<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-32111
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 12, 1998
6,500,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------------
Of the 6,500,000 shares of Common Stock offered, 5,200,000 shares are being
offered hereby in the United States and 1,300,000 shares are being offered in
a concurrent international offering outside the United States. The public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting".
All of the shares of Common Stock offered hereby are being sold by the
Company. The last reported sale price of the Common Stock, which is listed
under the symbol "TMO", on the New York Stock Exchange on April 6, 1998 was
$40.875 per share. See "Price Range of Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY (2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share........................ $40.625 $1.73 $38.895
Total (3)........................ $264,062,500 $11,245,000 $252,817,500
</TABLE>
- --------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $500,000, payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 780,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover over-
allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 195,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $303,671,875, $12,931,750 and
$290,740,125, respectively. See "Underwriting".
----------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York
on or about April 13, 1998, against payment therefor in immediately available
funds.
----------------
Joint Lead Managers
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
LEHMAN BROTHERS HSBC INVESTMENT BANKING
----------------
The date of this Prospectus Supplement is April 6, 1998.
<PAGE>
[ART WORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
[CHART SHOWING COMPANY STRUCTURE]
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
appearing elsewhere in this Prospectus Supplement and the accompanying
Prospectus and incorporated herein and therein by reference. The information
contained in this Prospectus Supplement assumes no exercise of the
Underwriters' over-allotment options, unless indicated otherwise. Forward-
looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, are made throughout this Prospectus
Supplement and the accompanying Prospectus, including documents incorporated
herein and therein by reference. For this purpose, any statements contained
herein or therein 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 elsewhere in this Prospectus Supplement under the
caption "Risk Factors".
THE COMPANY
Thermo Electron Corporation is a diversified technology company that provides
instruments, systems, and services primarily to industrial, healthcare, and
environmental markets. Thermo Electron seeks to identify major emerging needs
in society that can be addressed by technologies being developed throughout its
businesses. In its 42-year history, the Company has grown to become a leader in
certain markets where continued technological innovation is integral to
success. For example, the Company is a worldwide leader in the design,
manufacture, and sale of analytical instruments, paper recycling equipment,
heart-assist devices, and mammography systems. The Company also provides a
range of other specialized products, including medical diagnostic equipment,
alternative-energy systems, industrial process controls, and environmental-
contamination monitors. In addition, the Company offers a range of services,
particularly industrial outsourcing of environmental-liability management and
laboratory analysis, and conducts advanced-technology research and development.
The Company's ability to innovate derives, in part, from a unique corporate
structure that it developed to retain its entrepreneurial spirit while
continuing its growth. In 1983, the Company adopted a strategy of "spinning
out" certain of its businesses by selling a minority interest in those
subsidiaries to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management of the spinout
companies through the establishment of subsidiary stock-option incentive
programs, as well as capital to sustain the subsidiaries' growth. The Company's
corporate office provides the wholly and majority-owned subsidiaries with cost-
effective, centralized business development, administrative, financial, and
other resources. As of April 6, 1998, the Company had 29 subsidiaries that have
sold minority equity interests, 23 of which are publicly traded and six of
which are privately held.
A key part of the Company's growth strategy is the acquisition of
complementary businesses that broaden product lines, access new markets, expand
distribution channels, or add manufacturing capability. In 1997, 1996, and
1995, the Company paid $924.3 million, $383.7 million, and $339.1 million in
cash, respectively, to acquire various businesses.
As a result of acquisitions and internal growth, the Company reported
revenues of $3.6 billion in 1997, a 21% increase from $2.9 billion in 1996.
Revenues have increased at a compound annual growth rate of approximately 29%
over the past five fiscal years. Operating income increased 65%
S-3
<PAGE>
to $405.8 million in 1997, from $246.5 million in 1996. Over the past five
fiscal years, Thermo Electron's operating income has increased at a compound
annual growth rate of approximately 42%.
The Company's products and services are divided into six segments:
Instruments, Biomedical Products, Alternative Energy, Paper Recycling,
Industrial Outsourcing, and Advanced Technology. Products or services within a
particular segment may be provided by more than one subsidiary, and certain
subsidiaries' products or services are included in more than one segment. The
principal products and services offered by the Company in the six industry
segments are described below:
Instruments
The Company is a worldwide leader in the manufacture of analytical
instruments used by industry and academia to identify complex chemical
compounds, toxic metals, and other elements in a broad range of liquids,
solids, and gases, as well as to analyze air pollution and radioactivity. The
Company also provides instruments that control, monitor, image, inspect, and
measure various industrial processes and life sciences phenomena. This segment
includes all of the Company's Thermo Instrument Systems subsidiaries.
Biomedical Products
The Company is a leading provider of mammography systems and heart-assist
devices, and supplies a wide range of medical systems and devices for
diagnostic imaging, respiratory care, neurodiagnostics, sleep analysis,
wireless monitoring, and blood management. This segment includes wholly owned
portions of the Company's Thermedics subsidiary, its Thermo Cardiosystems, Trex
Medical, and ThermoLase subsidiaries, and its wholly owned Thermo Biomedical
group of subsidiaries.
Alternative Energy
The Company operates independent (non-utility) power plants that use
environmentally sound fuels and technologies, develops engineered clean fuels,
and produces biopesticides. The Company also manufactures intelligent traffic-
control systems, ozone-safe industrial refrigeration equipment, and low-
emission natural gas engines. This segment includes the Company's Thermo Ecotek
and Thermo Power subsidiaries.
Paper Recycling
The Company is a leading provider of systems and accessories for the
worldwide papermaking and paper recycling industry, and is developing
technology to recover papermaking waste for use in various commercial products.
This segment includes the Company's Thermo Fibertek and Thermo Fibergen
subsidiaries.
Industrial Outsourcing
The Company provides outsourcing services, primarily in environmental-
liability management and infrastructure planning and design, with
specialization in municipal and industrial water-quality management, natural
resource management, and laboratory testing and analysis. This segment includes
all of the Company's Thermo TerraTech subsidiaries.
Advanced Technology
The Company conducts research and development, often sponsored by the U.S.
government, in its effort to pursue viable commercial opportunities for new
ventures. Its basic and applied research currently spans communications,
avionics, X-ray detection, advanced materials, and lasers. The Company also
provides systems integration primarily in the fields of information technology,
advanced radar and imaging, and health systems. A number of subsidiaries also
provide various instrument systems, developed primarily for product quality-
assurance applications in industrial, food
S-4
<PAGE>
and beverage, pharmaceutical, and electronics markets. This segment includes
wholly owned portions of the Company's ThermoTrex and Thermedics subsidiaries,
and its Thermo Sentron, Thermo Voltek, Thermedics Detection, and Thermo Coleman
subsidiaries.
REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
% OF % OF % OF
REVENUES TOTAL REVENUES TOTAL REVENUES TOTAL
---------- ----- ---------- ----- ---------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Instruments............ $1,592,314 45% $1,209,362 41% $ 782,662 35%
Biomedical Products.... 590,234 16 455,890 16 316,622 14
Advanced Technology.... 415,016 12 375,459 13 323,567 14
Alternative Energy..... 384,923 11 339,813 11 325,912 14
Industrial
Outsourcing........... 305,508 8 273,894 9 210,503 9
Paper Recycling........ 278,911 8 286,312 10 317,951 14
Intersegment Sales
Elimination (1)....... (8,586) -- (8,172) -- (6,926) --
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
</TABLE>
- --------
(1) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
Unless the context otherwise requires, references in this Prospectus
Supplement and the accompanying Prospectus to the Company or Thermo Electron
Corporation refer to Thermo Electron Corporation and its subsidiaries and their
predecessors. The Company is a Delaware corporation and was incorporated in
1956. The Company completed its initial public offering in 1967 and was listed
on the New York Stock Exchange in 1980. The Company's principal executive
offices are located at 81 Wyman Street, Waltham, Massachusetts, and its
telephone number is (781) 622-1000.
THE OFFERINGS
The offering hereby of 5,200,000 shares of Common Stock, $1.00 par value per
share (the "Common Stock"), being offered in the United States (the "U.S.
Offering") and the offering of 1,300,000 shares of Common Stock being offered
in a concurrent international offering outside the United States (the
"International Offering") are collectively referred to as the "Offerings." The
closing of each offering is conditioned upon the closing of the other offering.
U.S. Offering............................... 5,200,000 shares
International Offering...................... 1,300,000 shares
Common Stock to be Outstanding after the
Offerings (1)...............................
165,692,163 shares
Use of Proceeds............................. For general corporate purposes,
including possible acquisitions.
See "Use of Proceeds".
New York Stock Exchange Symbol.............. TMO
- --------
(1) Based on the number of shares of Common Stock outstanding as of March 30,
1998. Does not include 31,354,154 shares of Common Stock reserved for
issuance under the Company's stock-based compensation plans, shares
reserved for issuance upon conversion or exchange of outstanding
convertible securities and shares reserved for issuance under the Company's
Shareholder Rights Plan. See "Capitalization" and Note 7 of Notes to
Consolidated Financial Statements.
S-5
<PAGE>
SUMMARY FINANCIAL INFORMATION (1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues.............. $3,558,320 $2,932,558 $2,270,291 $1,729,191 $1,354,508
Gross Profit (2)...... 1,441,312 1,129,989 863,409 650,901 482,282
Operating Income...... 405,786 246,466 225,218 182,082 119,152
Net Income............ 239,328 190,816 139,582 104,711 76,868
Earnings per Share:
Basic................ 1.57 1.35 1.10 .90 .74
Diluted.............. 1.41 1.17 .95 .78 .65
Weighted Average
Shares:
Basic................ 152,489 141,525 126,626 116,500 104,203
Diluted.............. 176,082 175,605 158,562 151,048 130,549
</TABLE>
<TABLE>
<CAPTION>
JANUARY 3, 1998
-------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT END
OF PERIOD):
Working Capital......... $2,001,963 $2,254,281
Total Assets............ 5,795,869 6,048,187
Long-term Obligations... 1,742,907 1,742,907
Common Stock of
Subsidiaries Subject to
Redemption............. 93,312 93,312
Shareholders'
Investment............. 1,997,909 2,250,227
</TABLE>
- --------
(1) The Company's 1997, 1996, 1995, 1994, and 1993 fiscal years set forth in
this table, and elsewhere in this Prospectus Supplement, ended on January
3, 1998, December 28, 1996, December 30, 1995, December 31, 1994, and
January 1, 1994, respectively.
(2) Gross profit represents revenues less cost of product and service revenues,
and less cost of research and development contracts as disclosed in Note 3
on page S-13.
(3) Adjusted to reflect the sale by the Company of Common Stock in the
Offerings after deducting the underwriting discounts and commissions and
the estimated offering expenses payable by the Company.
S-6
<PAGE>
RISK FACTORS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its
actual results in 1998 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
Risks Associated with Acquisition Strategy. One of the Company's principal
growth strategies is to supplement its internal growth with the acquisition of
businesses and technologies that complement or augment the Company's existing
product lines. Certain businesses recently acquired by the Company have had
low levels of profitability. In addition, businesses that the Company may seek
to acquire in the future may also be marginally profitable or unprofitable. In
order for any acquired businesses to achieve the level of profitability
desired by the Company, the Company must successfully change operations and
improve market penetration. No assurance can be given that the Company will be
successful in this regard. In addition, promising acquisitions are difficult
to identify and complete for a number of reasons, including competition among
prospective buyers, the need for regulatory approvals, including antitrust
approvals, and the high valuations of businesses resulting from historically
high stock prices in many countries. Acquisitions completed by the Company may
be made at substantial premiums over the fair value of the net assets of the
acquired companies. There can be no assurance that the Company will be able to
complete pending or future acquisitions or that the Company will be able to
successfully integrate any acquired businesses into its existing business or
make such businesses profitable. In order to finance any such acquisitions, it
may be necessary for the Company to raise additional funds either through
public or private financings. Any equity or debt financing, if available at
all, may be on terms which are not favorable to the Company and may result in
dilution to the Company's shareholders.
Risks Associated with Spinout of Subsidiaries. The Company has adopted a
strategy of spinning out certain of its businesses into separate subsidiaries
and having these subsidiaries sell a minority interest to outside investors.
As a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures, and similar
transactions, the Company records gains that represent the increase in the
Company's net investment in the subsidiaries. These gains have represented a
substantial portion of the net income reported by the Company in certain
periods. The size and timing of these transactions are dependent on market and
other conditions that are beyond the Company's control. Accordingly, there can
be no assurance that the Company will be able to generate gains from such
transactions in the future.
Further, in October 1995, the Financial Accounting Standards Board ("FASB")
issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
"Proposed Statement"). The Proposed Statement would establish new rules for
how consolidated financial statements should be prepared. If the Proposed
Statement is adopted, there would be significant changes in the way the
Company records certain transactions of its controlled subsidiaries. Among
those changes, any sale of the stock of a subsidiary that does not result in a
loss of control would be accounted for as a transaction in the equity of the
consolidated entity with no gain or loss being recorded. The exposure draft
addresses the consolidation issues in two parts: consolidation procedures,
which includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB
decided to focus its efforts on the consolidation policy part of the exposure
draft and to consider resuming discussion on consolidation procedures after
completion of the efforts on consolidation policy. The timing and content of
any final statement are uncertain.
S-7
<PAGE>
Competition. The Company encounters and expects to continue to encounter
significant competition in the sale of its products and services. The
Company's competitors include a number of large multinational corporations,
some of which may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company.
Competition could increase if new companies enter the market or if existing
competitors expand their product lines or intensify efforts within existing
product lines. There can be no assurance that the Company's current products,
products under development, or ability to develop new technologies will be
sufficient to enable it to compete effectively. See "Business--Competition."
Risks Associated with International Operations. International revenues
account for a substantial portion of the Company's revenues, and the Company
intends to continue to expand its presence in international markets.
International revenues are subject to a number of risks, including the
following: fluctuations in exchange rates may affect product demand and
adversely affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the Company's
products and services is made in the local currency; agreements may be
difficult to enforce and receivables difficult to collect through a foreign
country's legal system; foreign customers may have longer payment cycles;
foreign countries may impose additional withholding taxes or otherwise tax the
Company's foreign income, impose tariffs, or adopt other restrictions on
foreign trade; U.S. export licenses may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more difficult
to enforce. There can be no assurance that any of these factors will not have
a material adverse impact on the Company's business and results of operations.
Rapid and Significant Technological Change and New Products. The markets for
the Company's products are characterized by rapid and significant
technological change, evolving industry standards and frequent new product
introductions and enhancements. Many of the Company's products and products
under development are technologically innovative and require significant
planning, design, development, and testing at the technological, product, and
manufacturing-process levels. These activities require significant capital
commitments and investment by the Company. In addition, products that are
competitive in the Company's markets are characterized by rapid and
significant technological change due to industry standards that may change on
short notice and by the introduction of new products and technologies that
render existing products and technologies uncompetitive or obsolete. There can
be no assurance that any of the products currently being developed by the
Company, or those to be developed in the future, will be technologically
feasible or accepted by the marketplace, that any such development will be
completed in any particular time frame, or that the Company's products or
proprietary technologies will not become uncompetitive or obsolete.
Possible Adverse Effect from Changes in Governmental Regulations. The
Company competes in several markets which involve compliance by its customers
with federal, state, local, and foreign regulations, such as environmental,
health and safety, and food and drug regulations. The Company develops,
configures, and markets its products to meet customer needs created by such
regulations. These regulations may be amended or eliminated in response to new
scientific evidence or political or economic considerations. Any significant
change in regulations could adversely affect demand for the Company's products
in regulated markets.
Government Regulation; No Assurance of Regulatory Approvals. Certain of the
Company's products are subject to pre-marketing clearance or approval by the
U.S. Food and Drug Administration ("FDA") and similar agencies in foreign
countries. The use or sale of certain of the Company's products under
development may require approvals by other government agencies. The process of
obtaining clearance and approval from the FDA and other government agencies is
time-consuming and expensive. Furthermore, there can be no assurance that the
necessary clearances or
S-8
<PAGE>
approvals for the Company's products, services, and products and services
under development will be obtained on a timely basis, if at all.
FDA regulations also require continuing compliance with specific standards
in conjunction with the maintenance and marketing of products and services
that have been approved or cleared. Failure to comply with applicable
regulatory requirements can result in, among other things, civil and criminal
penalties, suspension of approvals, recalls, or seizures of products,
injunctions, and criminal prosecutions.
Risks Associated with Dependence on Capital Spending Policies and Government
Funding. The Company's customers include pharmaceutical and chemical
companies, laboratories, universities, healthcare providers, paper
manufacturers, consumer product companies, government agencies, and public and
private research institutions. The capital spending of these entities can have
a significant effect on the demand for the Company's products. Such spending
is based on a wide variety of factors, including the resources available to
make purchases, the spending priorities among various types of equipment,
public policy, and the effects of different economic cycles. Any decrease in
capital spending by any of the customer groups that account for a significant
portion of the Company's sales could have a material adverse effect on the
Company's business and results of operations.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products, and processes because of the length of
time and expense associated with bringing new products through the development
process and to the marketplace. The Company's success depends in part on its
ability to develop patentable products and obtain and enforce patent
protection for its products both in the United States and in other countries.
The Company owns numerous United States and foreign patents, and intends to
file additional applications for patents as appropriate to cover its products.
No assurance can be given that patents will issue from any pending or future
patent applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any issued
patents owned by or licensed to the Company will not be challenged,
invalidated, or circumvented, or that the rights granted thereunder will
provide competitive advantages to the Company. There can be no assurance that
third parties will not assert claims against the Company that the Company
infringes the intellectual property rights of such parties. The Company could
incur substantial costs and diversion of management resources with respect to
the defense of any such claims, which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to make, use, sell, distribute,
or market its products and services in the United States or abroad. In the
event that a claim relating to intellectual property is asserted against the
Company, the Company may seek licenses to such intellectual property. There
can be no assurance, however, that such licenses could be obtained on
commercially reasonable terms, if at all. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture, or distribution
of the Company's products and, therefore, could have a material adverse effect
on the Company's business, financial condition, and results of operations.
The Company relies on trade secrets and proprietary know-how, which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known or
be independently developed by competitors.
S-9
<PAGE>
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal information
systems and current products are either year 2000 compliant or will be so
prior to the year 2000 without incurring material costs. There can be no
assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems
and current products, which could result in a material adverse effect on the
Company's future results of operations.
The Company is presently assessing the effect that the year 2000 problem may
have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this
might have on the Company. The Company has not completed its analysis and is
unable to conclude at this time that the year 2000 problem as it relates to
its previously sold products and products purchased from key suppliers is not
reasonably likely to have a material adverse effect on the Company's future
results of operations.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock will amount to
approximately $252,317,500 ($290,240,000 if the Underwriters' over-allotment
options are exercised in full). The Company intends to use these net proceeds
for general corporate purposes, which may include possible acquisitions of
businesses, repayment of outstanding indebtedness, capital expenditures,
working capital requirements, research and development, loans to and/or
investments in the Company's subsidiaries, and repurchase of its Common Stock
and other securities and the securities of any of its subsidiaries through
open-market purchases or otherwise. The precise amount and timing of the
application of such proceeds will depend upon the funding requirements of the
Company and the availability and cost of other funds. The Company is in
various stages of negotiations with respect to several acquisitions; however,
it currently has no commitment or agreement for any material acquisition.
Pending these uses, the Company expects to invest the net proceeds primarily
in investment grade interest or dividend bearing instruments.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol TMO. The following table sets forth the high and low sales prices
for the periods indicated of the Company's Common Stock as reported in the
consolidated transaction reporting system. Sales prices have been restated to
reflect a three-for-two stock split, effected in the form of a 50% stock
dividend, in June 1996.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ------- -------
<S> <C> <C>
First Quarter............................................. $42.083 $30.417
Second Quarter............................................ 44.375 38.833
Third Quarter............................................. 41.875 31.750
Fourth Quarter............................................ 41.250 29.750
<CAPTION>
FISCAL 1997
-----------
<S> <C> <C>
First Quarter............................................. 40.500 30.875
Second Quarter............................................ 38.750 28.375
Third Quarter............................................. 41.500 32.125
Fourth Quarter............................................ 44.500 33.500
<CAPTION>
FISCAL 1998
-----------
<S> <C> <C>
First Quarter ............................................ 43.313 36.625
Second Quarter (through April 6, 1998).................... 41.750 40.375
</TABLE>
As of April 3, 1998, the Company had 9,163 holders of record of its Common
Stock. This does not include holdings in street or nominee names. The closing
price on the New York Stock Exchange for the Company's Common Stock on April
6, 1998 was $40.875.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future because its policy has
been to use earnings to finance expansion and growth. Payment of dividends
will rest within the discretion of the Company's Board of Directors and will
depend upon, among other factors, the Company's earnings, capital requirements
and financial condition.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 3, 1998, stated on a pro forma basis to reflect the issuance by Thermo
Instrument Systems Inc., in January 1998, of $250,000,000 principal amount of
4% Subordinated Convertible Debentures due 2005, and as adjusted to give
effect to the sale of shares of Common Stock offered hereby, after deducting
the underwriting discounts and commissions and the estimated offering expenses
payable by the Company. There has been no material change in the
capitalization of the Company since January 3, 1998, except as reflected in
the pro forma column below.
<TABLE>
<CAPTION>
JANUARY 3, 1998
----------------------
AS
PRO FORMA ADJUSTED
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Short-term Obligations:
Notes payable........................................ $ 105,623 $ 105,623
Current maturities of long-term obligations.......... 71,289 71,289
Common stock of subsidiary subject to redemption
($18,450 redemption value).......................... 18,138 18,138
---------- ----------
$ 195,050 $ 195,050
========== ==========
Long-term Obligations (1):
Senior convertible obligations....................... $ 187,824 $ 187,824
Subordinated convertible obligations................. 1,723,015 1,723,015
Nonrecourse tax-exempt obligations................... 37,600 37,600
Other................................................ 44,468 44,468
---------- ----------
1,992,907 1,992,907
---------- ----------
Minority Interest..................................... 719,622 719,622
---------- ----------
Common Stock of Subsidiaries Subject to Redemption
($95,262 redemption value)........................... 93,312 93,312
---------- ----------
Shareholders' Investment:
Preferred stock, $100 par value, 50,000 shares
authorized; none issued
Common stock, $1 par value, 350,000,000 shares
authorized;
159,206,337 shares issued and 165,706,337 shares as
adjusted (2)........................................ 159,206 165,706
Capital in excess of par value....................... 843,709 1,089,527
Retained earnings.................................... 1,034,640 1,034,640
Treasury stock at cost, 95,684 shares................ (3,839) (3,839)
Cumulative translation adjustment.................... (46,339) (46,339)
Net unrealized gain on available-for-sale
investments......................................... 10,532 10,532
---------- ----------
1,997,909 2,250,227
---------- ----------
Total Capitalization (Long-term Obligations, Minority
Interest, Common Stock of Subsidiaries Subject to
Redemption and Shareholders' Investment)............. $4,803,750 $5,056,068
========== ==========
</TABLE>
- --------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Does not include 31,354,154 shares of Common Stock reserved for issuance
under the Company's stock-based compensation plans, shares reserved for
issuance upon conversion or exchange of outstanding convertible securities
and shares reserved for issuance under the Company's Shareholder Rights
Plan. See Note 7 of Notes to Consolidated Financial Statements.
S-12
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information presented below as of and for the fiscal
years ended January 3, 1998 and December 28, 1996 and for the fiscal year
ended December 30, 1995, has been derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included herein.
The selected financial information as of and for the fiscal years ended
December 31, 1994 and January 1, 1994 and as of December 30, 1995, has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, but have not been included or incorporated by
reference into the Prospectus. This information should be read in conjunction
with the Company's Consolidated Financial Statements and related notes
included herein.
<TABLE>
<CAPTION>
1997 1996(1) 1995 1994(2) 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $3,558,320 $2,932,558 $2,270,291 $1,729,191 $1,354,508
---------- ---------- ---------- ---------- ----------
Costs and Operating
Expenses:
Cost of product and
service revenues...... 1,973,265 1,657,746 1,239,762 928,645 755,493
Expenses for research
and development and
new lines of business
(3)................... 337,305 301,457 272,809 233,099 183,965
Selling, general, and
administrative
expenses.............. 840,692 689,248 510,564 384,715 289,282
Restructuring and other
nonrecurring costs,
net................... 1,272 37,641 21,938 650 6,616
---------- ---------- ---------- ---------- ----------
3,152,534 2,686,092 2,045,073 1,547,109 1,235,356
---------- ---------- ---------- ---------- ----------
Operating Income........ 405,786 246,466 225,218 182,082 119,152
Gain on Issuance of
Stock by Subsidiaries.. 80,055 126,599 80,815 25,283 39,863
Other Income (Expense),
Net.................... 2,626 1,486 (7,225) (989) (27,548)
---------- ---------- ---------- ---------- ----------
Income Before Income
Taxes and Minority
Interest............... 488,467 374,551 298,808 206,376 131,467
Provision for Income
Taxes.................. 174,713 110,845 98,711 70,703 33,513
Minority Interest
Expense................ 74,426 72,890 60,515 30,962 21,086
---------- ---------- ---------- ---------- ----------
Net Income.............. $ 239,328 $ 190,816 $ 139,582 $ 104,711 $ 76,868
========== ========== ========== ========== ==========
Earnings per Share:
Basic.................. $ 1.57 $ 1.35 $ 1.10 $ .90 $ .74
========== ========== ========== ========== ==========
Diluted................ $ 1.41 $ 1.17 $ .95 $ .78 $ .65
========== ========== ========== ========== ==========
Weighted Average Shares:
Basic.................. 152,489 141,525 126,626 116,500 104,203
========== ========== ========== ========== ==========
Diluted................ 176,082 175,605 158,562 151,048 130,549
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT
END OF PERIOD):
Working Capital......... $2,001,963 $2,218,617 $1,317,146 $1,150,732 $ 833,839
Total Assets............ 5,795,869 5,141,244 3,786,339 3,061,935 2,507,597
Long-term Obligations... 1,742,907 1,550,342 1,118,077 1,049,850 647,592
Common Stock of
Subsidiaries Subject to
Redemption............. 93,312 76,525 17,513 -- 14,511
Shareholders'
Investment............. 1,997,909 1,754,369 1,309,729 1,007,486 873,720
</TABLE>
- --------
(1) Reflects the issuance of $585 million principal amount of the Company's
convertible debentures.
(2) Reflects the issuance of $345 million principal amount of the Company's
convertible debentures.
(3) Includes cost of research and development contracts of $143,743, $144,823,
$167,120, $149,645, and $116,733 in 1997, 1996, 1995, 1994, and 1993,
respectively.
S-13
<PAGE>
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
elsewhere in this Prospectus Supplement under the caption "Risk Factors."
OVERVIEW
The Company develops and manufactures a broad range of products that are
sold worldwide. The Company expands the product lines and services it offers
by developing and commercializing its own core technologies and by making
strategic acquisitions of complementary businesses. The majority of the
Company's businesses fall into six broad markets: instruments, alternative
energy, paper recycling, biomedical, industrial outsourcing, and advanced
technology.
An important component of the Company's strategy is to establish leading
positions in its markets through the application of proprietary technology,
whether developed internally or acquired. A key contribution to the growth of
the Company's segment income (as defined in the results of operations below),
particularly over the last several years, has been the ability to identify
attractive acquisition opportunities, complete those acquisitions, and derive
a growing income contribution from the newly acquired businesses as they are
integrated into the Company's business segments and their profitability
improves.
The Company seeks to minimize its dependence on any specific product or
market by expanding and diversifying its portfolio of businesses and
technologies. Similarly, the Company's goal is to maintain a balance in its
businesses between those affected by various regulatory cycles and those more
dependent on the general level of economic activity. Although the Company is
diversified in terms of technology, product offerings, and geographic markets
served, the future financial performance of the Company as a whole will be
largely affected by the strength of worldwide economies and the continued
adoption and diligent enforcement of health, safety, and environmental
regulations and standards, among other factors.
The Company believes that maintaining an entrepreneurial atmosphere is
essential to its continued growth and development. In order to preserve this
atmosphere, 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 subsidiaries through the establishment of subsidiary-level stock option
programs, as well as capital to support the subsidiaries' growth. As a result
of the sale of stock by subsidiaries, the issuance of stock by subsidiaries
upon conversion of convertible debentures, and similar transactions, the
Company records gains that represent the increase in the Company's net
investment in the subsidiaries and are classified as "Gain on issuance of
stock by subsidiaries" in the accompanying statement of income. These gains
have represented a substantial portion of the net income reported by the
Company in certain periods. The size and timing of these transactions are
dependent on market and other conditions that are beyond the Company's
control. Accordingly, there can be no assurance that the Company will be able
to generate gains from such transactions in the future.
S-14
<PAGE>
Further, in October 1995, the Financial Accounting Standards Board ("FASB")
issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
"Proposed Statement"). The Proposed Statement would establish new rules for
how consolidated financial statements should be prepared. If the Proposed
Statement is adopted, there would be significant changes in the way the
Company records certain transactions of its controlled subsidiaries. Among
those changes, any sale of the stock of a subsidiary that does not result in a
loss of control would be accounted for as a transaction in equity of the
consolidated entity with no gain or loss being recorded. The exposure draft
addresses the consolidation issues in two parts: consolidation procedures,
which includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB
decided to focus its efforts on the consolidation policy part of the exposure
draft and to consider resuming discussion on consolidation procedures after
completion of the efforts on consolidation policy. The timing and content of
any final statement are uncertain.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Sales in 1997 were $3,558.3 million, an increase of $625.8 million, or 21%,
over 1996. Segment income, excluding restructuring and other nonrecurring
costs, net, of $1.3 million in 1997 and $37.6 million in 1996, described
below, increased 40% to $438.3 million in 1997 from $312.9 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, net, increased 65% to $405.8 million in 1997 from $246.5 million in
1996.
Instruments
Sales from the Instruments segment were $1,592.3 million in 1997, an
increase of $383.0 million, or 32%, over 1996. Sales increased primarily due
to acquisitions made by Thermo Instrument, which added $407 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 $46.8 million in
1997. In addition, revenues increased in 1997 due to higher sales at
ThermoQuest's existing mass spectrometry business, partly as a result of the
continued success of a new product introduced in the first quarter of 1996,
and due to increased sales from Metrika Systems, primarily as a result of
increased sales in international markets at its on-line raw-materials analyzer
business. Revenues also increased at ONIX Systems, primarily due to increased
sales of industry-specific instruments to the production segment of the oil
and gas industry. Revenues from Thermo Optek's existing businesses decreased
slightly due to the inclusion in 1996 of several large nonrecurring sales to
the Chinese and Japanese governments, a decrease in demand for elemental
products in Japan, and the elimination of certain unprofitable acquired
product lines, offset substantially by greater demand at one of its business
units.
Segment income margin (segment income margin is segment income as a
percentage of sales), excluding nonrecurring items, net, of $1.3 million of
income in 1997 and $3.5 million of costs in 1996, improved to 14.7% in 1997
from 11.8% in 1996. The improvement was primarily due to operating margin
improvement at certain of the Fisons businesses acquired in 1996 and increased
sales of ThermoQuest's higher-margin mass spectrometry products. This increase
was offset in part by the inclusion of lower-margin revenues at certain
acquired businesses, including Life Sciences, which recorded an adjustment to
expense of $3.6 million relating to the sale of inventories revalued at the
date of acquisition and, to a lesser extent, a decrease in segment income
margin at ThermoSpectra, primarily as a result of a one-time inventory write-
off and a change in sales mix at one of its business
S-15
<PAGE>
units. The 1996 period included a charge of $2.0 million relating to the sale
of inventories revalued at the date of the acquisition of the Fisons
businesses. Nonrecurring income of $1.3 million in 1997 represents a $2.2
million gain on the sale of a business by ThermoSpectra, offset in part by
$0.9 million of severance costs for employees terminated during 1997 at one of
ThermoSpectra's business units. During 1996, the Company recorded nonrecurring
costs of $3.5 million, which represented the write-off of acquired technology
relating to the acquisition of the Fisons businesses (see Note 11 of Notes to
Consolidated Financial Statements).
Alternative Energy
Sales from the Alternative Energy segment were $384.9 million in 1997,
compared with $339.8 million in 1996. Within this segment, revenues from
Thermo Ecotek increased to $189.5 million in 1997 from $154.3 million in 1996.
Revenues from Thermo Ecotek's Thermo Trilogy biopesticide subsidiary increased
by $18.7 million to $21.4 million, primarily due to the inclusion of revenues
from two acquired businesses. Thermo Ecotek's 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 of 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 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, 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. Revenues in 1996 from 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 $39.6 million in
1997 from $54.4 million in 1996, primarily due to the disposal of certain
business units, which resulted in a $14.2 million decrease in revenues. The
business units were sold for a nominal loss. Sales from Thermo Power increased
to $155.8 million in 1997 from $122.1 million in 1996, primarily due to $38.8
million of sales from Peek plc, acquired in November 1997, as well as higher
engine sales due to a $3.6 million nonrecurring order from one customer,
offset in part by lower demand for Thermo Power's remaining product lines.
Segment income, excluding nonrecurring items, net, of $8.3 million of income
in 1997 and $4.4 million of costs in 1996, was $60.2 million in 1997, compared
with $42.5 million in 1996. Thermo Ecotek's segment income was $50.4 million
in 1997, compared with $39.3 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. These increases were offset in
part by a decrease in Thermo Ecotek's segment income of $4.6 million in 1997
as a result of the funding of certain reserves required in connection with a
nonrecourse lease agreement for its Woodland, California plant. The Woodland
plant's results were approximately breakeven in 1997 and are expected to
remain so for the foreseeable future. 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
1997, the Company settled two legal cases in which it was a defendant,
concerning development of a proposed waste-to-energy facility and development
and construction of an alternative-energy facility. These matters were settled
for amounts less than the damages that had been sought by the plaintiffs and
less than the amounts that had been reserved by the Company. As a result, in
1997, the Company reversed $9.7 million of reserves previously established for
these matters, which is included in restructuring and other nonrecurring
costs, net (see Note 11 of Notes to Consolidated Financial Statements).
Segment income at Thermo Power improved to $7.5 million from $1.1 million in
1996, primarily due to
S-16
<PAGE>
contributions from Peek and, to a lesser extent, improved segment income at
its engines and industrial refrigeration businesses, due to increased engine
revenues, lower warranty costs in both businesses, as well as lower overhead
as a result of consolidating two engine manufacturing facilities. Excluding
restructuring and other nonrecurring costs of $1.4 million in 1997 and $4.4
million in 1996, Peter Brotherhood was profitable in 1997, compared with a
segment loss of $2.5 million in 1996. The restructuring and other nonrecurring
costs in 1997 related primarily to severance for employees terminated, and in
1996 related primarily to the write-off of a nontrade receivable and severance
costs.
Two of Thermo Ecotek's plants are located in New Hampshire and sell power to
Public Service Company of New Hampshire ("PSNH"). 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 ("NHPUC") 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
that prohibits the NHPUC from implementing the deregulation plan as it affects
PSNH, pending a determination by the court on whether PSNH's claim could be
heard by the court. In April 1997, the court ruled that it could now hear the
case and ordered that the 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
NHPUC seeking clarification of the NHPUC'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. An
unfavorable resolution of this matter, including the bankruptcy of PSNH, could
have a material adverse effect on Thermo Ecotek's results of operations and
financial position.
Thermo Ecotek has continued to address issues concerning operations at its
Gillette, Wyoming, coal-beneficiation facility. Thermo Ecotek has conducted
extensive testing and operated the facility, producing commercially salable
product. For tax purposes, the facility must be "placed in service" by June
30, 1998, to qualify for certain tax credits on its output. Although the
facility has operated and produced commercially salable product, Thermo Ecotek
has encountered certain difficulties in achieving optimal and sustained
operation. Thermo Ecotek has addressed and resolved certain problems
previously encountered, including a fire at the facility and certain
construction problems relating to the flow of materials within the facility
and the design and operation of certain pressure-release equipment. Currently,
Thermo Ecotek is experiencing certain operational problems relating to tar
residue build-up within the system during production. Thermo Ecotek is
actively exploring solutions to this problem. 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 problems and achieve optimal and sustained performance.
Paper Recycling
Sales in the Paper Recycling segment were $278.9 million in 1997, compared
with $286.3 million in 1996. A wholly owned subsidiary of the Company recorded
$58.0 million of revenues from a contract to design and construct an office
wastepaper de-inking facility in 1996. This contract was substantially
completed in the second quarter of 1996. Sales from Thermo Fibertek increased
25% to $239.6 million from $192.2 million in 1996, primarily due to revenues
of $52.7 million from acquired businesses, principally Thermo Black Clawson,
which was acquired in May 1997. Increases in revenues from Thermo Fibertek's
accessories, water-management, and other businesses were substantially offset
by an $11.3 million decrease in revenues at its recycling business due to a
continuing decrease in demand resulting from a severe drop in de-inked pulp
prices in 1996. In addition, the unfavorable effects of currency translation
reduced Thermo Fibertek's revenues by
S-17
<PAGE>
$6.3 million in 1997. Sales from Thermo TerraTech's thermal-processing
equipment business were $25.3 million in 1997, compared with $25.5 million in
1996. In October 1997, this business was sold for a nominal loss. Sales of
automated electroplating equipment by Napco increased $3.4 million to $14.0
million, primarily due to higher demand.
Segment income margin, excluding restructuring and other nonrecurring costs
of $1.1 million in 1997, was 11.5% in 1997, compared with 12.6% in 1996. This
decline primarily resulted from lower sales at Thermo Fibertek's recycling
business and lower-margin revenues from Thermo Black Clawson. In addition, the
Company recorded a segment loss in 1997 on the contract to design and
construct 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 relating to the consolidation of the operations of two of its
subsidiaries into the operations of Thermo Black Clawson (see Note 11 of Notes
to Consolidated Financial Statements).
Biomedical Products
Sales from the Biomedical Products segment were $590.2 million in 1997, an
increase of $134.3 million, or 29%, over 1996. Sales increased due to the
inclusion of $62.7 million in sales from acquired businesses, increased demand
at Trex Medical and Bird Medical Technologies, Inc., and growth at
ThermoLase's hair-removal business due to the opening of new spas and higher
revenues from physician- and international-licensing arrangements. Rather than
continuing to open additional domestic spas, ThermoLase intends to concentrate
its resources on attempting both to increase the capacity utilization of its
existing U.S. spas and to expand its physician-licensing program and
international licensing arrangements. These increases in revenues were offset
in part by a $4.7 million decline in sales of Thermo Cardiosystems' left
ventricular-assist systems ("LVAS"), which Thermo Cardiosystems believes
resulted from delayed orders as customers await approval from the U.S. Food
and Drug Administration of its advanced electric LVAS. Although Thermo
Cardiosystems believes that such approval may be received during the first six
months of 1998, there can be no assurance that approval will occur within the
expected time period, or at all.
Segment income, excluding restructuring and other nonrecurring costs of $0.5
million in 1997 and $29.7 million in 1996, increased to $53.2 million in 1997
from $46.1 million in 1996. This increase resulted substantially from
improvements at existing businesses, primarily at Bird Medical, SensorMedics
Corporation, and Trex Medical's existing businesses and, to a lesser extent,
the inclusion of segment income from acquired businesses. This increase in
segment income was offset in part by an increase in segment loss at ThermoLase
to $18.4 million in 1997 from $7.6 million in 1996, due to the early
operations of its Spa Thira hair-removal business, which has been operating
below maximum capacity as it seeks to develop its client base and refine its
process and 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 SoftLight(R) hair-removal process are critical
elements in its ability to improve the profitability of its spas. In 1998, 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. Thermo Cardiosystems'
profitability declined by $4.7 million primarily due to a decrease in LVAS
revenues. Restructuring and other nonrecurring costs of $0.5 million in 1997
represent costs to close certain foreign sales offices at certain of the
Company's wholly owned businesses. Restructuring and other nonrecurring costs
of $29.7 million in 1996 included a write-off of $12.7 million of cost in
excess of net assets of acquired company and certain other intangible assets
at Thermedics' Corpak subsidiary, $11.4 million of costs incurred by
SensorMedics primarily as a result of its merger with the Company, $4.9
million for Thermo Cardiosystems' write-off of acquired technology relating to
a 1996 acquisition, and $0.7 million of other costs (see Note 11 of Notes to
Consolidated Financial Statements).
S-18
<PAGE>
Industrial Outsourcing
Sales in the Industrial Outsourcing segment were $305.5 million in 1997, an
increase of $31.6 million, or 12%, over 1996. Revenues from Thermo TerraTech's
remediation and recycling services increased to $136.5 million in 1997 from
$121.2 million in 1996, primarily due to the inclusion of $22.9 million of
sales from acquired businesses, offset in part by a $6.4 million decrease in
revenues at one of Thermo Remediation'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 18% to $18.5 million,
resulting from lower volumes of soil processed due to overcapacity in the
industry and, to a lesser extent, competitive pricing pressures early in the
year. Revenues from consulting and design services increased $3.6 million due
to the inclusion of $12.8 million 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 $54.2 million in 1997 from $45.7 million
in 1996, due to increased demand for existing services and the inclusion of
$3.3 million of sales from an acquired business.
Segment income, excluding restructuring and other nonrecurring costs of $7.9
million in 1997 and $0.1 million in 1996, was $21.7 million in 1997, compared
with $17.8 million in 1996. Segment income improved in 1997 due to the effect
in 1996 of costs incurred at Thermo TerraTech to reduce redundancies at
regional laboratories, and by costs incurred at Thermo EuroTech in 1996
relating primarily to the settlement of several contract disputes, as well as
the impact of severe winter weather in early 1996, which affected all phases
of Thermo EuroTech's business. The effect of these improvements was offset in
part by a decline in segment income from soil-remediation services due to
lower sales as discussed above and lower segment income from consulting and
design services due to the completion of two large contracts. Restructuring
and other nonrecurring costs in 1997 included $7.8 million 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 (see Note 11 of Notes to Consolidated Financial Statements).
Advanced Technology
Sales from the Advanced Technology segment were $415.0 million in 1997,
compared with $375.5 million in 1996. Sales at Thermo Coleman were $156.2
million in 1997, compared with $144.2 million in 1996. This increase resulted
primarily from its Thermo Information Solutions subsidiary's contract to
supply kiosk units and, to a lesser extent, higher integrated document
management revenues and sales of $3.3 million from acquired businesses. These
increases in revenues were offset in part by a decrease in revenues from
government contracts. Sales of kiosk units increased to $16.5 million in 1997
from $1.4 million in 1996. Thermo Information Solutions intends to exit this
business in 1998 due to inherently low margins, lower than expected orders
from its sole customer, and the absence of other orders. Thermo Coleman
experienced a decline in backlog totaling $19.4 million in 1997. Thermo
Coleman's backlog at any certain date may not be indicative of future demand
for its products or services. Sales at Thermo Sentron increased to $78.7
million in 1997 from $70.0 million in 1996, primarily due to higher demand
and, to a lesser extent, sales of $4.2 million from acquired businesses,
offset in part by the unfavorable effects of currency translation. Sales at
Thermedics Detection increased 17% to $51.3 million in 1997, primarily due to
sales of its Alexus systems in connection with the completion of a mandated
product-line upgrade from The Coca-Cola Company to its existing installed
base, and $3.2 million of sales of explosives-detection systems to the U.S.
