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 April 4, 1998.
[ ] 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: (781) 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 May 1, 1998
----------------------------- --------------------------
Common Stock, $1.00 par value 159,328,044
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 595,664 $ 593,580
Short-term available-for-sale investments
at quoted market value (amortized cost
of $1,175,416 and $925,855) 1,194,587 929,118
Accounts receivable, less allowances of
$53,477 and $55,698 777,636 797,399
Unbilled contract costs and fees 70,072 69,375
Inventories:
Raw materials and supplies 270,348 260,458
Work in process 115,054 108,327
Finished goods 176,237 174,804
Prepaid income taxes 118,384 118,182
Prepaid expenses 47,499 42,955
---------- ----------
3,365,481 3,094,198
---------- ----------
Property, Plant, and Equipment, at Cost 1,189,485 1,159,913
Less: Accumulated depreciation and
amortization 392,802 370,867
---------- ----------
796,683 789,046
---------- ----------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $69,201 and $49,581) 82,343 63,306
---------- ----------
Other Assets 158,557 157,108
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies 1,707,840 1,692,211
---------- ----------
$6,110,904 $5,795,869
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
----------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 136,346 $ 176,912
Accounts payable 249,103 251,677
Accrued payroll and employee benefits 124,434 140,698
Accrued income taxes 85,733 57,923
Accrued installation and warranty costs 71,330 72,710
Deferred revenue 64,983 54,999
Other accrued expenses (Note 6) 322,257 337,316
---------- ----------
1,054,186 1,092,235
---------- ----------
Deferred Income Taxes and Other Deferred Items 150,303 149,884
---------- ----------
Long-term Obligations:
Senior convertible obligations 187,297 187,824
Subordinated convertible obligations 1,706,941 1,473,015
Nonrecourse tax-exempt obligations 37,600 37,600
Other 48,309 44,468
---------- ----------
1,980,147 1,742,907
---------- ----------
Minority Interest 802,187 719,622
---------- ----------
Common Stock of Subsidiaries Subject to
Redemption ($95,262 redemption value) 93,559 93,312
---------- ----------
Shareholders' Investment (Note 7):
Preferred stock, $100 par value, 50,000
shares authorized; none issued
Common stock, $1 par value, 350,000,000
shares authorized; 159,362,236 and
159,206,337 shares issued 159,362 159,206
Capital in excess of par value 817,963 843,709
Retained earnings 1,100,133 1,034,640
Treasury stock at cost, 168,977 and 95,684
shares (6,753) (3,839)
Accumulated other comprehensive items
(Note 5) (40,183) (35,807)
---------- ----------
2,030,522 1,997,909
---------- ----------
$6,110,904 $5,795,869
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
-----------------------------------------------------------------------
Revenues:
Product and service revenues $900,997 $722,625
Research and development contract revenues 43,266 40,880
-------- --------
944,263 763,505
-------- --------
Costs and Operating Expenses:
Cost of product and service revenues 533,694 430,802
Expenses for research and development and
new lines of business (a) 92,148 78,541
Selling, general, and administrative
expenses 226,024 185,330
Restructuring and other nonrecurring
costs - 7,800
-------- --------
851,866 702,473
-------- --------
Operating Income 92,397 61,032
Gain on Issuance of Stock by Subsidiaries
(Note 2) 39,605 33,666
Other Income (Expense), Net (Note 3) (384) 2,897
-------- --------
Income Before Income Taxes and Minority
Interest 131,618 97,595
Provision for Income Taxes 41,574 28,397
Minority Interest Expense 24,551 17,140
-------- --------
Net Income $ 65,493 $ 52,058
======== ========
Earnings per Share (Note 4):
Basic $ .41 $ .35
======== ========
Diluted $ .37 $ .31
======== ========
Weighted Average Shares (Note 4):
Basic 159,131 150,070
======== ========
Diluted 176,580 175,925
======== ========
(a) Includes costs of:
Research and development contracts $ 38,727 $ 36,338
Internally funded research and
development 52,591 41,604
Other expenses for new lines of business 830 599
-------- --------
$ 92,148 $ 78,541
======== ========
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
----------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Operating Activities:
Net income $ 65,493 $ 52,058
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,059 29,917
Restructuring and other nonrecurring
costs - 7,800
Provision for losses on accounts
receivable 1,856 2,558
Change in deferred income taxes (699) 957
Minority interest expense 24,551 17,140
Gain on issuance of stock by
subsidiaries (Note 2) (39,605) (33,666)
(Gain) loss on sale of investments, net 160 (550)
Other noncash items, net 2,624 4,647
