Black Clawson subsidiary, acquired in May 1997. The
restructuring costs related primarily to severance for employees
terminated during the third quarter and abandoned-facility payments.
9PAGE
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THERMO ELECTRON CORPORATION
4. Restructuring and Other Nonrecurring Costs (continued)
During the second quarter of 1997, the Company settled litigation
with third-party developers of an alternative-energy facility constructed
by the Company and its subcontractors in 1988 and 1989 and leased and
operated by a partnership including the Company's Thermo Ecotek
Corporation subsidiary. The third-party developers had sought $25 million
in damages for alleged misrepresentation, breach of contract, and other
causes of action. The settlement resulted in a payment by the Company of
$1.1 million and relinquishment to the Company by the third-party
developers of their partnership interest in the alternative-energy
facility. In connection with the settlement, the Company reversed $5.0
million of reserves previously established for this and related matters.
In addition, the Company's Peter Brotherhood Ltd. and ThermoSpectra
Corporation subsidiaries recorded nonrecurring costs of $1.3 million and
$0.8 million, respectively, during the second quarter of 1997, primarily
for severance for employees terminated during the second quarter.
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 severe downturn in
Thermo Remediation's soil-recycling business that resulted in the closure
of two sites. In addition, Thermo Remediation's analysis indicated that
the future cash flows from certain other soil-remediation sites that will
remain open will be insufficient to recover its 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 95% of Life Sciences
International PLC (Life Sciences), a London Stock Exchange-listed
company. Subsequently, Thermo Instrument acquired the remaining shares of
Life Sciences' capital stock. The aggregate purchase price for Life
Sciences was $448.3 million, net of $50.7 million of cash acquired. The
purchase price includes the repayment of $105.0 million of Life Sciences'
bank 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 nine months of 1997 for $188.6 million in cash, net of cash
acquired, and the issuance of subsidiary common stock and stock options
valued at $4.1 million, subject to post-closing adjustments.
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 $487.9 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
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THERMO ELECTRON CORPORATION
5. Acquisitions (continued)
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 constituting the Scientific
Instruments Division of Fisons plc, acquired in March 1996. During the
first nine months of 1997, Thermo Instrument expended $13.4 million for
restructuring costs, primarily for severance and abandoned-facility
payments. During the first quarter of 1997, in connection with finalizing
its restructuring plans for the businesses acquired from Fisons, Thermo
Instrument recorded an additional $8.1 million of acquisition reserves,
primarily for the abandonment of excess facilities, as well as for
severance pay. 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 $12.1 million at September 27, 1997,
which primarily represents ongoing severance and abandoned-facility
payments.
6. Redemption of Convertible Debentures
In September 1997, the Company called for redemption on October 15,
1997, all of the outstanding $175.0 million principal amount of its 5%
senior convertible debentures due 2001. The value of the securities into
which the debentures are convertible exceeded the redemption amount as of
the notice date of the redemption. As of September 27, 1997,
approximately $3.0 million principal amount had been converted, and as of
October 15, 1997, substantially all of the outstanding principal amount
was converted into common stock of the Company.
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.
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THERMO ELECTRON CORPORATION
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Sales in the third quarter of 1997 were $909.9 million, an increase
of $169.9 million, or 23%, over the third quarter of 1996. Segment
income, excluding restructuring and other nonrecurring costs of $2.5
million in 1997 and $6.3 million in 1996, described below, increased 48%
to $127.3 million from $85.9 million in 1996. (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, increased 63%
to $116.7 million in 1997.
Instruments
Sales from the Instruments segment were $403.9 million in 1997, an
increase of $88.6 million, or 28%, over 1996. Sales increased due to
acquisitions made by Thermo Instrument Systems Inc., which added $94.5
million of sales in 1997. In addition, revenues from existing businesses
at Thermo Optek Corporation and, to a lesser extent, ThermoSpectra
Corporation, increased primarily due to greater product demand. 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 $13.7 million in 1997.