Federal Aviation Administration. Thermedics Detection expects that sales of
its Alexus systems will slow in 1998 due to the completion of the mandated
upgrade for The Coca-Cola Company in 1997 and a decrease in demand for new
installations. Sales at Thermo Voltek declined to $44.6 million in 1997 from
$48.5 million in 1996, primarily due to lower demand for electrostatic
compatibility ("EMC") test products, resulting from the declining influence of
IEC 801, the European Union directive on
S-19
<PAGE>
electromagnetic compatibility that took effect January 1, 1996, and, to a
lesser extent, a decline in the component-reliability market for electrostatic
discharge test equipment that resulted from a slowdown in capital expenditures
by the semiconductor industry. These decreases in revenues at Thermo Voltek
were offset in part by sales of $5.8 million from acquired businesses. Sales
from ThermoTrex's business units, including Trex Communications, increased
$12.7 million in 1997 as a result of $6.9 million of sales from an acquired
business at Trex Communications and, to a lesser extent, increased revenues
from government contracts.
Segment income margin, excluding restructuring and other nonrecurring costs
of $1.4 million in 1997, was 8.8% in 1997, compared with 7.5% 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 and lower margins at Thermo Coleman as a result
of increased sales of low-margin kiosk units and reduced revenues from
government contracts. Restructuring and other nonrecurring costs of $1.4
million in 1997 were recorded by ThermoTrex for the write-off of acquired
technology relating to an acquisition (see Note 11 of Notes to Consolidated
Financial Statements).
Gain on Issuance of Stock by Subsidiaries
As a result of the sale of stock by subsidiaries and issuance of stock by
subsidiaries upon conversion of convertible debentures, the Company recorded
gains of $80.1 million in 1997 and $126.6 million in 1996. See Notes 1 and 9
for a more complete description of these transactions. Minority interest
expense increased to $74.4 million in 1997 from $72.9 million in 1996.
Minority interest expense includes $19.0 million in 1997 and $38.2 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.
Contingent Liabilities and Other Matters
At year-end 1997, the Company was contingently liable with respect to
certain lawsuits (see Note 6 of Notes to Consolidated Financial Statements).
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased by the
Company. The Company believes that its internal information systems and
current products are either year 2000 compliant or will be so prior to the
year 2000 without incurring material costs. There can be no assurance,
however, that the Company will not experience unexpected costs and delays in
achieving year 2000 compliance for its internal information systems and
current products, which could result in a material adverse effect on the
Company's future results of operations.
The Company is presently assessing the effect that the year 2000 problem may
have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this
might have on the Company. The Company has not completed its analysis and is
unable to conclude at this time that the year 2000 problem as it relates to
its previously sold products and products purchased from key suppliers is not
reasonably likely to have a material adverse effect on the Company's future
results of operations.
1996 COMPARED WITH 1995
Sales in 1996 were $2,932.6 million, an increase of $662.3 million, or 29%,
over 1995. Segment income, excluding restructuring and other nonrecurring
costs of $37.6 million in 1996 and $21.9 million in 1995, described below,
increased 16% to $312.9 million in 1996 from $269.8 million in 1995. Operating
income, which includes restructuring and other nonrecurring costs, was $246.5
million in 1996, compared with $225.2 million in 1995.
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Instruments
Sales from the Instruments segment were $1,209.4 million in 1996, an
increase of $426.7 million, or 55%, over 1995. Sales increased primarily due
to acquisitions made by Thermo Instrument, which added $404 million of sales
in 1996. 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 $21.8 million in
1996. The remainder of the increase resulted primarily from greater demand at
Thermo Instrument's mass spectrometry business as a result of recently
introduced products and, to a lesser extent, greater demand at its Fourier
transform infrared spectrometry business.
Segment income margin, excluding restructuring and other nonrecurring costs
of $3.5 million in 1996, declined to 11.8% in 1996 from 14.5% in 1995,
primarily due to lower margins at acquired businesses. Restructuring and other
nonrecurring costs of $3.5 million represents the write-off of acquired
technology relating to the acquisition of the Fisons businesses (see Note 11
of Notes to Consolidated Financial Statements).
Alternative Energy
Sales from the Alternative Energy segment were $339.8 million in 1996,
compared with $325.9 million in 1995. Within this segment, revenues from
Thermo Ecotek were $154.3 million in 1996, compared with $141.4 million in
1995. This increase resulted primarily from higher contractual energy rates at
all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire;
increased revenues at the Delano plants in California resulting from fewer
days of scheduled and unscheduled outages; and an acquisition that added $2.6
million in revenues. Revenues from the Company's waste-recycling facility in
southern California were $9.2 million in 1996, compared with $20.8 million in
1995. This facility was sold in July 1996. Sales at Peter Brotherhood declined
3% to $54.4 million as a result of lower demand for steam turbines. Sales from
Thermo Power were $122.1 million in 1996, compared with $108.4 million in
1995. This increase resulted primarily from increased demand for custom-
designed industrial refrigeration packages, remanufactured commercial cooling
equipment, and the inclusion of revenues from lift-truck engines, offset in
part by declines in revenues from marine-engine products and rental equipment.
Segment income, excluding restructuring and other nonrecurring costs of $4.4
million in 1996 and $11.5 million in 1995, was $42.5 million in 1996, compared
with $44.5 million in 1995. Thermo Ecotek had segment income of $39.3 million
in 1996, compared with $34.6 million in 1995. This improvement results from
increased revenues and, to a lesser extent, lower fuel costs. Segment income
from the Company's waste-recycling facility, which was sold in July 1996,
excluding restructuring and other nonrecurring costs of $11.5 million in 1995,
was $4.6 million in 1996 and $5.9 million in 1995. Results from this facility,
net of related interest expense (not included in segment income), were
approximately at the breakeven level for both periods. Segment income at
Thermo Power declined by $3.9 million to $1.1 million in 1996 due to a change
in sales mix, a cost increase in one of the major components of its industrial
refrigeration packages, higher depreciation expense at NuTemp, and higher
warranty expenses for marine-engine products and at NuTemp. Peter Brotherhood
incurred a segment loss of $2.5 million in 1996, excluding restructuring and
other nonrecurring costs of $4.4 million, compared with a loss of $1.1 million
in 1995. The decline resulted from increased costs to complete jobs in process
as well as competitive pricing pressures. Peter Brotherhood recorded
restructuring and other nonrecurring costs of $4.4 million in 1996 primarily
for the write-off of a nontrade receivable and severance costs.
Restructuring and other nonrecurring costs of $11.5 million in 1995
represents the Company's net investment in a waste-recycling facility in
southern California that contracted to process waste for
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San Diego County (the "County") under a long-term service agreement. During
the third quarter of 1995, the County paid the Company less than the amount
due under the long-term service agreement, and in October 1995, the Company
notified the County that the County was in default of the service agreement.
The County was a party to the financing arrangements for the facility and was
also in default of certain terms of such arrangements. As a result of the
County's default under the service agreement and financing arrangements, the
Company concluded that it would be unable to recover its investment in the
facility. In 1996, in settlement of these matters, the facility was sold to
the County for a nominal amount plus the County's assumption of the facility
debt.
Paper Recycling
Sales in the Paper Recycling segment were $286.3 million in 1996, compared
with $318.0 million in 1995. A wholly owned subsidiary of the Company recorded
revenues from a contract to design and construct an office wastepaper de-
inking facility of $58.0 million in 1996 and $77.0 million in 1995. This
contract was substantially completed in the second quarter of 1996. Sales from
Thermo Fibertek declined 7%, to $192.2 million in 1996. Thermo Fibertek's
revenues under a subcontract from Thermo Electron to supply equipment and
services for the office wastepaper de-inking facility described above
decreased $12.9 million. Revenues from Thermo Fibertek's recycling business
declined an additional $7.5 million due to lower demand resulting from a
severe drop in de-inked pulp prices, offset in part by $2.2 million of
revenues from a business acquired during 1996. Revenues from Thermo Fibertek's
accessories business increased $8.8 million primarily due to increased demand.
The unfavorable effects of currency translation reduced Thermo Fibertek's
revenues by $1.7 million in 1996. Sales of Thermo TerraTech's thermal-
processing equipment increased $8.3 million in 1996 due to increased demand,
while sales of automated electroplating equipment by the Company's wholly
owned Napco subsidiary declined $6.4 million in 1996.
Segment income margin, excluding restructuring and other nonrecurring costs
of $7.5 million in 1995, was 12.6% in 1996, compared with 11.5% in 1995. This
improvement resulted primarily from a nonrecurring payment received under the
office wastepaper de-inking facility contract in 1996, which represented
certain cost savings on the contract, and increased revenues from Thermo
TerraTech's thermal-processing equipment business from depressed levels in
1995. Restructuring and other nonrecurring costs of $7.5 million in 1995
represent the write-off of cost in excess of net assets of acquired companies,
of which $5.0 million was recorded by Thermo TerraTech, and $2.5 million was
recorded by Napco (see Note 11 of Notes to Consolidated Financial Statements).
Biomedical Products
Sales in the Biomedical Products segment were $455.9 million in 1996, an
increase of $139.3 million, or 44%, over 1995. Sales increased due to the
inclusion of $111.7 million in sales from acquired businesses, as well as
increased demand for certain products at Trex Medical, Thermo Cardiosystems'
LVAS, and ThermoLase's hair-removal business.
Segment income, excluding restructuring and other nonrecurring costs of
$29.7 million in 1996, increased to $46.1 million in 1996 from $27.2 million
in 1995. This improvement resulted primarily from the inclusion of segment
income from acquired businesses and increased sales at existing businesses.
Restructuring and other nonrecurring costs of $29.7 million in 1996 included a
write-off of $12.7 million of cost in excess of net assets of acquired company
and certain other intangible assets at Thermedics' Corpak subsidiary, $11.4
million of costs incurred by SensorMedics primarily as a result of its merger
with the Company, $4.9 million for Thermo Cardiosystems' write-off of acquired
technology relating to a 1996 acquisition, and $0.7 million of other costs
(see Note 11 of Notes to Consolidated Financial Statements).
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Industrial Outsourcing
Sales in the Industrial Outsourcing segment were $273.9 million in 1996, an
increase of $63.4 million, or 30%, over 1995. Revenues from Thermo TerraTech's
remediation and recycling services increased to $121.2 million in 1996 from
$67.5 million in 1995, primarily due to the inclusion of $53.9 million in
revenues from acquired businesses. This increase was offset in part by a
decline in revenues from soil-remediation services of $4.9 million in 1996 due
to declines in the volume of soil processed as a result of more relaxed
regulatory standards in several states and competitive pricing pressures; and
by a decline in revenues at Thermo TerraTech's radiochemistry laboratory
businesses reflecting a reduction in spending at the U.S. Department of Energy
and reduced federal government budget appropriations. Sales of metallurgical
services were $45.7 million in 1996, compared with $42.8 million in 1995.
Sales increased due to increased demand for existing services, offset in part
by a decline of $2.9 million resulting from the closing of a small
metallurgical services division in 1995.
Segment income, excluding restructuring and other nonrecurring costs of $0.1
million in 1996 and $2.0 million in 1995, was $17.8 million in 1996, compared
with $23.2 million in 1995. Additional segment income from acquisitions was
more than offset by costs incurred at Thermo TerraTech to reduce redundancies
at regional laboratories and by costs incurred at Thermo EuroTech relating
primarily to the settlement of several contract disputes, as well as the
impact of severe winter weather in early 1996, which affected all phases of
Thermo EuroTech's business, and by the effect of lower sales and income from
the traditionally higher-margin soil-remediation services. Restructuring and
other nonrecurring costs of $2.0 million in 1995 were recorded in connection
with closing a metallurgical services division.
Advanced Technologies
Sales from the Advanced Technologies segment were $375.5 million in 1996,
compared with $323.6 million in 1995. Sales increased $73.5 million due to the
inclusion of sales from acquired businesses. These increases were offset in
part by declines in revenues due to lower U.S. government contract funding at
Thermo Coleman and ThermoTrex due to increased competition for government
research and development funding.
Segment income, excluding restructuring and other nonrecurring costs of $1.0
million in 1995, was $28.0 million in 1996, compared with $24.8 million in
1995. Segment income provided by acquired companies and additional income from
certain businesses were offset in part by lower segment income at Thermo
Coleman, as a result of lower revenues, and by a loss incurred at ThermoTrex's
advanced-technology research center due to cost overruns and higher expenses
for new lines of business. Restructuring and other nonrecurring costs in 1995
primarily represent the write-off of intangible assets at ThermoTrex's East
Coast division which was closed.
Gain on Issuance of Stock by Subsidiaries
As a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures, and similar
transactions, the Company recorded gains of $126.6 million in 1996 and $80.8
million in 1995. See Notes 1 and 9 for a more complete description of these
transactions. Minority interest expense increased to $72.9 million in 1996
from $60.5 million in 1995. Minority interest expense includes $38.2 million
in 1996 and $28.6 million in 1995 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 $2,002.0 million at January 3, 1998,
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 $1,522.7 million at January 3, 1998, compared with $1,846.3
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million at December 28, 1996. In addition, the Company had long-term
available-for-sale investments of $63.3 million at January 3, 1998, compared
with $94.4 million at December 28, 1996. Of the total $1,586.0 million of
cash, cash equivalents, and short- and long-term available-for-sale
investments at January 3, 1998, $1,333.1 million was held by the Company's
majority-owned subsidiaries and the balance was held by the Company and its
wholly owned subsidiaries.
During 1997, $269.0 million of cash was provided by operating activities.
Cash of $86.5 million was used to fund an increase in accounts receivable,
principally at Trex Medical, Thermo Instrument, and Thermo TerraTech. The
increase in receivables at Trex Medical resulted primarily from increased
sales and, to a lesser extent, longer customer payment patterns due to higher
international sales and a shift to direct sales at a subsidiary. The increase
in receivables at Thermo Instrument resulted from increased shipments in the
fourth quarter at ThermoQuest and a competitive trend to commercial terms of
30 days from ThermoQuest's past practice of obtaining deposits on certain
systems. The increase in receivables at Thermo TerraTech resulted from higher
revenues at one business unit and a delay in the pursuit of collections at a
second, which Thermo TerraTech expects to address in 1998 by expanding
collection efforts. In addition, cash of $61.7 million was used to reduce
other current liabilities, primarily for taxes and certain exit costs relating
to acquisitions (see Note 3 of Notes to Consolidated Financial Statements).
The Company's primary investing activities, excluding available-for-sale
investment activity, included acquisitions, capital expenditures, and the sale
of certain businesses and property, plant, and equipment. During 1997, the
Company expended $849.1 million, net of cash acquired, for acquisitions and
received a $36.1 million refund relating to a 1996 acquisition (see Note 3 of
Notes to Consolidated Financial Statements). In addition, the Company sold
certain businesses for net proceeds of $27.1 million. The Company expended
$111.6 million for purchases of property, plant, and equipment and received
proceeds of $15.6 million from the sale of property, plant, and equipment.
The Company's financing activities provided $237.8 million of cash in 1997.
Net proceeds from the issuance of Company and subsidiary common stock totaled
$164.9 million, and net proceeds from the issuance of long-term obligations
totaled $490.8 million. In addition, the Company repaid long-term obligations
of $78.3 million.
During 1997, an aggregate principal amount of $246.1 million of Company and
subsidiary convertible obligations were converted into shares of Company and
subsidiary common stock.
In January 1998, Thermo Instrument issued and sold $250.0 million principal
amount of 4% subordinated convertible debentures due 2005 for net proceeds of
$243.8 million.
The Company intends, for the foreseeable future, to maintain at least 80%
ownership of its Thermo Instrument and Thermo Ecotek subsidiaries, which is
required in order to continue to file a consolidated federal income tax return
with these subsidiaries. In addition, the Company intends to maintain greater
than 50% ownership of its other majority-owned subsidiaries so that it may
continue to consolidate these subsidiaries for financial reporting purposes.
This may require the purchase by the Company of additional shares or
convertible debentures of these companies from time to time as the number of
outstanding shares issued by these companies increases, either in the open
market or directly from the subsidiaries. See Note 5 for a description of
outstanding convertible debentures issued by Thermo Instrument and Thermo
Ecotek. In addition, at January 3, 1998, Thermo Instrument and Thermo Ecotek
had outstanding stock options for 4,365,000 shares and 1,267,000 shares,
respectively, exercisable at various prices and subject to certain vesting
schedules. The Company's other majority-owned subsidiaries also have
outstanding stock options, convertible debentures, or both.
During 1997, the Company and its majority-owned subsidiaries expended $311.1
million to purchase common stock and debentures of certain of the Company's
majority-owned subsidiaries.
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These purchases were made pursuant to authorizations by the Company's and
certain majority-owned subsidiaries' Boards of Directors. As of January 3,
1998, $13.1 million and $35.0 million remained under the Company's and its
majority-owned subsidiaries' authorizations, respectively. Subsequent to
January 3, 1998, the Company and a majority-owned subsidiary received
additional authorizations of $50.0 million and $10.0 million, respectively.
The amount of purchases in a given reporting period may vary significantly.
The Company has no material commitments for purchases of property, plant,
and equipment and expects that, for 1998, expenditures on such items will
approximate the 1997 level. Since January 3, 1998, a majority-owned subsidiary
expended $4.5 million on the acquisition of a business and as of March 10,
1998, the Company's majority-owned subsidiaries had agreements or nonbinding
letters of intent to acquire businesses for a total cost of approximately
$67.5 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.
As discussed above, a substantial percentage of the Company's consolidated
cash and investments is held by subsidiaries that are not wholly owned by the
Company. This percentage may vary significantly over time. Pursuant to the
Thermo Electron Corporate Charter (the "Charter"), to which each of the
majority-owned subsidiaries of the Company is a party, the combined financial
resources of Thermo Electron and its subsidiaries allow the Company to provide
banking, credit, and other financial services to its subsidiaries so that each
member of the Thermo Electron group of companies may benefit from the
financial strength of the entire organization. Toward that end, the Charter
states that each member of the group may be required to provide certain credit
support to the consolidated entity. This credit may rank junior, pari passu
with, or senior in priority to payment of the other indebtedness of these
members. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions is
subject in each instance to a fiduciary duty owed to the minority shareholders
of the relevant subsidiary. In addition, dividends received by Thermo Electron
from a subsidiary that does not consolidate with Thermo Electron for tax
purposes are subject to tax. Therefore, under certain circumstances, a portion
of the Company's consolidated cash and short-term investments may not be
readily available to Thermo Electron or certain of its subsidiaries.
MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing
activities. Additionally, the Company uses short-term forward contracts to
manage certain exposures to foreign currencies. The Company enters into
forward foreign exchange contracts to hedge firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. The
Company does not engage in extensive foreign currency hedging activities;
however, the purpose of the Company's foreign currency hedging activities is
to protect the Company's local currency cash flows related to these
commitments from fluctuations in foreign exchange rates. The Company's forward
foreign exchange contracts principally hedge transactions denominated in U.S.
dollars, British pounds sterling, French francs, and Japanese yen. Gains and
losses arising from forward contracts are recognized as offsets to gains and
losses resulting from the transactions being hedged. The Company does not
enter into speculative foreign currency agreements.
Foreign Currency Exchange Rates
The fair value of forward foreign exchange contracts is sensitive to changes
in foreign currency exchange rates. The fair value of forward foreign exchange
contracts is the estimated amount that
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the Company would pay or receive upon termination of the contract, taking into
account the change in foreign exchange rates. A 10% depreciation in year-end
1997 foreign currency exchange rates related to the Company's contracts would
result in a decrease in the unrealized gain on forward foreign exchange
contracts of $3 million. Since the Company uses forward foreign exchange
contracts as hedges of firm purchase and sale commitments, the unrealized gain
or loss on forward foreign currency exchange contracts resulting from changes
in foreign currency exchange rates would be offset by a corresponding change
in the fair value of the hedged item.
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations
in foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling,
French francs, and German deutsche marks. The effect of a change in foreign
exchange rates on the Company's net investment in foreign subsidiaries is
recorded as a separate component of shareholders' investment. A 10%
depreciation in year-end 1997 functional currencies, relative to the U.S.
dollar, would result in a $27 million reduction of shareholders' investment.
Interest Rates
Certain of the Company's short- and long-term available-for-sale
investments, long-term obligations, and interest rate swap agreements are
sensitive to changes in interest rates. Interest rate changes would result in
a change in the fair value of these financial instruments due to the
difference between the market interest rate and the rate at the date of
purchase or issuance of the financial instrument. A 10% decrease in year-end
1997 market interest rates would result in a negative impact of $18 million on
the net fair value of the Company's interest-sensitive financial instruments.
Equity Prices
The Company's available-for-sale investment portfolio includes equity
securities that are sensitive to fluctuations in price. In addition, the
Company's and its subsidiaries' convertible obligations are sensitive to
fluctuations in the price of Company or subsidiary common stock into which the
obligations are convertible. Changes in equity prices would result in changes
in the fair value of the Company's available-for-sale investments and
convertible obligations due to the difference between the current market price
and the market price at the date of purchase or issuance of the financial
instrument. A 10% increase in the year-end 1997 market equity prices would
result in a negative impact of $96 million on the net fair value of the
Company's price-sensitive equity financial instruments.
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BUSINESS
Thermo Electron Corporation is a diversified technology company that
provides instruments, systems, and services primarily to industrial,
healthcare, and environmental markets. Thermo Electron seeks to identify major
emerging needs in society that can be addressed by technologies being
developed throughout its businesses. In its 42-year history, the Company has
grown to become a leader in certain markets where continued technological
innovation is integral to success. For example, the Company is a worldwide
leader in the design, manufacture, and sale of analytical instruments, paper
recycling equipment, heart-assist devices, and mammography systems. The
Company also provides a range of other specialized products, including medical
diagnostic equipment, alternative-energy systems, industrial process controls,
and environmental-contamination monitors. In addition, the Company offers a
range of services, particularly industrial outsourcing of environmental-
liability management and laboratory analysis, and conducts advanced-technology
research and development.
The Company's ability to innovate derives, in part, from a unique corporate
structure that it developed to retain its entrepreneurial spirit while
continuing its growth. In 1983, the Company adopted a strategy of "spinning
out" certain of its businesses by selling a minority interest in those
subsidiaries to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management of the
spinout companies through the establishment of subsidiary stock-option
incentive programs, as well as capital to sustain the subsidiaries' growth.
The Company's corporate office provides the wholly and majority-owned
subsidiaries with cost-effective, centralized business development,
administrative, financial, and other resources. As of April 6, 1998, the
Company had 29 subsidiaries that have sold minority equity interests, 23 of
which are publicly traded and six of which are privately held.
A key part of the Company's growth strategy is the acquisition of
complementary businesses that broaden product lines, access new markets,
expand distribution channels, or add manufacturing capability. In 1997, 1996,
and 1995, the Company paid $924.3 million, $383.7 million, and $339.1 million
in cash, respectively, to acquire various businesses.
As a result of acquisitions and internal growth, the Company reported
revenues of $3.6 billion in 1997, a 21% increase from $2.9 billion in 1996.
Revenues have increased at a compound annual growth rate of approximately 29%
over the past five fiscal years. Operating income increased 65% to $405.8
million in 1997, from $246.5 million in 1996. Over the past five fiscal years,
Thermo Electron's operating income has increased at a compound annual growth
rate of approximately 42%.
The Company's products and services are divided into six segments:
Instruments, Biomedical Products, Alternative Energy, Paper Recycling,
Industrial Outsourcing, and Advanced Technology. Products or services within a
particular segment may be provided by more than one subsidiary, and certain
subsidiaries' products or services are included in more than one segment. The
principal products and services offered by the Company in the six industry
segments are described below:
Instruments
The Company, through its Thermo Instrument Systems Inc. subsidiary, is a
worldwide leader in the development, manufacture, and marketing of instruments
used to identify complex chemical compounds, toxic metals, and other elements
in a broad range of liquids, solids, and gases, as well as to analyze air
pollution and radioactivity. Thermo Instrument also provides instruments that
control, monitor, image, inspect, and measure various industrial processes and
life sciences phenomena.
Thermo Instrument historically has expanded both through the acquisition of
companies and product lines and through the internal development of new
products and technologies. During the
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past several years, Thermo Instrument has completed a number of complementary
acquisitions that have provided additional technologies, specialized
manufacturing or product-development expertise, and broader capabilities in
marketing and distribution.
For example, in March 1997, Thermo Instrument acquired 95% of Life Sciences
International PLC, a London Stock Exchange-listed company. Subsequently,
Thermo Instrument acquired the remaining shares of Life Sciences' capital
stock. Life Sciences manufactures laboratory science equipment, appliances,
instruments, consumables, and reagents for the research, clinical, and
industrial markets.
In March 1996, Thermo Instrument completed the acquisition of a substantial
portion of the businesses constituting the Scientific Instruments Division of
Fisons plc, a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. These
businesses substantially added to Thermo Instrument's research, development,
manufacture, and sale of analytical instruments to industrial and research
laboratories worldwide. Certain of the Fisons businesses were since sold by
Thermo Instrument to a number of its public subsidiaries that have
complementary technologies and markets.
Thermo Instrument adopted the Company's spinout strategy in an effort to
more clearly focus its many instrumentation technologies on specific niche
markets. To date, Thermo Instrument has completed initial public offerings of
ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation,
Thermo BioAnalysis Corporation, Metrika Systems Corporation, Thermo Vision
Corporation, and ONIX Systems Inc. Thermo Instrument's subsidiaries are
outlined below:
ThermoSpectra develops, manufactures, and markets precision imaging and
inspection, temperature-control, and test and measurement instruments. These
instruments are generally combined with proprietary operations and analysis
software to provide industrial and research customers with integrated systems
that address their specific needs.
ThermoQuest is a leading provider of mass spectrometers, liquid
chromatographs, and gas chromatographs for the pharmaceutical, environmental,
and industrial marketplaces. These analytical instruments are used in the
quantitative and qualitative chemical analysis of organic and inorganic
compounds at ultratrace levels of detection. ThermoQuest also supplies
scientific equipment for the preparation and preservation of chemical samples,
and consumables for the chromatography industry.
Thermo Optek is a worldwide leader in the development, manufacture, and
marketing of analytical instruments that use a range of light- and energy-
based techniques. Thermo Optek's instruments are used in the quantitative and
qualitative chemical analysis of elements and molecular compounds in a variety
of solids, liquids, and gases.
Thermo BioAnalysis develops, manufactures, and markets instruments,
consumables, and information-management systems used in biochemical research
and production, as well as in clinical diagnostics. Thermo BioAnalysis focuses
on three principal product areas: life sciences instrumentation and
consumables, information-management systems, and health physics
instrumentation.
Metrika Systems manufactures process optimization systems that provide on-
line, real-time analysis of the elemental composition of bulk raw materials in
basic-materials production processes, including coal, cement, and minerals. In
addition, Metrika Systems manufactures industrial gauging and process-control
instruments and systems used principally by manufacturers of finished web
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materials, such as sheet metal, rubber, and plastic foils, to measure and
control parameters such as thickness and coating weight of such materials.
Thermo Vision, which became a public subsidiary of Thermo Instrument in
December 1997, designs, manufactures, and markets a diverse array of photonics
(light-based) products, including optical components, imaging sensors and
systems, lasers, optically based instruments, opto-electronics, and fiber
optics. These products are used in applications including medical diagnostics,
semiconductor production, X-ray imaging, physics research, and
telecommunications.
ONIX Systems, which became a public subsidiary of Thermo Instrument in March
1998, designs, develops, markets, and services sophisticated field measurement
instruments and on-line sensors for process-control industries, particularly
oil and gas. Systems provide real-time data collection, analysis, and local
control functions regarding the flow, level, density, or composition of a
particular material.
Thermo Instrument also has wholly owned businesses, including the Life
Sciences Clinical Instrument Division, which provides an array of clinical
laboratory equipment and consumables, and Thermo Monitoring Instruments, which
produces instruments and complete systems for detecting and monitoring
environmental pollutants from industrial and mobile sources, and for detecting
radioactive contamination.
Alternative Energy
The Company's Alternative Energy segment includes the operation of
independent (non-utility) power plants that operate using environmentally
sound fuels and technologies, the development of engineered clean fuels, and
the manufacture and sale of biopesticides. This segment also includes the
manufacture, sale, and servicing of intelligent traffic-control systems,
industrial refrigeration equipment; natural gas engines; packaged cooling and
cogeneration systems; and steam turbines and compressors.
Through its Thermo Ecotek Corporation subsidiary, the Company designs,
develops, owns, and operates independent (non-utility) electric power-
generation facilities that use environmentally responsible fuels, including
agricultural and wood wastes, referred to as "biomass." Thermo Ecotek
currently operates seven biomass facilities. Its facilities are developed and
operated through joint ventures or limited partnerships in which it has a
majority interest, or through wholly owned subsidiaries.
Thermo Ecotek intends to pursue development of biomass and other power-
generation projects both in the U.S. and overseas. In 1996, Thermo Ecotek
formed a joint venture in Italy to develop, own, and operate biomass-fueled
electric power facilities, and in January 1997, announced a joint agreement to
expand two district energy centers in the Czech Republic. In the U.S., where
the Company believes that utility deregulation may present opportunities for
updating aging plants, Thermo Ecotek signed a $9.5 million agreement in
November 1997 to purchase two deregulated plants in southern California for
possible refurbishing and repowering.
Thermo Ecotek is expanding beyond power generation into other products and
processes that protect the environment. In August 1995, Thermo Ecotek, through
two wholly owned subsidiaries, entered into a Limited Partnership Agreement
with KFx Wyoming, Inc., a subsidiary of KFx Inc., to develop, construct, and
operate a coal-beneficiation plant in Gillette, Wyoming. The facility employs
patented "clean coal" technology to remove excess moisture and increase energy
from subbituminous coal extracted from Wyoming's Powder River Basin.
In May 1996, Thermo Ecotek entered the biopesticide business by acquiring
the assets, subject to certain liabilities, of the biopesticide division of
W.R. Grace & Co. (renamed Thermo Trilogy), which
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develops, manufactures, and markets environmentally friendly products for
agricultural pest control. In January 1997, Thermo Trilogy acquired the assets
of biosys, inc., a producer of naturally derived biopesticides, including
pheromone, neem/azadiractin, nematodes, and virus-based products, as well as
disease-resistant sugar cane, and in November 1997, purchased the Bt
biopesticide product line of Novartis AG.
The Company, through its Thermo Power Corporation subsidiary, manufactures,
markets, and services intelligent traffic-control systems, industrial
refrigeration equipment, engines for vehicular and stationary applications,
natural gas-fueled commercial cooling and cogeneration systems, and, through
its privately held ThermoLyte Corporation subsidiary, is developing a line of
gas-powered lighting products for commercialization.
In November 1997, Thermo Power completed a cash tender offer for Peek plc,
based in the U.K. Through Peek, the Company offers a range of intelligent
traffic-control systems for urban traffic control, motorway management, and
public transportation management in cities worldwide. Systems include traffic-
signal synchronization systems to minimize congestion, variable message
systems to advise drivers of accidents or construction, video systems to
provide real-time analysis of traffic flows at intersections and on highways,
as well as automatic toll-collection systems. Peek also has developed high-
resolution video equipment to aid police officers in monitoring traffic
violations.
Through its industrial refrigeration business, Thermo Power supplies
standard and custom-designed industrial refrigeration systems used primarily
by the food-processing, petrochemical, and pharmaceutical industries. Thermo
Power is also a supplier of both remanufactured and new commercial cooling
equipment for sale or rental. The commercial cooling equipment is used
primarily in institutions and commercial buildings, as well as by service
contractors.
Thermo Power also develops, manufactures, markets, and services gasoline
engines for recreational boats, propane and gasoline engines for lift trucks,
and natural gas engines for vehicles and stationary industrial applications;
and designs, develops, markets and services packaged cooling and cogeneration
systems fueled principally by natural gas.
The Company's Alternative Energy segment also includes a U.K.-based
manufacturer of steam turbines and compressors.
Paper Recycling
The Company designs, manufactures, and sells paper recycling and papermaking
equipment and accessory products, and electroplating and aqueous cleaning
systems.
Through its Thermo Fibertek Inc. subsidiary, the Company is a leading
designer and manufacturer of processing machinery, accessories, and water-
management systems for the paper and paper recycling industries. Thermo
Fibertek's custom-engineered systems remove debris, impurities, and ink from
wastepaper, and process it into a fiber mix used to produce recycled paper.
Thermo Fibertek's principal products include custom-engineered systems and
equipment for the preparation of wastepaper for conversion into recycled
paper, accessory equipment and related consumables important to the efficient
operation of papermaking machines, and water-management systems essential for
draining, purifying, and recycling process water.
In May 1997, Thermo Fibertek acquired the majority of the assets, subject to
certain liabilities, of the stock-preparation business of The Black Clawson
Company and certain of its affiliates. In August 1997, the Company acquired
the remaining assets of the stock-preparation business of The Black Clawson
Company and such affiliates. This business, renamed Thermo Black Clawson, is a
leading supplier of recycling equipment used in processing fiber for the
manufacture of "brown paper," such as that used for corrugated boxes.
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In September 1996, Thermo Fibergen Inc. became a majority-owned, public
subsidiary of Thermo Fibertek. Thermo Fibergen is developing and
commercializing equipment and systems to recover materials from papermaking
sludge generated by plants that produce virgin and recycled pulp and paper.
Thermo Fibergen's GranTek Inc. subsidiary uses a patented process to convert
papermaking sludge into granules that are used for applications including
carriers for agricultural chemicals, oil and grease absorption, and catbox
filler.
Through a wholly owned subsidiary, the Company also manufactures
electroplating systems and related waste-treatment equipment and accessories,
as well as aqueous systems for cleaning metal parts without using ozone-
damaging solvents.
Biomedical Products
The Company's Biomedical Products segment comprises a number of diverse
medical products businesses, both wholly and publicly owned, that supply a
wide range of medical systems and devices for diagnostic imaging,
cardiovascular support, respiratory care, neurodiagnostics, sleep analysis,
wireless patient monitoring, and blood management. The Company's biomedical
products are sold to hospitals, clinics, universities, private-practice
medical offices, and medical research facilities.
Its wholly owned Thermo Biomedical group includes Bear Medical Systems, the
business of which was acquired from Allied Healthcare Products, Inc. in
October 1997. Bear Medical designs, manufactures, and markets respiratory
products, primarily ventilators.
Also part of the Company's Thermo Biomedical group are SensorMedics
Corporation, a leading provider of systems for pulmonary function diagnosis
and a producer of respiratory gas analyzers, physiological testing equipment,
and automated sleep-analysis systems; and Medical Data Electronics, a
manufacturer of patient-monitoring systems. Both companies were acquired in
1996.
Nicolet Biomedical Inc., another wholly owned subsidiary of the Company, is
a leading manufacturer of biomedical instruments for assessing muscle, nerve,
sleep, hearing, and brain blood-flow disorders, various neurologic disorders,
and for related work in clinical neurophysiology. In September 1997, Nicolet
acquired IMEX Medical Systems, Inc., a leading manufacturer of products used
to evaluate peripheral vascular disease, as well as products to detect fetal
heartbeat. This subsidiary is now called Nicolet Vascular Inc.
Another wholly owned subsidiary, Bird Medical Technologies, Inc., develops,
manufactures, and sells respiratory-care equipment and accessories and
infection-control products to hospitals, subacute-care facilities, outpatient
surgical centers, doctors, dentists, the military, and to other manufacturers.
Thermo Cardiosystems Inc., a public subsidiary of Thermedics Inc., has
developed an implantable left ventricular-assist system ("LVAS") called
HeartMate(TM) that, when implanted alongside the natural heart, is designed to
take over the pumping function of the left ventricle for patients whose hearts
are too damaged or diseased to produce adequate blood flow. Thermo
Cardiosystems has two versions of the LVAS: a pneumatic (or air-driven) system
that can be controlled by either a bedside console or portable unit, and an
electric system that features an internal electric motor powered by an
external battery-pack worn by the patient.
The air-driven HeartMate system has received both the European Conformity
Mark and U.S. Food and Drug Administration ("FDA") approval for commercial
sale. The electric version of the LVAS, which also holds the CE Mark, is
currently awaiting commercial approval by the FDA for use as a bridge to
transplant. In Europe, the device is used both as a bridge to transplant and
as an alternative to medical therapy.
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<PAGE>
In December 1996, Thermo Cardiosystems acquired the business of Nimbus
Medical, Inc., a research and development organization involved for more than
20 years in technology for ventricular-assist devices and total artificial
hearts, including high-speed rotary blood pumps, which are relatively small
and could potentially provide cardiac support in small adults and children.
Also part of Thermo Cardiosystems is International Technidyne Corporation, a
leading manufacturer of hemostasis-management products, including blood
coagulation-monitoring instruments, and a supplier of skin-incision devices
used to draw small blood samples precisely and with minimal discomfort.
Trex Medical Corporation, a public subsidiary of ThermoTrex Corporation,
designs, manufactures, and markets a range of medical imaging systems. It is
the world's leading manufacturer of mammography equipment and minimally
invasive digital breast-biopsy systems. Trex Medical also provides general-
purpose and specialty radiographic systems, such as those used in the
diagnosis and treatment of coronary artery disease and other vascular
conditions.
In early December, Trex Medical submitted a 510(k) application to the FDA
seeking clearance to market its digital imaging system for mammography. The
Company believes that an advantage of digital imaging is that radiologists can
manipulate and enhance image quality to scrutinize subtle differences that may
otherwise go undetected on film-based X-rays. If the FDA approves the digital
imaging system for mammography applications, Trex Medical plans to develop its
digital technology for use in certain of its other products.
ThermoLase Corporation, also a public subsidiary of ThermoTrex, operates a
network of spas that offer its patented SoftLight(R) hair-removal system, for
which it received FDA clearance in April 1995. The SoftLight system uses a
low-energy dermatology laser in combination with a lotion to remove hair.
ThermoLase submitted a 510(k) application for its laser-based skin-retexturing
system, based on data from clinical trials.
ThermoLase currently has 14 Spa Thira locations in the U.S., with 3 spas
outside the U.S.: in Paris, France; Lugano, Switzerland; and Dubai, U.A.E. To
complement its Spa Thira salons, ThermoLase has commenced a program to license
the SoftLight hair-removal process to physicians for use in their practices.
ThermoLase has established a number of joint ventures and other physician-
licensing arrangements to market its SoftLight processes internationally.
ThermoLase also manufactures and markets personal care products sold through
department stores, salons, and spas, including the lotion that is used in the
SoftLight hair-removal process.
Trex Communications Corporation, a majority-owned, privately held subsidiary
of ThermoTrex, is developing laser communications technology designed to
transmit very large amounts of data quickly, and also designs and markets
interactive information and voice-response systems, as well as automated
calling equipment.
Industrial Outsourcing
Through its Thermo TerraTech Inc. subsidiary, the Company provides
outsourcing services, primarily in environmental-liability management and
infrastructure planning and design, with
specialization in the areas of municipal and industrial water quality
management, bridge and highway construction and reconstruction, and natural
resource management. Thermo TerraTech also offers comprehensive environmental
testing and analysis through a national network of laboratories serving the
pharmaceutical, food, and environmental industries.
Thermo Remediation Inc., a public subsidiary of Thermo TerraTech, is a
national provider of outsourcing services for environmental management,
including industrial, nuclear, and soil
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remediation, as well as waste-fluids recycling, primarily helping clients
manage problems associated with environmental compliance, waste management,
and the cleanup of sites contaminated with organic or toxic wastes.
The Randers Group Incorporated, also a public subsidiary of Thermo
TerraTech, provides comprehensive engineering and outsourcing services in such
areas as water and wastewater treatment, highway and bridge projects, process
engineering, construction management, and operational services.
A privately held subsidiary of Thermo TerraTech, Thermo EuroTech N.V.,
provides remediation and recycling services in Europe. The Company treats oil-
based contaminated soils and recycles waste oil and oily waste streams. In
February 1998, Thermo EuroTech acquired a controlling interest in an
environmental services company located in Ireland, that provides comprehensive
in-plant waste management and recycling services to high-tech manufacturing
firms in that country.
In addition, metallurgical heat-treating services are provided by a wholly
owned subsidiary of the Company for customers in the automotive, aerospace,
defense, and other industries. The Company also provides, through another
wholly owned business, metallurgical fabrication services, principally on
high-temperature materials, for customers in the aerospace, medical,
electronics, and nuclear industries.
Advanced Technology
The Company's Advanced Technology segment includes basic and applied
research and development, often sponsored by the U.S. government, that is
conducted with a goal of identifying viable commercial opportunities for new
ventures. A number of its subsidiaries also provide various instrument
systems, developed primarily for product quality-assurance applications in
industrial, food and beverage, pharmaceutical, and electronics markets.
The Company's ThermoTrex subsidiary conducts sponsored research and
development with the goal of commercializing new products based on advanced
technologies developed in its laboratories. Sponsored research and
development, conducted principally for the U.S. government, includes basic and
applied research in communications, avionics, X-ray detection, signal
processing, advanced-materials technology, and lasers.
ThermoTrex is currently developing a number of additional technologies that
it believes may have future commercial potential. These include a passive
microwave camera intended to "see" through clouds and fog to enhance safety in
aerial navigation, a space surveillance system designed to produce high-
resolution images of low-earth-orbit satellites, a rapid optical beam steering
laser radar system, and direct digital imaging systems for medical equipment
to improve image quality for earlier and more accurate clinical diagnoses.
The Company's Thermo Coleman Corporation subsidiary provides systems
engineering, technology support and information-technology services and
products. Thermo Coleman also provides defense and environmental-systems
engineering, integration and analysis services, and advanced technology
research and development, primarily to the U.S. government. Using expertise
gained from its government contract work, Thermo Coleman designs, develops,
and commercializes services and products in areas such as information
technology and sensor and measurement systems for customers in industries
including healthcare, education, aircraft production, government, utilities,
and entertainment.
Thermo Sentron Inc., a public subsidiary of Thermedics, designs and
manufactures high-speed precision-weighing and inspection equipment for
packaging lines and industrial production. Thermo
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Sentron serves two principal markets, packaged goods and bulk materials, both
of which use its products to meet quality and productivity objectives.
Customers for Thermo Sentron's checkweighers are in the food-processing,
pharmaceutical, mail-order, and other packaged-goods businesses. Thermo
Sentron also sells metal detectors with a patented self-test feature that are
used to inspect packaged products for metal contamination to food-processing
and pharmaceutical companies. Its bulk-materials product line includes
conveyor-belt scales, solid level-measurement and conveyor-monitoring systems,
and sampling systems, all sold to customers in the mining and material-
processing industries, as well as to electric utilities, chemical, and other
manufacturing companies.
Thermedics Detection Inc., another public subsidiary of Thermedics, develops
and manufactures high-speed on-line analysis systems used for product quality
assurance in a variety of industrial processes, as well as for security.
Thermedics Detection provides X-ray imaging systems that monitor a wide range
of containers for fill volume, net volume, and package integrity, as well as
systems that detect trace amounts of contaminants in refillable bottles,
specifically for the beverage industry. For the beverage, food, cosmetic, and
other industries, Thermedics Detection also makes instruments that use near-
infrared spectroscopy to measure moisture and other product components,
including fat, protein, solvents, and other substances in numerous consumer
and industrial products. Thermedics Detection recently introduced an
ultrahigh-speed gas chromatograph that permits manufacturers to conduct
laboratory-quality chemical analysis for near-on-line process-control
applications.