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 15,998 (3,476)
Inventories (19,696) (20,785)
Other current assets (4,822) (16,878)
Accounts payable (2,561) (11,107)
Other current liabilities (11,636) 3,516
--------- ---------
Net cash provided by operating activities 69,722 32,131
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (5,625) (349,038)
Purchases of available-for-sale
investments (610,285) (207,237)
Proceeds from sale and maturities of
available-for-sale investments 327,205 485,800
Purchases of property, plant, and
equipment (37,766) (23,103)
Proceeds from sale of property, plant,
and equipment 5,702 2,673
Increase in other assets (509) (4,765)
Other 3,652 1,942
--------- ---------
Net cash used in investing activities $(317,626) $ (93,728)
--------- ---------
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
----------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of long-term
obligations $ 249,963 $ -
Repayment of long-term obligations (1,902) (28,068)
Net proceeds from issuance of Company
and subsidiary common stock 124,791 62,816
Purchases of subsidiary common stock and
debentures (79,697) (51,870)
Increase (decrease) in short-term notes
payable (42,217) 11,858
Other (1,632) (1,894)
--------- ---------
Net cash provided by (used in) financing
activities 249,306 (7,158)
--------- ---------
Exchange Rate Effect on Cash 682 (3,896)
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents 2,084 (72,651)
Cash and Cash Equivalents at Beginning of
Period 593,580 414,404
--------- ---------
Cash and Cash Equivalents at End of Period $ 595,664 $ 341,753
========= =========
Noncash activities:
Conversions of subsidiary convertible
obligations $ 5,090 $ 9,612
========= =========
Fair value of assets of acquired companies $ 9,191 $ 619,372
Cash paid for acquired companies (5,700) (395,709)
Issuance of subsidiary common stock and
stock options for acquired companies (275) (2,080)
--------- ---------
Liabilities assumed of acquired companies $ 3,216 $ 221,583
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 April 4, 1998, and the results of operations and cash flows for the
three-month periods ended April 4, 1998, and March 29, 1997. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, 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, as amended, for the fiscal year ended January 3,
1998, 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 April 4, 1998,
resulted primarily from the following:
Sale of 5,175,000 shares of Trex Medical Corporation common
stock at $13.75 per share for net proceeds of $66.9 million
resulted in a gain of $23.8 million that was recorded by
ThermoTrex Corporation.
Private placement of 781,921 shares of Thermo Trilogy
Corporation common stock at $8.25 per share for net proceeds
of $6.0 million resulted in a gain of $2.2 million that was
recorded by Thermo Ecotek Corporation.
Initial public offering of 3,300,000 shares of ONIX Systems
Inc. common stock at $14.50 per share for net proceeds of
$43.2 million resulted in a gain of $10.0 million that was
recorded by Thermo Instrument Systems Inc.
Private placement of 746,250 shares of Thermo Coleman
Corporation common stock at $10.00 per share for net proceeds
of $6.8 million resulted in a gain of $3.6 million.
7PAGE
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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
--------------------
April 4, March 29,
(In thousands) 1998 1997
------------------------------------------------------------------------
Interest income $ 23,765 $ 24,952
Interest expense (25,607) (21,412)
Equity in income (loss) of unconsolidated
subsidiaries (288) 290
Gain (loss) on sale of investments, net (160) 550
Other 1,906 (1,483)
-------- --------
$ (384) $ 2,897
======== ========
4. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Basic
Net income $ 65,493 $ 52,058
-------- --------
Weighted average shares 159,131 150,070
-------- --------
Basic earnings per share $ .41 $ .35
======== ========
Diluted
Net income $ 65,493 $ 52,058
Effect of:
Convertible debentures 3,667 4,959
Majority-owned subsidiaries'
dilutive securities (4,192) (1,864)
-------- --------
Income available to common
shareholders, as adjusted $ 64,968 $ 55,153
-------- --------
Weighted average shares 159,131 150,070
Effect of:
Convertible debentures 15,476 23,820
Stock options 1,973 2,035
-------- --------
Weighted average shares, as adjusted 176,580 175,925
-------- --------
Diluted earnings per share $ .37 $ .31
======== ========
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THERMO ELECTRON CORPORATION
4. Earnings per Share (continued)
The computation of diluted earnings per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of April 4, 1998,
there were 715,000 of such options outstanding, with exercise prices
ranging from $39.84 to $43.46 per share.
5. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items.
In general, comprehensive income combines net income and "other
comprehensive items," which represent certain amounts that are reported
as components of shareholders' investment in the accompanying balance
sheet, including foreign currency translation adjustments and unrealized
net of tax gains and losses on available-for-sale investments. During the
first quarter of 1998 and 1997, the Company's comprehensive income
totaled $62.2 million and $34.7 million, respectively.
6. Accrued Acquisition Expenses
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. In March
1997, Thermo Instrument finalized its plan for restructuring the acquired
businesses. At January 3, 1998, the remaining reserve for these
restructuring activities totaled $11.1 million. During the first quarter
of 1998, Thermo Instrument expended $0.6 million for restructuring costs,
primarily for ongoing severance and abandoned-facility payments. At April
4, 1998, the remaining reserve for restructuring these businesses was
$10.5 million, which primarily represents ongoing severance and
abandoned-facility payments.
7. Subsequent Event
In April 1998, the Company sold 7,475,000 shares of its common stock
at $40.625 per share for net proceeds of approximately $290 million.
9PAGE
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THERMO ELECTRON CORPORATION
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 heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended,
for the fiscal year ended January 3, 1998, filed with the Securities and
Exchange Commission.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Sales in the first quarter of 1998 were $944.3 million, an increase
of $180.8 million, or 24%, over the first quarter of 1997. Segment
income, excluding restructuring and other nonrecurring costs of $7.8
million in 1997, described below, increased 31% to $100.8 million in 1998
from $76.7 million in 1997. (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 51% to $92.4
million in 1998 from $61.0 million in 1997.
Instruments
-----------
Sales from the Instruments segment increased $78.8 million, or 24%,
to $407.9 million in 1998. Sales increased primarily due to acquisitions
made by Thermo Instrument Systems Inc., which added $81.6 million of
sales in 1998. 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 $8.5
million in 1998. In addition, revenues increased in 1998 due to higher
sales at Metrika Systems Corporation as a result of greater demand at its
finished-materials business and, to a lesser extent, at its raw-materials
business. Revenues also increased at ONIX Systems Inc., due to increased
sales of industry-specific instruments to the production segment of the
oil and gas industry. An increase in revenues at ThermoQuest Corporation
from Europe and North America was offset by a decrease in its revenues
from Japan of $7.0 million due to economic uncertainty in that country.
Increased revenues at the majority of ThermoSpectra Corporation's
existing operations were slightly more than offset by a decline for test
and measurement systems at one of its subsidiaries and the inclusion in
1997 of a large shipment at another subsidiary.
10<PAGE>
THERMO ELECTRON CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Segment income margin (segment income margin is segment income as a
percentage of sales) improved to 14.9% in 1998 from 14.0% in 1997. The
improvement was primarily due to the effect in the 1997 period of an
adjustment to expense of $2.7 million relating to the sale of inventories
revalued at the time of the acquisition of Life Sciences International
PLC.
Biomedical Products
-------------------
Sales from the Biomedical Products segment were $166.0 million in
1998, an increase of $29.1 million, or 21%, over the 1997 period. Sales
increased primarily due to increased demand at Trex Medical Corporation,
Bird Medical Technologies, Inc., and, to a lesser extent, Thermo
Cardiosystems Inc. In addition, sales increased due to the inclusion of
$11.9 million of sales from acquired businesses. These increases were
offset in part by a decrease in revenues of $3.6 million at ThermoLase
Corporation, primarily due to lower demand at its hair-removal business
and the inclusion in 1997 of $1.3 million of fees from international-
licensing arrangements. Rather than continuing to open additional spas,
ThermoLase intends to concentrate its resources on attempting both to
increase the capacity utilization of its existing spas and to expand its
physician-licensing program and international licensing arrangements. In
response to the decrease in revenues, ThermoLase significantly reduced
its prices in April 1998 in an attempt to establish an optimum price
point that will result in increased demand and higher revenues. There can
be no assurance such strategy will be successful.