Segment income margin (segment income margin is segment income as a
percentage of sales), improved to 15.0% in 1997 from 12.3% in 1996,
primarily due to operating margin improvement at certain of the
businesses acquired from Fisons in 1996. This improvement was offset in
part by lower operating margins at ThermoSpectra resulting primarily from
a one-time inventory write-off and a change in sales mix.
Alternative-energy Systems
Sales from the Alternative-energy Systems segment were $97.7 million
in 1997, compared with $91.9 million in 1996. Within this segment,
revenues from Thermo Ecotek Corporation were $59.5 million in 1997,
compared with $47.0 million in 1996. Revenues in 1997 include $8.2
million for a contractual settlement with a utility, pursuant to which
Thermo Ecotek surrendered its rights to a power sales agreement relating
to a cogeneration facility it had planned to develop and construct on
Staten Island, New York. The settlement, reached in 1993, called for
Thermo Ecotek to refund $8.2 million to the utility should Thermo Ecotek
construct and commence operations at a plant on Staten Island prior to
2000. Thermo Ecotek had deferred recognition of the refundable portion of
the settlement pending a decision concerning development of the plant.
During the third quarter of 1997, Thermo Ecotek determined that, due to
economic conditions in the domestic energy market, it would not proceed
with development of a facility on Staten Island. In addition, revenues
from Thermo Ecotek's Thermo Trilogy biopesticides subsidiary increased
$4.4 million, primarily due to the inclusion of revenues from an acquired
12PAGE
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THERMO ELECTRON CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
business. Sales at Peter Brotherhood Ltd. declined to $8.7 million in
1997 from $13.9 million in 1996 as a result of decreased demand for its
steam turbines. Sales from Thermo Power Corporation decreased to $29.6
million in 1997 from $31.1 million in 1996, primarily due to lower demand
for industrial refrigeration packages and continuing declines in sales of
gas-fueled cooling systems and sponsored research and development
contracts. The decrease in revenues at Thermo Power was offset in part by
increased sales of gas-fueled engines due to a large shipment of engines
to one customer and, to a lesser extent, increased lift-truck engine
sales.
Segment income from the Alternative-energy Systems segment,
excluding restructuring and other nonrecurring costs of $4.4 million in
1996, was $27.6 million in 1997, compared with $16.0 million in 1996.
Thermo Ecotek's segment income was $25.5 million in 1997, compared with
$16.8 million in 1996. The contractual settlement with a utility
concerning the cancellation of a power sales agreement for a proposed
cogeneration facility on Staten Island resulted in $8.2 million of
segment income. Excluding the effect of the settlement, segment income at
Thermo Ecotek increased by $0.5 million, as a result of segment income in
1997 at Thermo Trilogy compared with a segment loss in the 1996 period.
Segment income at Thermo Power improved to $1.8 million from $0.4 million
in 1996, primarily due to a cost decrease in a major component of Thermo
Power's refrigeration packages and the effect of higher revenues and
lower warranty costs at Thermo Power's engines business. Peter
Brotherhood was marginally profitable in 1997, compared with a segment
loss, excluding restructuring and other nonrecurring costs, in the 1996
period. Peter Brotherhood recorded restructuring and other nonrecurring
costs of $4.4 million in the 1996 period, primarily for the write-off of
a non-trade receivable and severance costs.
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
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
Thermo Ecotek'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.
13PAGE
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THERMO ELECTRON CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
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 construction problems, including issues relating to the flow of
materials within the facility, and design and operation of certain
pressure-release equipment, which has further delayed commercial
operations. Thermo Ecotek expects to complete repairs and resolve these
construction problems in time to begin commercial operation of the
facility by the end of 1997. However, because the technology being
developed at the facility is new and untested, no assurance can be given
that other difficulties will not arise or that Thermo Ecotek will be able
to correct these construction problems and commence commercial operations
prior to the end of 1997, or at all.
In a lawsuit relating to the Company's waste-recycling facility in
Southern California, which was sold in July 1996, the party from which
the Company acquired certain development rights alleges it is owed $7.9
million in fees plus interest from 1992, legal costs, approximately $50
million in other damages, plus punitive damages. The trial is expected to
commence in November 1997.