Thermo Voltek Corp., also a public subsidiary of Thermedics, designs,
manufactures, and markets test instruments and a range of products related to
power amplification, conversion, and quality. Thermo Voltek's power products
are used in communications, broadcast, research, and medical imaging
applications. Its test instruments allow manufacturers of electronic systems
and integrated circuits to test for electromagnetic compatibility. On March
30, 1998, Thermedics approved a proposal to acquire, through a merger, all of
the outstanding shares of common stock of Thermo Voltek that Thermedics does
not own at a price of $7.00 per share in cash. The total transaction cost to
Thermedics is estimated to be approximately $27 million, which includes
approximately $5.25 million for the redemption of the outstanding Thermo
Voltek 3 3/4% convertible subordinated debentures due 2000. The merger is
contingent upon, among other things, the negotiation and execution of a
definitive merger agreement; receipt by the Thermo Voltek board of directors
of an opinion by an investment banking firm that Thermedics' offer is fair to
Thermo Voltek shareholders (other than Thermedics and the Company) from a
financial point of view; the approval of the Thermo Voltek board of directors
upon recommendation of a special committee of its independent directors; and
clearance by the Securities and Exchange Commission of the proxy materials
regarding the proposed transaction. Complaints naming the Company as a
defendant, among others, regarding Thermedics' proposed acquisition of Thermo
Voltek have been filed in Delaware Chancery Court by certain Thermo Voltek
shareholders attempting to act on behalf of the other public shareholders of
Thermo Voltek. The complaints allege, among other things, that the proposed
price of $7.00 per share is unfair and grossly inadequate.
Through a wholly owned subsidiary, Thermedics manufactures electrode-based
chemical-measurement products used in the agricultural, biomedical research,
food processing, pharmaceutical, sewage treatment, and many other industries.
In laboratories, manufacturing plants, and in the field, Thermedics' products
permit these industries to determine the presence and amount of relevant
chemicals. Thermedics also manufactures on-line process monitors used by power
plants and semiconductor manufacturers to detect contaminants in high-purity
water.
RESEARCH AND DEVELOPMENT
Technology development is a central component of Thermo Electron's business
strategy, with research activities ongoing in virtually all of the Company's
subsidiaries. The Company is continuously looking to develop ideas that have
some societal benefit and to bring those ideas to commercial
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markets. Many of the Company's publicly traded subsidiaries are based on
technologies that have come from years of focused research.
For example, the basis of Thermo Cardiosystems is its HeartMate(R) left
ventricular-assist system, which became commercially available after 30 years
of research and has helped more than 1,200 people with congestive heart
failure live longer. The core of Thermedics Detection is its ability to detect
trace amounts of unwanted materials using chemiluminescence, a technology
platform that is used in its instruments for a variety of applications,
ranging from food and pharmaceutical monitoring to security screening. Thermo
Fibergen was established to develop uses for papermaking sludge, which was
previously landfilled, and also markets a biodegradable carrier derived from
papermaking waste for agricultural chemicals and will soon introduce an
environmentally friendly catbox filler.
Other Thermo Electron subsidiaries have developed innovative technologies as
well. ThermoLase has developed a laser-based technique for removing unwanted
body hair and Trex Medical has filed for FDA clearance of a new digital
mammography system with better resolution than conventional techniques for
earlier detection of breast cancer.
Thermo Coleman and ThermoTrex share a similar charter -- to develop new
technologies derived from government-funded research, and bring them to the
commercial marketplace. Coleman has several technologies under development,
including a Virtual Time Traveler(TM) and coherent laser radar for metrology
applications. ThermoTrex is also developing a number of technologies that the
Company believes hold future commercial promise, including a passive microwave
camera to enhance aerial navigation safety and a space surveillance system.
During 1997, 1996, and 1995, the Company expended $335.4 million, $299.3
million, and $269.3 million, respectively, on research and development. Of
these amounts, $143.7 million, $144.8 million, and $167.1 million,
respectively, were sponsored by customers.
PATENTS, LICENSES AND TRADEMARKS
The Company considers patents to be important in the present operation of
its business; however, the Company does not consider any patent, or related
group of patents, to be of such importance that its expiration or termination
would materially affect the Company's business taken as a whole. The Company
seeks patent protection for inventions and developments made by its personnel
and incorporated into its products or otherwise falling within its fields of
interest. Patent rights resulting from work sponsored by outside parties do
not always accrue exclusively to the Company and may be limited by agreements
or contracts.
The Company protects some of its technology as trade secrets and, where
appropriate, uses trademarks or registers its products. It also enters into
license agreements with others to grant and/or receive rights to patents and
know-how.
BACKLOG
The Company's backlog of firm orders at year-end 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Instruments............................................... $298,900 $266,600
Biomedical Products....................................... 109,800 107,700
Advanced Technology....................................... 120,600 148,600
Alternative Energy........................................ 186,800 118,500
Industrial Outsourcing.................................... 117,100 118,200
Paper Recycling........................................... 62,300 52,300
-------- --------
$895,500 $811,900
======== ========
</TABLE>
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Backlog includes the uncompleted portion of research and development
contracts and the uncompleted portion of certain contracts that are accounted
for using the percentage-of-completion method. Certain of such firm orders are
cancellable by the customer upon the payment of a cancellation charge. The
Company believes substantially all of the year-end 1997 backlog will be filled
during 1998.
COMPETITION
The Company is engaged in many highly competitive industries. The nature of
the competition in each of the Company's segments is described below:
Instruments
The Company is among the principal manufacturers of analytical
instrumentation. Within the markets for the Company's analytical instrument
products, the Company competes with several large corporations that have broad
product offerings, such as Hewlett-Packard Company; Perkin-Elmer Corp.; Varian
Associates, Inc.; and Hitachi, Ltd., as well as numerous smaller companies
that address particular segments of the industry or specific geographic areas.
The Company's instruments business generally competes on the basis of
technical advances that result in new products and improved price/performance
ratios, reputation among customers as a quality leader for products and
services, and active research and application-development programs. To a
lesser extent, the Company competes on the basis of price.
Alternative Energy
The worldwide independent power market consists of numerous companies,
ranging from small startups to multinational industrial companies. In
addition, a number of regulated utilities have created subsidiaries that
compete as non-utility generators. Non-utility generators often specialize in
market "niches," such as a specific technology or fuel (i.e., gas-fired
cogeneration, refuse-to-energy, hydropower, geothermal, wind, solar, wood, or
coal) or a specific region of the country where they believe they have a
market advantage. However, many non-utility generators, including the Company,
seek to develop projects on a best-available-fuel basis. The Company competes
primarily on the basis of project experience, technical expertise, capital
resources, and power pricing.
The market in which the Company's biopesticide business competes is highly
competitive and subject to rapid technological change. Many competitors are
large chemical and pharmaceutical companies with greater financial, marketing,
and technological resources than the Company. The Company's biopesticide
business competes primarily based on effectiveness, and also on price, ease of
use, and environmental impact of use.
The market for traffic products and services is extremely competitive, and
the Company expects that competition will continue to increase, with the
principal factors being price, functionality, reliability, service and
support, and vendor and product reputation, along with industry and general
economic trends. The Company believes that it is a leading manufacturer and
supplier of traffic products, and considers its major competitor to be Siemens
AG. However, the traffic market is highly fragmented and competition varies
significantly depending on the individual product.
The Company's sale of industrial refrigeration systems is subject to intense
competition. The industrial refrigeration market is mature,~ highly
fragmented, and extremely dependent on close customer contacts. Major
industrial refrigeration companies, of which the Company is one, account for
approximately one-half of worldwide sales, with the balance generated by many
smaller companies. The Company competes principally on the basis of its
advanced control systems and
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overall quality, reliability, service, and price. The Company believes it is a
leader in remanufactured refrigeration equipment. The Company competes in this
market primarily based on price, delivery time, and customized equipment.
Paper Recycling
The Company faces significant competition in the markets for~ paper
recycling and water-handling equipment and papermaking accessories, and
competes in these markets primarily on the basis of quality, service,
technical expertise, and product innovation. The Company is a leading supplier
of de-inking systems for paper recycling and accessory equipment for
papermaking machines, and competes in these markets primarily on the basis of
service, technical expertise, and performance.
Biomedical Products
Competition in the markets for most of the Company's biomedical products,
including those manufactured by Thermo Cardiosystems, ThermoTrex, Nicolet
Biomedical, Bird Medical Technologies, SensorMedics, Medical Data Electronics,
Bear Medical Systems, and Nicolet Vascular is based to a large extent upon
technical performance.
The Company is aware of one other company that has submitted a PMA
application with the FDA for an implantable LVAS that would compete with
Thermo Cardiosystems' LVAS. The Company is unaware whether this PMA
application has been accepted for filing by the FDA. Also, the Company is
aware of one other company that has received approval by the FDA Advisory
Panel on Circulatory System Devices and subsequent commercial approval for its
cardiac-assist device. This is an external device that is positioned on the
outside of the patient's chest and is intended for short-term use in the
hospital environment. The Company is also aware that a total artificial heart
is currently undergoing clinical trials. The requirement of obtaining FDA
approval for commercial sale of~ an LVAS is a significant barrier to entry
into the U.S. market for these devices. There can be no assurance, however,
that FDA regulations will not change in the future, reducing the time and
testing required for others to obtain FDA approval. In addition, other
research groups and companies are developing cardiac-assist systems using
alternative technologies or concepts, one or more of which might prove
functionally equivalent to, or more suitable than, the Company's systems.
Among products that have been approved for commercial sale, the Company
competes primarily on the basis of performance, service capability,
reimbursement status, and price.
The Company is one of a number of competitors in the markets for mammography
and general radiographic systems and is one of two competitors in the market
for stereotactic breast-biopsy systems~. The Company competes in these markets
primarily on the basis of product features, product performance, and
reputation, as well as price and service. The markets in which the Company
competes with these products are characterized by rapid technological change.
The Company believes that in order to be competitive in these markets it will
be important to continue to be technologically innovative.
The Company's SoftLight laser hair-removal system competes with other laser-
based systems, electrolysis, and other traditional hair-removal methods, such
as shaving and waxing. In 1997, five other laser manufacturers received
clearance from the FDA to market their laser-based systems for the removal of
unwanted facial and body hair. The laser-based hair-removal market is
characterized by rapid technological change, and the Company believes that it
must continue to be technologically innovative in order to compete in this
market. In addition, the SoftLight system competes with electrolysis
providers, many of whom are small practitioners with well-established networks
of client relationships. The Company believes that competition for its hair-
removal services is based primarily on efficacy, price, comfort, and safety.
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Industrial Outsourcing
The Company seeks to compete in the market for soil-remediation services
based on its ability to offer customers superior protection from environmental
liabilities. However, with relaxed regulatory standards in many states, the
Company faces intense competition in local markets from landfills, other
treatment technologies, and from companies competing with similar
technologies, limiting the volume of soil to be treated and the prices that
can be charged by the Company. Pricing is therefore a major competitive factor
for the Company.
The Company's metallurgical services business competes in specialty
machining services. Competition is based principally on services provided,
turnaround time, and price.
Hundreds of independent analytical testing laboratories and~ consulting
firms compete for environmental services business nationwide. Many of these
firms use equipment and processes similar to those of the Company. Competition
is based not only on price, but also on reputation for accuracy, quality, and
the ability to respond rapidly to customer requirements. In addition, many
industrial companies have their own in-house analytical testing capabilities.
The Company believes that its competitive strength lies in certain niche
markets within which the Company is recognized for its expertise.
Advanced Technology
In its contract research and development business, the Company not only
competes with other companies and institutions that perform~ similar services,
but must also rely on the ability of government agencies and other clients to
obtain allocations of research and development monies to fund contracts with
the Company. The Company competes for research and development programs
principally on the basis of technical innovations. As government funding
becomes more scarce, particularly for defense projects, the competition for
such funding will become more intense. In addition, as the Company's programs
move from the development stage to commercialization, competition is expected
to intensify.
Thermo Sentron competes with several international and regional companies in
the market for its products. Thermo Sentron's competitors in the packaged
goods market differ from those in the bulk materials market. The principal
competitive factors in both markets are customer service and support, quality,
reliability, and price.
Thermedics Detection's product quality-assurance systems compete with
chemical-detection systems manufactured by several companies and with other
technologies and processes for product quality assurance. Competition in the
markets for all of the Company's detection products is based primarily on
performance, service, and price. There are a number of competitors in the
market for instruments that detect explosives, including makers of other
chemical-detection instruments as well as enhanced X-ray detectors.
Thermo Voltek is a leading supplier of electromagnetic compatibility testing
equipment. The Company competes in this market primarily on the basis of
performance, technical expertise, reputation, and price. In the market for
power amplifiers, Thermo Voltek competes with several companies worldwide
primarily on the basis of technical expertise, reputation, and price.
Thermedics' electrode-based chemical-measurement products compete with
several international companies. In the markets for these ~products,
Thermedics competes on the basis of performance, service, technology, and
price.
EMPLOYEES
As of January 3, 1998, the Company employed approximately 22,400 persons.
S-38
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES
---- --- -------
<S> <C> <C>
George N. Hatsopoulos... 71 Director, Chairman of the Board and Chief Executive Officer
John N. Hatsopoulos..... 63 Director, President and Chief Financial Officer
Peter G. Pantazelos..... 67 Executive Vice President
Arvin H. Smith.......... 68 Executive Vice President
Paul F. Kelleher........ 55 Senior Vice President, Finance and Administration
William A. Rainville.... 56 Senior Vice President
John W. Wood Jr......... 54 Senior Vice President
John M. Albertine....... 53 Director
Peter O. Crisp.......... 65 Director
Elias P. Gyftopoulos.... 70 Director
Frank Jungers........... 71 Director
Robert A. McCabe........ 63 Director
Frank E. Morris......... 74 Director
Donald E. Noble......... 83 Director
Hutham S. Olayan........ 44 Director
Richard F. Syron........ 54 Director
Roger D. Wellington..... 71 Director
</TABLE>
The directors are divided into three classes of four directors each. Each
class of directors is elected for a three-year term at successive Annual
Meetings of Stockholders of the Company.
Dr. George N. Hatsopoulos has been a Director, Chairman of the Board, and
Chief Executive Officer of the Company since 1956. Until January 1997, he was
also the President of the Company. Dr. Hatsopoulos is also a director of
Photoelectron Corporation, Thermedics Inc., Thermo Ecotek Corporation, Thermo
Fibertek Inc., Thermo Instrument Systems Inc., Thermo Optek Corporation,
ThermoQuest Corporation and ThermoTrex Corporation. Dr. Hatsopoulos is the
brother of Mr. John N. Hatsopoulos, a Director, the President and the Chief
Financial Officer of the Company.
Mr. John N. Hatsopoulos has been the President of the Company since January
1997, and has served as Chief Financial Officer of the Company since 1988. Mr.
Hatsopoulos became a Director of the Company in September 1997. Prior to being
named President of Thermo Electron, Mr. Hatsopoulos served as an Executive
Vice President, a position he had held since 1986. Mr. Hatsopoulos is also a
director of LOIS/USA Inc., ONIX Systems Inc., Thermedics Inc., Thermedics
Detection Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo
Instrument Systems Inc., Thermo Power Corporation, Thermo TerraTech Inc. and
Thermo Vision Corporation.
Mr. Pantazelos has been an Executive Vice President of the Company for more
than five years.
Mr. Smith has been an Executive Vice President of the Company since November
1991, and was a Vice President of the Company from 1986 to 1991. Mr. Smith is
also the Chairman of the Board of Thermo Instrument Systems Inc. and was its
Chief Executive Officer and President from 1986 to January 1998 and March
1997, respectively. Mr. Smith is also the Chairman of the Board of Thermo
Power Corporation. Mr. Smith is also a director of Metrika Systems
Corporation, ONIX Systems Inc., Thermo BioAnalysis Corporation, Thermo
Instrument Systems Inc., Thermo Optek Corporation, Thermo Power Corporation,
ThermoQuest Corporation, ThermoSpectra Corporation and Thermo Vision
Corporation.
Mr. Kelleher has been Senior Vice President, Finance and Administration, of
the Company since June 1997, and served as its Vice President, Finance, from
1987 until 1997, and as its Controller from 1982 to January 1996. He is a
director of ThermoLase Corporation.
S-39
<PAGE>
Mr. Rainville has been a Senior Vice President of the Company since March
1993, and served as a Vice President of the Company from 1986 to 1993. Mr.
Rainville has been President and Chief Executive Officer of Thermo Fibertek
Inc. since its inception in 1991. Mr. Rainville is also a director of Thermo
Ecotek Corporation, Thermo Fibergen Inc., Thermo Fibertek Inc., Thermo
Remediation Inc., and Thermo TerraTech Inc.
Mr. Wood has been a Senior Vice President of the Company since December
1995, and served as a Vice President of the Company from September 1994 to
December 1995. Mr. Wood has been the Chairman of the Board of Thermedics Inc.
since March 1998 and was its President and Chief Executive Officer from 1984
to March 1998. Mr. Wood is also a director of Thermedics Detection Inc.,
Thermo Cardiosystems Inc., Thermo Sentron Inc., Thermo Voltek Corp. and
Thermedics Inc.
Mr. Albertine has been a Director of the Company since 1986. Dr. Albertine
serves as Chairman of the Board and Chief Executive Officer of Albertine
Enterprises, Inc., an economic and public policy consulting firm he founded in
1990. He also serves as Chairman of The Jian Group Holdings, LLC, a full-
service mergers and acquisitions firm. Dr. Albertine is also a director of
American Precision Industries, Inc., Intermagnetics General Corp. and U.S.
Cast Products Inc.
Mr. Crisp has been a Director of the Company since 1974. Mr. Crisp was a
general partner of Venrock Associates, a venture capital investment firm, for
over five years until his retirement in September 1997. Mr. Crisp is also a
director of American Superconductor Corporation, Evans & Sutherland Computer
Corporation, Thermedics Inc., Thermo Power Corporation, ThermoTrex Corporation
and United States Trust Corporation.
Dr. Gyftopoulos has been a Director of the Company since 1976. Dr.
Gyftopoulos is Professor Emeritus of the Massachusetts Institute of
Technology, where he was the Ford Professor of Mechanical Engineering and of
Nuclear Engineering for more than 20 years until his retirement in 1996. Dr.
Gyftopoulos is also a director of Thermo BioAnalysis Corporation, Thermo
Cardiosystems Inc., ThermoLase Corporation, Thermo Remediation Inc.,
ThermoSpectra Corporation, Thermo Voltek Corp. and Trex Medical Corporation.
Mr. Jungers has been a Director of the Company since 1978. Mr. Jungers has
been a self-employed consultant on business and energy matters since 1977. Mr.
Jungers was employed by the Arabian American Oil Company from 1974 through
1977 as Chairman and Chief Executive Officer. Mr. Jungers is also a director
of The AES Corporation, Donaldson, Lufkin & Jenrette, Georgia-Pacific
Corporation, Thermo Ecotek Corporation and ThermoQuest Corporation.
Mr. McCabe has been a Director of the Company since 1962. He has served as
President of Pilot Capital Corporation, which is engaged in private
investments and provides acquisition services, since 1987. Mr. McCabe is also
a director of Borg-Warner Security Corporation, Church & Dwight Company,
Morrison-Knudsen Corporation and Thermo Optek Corporation.
Mr. Morris has been a Director of the Company since 1989. Dr. Morris served
as President of the Federal Reserve Bank of Boston from 1968 until he retired
in 1988. Dr. Morris also served as the Peter Drucker Professor of Management
at Boston College from 1989 to 1994. Dr. Morris is a trustee of SEI Mutual
Funds, The Capitol Mutual Funds, FFB Lexicon Funds, and The Arbor Fund and is
a director of Thermo Remediation Inc.
Mr. Noble has been a Director of the Company since 1983. For more than 20
years, from 1959 to 1980, Mr. Noble served as the Chief Executive Officer of
Rubbermaid Incorporated, first with the title of President and then as
Chairman of the Board. Mr. Noble is also a director of Thermo Fibertek Inc.,
Thermo Power Corporation, Thermo Sentron Inc. and Thermo TerraTech Inc.
S-40
<PAGE>
Ms. Olayan has been a Director of the Company since 1987. She has served
since 1995 as President and a director of Olayan America Corporation, a member
of the Olayan Group engaged in advisory services and private investments,
including real estate, and from 1986 until its merger into the Olayan America
Corporation in 1997, as President and a director of Competrol Real Estate
Limited. Ms. Olayan also served as President and a director of Crescent
Diversified Limited, another member of the Olayan Group engaged in private
investments, from 1985 until 1994. Ms. Olayan is also a director of ONIX
Systems Inc. and Trex Medical Corporation.
Dr. Syron has been a Director of the Company since September 1997. He has
served as Chairman and Chief Executive Officer of the American Stock Exchange
since 1994. Dr. Syron has also held various positions with the Federal Reserve
Bank of Boston, including President and Chief Executive Officer from 1989 to
1994. He has also served as President and Chief Executive Officer of the
Federal Home Loan Bank of Boston.
Mr. Wellington has been a Director of the Company since 1986. Mr. Wellington
serves as the President and Chief Executive Officer of Wellington Consultants,
Inc. and of Wellington Associates Inc., international business consulting
firms he founded in 1994 and 1989, respectively. Mr. Wellington is also a
director of Photoelectron Corporation.
S-41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Smith Barney
Inc., Lehman Brothers Inc., and HSBC Securities, Inc. are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Goldman, Sachs & Co...................................... 1,185,600
Smith Barney Inc......................................... 1,185,600
Lehman Brothers Inc. .................................... 1,185,600
HSBC Securities, Inc. ................................... 603,200
Barrington Research Associates, Inc. .................... 208,000
CIBC Oppenheimer Corp. .................................. 208,000
Fahnestock & Co., Inc.................................... 208,000
Gilford Securities Incorporated.......................... 208,000
Gruntal & Co., L.L.C..................................... 208,000
---------
Total................................................ 5,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares of Common
Stock offered hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $1.04 per share. The U.S.
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.10 per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,300,000 shares of Common Stock in an international offering outside the
United States. The initial public offering price and aggregate underwriting
discounts and commissions per share for the two Offerings are identical. The
closing of the offering made hereby is a condition to the closing of the
International Offering, and vice versa. The representatives of the
International Underwriters are Smith Barney Inc., Goldman Sachs International,
Lehman Brothers International (Europe), and HSBC Securities, Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the
S-42
<PAGE>
purchase is located in the United States. Each of the International
Underwriters has agreed pursuant to the Agreement Between that, as a part of
the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus Supplement to purchase up to an
aggregate of 780,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 5,200,000 shares of Common Stock offered hereby. The
Company has granted the International Underwriters a similar option to
purchase up to an aggregate of 195,000 additional shares of Common Stock.
The Company has agreed that, during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement, it will not offer, sell,
contract to sell, or otherwise dispose of any shares of Common Stock or any
securities of the Company that are substantially similar to the shares of
Common Stock, or any securities convertible into or exchangeable for, or that
represent the right to receive, shares of Common Stock or any such similar
securities, without the prior written consent of Goldman, Sachs & Co., except
for the shares of Common Stock offered in connection with the Offerings,
shares of Common Stock issuable pursuant to convertible debt securities, or
exchangeable debt securities issued by subsidiaries, outstanding on the date
of this Prospectus Supplement, shares of Common Stock or options to purchase
Common Stock issued pursuant to stock option, purchase and compensation plans
in existence on the date of this Prospectus Supplement and shares of Common
Stock issued as consideration for the acquisition of one or more businesses
provided that such Common Stock may not be resold prior to the expiration of
the 90-day period referenced above.
In connection with the Offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the Offerings. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the Offerings for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
S-43
<PAGE>
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Seth H. Hoogasian, Esq., General Counsel of the Company. Mr.
Hoogasian is a full-time employee of the Company and owns or has the right to
acquire 108,764 shares of Common Stock and 230,012 shares of the Common Stock
of the Company's subsidiaries. The validity of the Common Stock offered hereby
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
S-44
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statement of Income for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995.................................. F-3
Consolidated Balance Sheet as of January 3, 1998 and December 28, 1996.... F-4
Consolidated Statement of Cash Flows for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995.................................. F-6
Consolidated Statement of Shareholders' Investment for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of January
3, 1998, and December 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three years
in the period ended January 3, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
Electron Corporation and subsidiaries as of January 3, 1998, and December 28,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 1998
F-2
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Product and service revenues...... $ 3,392,575 $ 2,766,002 $ 2,075,748
Research and development contract
revenues......................... 165,745 166,556 194,543
------------- ------------- -------------
3,558,320 2,932,558 2,270,291
------------- ------------- -------------
Costs and Operating Expenses:
Cost of product and service
revenues......................... 1,973,265 1,657,746 1,239,762
Expenses for research and
development and new lines of
business (a)..................... 337,305 301,457 272,809
Selling, general, and
administrative expenses.......... 840,692 689,248 510,564
Restructuring and other
nonrecurring costs, net
(Note 11)........................ 1,272 37,641 21,938
------------- ------------- -------------
3,152,534 2,686,092 2,045,073
------------- ------------- -------------
Operating Income.................... 405,786 246,466 225,218
Gain on Issuance of Stock by
Subsidiaries (Note 9).............. 80,055 126,599 80,815
Other Income (Expense), Net (Note
10)................................ 2,626 1,486 (7,225)
------------- ------------- -------------
Income Before Income Taxes and
Minority Interest.................. 488,467 374,551 298,808
Provision for Income Taxes (Note
8)................................. 174,713 110,845 98,711
Minority Interest Expense........... 74,426 72,890 60,515
------------- ------------- -------------
NET INCOME.......................... $ 239,328 $ 190,816 $ 139,582
============= ============= =============
EARNINGS PER SHARE (Note 15):
Basic............................. $ 1.57 $ 1.35 $ 1.10
============= ============= =============
Diluted........................... $ 1.41 $ 1.17 $ .95
============= ============= =============
WEIGHTED AVERAGE SHARES (Note 15):
Basic............................. 152,489 141,525 126,626
============= ============= =============
Diluted........................... 176,082 175,605 158,562
============= ============= =============
(a)Includes costs of:
Research and development
contracts...................... $ 143,743 $ 144,823 $ 167,120
Internally funded research and
development.................... 191,629 154,448 102,209
Other expenses for new lines of
business....................... 1,933 2,186 3,480
------------- ------------- -------------
$ 337,305 $ 301,457 $ 272,809
============= ============= =============
</TABLE>
- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 593,580 $ 414,404
Short-term available-for-sale investments, at quoted
market value (amortized cost of $925,855 and
$1,428,564; Note 2)................................... 929,118 1,431,881
Accounts receivable, less allowances of $55,698 and
$34,321............................................... 797,399 616,545
Unbilled contract costs and fees....................... 69,375 77,155
Inventories............................................ 543,589 432,960
Prepaid income taxes (Note 8).......................... 118,182 129,802
Prepaid expenses....................................... 42,955 29,082
---------- ----------
3,094,198 3,131,829
---------- ----------
Property, Plant, and Equipment, at Cost, Net............. 789,046 704,447
---------- ----------
Long-term Available-for-sale Investments, at Quoted
Market Value (amortized cost of $49,581 and $84,094;
Note 2)................................................. 63,306 94,401
---------- ----------
Other Assets............................................. 157,108 127,632
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes
3, 8, and 11)........................................... 1,692,211 1,082,935
---------- ----------
$5,795,869 $5,141,244
========== ==========
</TABLE>
F-4
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term
obligations (Note 5)................................ $ 176,912 $ 153,787
Accounts payable..................................... 251,677 203,643
Accrued payroll and employee benefits................ 140,698 122,079
Accrued income taxes................................. 57,923 61,534
Accrued installation and warranty costs.............. 72,710 69,006
Deferred revenue..................................... 54,999 45,715
Other accrued expenses (Notes 1 and 3)............... 337,316 257,448
---------- ----------
1,092,235 913,212
---------- ----------
Deferred Income Taxes (Note 8)......................... 90,802 81,726
---------- ----------
Other Deferred Items................................... 59,082 81,020
---------- ----------
Long-term Obligations (Note 5):
Senior convertible obligations....................... 187,824 369,997
Subordinated convertible obligations................. 1,473,015 1,009,470
Nonrecourse tax-exempt obligations................... 37,600 77,900
Other................................................ 44,468 92,975
---------- ----------
1,742,907 1,550,342
---------- ----------
Minority Interest...................................... 719,622 684,050
---------- ----------
Commitments and Contingencies (Note 6)
Common Stock of Subsidiaries Subject to Redemption
($95,262 and $81,179 redemption value; Note 1)........ 93,312 76,525
---------- ----------
Shareholders' Investment (Notes 4 and 7):
Preferred stock, $100 par value, 50,000 shares
authorized; none issued.............................
Common stock, $1 par value, 350,000,000 shares
authorized; 159,206,337 and 149,996,979 shares
issued.............................................. 159,206 149,997
Capital in excess of par value....................... 843,709 801,793
Retained earnings.................................... 1,034,640 795,312
Treasury stock at cost, 95,684 and 15,520 shares..... (3,839) (570)
Cumulative translation adjustment.................... (46,339) (504)
Deferred compensation (Note 4)....................... -- (58)
Net unrealized gain on available-for-sale investments
(Note 2)............................................ 10,532 8,399
---------- ----------
1,997,909 1,754,369
---------- ----------
$5,795,869 $5,141,244
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................... $ 239,328 $ 190,816 $139,582
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 135,738 115,167 85,869
Restructuring and other nonrecurring costs,
net (Note 11)............................... 1,272 37,641 21,938
Provision for losses on accounts receivable.. 9,078 6,002 5,534
Increase in deferred income taxes............ 1,111 20,869 4,277
Minority interest expense.................... 74,426 72,890 60,515
Gain on issuance of stock by subsidiaries
(Note 9).................................... (80,055) (126,599) (80,815)
Gain on sale of investments, net............. (5,077) (9,840) (9,305)
Other noncash items, net..................... 9,093 15,758 19,239
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable......................... (86,511) (17,078) (52,649)
Inventories................................. 9,159 (1,298) (32,267)
Other current assets........................ 31,445 (35,657) (9,447)
Accounts payable............................ (8,308) (14,307) 19,198
Other current liabilities................... (61,681) (29,859) 27,427
--------- ---------- --------
Net cash provided by operating activities..... 269,018 224,505 199,096
--------- ---------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 3).. (849,118) (366,317) (330,698)
Refund of acquisition purchase price (Note
3).......................................... 36,132 -- --
Proceeds from sale of businesses............. 27,102 -- --
Purchases of available-for-sale investments.. (973,687) (1,644,094) (592,364)
Proceeds from sale and maturities of
available-for-sale investments.............. 1,543,025 835,935 617,145
Purchases of property, plant, and equipment.. (111,605) (124,541) (64,016)
Proceeds from sale of property, plant, and
equipment................................... 15,633 10,500 5,702
Increase in other assets..................... (13,425) (26,144) (19,750)
Other........................................ 6,115 3,385 (147)
--------- ---------- --------
Net cash used in investing activities......... (319,828) (1,311,276) (384,128)
--------- ---------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
obligations (Note 5)........................ 490,821 953,376 203,387
Repayment of long-term obligations........... (78,287) (60,643) (14,702)
Net proceeds from issuance of Company and
subsidiary common stock (Note 9)............ 164,855 303,954 173,326
Purchases of subsidiary common stock and
debentures.................................. (311,092) (144,053) (101,099)
Increase (decrease) in short-term notes
payable..................................... (24,256) (13,391) 1,438
Other........................................ (4,291) (1,279) (226)
--------- ---------- --------
Net cash provided by financing activities..... 237,750 1,037,964 262,124
--------- ---------- --------
Exchange Rate Effect on Cash.................. (7,764) 350 2,764
--------- ---------- --------
Increase (Decrease) in Cash and Cash
Equivalents.................................. 179,176 (48,457) 79,856
Cash and Cash Equivalents at Beginning of
Year......................................... 414,404 462,861 383,005
--------- ---------- --------
Cash and Cash Equivalents at End of Year...... $ 593,580 $ 414,404 $462,861
========= ========== ========
See Note 12 for supplemental cash flow infor-
mation.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK, $1 PAR VALUE
Balance at beginning of year............. $ 149,997 $ 89,006 $ 53,558
Issuance of stock under employees' and
directors' stock plans.................. 866 892 571
Conversions of convertible obligations... 8,343 13,449 6,047
Effect of three-for-two stock splits..... -- 46,650 27,687
Acquisition through pooling-of-interests
(Note 3)................................ -- -- 1,143
---------- ---------- ----------
Balance at end of year................... 159,206 149,997 89,006
---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year............. 801,793 614,363 493,058
Issuance of stock under employees' and
directors' stock plans.................. 13,185 8,172 5,293
Tax benefit related to employees' and
directors' stock plans.................. 5,456 12,821 9,666
Conversions of convertible obligations... 164,537 254,842 150,787
Effect of majority-owned subsidiaries'
equity transactions..................... (141,262) (41,755) (34,642)
Effect of three-for-two stock splits..... -- (46,650) (27,687)
Acquisition through pooling-of-interests
(Note 3)................................ -- -- 17,888
---------- ---------- ----------
Balance at end of year................... 843,709 801,793 614,363
---------- ---------- ----------
RETAINED EARNINGS
Balance at beginning of year............. 795,312 604,496 472,396
Net income............................... 239,328 190,816 139,582
Acquisition through pooling-of-interests
(Note 3)................................ -- -- (7,482)
---------- ---------- ----------
Balance at end of year................... 1,034,640 795,312 604,496
---------- ---------- ----------
TREASURY STOCK
Balance at beginning of year............. (570) (536) (1,631)
Activity under employees' and directors'
stock plans............................. (3,269) (34) 1,095
---------- ---------- ----------
Balance at end of year................... (3,839) (570) (536)
---------- ---------- ----------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance at beginning of year............. (504) 608 (3,557)
Translation adjustment................... (45,835) (1,112) 4,193
Acquisition through pooling-of-interests
(Note 3)................................ -- -- (28)
---------- ---------- ----------
Balance at end of year................... (46,339) (504) 608
---------- ---------- ----------
DEFERRED COMPENSATION
Balance at beginning of year............. (58) (2,271) (2,657)
Amortization of deferred compensation.... 58 296 386
ESOP II loan repayment (Note 4).......... -- 1,917 --
---------- ---------- ----------
Balance at end of year................... -- (58) (2,271)
---------- ---------- ----------
NET UNREALIZED GAIN ON AVAILABLE-FOR-SALE
INVESTMENTS
Balance at beginning of year............. 8,399 4,063 (3,681)
Change in net unrealized gain on
available-for-sale investments (Note
2)...................................... 2,133 4,336 7,744
---------- ---------- ----------
Balance at end of year................... 10,532 8,399 4,063
---------- ---------- ----------
TOTAL SHAREHOLDERS' INVESTMENT............. $1,997,909 $1,754,369 $1,309,729
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Thermo Electron Corporation and its subsidiaries (the Company) develop,
manufacture, and market analytical and monitoring instruments; biomedical
products including heart-assist devices, respiratory-care equipment, and
mammography systems; paper recycling and papermaking equipment; alternative-
energy systems; industrial process equipment; and other specialized products.
The Company also provides industrial outsourcing, laboratory, and
metallurgical services, and conducts advanced-technology research and
development.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Thermo
Electron and its majority- and wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated. Majority-owned
public subsidiaries consist of Thermedics Inc., Thermo Instrument Systems
Inc., Thermo TerraTech Inc., Thermo Power Corporation, ThermoTrex Corporation,
Thermo Fibertek Inc., and Thermo Ecotek Corporation. Thermo Cardiosystems
Inc., Thermo Voltek Corp., Thermo Sentron Inc., and Thermedics Detection Inc.
are majority-owned, public subsidiaries of Thermedics. ThermoSpectra
Corporation, ThermoQuest Corporation, Thermo Optek Corporation, Thermo
BioAnalysis Corporation, Metrika Systems Corporation, and Thermo Vision
Corporation are majority-owned, public subsidiaries of Thermo Instrument.
Thermo Remediation Inc. and The Randers Group Incorporated are majority-owned,
public subsidiaries of Thermo TerraTech. ThermoLase Corporation and Trex
Medical Corporation are majority-owned, public subsidiaries of ThermoTrex.
Thermo Fibergen Inc. is a majority-owned, public subsidiary of Thermo
Fibertek. Thermo Information Solutions Inc. is a majority-owned, privately
held subsidiary. ONIX Systems Inc. is a majority-owned, privately held
subsidiary of Thermo Instrument. Thermo EuroTech N.V. is a majority-owned,
privately held subsidiary of Thermo TerraTech. ThermoLyte Corporation is a
majority-owned, privately held subsidiary of Thermo Power. Trex Communications
Corporation is a majority-owned, privately held subsidiary of ThermoTrex.
Thermo Trilogy Corporation is a majority-owned, privately held subsidiary of
Thermo Ecotek. The Company accounts for investments in businesses in which it
owns between 20% and 50% using the equity method.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1997, 1996, and 1995 are for the fiscal years ended January
3, 1998, December 28, 1996, and December 30, 1995, respectively. Fiscal year
1997 included 53 weeks; 1996 and 1995 each included 52 weeks.
REVENUE RECOGNITION
For the majority of its operations, the Company recognizes revenues upon
shipment of its products, or upon completion of services it renders. The
Company provides a reserve for its estimate of warranty and installation costs
at the time of shipment. Deferred revenue in the accompanying balance sheet
consists primarily of unearned revenue on service contracts. Substantially all
of the deferred revenue in the accompanying 1997 balance sheet will be
recognized within one year. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method. Revenues
recorded under the percentage-of-completion method were $440.4 million in
1997, $421.1 million in 1996, and $472.0 million in 1995. The percentage of
completion is
F-8
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined by relating either the actual costs or actual labor incurred to
date to management's estimate of total costs or total labor, respectively, to
be incurred on each contract. If a loss is indicated on any contract in
process, a provision is made currently for the entire loss. The Company's
contracts generally provide for billing of customers upon the attainment of
certain milestones specified in each contract. Revenues earned on contracts in
process in excess of billings are classified as unbilled contract costs and
fees in the accompanying balance sheet. There are no significant amounts
included in the accompanying balance sheet that are not expected to be
recovered from existing contracts at current contract values, or that are not
expected to be collected within one year, including amounts that are billed
but not paid under retainage provisions.
GAIN ON ISSUANCE OF STOCK BY SUBSIDIARIES
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain.
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary, by
the subsidiary's parent, or by the Company, gain recognition does not occur on
issuances subsequent to the date of a repurchase until such time as shares
have been issued in an amount equivalent to the number of repurchased shares.
Such transactions are reflected as equity transactions, and the net effect of
these transactions is reflected in the accompanying statement of shareholders'
investment as the effect of majority-owned subsidiaries' equity transactions.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 15). As a result, all previously reported earnings
per share have been restated; however, basic earnings per share equals the
Company's previously reported primary earnings per share for 1996 and 1995.
Basic earnings per share have been computed by dividing net income by the
weighted
F-9
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
average number of shares outstanding during the year. Diluted earnings per
share have been computed assuming the conversion of convertible obligations
and the elimination of the related interest expense, and the exercise of stock
options, as well as their related income tax effects.
STOCK SPLIT
All share and per share information was restated in 1996 to reflect a three-
for-two stock split, effected in the form of a 50% stock dividend, that was
distributed in June 1996.
CASH AND CASH EQUIVALENTS
Cash equivalents consists principally of corporate notes, commercial paper,
U.S. government-agency securities, money market funds, and other marketable
securities purchased with an original maturity of three months or less. These
investments are carried at cost, which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................ $260,458 $236,297
Work in process........................................... 108,327 80,614
Finished goods............................................ 174,804 116,049
-------- --------
$543,589 $432,960
======== ========
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings and improvements,
5 to 40 years; alternative-energy facilities, 5 to 25 years; machinery and
equipment, 2 to 20 years; and leasehold improvements, the shorter of the term
of the lease or the life of the asset.
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 59,867 $ 55,430
Buildings............................................... 235,103 206,406
Alternative-energy facilities........................... 247,361 247,361
Machinery, equipment, and leasehold improvements........ 617,582 500,992
--------- ---------
1,159,913 1,010,189
Less: Accumulated depreciation and amortization......... 370,867 305,742
--------- ---------
$ 789,046 $ 704,447
========= =========
</TABLE>
F-10
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER ASSETS
Other assets in the accompanying balance sheet includes intangible assets,
notes receivable, deferred debt expense, prepaid pension costs, and other
assets. Intangible assets include the costs of acquired trademarks, patents,
product technology, and other specifically identifiable intangible assets and
are being amortized using the straight-line method over their estimated useful
lives, which range from 3 to 20 years. Intangible assets were $50.5 million
and $39.9 million, net of accumulated amortization of $45.7 million and $38.0
million, at year-end 1997 and 1996, respectively.
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $134.7 million and $96.4 million at year-end 1997
and 1996, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of this asset.
If impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
COMMON STOCK OF SUBSIDIARIES SUBJECT TO REDEMPTION
In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one
share of ThermoLyte common stock and one redemption right, at $10.00 per unit,
for net proceeds of $17.3 million. Holders of the common stock issued in the
offering will have the option to require ThermoLyte to redeem any or all of
their shares at $10.00 per share in December 1998 or 1999. ThermoLyte common
stock subject to redemption of $18.1 million is included in other accrued
expenses in the accompanying 1997 balance sheet since it is redeemable in
December 1998. The redemption value is $18.5 million.
In September 1996, Thermo Fibergen sold 4,715,000 units, each unit
consisting of one share of Thermo Fibergen common stock and one redemption
right, at $12.75 per unit, for net proceeds of $55.8 million. The common stock
and redemption rights began trading separately on December 13, 1996. Holders
of a redemption right have the option to require Thermo Fibergen to redeem one
share of Thermo Fibergen common stock at $12.75 per share in September 2000 or
2001. The redemption rights carry terms that generally provide for their
expiration if the closing price of Thermo Fibergen's common stock exceeds $19
1/8 for 20 of any 30 consecutive trading days prior to September 2001.
In April 1997, ThermoLase completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing ThermoLase
common stock and $3.00 (in cash or ThermoLase common stock) for a new unit
consisting of one share of ThermoLase common stock and one redemption right.
The redemption right entitles the holder to sell the related share of common
stock to ThermoLase for $20.25 during the period from April 3, 2001, through
April 30, 2001. The redemption right will expire if the closing price of
ThermoLase common stock is at least $26.00 for 20 of any 30 consecutive
trading days. In connection with this offer, ThermoLase issued in April 1997,
2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5
million in cash, net of expenses. As a result of these transactions, $40.5
million was reclassified from "Shareholders' investment" and "Minority
interest" to "Common stock of subsidiaries subject to redemption," based on
the issuance of the 2,000,000 redemption rights, each carrying a maximum
liability of $20.25.
F-11
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between the redemption value and the original carrying amount
of ThermoLyte and Thermo Fibergen common stock subject to redemption is
accreted over the period through the first redemption period. Accretion is
charged to minority interest expense in the accompanying statement of income.
All redemption rights are guaranteed on a subordinated basis by the Company.
FOREIGN CURRENCY
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS No.
52, "Foreign Currency Translation." Resulting translation adjustments are
reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains and
losses are included in the accompanying statement of income and are not
material for the three years presented.
FORWARD CONTRACTS AND INTEREST RATE SWAP AGREEMENTS
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward
foreign exchange contracts to hedge firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. These
contracts principally hedge transactions denominated in U.S. dollars, British
pounds sterling, French francs, and Japanese yen. The purpose of the Company's
foreign currency hedging activities is to protect the Company's local currency
cash flows related to these commitments from fluctuations in foreign exchange
rates. Gains and losses arising from forward foreign exchange contracts are
recognized as offsets to gains and losses resulting from the transactions
being hedged.
Thermo Ecotek has interest rate swap agreements that convert its variable
rate obligations to fixed rate obligations (Note 5). Interest rate swap
agreements are accounted for under the accrual method. Amounts to be received
from or paid to the counterparties of the agreements are accrued during the
period to which the amounts relate and are reflected as interest expense. The
related amounts payable to the counterparties are included in other accrued
expenses in the accompanying balance sheet. The fair value of the swap
agreements is not recognized in the accompanying financial statements since
the agreements are accounted for as hedges.