Segment income increased to $16.6 million in 1998 from $8.4 million
in 1997. This increase resulted substantially from improvements at
existing businesses, primarily at Bird Medical and Trex Medical as a
result of higher revenues and, to a lesser extent, the inclusion of
segment income from acquired businesses. These increases were offset in
part by an increase in segment loss at ThermoLase to $7.9 million in 1998
from $5.3 million in 1997, primarily due to the decrease in revenues
described above, as well as increased fixed costs associated with
operating more spas and supporting more physician-licensees. The effect
of operating each spa below maximum capacity, as ThermoLase develops its
client base and expands its product lines, will continue to have a
negative effect on ThermoLase's segment income. ThermoLase believes that
improvements in the efficacy and duration of its SoftLight(R)
hair-removal process, as well as increased spa utilization through
broadening the array of spa-related services and products offered, are
critical elements in its ability to improve the profitability of its
spas. The degree to which ThermoLase's recent pricing structure changes
are successful will also affect its segment income.
11PAGE
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THERMO ELECTRON CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Advanced Technology
-------------------
Sales from the Advanced Technology segment increased to $100.9
million in 1998 from $96.5 million in 1997. Revenues from Thermo Sentron
Inc. increased to $18.9 million in 1998 from $18.0 million in 1997,
primarily due to increased demand and the inclusion of $0.9 million of
sales from acquired businesses, offset in part by the unfavorable effects
of currency translation. Sales at Thermo Voltek Corp. increased to $11.4
million in 1998 from $9.7 million in 1997, due to the inclusion of $1.0
million of sales from an acquired business and an increase in sales of
electromagnetic compatibility test instruments. Sales from ThermoTrex
Corporation's business units increased $4.7 million in 1998, primarily as
a result of the inclusion of $3.2 million in sales from an acquired
business at its Trex Communications Corporation subsidiary. Sales at
Thermo Coleman Corporation were $36.9 million in 1998, compared with
$37.8 million in 1997. This decrease resulted from a decline of $3.2
million in sales of kiosk units by its Thermo Information Solutions Inc.
subsidiary, which intends to exit this business due to inherently low
margins, lower than expected orders from its sole customer, and the
absence of other orders. This decrease was offset in part by higher
revenues from government contracts. Sales at Thermedics Detection Inc.
decreased 7% to $23.7 million in 1998, primarily due to lower sales of
its Alexus systems in connection with the fulfillment in 1997 of a
mandated product-line upgrade from The Coca-Cola Company to its existing
installed base, offset in part by increased shipments of security systems
and related services under a contract with the U.S. Federal Aviation
Administration, which was completed during the quarter.
Segment income decreased to $6.2 million in 1998 from $6.8 million in
1997. This decrease resulted from lower segment income at Thermedics
Detection and Thermo Coleman, primarily due to lower sales, offset in
part by an increase in profitability at Thermo Voltek principally due to
an increase in sales.
Alternative Energy
------------------
Sales from the Alternative Energy segment increased to $123.7 million
in 1998 from $78.7 million in 1997. Within this segment, revenues from
Thermo Ecotek Corporation increased to $47.2 million in 1998 from $38.7
million in 1997. Revenues from Thermo Ecotek's Thermo Trilogy Corporation
biopesticide subsidiary increased by $4.4 million to $8.0 million,
primarily due to the inclusion of revenues from two acquired businesses.
The remainder of Thermo Ecotek's increase in revenues was a result of the
inclusion of $2.4 million of revenues from newly acquired power
operations in the Czech Republic and, to a lesser extent, higher
contractual energy rates at several facilities. No further rate increases
will occur in Thermo Ecotek's four California energy facilities beginning
in 1998. Sales at Peter Brotherhood Ltd. declined to $7.9 million in 1998
from $11.2 million in 1997, due to the disposal of several business units
in 1997. Sales at Thermo Power Corporation increased to $68.6 million in
1998 from $28.8 million in 1997, primarily due to the inclusion of $39.0
million of sales from Peek plc, acquired in November 1997.