Process Equipment
Sales in the Process Equipment segment were $81.4 million in 1997,
compared with $56.2 million in 1996. Sales from Thermo Fibertek Inc.
increased 47% to $67.6 million. Thermo Fibertek's revenues increased
$20.2 million due to the acquisition of Black Clawson's recycled paper
equipment business in May 1997, and $2.2 million due to higher demand at
its water-management business. These increases were offset in part by a
decrease in revenues at Thermo Fibertek's recycling business, which has
been affected by a severe drop in de-inked pulp prices. In addition, the
unfavorable effects of currency translation reduced Thermo Fibertek's
revenues by $2.0 million. Sales of Thermo TerraTech Inc.'s
thermal-processing equipment increased $3.8 million to $9.9 million due
to increased demand. This business was no longer part of Thermo
TerraTech's core businesses and was sold in October 1997. A nominal gain
on the sale is expected to be realized in the fourth quarter of 1997.
Segment income, excluding restructuring and other nonrecurring costs
of $1.1 million in 1997, was $7.7 million in 1997, compared with $8.5
million in 1996. This decrease was primarily due to a reserve established
for disputed contractual items arising from the construction of an office
wastepaper de-inking facility completed in 1996, offset in part by
segment income from Thermo Fibertek's Black Clawson acquisition. The $1.1
million of restructuring and other nonrecurring costs in 1997 was
recorded by Thermo Fibertek for severance for employees terminated during
the third quarter and abandoned-facility payments relating to the
consolidation of the operations of two of its subsidiaries into the
operations of its Thermo Black Clawson subsidiary.
14PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
Biomedical Products
Sales from the Biomedical Products segment were $142.9 million in
1997, an increase of $25.7 million, or 22%, over 1996. Sales increased
due to the inclusion of $9.9 million in sales from acquired businesses,
increased demand at Bird Medical Technologies, Inc., Trex Medical
Corporation, and SensorMedics Corporation, as well as higher revenues at
ThermoLase Corporation's hair-removal business due to the opening of new
spas and increased licensing revenues.
Segment income, excluding restructuring and other nonrecurring costs
of $1.9 million in 1996, increased to $13.9 million in 1997 from $13.2
million in 1996. This increase resulted primarily from higher income at
Bird Medical, Trex Medical, and SensorMedics, offset in part by an
increased segment loss at ThermoLase to $5.2 million in 1997 from $2.4
million in 1996, and a $1.9 million decrease in segment income at Thermo
Cardiosystems Inc. ThermoLase was affected 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 the
hair-removal process and its operating procedures, and by pre-opening
costs incurred in connection with new spa openings. ThermoLase believes
that improvements in the efficacy and duration of its hair-removal
process (SoftLight(SM)), including the implementation of a modified
procedure (SoftLight 2.0), are critical elements in its ability to
improve the profitability of its spas. Thermo Cardiosystems'
profitability declined due to the effect on segment income of an 8%
decrease in revenues, which Thermo Cardiosystems believes resulted from
delayed customer orders for its current air-driven left ventricular-
assist systems (LVAS) as customers await approval from the U.S. Food and
Drug Administration of Thermo Cardiosystems' advanced electric LVAS, and
higher marketing expenses as a result of an increase in its sales force.
Restructuring and other nonrecurring costs of $1.9 million in 1996
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 Inc. to close
and relocate a foreign business to the U.S.
Environmental Services
Sales in the Environmental Services segment were $79.8 million in
1997, an increase of $11.4 million over 1996. Revenues from Thermo
TerraTech's remediation and recycling services increased to $37.0 million
in 1997 from $30.8 million in 1996, due to the inclusion of $7.2 million
in sales from acquired businesses, offset in part by a 31% decline in
revenues from Thermo Remediation Inc.'s soil-remediation services to $4.0
million, due to lower volumes of soil processed as a result of
overcapacity in the industry. Revenues from consulting and design
services increased $2.7 million to $21.4 million as a result of the
inclusion of $4.5 million of revenues from acquired businesses, offset in
part by a decrease in revenues due to the completion of two large
contracts. Sales of metallurgical services increased to $13.2 million in
1997 from $11.4 million in 1996, due to the inclusion of $1.1 million of
sales from an acquired business and increased demand for existing
services.
15PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
Segment income margin was 8.1% in 1997, compared with 4.5% in 1996.
Segment income margin improved primarily due to lower margins in the 1996
period as a result of costs incurred by Thermo TerraTech to reduce
redundancies at regional laboratories.
Advanced Technologies
Sales from the Advanced Technologies segment were $106.5 million in
1997, compared with $92.7 million in 1996. Sales at Coleman Research
Corporation increased 19% to $41.5 million in 1997. This increase
resulted primarily from its Thermo Information Solutions Inc.
subsidiary's contract to supply kiosk units and, to a lesser extent,
sales of $1.0 million from an acquired business. These increases were
offset in part by a decrease in revenues from government contracts. Sales
at Thermo Sentron Inc. increased to $19.5 million in 1997 from $17.5
million in 1996, primarily due to higher demand and, to a lesser extent,
$1.2 million of sales from acquired businesses, offset in part by the
unfavorable effects of currency translation. Sales at Thermedics
Detection Inc. increased 14% to $12.6 million in 1997, primarily due to
sales from the continued fulfillment of a mandated product-line upgrade
from The Coca-Cola Company to its existing installed base, which is
expected to continue through the fourth quarter of 1997 and, to a lesser
extent, increased shipments of fill-height detectors. In addition, higher
domestic revenues from Thermedics Detection's explosives-detection
systems as a result of $1.5 million of sales to the U.S. Federal Aviation
Administration (FAA) under a $5.8 million order were offset in part by a
decrease in international demand. Sales at Thermo Voltek Corp. were $11.1
million in 1997, compared with $12.8 million in 1996, reflecting lower
demand for electromagnetic compatibility (EMC) testing instruments,
offset in part by $0.7 million of sales from acquired businesses. Sales
from Trex Communications Corporation, a subsidiary of ThermoTrex
Corporation, increased primarily as a result of $2.8 million of revenues
from an acquired business.
Segment income margin, excluding restructuring and other
nonrecurring costs of $1.4 million in 1997, increased to 10.2% in 1997
from 6.9% in 1996. This improvement resulted primarily from a loss in the
1996 period at ThermoTrex's advanced technology research center due to
cost overruns and higher expenses for new lines of business. Segment
income margin improvements at several businesses were offset in part by
lower profitability at Thermo Voltek. Restructuring and other
nonrecurring costs of $1.4 million in 1997 were recorded by ThermoTrex
for the write-off of acquired technology in connection with an
acquisition (Note 4).
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 programs, as well as capital to support the subsidiary's growth.
16PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
As a result of the sale of stock by subsidiaries and issuance of stock by
a subsidiary upon conversion of convertible debentures, the Company
recorded gains of $18.6 million in 1997 and $38.5 million in 1996
(Note 2). Minority interest expense decreased to $20.8 million in 1997
from $28.2 million in 1996. Minority interest expense includes $5.1
million in 1997 and $15.1 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 convertible
debentures, by their subsidiaries.
First Nine Months 1997 Compared With First Nine Months 1996
Sales in the first nine months of 1997 were $2,548.4 million, an
increase of $410.2 million, or 19%, over the first nine months of 1996.
Segment income, excluding restructuring and other nonrecurring costs of
$7.5 million in 1997 and $32.3 million in 1996, described below,
increased 41% to $310.6 million from $220.0 million in 1996. Operating
income, which includes restructuring and other nonrecurring costs,
increased 70% to $279.1 million in 1997.
Instruments
Sales from the Instruments segment were $1,138.3 million in 1997, an
increase of $275.8 million, or 32%, over 1996. Sales increased due to
acquisitions made by Thermo Instrument, which added $293.0 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 $29.2
million in 1997. An increase in revenues from ThermoQuest Corporation's
existing mass spectrometry business, partly as a result of the continued
success of a new product introduced in the first quarter of 1996, was
offset in part by a decrease in revenues at certain of Thermo
Instrument's other existing businesses, principally at Thermo Optek.
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, offset in part by greater demand at two of its
business units.