The Company does not enter into speculative foreign currency or interest
swap agreements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRESENTATION
Certain amounts in 1996 and 1995 have been reclassified to conform to the
presentation in the 1997 financial statements.
F-12
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. AVAILABLE-FOR-SALE INVESTMENTS
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt and marketable equity securities
are considered available-for-sale investments in the accompanying balance
sheet and are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component of
shareholders' investment titled "Net unrealized gain on available-for-sale
investments."
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
MARKET COST UNREALIZED UNREALIZED
VALUE BASIS GAINS LOSSES
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Government-agency securities.... $ 385,476 $ 385,049 $ 451 $ (24)
Corporate bonds................. 513,956 513,427 717 (188)
Other........................... 92,992 76,960 16,628 (596)
---------- ---------- ------- -----
$ 992,424 $ 975,436 $17,796 $(808)
========== ========== ======= =====
1996
Government-agency securities.... $ 830,446 $ 829,736 $ 761 $ (51)
Corporate bonds................. 581,804 581,424 482 (102)
Other........................... 114,032 101,498 12,855 (321)
---------- ---------- ------- -----
$1,526,282 $1,512,658 $14,098 $(474)
========== ========== ======= =====
</TABLE>
Short- and long-term available-for-sale investments in the accompanying 1997
balance sheet include equity securities of $50.4 million and debt securities
of $803.3 million with contractual maturities of one year or less and $138.7
million with contractual maturities of more than one year through five years.
Actual maturities may differ from contractual maturities as a result of the
Company's intent to sell these securities prior to maturity and as a result of
put and call options that enable either the Company, the issuer, or both to
redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in
the accompanying statement of income. The net gain on sale of investments
resulted from gross realized gains of $5.2 million, $11.2 million, and $9.8
million and gross realized losses of $0.1 million, $1.4 million, and $0.5
million in 1997, 1996, and 1995, respectively, relating to the sale of
available-for-sale investments.
3. ACQUISITIONS
In March 1997, Thermo Instrument acquired 95% of Life Sciences International
PLC, 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 $442.8 million, net of $55.8 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.
F-13
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1997, in addition to the acquisition of Life Sciences, the Company and
its majority-owned subsidiaries made several other acquisitions for an
aggregate of $406.3 million in cash, net of cash acquired, the issuance of
subsidiary common stock and stock options valued at $4.5 million, and $5.1
million to be paid in the first quarter of 1998, subject to certain post-
closing adjustments. The Company does not expect that aggregate post-closing
adjustments, if any, will be material.
In June 1996, the Company acquired SensorMedics Corporation in exchange for
1,243,518 shares of the Company's common stock, including 156,590 shares
reserved for issuance upon exercise of assumed stock options and warrants.
SensorMedics manufactures systems for pulmonary function diagnosis,
respiratory-gas analyzers, physiological testing equipment, and automated
sleep-analysis systems. The acquisition has been accounted for under the
pooling-of-interests method.
Historical financial information presented for 1995 has been restated to
include the acquisition of SensorMedics. Revenues and net income (loss) for
1995, as previously reported by the separate entities prior to the acquisition
and as restated for the combined Company, are as follows:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Revenues:
Previously reported......................................... $2,207,417
SensorMedics................................................ 62,874
----------
$2,270,291
==========
Net Income (Loss):
Previously reported......................................... $ 140,080
SensorMedics................................................ (498)
----------
$ 139,582
==========
</TABLE>
In March 1996, Thermo Instrument completed the acquisition of a substantial
portion of the businesses constituting the Scientific Instruments Division of
Fisons plc (Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc
Rorer Inc. (RPR), for approximately $181.2 million in cash, net of $7.7
million of cash acquired, and the assumption of approximately $47.2 million of
indebtedness. In December 1997, Thermo Instrument and RPR negotiated a post-
closing adjustment under the terms of the purchase agreement for the Fisons
acquisition pertaining to determination of the net assets of the Fisons
businesses at the date of acquisition. This negotiation resulted in a refund
to Thermo Instrument of $36.1 million, plus $3.8 million of interest from the
date of acquisition. Thermo Instrument has recorded $33.1 million of the
refund as a reduction in cost in excess of net assets of acquired companies.
The remaining $3.0 million represented payment for uncollected accounts
receivable acquired by the Company that were guaranteed by RPR.
In 1996, in addition to the acquisitions of SensorMedics and the Fisons
businesses, the Company and its majority-owned subsidiaries made several other
acquisitions for an aggregate of $185.1 million in cash, net of cash acquired,
the issuance of common stock of the Company and its majority-owned
subsidiaries valued at $2.4 million, and the issuance of $26.6 million in
debt.
In March 1995, the Company acquired Coleman Research Corporation in exchange
for 6,003,336 shares of the Company's common stock, including 304,292 shares
reserved for issuance upon
F-14
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exercise of assumed stock options. This business was renamed Thermo Coleman
Corporation. Thermo Coleman provides systems integration, systems engineering,
analytical services, technology support, information technology services and
products, and advanced-technology research and development to government and
commercial customers. The acquisition has been accounted for under the
pooling-of-interests method.
In 1995, in addition to the acquisition of Thermo Coleman, the Company and
its majority-owned subsidiaries made several other acquisitions for an
aggregate of $330.7 million in cash, net of cash acquired, the issuance of
common stock and stock options of the Company's majority-owned subsidiaries
valued at $19.0 million, and the issuance of $22.3 million in debt.
These acquisitions, except for SensorMedics and Thermo Coleman, have been
accounted for using the purchase method of accounting, and the acquired
companies' results have been included in the accompanying financial statements
from their respective dates of acquisition. The aggregate cost of these
acquisitions exceeded the estimated fair value of the acquired net assets by
$1,239.8 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, for acquisitions completed
in 1997, is subject to adjustment upon finalization of the purchase price
allocation. The Company has gathered no information that indicates the final
purchase price allocations will differ materially from the preliminary
estimates. Pro forma data is not presented since the acquisitions were not
material to the Company's results of operations.
In connection with the acquisition of the Fisons businesses, Thermo
Instrument had undertaken a restructuring of the acquired businesses during
1996. In accordance with the requirements of Emerging Issues Task Force
Pronouncement (EITF) 95-3, Thermo Instrument finalized its restructuring plans
in the first quarter of 1997. The restructuring plans include reductions in
staffing levels, abandonment of excess facilities, and other costs associated
with exiting certain activities of the acquired businesses. As part of the
cost of the acquisition, Thermo Instrument established reserves totaling $46.2
million for estimated severance, excess facilities, and other exit costs
associated with the acquisition, $14.3 million and $19.0 million of which was
expended during 1997 and 1996, respectively, primarily for severance and
abandoned-facility payments. At January 3, 1998, the remaining reserve for
restructuring these businesses was $11.1 million, including the impact of
currency translation, and primarily represents ongoing severance and
abandoned-facility payments.
4. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others, which permit the award of stock-based incentives in the
stock of the Company and its majority-owned subsidiaries. The Company has a
nonqualified stock option plan, adopted in 1974, and an incentive stock option
plan, adopted in 1981, which permit the award of stock options to key
employees. The incentive stock option plan expired in 1991, and no grants were
made after that date. An equity incentive plan, adopted in 1989, permits the
grant of a variety of stock and stock-based awards as determined by the human
resources committee of the Company's Board of Directors (the
F-15
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Board Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. The option recipients and the terms of
options granted under these plans are determined by the Board Committee.
Generally, options outstanding under these plans are exercisable immediately,
but are subject to certain transfer restrictions and the right of the Company
to repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights may lapse
over periods ranging from one to ten years, depending on the term of the
option, which may range from three to twelve years. In addition, under certain
options, shares acquired upon exercise are restricted from resale until
retirement or other events. Nonqualified options are generally granted at fair
market value, although the Board Committee has discretion to grant options at
a price at or above 85% of the fair market value on the date of grant.
Incentive stock options must be granted at not less than the fair market value
of the Company's stock on the date of grant. Generally, stock options have
been granted at fair market value. The Company also has a directors' stock
option plan, adopted in 1993, that provides for the annual grant of stock
options of the Company and its majority-owned subsidiaries to outside
directors pursuant to a formula approved by the Company's shareholders.
Options awarded under this plan are exercisable six months after the date of
grant and expire three to seven years after the date of grant. In addition to
the Company's stock-based compensation plans, certain officers and key
employees may also participate in stock-based compensation plans of the
Company's majority-owned subsidiaries.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year........... 8,421 $21.24 8,302 $17.46 7,878 $14.92
Granted.................... 1,401 37.06 1,183 39.03 1,330 27.85
Exercised.................. (744) 13.37 (1,125) 10.71 (1,099) 8.69
Forfeited.................. (247) 29.45 (89) 26.97 (111) 16.67
Assumed upon acquisitions
through pooling-of-
interests (Note 3)........ -- -- 150 14.97 304 5.65
----- ------ ------
Options outstanding, end of
year........................ 8,831 $24.19 8,421 $21.24 8,302 $17.46
===== ====== ====== ====== ====== ======
Options exercisable.......... 8,821 $24.18 8,406 $21.23 8,262 $17.51
===== ====== ====== ====== ====== ======
Options available for grant.. 5,132 1,291 2,397
===== ====== ======
</TABLE>
F-16
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock options at January 3, 1998,
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE
EXERCISE PRICES SHARES LIFE PRICE
--------------- ------ ----------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
$ 6.33--$15.61.................................. 1,479 2.4 years $12.30
15.62-- 24.89.................................. 4,331 7.0 years 19.44
24.90-- 34.18.................................. 798 8.2 years 32.16
34.19-- 43.46.................................. 2,223 8.7 years 38.49
-----
$ 6.33--$43.46.................................. 8,831 6.8 years $24.19
=====
</TABLE>
The information disclosed above for options outstanding at January 3, 1998,
does not differ materially for options exercisable.
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by the Company. Under
this plan, shares of the Company's common stock can be purchased at the end of
a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, shares of the Company's common stock
could be purchased at 85% of the fair market value at the beginning of the
period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10% of
each participating employee's gross wages. Participants of employee stock
purchase programs sponsored by the Company's majority-owned public
subsidiaries may also elect to purchase shares of the common stock of the
subsidiary by which they are employed under the same general terms described
above. During 1997, 1996, and 1995, the Company issued 243,444 shares, 285,448
shares, and 330,444 shares, respectively, of its common stock under this plan.
Employee Stock Ownership Plan
The Company's Employees Stock Ownership Plan (ESOP) was split into two plans
effective December 31, 1994: ESOP I and ESOP II. The ESOP I covers eligible
full-time U.S. employees of the Company's corporate office and its wholly
owned subsidiaries. The ESOP II, terminated effective December 31, 1994,
covered employees of certain of the Company's majority-owned subsidiaries. The
Company loaned funds to the ESOP to purchase shares of common stock of the
Company and its majority-owned subsidiaries. The shares purchased by the ESOP
were recorded as deferred compensation in the accompanying balance sheet. The
loan to the ESOP II was repaid in full in 1996 and all expense related to the
plans had been recognized. The loan repayment was recorded as a reduction in
deferred compensation in the accompanying balance sheet. Shares are allocated
to the plan participants based on employee compensation. For these plans, the
Company charged to expense $0.2 million and $0.3 million in 1996 and 1995,
respectively.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-
F-17
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards in 1997, 1996, and 1995
under the Company's stock-based compensation plans been determined based on
the fair value at the grant dates consistent with the method set forth under
SFAS No. 123, the effect on the Company's net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported..................... $ 239,328 $ 190,816 $ 139,582
Pro forma....................... 224,337 181,880 137,587
Basic earnings per share:
As reported..................... 1.57 1.35 1.10
Pro forma....................... 1.47 1.29 1.09
Diluted earnings per share:
As reported..................... 1.41 1.17 .95
Pro forma....................... 1.32 1.12 .93
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years. Pro forma compensation expense for options granted is reflected over
the vesting period; therefore, future pro forma compensation expense may be
greater as additional options are granted.
The weighted average fair value per share of options granted was $15.14,
$13.03, and $9.39 in 1997, 1996, and 1995, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Volatility..................................... 26% 24% 24%
Risk-free interest rate........................ 6.2% 6.1% 6.0%
Expected life of options....................... 6.5 years 5.2 years 5.0 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
401(K) SAVINGS PLAN
The Company's 401(k) savings plan covers the majority of the Company's
eligible full-time U.S. employees. Contributions to the plan are made by both
the employee and the Company. Company contributions are based on the level of
employee contributions. For this plan, the Company
F-18
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contributed and charged to expense $13.9 million, $10.1 million, and $7.6
million in 1997, 1996, and 1995, respectively.
OTHER RETIREMENT PLANS
Certain of the Company's subsidiaries offer retirement plans, separate from
the Company's 401(k) savings plan. These retirement plans cover approximately
20% of the Company's U.S. employees. The majority of these subsidiaries offer
401(k) savings plans; however, one subsidiary offers a money purchase plan and
two subsidiaries offer profit-sharing plans. Company contributions to the
401(k) savings plans are based on the level of employee contributions. Company
contributions to the money purchase plan and profit-sharing plans are based on
formulas determined by the Company. For these plans, the Company contributed
and charged to expense $9.3 million, $8.8 million, and $8.2 million in 1997,
1996, and 1995, respectively.
5. LONG-TERM OBLIGATIONS AND OTHER FINANCING ARRANGEMENTS
Long-term obligations of the Company are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
5% Senior convertible debentures, due 2001, convertible
at $21.00 per share.................................... $ -- $ 175,216
4 1/4% Subordinated convertible debentures, due 2003,
convertible at $37.80 per share........................ 585,000 585,000
4 1/2% Senior convertible debentures, due 2003,
convertible into shares of Thermo Instrument at $34.46
per share.............................................. 172,500 172,500
3 3/4% Senior convertible debentures, due 2000,
convertible into shares of Thermo Instrument at $13.55
per share.............................................. 15,324 22,281
5% Subordinated convertible debentures, due 2000,
convertible into shares of ThermoQuest at $16.50 per
share.................................................. 80,591 86,250
5% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Optek at $13.94 per
share.................................................. 79,956 86,250
4 7/8% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Remediation at $17.92
per share.............................................. 34,950 34,950
Noninterest-bearing subordinated convertible debentures
due 2003, convertible into shares of Thermedics at
$32.68 per share....................................... 62,300 65,000
4 3/4% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Cardiosystems at
$31.42 per share....................................... 70,000 --
Noninterest-bearing subordinated convertible debentures,
due 1997, convertible into shares of Thermo
Cardiosystems at $14.49 per share...................... -- 3,755
3 3/4% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Voltek at $7.83 per
share.................................................. 7,750 9,345
4 5/8% Subordinated convertible debentures, due 2003,
convertible into shares of Thermo TerraTech at $15.90
per share.............................................. 111,850 111,850
6 1/2% Subordinated convertible debentures, due 1997,
convertible into shares of Thermo TerraTech at $10.33
per share.............................................. -- 8,620
</TABLE>
F-19
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
4 1/2% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Fibertek at $12.10 per
share................................................... $ 153,000 $ --
4 3/8% Subordinated convertible debentures, due 2004,
convertible into shares of ThermoLase at $17.39 per
share................................................... 115,000 --
3 1/4% Subordinated convertible debentures, due 2007,
convertible into shares of ThermoTrex at $27.00 per
share................................................... 114,500 --
Noninterest-bearing subordinated convertible debentures,
due 2001, convertible into shares of Thermo Ecotek at
$13.56 per share........................................ 8,118 22,205
4 7/8% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Ecotek at $16.50 per
share................................................... 50,000 --
8.1% Nonrecourse tax-exempt obligation, payable in
semiannual installments, with final payment in 2000..... 35,600 51,200
6.0% Nonrecourse tax-exempt obligation, payable in
semiannual installments, with final payment in 2000..... 23,900 43,500
Other.................................................... 93,857 113,289
---------- ----------
1,814,196 1,591,211
Less: Current maturities................................. 71,289 40,869
---------- ----------
$1,742,907 $1,550,342
========== ==========
</TABLE>
The debentures that are convertible into subsidiary common stock have been
issued by the respective subsidiaries and are guaranteed by the Company, on a
subordinated basis in most cases.
In the event of a change in control of the Company (as defined in the
related fiscal agency agreement) that has not been approved by the continuing
members of the Company's Board of Directors, each holder of the 4 1/4%
convertible debentures issued by the Company will have the right to require
the Company to buy all or part of the holder's debentures, at par value plus
accrued interest, within 50 calendar days after the date of expiration of a
specified approval period. In addition, certain of the obligations convertible
into subsidiary common stock become exchangeable for common stock of the
Company at an exchange price equal to 50% of the average price of the
Company's common stock for the 30 trading days preceding the change in
control.
Nonrecourse tax-exempt obligations represent obligations issued by the
California Pollution Control Financing Authority, the proceeds of which were
used to finance two alternative-energy facilities (Delano I and Delano II)
located in Delano, California. The obligations are credit-enhanced by a letter
of credit issued by a bank group. The obligations are payable only by a
subsidiary of Thermo Ecotek and are not guaranteed by the Company, except
under limited circumstances. As required by the financing bank group, Thermo
Ecotek entered into interest rate swap agreements that effectively convert
these obligations from floating rates to the fixed rates described above.
These swaps have terms expiring in 2000, commensurate with the final maturity
of the debt. During 1997 and 1996, the average variable rate received under
the interest rate swap agreements was 3.7% and 3.5%, respectively. The
notional amount of the swap agreements was $61.3 million and $95.7 million at
year-end 1997 and 1996, respectively. The interest rate swap agreements are
with a different
counterparty than the holders of the underlying debt. The Company believes,
however, that the credit risks associated with these swaps are minimal because
the agreements are with a large, reputable bank.
F-20
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The annual requirements for long-term obligations are as follows (In
thousands):
<TABLE>
<CAPTION>
<S> <C>
1998.......................................................... $ 71,289
1999.......................................................... 25,466
2000.......................................................... 224,244
2001.......................................................... 49,021
2002.......................................................... 2,940
2003 and thereafter........................................... 1,441,236
----------
$1,814,196
==========
</TABLE>
See Note 13 for fair value information pertaining to the Company's long-term
obligations.
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $105.7 million and $112.9 million in 1997
and 1996, respectively, of short-term bank borrowings and borrowings under
lines of credit of certain of the Company's subsidiaries. The weighted average
interest rate for these borrowings was 5.7% and 5.4% at year-end 1997 and
1996. Unused lines of credit were $205 million as of year-end 1997.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $73.6 million, $62.6 million, and
$48.8 million in 1997, 1996, and 1995, respectively. Future minimum payments
due under noncancelable operating leases at January 3, 1998, are $71.0 million
in 1998; $60.7 million in 1999; $52.2 million in 2000; $45.8 million in 2001;
$42.6 million in 2002; and $165.5 million in 2003 and thereafter. Total future
minimum lease payments are $437.8 million.
LITIGATION AND RELATED CONTINGENCIES
ThermoTrex is a defendant in a lawsuit brought by Fischer Imaging
Corporation, which alleges that the prone breast-biopsy systems of the Lorad
division of ThermoTrex's Trex Medical subsidiary infringe a Fischer patent on
a precision mammographic needle-biopsy system. Lorad's cumulative revenues
from this product totaled approximately $118.6 million through January 3,
1998.
Five former employees of Thermo Instrument's Epsilon Industrial, Inc.
(Epsilon) subsidiary have commenced an arbitration proceeding naming as joint
defendants Epsilon, Thermo Instrument, and certain affiliates of Thermo
Instrument, including the Company, alleging that these entities breached the
terms of certain agreements entered into with such employees at the time that
a predecessor of Epsilon acquired the assets and business of a company
formerly owned by such employees. The former employees are claiming actual
damages of between $27 million and $46 million, punitive damages of twice the
actual damages, attorneys' fees and expenses, and pre-judgment and post-
judgment interest, resulting from the alleged failure of Thermo Instrument and
such affiliates, to, among other things, use their best efforts to develop and
promote certain products acquired at that time. The arbitration proceeding,
which is binding and nonappealable, is expected to conclude in the second
quarter of 1998.
F-21
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Thermo Coleman has been named as a defendant in a lawsuit initiated by
certain former employees. This suit was filed under the "qui tam" provisions
of the Federal False Claims Act (the Act), which permit an individual to bring
suit in the name of the United States and, if the United States obtains a
judgment against the defendant, to share in any recovery. The suit alleges,
among other things, that Thermo Coleman violated the Act as a result of its
performance of certain support-service functions under a subcontract from a
third party, which, in turn, contracted directly with the U.S. government. The
complaint seeks an order requiring Thermo Coleman to cease and desist from
such allegedly improper practices, the award of treble damages in an
unspecified amount, plus other penalties. The amount of billings under the
contract activities in question were approximately $7.6 million. Under the
law, the U.S. government will investigate the allegations set forth in the
complaint, and then will determine whether it wishes to intervene and take
over the lawsuit. The Company has been advised that the U.S. government has
not completed its investigation and that no decision has been made on whether
the U.S. government will intervene in the lawsuit.
ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-
Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for
alleged violation of two U.S. patents owned by Finnigan pertaining to methods
used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in
United States District Court and the other was filed with the United States
International Trade Commission (ITC). In February 1998, an administrative law
judge at the ITC issued an initial determination to the effect that, although
one of Finnigan's patents was infringed, the patents were invalid for purposes
of this case. The ITC's jurisdiction on this matter is limited to the issue of
whether or not the defendants' products that use the patented methods can be
imported into the U.S. The judge's initial determination will be considered by
the full commission during the second quarter of 1998. Bruker has presented
counterclaims alleging that the Finnigan patents are invalid and unenforceable
and are not infringed by the mass spectrometers co-marketed by Bruker. They
also allege that Finnigan has violated antitrust laws by attempting to
maintain a monopoly position and restrain trade through enforcement of
allegedly fraudulently obtained patents. Bruker has asked for judgment
consistent with its counterclaims, and for three times the antitrust damages
(including attorney's fees) it has sustained.
The Company intends to vigorously defend these matters. In the opinion of
management, the ultimate liability for all such matters will not be material
to the Company's financial position, but an unfavorable outcome in one or more
of the matters described above could materially affect the results of
operations or cash flows for a particular quarter or annual period.
7. COMMON STOCK
At January 3, 1998, the Company had reserved 31,354,154 unissued shares of
its common stock for possible issuance under stock-based compensation plans,
for possible conversion of the Company's convertible debentures, and for
possible exchange of certain subsidiaries' convertible obligations into common
stock of the Company. Certain of the subsidiaries' obligations are
exchangeable into common stock of the Company in the event of a change in
control (as defined in the related fiscal agency agreement) that has not been
approved by the continuing members of the Company's Board of Directors (Note
5). The exchange price would be equal to 50% of the average price of the
Company's common stock for the 30 trading days preceding the change in
control.
In January 1996, the Company redeemed the share purchase rights outstanding
under its previously existing shareholder rights plan for $.02 per right, or
$.006 per share of the Company's common stock outstanding. Simultaneous with
this redemption, the Company distributed rights
F-22
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
under a new shareholder rights plan adopted by the Company's Board of
Directors to holders of outstanding shares of the Company's common stock. Each
right entitles the holder to purchase one ten-thousandth of a share of Series
B Junior Participating Preferred Stock, $100 par value, at a purchase price of
$250 per share, subject to adjustment. The rights will not be exercisable
until the earlier of (i) 10 days following a public announcement that a person
or group of affiliated or associated persons (an Acquiring Person) has
acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of common stock (the Stock Acquisition Date),
or (ii) 10 business days following the commencement of a tender offer or
exchange offer for 15% or more of the outstanding shares of common stock.
In the event that a person becomes the beneficial owner of 15% or more of
the outstanding shares of common stock, except pursuant to an offer for all
outstanding shares of common stock approved by the outside Directors, each
holder of a right (except for the Acquiring Person) will thereafter have the
right to receive, upon exercise, that number of shares of common stock that
equals the exercise price of the right divided by one half of the current
market price of the common stock. In the event that, at any time after any
person has become an Acquiring Person, (i) the Company is acquired in a merger
or other business combination transaction in which the Company is not the
surviving corporation or its common stock is changed or exchanged (other than
a merger that follows an offer approved by the outside Directors), or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a right (except for the Acquiring Person) shall thereafter have the
right to receive, upon exercise, the number of shares of common stock of the
acquiring company that equals the exercise price of the right divided by one
half of the current market price of such common stock.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the rights in whole, but not in part, at a price of $.01 per right
(payable in cash or stock). The rights expire on January 29, 2006, unless
earlier redeemed or exchanged.
8. INCOME TAXES
The components of income before income taxes and minority interest are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................................... $414,146 $313,069 $256,738
Foreign........................................... 74,321 61,482 42,070
-------- -------- --------
$488,467 $374,551 $298,808
======== ======== ========
</TABLE>
F-23
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal....................................... $105,889 $ 85,024 $ 72,932
Foreign....................................... 30,928 31,851 17,751
State......................................... 18,380 18,445 19,892
-------- -------- --------
155,197 135,320 110,575
-------- -------- --------
Net deferred (prepaid):
Federal....................................... 12,018 (19,994) (9,717)
Foreign....................................... 3,966 (2,275) 232
State......................................... 3,532 (2,206) (2,379)
-------- -------- --------
19,516 (24,475) (11,864)
-------- -------- --------
$174,713 $110,845 $ 98,711
======== ======== ========
</TABLE>
The Company and its majority-owned subsidiaries receive a tax deduction upon
exercise of nonqualified stock options by employees for the difference between
the exercise price and the market price of the underlying common stock on the
date of exercise. The provision for income taxes that is currently payable
does not reflect $15.4 million, $24.5 million, and $20.5 million of such
benefits of the Company and its majority-owned subsidiaries that have been
allocated to capital in excess of par value, directly or through the effect of
majority-owned subsidiaries' equity transactions, in 1997, 1996, and 1995,
respectively. In addition, the provision for income taxes that is currently
payable does not reflect $1.9 million, $6.5 million, and $3.0 million of tax
benefits used to reduce cost in excess of net assets of acquired companies in
1997, 1996, and 1995, respectively. The deferred provision for income taxes
does not reflect $5.9 million of tax benefits used to reduce cost in excess of
net assets of acquired companies in 1995.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before income taxes and minority interest due to the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory
rate........................................ $170,963 $131,093 $104,583
Increases (decreases) resulting from:
Gain on issuance of stock by subsidiaries.. (28,019) (44,310) (28,285)
State income taxes, net of federal tax..... 14,243 10,555 11,314
Foreign tax rate and tax law differential.. 8,937 8,528 3,785
Amortization and write-off of cost in
excess of net assets of acquired
companies................................. 9,918 8,643 7,484
Other, net................................. (1,329) (3,664) (170)
-------- -------- --------
$174,713 $110,845 $ 98,711
======== ======== ========
</TABLE>
F-24
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and accruals................................... $ 65,086 $ 84,253
Net operating loss and credit carryforwards............. 64,615 76,866
Inventory basis difference.............................. 29,829 22,906
Accrued compensation.................................... 17,775 14,435
Intangible assets....................................... 2,683 5,253
Other, net.............................................. 5,504 1,192
-------- --------
185,492 204,905
Less: Valuation allowance............................... 53,992 75,103
-------- --------
$131,500 $129,802
======== ========
Deferred income taxes:
Depreciation............................................ $ 92,672 $ 68,587
Intangible assets....................................... 7,906 8,254
Other................................................... 3,542 4,885
-------- --------
$104,120 $ 81,726
======== ========
</TABLE>
The valuation allowance relates to the uncertainty surrounding the
realization of tax loss carryforwards and the realization of tax benefits
attributable to accrued acquisition expenses and certain other tax assets of
the Company and certain subsidiaries. Of the year-end 1997 valuation
allowance, $49 million will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized. During 1997, the valuation allowance decreased primarily due to
the decrease in tax loss carryforwards.
At year-end 1997, the Company had foreign and federal net operating loss
carryforwards of $133 million and $37 million, respectively. Use of the
carryforwards is limited based on the future income of certain subsidiaries.
The federal net operating loss carryforwards expire in the years 1998 through
2012. Of the foreign net operating loss carryforwards, $10 million expire in
the years 1998 through 2004, and the remainder do not expire.
The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
its domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the Company
does not expect this basis difference to become subject to tax at the parent
level. The Company believes it can implement certain tax strategies to recover
its investment in its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on $216
million of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company currently
plans to keep these amounts permanently reinvested overseas.
9. TRANSACTIONS IN STOCK OF SUBSIDIARIES
Gain on issuance of stock by subsidiaries in the accompanying statement of
income results primarily from the following transactions:
F-25
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997
Initial public offering of 2,671,292 shares of Thermedics Detection common
stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain
of $17.1 million that was recorded by Thermedics.
Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for
net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest
5% subordinated convertible debentures, convertible at $16.50 per share into
949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million
and $7.8 million, respectively, that were recorded by Thermo Instrument.
Private placements of 1,212,260 shares and 94,000 shares of Thermo
Information Solutions 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.
Initial public offering of 2,300,000 shares of Metrika Systems common stock
at $15.50 per share for net proceeds of $32.5 million resulted in a gain of
$13.2 million that was recorded by Thermo Instrument.
Private placement of 2,832,500 shares of Trex Communications common stock at
$4.00 per share for net proceeds of $10.6 million resulted in a gain of $5.9
million that was recorded by ThermoTrex.
Private placement of 1,639,670 shares of ONIX Systems common stock at $14.25
per share for net proceeds of $22.0 million resulted in a gain of $7.9 million
that was recorded by Thermo Instrument.
Private placement of 1,160,900 shares of Thermo Trilogy common stock at
$8.25 per share for net proceeds of $8.9 million resulted in a gain of $4.1
million that was recorded by Thermo Ecotek.
Initial public offering of 1,139,491 shares of Thermo Vision common stock at
$7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3
million that was recorded by Thermo Instrument.
Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated
convertible debentures convertible at $14.85 per share and $13.94 per share,
respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a
gain of $3.2 million that was recorded by Thermo Instrument.
1996
Initial public offering of 3,450,000 shares of ThermoQuest common stock at
$15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2
million that was recorded by Thermo Instrument.
Private placements of 300,000 and 383,500 shares of Thermedics Detection
common stock at $10.00 and $10.75 per share, respectively, for aggregate net
proceeds of $7.0 million resulted in a gain of $5.7 million that was recorded
by Thermedics.
Initial public offering of 2,875,000 shares of Thermo Sentron common stock
at $16.00 per share for net proceeds of $42.3 million resulted in a gain of
$18.0 million that was recorded by Thermedics.
F-26
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Initial public offering of 3,450,000 shares of Thermo Optek common stock at
$13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1
million that was recorded by Thermo Instrument.
Initial public offering of 2,875,000 shares of Trex Medical common stock and
sale of 871,832 shares of Trex Medical common stock in a concurrent rights
offering at $14.00 per share and private placements of 100,000 and 300,000
shares of Trex Medical common stock at $10.75 and $14.50 per share,
respectively, for aggregate net proceeds of $54.3 million resulted in an
aggregate gain of $28.3 million that was recorded by ThermoTrex.
Initial public offering of 1,670,000 shares of Thermo BioAnalysis common
stock at $14.00 per share for net proceeds of $20.8 million resulted in a gain
of $9.8 million that was recorded by Thermo Instrument.
Private placement of 967,828 shares of Metrika Systems common stock at
$15.00 per share for net proceeds of $13.5 million resulted in a gain of $9.6
million that was recorded by Thermo Instrument.
1995
Initial public offering of 3,500,334 shares of Thermo Ecotek common stock at
$8.50 per share for net proceeds of $27.5 million resulted in a gain of $7.9
million.
Private placement of 1,601,500 shares of Thermo BioAnalysis common stock at
$10.00 per share for net proceeds of $14.9 million resulted in a gain of $9.5
million that was recorded by Thermo Instrument.
Private placement of 500,000 shares of Thermo Remediation common stock at
$13.25 per share for net proceeds of $6.6 million resulted in a gain of $1.6
million that was recorded by Thermo TerraTech.
Private placements of 150,000 and 50,000 shares of ThermoLase common stock
at $13.75 and $12.825 per share, respectively, and a public offering of
2,250,000 shares of ThermoLase common stock at $25.25 per share, for aggregate
net proceeds of $55.3 million resulted in an aggregate gain of $34.7 million
that was recorded by ThermoTrex.
Initial public offering of 1,725,000 shares of ThermoSpectra common stock at
$14.00 per share and a private placement of 202,000 shares of ThermoSpectra
common stock at $15.72 per share, for aggregate net proceeds of $24.9 million
resulted in an aggregate gain of $10.6 million that was recorded by Thermo
Instrument.
Conversion of $9.1 million of Thermo Voltek 3 3/4% subordinated convertible
debentures convertible at $7.83 per share into 1,163,098 shares of Thermo
Voltek common stock resulted in a gain of $3.5 million that was recorded by
Thermedics.
Private placement of 1,862,000 shares of Trex Medical common stock at $10.25
per share for net proceeds of $17.6 million resulted in a gain of $12.8
million that was recorded by ThermoTrex.
F-27
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's ownership percentage in these subsidiaries changed primarily
as a result of the transactions listed above, as well as the Company's
purchases of shares of its majority-owned subsidiaries' stock, the
subsidiaries' purchases of their own stock, the issuance of subsidiaries'
stock by the Company or by the subsidiaries under stock-based compensation
plans or in other transactions, and the conversion of convertible obligations
held by the Company, its subsidiaries, or by third parties.
The Company's ownership percentages at year end were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Thermedics.................................................... 58% 55% 51%
Thermo Cardiosystems (a)..................................... 59% 54% 55%
Thermo Voltek (a)............................................ 68% 51% 59%
Thermo Sentron (a)........................................... 78% 73% 100%
Thermedics Detection (b)..................................... 76% 94% 100%
Thermo Instrument............................................. 82% 82% 86%
ThermoSpectra (c)............................................ 83% 73% 72%
ThermoQuest (c).............................................. 88% 93% 100%
Thermo Optek (c)............................................. 92% 93% 100%
Thermo BioAnalysis (c)....................................... 78% 67% 80%
Metrika Systems (d).......................................... 60% 84% 100%
Thermo Vision (c)............................................ 80% 100% 100%
ONIX Systems (d)............................................. 87% 100% 100%
Thermo TerraTech.............................................. 82% 81% 81%
Thermo Remediation (e)....................................... 70% 68% 69%
Thermo EuroTech (f).......................................... 56% 53% 62%
The Randers Group (e)........................................ 96% 100% 100%
Thermo Power.................................................. 69% 64% 63%
ThermoLyte (g)............................................... 78% 78% 78%
ThermoTrex.................................................... 55% 51% 51%
ThermoLase (h)............................................... 70% 64% 65%
Trex Medical (i)............................................. 79% 79% 91%
Trex Communications (i)...................................... 78% 100% 100%
Thermo Fibertek............................................... 90% 84% 81%
Thermo Fibergen (j).......................................... 71% 68% 100%
Thermo Ecotek................................................. 88% 82% 83%
Thermo Trilogy (k)........................................... 87% 100% 100%
Thermo Information Solutions.................................. 79% 100% 100%
</TABLE>
- --------
(a) Reflects combined ownership by Thermedics and Thermo Electron.
(b) Reflects ownership by Thermedics.
(c) Reflects combined ownership by Thermo Instrument and Thermo Electron.
(d) Reflects ownership by Thermo Instrument.
(e) Reflects combined ownership by Thermo TerraTech and Thermo Electron.
(f) Reflects ownership by Thermo TerraTech.
(g) Reflects ownership by Thermo Power.
(h) Reflects combined ownership by ThermoTrex and Thermo Electron.
(i) Reflects ownership by ThermoTrex.
(j) Reflects ownership by Thermo Fibertek.
(k) Reflects ownership by Thermo Ecotek.
F-28
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. OTHER INCOME (EXPENSE), NET
The components of other income (expense), net, in the accompanying statement
of income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................. $ 90,559 $ 94,109 $ 62,146
Interest expense............................. (93,125) (96,695) (77,861)
Equity in losses of unconsolidated
subsidiaries................................ (1,018) (28) (203)
Gain on sale of investments, net............. 5,077 9,840 9,305
Other income (expense), net.................. 1,133 (5,740) (612)
-------- -------- --------
$ 2,626 $ 1,486 $ (7,225)
======== ======== ========
</TABLE>
11. RESTRUCTURING AND OTHER NONRECURRING COSTS, NET
Restructuring and other nonrecurring costs, net, in 1997 includes $7.8
million 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 that
resulted in 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. During 1997, the Company settled two
legal cases in which it was a defendant concerning development of a proposed
waste-to-energy facility and development and construction of an alternative-
energy facility. These matters were settled for amounts less than the damages
that had been sought by the plaintiffs and less than the amounts that had been
reserved by the Company. As a result, the Company reversed $9.7 million of
reserves previously established for these matters, which is included as a
reduction of restructuring and other nonrecurring costs in 1997. In addition,
the 1997 amount includes $3.4 million of restructuring and other nonrecurring
costs, primarily severance, at two majority-owned subsidiaries and at the
Company's wholly owned businesses and $1.4 million at ThermoTrex for the
write-off of acquired technology relating to an acquisition. This amount
represents the portion of the purchase price allocated to technology in
development at the acquired business. The 1997 amount also includes a gain of
$2.2 million from the sale of a business by ThermoSpectra and $0.6 million of
other nonrecurring costs.
The 1996 amount includes a write-off of $12.7 million of cost in excess of
net assets of acquired company and certain other intangible assets at
Thermedics' Corpak subsidiary, as a result of Thermedics no longer intending
to further invest in this business and reduced cash flows, such that analysis
indicated that the investment in these assets would not be recovered. The 1996
amount also includes $11.4 million of costs recorded by SensorMedics primarily
as a result of its merger with the Company, including employee compensation
that became payable as a result of the merger with the Company, certain
investment banking fees and other related transaction costs, the settlement of
a pre-acquisition legal dispute, and severance costs for terminated employees.
In addition, $4.4 million was recorded by the Company's wholly owned Peter
Brotherhood Ltd. subsidiary primarily for the write-off of a nontrade
receivable and severance costs, and $3.5 million and $4.9 million were
recorded by Thermo Instrument and Thermo Cardiosystems, respectively, for the
write-off of acquired technology relating to an acquisition at each
subsidiary. These amounts represent the portion of the purchase price
allocated to technology in development at the acquired businesses.
The 1995 amount includes $11.5 million to write off the Company's net
investment in a waste-recycling facility in San Diego County, California, that
was subsequently sold in 1996. The 1995
F-29
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount also includes $5.0 million to write off the cost in excess of net
assets of acquired companies at Thermo TerraTech's thermal-processing
equipment business due to this asset no longer being recoverable based on
discontinuing investment in this business and reduced cash flows, such that
analysis indicated that the investment in these assets would not be recovered.
In addition, $2.5 million was recorded to write off the cost in excess of net
assets of acquired companies at the Company's wholly owned Napco Inc.
subsidiary and $2.9 million was recorded for other nonrecurring costs at other
business units.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Paid For:
Interest................................... $ 100,165 $ 86,449 $ 72,714
Income taxes............................... $ 151,685 $ 91,536 $ 51,184
Noncash Activities:
Conversions of Company and subsidiary
convertible obligations................... $ 246,088 $ 390,494 $ 212,979
Exchange of subsidiary common stock for
common stock of subsidiary subject to
redemption................................ $ 40,500 $ -- $ --
Sale of waste-recycling facility........... $ -- $ 112,553 $ --
Assumption by buyer of waste-recycling
facility debt............................. $ -- $ 109,862 $ --
Acquisition of asset under capital lease... $ -- $ -- $ 47,101
Fair value of assets of acquired
companies................................. $1,210,319 $ 673,662 $ 521,558
Cash paid for acquired companies........... (924,336) (383,685) (339,075)
Issuance of Company and subsidiary common
stock and stock options for acquired
companies................................. (4,543) (2,351) (18,990)
Issuance of long-term obligations for
acquired companies........................ -- (26,560) (22,300)
Amount payable for acquired company........ (5,111) -- --
---------- --------- ---------
Liabilities assumed of acquired
companies............................... $ 276,329 $ 261,066 $ 141,193
========== ========= =========
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, notes
payable and current maturities of long-term obligations, accounts payable,
long-term obligations, forward foreign exchange contracts, and interest rate
swaps. The carrying amount of these financial instruments, with the exception
of available-for-sale investments, long-term obligations, forward foreign
exchange contracts, and interest rate swaps, approximates fair value due to
their short-term nature.
Available-for-sale investments are carried at fair value in the accompanying
balance sheet. The fair values were determined based on quoted market prices.
See Note 2 for fair value information pertaining to these financial
instruments.
F-30
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying amount and fair value of the Company's long-term obligations
and off-balance-sheet financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term obligations:
Convertible obligations.... $1,660,839 $1,856,570 $1,379,467 $1,616,239
Other...................... 82,068 83,898 170,875 171,722
---------- ---------- ---------- ----------
$1,742,907 $1,940,468 $1,550,342 $1,787,961
========== ========== ========== ==========
Off-balance-sheet financial
instruments:
Forward foreign exchange
contracts receivable...... $ (1,731) $ (1,370)
Interest rate swaps
payable................... $ 1,324 $ 1,643
</TABLE>
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the
respective year ends. The fair value of convertible obligations exceeds the
carrying amount primarily due to the market price of the Company's or
subsidiaries' common stock exceeding the conversion price of the convertible
obligations.
The Company had forward foreign exchange contracts of $46.6 million and
$19.7 million outstanding at year-end 1997 and 1996, respectively.
Additionally, the notional amount of the Company's interest rate swap
agreements was $61.3 million and $95.7 million at year-end 1997 and 1996,
respectively (Note 5). The fair value of such contracts and swap agreements is
the estimated amount that the Company would pay or receive upon termination of
the contract, taking into account the change in foreign exchange rates on
forward foreign exchange contracts, and market interest rates and the
creditworthiness of the counterparties on interest rate swap agreements.
14. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
The Company's business segments include the following:
. Instruments: biomedical, analytical, monitoring, and process control
instruments
. Alternative-energy Systems: clean power generation, biopesticides,
intelligent traffic-control systems, industrial-refrigeration systems,
natural gas engines, cooling and cogeneration units, turbines and
compressors
. Paper Recycling: paper recycling and papermaking equipment,
electroplating equipment
. Biomedical Products: mammography and minimally invasive breast-biopsy
systems, general- purpose X-ray systems, respiratory-care equipment, left
ventricular-assist systems, hematology products, neurophysiology
monitoring instruments, biomedical materials, laser-based hair-removal
systems, personal-care products
. Industrial Outsourcing: environmental-liability management, environmental
cleanup, laboratory analysis, metallurgical heat treating and fabrication
. Advanced Technologies: process-detection systems, security instruments,
precision weighing and inspection equipment, power-conversion
instruments, programmable power amplifiers, electronic test equipment,
development of avionics products, medical imaging equipment, and advanced
materials
F-31
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BUSINESS SEGMENT INFORMATION
Revenues:
Instruments............................... $1,592,314 $1,209,362 $ 782,662
Alternative-energy Systems................ 384,923 339,813 325,912
Paper Recycling........................... 278,911 286,312 317,951
Biomedical Products....................... 590,234 455,890 316,622
Industrial Outsourcing.................... 305,508 273,894 210,503
Advanced Technologies..................... 415,016 375,459 323,567
Intersegment Sales Elimination (a)........ (8,586) (8,172) (6,926)
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
Income Before Income Taxes and Minority
Interest:
Instruments............................... $ 235,674 $ 138,869 $ 113,651
Alternative-energy Systems................ 68,501 38,112 32,952
Paper Recycling........................... 31,101 36,115 29,071
Biomedical Products....................... 52,634 16,444 27,167
Industrial Outsourcing.................... 13,896 17,709 21,215
Advanced Technologies..................... 35,197 28,040 23,842
---------- ---------- ----------
Total Segment Income (b).................. 437,003 275,289 247,898
Corporate (c)............................. 51,464 99,262 50,910
---------- ---------- ----------
$ 488,467 $ 374,551 $ 298,808
========== ========== ==========
Identifiable Assets:
Instruments............................... $2,351,153 $1,924,400 $1,372,813
Alternative-energy Systems................ 873,407 617,154 695,849
Paper Recycling........................... 431,860 296,582 238,537
Biomedical Products....................... 992,719 691,836 596,467
Industrial Outsourcing.................... 389,980 396,901 335,726
Advanced Technologies..................... 466,004 389,586 301,059
Corporate (d)............................. 290,746 824,785 245,888
---------- ---------- ----------
$5,795,869 $5,141,244 $3,786,339
========== ========== ==========
Depreciation and Amortization:
Instruments............................... $ 54,993 $ 44,233 $ 25,257
Alternative-energy Systems................ 25,109 24,253 25,186
Paper Recycling........................... 7,438 5,333 5,228
Biomedical Products....................... 20,659 15,148 9,626
Industrial Outsourcing.................... 14,336 12,918 11,197
Advanced Technologies..................... 11,704 11,952 8,104
Corporate................................. 1,499 1,330 1,271
---------- ---------- ----------
$ 135,738 $ 115,167 $ 85,869
========== ========== ==========
Capital Expenditures:
Instruments............................... $ 29,198 $ 19,134 $ 10,313
Alternative-energy Systems (e)............ 26,588 42,537 14,024
Paper Recycling........................... 4,097 4,265 3,686
Biomedical Products....................... 24,898 29,731 9,768
Industrial Outsourcing.................... 17,936 18,710 19,499
Advanced Technologies..................... 7,550 9,412 6,266
Corporate................................. 1,338 752 460
---------- ---------- ----------
$ 111,605 $ 124,541 $ 64,016
========== ========== ==========
</TABLE>
F-32
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHICAL INFORMATION
Revenues:
United States............................. $2,723,254 $2,171,879 $1,790,058
United Kingdom............................ 417,072 312,522 156,863
Other Europe.............................. 558,828 536,496 353,595
Other..................................... 154,390 146,998 117,354
Transfers among geographical areas (a).... (295,224) (235,337) (147,579)
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
Income Before Income Taxes and Minority
Interest:
United States............................. $ 339,871 $ 212,341 $ 201,815
United Kingdom............................ 35,265 11,359 5,609
Other Europe.............................. 47,281 32,813 26,835
Other..................................... 14,586 18,776 13,639
---------- ---------- ----------
Total Segment Income (b).................. 437,003 275,289 247,898
Corporate (c)............................. 51,464 99,262 50,910
---------- ---------- ----------
$ 488,467 $ 374,551 $ 298,808
========== ========== ==========
Identifiable Assets:
United States............................. $4,165,197 $3,372,448 $2,939,286
United Kingdom............................ 704,314 340,005 171,438
Other Europe.............................. 551,500 516,558 340,289
Other..................................... 104,087 87,449 89,439
Corporate (d)............................. 270,771 824,784 245,887
---------- ---------- ----------
$5,795,869 $5,141,244 $3,786,339
========== ========== ==========
Export Sales Included in United States
Revenues Above (f)........................ $ 593,850 $ 436,972 $ 340,736
========== ========== ==========
</TABLE>
- --------
(a) Intersegment sales and transfers among geographical areas are accounted
for at prices that are representative of transactions with unaffiliated
parties.
(b) Segment income is income before corporate general and administrative
expenses, other income and expense, minority interest expense, and income
taxes.
(c) Includes corporate general and administrative expenses, other income and
expense, and gain on issuance of stock by subsidiaries.
(d) Primarily cash and cash equivalents, short- and long-term investments, and
property and equipment at the Company's Waltham, Massachusetts,
headquarters.
(e) Includes $36.9 million in 1996 for the construction of a coal-
beneficiation plant in Gillette, Wyoming.
(f) In general, export revenues are denominated in U.S. dollars.
F-33
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC
Net income...................................... $239,328 $190,816 $139,582
-------- -------- --------
Weighted average shares......................... 152,489 141,525 126,626
-------- -------- --------
Basic earnings per share........................ $ 1.57 $ 1.35 $ 1.10
======== ======== ========
DILUTED
Net income...................................... $239,328 $190,816 $139,582
Effect of:
Convertible debentures........................ 18,814 23,523 15,561
Majority-owned subsidiaries' dilutive
securities................................... (9,925) (8,084) (5,177)
-------- -------- --------
Income available to common shareholders, as
adjusted....................................... $248,217 $206,255 $149,966
-------- -------- --------
Weighted average shares......................... 152,489 141,525 126,626
Effect of:
Convertible debentures........................ 21,596 31,735 30,023
Stock options................................. 1,997 2,345 1,913
-------- -------- --------
Weighted average shares, as adjusted............ 176,082 175,605 158,562
-------- -------- --------
Diluted earnings per share...................... $ 1.41 $ 1.17 $ .95
======== ======== ========
</TABLE>
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 January 3, 1998, there were 1,058,100
of such options outstanding, with exercise prices ranging from $39.43 to $43.46
per share.
F-34
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1997(A)
Revenues.................................. $763,505 $875,016 $909,850 $1,009,949
Gross profit.............................. 296,365 358,538 374,041 412,368
Net income................................ 52,058 56,158 61,859 69,253
Earnings per share:
Basic................................... .35 .37 .41 .44
Diluted................................. .31 .34 .36 .40
1996(B)
Revenues.................................. $652,385 $745,759 $739,981 $ 794,433
Gross profit.............................. 244,381 281,697 296,627 307,284
Net income................................ 41,023 44,919 51,242 53,632
Earnings per share:
Basic................................... .31 .32 .36 .36
Diluted................................. .26 .28 .31 .32
</TABLE>
- --------
(a) Results include nontaxable gains of $33.7 million, $15.2 million, $18.6
million, and $12.6 million in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
(b) Results include nontaxable gains of $28.9 million, $43.5 million, $38.5
million, and $15.7 million in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
F-35
<PAGE>
$1,000,000,000
THERMO ELECTRON CORPORATION
COMMON STOCK AND DEBT SECURITIES
----------------
Thermo Electron Corporation (the "Company") may offer and sell from time to
time, together or separately, shares of its common stock, $1.00 par value per
share (the "Common Stock"), and its debt securities ("Debt Securities"), which
may be either senior debt securities ("Senior Securities") or subordinated
debt securities ("Subordinated Securities"), consisting of debentures, notes
and/or other unsecured evidences of indebtedness. The Common Stock and the
Debt Securities in one or more series (collectively, the "Securities") may be
offered, separately or together, at prices and terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement") up to an
aggregate initial offering price of $1,000,000,000. Any Debt Securities sold
hereunder will be denominated in U.S. dollars. Specific terms of the
Securities for which this Prospectus is being delivered will be set forth in
the applicable accompanying Prospectus Supplement including, where applicable,
(i) in the case of Debt Securities, the specific designation, aggregate
principal amount, denominations, maturity, premium, rate of interest (or
method of calculation thereof) and time of payment thereof, terms for
redemption at the option of the Company or the holder, terms for any sinking
fund payments, subordination provisions, if any, terms, if any, providing for
conversion of the Debt Securities into Common Stock, the form of the Debt
Securities (which may be registered or bearer, or certificated or global), the
initial public offering price and certain other terms of the offering and sale
of the Debt Securities in respect of which this Prospectus is being delivered;
and (ii) in the case of Common Stock, the number of shares and initial public
offering price of the Common Stock and certain terms of the offering and sale
thereof. The Prospectus Supplement may also contain information, as
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities for which the
Prospectus Supplement is being delivered. The Common Stock is listed on the
New York Stock Exchange. Any Common Stock offered will be listed, subject to
notice of issuance, on such exchange.
The Securities may be sold by the Company directly or indirectly through
agents, underwriters or dealers as designated from time to time, or through a
combination of such methods. See "Plan of Distribution." The applicable
accompanying Prospectus Supplement will set forth the names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them. See "Plan of Distribution" for
possible indemnification arrangements with underwriters, dealers and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENCE.
----------------
The date of this Prospectus is March 12, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549; and at the Commission's regional offices at 500 West
Madison Street, Chicago, Illinois 60661; and 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission, including the Company; the address of such Web site is
http://www.sec.gov. The Common Stock is listed on the New York Stock Exchange,
and such material that relates to the Company may also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus constitutes a part. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
1-8002) are hereby incorporated by reference into this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended January 3, 1998;
(b) The description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A filed under the Exchange Act,
as such description may be amended from time to time; and
(c) The description of the Company's Preferred Stock Purchase Rights
which is contained in the Company's Registration Statement on Form 8-A
filed under the Exchange Act, as such description may be amended from time
to time.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained
herein or in a document all or any portion of which is incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
earlier statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than certain exhibits to such documents). Requests for such copies
should be directed to Sandra L. Lambert, Secretary, Thermo Electron
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046
(telephone: (781) 622-1000).
RISK FACTORS
In addition to the other information in this Prospectus and the applicable
Prospectus Supplement, prospective purchasers of the Securities offered hereby
should carefully consider the risk factors set forth in the Company's most
recent Annual Report on Form 10-K.
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THE COMPANY
The Company, a Delaware corporation, was founded in 1956, completed its
initial public offering in 1967, and was listed on the New York Stock Exchange
in 1980. The principal executive office of the Company is located at 81 Wyman
Street, Waltham, Massachusetts 02254-9046 (telephone: 781-622-1000).
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities will be used by the Company for
general corporate purposes, which may include repayment of outstanding
indebtedness, capital expenditures, working capital requirements, research and
development, repurchase of its Common Stock and other securities and the
securities of any of its subsidiaries through open-market purchases or
otherwise, and possible future acquisitions. The precise amount and timing of
the application of such proceeds will depend upon the funding requirements of
the Company, and the availability and cost of other funds. Pending these uses,
the Company expects to invest the net proceeds primarily in investment grade
interest or dividend bearing instruments.
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DESCRIPTION OF DEBT SECURITIES OF THE COMPANY
The following description sets forth certain general terms and provisions of
the Debt Securities of the Company to which any Prospectus Supplement may
relate. The particular terms of the Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may not
apply to the Debt Securities so offered will be described in the Prospectus
Supplement relating to such Debt Securities.
The Debt Securities constitute either senior Debt Securities (the "Senior
Securities") or subordinated Debt Securities (the "Subordinated Securities").
The Senior Securities are to be issued under an Indenture (the "Senior
Indenture"), to be entered into between the Company and Bankers Trust Company,
as trustee (the "Trustee"), the form of which Senior Indenture is filed as an
exhibit to the Registration Statement containing this Prospectus. The
Subordinated Securities will be issued under an Indenture (the "Subordinated
Indenture"), to be entered into between the Company and Bankers Trust Company,
as trustee (in such capacity, also the "Trustee"), the form of which
Subordinated Indenture is also filed as an exhibit to the Registration
Statement containing this Prospectus. The Senior Indenture and the
Subordinated Indenture are sometimes collectively referred to herein as the
"Indentures."
The following summary of certain provisions of the Debt Securities and the
Indentures does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Indentures, including
the definitions therein of certain terms. Wherever particular provisions or
defined terms of the Indentures are referred to, such provisions or defined
terms are incorporated herein by reference. Certain defined terms in the
Indentures are capitalized herein. Article or section references in
parentheses are to the applicable Indenture. References in this section to the
"Company" are solely to Thermo Electron Corporation and not to any of its
subsidiaries.
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "U.S. Dollars"
or "dollars").
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may
be issued thereunder up to an aggregate principal amount that may be
authorized from time to time by the Company. Debt Securities may be issued in
one or more series thereunder. The Senior Securities will be unsecured
obligations of the Company and will rank on a parity with all other unsecured
and unsubordinated indebtedness of the Company. Unless otherwise indicated in
the applicable Prospectus Supplement, the Subordinated Securities will be
unsecured and subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, in the manner and to the extent described
below under "Subordination of Subordinated Securities." The Company's rights
as a stockholder and the rights of its creditors, including holders of the
Debt Securities, to participate in the assets of any of the Company's
subsidiaries, as the case may be, upon a subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for specific terms, including (where
applicable): (1) the title or designation of such Debt Securities and the
series in which such Debt Securities shall be included; (2) the aggregate
principal amount of such Debt Securities and any limit on such aggregate
principal amount and the price or prices (expressed as a percentage of the
principal amount thereof) at which such Debt Securities will be issued; (3) if
there is more than one Trustee, the identity of the Trustees and, if not the
Trustee, the identity of each Security Registrar, and the identity of each
Paying Agent,
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Conversion Agent or Authenticating Agent with respect to the Debt Securities;
(4) the date or dates on which the principal of and premium, if any, on such
Debt Securities will be payable, or the method or methods, if any, by which
such date or dates will be determined; (5) the rate or rates (which may be
fixed or variable) at which such Debt Securities will bear interest, if any,
or the method or methods, if any, by which such rate or rates are to be
determined, the date or dates, if any, from which such interest will accrue or
the method or methods, if any, by which such date or dates are to be
determined, the interest payment dates, if any, on which such interest shall
be payable and the record dates, if any, for the interest payable on Debt
Securities in registered form on any interest payment dates, whether and under
what circumstances Additional Amounts on such Debt Securities will be payable,
and the basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months; (6) if the Debt Securities are to be
issuable in global form and are to be issuable in definitive form (whether
upon original issue or upon exchange of a temporary Debt Security) only upon
receipt of certain certificates or other documents or satisfaction of other
conditions, then the terms of such certificates, documents or conditions; (7)
the place or places where the principal of, premium, if any, and any interest
or any Additional Amounts with respect to such Debt Securities shall be
payable, the place or places where such Debt Securities may be surrendered for
registration of transfer and exchange, and the place or places of transfer,
exchange or conversion in the circumstances described in the Prospectus
Supplement or in the Indentures, if other than The City of New York; (8) the
period or periods within which, the price or prices at which and the other
terms and conditions upon which such Debt Securities may be redeemed at the
option of the Company; (9) the obligation, if any, of the Company to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof and the period or
periods within which, the price or prices at which, and the terms and
conditions upon which such Debt Securities shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation; (10) whether any
such Debt Securities are to be issuable in registered form ("Registered
Securities") or bearer form ("Bearer Securities") or both and, if in bearer
form, the terms and conditions relating thereto, including whether interest in
respect of any portion of a temporary Bearer Security in global form payable
in respect of an interest payment date therefor prior to the Exchange Date
shall be paid to any clearing organization with respect to the portion of such
temporary Bearer Security held for its account and any further terms and
conditions relating to the crediting of such interest payments to the persons
entitled thereto, and any limitations on issuance of such Bearer Securities
(including in exchange for registered Debt Securities of the same series);
(11) the authorized denominations in which Debt Securities will be issuable,
if other than denominations of $1,000 and any integral multiple thereof (in
the case of Registered Securities) or $1,000 or $10,000 (in the case of Bearer
Securities); (12) the terms, if any, on which such Debt Securities may be
exchanged for or converted into other securities of the Company; (13) whether
any such Debt Securities will be issued in temporary or permanent global form
and, if so, the identity of the depository or depositories for such global
Debt Security; (14) the index, formulas or other method, if any, with
reference to which the amount of any payment of principal of, premium, if any,
or interest on or any Additional Amounts with respect to the Debt Securities
will be determined; (15) the portion of the principal amount of such Debt
Securities which will be payable upon declaration of acceleration of the
Maturity thereof, if other than the stated principal amount thereof; (16) any
addition to, or modification or deletion of, any covenant or Event of Default
with respect to such Debt Securities; (17) the terms, if any, upon which Debt
Securities may be exchangeable for other Securities; (18) in the case of an
issue of Subordinated Securities, the subordination provisions, if different
from those described under "Subordination of Subordinated Securities" below;
(19) the applicability of any provisions described below under "Discharge,
Defeasance and Covenant Defeasance;" (20) the date(s) that the Securities are
to be dated; and (21) any other terms of such Debt Securities not inconsistent
with the provisions of the Indentures. As used in this Prospectus and any
Prospectus Supplement relating to the offering of any Debt Securities,
references to the principal of and premium, if any, and interest, if any, on
Debt Securities will be deemed to include mention of the payment of Additional
Amounts, if any, required by the terms of Debt Securities in such context.
(Section 301)
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Under the Indenture, the terms of the Debt Securities of any series may
differ, and the Company, without the consent of the holders of the Debt
Securities of any series, may reopen a previous series of Debt Securities and
issue additional Debt Securities of such series. (Section 301)
Debt Securities may be issued at a discount from their stated principal
amount. United States Federal income tax considerations and other special
considerations applicable to any such Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Debt Securities may be issued that qualify as "Variable Rate Debt
Securities" for tax purposes. United States Federal income tax considerations
and other special considerations applicable to any such Variable Rate Debt
Securities will be described in the applicable Prospectus Supplement.
Debt Securities may also be issued that provide for the use of an index to
determine the amount of payments of principal of, premium, if any, or interest
on the series of which such Debt Securities are a part, but which do not
qualify as Variable Rate Debt Securities. Special Federal income tax,
accounting and other considerations applicable to such Indexed Securities will
be described in the applicable Prospectus Supplement.
SUBORDINATION OF SUBORDINATED SECURITIES
The Subordinated Securities will be subordinated in right of payment to the
prior payment in full of all existing and future Senior Indebtedness of the
Company. Senior Indebtedness of the Company is defined for this purpose as the
principal of, premium, if any, and interest and other amounts due on or with
respect to the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred or created: (a) indebtedness of
the Company for money borrowed by the Company (including, without limitation,
purchase money obligations and money borrowed from any of its affiliates),
whether or not evidenced by debentures, bonds, notes or other corporate debt
securities or similar instruments issued by the Company; (b) obligations to
reimburse any bank or other person in respect of amounts paid under letters of
credit; (c) leases of real property, equipment or other assets, which leases
are capitalized in the Company's financial statements in accordance with
generally accepted accounting principles; (d) commitment, standby and other
fees due and payable to financial institutions with respect to credit
facilities available to the Company; (e) obligations of the Company under
interest rate and currency swaps, floors, caps or other similar arrangements
intended to hedge interest rates or currency exposure; (f) obligations secured
by any mortgage, pledge, lien or other encumbrance on property which is owned
or held by the Company subject to such mortgage, pledge, lien or other
encumbrance, whether or not the obligations secured thereby shall have been
assumed by the Company; (g) obligations of the Company constituting guarantees
of indebtedness of or joint obligations with another or others which would be
included in the preceding clauses (a), (b), (c), (d), (e) or (f); and (h)
modifications, renewals, extensions or refundings of any of the indebtedness,
leases, fees or obligations referred to in the preceding clauses (a), (b),
(c), (d), (e), (f) or (g) or debentures, notes or other evidences of
indebtedness issued in exchange therefor; provided that Senior Indebtedness
shall not include any particular indebtedness, lease, fee or obligation,
modification, renewal, extension, refunding or exchanged securities if, under
the express provisions of the instrument creating or evidencing the same, or
pursuant to which the same is outstanding, such indebtedness, lease, fee or
obligation or such modification, renewal, extension or refunding thereof or
exchanged securities are stated to be not superior in right of payment to the
Subordinated Securities. (Article Seventeen of the Subordinated Indenture) The
Subordinated Securities will rank pari passu with each other. The obligations
represented by the Subordinated Securities may rank pari passu with certain
other obligations of the Company, if so indicated in the applicable Prospectus
Supplement.
Upon (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relative to the Company
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or its creditors, as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit or creditors or any other marshaling of assets and
liabilities of the Company, all principal of, premium, if any, and interest
due upon all Senior Indebtedness must be paid in full before the Holders of
the Subordinated Securities or the Trustee are entitled to receive or retain
any assets so distributed in respect of the Subordinated Securities. (Section
1702) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, such Senior Indebtedness shall first be paid in
full, or duly provided for in cash, before any payment is made by the Company,
directly or indirectly, on the Subordinated Securities. Upon the happening of
any event of default with respect to any Senior Indebtedness, as defined
therein or in the instrument under which it is outstanding, permitting the
holders to accelerate the maturity thereof, then, unless and until such event
of default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company, directly or indirectly, on account of
the principal of, premium, if any or interest on the Subordinated Securities
and any Coupons appertaining thereto. (Section 1703) By reason of these
provisions, in such events, Holders of the Subordinated Securities may recover
less, ratably, than other creditors of the Company, including holders of
Senior Indebtedness.
Subject to payment in full of all Senior Indebtedness of the Company, the
rights of Holders of the Subordinated Securities will be subrogated to the
rights of holders of Senior Indebtedness to receive payments or distributions
of cash, property or securities of the Company applicable to Senior
Indebtedness. (Section 1705)
The Subordinated Indenture places no limitation on the amount of additional
Senior Indebtedness or any other indebtedness that may be incurred by the
Company. The Company expects from time to time to incur additional
indebtedness, including Senior Indebtedness.
STRUCTURAL SUBORDINATION
The obligations represented by the Debt Securities are obligations
exclusively of the Company and not of its subsidiaries. Because the operations
of the Company are, in large part, conducted through subsidiaries, the cash
flow and the consequent ability to service debt of the Company, including the
obligations represented by the Debt Securities, are dependent, in part, upon
the earnings of its subsidiaries and the distribution of those earnings to the
Company or upon loans or other payments of funds by those subsidiaries to the
Company. Pursuant to the Thermo Electron Corporate Charter, to which the
Company and each of its majority-owned subsidiaries is a party (the
"Charter"), the combined financial resources of the Company and its
subsidiaries allow the Company to provide banking, credit, and other financial
services to its subsidiaries so that each member of the Thermo Electron group
of companies may benefit from the financial strength of the entire
organization. Toward that end, the Charter states that each member of the
group may be required to provide certain credit support to the consolidated
entity. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions is
subject in each instance to a fiduciary duty owed to the minority stockholders
of the relevant subsidiary. The subsidiaries are separate and distinct legal
entities and, except as provided in the Charter, have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Debt
Securities or to make any funds available therefor, whether by dividends,
loans or other payments. In addition, the payment of dividends and the making
of loans and advances to the Company by its subsidiaries may be subject to
statutory restrictions, and dividends paid by a subsidiary that does not
consolidate with the Company for tax purposes will be subject to taxation.
The obligations represented by the Debt Securities will be effectively
subordinated to all indebtedness and other liabilities, including current
liabilities and commitments under leases, if any, of the Company's
subsidiaries. Any right of the Company to receive assets of any of its
subsidiaries
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upon liquidation or reorganization of such subsidiary (and the consequent
right of the holders of the Debt Securities to participate in those assets)
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of
such subsidiary, in which case the claims of the Company would still be
subject to any security interests in the assets of such subsidiary and
subordinated to any indebtedness of such subsidiary senior to that held by the
Company. In addition, any minority stockholder of such subsidiary would be
entitled to participate in the assets of such subsidiary on the same terms as
the Company.
CONVERSION RIGHTS
Unless otherwise indicated in an applicable Prospectus Supplement, the
following provisions shall be applicable with respect to any Debt Security
that is convertible into Common Stock (a "Convertible Debt Security").
The Holder of any Convertible Debt Security will have the right, at the
Holder's option, to convert any portion of the principal amount of a
Convertible Debt Security that is an integral multiple of $1,000 into shares
of Common Stock at any time on or after (a) in the case of all Convertible
Debt Securities other than a temporary global Bearer Security, its date of
issuance and (b) in the case of Convertible Debt Securities represented by a
temporary global Bearer Security, the receipt of definitive Convertible Debt
Securities, and prior to the close of business on the maturity date, unless
previously redeemed or repurchased, at the Conversion Price per share set
forth in an applicable Prospectus Supplement (subject to adjustment as
described below). The right to convert a Convertible Debt Security called for
redemption or delivered for repayment will terminate at the close of business
on the fifth business day prior to the redemption date for such Convertible
Debt Security or the second business day preceding the repayment date, as the
case may be, unless the Company defaults in making the payment due upon
redemption or repayment, as the case may be. (Section 1201)
The right of conversion attaching to any Convertible Debt Security may be
exercised by the Holder by delivering the Convertible Debt Security at the
specified office of a Conversion Agent (which in the case of a Convertible
Debt Security which is a Bearer Debt Security (a "Bearer Convertible Debt
Security") will only be the office of any Conversion Agent outside the United
States), accompanied by a duly signed and completed notice of conversion. The
Conversion Date will be the date on which the Convertible Debt Security and
the duly signed and completed notice of conversion are so delivered. As
promptly as practicable on or after the Conversion Date, the Company will
issue and deliver to the Trustee a certificate or certificates for the number
of full shares of Common Stock issuable upon conversion, together with payment
in lieu of any fraction of a share; such certificate will be sent by the
Trustee to the appropriate Conversion Agent for delivery to the Holder.
Accrued interest from the immediately preceding interest payment date until
the Conversion Date will be paid within five business days after the
Conversion Date. Each Bearer Convertible Debt Security delivered for
conversion must be delivered with all Coupons maturing after the Conversion
Date. Coupons maturing on or before the Conversion Date and not in default
will be payable against surrender thereof, and Coupons so maturing but in
default will continue to be payable as set forth in the Indenture,
notwithstanding the exercise of the right of conversion by the Holder of the
Convertible Debt Security to which the Coupons appertain, but Coupons maturing
after the Conversion Date will not be paid. In the case of any Convertible
Debt Security that is a Registered Debt Security which has been converted
after any Regular Record Date but on or prior to the next Interest Payment
Date (other than any such Registered Debt Security whose Maturity is prior to
such Interest Payment Date), interest the Stated Maturity of which is on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest shall be paid to the Holder
of such Registered Convertible Debt Security on such Regular Record Date. No
other payment or adjustment for interest, or for any dividends in respect of
Common Stock, will be made upon conversion. Holders of Common Stock issued
upon conversion will not be entitled to receive any
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dividends payable to holders of Common Stock as of any record time before the
close of business on the Conversion Date. No fractional shares will be issued
upon conversion, but in lieu thereof, an appropriate amount will be paid in
cash by the Company based on the market price of the Common Stock at the close
of business on the day of conversion. (Sections 307, 1202 and 1203)
A Holder delivering a Convertible Debt Security for conversion will not be
required to pay any stamp and similar taxes or duties in respect of the issue
or delivery of Common Stock on conversion but will be required to pay any tax
or duty which may be payable in respect of any transfer involved in the issue
or delivery of the Common Stock in a name other than that of the Holder of the
Convertible Debt Security. Certificates representing shares of Common Stock
will not be issued or delivered unless all taxes and duties, if any, payable
by the Holder have been paid. (Sections 1202 and 1208)
The Conversion Price is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock
of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price (determined as
provided in the Indenture) of the Common Stock, (c) subdivisions, combinations
and reclassifications of Common Stock and (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, cash or assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to above, dividends and
distributions paid exclusively in cash out of the consolidated retained
earnings of the Company and mergers and consolidations to which the last
paragraph of this section applies). The Company reserves the right to make
such reductions in the Conversion Price in addition to those required in the
foregoing provisions as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. No adjustment of the Conversion Price
will be required to be made until the cumulative adjustments amount to 1.0% or
more of the Conversion Price. (Section 1204) Notices of any adjustments to the
Conversion Price pursuant to this paragraph will be given to all Holders in
the manner required in the Indenture. (Section 1205)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to the stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Convertible Debt
Securities are convertible is increased, such increase may be deemed for
federal income tax purposes to be the payment of a taxable dividend to Holders
of Convertible Debt Securities.
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all
or substantially all of the assets of the Company, each Convertible Debt
Security then outstanding will, without the consent of the Holder of any
Convertible Debt Security or Coupon, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Convertible Debt Security was convertible
immediately prior thereto (assuming such holder of Common Stock failed to
exercise any rights of election and that such Convertible Debt Security was
then convertible). (Section 1211)
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENTS
The Indentures provide that the Company may issue Debt Securities in
registered form only, in bearer form only, or in both registered and bearer
form.
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Unless otherwise indicated in the applicable Prospectus Supplement,
Registered Securities will be issued in denominations of $1,000 or any
integral multiple thereof, without interest Coupons, and definitive Bearer
Securities will be issued in denominations of $1,000 and $10,000, with
interest Coupons attached. (Section 302)
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal, premium, if any, and interest on the Registered Securities will be
payable, Registered Securities may be surrendered for registration of transfer
or exchange and Registered Securities may be surrendered for conversion at an
office or agency to be maintained by the Company in the Borough of Manhattan,
The City of New York, provided that payments of interest with respect to any
Registered Security may be made at the option of the Company by check mailed
to the address of the person entitled thereto or by transfer to an account
maintained by the payee with a bank located in the United States. No service
charge shall be made for any registration of transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge and any other expenses that may be
imposed in connection therewith, except in certain circumstances. (Sections
305, 307 and 1002)
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest on Bearer Securities will be
made, and Bearer Securities may be presented for conversion, subject to any
applicable laws and regulations, at such office or agency outside the United
States as is specified in the applicable Prospectus Supplement and as the
Company may designate from time to time. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest due on Bearer Securities
on any Interest Payment Date will be made only against surrender of the Coupon
relating to such Interest Payment Date. Unless otherwise indicated in the
applicable Prospectus Supplement, no payment of principal, premium or interest
or surrender for conversion with respect to any Bearer Security will be made
at any office or agency in the United States or by check mailed to any address
in the United States or by transfer to an account maintained with a bank
located in the United States; provided, however, that payment with respect to
Bearer Securities may be made and any Bearer Securities may be surrendered for
conversion, if applicable, at the Corporate Trust Office of the applicable
Trustee or at any office or agency designated by the Company in the Borough of
Manhattan, The City of New York, if (but only if) payment of the full amount
of such principal, premium or interest or the surrender of Bearer Securities
for conversion at all offices outside of the United States maintained for such
purpose by the Company is illegal or effectively precluded by exchange
controls or similar restrictions. (Sections 307 and 1002)
Unless otherwise indicated in the applicable Prospectus Supplement, Bearer
Securities (provided that all unmatured related Coupons and matured related
Coupons in default are attached) will be exchangeable for an equal aggregate
principal amount of Registered Securities of the same series in denominations
of $1,000 and integral multiples thereof without Coupons, and Registered
Securities will be exchangeable for an equal aggregate principal amount of
Registered Securities of different denominations, in each case without service
charge (other than the cost of delivery) but upon payment of any taxes and
other governmental charges, except in certain circumstances. Bearer Securities
may be exchanged for Registered Securities of the same series by surrender of
such Bearer Securities to be exchanged at any applicable Office or Agency for
such series, with all unmatured Coupons and all matured Coupons in default
thereto appertaining. If and so long as Registered Securities of a series are
represented solely by a global Debt Security (see "Global Securities" below),
a Bearer Security may be exchanged for a beneficial interest in such global
Debt Security only by and through a DTC Participant (as defined in "Global
Securities" below). In case a Bearer Security of any series is surrendered at
any such Office or Agency for such series in exchange for a Registered
Security of such series and like tenor after the close of business at such
Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the relevant Interest Payment Date, or
(ii) any Special Record Date and before the opening of
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business at such Office or Agency on the related date for payment of Defaulted
Interest, such Bearer Security shall be surrendered without the Coupon
relating to such Interest Payment Date or proposed date for payment of
Defaulted Interest, as the case may be, and interest or Defaulted Interest, as
the case may be, shall not be payable on such Interest Payment Date or
proposed date for payment of Defaulted Interest, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer
Security, but shall be payable only to the Holder of such Coupon when due in
accordance with the provisions of the Indentures. Unless otherwise indicated
in the applicable Prospectus Supplement, Registered Securities will not be
exchangeable for Bearer Securities. Registered Securities shall be registered
as provided in the Indenture. (Section 305)
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company shall not be required (i) to issue, register the transfer of or
exchange any Debt Securities during a period beginning at the opening of
business 15 days before the day of the selection for redemption of such Debt
Securities and ending at the close of business on the day of such selection,
or (ii) to register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of any Debt
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except, to
the extent provided with respect to such Bearer Security, that such Bearer
Security may be exchanged for a Registered Security of like tenor and the same
series, provided that such Registered Security shall be immediately
surrendered for redemption with written instruction for payment consistent
with the provisions of Indenture or (iv) to issue, register the transfer of or
exchange any Debt Security which, in accordance with its terms, has been
surrendered for repayment at the option of the holder of such Debt Security,
except the portion, if any, of such Security not to be so repaid. (Section
305)
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in the form of one or
more global securities, each of which will be deposited with, or on behalf of,
a depository (a "Depository"). Global Debt Securities may be issued in either
registered or bearer form and in either temporary or permanent form. The
Company anticipates that Bearer Securities will be represented initially by a
temporary global Debt Security in bearer form, without interest Coupons or
conversion rights, which will be deposited on the applicable closing date on
behalf of subscribers for the Bearer Securities represented thereby with a
common depository in London for their respective accounts at Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear
Clearance System ("Euroclear"), or Cedel Bank, S.A. ("Cedel"). Upon deposit of
the temporary global Debt Security, Euroclear or Cedel, as the case may be,
will credit each subscriber with a principal amount of Bearer Securities equal
to the principal amount thereof for which it has subscribed and paid. The
temporary global Debt Security will be exchangeable for definitive Bearer
Securities in denominations of $1,000 and $10,000 or other authorized
denominations, each with related interest Coupons attached, or Registered
Securities in denominations of $1,000 or an integral multiple thereof, if
permitted by the rules and procedures then in effect of Cedel, Euroclear and
The Depository Trust Company ("DTC"), commencing on the exchange date
specified in the applicable Prospectus Supplement (the "Exchange Date"), if
permitted. Exchange for definitive Bearer Securities will be made only upon
certification that the beneficial owners of such Bearer Securities are not
United States persons (as defined below) or other persons who have purchased
such Bearer Securities for resale to United States persons. No Bearer Debt
Security so delivered in exchange will be mailed or otherwise delivered to any
location in the United States. The temporary global Debt Security will be
exchangeable for Registered Securities in denominations of $1,000 or an
integral multiple thereof at any time without certification of non-U.S.
status; provided that such exchange is permitted by the rules and procedures
then in effect of Cedel and Euroclear, and provided, further, that if and so
long as Registered Securities of a series are represented solely by a global
Debt Security, such exchange may be effected only by and through a DTC
Participant (as defined below). A beneficial owner must
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exchange its share of the global Debt Security in bearer form for definitive
Debt Securities, in either registered or bearer form, before payments can be
collected or conversion rights exercised. (Section 304) Any additional or
differing terms of the depository arrangements will be described in the
Prospectus Supplement relating to a particular series of Debt Securities
issued in the form of temporary global Debt Securities.
In addition, the Company anticipates that any global Debt Security in
registered form will be deposited with, or on behalf of DTC, and that such
global Debt Security will be permanent and will be registered in the name of
Cede & Co., DTC's nominee. The Company further anticipates that the following
provisions will apply to the Depository arrangements with respect to any such
global Debt Security in registered form. Any additional or differing terms of
the depository arrangements will be described in the Prospectus Supplement
relating to a particular series of Debt Securities issued in the form of
global Debt Securities.
So long as DTC or its nominee is the registered owner of a global Debt
Security, DTC or its nominee, as the case may be, will be considered the sole
Holder of the Debt Securities represented by such global Debt Security for all
purposes under the applicable Indenture. Except as described below, owners of
beneficial interests in a global Debt Security will not be entitled to have
Debt Securities represented by such global Debt Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities in definitive form and will not be considered the owners or Holders
thereof under the applicable Indenture. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form; accordingly, such laws may limit the transferability of
beneficial interests in a global Debt Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
global Debt Security in registered form will be exchangeable for definitive
Registered Securities of the same series only if (i) DTC notifies the Company
that it is unwilling or unable to continue as Depository or DTC ceases to be a
clearing agency registered under the Exchange Act (if so required by
applicable law or regulation) and, in either case, a successor Depository is
not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such ineligibility, (ii) the Company in its sole
discretion determines that the global Debt Securities shall be exchangeable
for definitive Registered Securities and delivers a Company Order to the
Trustee to such effect or (iii) there shall have occurred and be continuing an
Event of Default under the Indenture with respect to the Debt Securities of
any series. Upon any such exchange, owners of a beneficial interest in the
global Debt Security or Securities in registered form will be entitled to
physical delivery of individual Debt Securities in definitive form of like
tenor, terms and rank, equal in principal amount to such beneficial interest,
and to have such Debt Securities in definitive form registered in the names of
the beneficial owners, which names shall be provided by DTC's relevant
participants (as identified by DTC) to the Trustee. Unless otherwise described
in the applicable Prospectus Supplement, Debt Securities so issued in
definitive form will be issued in denominations of $1,000 or any integral
multiple thereof, and will be issued in registered form only, without Coupons.
(Section 305)
The following is based on information furnished to the Company:
DTC will act as securities Depository for the global Debt Securities in
registered form. These Debt Securities will be issued as fully Registered
Securities registered in the name of Cede & Co. (DTC's partnership nominee).
One fully registered Debt Security certificate will be issued and deposited
with DTC with respect to each series of Debt Securities, each in the aggregate
principal amount of such series (except that if the aggregate principal amount
of a series of Debt Securities exceeds $200 million (or such other amount as
shall be permitted by DTC from time to time) one certificate will be issued
with respect to each $200 million of principal amount and an additional
certificate will be issued with respect to any remaining principal amount of
such series).
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner will not receive written
confirmation from DTC of its purchase, but is expected to receive a written
confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Debt Securities are accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Debt Securities, except in the event that use of the
book-entry system for the Debt Securities is discontinued.
To facilitate subsequent transfers, the Debt Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of the Debt Securities with DTC and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC
has no knowledge of the actual Beneficial Owners of the Debt Securities; DTC
records reflect only the identity of the Direct Participants to whose accounts
such Debt Securities are credited, which may or may not be the Beneficial
Owners. The Participants remain responsible for keeping account of their
holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if any,
on the registered Debt Securities in global form will be made to Cede & Co.
DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt
of funds and corresponding detail information from the issuer, on the payment
date in accordance with their respective holdings as shown on DTC's records.
Payments by Direct and Indirect Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of
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customers in bearer form or registered in "street name", and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
Trustee, or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal (premium, if any)
and interest, if any, to Cede & Co. is the responsibility of the Company or
the Trustee, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to DTC. If less than all of
the Debt Securities of a series represented by global Debt Securities in
registered form are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such issue to be
redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the global Debt Security repaid by
the Company, through its Participant, to the Trustee, and shall effect
delivery of such interest in a global Debt Security by causing the Direct
Participant to transfer the Participant's interest in the global Debt Security
or Securities representing such interest, on DTC's records, to such Trustee.
The requirement for physical delivery of Debt Securities in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
global Debt Security or Securities representing such Debt Securities are
transferred by Direct Participants on DTC's records and followed by a book-
entry credit of the tendered Debt Securities to the Trustee's account.
DTC may discontinue providing its services as Depository with respect to the
Debt Securities at any time by giving reasonable notice to the Company or the
Trustee. Under such circumstances, in the event that a successor Depository is
not appointed, Debt Security certificates are required to be printed and
delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor Depository). In that event, Debt
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
None of the Company, the Trustee or any applicable paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a global Debt Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interest.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States tax laws and regulations, Bearer Securities
may not be offered or sold prior to the Exchange Date specified in the
applicable Prospectus Supplement, or at any time if part of a distributor's
unsold allotment, to a person who is within the United States or to a United
States person other than (i) certain financial institutions located outside
the United States that agree in writing to comply with the requirements of
Section 165(j)(3)(A), (B), or (C) of the United States Internal Revenue Code
of 1986, as amended (the "Code") and the regulations thereunder, (ii) the
United States offices of exempt distributors, or (iii) United States offices
of international organizations or foreign central banks. United States tax
laws and regulations also require that Bearer Securities not be mailed or
otherwise delivered to any location in the United States. Any underwriters,
agents and dealers participating in the offering of Debt Securities must
covenant that they will not offer or
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sell during the applicable restricted period (as defined in the Code and the
regulations thereunder) any Bearer Securities within the United States or to
United States persons (other than the persons described above) or deliver in
connection with the sale of Bearer Securities during the restricted period any
Bearer Securities within the United States, and that they have in effect
procedures reasonably designed to ensure that their employees and agents who
are directly engaged in selling the Bearer Securities are aware of the
restrictions described above. No definitive Bearer Security will be delivered
in connection with its original issuance nor will interest be paid on any
Bearer Security until receipt of written certification of non-U.S. status
described above under "--Global Securities."
As used herein, "United States person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or
organized in or under the laws of the United States, any estate, the income of
which is subject to United States federal income taxation regardless of its
source, and any trust if a court within the United States is able to exercise
primary supervision of the administration thereof and one or more United
States persons has the authority to control all substantial decisions thereof,
or any other person included within the definition of United States person
under the Code and the regulations thereunder; and "United States" means the
United States of America (including the states thereof and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction. Purchasers of Bearer Securities will be subject to certification
procedures and may be affected by certain limitations under United States tax
laws. (Section 101)
Unless otherwise indicated in the applicable Prospectus Supplement, the
temporary global Bearer Security and the definitive Bearer Securities and
interest Coupons will bear the following legend: "Any United States person who
holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the United States Internal Revenue Code." The sections referred to
in such legend provide that any United States person holding a Bearer Security
or interest Coupon, with certain limited exceptions, will not be entitled to
deduct any loss incurred with respect to such Bearer Security or interest
Coupon and will not be entitled to any capital gain treatment with respect to
any sale, redemption or other disposition of such Bearer Security or interest
Coupon but will be taxed thereon at ordinary income rates instead.
REDEMPTION
REDEMPTION AT THE OPTION OF THE COMPANY
The applicable Prospectus Supplement will specify whether or not the Debt
Securities will be redeemable at the option of the Company and the terms upon
which such Debt Securities may be so redeemed.
Notice of intention to redeem redeemable Debt Securities will be given in
accordance with "Notices" below. In the case of redemption of all Debt
Securities of a series, notice will be given by the Trustee not more than 60
nor less than 20 days prior to the Redemption Date. Notices of redemption will
specify, among other things, (i) the Redemption Date; (ii) the Redemption
Price, and accrued interest, if any; (iii) in the case of a partial
redemption, the identification and aggregate principal amount of Debt
Securities to be redeemed and the aggregate principal amount of the Debt
Securities which will be outstanding after such partial redemption; (iv) that,
on the Redemption Date, the Redemption Price shall become due and payable upon
each such Debt Security or portion thereof to be redeemed, and, if applicable,
that interest thereon shall cease to accrue on and after said date; (v) if
applicable, the Conversion Price, the date on which the right to convert the
Debt Securities to be redeemed will terminate and the places where such Debt
Securities, together with all unmatured Coupons and any matured Coupons in
default appertaining thereto, may be surrendered for conversion; (vi) the
place or places where such Securities, together (in the case of Bearer
Securities)
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with all Coupons appertaining thereto, if any, maturing after the Redemption
Date, are to be surrendered for payment of the Redemption Price and any
accrued interest and Additional Amounts pertaining thereto; (vii) that the
redemption is for a sinking fund, if such is the case; (viii) that, unless
otherwise specified in such notice, Bearer Securities of any series, if any,
surrendered for redemption must be accompanied by all Coupons maturing
subsequent to the Redemption Date or the amount of any such missing Coupon or
Coupons will be deducted from the Redemption Price, unless security or
indemnity satisfactory to the Company, the Trustee and any Paying Agent is
furnished; and (ix) if Bearer Securities of any series are to be redeemed and
any Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to
redemption on the Redemption Date, the last date, as determined by the
Company, on which such exchanges may be made. All redemption notices are
irrevocable, except in the case of certain redemptions for taxation reasons
specified in the next succeeding subsection. (Section 1104).