12PAGE
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THERMO ELECTRON CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Segment income was $7.7 million in 1998, compared with $4.8 million
in 1997. Thermo Ecotek's segment income was $6.5 million in 1998,
compared with $4.4 million in 1997. The increase resulted primarily from
higher contractual energy rates as well as the inclusion of results of
the newly acquired Czech Republic power operations. Segment income at
Thermo Power improved to $1.2 million from $0.7 million in 1997,
primarily due to contributions from Peek. Due to funding patterns of
government entities, as well as seasonality, Peek has historically
experienced higher sales and segment income in the second and fourth
calendar quarters and lower amounts in the first and third calendar
quarters. Peter Brotherhood was nominally profitable in 1998, compared
with a segment loss in 1997.
Industrial Outsourcing
----------------------
Sales in the Industrial Outsourcing segment were $81.7 million in
1998, an increase of $13.2 million, or 19%, over 1997. Revenues from
Thermo TerraTech Inc.'s remediation and recycling services increased to
$36.4 million in 1998 from $30.4 million in 1997, primarily due to higher
demand at certain business units and, to a lesser extent, the inclusion
of $4.8 million of sales from acquired businesses. These increases were
offset in part by a $4.8 million decrease in revenues at one of Thermo
Remediation Inc.'s business units resulting from a decline in the number
of contracts in process. In addition, revenues from Thermo Remediation's
soil-remediation services decreased 15% to $4.2 million, resulting from
the closure of two sites as well as heavy rains, which unfavorably
affected operations at certain west coast sites. Revenues from consulting
and design services increased $4.7 million in 1998, primarily due to the
inclusion of $3.9 million of revenues from an acquired business. Sales of
metallurgical services increased $2.4 million in 1998, principally due to
increased demand for existing services.
Segment income, excluding restructuring and other nonrecurring costs
of $7.8 million in 1997, was $1.9 million in 1998, compared with $4.5
million in 1997. Segment income declined in 1998 due to a loss of $4.5
million incurred at one of Thermo Remediation's business units on certain
remedial-construction contracts. This decrease in segment income was
offset in part by higher income from consulting and design services
principally due to higher revenues. Restructuring and other nonrecurring
costs of $7.8 million in the first quarter of 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 severe
downturn in Thermo Remediation's soil-remediation business. This resulted
in the closure of two soil-remediation sites during 1997 and reduced cash
flows at certain other sites, such that analysis indicated that the
investment in these assets would not be recovered.
13PAGE
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THERMO ELECTRON CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Paper Recycling
---------------
Sales in the Paper Recycling segment increased to $65.4 million in
1998 from $56.0 million in 1997. Sales from Thermo Fibertek Inc.
increased 40% to $62.3 million in 1998 from $44.7 million in 1997,
primarily due to the inclusion of revenues of $17.4 million from Thermo
Black Clawson, acquired in May 1997. In addition, an increase in revenues
from Thermo Fibertek's accessories business resulting from higher demand
was offset in part by a decrease in revenues at its recycling business of
$2.3 million due to a continuing decrease in demand resulting from a
severe drop in de-inked pulp prices. The unfavorable effects of currency
translation reduced Thermo Fibertek's revenues by $1.5 million in 1998.
Sales from Thermo TerraTech's thermal-processing equipment business, sold
in October 1997, were $7.9 million in 1997.
Segment income margin was 11.9% in 1998, compared with 11.5% in 1997.
This increase primarily resulted from improvements at Thermo Fibertek and
the inclusion in 1997 of lower segment income margins from Thermo
TerraTech's thermal-processing equipment business.
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.
As a result of the sale of stock by subsidiaries, the Company recorded
gains of $39.6 million in 1998 (Note 2) and $33.7 million in 1997.
Minority interest expense increased to $24.6 million in 1998 from $17.1
million in 1997. Minority interest expense includes $12.4 million in 1998
and $9.5 million in 1997 related to gains recorded by the Company's
majority-owned subsidiaries as a result of the sale of stock by their
subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $2,311.3 million at April 4, 1998,
compared with $2,002.0 million at January 3, 1998. Included in working
capital were cash, cash equivalents, and short-term available-for-sale
investments of $1,790.3 million at April 4, 1998, compared with $1,522.7
million at January 3, 1998. In addition, the Company had $82.3 million of
long-term available-for-sale investments at April 4, 1998, compared with
$63.3 million of long-term available-for-sale investments at January 3,
1998. Of the total $1,872.6 million of cash, cash equivalents, and short-
and long-term available-for-sale investments at April 4, 1998, $1,569.2
million was held by the Company's majority-owned subsidiaries and the
balance was held by the Company and its wholly owned subsidiaries.