Segment income margin, excluding restructuring and other
nonrecurring costs of $0.8 million in 1997 and $3.5 million in 1996,
improved to 14.6% in 1997 from 11.1% in 1996. The improvement was
primarily due to operating margin improvement at certain of the
businesses acquired from Fisons in 1996 and increased sales of
higher-margin mass spectrometry products. This increase was offset in
part by lower gross profit margins at certain acquired businesses,
including Life Sciences, which recorded an adjustment to expense of $3.2
million relating to the revaluation of the finished goods inventories
acquired by Thermo Instrument and, to a lesser extent, a decrease in
segment income margin at ThermoSpectra as discussed in the results of
operations for the third quarter. The 1996 period included a charge for
the revaluation of inventory of $2.0 million relating to the acquisition
17PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
of a substantial portion of the businesses constituting the Scientific
Instruments Division of Fisons. Restructuring and other nonrecurring
costs of $0.8 million in 1997 represents severance costs for employees
terminated during the second quarter at one of ThermoSpectra's business
units, and $3.5 million in 1996 represents the write-off of acquired
technology relating to the acquisition of the Fisons businesses.
Alternative-energy Systems
Sales from the Alternative-energy Systems segment were $265.5
million in 1997, compared with $258.9 million in 1996. Within this
segment, revenues from Thermo Ecotek were $141.7 million in 1997,
compared with $115.8 million in 1996. Revenues from Thermo Ecotek's
Thermo Trilogy biopesticides subsidiary increased $13.3 million
primarily due to the inclusion of revenues from two acquired businesses.
Revenues in 1997 included $8.2 million as a result of a contractual
settlement concerning the cancellation of a power sales agreement,
discussed in the results of operations for the third quarter. In
addition, higher contractual energy rates at all of Thermo Ecotek's
facilities, except the Hemphill plant in New Hampshire, contributed to
higher revenues in 1997. 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. Sales in the first nine months
of 1996 at the Company's wholly owned waste-recycling facility in
Southern California, which was sold in July 1996, were $9.2 million.
Sales at Peter Brotherhood declined to $31.6 million in 1997 from $40.8
million in 1996 as a result of decreased demand for steam turbines. Sales
from Thermo Power decreased to $92.3 million in 1997 from $93.3 million
in 1996, primarily due to lower demand for industrial refrigeration
packages and continuing declines in sales of gas-fueled cooling systems,
as well as lower revenues from sponsored research and development
contracts. The decrease in revenues at Thermo Power was offset in part by
higher sales of gas-fueled engines due to a large shipment to one
customer.
Segment income from the Alternative-energy Systems segment,
excluding nonrecurring income of $3.7 million in 1997 and restructuring
and nonrecurring costs of $4.4 million in 1996, was $44.9 million in
1997, compared with $32.6 million in 1996. Thermo Ecotek's segment income
was $39.1 million in 1997, compared with $29.5 million in 1996. The
increase primarily resulted from $8.2 million of segment income from the
contractual settlement with a utility concerning the cancellation of a
power sales agreement and, to a lesser extent, higher contractual energy
rates. Segment income in 1996 from the Company's waste-recycling
facility, which was sold in July 1996, was $4.6 million. Results from
this facility, net of related interest expense (not included in segment
income), were approximately breakeven in 1996. During the second quarter
of 1997, the Company settled litigation relating to construction of an
alternative-energy facility in 1988 and 1989 (Note 4). As a result of the
settlement, the Company reversed $5.0 million of previously established
reserves during the second quarter, which is included as a reduction in
restructuring and other nonrecurring costs in the accompanying 1997
statement of income. Segment income at Thermo Power improved to
18PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
$3.8 million from $1.0 million in 1996, primarily due to improved margins
at its industrial refrigeration and engines businesses, due to lower
warranty costs, as well as increased engines revenues and lower overhead
as a result of consolidating two engine manufacturing facilities.
Excluding restructuring and other nonrecurring costs of $1.3 million in
1997 and $4.4 million in 1996, Peter Brotherhood was profitable in 1997,
compared with a segment loss in the 1996 period. The 1997 costs related
primarily to severance for employees terminated during the second quarter
of 1997. The 1996 costs are discussed in the results of operations for
the third quarter.