REDEMPTION FOR TAXATION REASONS
If the Company has or will become obligated to pay Additional Amounts (as
described below under "Payment of Additional Amounts to Non United States
Persons") as a result of any change in, or amendment to, the laws (including
any regulations or rulings promulgated thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in, or amendment to, the application or official
interpretation of such laws, regulations or rulings (any such change or
amendment being herein referred to as a "Tax Law Change"), and such
obligations cannot be avoided by the Company taking reasonable measures
available to it, the Debt Securities held by Persons who are not United States
persons and to whom such Additional Amounts have or will become payable (the
"Tax Affected Debt Securities") may be redeemed, at the option of the Company,
in whole but not in part. Such redemption of Tax Affected Debt Securities
shall be upon not less than 20 nor more than 60 days' prior notice as provided
under "Notices" below, at a redemption price equal to 100% of the principal
amount of the Tax Affected Debt Securities, plus accrued interest to the
redemption date and any Additional Amounts then payable; provided, however,
that (1) no such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which the Company would be obligated to pay any
such Additional Amounts were a payment in respect of the Tax Affected Debt
Securities then due and (2) at the time such notice of redemption is given,
the obligation to pay such Additional Amounts remains in effect. Prior to the
publication of any notice of redemption pursuant to this paragraph, the
Company shall deliver to the Trustee (a) a certificate stating that the
Company is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right of the Company so to
redeem have occurred and (b) an opinion of counsel selected by the Company to
the effect that the Company has or will become obligated to pay such
Additional Amounts as a result of a Tax Law Change. The Company's right to
redeem the Tax Affected Debt Securities shall continue as long as the Company
is obligated to pay such Additional Amounts, notwithstanding that the Company
shall have theretofore made payments of Additional Amounts. (Section 1102)
In addition, if the Company determines, based upon a written opinion of
counsel selected by the Company, that, as a result of a Tax Law Change, any
payment made outside the United States by the Company or any of its Paying
Agents of the full amount of principal, premium, if any, or interest due with
respect to any Bearer Debt Security or Coupon appertaining thereto would be
subject to any certification, identification or other information reporting
requirement of any kind, the effect of which is the disclosure to the Company,
any Paying Agent or any governmental authority of the nationality, residence
or identity of a beneficial owner of such Bearer Debt Security or Coupon who
is not a United States person as defined below under "Payment of Additional
Amounts to Non United States Persons" (other than such a requirement (a) which
would not be applicable to a payment made by the Company or any one of its
Paying Agents (i) directly to the beneficial owner or (ii) to any custodian,
nominee or other agent of the beneficial owner, (b) which can be satisfied by
the custodian, nominee
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or other agent certifying that the beneficial owner is not a United States
person, provided that in each case referred to in clauses (a) (ii) and (b)
payment by such custodian, nominee or other agent to such beneficial owner is
not otherwise subject to any such requirement, or (c) which would not be
applicable but for the fact that a Bearer Debt Security constitutes a "United
States real property interest," as defined in Section 897(c)(1) of the Code,
with respect to the beneficial owner of such Bearer Debt Security, the Company
at its election will either (x) redeem the Bearer Securities, as a whole but
not in part, at a redemption price equal to 100% of the principal amount
thereof, plus accrued interest to the redemption date, or (y) if and so long
as the conditions of the third paragraph under "Payment of Additional Amounts
to Non United States Persons" are satisfied, pay the Additional Amounts
specified in such paragraph. The Company will make such determination and
election and notify the Trustee thereof in writing as soon as practicable, and
the Trustee will promptly give notice of such determination (the
"Determination Notice"), in each case stating the effective date of such
certification, identification or information reporting requirement, whether
the Company will redeem the Bearer Securities or will pay the Additional
Amounts specified in the third paragraph under "Payment of Additional Amounts"
and (if applicable) the last date by which the redemption of the Bearer
Securities shall take place. If the Company elects to redeem the Bearer
Securities, such redemption shall take place on a date not later than one year
after publication of the Determination Notice, as the Company elects by notice
in writing to the Trustee at least 75 days before that date, unless shorter
notice is acceptable to the Trustee. Notwithstanding the foregoing, the
Company shall not be required to so redeem the Bearer Securities if the
Company, based upon a written opinion of counsel selected by the Company,
subsequently determines, not less than 30 days prior to the Redemption Date,
that subsequent payments would not be subject to any such requirement, in
which case the Company will notify the Trustee in writing of its determination
not to so redeem the Bearer Securities, and the Trustee will promptly give
notice to the Holders of the Bearer Securities of that determination and any
earlier redemption notice will thereupon be revoked and of no further effect.
If the Company elects as provided in clause (y) above to pay Additional
Amounts, the Company may, as long as the Company is obligated to pay such
Additional Amounts, redeem all the Bearer Securities, at any time, as a whole
but not in part, at a redemption price equal to 100% of the principal amount
thereof plus accrued interest to the redemption date and any Additional
Amounts then payable. (Section 1102)
REPAYMENT AT OPTION OF HOLDER
Unless otherwise specified in an applicable Prospectus Supplement, each
holder of a Convertible Debt Security shall have the right to cause the
Company to repay such Convertible Debt Security (or portions thereof in
integral multiples of $1,000) for a cash amount equal to 100% of the principal
amount thereof plus accrued interest to the redemption date and any Additional
Amounts then payable, if a Repayment Event (as defined below) occurs or has
occurred. The "Repayment Date" for this purpose shall be the ninetieth (90th)
day after the later of the Exchange Date or the date a Repayment Event has
occurred. (Section 1502) Notice with respect to the occurrence of a Repayment
Event will be given to all Holders of Convertible Debt Securities with
repayment rights in accordance with "Notices" below and not later than 30 days
after the later of the Exchange Date or the date of such Repayment Event.
Notices of repayment will specify, among other things, (i) the Repayment Date;
(ii) the date by which the repurchase right must be exercised; (iii) the price
at which the Convertible Debt Securities are to be repaid, including accrued
interest and Additional Amounts, if any; (iv) if applicable, the Conversion
Price then in effect, the date on which the right to convert the Securities to
be repaid will terminate and the place or places where such Securities,
together (in the case of Bearer Securities) with all unmatured Coupons and any
matured Coupons in default appertaining thereto, may be surrendered for
conversion; and (v) a description of the repayment right procedures that a
Holder must follow and the place or places where such Securities, together (in
the case of Bearer Securities) with all Coupons appertaining thereto, if any,
maturing after the Repayment Date, are to be surrendered for payment (or the
amount of any such missing Coupon or Coupons will
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be deducted from any amount due to such Holder) and any accrued interest and
Additional Amounts, if any, pertaining thereto. (Section 1503)
To be repaid, a Convertible Debt Security must be received by the Trustee
with a duly executed written notice, substantially in the form provided on the
reverse side of such Convertible Debt Security, at the place of payment not
earlier than 60 days nor later than 30 days prior to the Repayment Date. Each
Bearer Convertible Debt Security delivered for repayment must be delivered
with all unmatured Coupons. Once notice is given by the Holder to the Paying
Agent, it is irrevocable. However, holders of Convertible Debt Securities will
retain the right to require such Convertible Debt Securities to be converted
into Common Stock until two business days prior to the Repayment Date.
(Sections 1201 and 1504)
A "Repayment Event" shall have occurred if the Common Stock (or other equity
securities into which the Debt Securities are then convertible) is neither
listed for trading on a United States national securities exchange, the Nasdaq
National Market nor approved for trading on an established automated over-the-
counter trading market in the United States. (Section 1502)
Certain of the Company's existing and future agreements relating to its
indebtedness could prohibit the repayment by the Company of the Convertible
Debt Securities pursuant to the exercise by a Convertible Debt Security holder
of the foregoing option, depending on the financial circumstances of the
Company at the time any such repayment may occur, because such repayment could
cause a breach of certain financial ratio and/or other covenants contained in
such agreements. Such a breach may constitute an event of default under such
indebtedness and thereby restrict the Company's ability to repay the
Convertible Debt Securities. See "Subordination of Debt Securities" above.
COVENANTS OF THE COMPANY
The Indenture does not contain any financial covenants or similar
restrictions respecting the Company, and in the absence of such provisions,
holders of the Debt Securities will have no protection (other than their
rights upon an event of default, as described under "Events of Default" below)
from adverse changes in the Company's financial condition. The Indenture also
does not contain provisions which may afford the holders of any of the Debt
Securities protection in the event of a highly leveraged transaction or
similar transaction involving the Company. Any such provisions, if applicable
to any Debt Securities, will be described in the Prospectus Supplement or
Prospectus Supplements relating thereto.
PAYMENT OF ADDITIONAL AMOUNTS TO NON UNITED STATES PERSONS
Unless otherwise specified in an applicable Prospectus Supplement, the
Company will pay to the holder of any Debt Security or any related Coupon who
is not a United States person (as defined below) such additional amounts
("Additional Amounts") as may be necessary in order that every net payment of
the principal of, premium, if any, and interest on such Debt Security, after
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the United
States or any political subdivision or taxing authority thereof or therein,
will not be less that the amount provided for in such Debt Security or in such
Coupon to be then due and payable; provided, however, that the foregoing
obligations to pay Additional Amounts shall not apply to any one or more of
the following:
(a) any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor,
beneficiary, member, stockholder of or possessor of a power over such
Holder, if such Holder is an estate, a trust, a partnership or a
corporation) and the United States or any political subdivision or taxing
authority thereof or therein, including, without
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limitation, such Holder (or such fiduciary, settlor, beneficiary, member,
stockholder or possessor) being or having been a citizen or resident of the
United States or treated as a resident thereof, or being or having been
engaged in trade or business or present therein, or having had a permanent
establishment therein, (ii) such Holder's present or former status as a
personal holding company, a foreign personal holding company with respect
to the United States, a controlled foreign corporation, a passive foreign
investment company, or a foreign private foundation or foreign tax exempt
entity for United States tax purposes, or a corporation which accumulates
earnings to avoid United States Federal income tax, or (iii) such Holder's
status as a bank extending credit pursuant to a loan agreement entered into
in the ordinary course of business;
(b) any tax, assessment or other governmental charge which would not have
been so imposed but for the presentation by the Holder of such Debt
Security or any related Coupon for payment on a date more than 15 days
after the date on which such payment became due and payable or the date on
which payment thereof is duly provided for, whichever occurs later;
(c) any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or governmental charge;
(d) any tax, assessment or other governmental charge which would not have
been imposed but for the failure to comply with any certification,
identification or other reporting requirements concerning the nationality,
residence, identity or connection with the United States of the Holder or
beneficial owner of such Debt Security or any related Coupon, if compliance
is required by statute or by regulation or ruling of the United States
Treasury Department as a precondition to exemption from such tax,
assessment or other governmental charge;
(e) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of,
premium, if any, or interest on such Debt Security;
(f) any tax, assessment or other governmental charge imposed as a result
of a Person's past or present actual or constructive ownership, including
by virtue of the right to convert Debt Securities, of 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote;
(g) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from any payment of the principal of, premium,
if any, or interest on such Debt Security, if such payment can be made
without such withholding by any other Paying Agent in Western Europe;
(h) any tax, assessment or other governmental charge imposed on a Holder
that is a partnership or a fiduciary, but only to the extent that any
beneficial owner or member of the partnership or beneficiary or settlor
with respect to the fiduciary would not have been entitled to the payment
of Additional Amounts had the beneficial owner, member, beneficiary or
settlor directly received its beneficial or distributive stock of payments
on such Debt Security;
(i) any tax, assessment or other governmental charge which would not have
been imposed but for the fact that such Debt Security constitutes a "United
States real property interest," as defined in Section 897(c)(1) of the
Internal Revenue Code, and the regulations thereunder, with respect to the
beneficial owner of such Debt Security; or
(j) any combination of items (a), (b), (c), (d), (e), (f), (g), (h) and
(i) (Section 1004)
As used herein, "United States" means the United States of America
(including the states and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction and a "United
States person" is a person that is, for United States federal income tax
purposes, (a) a citizen or a resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under
the laws of the United States or of any political
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subdivision thereof, (c) an estate the income of which is subject to United
States federal income taxation regardless of source, (d) any trust if a
court within the United States is able to exercise primary supervision of
the administration thereof and one or more United States persons has the
authority to control all substantial decisions thereof, or (e) any other
person included within the definition of United States person under the
Code and the regulations thereunder. (Sections 101 and 1004)
Notwithstanding the foregoing, if and so long as a certification,
identification or other information reporting requirement referred to in the
second paragraph under "Redemption for Taxation Reasons" above would be fully
satisfied by payment of a backup withholding tax or similar charge, the
Company may elect, by so stating in the Determination Notice, to have the
provisions of this paragraph apply in lieu of redeeming the Bearer Debt
Security pursuant to such second paragraph. In such event, the Company will
pay as Additional Amounts such amounts as may be necessary so that every net
payment made, following the effective date of such requirements, outside the
United States by the Company or any Paying Agent of principal of, and premium,
if any, due in respect of any Bearer Debt Security, or interest represented by
any Coupon, the beneficial owner of which is not a United States person (but
without any requirement that the nationality, residence or identity of such
beneficial owner be disclosed to the Company, any Paying Agent or any
governmental authority), after deduction or withholding for or on account of
such backup withholding tax or similar charge, other than a backup withholding
tax or similar charge which is (a) the result of a certification,
identification or information reporting requirement described in the first
parenthetical clause of such second paragraph, (b) imposed as a result of the
fact that the Company or any Paying Agent has actual knowledge that the
beneficial owner of such Bearer Debt Security or Coupon is within the category
of persons described in clause (a) of the first paragraph under this heading
or (c) imposed as a result of presentation of such Bearer Debt Security or
Coupon for payment more than 15 days after the date on which such payment
becomes due and payable or on which payment thereof is duly provided for,
whichever occurs later, will not be less than the amount provided for in such
Bearer Debt Security or Coupon to be then due and payable. (Section 1004)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay any interest on, or any
Additional Amounts payable in respect of any interest on, any Debt Security of
that series when due, continued for 10 days, and in the case of the
Subordinated Securities, whether or not such payment is prohibited by the
subordination provisions of the Subordinated Indenture; (b) failure to pay
principal or any premium on any Debt Security of that series when due, upon
maturity, redemption or otherwise, and in the case of the Subordinated
Securities, whether or not such payment is prohibited by the subordination
provisions of the Subordinated Indenture; (c) default in the deposit of any
sinking fund payment or analogous payment, when due by the terms of the Debt
Securities of that series, and in the case of the Subordinated Securities,
whether or not such payment is prohibited by the subordination provisions of
the Subordinated Indenture; (d) failure to perform any other covenant or
breach of a warranty of the Company in the applicable Indenture (other than a
covenant expressly included in such Indenture solely for the benefit of a
series of Debt Securities other than that series) or any Debt Security of such
series, continued for 60 days after written notice as provided in the
applicable Indenture; (e) any acceleration of the maturity of any indebtedness
of the Company for borrowed money in an aggregate principal amount exceeding
$25,000,000, unless otherwise specified in the applicable Prospectus
Supplement, or a failure to pay such indebtedness at its stated maturity, if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled within 20 days after written notice as provided in the Indentures;
(f) certain events of bankruptcy, insolvency or reorganization of the Company;
and (g) any other Event of Default provided with respect to Debt Securities of
that series. (Section 501) No Event of Default with respect to any particular
series of Debt Securities necessarily
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constitutes an Event of Default with respect to any other series of Debt
Securities. The Indentures provide that the Trustee thereunder may withhold
notice to the holders of the Debt Securities of any series of the occurrence
of a default with respect to the Debt Securities of such series (except a
default in payment of principal, premium, if any, interest, Additional
Amounts, if any, or sinking fund payments, if any) if the Trustee considers it
in the interest of the Holders to do so. (Section 602) If an Event of Default
with respect to Debt Securities of any series at the time outstanding shall
occur and be continuing, either the applicable Trustee or the Holders of at
least 25% in principal amount of the Debt Securities of that series may
declare the principal amount of all Debt Securities of that series (or if any
Debt Securities of such series are Original Issue Discount Securities or
Indexed Securities, such portion of the principal amount of such Debt
Securities as may be specified by the terms thereof) to be due and payable
immediately; provided that in the case of certain events of bankruptcy,
insolvency or reorganization, such principal amount (or portion thereof),
premium, if any, interest and Additional Amounts, if any, shall automatically
become due and payable. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of the Debt Securities of that
series may, under certain circumstances, rescind and annul such acceleration.
(Section 502) For information as to waiver of default, see "Modifications,
Waivers and Meetings." Reference is made to the Prospectus Supplement relating
to each series of Debt Securities which are Original Issue Discount Securities
or Indexed Securities for the particular provisions relating to acceleration
of the Maturity of a portion of the principal amount of such Original Issue
Discount Securities or Indexed Securities upon the occurrence of an Event of
Default and the continuation thereof.
The Indentures provide that, subject to the duty of the respective Trustees
thereunder during default to act with the required standard of care, such
Trustee will be under no obligation to exercise any of its rights or powers
under the respective Indentures at the request or direction of any of the
Holders of the Debt Securities unless they shall have offered to such Trustee
reasonable indemnity. (Section 601) Subject to such provisions for
indemnification of the Trustees, the Holders of a majority in principal amount
of the Debt Securities of any series affected will have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or exercising any trust or power
conferred on such Trustee, with respect to the Debt Securities of such series.
(Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given to the applicable Trustee written
notice of a continuing Event of Default with respect to the Debt Securities of
that series, (ii) the Holders of at least 25% in aggregate principal amount of
the Outstanding Debt Securities of that series have made written request, and
such Holder or Holders have offered reasonable indemnity to such Trustee to
institute such proceeding as trustee, and (iii) such Trustee for 60 days after
receipt of such notice has failed to institute such proceeding, and has not
received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any
premium or interest or Additional Amounts on such Debt Security on or after
the applicable due date specified in such Debt Security or the right to
convert such Debt Security. (Section 508)
The Company will be required to furnish to the Trustees annually a statement
as to whether there is a default in the performance or observance of certain
covenants. (Section 1005)
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon the direction of the Company, the Indenture shall cease to be of
further effect with respect to any series of Debt Securities and any Coupons
appertaining thereto issued thereunder specified by the Company (subject to
the survival of certain provisions thereof, including the obligation to pay
Additional Amounts to the extent described below) when (i) either (A) all
outstanding Debt Securities of such series and, in the case of Bearer
Securities, all Coupons appertaining thereto, have been delivered to the
Trustee for cancellation (subject to certain exceptions) or (B) all Debt
Securities of such series have become due and payable or will become due and
payable at their stated maturity within one year and such securities are not
convertible or exchangeable for other securities or are to be called for
redemption within one year and such securities are not convertible or
exchangeable for other securities, and the Company has irrevocably deposited
with the Trustee, in trust, funds in Dollars in an amount sufficient to pay
the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest, if any (and, to the extent that (x) the Debt
Securities of such series provide for the payment of Additional Amounts upon
the occurrence of certain events of taxation, assessment or governmental
charge with respect to payments on such Debt Securities and (y) the amount of
any such Additional Amounts is at the time of deposit reasonably determinable
by the Company, any such Additional Amounts) to the date of such deposit (if
such Debt Securities have become due and payable) or to the Maturity thereof,
as the case may be, (ii) the Company has paid all other sums payable under the
Indenture with respect to the Debt Securities of such series, and (iii)
certain other conditions are met. If the Debt Securities of any such series
provide for the payment of Additional Amounts, the Company will remain
obligated, following such deposit, to pay Additional Amounts on such Debt
Securities to the extent that the amount thereof exceeds the amount deposited
in respect of such Additional Amounts as aforesaid. (Section 401)
If so provided in the applicable Prospectus Supplement, the Company may
elect with respect to any series of Debt Securities either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for, among other things, the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of taxation, assessment
or governmental charge with respect to payments on such Debt Securities to the
extent that the amount thereof exceeds the amount deposited in respect of such
Additional Amounts as provided below, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities, to hold moneys for payment in
trust, and, if applicable, to exchange or convert such Debt Securities into
other securities in accordance with their terms) ("defeasance"), or (b) to
omit to comply with its obligations with respect to certain restrictive
covenants in Section 1005 (Statement as to Compliance), Section 102
(Compliance Certificates and Opinions), and, to the extent specified pursuant
to Section 301, any other covenant applicable to such Debt Securities in the
Indenture, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to the Debt
Securities of such series ("covenant defeasance"), in either case upon the
irrevocable deposit with the Trustee (or other qualifying trustee), in trust
for such purpose, of an amount, in U.S. dollars and/or Government Obligations
(as defined in the Indenture) which through the scheduled payment of principal
and interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of and any premium and any interest on (and,
to the extent that (x) the Debt Securities of such series provide for the
payment of Additional Amounts and (y) the amount of any such Additional
Amounts is at the time of deposit reasonably determinable by the Company, any
such Additional Amounts with respect to) such Debt Securities, and any
mandatory sinking fund or analogous payments thereon, on the due dates
therefor, whether upon maturity, redemption or otherwise. (Section 402)
Such defeasance or covenant defeasance shall only be effective if, among
other things, (i) it shall not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement to
which the Company is a party or is bound, and (ii) the Company has delivered
to the
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Trustee an opinion of counsel (as specified in the Indenture) to the effect
that the holders of such Debt Securities and Coupons appertaining thereto will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance or covenant defeasance, as the case may be, and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred. It shall also be a condition to the effectiveness
of such defeasance (but not covenant defeasance) that no Event of Default or
event which with notice or lapse of time or both would become an Event of
Default with respect to Debt Securities and Coupons appertaining thereto of
such series shall have occurred and been continuing on the date of, or during
the period ending on the 91st day after the date of, such deposit into trust.
(Section 402)
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than an Event of Default with
respect to any other covenant as to which there has been covenant defeasance,
the amount of monies and/or Government Obligations deposited with the Trustee
to effect such covenant defeasance may not be sufficient to pay amounts due on
such Debt Securities and Coupons appertaining thereto at the time of any
acceleration resulting from such Event of Default. However, the Company and
Thermo Electron would remain liable to make payment of such amounts due at the
time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting or restricting such defeasance or covenant defeasance with
respect to the Debt Securities of a particular series.
MODIFICATION, WAIVERS AND MEETINGS
The Indenture contains provisions permitting the Company and the Trustee
thereunder, with the consent of the holders of a majority in principal amount
of the outstanding Debt Securities of each series and affected by a
modification or amendment, to modify or amend any of the provisions of the
Indenture or of the Debt Securities of such series or the rights of the
holders of the Debt Securities of such series under the Indenture, provided
that no such modification or amendment shall, among other things, (i) change
the Stated Maturity of the principal of, or premium, if any, or any
installment of principal or interest on or Additional Amounts with respect to
any Debt Securities or any sinking fund or analogous payment with respect
thereof or reduce the principal amount thereof or any premium thereon, or the
rate of interest thereon (or modify the calculation of such rate), or change
the obligation of the Company to pay Additional Amounts, or reduce the amount
of principal of any Debt Security that would be due and payable upon an
acceleration of the maturity thereof, or adversely affect any right of
repayment at the option of any Holder, or change the provisions of the
Indentures relating to the Place of Payment for Bearer Debt Securities being
located outside the United States, or the Currency in which the principal of,
any premium or interest on, or any Additional Amounts with respect to any Debt
Security or any sinking or analogous fund payment in respect thereof, is
payable, or impair the Holder's right to institute suit to enforce the payment
of any such Debt Securities, or (ii) reduce the aforesaid percentage in
principal amount of Debt Securities of any series, the consent of the Holders
of which is required for any such modification or amendment or the consent of
whose holders is required for any waiver (of compliance with certain
provisions of the Indenture or certain defaults thereunder and their
consequences) or reduce the requirements for a quorum or voting at a meeting
of holders of such Debt Securities. (Section 902) The Indenture also contains
provisions permitting the Company and the Trustee, without the consent of the
holders of any Debt Securities issued thereunder, to modify or amend the
Indenture in order to, among other things, (a) add to the Events of Default or
the covenants of the Company for the benefit of the holders of all or any
series of Debt Securities; (b) to add or change any provisions of the
Indenture to facilitate the issuance of Bearer Securities; (c) to establish
the form or terms of Debt Securities of any series and any related
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Coupons; (d) to cure any ambiguity or correct or supplement any provision
therein which may be defective or inconsistent with other provisions therein,
or to make any other provisions with respect to matters or questions arising
under the Indenture which shall not adversely affect the interests of the
Holders of any series of Debt Securities in any material respect; or (e) to
amend or supplement any provision contained in the Indenture, provided that
such amendment or supplement does not apply to any Outstanding Debt Securities
issued prior to the date of such amendment or supplement and entitled to the
benefits of such provision. (Section 901)
The Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of any series may, on behalf of all Holders of Debt Securities
of that series, waive any past default under the Indenture with respect to
Debt Securities of that series and its consequences, except a default in the
payment of the principal of, or premium, if any, or interest on or any
Additional Amounts with respect to, any Debt Securities or any Coupons
appertaining thereto of such series or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security of such series affected. (Section 513)
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of each series. (Section 1601) A meeting may be called at any
time by the Trustee, and also, upon request, by the Company or the Holders of
at least 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given in accordance with the provisions
of the Indenture. (Section 1602) Except for any consent which must be given by
the Holder of each outstanding Debt Security affected thereby, as described
above, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum (as described below) is present may be adopted by
the affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which may be made, given or taken by
the Holders of a specified percentage, which is less or more than a majority,
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that series. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series and the related
Coupons. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series, subject to
certain exceptions. (Section 1604)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any Holders of Debt Securities, may
consolidate or merge with or into, or transfer or lease its properties or
assets substantially as an entirety to, any Person, and any other Person may
consolidate or merge with and into, or transfer or lease properties or assets
substantially as an entirety to, the Company provided that (i) the Person (if
other than the Company) formed by any such consolidation or into which the
Company is merged or which acquires or leases the properties or assets of the
Company substantially as an entirety is a corporation, partnership or trust
organized and validly existing under the laws of any United States
jurisdiction or, subject to certain additional requirements, a corporation,
limited liability company, partnership or trust organized under the laws of a
jurisdiction other than the United States, that assumes the Company's
obligations on the Debt Securities and under the Indentures, (ii) immediately
after giving effect to such transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and (iii) certain other
conditions are met. Upon compliance with these provisions by a successor
corporation, the Company would be relieved from its obligations under the
Securities and under the Indenture. (Article Eight)
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NOTICES
Notice to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. Notice
to Holders of Bearer Securities, if any, will be given by publication in a
leading daily newspaper in the English language of general circulation in New
York City and, if such Debt Securities are then listed on any stock exchange
outside the United States, in a daily newspaper of general circulation in the
city that such stock exchange requires. (Section 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the
purpose of making payment and for all other purposes. Title to Bearer
Securities passes on delivery. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts applicable to
agreements made or instruments entered into and, in each case, performed in
said state, except that the rights, protections, obligations, indemnities and
immunities of the Trustee under the Indentures shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to the conflicts of laws principles of either state. (Section 113)
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received
in respect of any such claim as security or otherwise. (Section 611) The
Trustee will be permitted to engage in certain other transactions; however, if
it acquires any conflicting interest and there is a default under the Debt
Securities, it must eliminate such conflict or resign. (Section 613)
The Trustee serves as a depositary of funds of, and performs other services
for, the Company and its subsidiaries, and is trustee and fiscal agent under
several other indentures and fiscal agency agreements pursuant to which
debentures of the Company and various of its subsidiaries have been issued.
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PLAN OF DISTRIBUTION
The Securities may be sold to or through underwriters or to dealers acting
as principals for their own account, and also may be sold directly to other
purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Securities by them may be deemed to be underwriting discounts
and commissions, under the Securities Act. Any such underwriter or agent will
be identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Any Securities issued hereunder (other than Common Stock) will be new issues
of securities with no established trading market. The Company may not apply
for the listing of any Securities (other than the Common Stock) on any
national securities exchange or on Nasdaq. No assurance can be given as to the
liquidity of the trading market for any such Securities.
Certain of the underwriters, dealers or agents and their associates may be
customers of, engage in transactions with, and perform services for, the
Company in the ordinary course of business.
VALIDITY OF SECURITIES
The validity of the Securities to which this Prospectus relates will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of the
Company. Mr. Hoogasian is a full-time employee of the Company. The validity of
the Securities offered hereby will be passed upon for any relevant
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements of the Company incorporated by reference in this
Prospectus and the financial statement schedules incorporated by reference in
the Registration Statement of which this Prospectus forms a part have been
audited by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods as indicated in their reports with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said reports.
27
<PAGE>
[ART WORK]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUP-
PLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEI-
THER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S- 3
Risk Factors............................................................. S- 7
Use of Proceeds.......................................................... S-11
Price Range of Common Stock.............................................. S-11
Dividend Policy.......................................................... S-11
Capitalization........................................................... S-12
Selected Financial Information........................................... S-13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-14
Business................................................................. S-27
Management............................................................... S-39
Underwriting............................................................. S-42
Legal Opinions........................................................... S-44
Index to Consolidated Financial Statements............................... F- 1
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 3
Risk Factors............................................................. 3
The Company.............................................................. 4
Use of Proceeds.......................................................... 4
Description of Debt Securities of the Company............................ 5
Plan of Distribution..................................................... 27
Validity of Securities................................................... 27
Experts.................................................................. 27
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,500,000 SHARES
THERMO ELECTRON CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
-----------
[LOGO]
-----------
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
LEHMAN BROTHERS
HSBC INVESTMENT BANKING
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-32111
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 12, 1998
6,500,000 SHARES
[LOGO]
COMMON STOCK
------------
The 6,500,000 shares of Common Stock, $1.00 par value (the "Common Stock"),
being offered are being sold by Thermo Electron Corporation (the "Company").
Of the 6,500,000 shares of Common Stock being offered, 1,300,000 shares are
being offered for sale in an international offering outside the United States
by the International Underwriters (as defined herein), and 5,200,000 shares
are being offered in a concurrent offering in the United States by the U.S.
Underwriters (as defined herein). The public offering price and the aggregate
underwriting discounts and commissions per share will be identical for both
Offerings. See "Underwriting".
The Common Stock is traded on the New York Stock Exchange under the symbol
"TMO". The reported last sale price of the Common Stock on the New York Stock
Exchange on April 6, 1998 was $40.875 per share.
------------
SEE "RISK FACTORS" COMMENCING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $40.625 $1.73 $38.895
- ----------------------------------------------------------------------------------
Total(3) $264,062,500 $11,245,000 $252,817,500
- ----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $500,000, payable by the Company.
(3) The Company has granted the International Underwriters a 30-day option to
purchase up to an aggregate of 195,000 additional shares of Common Stock
solely to cover over-allotments, if any. Additionally, the Company has
granted the U.S. Underwriters a similar option with respect to an
additional 780,000 shares as part of the concurrent U.S. offering. If
such options are exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$303,671,875, $12,931,750 and $290,740,125, respectively.
------------
The shares of Common Stock are being offered by the several International
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
the shares of Common Stock offered hereby will be available for delivery on or
about April 13, 1998 at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
-------------------------
Joint Lead Managers
SALOMON SMITH BARNEY INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
-------------------------
LEHMAN BROTHERS HSBC INVESTMENT BANKING
April 6, 1998
<PAGE>
[ART WORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
[CHART SHOWING COMPANY STRUCTURE]
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
appearing elsewhere in this Prospectus Supplement and the accompanying
Prospectus and incorporated herein and therein by reference. The information
contained in this Prospectus Supplement assumes no exercise of the
Underwriters' over-allotment options, unless indicated otherwise. Forward-
looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, are made throughout this Prospectus
Supplement and the accompanying Prospectus, including documents incorporated
herein and therein by reference. For this purpose, any statements contained
herein or therein 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 elsewhere in this Prospectus Supplement under the
caption "Risk Factors".
THE COMPANY
Thermo Electron Corporation is a diversified technology company that provides
instruments, systems, and services primarily to industrial, healthcare, and
environmental markets. Thermo Electron seeks to identify major emerging needs
in society that can be addressed by technologies being developed throughout its
businesses. In its 42-year history, the Company has grown to become a leader in
certain markets where continued technological innovation is integral to
success. For example, the Company is a worldwide leader in the design,
manufacture, and sale of analytical instruments, paper recycling equipment,
heart-assist devices, and mammography systems. The Company also provides a
range of other specialized products, including medical diagnostic equipment,
alternative-energy systems, industrial process controls, and environmental-
contamination monitors. In addition, the Company offers a range of services,
particularly industrial outsourcing of environmental-liability management and
laboratory analysis, and conducts advanced-technology research and development.
The Company's ability to innovate derives, in part, from a unique corporate
structure that it developed to retain its entrepreneurial spirit while
continuing its growth. In 1983, the Company adopted a strategy of "spinning
out" certain of its businesses by selling a minority interest in those
subsidiaries to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management of the spinout
companies through the establishment of subsidiary stock-option incentive
programs, as well as capital to sustain the subsidiaries' growth. The Company's
corporate office provides the wholly and majority-owned subsidiaries with cost-
effective, centralized business development, administrative, financial, and
other resources. As of April 6, 1998, the Company had 29 subsidiaries that have
sold minority equity interests, 23 of which are publicly traded and six of
which are privately held.
A key part of the Company's growth strategy is the acquisition of
complementary businesses that broaden product lines, access new markets, expand
distribution channels, or add manufacturing capability. In 1997, 1996, and
1995, the Company paid $924.3 million, $383.7 million, and $339.1 million in
cash, respectively, to acquire various businesses.
As a result of acquisitions and internal growth, the Company reported
revenues of $3.6 billion in 1997, a 21% increase from $2.9 billion in 1996.
Revenues have increased at a compound annual growth rate of approximately 29%
over the past five fiscal years. Operating income increased 65%
S-3
<PAGE>
to $405.8 million in 1997, from $246.5 million in 1996. Over the past five
fiscal years, Thermo Electron's operating income has increased at a compound
annual growth rate of approximately 42%.
The Company's products and services are divided into six segments:
Instruments, Biomedical Products, Alternative Energy, Paper Recycling,
Industrial Outsourcing, and Advanced Technology. Products or services within a
particular segment may be provided by more than one subsidiary, and certain
subsidiaries' products or services are included in more than one segment. The
principal products and services offered by the Company in the six industry
segments are described below:
Instruments
The Company is a worldwide leader in the manufacture of analytical
instruments used by industry and academia to identify complex chemical
compounds, toxic metals, and other elements in a broad range of liquids,
solids, and gases, as well as to analyze air pollution and radioactivity. The
Company also provides instruments that control, monitor, image, inspect, and
measure various industrial processes and life sciences phenomena. This segment
includes all of the Company's Thermo Instrument Systems subsidiaries.
Biomedical Products
The Company is a leading provider of mammography systems and heart-assist
devices, and supplies a wide range of medical systems and devices for
diagnostic imaging, respiratory care, neurodiagnostics, sleep analysis,
wireless monitoring, and blood management. This segment includes wholly-owned
portions of the Company's Thermedics subsidiary, its Thermo Cardiosystems, Trex
Medical, and ThermoLase subsidiaries, and its wholly owned Thermo Biomedical
group of subsidiaries.
Alternative Energy
The Company operates independent (non-utility) power plants that use
environmentally sound fuels and technologies, develops engineered clean fuels,
and produces biopesticides. The Company also manufactures intelligent traffic-
control systems, ozone-safe industrial refrigeration equipment, and low-
emission natural gas engines. This segment includes the Company's Thermo Ecotek
and Thermo Power subsidiaries.
Paper Recycling
The Company is a leading provider of systems and accessories for the
worldwide papermaking and paper recycling industry, and is developing
technology to recover papermaking waste for use in various commercial products.
This segment includes the Company's Thermo Fibertek and Thermo Fibergen
subsidiaries.
Industrial Outsourcing
The Company provides outsourcing services, primarily in environmental-
liability management and infrastructure planning and design, with
specialization in municipal and industrial water-quality management, natural
resource management, and laboratory testing and analysis. This segment includes
all of the Company's Thermo TerraTech subsidiaries.
Advanced Technology
The Company conducts research and development, often sponsored by the U.S.
government, in its effort to pursue viable commercial opportunities for new
ventures. Its basic and applied research currently spans communications,
avionics, X-ray detection, advanced materials, and lasers. The Company also
provides systems integration primarily in the fields of information technology,
advanced radar and imaging, and health systems. A number of subsidiaries also
provide various instrument systems, developed primarily for product quality-
assurance applications in industrial, food
S-4
<PAGE>
and beverage, pharmaceutical, and electronics markets. This segment includes
wholly owned portions of the Company's ThermoTrex and Thermedics subsidiaries,
and its Thermo Sentron, Thermo Voltek, Thermedics Detection, and Thermo Coleman
subsidiaries.
REVENUES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
% OF % OF % OF
REVENUES TOTAL REVENUES TOTAL REVENUES TOTAL
---------- ----- ---------- ----- ---------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Instruments............ $1,592,314 45% $1,209,362 41% $ 782,662 35%
Biomedical Products.... 590,234 16 455,890 16 316,622 14
Advanced Technology.... 415,016 12 375,459 13 323,567 14
Alternative Energy..... 384,923 11 339,813 11 325,912 14
Industrial
Outsourcing........... 305,508 8 273,894 9 210,503 9
Paper Recycling........ 278,911 8 286,312 10 317,951 14
Intersegment Sales
Elimination (1)....... (8,586) -- (8,172) -- (6,926) --
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
</TABLE>
- --------
(1) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
Unless the context otherwise requires, references in this Prospectus
Supplement and the accompanying Prospectus to the Company or Thermo Electron
Corporation refer to Thermo Electron Corporation and its subsidiaries and their
predecessors. The Company is a Delaware corporation and was incorporated in
1956. The Company completed its initial public offering in 1967 and was listed
on the New York Stock Exchange in 1980. The Company's principal executive
offices are located at 81 Wyman Street, Waltham, Massachusetts, and its
telephone number is (781) 622-1000.
THE OFFERINGS
The offering hereby of 1,300,000 shares of Common Stock, $1.00 par value per
share (the "Common Stock"), being offered outside the United States (the
"International Offering") and the offering of 5,200,000 shares of Common Stock
being offered in a concurrent offering in the United States (the "U.S.
Offering") are collectively referred to as the "Offerings." The closing of each
offering is conditioned upon the closing of the other offering.
International Offering...................... 1,300,000 shares
U.S. Offering............................... 5,200,000 shares
Common Stock to be Outstanding after the
Offerings (1)...............................
165,692,163 shares
Use of Proceeds............................. For general corporate purposes,
including possible acquisitions.
See "Use of Proceeds".
New York Stock Exchange Symbol.............. TMO
- --------
(1) Based on the number of shares of Common Stock outstanding as of March 30,
1998. Does not include 31,354,154 shares of Common Stock reserved for
issuance under the Company's stock-based compensation plans, shares
reserved for issuance upon conversion or exchange of outstanding
convertible securities and shares reserved for issuance under the Company's
Shareholder Rights Plan. See "Capitalization" and Note 7 of Notes to
Consolidated Financial Statements.
S-5
<PAGE>
SUMMARY FINANCIAL INFORMATION (1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues.............. $3,558,320 $2,932,558 $2,270,291 $1,729,191 $1,354,508
Gross Profit (2)...... 1,441,312 1,129,989 863,409 650,901 482,282
Operating Income...... 405,786 246,466 225,218 182,082 119,152
Net Income............ 239,328 190,816 139,582 104,711 76,868
Earnings per Share:
Basic................ 1.57 1.35 1.10 .90 .74
Diluted.............. 1.41 1.17 .95 .78 .65
Weighted Average
Shares:
Basic................ 152,489 141,525 126,626 116,500 104,203
Diluted.............. 176,082 175,605 158,562 151,048 130,549
</TABLE>
<TABLE>
<CAPTION>
JANUARY 3, 1998
-------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT END
OF PERIOD):
Working Capital......... $2,001,963 $2,254,281
Total Assets............ 5,795,869 6,048,187
Long-term Obligations... 1,742,907 1,742,907
Common Stock of
Subsidiaries Subject to
Redemption............. 93,312 93,312
Shareholders'
Investment............. 1,997,909 2,250,227
</TABLE>
- --------
(1) The Company's 1997, 1996, 1995, 1994, and 1993 fiscal years set forth in
this table, and elsewhere in this Prospectus Supplement, ended on January
3, 1998, December 28, 1996, December 30, 1995, December 31, 1994, and
January 1, 1994, respectively.
(2) Gross profit represents revenues less cost of product and service revenues,
and less cost of research and development contracts as disclosed in Note 3
on page S-13.
(3) Adjusted to reflect the sale by the Company of Common Stock in the
Offerings after deducting the underwriting discounts and commissions and
the estimated offering expenses payable by the Company.
S-6
<PAGE>
RISK FACTORS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its
actual results in 1998 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
Risks Associated with Acquisition Strategy. One of the Company's principal
growth strategies is to supplement its internal growth with the acquisition of
businesses and technologies that complement or augment the Company's existing
product lines. Certain businesses recently acquired by the Company have had
low levels of profitability. In addition, businesses that the Company may seek
to acquire in the future may also be marginally profitable or unprofitable. In
order for any acquired businesses to achieve the level of profitability
desired by the Company, the Company must successfully change operations and
improve market penetration. No assurance can be given that the Company will be
successful in this regard. In addition, promising acquisitions are difficult
to identify and complete for a number of reasons, including competition among
prospective buyers, the need for regulatory approvals, including antitrust
approvals, and the high valuations of businesses resulting from historically
high stock prices in many countries. Acquisitions completed by the Company may
be made at substantial premiums over the fair value of the net assets of the
acquired companies. There can be no assurance that the Company will be able to
complete pending or future acquisitions or that the Company will be able to
successfully integrate any acquired businesses into its existing business or
make such businesses profitable. In order to finance any such acquisitions, it
may be necessary for the Company to raise additional funds either through
public or private financings. Any equity or debt financing, if available at
all, may be on terms which are not favorable to the Company and may result in
dilution to the Company's shareholders.
Risks Associated with Spinout of Subsidiaries. The Company has adopted a
strategy of spinning out certain of its businesses into separate subsidiaries
and having these subsidiaries sell a minority interest to outside investors.
As a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures, and similar
transactions, the Company records gains that represent the increase in the
Company's net investment in the subsidiaries. These gains have represented a
substantial portion of the net income reported by the Company in certain
periods. The size and timing of these transactions are dependent on market and
other conditions that are beyond the Company's control. Accordingly, there can
be no assurance that the Company will be able to generate gains from such
transactions in the future.
Further, in October 1995, the Financial Accounting Standards Board ("FASB")
issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
"Proposed Statement"). The Proposed Statement would establish new rules for
how consolidated financial statements should be prepared. If the Proposed
Statement is adopted, there would be significant changes in the way the
Company records certain transactions of its controlled subsidiaries. Among
those changes, any sale of the stock of a subsidiary that does not result in a
loss of control would be accounted for as a transaction in the equity of the
consolidated entity with no gain or loss being recorded. The exposure draft
addresses the consolidation issues in two parts: consolidation procedures,
which includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB
decided to focus its efforts on the consolidation policy part of the exposure
draft and to consider resuming discussion on consolidation procedures after
completion of the efforts on consolidation policy. The timing and content of
any final statement are uncertain.
S-7
<PAGE>
Competition. The Company encounters and expects to continue to encounter
significant competition in the sale of its products and services. The
Company's competitors include a number of large multinational corporations,
some of which may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company.
Competition could increase if new companies enter the market or if existing
competitors expand their product lines or intensify efforts within existing
product lines. There can be no assurance that the Company's current products,
products under development, or ability to develop new technologies will be
sufficient to enable it to compete effectively. See "Business--Competition."