Cash provided by operating activities was $69.7 million during the
first quarter of 1998. Cash of $19.7 million was used to fund increases
14PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Liquidity and Capital Resources (continued)
in inventories, principally at Thermo Instrument to replenish year-end
inventory levels at ThermoQuest's European sales offices, as well as at
certain other Thermo Instrument subsidiaries, and to build up inventories
at ONIX Systems' industry-specific and composition analysis businesses as
a result of long lead-time orders. Cash flow from operations was improved
by a decrease in accounts receivable of $16.0 million, primarily at
Thermo Instrument due to the timing of cash collections at Metrika
Systems, management's efforts to reduce its investment in accounts
receivable at Thermo Optek, and the effect of lower sales at one of
ThermoSpectra's business units.
During the first quarter of 1998, the Company's primary investing
activity, excluding available-for-sale investments activity, was the
purchase of property, plant, and equipment for $37.8 million.
The Company's financing activities provided $249.3 million of cash in
the first quarter of 1998. Net proceeds from the issuance of long-term
obligations totaled $250.0 million and net proceeds from the issuance of
Company and subsidiary common stock totaled $124.8 million. In addition,
the Company used $42.2 million of cash to fund a decrease in short-term
notes payable. In April 1998, the Company sold 7,475,000 shares of its
common stock at $40.625 per share for net proceeds of approximately $290
million.
During the first quarter of 1998, an aggregate principal amount of
$5.1 million subsidiary convertible obligations were converted into
shares of subsidiary common stock.
During the first quarter of 1998, the Company and its majority-owned
subsidiaries expended $80.0 million to purchase common stock and
debentures of certain of the Company's majority-owned subsidiaries. These
purchases were made pursuant to authorizations by the Company's and
certain majority-owned subsidiaries' Boards of Directors. As of April 4,
1998, $50.9 million and $25.7 million remained under the Company's and
its majority-owned subsidiaries' authorizations, respectively. In
addition to these authorizations, Thermedics Inc. has presented a
proposal to its Thermo Voltek subsidiary to acquire, through a merger,
all of the outstanding shares of Thermo Voltek's common stock that
Thermedics does not own for a total transaction cost estimated to be
approximately $27 million.
The Company has no material commitments for purchases of property,
plant, and equipment and expects that, for the remainder of 1998, such
expenditures will approximate the current level of expenditures. Since
April 4, 1998, a majority-owned subsidiary of the Company has expended
$35 million on an acquisition and as of May 18, 1998, the Company's
majority-owned subsidiaries had agreements or nonbinding letters of
intent to acquire new businesses totaling approximately $168 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.
15PAGE
<PAGE>
THERMO ELECTRON CORPORATION
Market Risk
The Company's exposure to market risk from changes in foreign
currency exchange rates, interest rates, and equity prices has not
changed materially from its exposure at year-end 1997.
PART II - OTHER INFORMATION
Item 6 - Exhibits
-----------------
See Exhibit Index on page immediately preceding exhibits.
16PAGE
<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 18th day of May 1998.
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
17PAGE
<PAGE>
THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ELECTRON CORPORTION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL
4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 595,664
<SECURITIES> 1,194,587
<RECEIVABLES> 831,113
<ALLOWANCES> 53,477
<INVENTORY> 561,639
<CURRENT-ASSETS> 3,365,481
<PP&E> 1,189,485
<DEPRECIATION> 392,802
<TOTAL-ASSETS> 6,110,904
<CURRENT-LIABILITIES> 1,054,186
<BONDS> 1,980,147
0
0
<COMMON> 159,362
<OTHER-SE> 1,871,160
<TOTAL-LIABILITY-AND-EQUITY> 6,110,904
<SALES> 900,997
<TOTAL-REVENUES> 944,263
<CGS> 533,694<F1>
<TOTAL-COSTS> 572,421<F2>
<OTHER-EXPENSES> 53,421
<LOSS-PROVISION> 1,856
<INTEREST-EXPENSE> 25,607
<INCOME-PRETAX> 131,618
<INCOME-TAX> 41,574
<INCOME-CONTINUING> 65,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,493
<EPS-PRIMARY> .41
<EPS-DILUTED> .37
<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>