Process Equipment
Sales in the Process Equipment segment were $202.7 million in 1997,
compared with $226.9 million in 1996. A wholly owned subsidiary of the
Company recorded $57.1 million of revenues from an office wastepaper
de-inking contract in the first nine months of 1996. This contract was
substantially completed in the second quarter of 1996. Sales from Thermo
Fibertek increased to $166.8 million from $143.7 million in 1996,
primarily due to $30.0 million of revenues from acquired businesses.
Increases in revenues from Thermo Fibertek's accessories and
water-management businesses were more than offset by a $9.7 million
decrease in revenues at its recycling business due to lower demand
resulting from a severe drop in de-inked pulp prices. In addition, the
unfavorable effects of currency translation reduced Thermo Fibertek's
revenues by $4.1 million. Sales of Thermo TerraTech's thermal-processing
equipment increased $7.1 million to $25.3 million due to increased
demand, and sales of automated electroplating equipment by the Company's
Napco Inc. subsidiary increased $2.8 million to $10.6 million. Thermo
TerraTech sold its thermal-processing equipment business in October 1997.
A nominal gain on the sale is expected to be realized in the fourth
quarter of 1997.
Segment income, excluding restructuring costs of $1.1 million in
1997, was $21.7 million in 1997, compared with $26.9 million in 1996.
This decline primarily resulted from lower sales at Thermo Fibertek's
recycling business. In addition, the Company recorded a segment loss in
1997 compared with segment income in 1996, on construction of the office
wastepaper de-inking facility due to a reserve established in 1997 for
disputed contractual items relating to this facility. Thermo Fibertek
recorded restructuring and other nonrecurring costs of $1.1 million in
1997 as discussed in the results of operations for the third quarter.
Biomedical Products
Sales from the Biomedical Products segment were $424.4 million in
1997, an increase of $101.2 million, or 31%, over 1996. Sales increased
due to the inclusion of $57.0 million in sales from acquired businesses,
increased demand at Trex Medical and Bird Medical, and growth at
ThermoLase's hair-removal business due to the opening of new spas and
higher revenues from physician and international licensing arrangements.
Segment income, excluding restructuring and other nonrecurring costs
of $24.4 million in 1996, declined to $34.0 million in 1997 from
19PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
$34.8 million in 1996. This decline resulted primarily from an increased
segment loss at ThermoLase to $15.9 million in 1997 from $4.4 million in
1996 and, to a lesser extent, a decrease in segment income of $5.7
million at Thermo Cardiosystems. The reasons for these changes are
discussed in the results of operations for the third quarter. These
decreases in segment income were substantially offset by improvements
from existing businesses and the inclusion of segment income from
acquired businesses. In addition to the $1.9 million of restructuring and
other nonrecurring costs in 1996, 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 $12.7 million recorded
by Thermedics' Corpak Inc. subsidiary for the write-off of cost in excess
of net assets of acquired companies, and $9.8 million incurred by
SensorMedics in connection with its merger with the Company.
Environmental Services
Sales in the Environmental Services segment were $221.5 million in
1997, an increase of $24.8 million, or 13%, over 1996. Revenues from
Thermo TerraTech's remediation and recycling services increased to $98.2
million in 1997 from $83.5 million in 1996, primarily due to the
inclusion of $20.4 million of sales from acquired businesses, offset in
part by a 27% decline in revenues from Thermo Remediation's soil-
remediation services to $13.0 million, resulting from lower volumes of
soil processed due to overcapacity in the industry and competitive
pricing pressures. Sales of metallurgical services increased to $39.2
million in 1997 from $32.7 million in 1996, due to increased demand for
existing services and the inclusion of $2.9 million of sales from an
acquired business.