Risks Associated with International Operations. International revenues
account for a substantial portion of the Company's revenues, and the Company
intends to continue to expand its presence in international markets.
International revenues are subject to a number of risks, including the
following: fluctuations in exchange rates may affect product demand and
adversely affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the Company's
products and services is made in the local currency; agreements may be
difficult to enforce and receivables difficult to collect through a foreign
country's legal system; foreign customers may have longer payment cycles;
foreign countries may impose additional withholding taxes or otherwise tax the
Company's foreign income, impose tariffs, or adopt other restrictions on
foreign trade; U.S. export licenses may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more difficult
to enforce. There can be no assurance that any of these factors will not have
a material adverse impact on the Company's business and results of operations.
Rapid and Significant Technological Change and New Products. The markets for
the Company's products are characterized by rapid and significant
technological change, evolving industry standards and frequent new product
introductions and enhancements. Many of the Company's products and products
under development are technologically innovative and require significant
planning, design, development, and testing at the technological, product, and
manufacturing-process levels. These activities require significant capital
commitments and investment by the Company. In addition, products that are
competitive in the Company's markets are characterized by rapid and
significant technological change due to industry standards that may change on
short notice and by the introduction of new products and technologies that
render existing products and technologies uncompetitive or obsolete. There can
be no assurance that any of the products currently being developed by the
Company, or those to be developed in the future, will be technologically
feasible or accepted by the marketplace, that any such development will be
completed in any particular time frame, or that the Company's products or
proprietary technologies will not become uncompetitive or obsolete.
Possible Adverse Effect from Changes in Governmental Regulations. The
Company competes in several markets which involve compliance by its customers
with federal, state, local, and foreign regulations, such as environmental,
health and safety, and food and drug regulations. The Company develops,
configures, and markets its products to meet customer needs created by such
regulations. These regulations may be amended or eliminated in response to new
scientific evidence or political or economic considerations. Any significant
change in regulations could adversely affect demand for the Company's products
in regulated markets.
Government Regulation; No Assurance of Regulatory Approvals. Certain of the
Company's products are subject to pre-marketing clearance or approval by the
U.S. Food and Drug Administration ("FDA") and similar agencies in foreign
countries. The use or sale of certain of the Company's products under
development may require approvals by other government agencies. The process of
obtaining clearance and approval from the FDA and other government agencies is
time-consuming and expensive. Furthermore, there can be no assurance that the
necessary clearances or
S-8
<PAGE>
approvals for the Company's products, services, and products and services
under development will be obtained on a timely basis, if at all.
FDA regulations also require continuing compliance with specific standards
in conjunction with the maintenance and marketing of products and services
that have been approved or cleared. Failure to comply with applicable
regulatory requirements can result in, among other things, civil and criminal
penalties, suspension of approvals, recalls, or seizures of products,
injunctions, and criminal prosecutions.
Risks Associated with Dependence on Capital Spending Policies and Government
Funding. The Company's customers include pharmaceutical and chemical
companies, laboratories, universities, healthcare providers, paper
manufacturers, consumer product companies, government agencies, and public and
private research institutions. The capital spending of these entities can have
a significant effect on the demand for the Company's products. Such spending
is based on a wide variety of factors, including the resources available to
make purchases, the spending priorities among various types of equipment,
public policy, and the effects of different economic cycles. Any decrease in
capital spending by any of the customer groups that account for a significant
portion of the Company's sales could have a material adverse effect on the
Company's business and results of operations.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products, and processes because of the length of
time and expense associated with bringing new products through the development
process and to the marketplace. The Company's success depends in part on its
ability to develop patentable products and obtain and enforce patent
protection for its products both in the United States and in other countries.
The Company owns numerous United States and foreign patents, and intends to
file additional applications for patents as appropriate to cover its products.
No assurance can be given that patents will issue from any pending or future
patent applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any issued
patents owned by or licensed to the Company will not be challenged,
invalidated, or circumvented, or that the rights granted thereunder will
provide competitive advantages to the Company. There can be no assurance that
third parties will not assert claims against the Company that the Company
infringes the intellectual property rights of such parties. The Company could
incur substantial costs and diversion of management resources with respect to
the defense of any such claims, which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to make, use, sell, distribute,
or market its products and services in the United States or abroad. In the
event that a claim relating to intellectual property is asserted against the
Company, the Company may seek licenses to such intellectual property. There
can be no assurance, however, that such licenses could be obtained on
commercially reasonable terms, if at all. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture, or distribution
of the Company's products and, therefore, could have a material adverse effect
on the Company's business, financial condition, and results of operations.
The Company relies on trade secrets and proprietary know-how, which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known or
be independently developed by competitors.
S-9
<PAGE>
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal information
systems and current products are either year 2000 compliant or will be so
prior to the year 2000 without incurring material costs. There can be no
assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems
and current products, which could result in a material adverse effect on the
Company's future results of operations.
The Company is presently assessing the effect that the year 2000 problem may
have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this
might have on the Company. The Company has not completed its analysis and is
unable to conclude at this time that the year 2000 problem as it relates to
its previously sold products and products purchased from key suppliers is not
reasonably likely to have a material adverse effect on the Company's future
results of operations.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock will amount to
approximately $252,317,500 ($290,240,000 if the Underwriters' over-allotment
options are exercised in full). The Company intends to use these net proceeds
for general corporate purposes, which may include possible acquisitions of
businesses, repayment of outstanding indebtedness, capital expenditures,
working capital requirements, research and development, loans to and/or
investments in the Company's subsidiaries, and repurchase of its Common Stock
and other securities and the securities of any of its subsidiaries through
open-market purchases or otherwise. The precise amount and timing of the
application of such proceeds will depend upon the funding requirements of the
Company and the availability and cost of other funds. The Company is in
various stages of negotiations with respect to several acquisitions; however,
it currently has no commitment or agreement for any material acquisition.
Pending these uses, the Company expects to invest the net proceeds primarily
in investment grade interest or dividend bearing instruments.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol TMO. The following table sets forth the high and low sales prices
for the periods indicated of the Company's Common Stock as reported in the
consolidated transaction reporting system. Sales prices have been restated to
reflect a three-for-two stock split, effected in the form of a 50% stock
dividend, in June 1996.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ------- -------
<S> <C> <C>
First Quarter............................................. $42.083 $30.417
Second Quarter............................................ 44.375 38.833
Third Quarter............................................. 41.875 31.750
Fourth Quarter............................................ 41.250 29.750
<CAPTION>
FISCAL 1997
-----------
<S> <C> <C>
First Quarter............................................. 40.500 30.875
Second Quarter............................................ 38.750 28.375
Third Quarter............................................. 41.500 32.125
Fourth Quarter............................................ 44.500 33.500
<CAPTION>
FISCAL 1998
-----------
<S> <C> <C>
First Quarter ............................................ 43.313 36.625
Second Quarter (through April 6, 1998).................... 41.750 40.375
</TABLE>
As of April 3, 1998, the Company had 9,163 holders of record of its Common
Stock. This does not include holdings in street or nominee names. The closing
price on the New York Stock Exchange for the Company's Common Stock on April
6, 1998 was $40.875.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future because its policy has
been to use earnings to finance expansion and growth. Payment of dividends
will rest within the discretion of the Company's Board of Directors and will
depend upon, among other factors, the Company's earnings, capital requirements
and financial condition.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 3, 1998, stated on a pro forma basis to reflect the issuance by Thermo
Instrument Systems Inc., in January 1998, of $250,000,000 principal amount of
4% Subordinated Convertible Debentures due 2005, and as adjusted to give
effect to the sale of shares of Common Stock offered hereby, after deducting
the underwriting discounts and commissions and the estimated offering expenses
payable by the Company. There has been no material change in the
capitalization of the Company since January 3, 1998, except as reflected in
the pro forma column below.
<TABLE>
<CAPTION>
JANUARY 3, 1998
----------------------
AS
PRO FORMA ADJUSTED
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Short-term Obligations:
Notes payable........................................ $ 105,623 $ 105,623
Current maturities of long-term obligations.......... 71,289 71,289
Common stock of subsidiary subject to redemption
($18,450 redemption value).......................... 18,138 18,138
---------- ----------
$ 195,050 $ 195,050
========== ==========
Long-term Obligations (1):
Senior convertible obligations....................... $ 187,824 $ 187,824
Subordinated convertible obligations................. 1,723,015 1,723,015
Nonrecourse tax-exempt obligations................... 37,600 37,600
Other................................................ 44,468 44,468
---------- ----------
1,992,907 1,992,907
---------- ----------
Minority Interest..................................... 719,622 719,622
---------- ----------
Common Stock of Subsidiaries Subject to Redemption
($95,262 redemption value)........................... 93,312 93,312
---------- ----------
Shareholders' Investment:
Preferred stock, $100 par value, 50,000 shares
authorized; none issued
Common stock, $1 par value, 350,000,000 shares
authorized;
159,206,337 shares issued and 165,706,337 shares as
adjusted (2)........................................ 159,206 165,706
Capital in excess of par value....................... 843,709 1,089,527
Retained earnings.................................... 1,034,640 1,034,640
Treasury stock at cost, 95,684 shares................ (3,839) (3,839)
Cumulative translation adjustment.................... (46,339) (46,339)
Net unrealized gain on available-for-sale
investments......................................... 10,532 10,532
---------- ----------
1,997,909 2,250,227
---------- ----------
Total Capitalization (Long-term Obligations, Minority
Interest, Common Stock of Subsidiaries Subject to
Redemption and Shareholders' Investment)............. $4,803,750 $5,056,068
========== ==========
</TABLE>
- --------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Does not include 31,354,154 shares of Common Stock reserved for issuance
under the Company's stock-based compensation plans, shares reserved for
issuance upon conversion or exchange of outstanding convertible securities
and shares reserved for issuance under the Company's Shareholder Rights
Plan. See Note 7 of Notes to Consolidated Financial Statements.
S-12
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information presented below as of and for the fiscal
years ended January 3, 1998 and December 28, 1996 and for the fiscal year
ended December 30, 1995, has been derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included herein.
The selected financial information as of and for the fiscal years ended
December 31, 1994 and January 1, 1994 and as of December 30, 1995, has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, but have not been included or incorporated by
reference into the Prospectus. This information should be read in conjunction
with the Company's Consolidated Financial Statements and related notes
included herein.
<TABLE>
<CAPTION>
1997 1996(1) 1995 1994(2) 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $3,558,320 $2,932,558 $2,270,291 $1,729,191 $1,354,508
---------- ---------- ---------- ---------- ----------
Costs and Operating
Expenses:
Cost of product and
service revenues...... 1,973,265 1,657,746 1,239,762 928,645 755,493
Expenses for research
and development and
new lines of business
(3)................... 337,305 301,457 272,809 233,099 183,965
Selling, general, and
administrative
expenses.............. 840,692 689,248 510,564 384,715 289,282
Restructuring and other
nonrecurring costs,
net................... 1,272 37,641 21,938 650 6,616
---------- ---------- ---------- ---------- ----------
3,152,534 2,686,092 2,045,073 1,547,109 1,235,356
---------- ---------- ---------- ---------- ----------
Operating Income........ 405,786 246,466 225,218 182,082 119,152
Gain on Issuance of
Stock by Subsidiaries.. 80,055 126,599 80,815 25,283 39,863
Other Income (Expense),
Net.................... 2,626 1,486 (7,225) (989) (27,548)
---------- ---------- ---------- ---------- ----------
Income Before Income
Taxes and Minority
Interest............... 488,467 374,551 298,808 206,376 131,467
Provision for Income
Taxes.................. 174,713 110,845 98,711 70,703 33,513
Minority Interest
Expense................ 74,426 72,890 60,515 30,962 21,086
---------- ---------- ---------- ---------- ----------
Net Income.............. $ 239,328 $ 190,816 $ 139,582 $ 104,711 $ 76,868
========== ========== ========== ========== ==========
Earnings per Share:
Basic.................. $ 1.57 $ 1.35 $ 1.10 $ .90 $ .74
========== ========== ========== ========== ==========
Diluted................ $ 1.41 $ 1.17 $ .95 $ .78 $ .65
========== ========== ========== ========== ==========
Weighted Average Shares:
Basic.................. 152,489 141,525 126,626 116,500 104,203
========== ========== ========== ========== ==========
Diluted................ 176,082 175,605 158,562 151,048 130,549
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT
END OF PERIOD):
Working Capital......... $2,001,963 $2,218,617 $1,317,146 $1,150,732 $ 833,839
Total Assets............ 5,795,869 5,141,244 3,786,339 3,061,935 2,507,597
Long-term Obligations... 1,742,907 1,550,342 1,118,077 1,049,850 647,592
Common Stock of
Subsidiaries Subject to
Redemption............. 93,312 76,525 17,513 -- 14,511
Shareholders'
Investment............. 1,997,909 1,754,369 1,309,729 1,007,486 873,720
</TABLE>
- --------
(1) Reflects the issuance of $585 million principal amount of the Company's
convertible debentures.
(2) Reflects the issuance of $345 million principal amount of the Company's
convertible debentures.
(3) Includes cost of research and development contracts of $143,743, $144,823,
$167,120, $149,645, and $116,733 in 1997, 1996, 1995, 1994, and 1993,
respectively.
S-13
<PAGE>
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
elsewhere in this Prospectus Supplement under the caption "Risk Factors."
OVERVIEW
The Company develops and manufactures a broad range of products that are
sold worldwide. The Company expands the product lines and services it offers
by developing and commercializing its own core technologies and by making
strategic acquisitions of complementary businesses. The majority of the
Company's businesses fall into six broad markets: instruments, alternative
energy, paper recycling, biomedical, industrial outsourcing, and advanced
technology.
An important component of the Company's strategy is to establish leading
positions in its markets through the application of proprietary technology,
whether developed internally or acquired. A key contribution to the growth of
the Company's segment income (as defined in the results of operations below),
particularly over the last several years, has been the ability to identify
attractive acquisition opportunities, complete those acquisitions, and derive
a growing income contribution from the newly acquired businesses as they are
integrated into the Company's business segments and their profitability
improves.
The Company seeks to minimize its dependence on any specific product or
market by expanding and diversifying its portfolio of businesses and
technologies. Similarly, the Company's goal is to maintain a balance in its
businesses between those affected by various regulatory cycles and those more
dependent on the general level of economic activity. Although the Company is
diversified in terms of technology, product offerings, and geographic markets
served, the future financial performance of the Company as a whole will be
largely affected by the strength of worldwide economies and the continued
adoption and diligent enforcement of health, safety, and environmental
regulations and standards, among other factors.
The Company believes that maintaining an entrepreneurial atmosphere is
essential to its continued growth and development. In order to preserve this
atmosphere, 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 subsidiaries through the establishment of subsidiary-level stock option
programs, as well as capital to support the subsidiaries' growth. As a result
of the sale of stock by subsidiaries, the issuance of stock by subsidiaries
upon conversion of convertible debentures, and similar transactions, the
Company records gains that represent the increase in the Company's net
investment in the subsidiaries and are classified as "Gain on issuance of
stock by subsidiaries" in the accompanying statement of income. These gains
have represented a substantial portion of the net income reported by the
Company in certain periods. The size and timing of these transactions are
dependent on market and other conditions that are beyond the Company's
control. Accordingly, there can be no assurance that the Company will be able
to generate gains from such transactions in the future.
S-14
<PAGE>
Further, in October 1995, the Financial Accounting Standards Board ("FASB")
issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
"Proposed Statement"). The Proposed Statement would establish new rules for
how consolidated financial statements should be prepared. If the Proposed
Statement is adopted, there would be significant changes in the way the
Company records certain transactions of its controlled subsidiaries. Among
those changes, any sale of the stock of a subsidiary that does not result in a
loss of control would be accounted for as a transaction in equity of the
consolidated entity with no gain or loss being recorded. The exposure draft
addresses the consolidation issues in two parts: consolidation procedures,
which includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB
decided to focus its efforts on the consolidation policy part of the exposure
draft and to consider resuming discussion on consolidation procedures after
completion of the efforts on consolidation policy. The timing and content of
any final statement are uncertain.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Sales in 1997 were $3,558.3 million, an increase of $625.8 million, or 21%,
over 1996. Segment income, excluding restructuring and other nonrecurring
costs, net, of $1.3 million in 1997 and $37.6 million in 1996, described
below, increased 40% to $438.3 million in 1997 from $312.9 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, net, increased 65% to $405.8 million in 1997 from $246.5 million in
1996.
Instruments
Sales from the Instruments segment were $1,592.3 million in 1997, an
increase of $383.0 million, or 32%, over 1996. Sales increased primarily due
to acquisitions made by Thermo Instrument, which added $407 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 $46.8 million in
1997. In addition, revenues increased in 1997 due to higher sales at
ThermoQuest's existing mass spectrometry business, partly as a result of the
continued success of a new product introduced in the first quarter of 1996,
and due to increased sales from Metrika Systems, primarily as a result of
increased sales in international markets at its on-line raw-materials analyzer
business. Revenues also increased at ONIX Systems, primarily due to increased
sales of industry-specific instruments to the production segment of the oil
and gas industry. Revenues from Thermo Optek's existing businesses decreased
slightly due to the inclusion in 1996 of several large nonrecurring sales to
the Chinese and Japanese governments, a decrease in demand for elemental
products in Japan, and the elimination of certain unprofitable acquired
product lines, offset substantially by greater demand at one of its business
units.
Segment income margin (segment income margin is segment income as a
percentage of sales), excluding nonrecurring items, net, of $1.3 million of
income in 1997 and $3.5 million of costs in 1996, improved to 14.7% in 1997
from 11.8% in 1996. The improvement was primarily due to operating margin
improvement at certain of the Fisons businesses acquired in 1996 and increased
sales of ThermoQuest's higher-margin mass spectrometry products. This increase
was offset in part by the inclusion of lower-margin revenues at certain
acquired businesses, including Life Sciences, which recorded an adjustment to
expense of $3.6 million relating to the sale of inventories revalued at the
date of acquisition and, to a lesser extent, a decrease in segment income
margin at ThermoSpectra, primarily as a result of a one-time inventory write-
off and a change in sales mix at one of its business
S-15
<PAGE>
units. The 1996 period included a charge of $2.0 million relating to the sale
of inventories revalued at the date of the acquisition of the Fisons
businesses. Nonrecurring income of $1.3 million in 1997 represents a $2.2
million gain on the sale of a business by ThermoSpectra, offset in part by
$0.9 million of severance costs for employees terminated during 1997 at one of
ThermoSpectra's business units. During 1996, the Company recorded nonrecurring
costs of $3.5 million, which represented the write-off of acquired technology
relating to the acquisition of the Fisons businesses (see Note 11 of Notes to
Consolidated Financial Statements).
Alternative Energy
Sales from the Alternative Energy segment were $384.9 million in 1997,
compared with $339.8 million in 1996. Within this segment, revenues from
Thermo Ecotek increased to $189.5 million in 1997 from $154.3 million in 1996.
Revenues from Thermo Ecotek's Thermo Trilogy biopesticide subsidiary increased
by $18.7 million to $21.4 million, primarily due to the inclusion of revenues
from two acquired businesses. Thermo Ecotek's 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 of 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 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, 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. Revenues in 1996 from 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 $39.6 million in
1997 from $54.4 million in 1996, primarily due to the disposal of certain
business units, which resulted in a $14.2 million decrease in revenues. The
business units were sold for a nominal loss. Sales from Thermo Power increased
to $155.8 million in 1997 from $122.1 million in 1996, primarily due to $38.8
million of sales from Peek plc, acquired in November 1997, as well as higher
engine sales due to a $3.6 million nonrecurring order from one customer,
offset in part by lower demand for Thermo Power's remaining product lines.
Segment income, excluding nonrecurring items, net, of $8.3 million of income
in 1997 and $4.4 million of costs in 1996, was $60.2 million in 1997, compared
with $42.5 million in 1996. Thermo Ecotek's segment income was $50.4 million
in 1997, compared with $39.3 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. These increases were offset in
part by a decrease in Thermo Ecotek's segment income of $4.6 million in 1997
as a result of the funding of certain reserves required in connection with a
nonrecourse lease agreement for its Woodland, California plant. The Woodland
plant's results were approximately breakeven in 1997 and are expected to
remain so for the foreseeable future. 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
1997, the Company settled two legal cases in which it was a defendant,
concerning development of a proposed waste-to-energy facility and development
and construction of an alternative-energy facility. These matters were settled
for amounts less than the damages that had been sought by the plaintiffs and
less than the amounts that had been reserved by the Company. As a result, in
1997, the Company reversed $9.7 million of reserves previously established for
these matters, which is included in restructuring and other nonrecurring
costs, net (see Note 11 of Notes to Consolidated Financial Statements).
Segment income at Thermo Power improved to $7.5 million from $1.1 million in
1996, primarily due to
S-16
<PAGE>
contributions from Peek and, to a lesser extent, improved segment income at
its engines and industrial refrigeration businesses, due to increased engine
revenues, lower warranty costs in both businesses, as well as lower overhead
as a result of consolidating two engine manufacturing facilities. Excluding
restructuring and other nonrecurring costs of $1.4 million in 1997 and $4.4
million in 1996, Peter Brotherhood was profitable in 1997, compared with a
segment loss of $2.5 million in 1996. The restructuring and other nonrecurring
costs in 1997 related primarily to severance for employees terminated, and in
1996 related primarily to the write-off of a nontrade receivable and severance
costs.
Two of Thermo Ecotek's plants are located in New Hampshire and sell power to
Public Service Company of New Hampshire ("PSNH"). 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 ("NHPUC") 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
that prohibits the NHPUC from implementing the deregulation plan as it affects
PSNH, pending a determination by the court on whether PSNH's claim could be
heard by the court. In April 1997, the court ruled that it could now hear the
case and ordered that the 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
NHPUC seeking clarification of the NHPUC'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. An
unfavorable resolution of this matter, including the bankruptcy of PSNH, could
have a material adverse effect on Thermo Ecotek's results of operations and
financial position.
Thermo Ecotek has continued to address issues concerning operations at its
Gillette, Wyoming, coal-beneficiation facility. Thermo Ecotek has conducted
extensive testing and operated the facility, producing commercially salable
product. For tax purposes, the facility must be "placed in service" by June
30, 1998, to qualify for certain tax credits on its output. Although the
facility has operated and produced commercially salable product, Thermo Ecotek
has encountered certain difficulties in achieving optimal and sustained
operation. Thermo Ecotek has addressed and resolved certain problems
previously encountered, including a fire at the facility and certain
construction problems relating to the flow of materials within the facility
and the design and operation of certain pressure-release equipment. Currently,
Thermo Ecotek is experiencing certain operational problems relating to tar
residue build-up within the system during production. Thermo Ecotek is
actively exploring solutions to this problem. 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 problems and achieve optimal and sustained performance.
Paper Recycling
Sales in the Paper Recycling segment were $278.9 million in 1997, compared
with $286.3 million in 1996. A wholly owned subsidiary of the Company recorded
$58.0 million of revenues from a contract to design and construct an office
wastepaper de-inking facility in 1996. This contract was substantially
completed in the second quarter of 1996. Sales from Thermo Fibertek increased
25% to $239.6 million from $192.2 million in 1996, primarily due to revenues
of $52.7 million from acquired businesses, principally Thermo Black Clawson,
which was acquired in May 1997. Increases in revenues from Thermo Fibertek's
accessories, water-management, and other businesses were substantially offset
by an $11.3 million decrease in revenues at its recycling business due to a
continuing decrease in demand resulting from a severe drop in de-inked pulp
prices in 1996. In addition, the unfavorable effects of currency translation
reduced Thermo Fibertek's revenues by
S-17
<PAGE>
$6.3 million in 1997. Sales from Thermo TerraTech's thermal-processing
equipment business were $25.3 million in 1997, compared with $25.5 million in
1996. In October 1997, this business was sold for a nominal loss. Sales of
automated electroplating equipment by Napco increased $3.4 million to $14.0
million, primarily due to higher demand.
Segment income margin, excluding restructuring and other nonrecurring costs
of $1.1 million in 1997, was 11.5% in 1997, compared with 12.6% in 1996. This
decline primarily resulted from lower sales at Thermo Fibertek's recycling
business and lower-margin revenues from Thermo Black Clawson. In addition, the
Company recorded a segment loss in 1997 on the contract to design and
construct 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 relating to the consolidation of the operations of two of its
subsidiaries into the operations of Thermo Black Clawson (see Note 11 of Notes
to Consolidated Financial Statements).
Biomedical Products
Sales from the Biomedical Products segment were $590.2 million in 1997, an
increase of $134.3 million, or 29%, over 1996. Sales increased due to the
inclusion of $62.7 million in sales from acquired businesses, increased demand
at Trex Medical and Bird Medical Technologies, Inc., and growth at
ThermoLase's hair-removal business due to the opening of new spas and higher
revenues from physician- and international-licensing arrangements. Rather than
continuing to open additional domestic spas, ThermoLase intends to concentrate
its resources on attempting both to increase the capacity utilization of its
existing U.S. spas and to expand its physician-licensing program and
international licensing arrangements. These increases in revenues were offset
in part by a $4.7 million decline in sales of Thermo Cardiosystems' left
ventricular-assist systems ("LVAS"), which Thermo Cardiosystems believes
resulted from delayed orders as customers await approval from the U.S. Food
and Drug Administration of its advanced electric LVAS. Although Thermo
Cardiosystems believes that such approval may be received during the first six
months of 1998, there can be no assurance that approval will occur within the
expected time period, or at all.
Segment income, excluding restructuring and other nonrecurring costs of $0.5
million in 1997 and $29.7 million in 1996, increased to $53.2 million in 1997
from $46.1 million in 1996. This increase resulted substantially from
improvements at existing businesses, primarily at Bird Medical, SensorMedics
Corporation, and Trex Medical's existing businesses and, to a lesser extent,
the inclusion of segment income from acquired businesses. This increase in
segment income was offset in part by an increase in segment loss at ThermoLase
to $18.4 million in 1997 from $7.6 million in 1996, due to the early
operations of its Spa Thira hair-removal business, which has been operating
below maximum capacity as it seeks to develop its client base and refine its
process and 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 SoftLight(R) hair-removal process are critical
elements in its ability to improve the profitability of its spas. In 1998, 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. Thermo Cardiosystems'
profitability declined by $4.7 million primarily due to a decrease in LVAS
revenues. Restructuring and other nonrecurring costs of $0.5 million in 1997
represent costs to close certain foreign sales offices at certain of the
Company's wholly owned businesses. Restructuring and other nonrecurring costs
of $29.7 million in 1996 included a write-off of $12.7 million of cost in
excess of net assets of acquired company and certain other intangible assets
at Thermedics' Corpak subsidiary, $11.4 million of costs incurred by
SensorMedics primarily as a result of its merger with the Company, $4.9
million for Thermo Cardiosystems' write-off of acquired technology relating to
a 1996 acquisition, and $0.7 million of other costs (see Note 11 of Notes to
Consolidated Financial Statements).
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Industrial Outsourcing
Sales in the Industrial Outsourcing segment were $305.5 million in 1997, an
increase of $31.6 million, or 12%, over 1996. Revenues from Thermo TerraTech's
remediation and recycling services increased to $136.5 million in 1997 from
$121.2 million in 1996, primarily due to the inclusion of $22.9 million of
sales from acquired businesses, offset in part by a $6.4 million decrease in
revenues at one of Thermo Remediation'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 18% to $18.5 million,
resulting from lower volumes of soil processed due to overcapacity in the
industry and, to a lesser extent, competitive pricing pressures early in the
year. Revenues from consulting and design services increased $3.6 million due
to the inclusion of $12.8 million 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 $54.2 million in 1997 from $45.7 million
in 1996, due to increased demand for existing services and the inclusion of
$3.3 million of sales from an acquired business.
Segment income, excluding restructuring and other nonrecurring costs of $7.9
million in 1997 and $0.1 million in 1996, was $21.7 million in 1997, compared
with $17.8 million in 1996. Segment income improved in 1997 due to the effect
in 1996 of costs incurred at Thermo TerraTech to reduce redundancies at
regional laboratories, and by costs incurred at Thermo EuroTech in 1996
relating primarily to the settlement of several contract disputes, as well as
the impact of severe winter weather in early 1996, which affected all phases
of Thermo EuroTech's business. The effect of these improvements was offset in
part by a decline in segment income from soil-remediation services due to
lower sales as discussed above and lower segment income from consulting and
design services due to the completion of two large contracts. Restructuring
and other nonrecurring costs in 1997 included $7.8 million 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 (see Note 11 of Notes to Consolidated Financial Statements).
Advanced Technology
Sales from the Advanced Technology segment were $415.0 million in 1997,
compared with $375.5 million in 1996. Sales at Thermo Coleman were $156.2
million in 1997, compared with $144.2 million in 1996. This increase resulted
primarily from its Thermo Information Solutions subsidiary's contract to
supply kiosk units and, to a lesser extent, higher integrated document
management revenues and sales of $3.3 million from acquired businesses. These
increases in revenues were offset in part by a decrease in revenues from
government contracts. Sales of kiosk units increased to $16.5 million in 1997
from $1.4 million in 1996. Thermo Information Solutions intends to exit this
business in 1998 due to inherently low margins, lower than expected orders
from its sole customer, and the absence of other orders. Thermo Coleman
experienced a decline in backlog totaling $19.4 million in 1997. Thermo
Coleman's backlog at any certain date may not be indicative of future demand
for its products or services. Sales at Thermo Sentron increased to $78.7
million in 1997 from $70.0 million in 1996, primarily due to higher demand
and, to a lesser extent, sales of $4.2 million from acquired businesses,
offset in part by the unfavorable effects of currency translation. Sales at
Thermedics Detection increased 17% to $51.3 million in 1997, primarily due to
sales of its Alexus systems in connection with the completion of a mandated
product-line upgrade from The Coca-Cola Company to its existing installed
base, and $3.2 million of sales of explosives-detection systems to the U.S.
Federal Aviation Administration. Thermedics Detection expects that sales of
its Alexus systems will slow in 1998 due to the completion of the mandated
upgrade for The Coca-Cola Company in 1997 and a decrease in demand for new
installations. Sales at Thermo Voltek declined to $44.6 million in 1997 from
$48.5 million in 1996, primarily due to lower demand for electrostatic
compatibility ("EMC") test products, resulting from the declining influence of
IEC 801, the European Union directive on
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electromagnetic compatibility that took effect January 1, 1996, and, to a
lesser extent, a decline in the component-reliability market for electrostatic
discharge test equipment that resulted from a slowdown in capital expenditures
by the semiconductor industry. These decreases in revenues at Thermo Voltek
were offset in part by sales of $5.8 million from acquired businesses. Sales
from ThermoTrex's business units, including Trex Communications, increased
$12.7 million in 1997 as a result of $6.9 million of sales from an acquired
business at Trex Communications and, to a lesser extent, increased revenues
from government contracts.
Segment income margin, excluding restructuring and other nonrecurring costs
of $1.4 million in 1997, was 8.8% in 1997, compared with 7.5% 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 and lower margins at Thermo Coleman as a result
of increased sales of low-margin kiosk units and reduced revenues from
government contracts. Restructuring and other nonrecurring costs of $1.4
million in 1997 were recorded by ThermoTrex for the write-off of acquired
technology relating to an acquisition (see Note 11 of Notes to Consolidated
Financial Statements).
Gain on Issuance of Stock by Subsidiaries
As a result of the sale of stock by subsidiaries and issuance of stock by
subsidiaries upon conversion of convertible debentures, the Company recorded
gains of $80.1 million in 1997 and $126.6 million in 1996. See Notes 1 and 9
for a more complete description of these transactions. Minority interest
expense increased to $74.4 million in 1997 from $72.9 million in 1996.
Minority interest expense includes $19.0 million in 1997 and $38.2 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.
Contingent Liabilities and Other Matters
At year-end 1997, the Company was contingently liable with respect to
certain lawsuits (see Note 6 of Notes to Consolidated Financial Statements).
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased by the
Company. The Company believes that its internal information systems and
current products are either year 2000 compliant or will be so prior to the
year 2000 without incurring material costs. There can be no assurance,
however, that the Company will not experience unexpected costs and delays in
achieving year 2000 compliance for its internal information systems and
current products, which could result in a material adverse effect on the
Company's future results of operations.
The Company is presently assessing the effect that the year 2000 problem may
have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this
might have on the Company. The Company has not completed its analysis and is
unable to conclude at this time that the year 2000 problem as it relates to
its previously sold products and products purchased from key suppliers is not
reasonably likely to have a material adverse effect on the Company's future
results of operations.
1996 COMPARED WITH 1995
Sales in 1996 were $2,932.6 million, an increase of $662.3 million, or 29%,
over 1995. Segment income, excluding restructuring and other nonrecurring
costs of $37.6 million in 1996 and $21.9 million in 1995, described below,
increased 16% to $312.9 million in 1996 from $269.8 million in 1995. Operating
income, which includes restructuring and other nonrecurring costs, was $246.5
million in 1996, compared with $225.2 million in 1995.
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Instruments
Sales from the Instruments segment were $1,209.4 million in 1996, an
increase of $426.7 million, or 55%, over 1995. Sales increased primarily due
to acquisitions made by Thermo Instrument, which added $404 million of sales
in 1996. 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 $21.8 million in
1996. The remainder of the increase resulted primarily from greater demand at
Thermo Instrument's mass spectrometry business as a result of recently
introduced products and, to a lesser extent, greater demand at its Fourier
transform infrared spectrometry business.
Segment income margin, excluding restructuring and other nonrecurring costs
of $3.5 million in 1996, declined to 11.8% in 1996 from 14.5% in 1995,
primarily due to lower margins at acquired businesses. Restructuring and other
nonrecurring costs of $3.5 million represents the write-off of acquired
technology relating to the acquisition of the Fisons businesses (see Note 11
of Notes to Consolidated Financial Statements).
Alternative Energy
Sales from the Alternative Energy segment were $339.8 million in 1996,
compared with $325.9 million in 1995. Within this segment, revenues from
Thermo Ecotek were $154.3 million in 1996, compared with $141.4 million in
1995. This increase resulted primarily from higher contractual energy rates at
all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire;
increased revenues at the Delano plants in California resulting from fewer
days of scheduled and unscheduled outages; and an acquisition that added $2.6
million in revenues. Revenues from the Company's waste-recycling facility in
southern California were $9.2 million in 1996, compared with $20.8 million in
1995. This facility was sold in July 1996. Sales at Peter Brotherhood declined
3% to $54.4 million as a result of lower demand for steam turbines. Sales from
Thermo Power were $122.1 million in 1996, compared with $108.4 million in
1995. This increase resulted primarily from increased demand for custom-
designed industrial refrigeration packages, remanufactured commercial cooling
equipment, and the inclusion of revenues from lift-truck engines, offset in
part by declines in revenues from marine-engine products and rental equipment.
Segment income, excluding restructuring and other nonrecurring costs of $4.4
million in 1996 and $11.5 million in 1995, was $42.5 million in 1996, compared
with $44.5 million in 1995. Thermo Ecotek had segment income of $39.3 million
in 1996, compared with $34.6 million in 1995. This improvement results from
increased revenues and, to a lesser extent, lower fuel costs. Segment income
from the Company's waste-recycling facility, which was sold in July 1996,
excluding restructuring and other nonrecurring costs of $11.5 million in 1995,
was $4.6 million in 1996 and $5.9 million in 1995. Results from this facility,
net of related interest expense (not included in segment income), were
approximately at the breakeven level for both periods. Segment income at
Thermo Power declined by $3.9 million to $1.1 million in 1996 due to a change
in sales mix, a cost increase in one of the major components of its industrial
refrigeration packages, higher depreciation expense at NuTemp, and higher
warranty expenses for marine-engine products and at NuTemp. Peter Brotherhood
incurred a segment loss of $2.5 million in 1996, excluding restructuring and
other nonrecurring costs of $4.4 million, compared with a loss of $1.1 million
in 1995. The decline resulted from increased costs to complete jobs in process
as well as competitive pricing pressures. Peter Brotherhood recorded
restructuring and other nonrecurring costs of $4.4 million in 1996 primarily
for the write-off of a nontrade receivable and severance costs.
Restructuring and other nonrecurring costs of $11.5 million in 1995
represents the Company's net investment in a waste-recycling facility in
southern California that contracted to process waste for
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San Diego County (the "County") under a long-term service agreement. During
the third quarter of 1995, the County paid the Company less than the amount
due under the long-term service agreement, and in October 1995, the Company
notified the County that the County was in default of the service agreement.
The County was a party to the financing arrangements for the facility and was
also in default of certain terms of such arrangements. As a result of the
County's default under the service agreement and financing arrangements, the
Company concluded that it would be unable to recover its investment in the
facility. In 1996, in settlement of these matters, the facility was sold to
the County for a nominal amount plus the County's assumption of the facility
debt.
Paper Recycling
Sales in the Paper Recycling segment were $286.3 million in 1996, compared
with $318.0 million in 1995. A wholly owned subsidiary of the Company recorded
revenues from a contract to design and construct an office wastepaper de-
inking facility of $58.0 million in 1996 and $77.0 million in 1995. This
contract was substantially completed in the second quarter of 1996. Sales from
Thermo Fibertek declined 7%, to $192.2 million in 1996. Thermo Fibertek's
revenues under a subcontract from Thermo Electron to supply equipment and
services for the office wastepaper de-inking facility described above
decreased $12.9 million. Revenues from Thermo Fibertek's recycling business
declined an additional $7.5 million due to lower demand resulting from a
severe drop in de-inked pulp prices, offset in part by $2.2 million of
revenues from a business acquired during 1996. Revenues from Thermo Fibertek's
accessories business increased $8.8 million primarily due to increased demand.
The unfavorable effects of currency translation reduced Thermo Fibertek's
revenues by $1.7 million in 1996. Sales of Thermo TerraTech's thermal-
processing equipment increased $8.3 million in 1996 due to increased demand,
while sales of automated electroplating equipment by the Company's wholly
owned Napco subsidiary declined $6.4 million in 1996.
Segment income margin, excluding restructuring and other nonrecurring costs
of $7.5 million in 1995, was 12.6% in 1996, compared with 11.5% in 1995. This
improvement resulted primarily from a nonrecurring payment received under the
office wastepaper de-inking facility contract in 1996, which represented
certain cost savings on the contract, and increased revenues from Thermo
TerraTech's thermal-processing equipment business from depressed levels in
1995. Restructuring and other nonrecurring costs of $7.5 million in 1995
represent the write-off of cost in excess of net assets of acquired companies,
of which $5.0 million was recorded by Thermo TerraTech, and $2.5 million was
recorded by Napco (see Note 11 of Notes to Consolidated Financial Statements).
Biomedical Products
Sales in the Biomedical Products segment were $455.9 million in 1996, an
increase of $139.3 million, or 44%, over 1995. Sales increased due to the
inclusion of $111.7 million in sales from acquired businesses, as well as
increased demand for certain products at Trex Medical, Thermo Cardiosystems'
LVAS, and ThermoLase's hair-removal business.
Segment income, excluding restructuring and other nonrecurring costs of
$29.7 million in 1996, increased to $46.1 million in 1996 from $27.2 million
in 1995. This improvement resulted primarily from the inclusion of segment
income from acquired businesses and increased sales at existing businesses.
Restructuring and other nonrecurring costs of $29.7 million in 1996 included a
write-off of $12.7 million of cost in excess of net assets of acquired company
and certain other intangible assets at Thermedics' Corpak subsidiary, $11.4
million of costs incurred by SensorMedics primarily as a result of its merger
with the Company, $4.9 million for Thermo Cardiosystems' write-off of acquired
technology relating to a 1996 acquisition, and $0.7 million of other costs
(see Note 11 of Notes to Consolidated Financial Statements).
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Industrial Outsourcing
Sales in the Industrial Outsourcing segment were $273.9 million in 1996, an
increase of $63.4 million, or 30%, over 1995. Revenues from Thermo TerraTech's
remediation and recycling services increased to $121.2 million in 1996 from
$67.5 million in 1995, primarily due to the inclusion of $53.9 million in
revenues from acquired businesses. This increase was offset in part by a
decline in revenues from soil-remediation services of $4.9 million in 1996 due
to declines in the volume of soil processed as a result of more relaxed
regulatory standards in several states and competitive pricing pressures; and
by a decline in revenues at Thermo TerraTech's radiochemistry laboratory
businesses reflecting a reduction in spending at the U.S. Department of Energy
and reduced federal government budget appropriations. Sales of metallurgical
services were $45.7 million in 1996, compared with $42.8 million in 1995.
Sales increased due to increased demand for existing services, offset in part
by a decline of $2.9 million resulting from the closing of a small
metallurgical services division in 1995.
Segment income, excluding restructuring and other nonrecurring costs of $0.1
million in 1996 and $2.0 million in 1995, was $17.8 million in 1996, compared
with $23.2 million in 1995. Additional segment income from acquisitions was
more than offset by costs incurred at Thermo TerraTech to reduce redundancies
at regional laboratories and by costs incurred at Thermo EuroTech relating
primarily to the settlement of several contract disputes, as well as the
impact of severe winter weather in early 1996, which affected all phases of
Thermo EuroTech's business, and by the effect of lower sales and income from
the traditionally higher-margin soil-remediation services. Restructuring and
other nonrecurring costs of $2.0 million in 1995 were recorded in connection
with closing a metallurgical services division.
Advanced Technologies
Sales from the Advanced Technologies segment were $375.5 million in 1996,
compared with $323.6 million in 1995. Sales increased $73.5 million due to the
inclusion of sales from acquired businesses. These increases were offset in
part by declines in revenues due to lower U.S. government contract funding at
Thermo Coleman and ThermoTrex due to increased competition for government
research and development funding.
Segment income, excluding restructuring and other nonrecurring costs of $1.0
million in 1995, was $28.0 million in 1996, compared with $24.8 million in
1995. Segment income provided by acquired companies and additional income from
certain businesses were offset in part by lower segment income at Thermo
Coleman, as a result of lower revenues, and by a loss incurred at ThermoTrex's
advanced-technology research center due to cost overruns and higher expenses
for new lines of business. Restructuring and other nonrecurring costs in 1995
primarily represent the write-off of intangible assets at ThermoTrex's East
Coast division which was closed.
Gain on Issuance of Stock by Subsidiaries
As a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures, and similar
transactions, the Company recorded gains of $126.6 million in 1996 and $80.8
million in 1995. See Notes 1 and 9 for a more complete description of these
transactions. Minority interest expense increased to $72.9 million in 1996
from $60.5 million in 1995. Minority interest expense includes $38.2 million
in 1996 and $28.6 million in 1995 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 $2,002.0 million at January 3, 1998,
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 $1,522.7 million at January 3, 1998, compared with $1,846.3
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million at December 28, 1996. In addition, the Company had long-term
available-for-sale investments of $63.3 million at January 3, 1998, compared
with $94.4 million at December 28, 1996. Of the total $1,586.0 million of
cash, cash equivalents, and short- and long-term available-for-sale
investments at January 3, 1998, $1,333.1 million was held by the Company's
majority-owned subsidiaries and the balance was held by the Company and its
wholly owned subsidiaries.
During 1997, $269.0 million of cash was provided by operating activities.
Cash of $86.5 million was used to fund an increase in accounts receivable,
principally at Trex Medical, Thermo Instrument, and Thermo TerraTech. The
increase in receivables at Trex Medical resulted primarily from increased
sales and, to a lesser extent, longer customer payment patterns due to higher
international sales and a shift to direct sales at a subsidiary. The increase
in receivables at Thermo Instrument resulted from increased shipments in the
fourth quarter at ThermoQuest and a competitive trend to commercial terms of
30 days from ThermoQuest's past practice of obtaining deposits on certain
systems. The increase in receivables at Thermo TerraTech resulted from higher
revenues at one business unit and a delay in the pursuit of collections at a
second, which Thermo TerraTech expects to address in 1998 by expanding
collection efforts. In addition, cash of $61.7 million was used to reduce
other current liabilities, primarily for taxes and certain exit costs relating
to acquisitions (see Note 3 of Notes to Consolidated Financial Statements).