Segment income margin, excluding restructuring and other
nonrecurring costs of $7.8 million in 1997, was 7.5% in 1997, compared
with 6.4% in 1996. Segment income margin improved due to lower margins in
the 1996 period as a result of costs incurred by Thermo TerraTech to
reduce redundancies at regional laboratories, offset in part by a decline
in margins from soil-remediation services due to lower sales as discussed
above. Restructuring and other nonrecurring costs of $7.8 million in 1997
were recorded in the first quarter to write down certain capital
equipment and intangible assets, including cost in excess of net assets
of acquired companies, in response to a severe downturn in Thermo
Remediation's soil-recycling business that resulted in the closure of two
soil-remediation sites. In addition, the Company's analysis indicated
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 $302.9 million in
1997, compared with $275.7 million in 1996. Sales at Coleman Research
were $119.2 million in 1997, compared with $109.6 million in 1996. This
increase resulted primarily from its Thermo Information Solutions
subsidiary's contract to supply kiosk units and, to a lesser extent,
sales of $2.1 million from an acquired business. Sales at Thermedics
20PAGE
<PAGE>
THERMO ELECTRON CORPORATION
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
Detection increased 23% to $37.5 million in 1997, primarily due to sales
from the continued fulfillment of a mandated product-line upgrade from
The Coca-Cola Company to its existing installed base, and $1.5 million of
sales to the FAA under a $5.8 million order. Sales at Thermo Sentron
increased to $56.0 million in 1997 from $51.5 million in 1996, primarily
due to higher demand and, to a lesser extent, $2.6 million of sales at
acquired businesses, offset in part by the unfavorable effects of
currency translation. Sales at Thermo Voltek declined to $32.7 million in
1997 from $35.3 million in 1996, primarily due to lower demand for EMC
test products, offset in part by the inclusion of $4.8 million in sales
from acquired businesses. The decrease in demand for EMC test products
reflects a decline in the component-reliability market for electrostatic
discharge test equipment caused by a slowdown in capital spending by the
semiconductor industry.
Segment income margin, excluding nonrecurring costs of $1.4 million
in 1997, was 8.8% in 1997, compared with 6.3% in 1996. This improvement
resulted from increased sales and the impact in the 1996 period of
charges for inventory obsolescence and other adjustments at Thermedics
Detection, as well as a loss in the 1996 period at ThermoTrex's advanced
technology research center due to cost overruns and higher expenses for
new lines of business. The improvement was offset in part by a decrease
in profitability at Thermo Voltek. Nonrecurring costs of $1.4 million in
1997 were discussed in the results of operations for the third quarter.
Gain on Issuance of Stock by Subsidiaries
As a result of the sale of stock by subsidiaries and issuance of
stock by a subsidiary upon conversion of convertible debentures, the
Company recorded gains of $67.5 million in 1997 and $110.9 million in
1996 (Note 2). Minority interest expense decreased to $52.7 million in
1997 from $57.4 million in 1996. Minority interest expense includes $17.0
million in 1997 and $33.9 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 convertible
debentures, by their subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $2,061.4 million at September 27,
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 $1,530.2 million at September 27, 1997,
compared with $1,846.3 million at December 28, 1996. In addition, at
September 27, 1997, the Company had $75.6 million of long-term
available-for-sale 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 $1,605.8
million of cash, cash equivalents, and short- and long-term available-
for-sale investments at September 27, 1997, $1,138.5 million was held by
the Company's majority-owned subsidiaries and the balance was held by the
Company and its wholly owned subsidiaries.
21PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Liquidity and Capital Resources (continued)
Cash provided by operating activities was $142.5 million during the
first nine months of 1997. Cash of $76.2 million and $20.5 million was
used to fund increases in accounts receivable and inventories,
respectively. The increase in accounts receivable resulted from an
increase in large shipments near the end of the quarter and a competitive
trend of longer payment terms at several subsidiaries, as well as a delay
in billing and pursuit of collections at two subsidiaries due to an
office relocation and employee turnover. The increase in inventories
resulted from higher levels of inventory at several subsidiaries to
support expanding operations, as well as the fulfillment of contractual
obligations.
During the first nine months of 1997, the Company's primary
investing activities, excluding available-for-sale investments activity,
included acquisitions, capital expenditures, and the sale of property,
plant, and equipment. During the first nine months of 1997, the Company
expended $636.9 million, net of cash acquired, for acquisitions and $78.3
million for purchases of property, plant, and equipment. The Company
received proceeds of $11.3 million from the sale of property, plant, and
equipment.
The Company's financing activities provided $212.6 million of cash
in the first nine months of 1997. Net proceeds from the issuance of
Company and subsidiary common stock totaled $134.6 million and net
proceeds from the issuance of long-term obligations totaled $378.3
million. In addition, the Company repaid long-term obligations of $45.9
million.
During the first nine months of 1997, an aggregate principal amount
of $65.2 million of Company and subsidiary convertible obligations were
converted into shares of Company and subsidiary common stock.
During the first nine months of 1997, the Company and its
majority-owned subsidiaries used $246.2 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 September 27,
1997, $37.1 million and $25.9 million remained under the Company's and
its majority-owned subsidiaries' authorizations, respectively.
Additionally, the Board of Directors of ThermoLase authorized the
repurchase, through September 1998, of up to 1,000,000 shares of its
common stock, of which 644,016 shares were remaining as of September 27,
1997.
The Company has no material commitments for purchases of property,
plant, and equipment and expects that, for the fourth quarter of 1997,
such expenditures will approximate the current level of expenditures.
Since September 27, 1997, the Company and a majority-owned subsidiary
have expended $44.7 million on acquisitions and as of November 5, 1997,
the Company's majority-owned subsidiaries had agreements or nonbinding
letters of intent to acquire new businesses totaling approximately $178
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.
22PAGE
<PAGE>
THERMO ELECTRON CORPORATION
PART II - OTHER INFORMATION
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 5th day of November
1997.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
-----------------------------
Paul F. Kelleher
Senior 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
------------------------------------------------------------------------
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
-----------------------------
Sept. 27, Sept. 28,
1997 1996
--------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 61,859,000 $ 51,242,000
Add: Convertible debenture interest,
net of tax 4,946,000 5,688,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $ 66,805,000 $ 56,930,000
------------ ------------
Shares:
Weighted average shares outstanding 150,344,554 142,791,369
Add: Shares issuable from assumed
conversion of convertible
debentures 23,735,864 30,555,401
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,175,000 2,468,459
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 176,255,418 175,815,229
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ .38 $ .32
============ ============
PAGE
<PAGE>
Exhibit 11
THERMO ELECTRON CORPORATION
Computation of Earnings per Share
Nine Months Ended
-----------------------------
Sept. 27, Sept. 28,
1997 1996
------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $170,075,000 $137,184,000
Add: Convertible debenture interest,
net of tax 14,865,000 18,522,000
------------ ------------
Income applicable to common stock
assuming full dilution (a) $184,940,000 $155,706,000
------------ ------------
Shares:
Weighted average shares outstanding 150,195,892 138,853,385
Add: Shares issuable from assumed
conversion of convertible
debentures 23,791,791 34,286,379
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 2,175,000 2,520,701
------------ ------------
Weighted average shares outstanding,
as adjusted (b) 176,162,683 175,660,465
------------ ------------
Fully Diluted Earnings per Share (a) / (b) $ 1.05 $ .89
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 27, 1997 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> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 493,287
<SECURITIES> 1,036,917
<RECEIVABLES> 790,075
<ALLOWANCES> 43,235
<INVENTORY> 521,605
<CURRENT-ASSETS> 3,070,179
<PP&E> 1,119,306
<DEPRECIATION> 359,902
<TOTAL-ASSETS> 5,588,131
<CURRENT-LIABILITIES> 1,008,822
<BONDS> 1,819,445
0
0
<COMMON> 151,359
<OTHER-SE> 1,637,377
<TOTAL-LIABILITY-AND-EQUITY> 5,588,131
<SALES> 2,426,797
<TOTAL-REVENUES> 2,426,797
<CGS> 1,413,400
<TOTAL-COSTS> 1,519,427<F1>
<OTHER-EXPENSES> 145,559<F2>
<LOSS-PROVISION> 6,974
<INTEREST-EXPENSE> 67,794
<INCOME-PRETAX> 341,105
<INCOME-TAX> 118,373
<INCOME-CONTINUING> 170,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,075
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.05
<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>