The Company's primary investing activities, excluding available-for-sale
investment activity, included acquisitions, capital expenditures, and the sale
of certain businesses and property, plant, and equipment. During 1997, the
Company expended $849.1 million, net of cash acquired, for acquisitions and
received a $36.1 million refund relating to a 1996 acquisition (see Note 3 of
Notes to Consolidated Financial Statements). In addition, the Company sold
certain businesses for net proceeds of $27.1 million. The Company expended
$111.6 million for purchases of property, plant, and equipment and received
proceeds of $15.6 million from the sale of property, plant, and equipment.
The Company's financing activities provided $237.8 million of cash in 1997.
Net proceeds from the issuance of Company and subsidiary common stock totaled
$164.9 million, and net proceeds from the issuance of long-term obligations
totaled $490.8 million. In addition, the Company repaid long-term obligations
of $78.3 million.
During 1997, an aggregate principal amount of $246.1 million of Company and
subsidiary convertible obligations were converted into shares of Company and
subsidiary common stock.
In January 1998, Thermo Instrument issued and sold $250.0 million principal
amount of 4% subordinated convertible debentures due 2005 for net proceeds of
$243.8 million.
The Company intends, for the foreseeable future, to maintain at least 80%
ownership of its Thermo Instrument and Thermo Ecotek subsidiaries, which is
required in order to continue to file a consolidated federal income tax return
with these subsidiaries. In addition, the Company intends to maintain greater
than 50% ownership of its other majority-owned subsidiaries so that it may
continue to consolidate these subsidiaries for financial reporting purposes.
This may require the purchase by the Company of additional shares or
convertible debentures of these companies from time to time as the number of
outstanding shares issued by these companies increases, either in the open
market or directly from the subsidiaries. See Note 5 for a description of
outstanding convertible debentures issued by Thermo Instrument and Thermo
Ecotek. In addition, at January 3, 1998, Thermo Instrument and Thermo Ecotek
had outstanding stock options for 4,365,000 shares and 1,267,000 shares,
respectively, exercisable at various prices and subject to certain vesting
schedules. The Company's other majority-owned subsidiaries also have
outstanding stock options, convertible debentures, or both.
During 1997, the Company and its majority-owned subsidiaries expended $311.1
million to purchase common stock and debentures of certain of the Company's
majority-owned subsidiaries.
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These purchases were made pursuant to authorizations by the Company's and
certain majority-owned subsidiaries' Boards of Directors. As of January 3,
1998, $13.1 million and $35.0 million remained under the Company's and its
majority-owned subsidiaries' authorizations, respectively. Subsequent to
January 3, 1998, the Company and a majority-owned subsidiary received
additional authorizations of $50.0 million and $10.0 million, respectively.
The amount of purchases in a given reporting period may vary significantly.
The Company has no material commitments for purchases of property, plant,
and equipment and expects that, for 1998, expenditures on such items will
approximate the 1997 level. Since January 3, 1998, a majority-owned subsidiary
expended $4.5 million on the acquisition of a business and as of March 10,
1998, the Company's majority-owned subsidiaries had agreements or nonbinding
letters of intent to acquire businesses for a total cost of approximately
$67.5 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.
As discussed above, a substantial percentage of the Company's consolidated
cash and investments is held by subsidiaries that are not wholly owned by the
Company. This percentage may vary significantly over time. Pursuant to the
Thermo Electron Corporate Charter (the "Charter"), to which each of the
majority-owned subsidiaries of the Company is a party, the combined financial
resources of Thermo Electron and its subsidiaries allow the Company to provide
banking, credit, and other financial services to its subsidiaries so that each
member of the Thermo Electron group of companies may benefit from the
financial strength of the entire organization. Toward that end, the Charter
states that each member of the group may be required to provide certain credit
support to the consolidated entity. This credit may rank junior, pari passu
with, or senior in priority to payment of the other indebtedness of these
members. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions is
subject in each instance to a fiduciary duty owed to the minority shareholders
of the relevant subsidiary. In addition, dividends received by Thermo Electron
from a subsidiary that does not consolidate with Thermo Electron for tax
purposes are subject to tax. Therefore, under certain circumstances, a portion
of the Company's consolidated cash and short-term investments may not be
readily available to Thermo Electron or certain of its subsidiaries.
MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing
activities. Additionally, the Company uses short-term forward contracts to
manage certain exposures to foreign currencies. The Company enters into
forward foreign exchange contracts to hedge firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. The
Company does not engage in extensive foreign currency hedging activities;
however, the purpose of the Company's foreign currency hedging activities is
to protect the Company's local currency cash flows related to these
commitments from fluctuations in foreign exchange rates. The Company's forward
foreign exchange contracts principally hedge transactions denominated in U.S.
dollars, British pounds sterling, French francs, and Japanese yen. Gains and
losses arising from forward contracts are recognized as offsets to gains and
losses resulting from the transactions being hedged. The Company does not
enter into speculative foreign currency agreements.
Foreign Currency Exchange Rates
The fair value of forward foreign exchange contracts is sensitive to changes
in foreign currency exchange rates. The fair value of forward foreign exchange
contracts is the estimated amount that
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the Company would pay or receive upon termination of the contract, taking into
account the change in foreign exchange rates. A 10% depreciation in year-end
1997 foreign currency exchange rates related to the Company's contracts would
result in a decrease in the unrealized gain on forward foreign exchange
contracts of $3 million. Since the Company uses forward foreign exchange
contracts as hedges of firm purchase and sale commitments, the unrealized gain
or loss on forward foreign currency exchange contracts resulting from changes
in foreign currency exchange rates would be offset by a corresponding change
in the fair value of the hedged item.
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations
in foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling,
French francs, and German deutsche marks. The effect of a change in foreign
exchange rates on the Company's net investment in foreign subsidiaries is
recorded as a separate component of shareholders' investment. A 10%
depreciation in year-end 1997 functional currencies, relative to the U.S.
dollar, would result in a $27 million reduction of shareholders' investment.
Interest Rates
Certain of the Company's short- and long-term available-for-sale
investments, long-term obligations, and interest rate swap agreements are
sensitive to changes in interest rates. Interest rate changes would result in
a change in the fair value of these financial instruments due to the
difference between the market interest rate and the rate at the date of
purchase or issuance of the financial instrument. A 10% decrease in year-end
1997 market interest rates would result in a negative impact of $18 million on
the net fair value of the Company's interest-sensitive financial instruments.
Equity Prices
The Company's available-for-sale investment portfolio includes equity
securities that are sensitive to fluctuations in price. In addition, the
Company's and its subsidiaries' convertible obligations are sensitive to
fluctuations in the price of Company or subsidiary common stock into which the
obligations are convertible. Changes in equity prices would result in changes
in the fair value of the Company's available-for-sale investments and
convertible obligations due to the difference between the current market price
and the market price at the date of purchase or issuance of the financial
instrument. A 10% increase in the year-end 1997 market equity prices would
result in a negative impact of $96 million on the net fair value of the
Company's price-sensitive equity financial instruments.
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BUSINESS
Thermo Electron Corporation is a diversified technology company that
provides instruments, systems, and services primarily to industrial,
healthcare, and environmental markets. Thermo Electron seeks to identify major
emerging needs in society that can be addressed by technologies being
developed throughout its businesses. In its 42-year history, the Company has
grown to become a leader in certain markets where continued technological
innovation is integral to success. For example, the Company is a worldwide
leader in the design, manufacture, and sale of analytical instruments, paper
recycling equipment, heart-assist devices, and mammography systems. The
Company also provides a range of other specialized products, including medical
diagnostic equipment, alternative-energy systems, industrial process controls,
and environmental-contamination monitors. In addition, the Company offers a
range of services, particularly industrial outsourcing of environmental-
liability management and laboratory analysis, and conducts advanced-technology
research and development.
The Company's ability to innovate derives, in part, from a unique corporate
structure that it developed to retain its entrepreneurial spirit while
continuing its growth. In 1983, the Company adopted a strategy of "spinning
out" certain of its businesses by selling a minority interest in those
subsidiaries to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management of the
spinout companies through the establishment of subsidiary stock-option
incentive programs, as well as capital to sustain the subsidiaries' growth.
The Company's corporate office provides the wholly and majority-owned
subsidiaries with cost-effective, centralized business development,
administrative, financial, and other resources. As of April 6, 1998, the
Company had 29 subsidiaries that have sold minority equity interests, 23 of
which are publicly traded and six of which are privately held.
A key part of the Company's growth strategy is the acquisition of
complementary businesses that broaden product lines, access new markets,
expand distribution channels, or add manufacturing capability. In 1997, 1996,
and 1995, the Company paid $924.3 million, $383.7 million, and $339.1 million
in cash, respectively, to acquire various businesses.
As a result of acquisitions and internal growth, the Company reported
revenues of $3.6 billion in 1997, a 21% increase from $2.9 billion in 1996.
Revenues have increased at a compound annual growth rate of approximately 29%
over the past five fiscal years. Operating income increased 65% to $405.8
million in 1997, from $246.5 million in 1996. Over the past five fiscal years,
Thermo Electron's operating income has increased at a compound annual growth
rate of approximately 42%.
The Company's products and services are divided into six segments:
Instruments, Biomedical Products, Alternative Energy, Paper Recycling,
Industrial Outsourcing, and Advanced Technology. Products or services within a
particular segment may be provided by more than one subsidiary, and certain
subsidiaries' products or services are included in more than one segment. The
principal products and services offered by the Company in the six industry
segments are described below:
Instruments
The Company, through its Thermo Instrument Systems Inc. subsidiary, is a
worldwide leader in the development, manufacture, and marketing of instruments
used to identify complex chemical compounds, toxic metals, and other elements
in a broad range of liquids, solids, and gases, as well as to analyze air
pollution and radioactivity. Thermo Instrument also provides instruments that
control, monitor, image, inspect, and measure various industrial processes and
life sciences phenomena.
Thermo Instrument historically has expanded both through the acquisition of
companies and product lines and through the internal development of new
products and technologies. During the
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past several years, Thermo Instrument has completed a number of complementary
acquisitions that have provided additional technologies, specialized
manufacturing or product-development expertise, and broader capabilities in
marketing and distribution.
For example, in March 1997, Thermo Instrument acquired 95% of Life Sciences
International PLC, a London Stock Exchange-listed company. Subsequently,
Thermo Instrument acquired the remaining shares of Life Sciences' capital
stock. Life Sciences manufactures laboratory science equipment, appliances,
instruments, consumables, and reagents for the research, clinical, and
industrial markets.
In March 1996, Thermo Instrument completed the acquisition of a substantial
portion of the businesses constituting the Scientific Instruments Division of
Fisons plc, a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. These
businesses substantially added to Thermo Instrument's research, development,
manufacture, and sale of analytical instruments to industrial and research
laboratories worldwide. Certain of the Fisons businesses were since sold by
Thermo Instrument to a number of its public subsidiaries that have
complementary technologies and markets.
Thermo Instrument adopted the Company's spinout strategy in an effort to
more clearly focus its many instrumentation technologies on specific niche
markets. To date, Thermo Instrument has completed initial public offerings of
ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation,
Thermo BioAnalysis Corporation, Metrika Systems Corporation, Thermo Vision
Corporation, and ONIX Systems Inc. Thermo Instrument's subsidiaries are
outlined below:
ThermoSpectra develops, manufactures, and markets precision imaging and
inspection, temperature-control, and test and measurement instruments. These
instruments are generally combined with proprietary operations and analysis
software to provide industrial and research customers with integrated systems
that address their specific needs.
ThermoQuest is a leading provider of mass spectrometers, liquid
chromatographs, and gas chromatographs for the pharmaceutical, environmental,
and industrial marketplaces. These analytical instruments are used in the
quantitative and qualitative chemical analysis of organic and inorganic
compounds at ultratrace levels of detection. ThermoQuest also supplies
scientific equipment for the preparation and preservation of chemical samples,
and consumables for the chromatography industry.
Thermo Optek is a worldwide leader in the development, manufacture, and
marketing of analytical instruments that use a range of light- and energy-
based techniques. Thermo Optek's instruments are used in the quantitative and
qualitative chemical analysis of elements and molecular compounds in a variety
of solids, liquids, and gases.
Thermo BioAnalysis develops, manufactures, and markets instruments,
consumables, and information-management systems used in biochemical research
and production, as well as in clinical diagnostics. Thermo BioAnalysis focuses
on three principal product areas: life sciences instrumentation and
consumables, information-management systems, and health physics
instrumentation.
Metrika Systems manufactures process optimization systems that provide on-
line, real-time analysis of the elemental composition of bulk raw materials in
basic-materials production processes, including coal, cement, and minerals. In
addition, Metrika Systems manufactures industrial gauging and process-control
instruments and systems used principally by manufacturers of finished web
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materials, such as sheet metal, rubber, and plastic foils, to measure and
control parameters such as thickness and coating weight of such materials.
Thermo Vision, which became a public subsidiary of Thermo Instrument in
December 1997, designs, manufactures, and markets a diverse array of photonics
(light-based) products, including optical components, imaging sensors and
systems, lasers, optically based instruments, opto-electronics, and fiber
optics. These products are used in applications including medical diagnostics,
semiconductor production, X-ray imaging, physics research, and
telecommunications.
ONIX Systems, which became a public subsidiary of Thermo Instrument in March
1998, designs, develops, markets, and services sophisticated field measurement
instruments and on-line sensors for process-control industries, particularly
oil and gas. Systems provide real-time data collection, analysis, and local
control functions regarding the flow, level, density, or composition of a
particular material.
Thermo Instrument also has wholly owned businesses, including the Life
Sciences Clinical Instrument Division, which provides an array of clinical
laboratory equipment and consumables, and Thermo Monitoring Instruments, which
produces instruments and complete systems for detecting and monitoring
environmental pollutants from industrial and mobile sources, and for detecting
radioactive contamination.
Alternative Energy
The Company's Alternative Energy segment includes the operation of
independent (non-utility) power plants that operate using environmentally
sound fuels and technologies, the development of engineered clean fuels, and
the manufacture and sale of biopesticides. This segment also includes the
manufacture, sale, and servicing of intelligent traffic-control systems,
industrial refrigeration equipment; natural gas engines; packaged cooling and
cogeneration systems; and steam turbines and compressors.
Through its Thermo Ecotek Corporation subsidiary, the Company designs,
develops, owns, and operates independent (non-utility) electric power-
generation facilities that use environmentally responsible fuels, including
agricultural and wood wastes, referred to as "biomass." Thermo Ecotek
currently operates seven biomass facilities. Its facilities are developed and
operated through joint ventures or limited partnerships in which it has a
majority interest, or through wholly owned subsidiaries.
Thermo Ecotek intends to pursue development of biomass and other power-
generation projects both in the U.S. and overseas. In 1996, Thermo Ecotek
formed a joint venture in Italy to develop, own, and operate biomass-fueled
electric power facilities, and in January 1997, announced a joint agreement to
expand two district energy centers in the Czech Republic. In the U.S., where
the Company believes that utility deregulation may present opportunities for
updating aging plants, Thermo Ecotek signed a $9.5 million agreement in
November 1997 to purchase two deregulated plants in southern California for
possible refurbishing and repowering.
Thermo Ecotek is expanding beyond power generation into other products and
processes that protect the environment. In August 1995, Thermo Ecotek, through
two wholly owned subsidiaries, entered into a Limited Partnership Agreement
with KFx Wyoming, Inc., a subsidiary of KFx Inc., to develop, construct, and
operate a coal-beneficiation plant in Gillette, Wyoming. The facility employs
patented "clean coal" technology to remove excess moisture and increase energy
from subbituminous coal extracted from Wyoming's Powder River Basin.
In May 1996, Thermo Ecotek entered the biopesticide business by acquiring
the assets, subject to certain liabilities, of the biopesticide division of
W.R. Grace & Co. (renamed Thermo Trilogy), which
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develops, manufactures, and markets environmentally friendly products for
agricultural pest control. In January 1997, Thermo Trilogy acquired the assets
of biosys, inc., a producer of naturally derived biopesticides, including
pheromone, neem/azadiractin, nematodes, and virus-based products, as well as
disease-resistant sugar cane, and in November 1997, purchased the Bt
biopesticide product line of Novartis AG.
The Company, through its Thermo Power Corporation subsidiary, manufactures,
markets, and services intelligent traffic-control systems, industrial
refrigeration equipment, engines for vehicular and stationary applications,
natural gas-fueled commercial cooling and cogeneration systems, and, through
its privately held ThermoLyte Corporation subsidiary, is developing a line of
gas-powered lighting products for commercialization.
In November 1997, Thermo Power completed a cash tender offer for Peek plc,
based in the U.K. Through Peek, the Company offers a range of intelligent
traffic-control systems for urban traffic control, motorway management, and
public transportation management in cities worldwide. Systems include traffic-
signal synchronization systems to minimize congestion, variable message
systems to advise drivers of accidents or construction, video systems to
provide real-time analysis of traffic flows at intersections and on highways,
as well as automatic toll-collection systems. Peek also has developed high-
resolution video equipment to aid police officers in monitoring traffic
violations.
Through its industrial refrigeration business, Thermo Power supplies
standard and custom-designed industrial refrigeration systems used primarily
by the food-processing, petrochemical, and pharmaceutical industries. Thermo
Power is also a supplier of both remanufactured and new commercial cooling
equipment for sale or rental. The commercial cooling equipment is used
primarily in institutions and commercial buildings, as well as by service
contractors.
Thermo Power also develops, manufactures, markets, and services gasoline
engines for recreational boats, propane and gasoline engines for lift trucks,
and natural gas engines for vehicles and stationary industrial applications;
and designs, develops, markets and services packaged cooling and cogeneration
systems fueled principally by natural gas.
The Company's Alternative Energy segment also includes a U.K.-based
manufacturer of steam turbines and compressors.
Paper Recycling
The Company designs, manufactures, and sells paper recycling and papermaking
equipment and accessory products, and electroplating and aqueous cleaning
systems.
Through its Thermo Fibertek Inc. subsidiary, the Company is a leading
designer and manufacturer of processing machinery, accessories, and water-
management systems for the paper and paper recycling industries. Thermo
Fibertek's custom-engineered systems remove debris, impurities, and ink from
wastepaper, and process it into a fiber mix used to produce recycled paper.
Thermo Fibertek's principal products include custom-engineered systems and
equipment for the preparation of wastepaper for conversion into recycled
paper, accessory equipment and related consumables important to the efficient
operation of papermaking machines, and water-management systems essential for
draining, purifying, and recycling process water.
In May 1997, Thermo Fibertek acquired the majority of the assets, subject to
certain liabilities, of the stock-preparation business of The Black Clawson
Company and certain of its affiliates. In August 1997, the Company acquired
the remaining assets of the stock-preparation business of The Black Clawson
Company and such affiliates. This business, renamed Thermo Black Clawson, is a
leading supplier of recycling equipment used in processing fiber for the
manufacture of "brown paper," such as that used for corrugated boxes.
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In September 1996, Thermo Fibergen Inc. became a majority-owned, public
subsidiary of Thermo Fibertek. Thermo Fibergen is developing and
commercializing equipment and systems to recover materials from papermaking
sludge generated by plants that produce virgin and recycled pulp and paper.
Thermo Fibergen's GranTek Inc. subsidiary uses a patented process to convert
papermaking sludge into granules that are used for applications including
carriers for agricultural chemicals, oil and grease absorption, and catbox
filler.
Through a wholly owned subsidiary, the Company also manufactures
electroplating systems and related waste-treatment equipment and accessories,
as well as aqueous systems for cleaning metal parts without using ozone-
damaging solvents.
Biomedical Products
The Company's Biomedical Products segment comprises a number of diverse
medical products businesses, both wholly and publicly owned, that supply a
wide range of medical systems and devices for diagnostic imaging,
cardiovascular support, respiratory care, neurodiagnostics, sleep analysis,
wireless patient monitoring, and blood management. The Company's biomedical
products are sold to hospitals, clinics, universities, private-practice
medical offices, and medical research facilities.
Its wholly owned Thermo Biomedical group includes Bear Medical Systems, the
business of which was acquired from Allied Healthcare Products, Inc. in
October 1997. Bear Medical designs, manufactures, and markets respiratory
products, primarily ventilators.
Also part of the Company's Thermo Biomedical group are SensorMedics
Corporation, a leading provider of systems for pulmonary function diagnosis
and a producer of respiratory gas analyzers, physiological testing equipment,
and automated sleep-analysis systems; and Medical Data Electronics, a
manufacturer of patient-monitoring systems. Both companies were acquired in
1996.
Nicolet Biomedical Inc., another wholly owned subsidiary of the Company, is
a leading manufacturer of biomedical instruments for assessing muscle, nerve,
sleep, hearing, and brain blood-flow disorders, various neurologic disorders,
and for related work in clinical neurophysiology. In September 1997, Nicolet
acquired IMEX Medical Systems, Inc., a leading manufacturer of products used
to evaluate peripheral vascular disease, as well as products to detect fetal
heartbeat. This subsidiary is now called Nicolet Vascular Inc.
Another wholly owned subsidiary, Bird Medical Technologies, Inc., develops,
manufactures, and sells respiratory-care equipment and accessories and
infection-control products to hospitals, subacute-care facilities, outpatient
surgical centers, doctors, dentists, the military, and to other manufacturers.
Thermo Cardiosystems Inc., a public subsidiary of Thermedics Inc., has
developed an implantable left ventricular-assist system ("LVAS") called
HeartMate(TM) that, when implanted alongside the natural heart, is designed to
take over the pumping function of the left ventricle for patients whose hearts
are too damaged or diseased to produce adequate blood flow. Thermo
Cardiosystems has two versions of the LVAS: a pneumatic (or air-driven) system
that can be controlled by either a bedside console or portable unit, and an
electric system that features an internal electric motor powered by an
external battery-pack worn by the patient.
The air-driven HeartMate system has received both the European Conformity
Mark and U.S. Food and Drug Administration ("FDA") approval for commercial
sale. The electric version of the LVAS, which also holds the CE Mark, is
currently awaiting commercial approval by the FDA for use as a bridge to
transplant. In Europe, the device is used both as a bridge to transplant and
as an alternative to medical therapy.
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In December 1996, Thermo Cardiosystems acquired the business of Nimbus
Medical, Inc., a research and development organization involved for more than
20 years in technology for ventricular-assist devices and total artificial
hearts, including high-speed rotary blood pumps, which are relatively small
and could potentially provide cardiac support in small adults and children.
Also part of Thermo Cardiosystems is International Technidyne Corporation, a
leading manufacturer of hemostasis-management products, including blood
coagulation-monitoring instruments, and a supplier of skin-incision devices
used to draw small blood samples precisely and with minimal discomfort.
Trex Medical Corporation, a public subsidiary of ThermoTrex Corporation,
designs, manufactures, and markets a range of medical imaging systems. It is
the world's leading manufacturer of mammography equipment and minimally
invasive digital breast-biopsy systems. Trex Medical also provides general-
purpose and specialty radiographic systems, such as those used in the
diagnosis and treatment of coronary artery disease and other vascular
conditions.
In early December, Trex Medical submitted a 510(k) application to the FDA
seeking clearance to market its digital imaging system for mammography. The
Company believes that an advantage of digital imaging is that radiologists can
manipulate and enhance image quality to scrutinize subtle differences that may
otherwise go undetected on film-based X-rays. If the FDA approves the digital
imaging system for mammography applications, Trex Medical plans to develop its
digital technology for use in certain of its other products.
ThermoLase Corporation, also a public subsidiary of ThermoTrex, operates a
network of spas that offer its patented SoftLight(R) hair-removal system, for
which it received FDA clearance in April 1995. The SoftLight system uses a
low-energy dermatology laser in combination with a lotion to remove hair.
ThermoLase submitted a 510(k) application for its laser-based skin-retexturing
system, based on data from clinical trials.
ThermoLase currently has 14 Spa Thira locations in the U.S., with 3 spas
outside the U.S.: in Paris, France; Lugano, Switzerland; and Dubai, U.A.E. To
complement its Spa Thira salons, ThermoLase has commenced a program to license
the SoftLight hair-removal process to physicians for use in their practices.
ThermoLase has established a number of joint ventures and other physician-
licensing arrangements to market its SoftLight processes internationally.
ThermoLase also manufactures and markets personal care products sold through
department stores, salons, and spas, including the lotion that is used in the
SoftLight hair-removal process.
Trex Communications Corporation, a majority-owned, privately held subsidiary
of ThermoTrex, is developing laser communications technology designed to
transmit very large amounts of data quickly, and also designs and markets
interactive information and voice-response systems, as well as automated
calling equipment.
Industrial Outsourcing
Through its Thermo TerraTech Inc. subsidiary, the Company provides
outsourcing services, primarily in environmental-liability management and
infrastructure planning and design, with
specialization in the areas of municipal and industrial water quality
management, bridge and highway construction and reconstruction, and natural
resource management. Thermo TerraTech also offers comprehensive environmental
testing and analysis through a national network of laboratories serving the
pharmaceutical, food, and environmental industries.
Thermo Remediation Inc., a public subsidiary of Thermo TerraTech, is a
national provider of outsourcing services for environmental management,
including industrial, nuclear, and soil
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remediation, as well as waste-fluids recycling, primarily helping clients
manage problems associated with environmental compliance, waste management,
and the cleanup of sites contaminated with organic or toxic wastes.
The Randers Group Incorporated, also a public subsidiary of Thermo
TerraTech, provides comprehensive engineering and outsourcing services in such
areas as water and wastewater treatment, highway and bridge projects, process
engineering, construction management, and operational services.
A privately held subsidiary of Thermo TerraTech, Thermo EuroTech N.V.,
provides remediation and recycling services in Europe. The Company treats oil-
based contaminated soils and recycles waste oil and oily waste streams. In
February 1998, Thermo EuroTech acquired a controlling interest in an
environmental services company located in Ireland, that provides comprehensive
in-plant waste management and recycling services to high-tech manufacturing
firms in that country.
In addition, metallurgical heat-treating services are provided by a wholly
owned subsidiary of the Company for customers in the automotive, aerospace,
defense, and other industries. The Company also provides, through another
wholly owned business, metallurgical fabrication services, principally on
high-temperature materials, for customers in the aerospace, medical,
electronics, and nuclear industries.
Advanced Technology
The Company's Advanced Technology segment includes basic and applied
research and development, often sponsored by the U.S. government, that is
conducted with a goal of identifying viable commercial opportunities for new
ventures. A number of its subsidiaries also provide various instrument
systems, developed primarily for product quality-assurance applications in
industrial, food and beverage, pharmaceutical, and electronics markets.
The Company's ThermoTrex subsidiary conducts sponsored research and
development with the goal of commercializing new products based on advanced
technologies developed in its laboratories. Sponsored research and
development, conducted principally for the U.S. government, includes basic and
applied research in communications, avionics, X-ray detection, signal
processing, advanced-materials technology, and lasers.
ThermoTrex is currently developing a number of additional technologies that
it believes may have future commercial potential. These include a passive
microwave camera intended to "see" through clouds and fog to enhance safety in
aerial navigation, a space surveillance system designed to produce high-
resolution images of low-earth-orbit satellites, a rapid optical beam steering
laser radar system, and direct digital imaging systems for medical equipment
to improve image quality for earlier and more accurate clinical diagnoses.
The Company's Thermo Coleman Corporation subsidiary provides systems
engineering, technology support and information-technology services and
products. Thermo Coleman also provides defense and environmental-systems
engineering, integration and analysis services, and advanced technology
research and development, primarily to the U.S. government. Using expertise
gained from its government contract work, Thermo Coleman designs, develops,
and commercializes services and products in areas such as information
technology and sensor and measurement systems for customers in industries
including healthcare, education, aircraft production, government, utilities,
and entertainment.
Thermo Sentron Inc., a public subsidiary of Thermedics, designs and
manufactures high-speed precision-weighing and inspection equipment for
packaging lines and industrial production. Thermo
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Thermo Sentron also sells metal detectors with a patented self-test feature
that are used to inspect packaged products for metal contamination to food-
processing and pharmaceutical companies. Its bulk-materials product line
includes conveyor-belt scales, solid level-measurement and conveyor-monitoring
systems, and sampling systems, all sold to customers in the mining and
material-processing industries, as well as to electric utilities, chemical,
and other manufacturing companies.
Thermedics Detection Inc., another public subsidiary of Thermedics, develops
and manufactures high-speed on-line analysis systems used for product quality
assurance in a variety of industrial processes, as well as for security.
Thermedics Detection provides X-ray imaging systems that monitor a wide range
of containers for fill volume, net volume, and package integrity, as well as
systems that detect trace amounts of contaminants in refillable bottles,
specifically for the beverage industry. For the beverage, food, cosmetic, and
other industries, Thermedics Detection also makes instruments that use near-
infrared spectroscopy to measure moisture and other product components,
including fat, protein, solvents, and other substances in numerous consumer
and industrial products. Thermedics Detection recently introduced an
ultrahigh-speed gas chromatograph that permits manufacturers to conduct
laboratory-quality chemical analysis for near-on-line process-control
applications.
Thermo Voltek Corp., also a public subsidiary of Thermedics, designs,
manufactures, and markets test instruments and a range of products related to
power amplification, conversion, and quality. Thermo Voltek's power products
are used in communications, broadcast, research, and medical imaging
applications. Its test instruments allow manufacturers of electronic systems
and integrated circuits to test for electromagnetic compatibility. On March
30, 1998, Thermedics approved a proposal to acquire, through a merger, all of
the outstanding shares of common stock of Thermo Voltek that Thermedics does
not own at a price of $7.00 per share in cash. The total transaction cost to
Thermedics is estimated to be approximately $27 million, which includes
approximately $5.25 million for the redemption of the outstanding Thermo
Voltek 3 3/4% convertible subordinated debentures due 2000. The merger is
contingent upon, among other things, the negotiation and execution of a
definitive merger agreement; receipt by the Thermo Voltek board of directors
of an opinion by an investment banking firm that Thermedics' offer is fair to
Thermo Voltek shareholders (other than Thermedics and the Company) from a
financial point of view; the approval of the Thermo Voltek board of directors
upon recommendation of a special committee of its independent directors; and
clearance by the Securities and Exchange Commission of the proxy materials
regarding the proposed transaction. Complaints naming the Company as a
defendant, among others, regarding Thermedics' proposed acquisition of Thermo
Voltek have been filed in Delaware Chancery Court by certain Thermo Voltek
shareholders attempting to act on behalf of the other public shareholders of
Thermo Voltek. The complaints allege, among other things, that the proposed
price of $7.00 per share is unfair and grossly inadequate.
Through a wholly owned subsidiary, Thermedics manufactures electrode-based
chemical-measurement products used in the agricultural, biomedical research,
food processing, pharmaceutical, sewage treatment, and many other industries.
In laboratories, manufacturing plants, and in the field, Thermedics' products
permit these industries to determine the presence and amount of relevant
chemicals. Thermedics also manufactures on-line process monitors used by power
plants and semiconductor manufacturers to detect contaminants in high-purity
water.
RESEARCH AND DEVELOPMENT
Technology development is a central component of Thermo Electron's business
strategy, with research activities ongoing in virtually all of the Company's
subsidiaries. The Company is continuously looking to develop ideas that have
some societal benefit and to bring those ideas to commercial markets. Many of
the Company's publicly traded subsidiaries are based on technologies that have
come from years of focused research.
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For example, the basis of Thermo Cardiosystems is its HeartMate(R) left
ventricular-assist system, which became commercially available after 30 years
of research and has helped more than 1,200 people with congestive heart
failure live longer. The core of Thermedics Detection is its ability to detect
trace amounts of unwanted materials using chemiluminescence, a technology
platform that is used in its instruments for a variety of applications,
ranging from food and pharmaceutical monitoring to security screening. Thermo
Fibergen was established to develop uses for papermaking sludge, which was
previously landfilled, and also markets a biodegradable carrier derived from
papermaking waste for agricultural chemicals and will soon introduce an
environmentally friendly catbox filler.
Other Thermo Electron subsidiaries have developed innovative technologies as
well. ThermoLase has developed a laser-based technique for removing unwanted
body hair and Trex Medical has filed for FDA clearance of a new digital
mammography system with better resolution than conventional techniques for
earlier detection of breast cancer.
Thermo Coleman and ThermoTrex share a similar charter -- to develop new
technologies derived from government-funded research, and bring them to the
commercial marketplace. Coleman has several technologies under development,
including a Virtual Time Traveler(TM) and coherent laser radar for metrology
applications. ThermoTrex is also developing a number of technologies that the
Company believes hold future commercial promise, including a passive microwave
camera to enhance aerial navigation safety and a space surveillance system.
During 1997, 1996, and 1995, the Company expended $335.4 million, $299.3
million, and $269.3 million, respectively, on research and development. Of
these amounts, $143.7 million, $144.8 million, and $167.1 million,
respectively, were sponsored by customers.
PATENTS, LICENSES AND TRADEMARKS
The Company considers patents to be important in the present operation of
its business; however, the Company does not consider any patent, or related
group of patents, to be of such importance that its expiration or termination
would materially affect the Company's business taken as a whole. The Company
seeks patent protection for inventions and developments made by its personnel
and incorporated into its products or otherwise falling within its fields of
interest. Patent rights resulting from work sponsored by outside parties do
not always accrue exclusively to the Company and may be limited by agreements
or contracts.
The Company protects some of its technology as trade secrets and, where
appropriate, uses trademarks or registers its products. It also enters into
license agreements with others to grant and/or receive rights to patents and
know-how.
BACKLOG
The Company's backlog of firm orders at year-end 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Instruments............................................... $298,900 $266,600
Biomedical Products....................................... 109,800 107,700
Advanced Technology....................................... 120,600 148,600
Alternative Energy........................................ 186,800 118,500
Industrial Outsourcing.................................... 117,100 118,200
Paper Recycling........................................... 62,300 52,300
-------- --------
$895,500 $811,900
======== ========
</TABLE>
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Backlog includes the uncompleted portion of research and development
contracts and the uncompleted portion of certain contracts that are accounted
for using the percentage-of-completion method. Certain of such firm orders are
cancellable by the customer upon the payment of a cancellation charge. The
Company believes substantially all of the year-end 1997 backlog will be filled
during 1998.
COMPETITION
The Company is engaged in many highly competitive industries. The nature of
the competition in each of the Company's segments is described below:
Instruments
The Company is among the principal manufacturers of analytical
instrumentation. Within the markets for the Company's analytical instrument
products, the Company competes with several large corporations that have broad
product offerings, such as Hewlett-Packard Company; Perkin-Elmer Corp.; Varian
Associates, Inc.; and Hitachi, Ltd., as well as numerous smaller companies
that address particular segments of the industry or specific geographic areas.
The Company's instruments business generally competes on the basis of
technical advances that result in new products and improved price/performance
ratios, reputation among customers as a quality leader for products and
services, and active research and application-development programs. To a
lesser extent, the Company competes on the basis of price.
Alternative Energy
The worldwide independent power market consists of numerous companies,
ranging from small startups to multinational industrial companies. In
addition, a number of regulated utilities have created subsidiaries that
compete as non-utility generators. Non-utility generators often specialize in
market "niches," such as a specific technology or fuel (i.e., gas-fired
cogeneration, refuse-to-energy, hydropower, geothermal, wind, solar, wood, or
coal) or a specific region of the country where they believe they have a
market advantage. However, many non-utility generators, including the Company,
seek to develop projects on a best-available-fuel basis. The Company competes
primarily on the basis of project experience, technical expertise, capital
resources, and power pricing.
The market in which the Company's biopesticide business competes is highly
competitive and subject to rapid technological change. Many competitors are
large chemical and pharmaceutical companies with greater financial, marketing,
and technological resources than the Company. The Company's biopesticide
business competes primarily based on effectiveness, and also on price, ease of
use, and environmental impact of use.
The market for traffic products and services is extremely competitive, and
the Company expects that competition will continue to increase, with the
principal factors being price, functionality, reliability, service and
support, and vendor and product reputation, along with industry and general
economic trends. The Company believes that it is a leading manufacturer and
supplier of traffic products, and considers its major competitor to be Siemens
AG. However, the traffic market is highly fragmented and competition varies
significantly depending on the individual product.
The Company's sale of industrial refrigeration systems is subject to intense
competition. The industrial refrigeration market is mature,~ highly
fragmented, and extremely dependent on close customer contacts. Major
industrial refrigeration companies, of which the Company is one, account for
approximately one-half of worldwide sales, with the balance generated by many
smaller companies. The Company competes principally on the basis of its
advanced control systems and overall quality, reliability, service, and price.
The Company believes it is a leader in remanufactured refrigeration equipment.
The Company competes in this market primarily based on price, delivery time,
and customized equipment.
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Paper Recycling
The Company faces significant competition in the markets for~ paper
recycling and water-handling equipment and papermaking accessories, and
competes in these markets primarily on the basis of quality, service,
technical expertise, and product innovation. The Company is a leading supplier
of de-inking systems for paper recycling and accessory equipment for
papermaking machines, and competes in these markets primarily on the basis of
service, technical expertise, and performance.
Biomedical Products
Competition in the markets for most of the Company's biomedical products,
including those manufactured by Thermo Cardiosystems, ThermoTrex, Nicolet
Biomedical, Bird Medical Technologies, SensorMedics, Medical Data Electronics,
Bear Medical Systems, and Nicolet Vascular is based to a large extent upon
technical performance.
The Company is aware of one other company that has submitted a PMA
application with the FDA for an implantable LVAS that would compete with
Thermo Cardiosystems' LVAS. The Company is unaware whether this PMA
application has been accepted for filing by the FDA. Also, the Company is
aware of one other company that has received approval by the FDA Advisory
Panel on Circulatory System Devices and subsequent commercial approval for its
cardiac-assist device. This is an external device that is positioned on the
outside of the patient's chest and is intended for short-term use in the
hospital environment. The Company is also aware that a total artificial heart
is currently undergoing clinical trials. The requirement of obtaining FDA
approval for commercial sale of~ an LVAS is a significant barrier to entry
into the U.S. market for these devices. There can be no assurance, however,
that FDA regulations will not change in the future, reducing the time and
testing required for others to obtain FDA approval. In addition, other
research groups and companies are developing cardiac-assist systems using
alternative technologies or concepts, one or more of which might prove
functionally equivalent to, or more suitable than, the Company's systems.
Among products that have been approved for commercial sale, the Company
competes primarily on the basis of performance, service capability,
reimbursement status, and price.
The Company is one of a number of competitors in the markets for mammography
and general radiographic systems and is one of two competitors in the market
for stereotactic breast-biopsy systems~. The Company competes in these markets
primarily on the basis of product features, product performance, and
reputation, as well as price and service. The markets in which the Company
competes with these products are characterized by rapid technological change.
The Company believes that in order to be competitive in these markets it will
be important to continue to be technologically innovative.
The Company's SoftLight laser hair-removal system competes with other laser-
based systems, electrolysis, and other traditional hair-removal methods, such
as shaving and waxing. In 1997, five other laser manufacturers received
clearance from the FDA to market their laser-based systems for the removal of
unwanted facial and body hair. The laser-based hair-removal market is
characterized by rapid technological change, and the Company believes that it
must continue to be technologically innovative in order to compete in this
market. In addition, the SoftLight system competes with electrolysis
providers, many of whom are small practitioners with well-established networks
of client relationships. The Company believes that competition for its hair-
removal services is based primarily on efficacy, price, comfort, and safety.
Industrial Outsourcing
The Company seeks to compete in the market for soil-remediation services
based on its ability to offer customers superior protection from environmental
liabilities. However, with relaxed regulatory standards in many states, the
Company faces intense competition in local markets from landfills,
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<PAGE>
other treatment technologies, and from companies competing with similar
technologies, limiting the volume of soil to be treated and the prices that
can be charged by the Company. Pricing is therefore a major competitive factor
for the Company.
The Company's metallurgical services business competes in specialty
machining services. Competition is based principally on services provided,
turnaround time, and price.
Hundreds of independent analytical testing laboratories and~ consulting
firms compete for environmental services business nationwide. Many of these
firms use equipment and processes similar to those of the Company. Competition
is based not only on price, but also on reputation for accuracy, quality, and
the ability to respond rapidly to customer requirements. In addition, many
industrial companies have their own in-house analytical testing capabilities.
The Company believes that its competitive strength lies in certain niche
markets within which the Company is recognized for its expertise.
Advanced Technology
In its contract research and development business, the Company not only
competes with other companies and institutions that perform~ similar services,
but must also rely on the ability of government agencies and other clients to
obtain allocations of research and development monies to fund contracts with
the Company. The Company competes for research and development programs
principally on the basis of technical innovations. As government funding
becomes more scarce, particularly for defense projects, the competition for
such funding will become more intense. In addition, as the Company's programs
move from the development stage to commercialization, competition is expected
to intensify.
Thermo Sentron competes with several international and regional companies in
the market for its products. Thermo Sentron's competitors in the packaged
goods market differ from those in the bulk materials market. The principal
competitive factors in both markets are customer service and support, quality,
reliability, and price.
Thermedics Detection's product quality-assurance systems compete with
chemical-detection systems manufactured by several companies and with other
technologies and processes for product quality assurance. Competition in the
markets for all of the Company's detection products is based primarily on
performance, service, and price. There are a number of competitors in the
market for instruments that detect explosives, including makers of other
chemical-detection instruments as well as enhanced X-ray detectors.
Thermo Voltek is a leading supplier of electromagnetic compatibility testing
equipment. The Company competes in this market primarily on the basis of
performance, technical expertise, reputation, and price. In the market for
power amplifiers, Thermo Voltek competes with several companies worldwide
primarily on the basis of technical expertise, reputation, and price.
Thermedics' electrode-based chemical-measurement products compete with
several international companies. In the markets for these ~products,
Thermedics competes on the basis of performance, service, technology, and
price.
EMPLOYEES
As of January 3, 1998, the Company employed approximately 22,400 persons.
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<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES
---- --- -------
<S> <C> <C>
George N. Hatsopoulos... 71 Director, Chairman of the Board and Chief Executive Officer
John N. Hatsopoulos..... 63 Director, President and Chief Financial Officer
Peter G. Pantazelos..... 67 Executive Vice President
Arvin H. Smith.......... 68 Executive Vice President
Paul F. Kelleher........ 55 Senior Vice President, Finance and Administration
William A. Rainville.... 56 Senior Vice President
John W. Wood Jr......... 54 Senior Vice President
John M. Albertine....... 53 Director
Peter O. Crisp.......... 65 Director
Elias P. Gyftopoulos.... 70 Director
Frank Jungers........... 71 Director
Robert A. McCabe........ 63 Director
Frank E. Morris......... 74 Director
Donald E. Noble......... 83 Director
Hutham S. Olayan........ 44 Director
Richard F. Syron........ 54 Director
Roger D. Wellington..... 71 Director
</TABLE>
The directors are divided into three classes of four directors each. Each
class of directors is elected for a three-year term at successive Annual
Meetings of Stockholders of the Company.
Dr. George N. Hatsopoulos has been a Director, Chairman of the Board, and
Chief Executive Officer of the Company since 1956. Until January 1997, he was
also the President of the Company. Dr. Hatsopoulos is also a director of
Photoelectron Corporation, Thermedics Inc., Thermo Ecotek Corporation, Thermo
Fibertek Inc., Thermo Instrument Systems Inc., Thermo Optek Corporation,
ThermoQuest Corporation and ThermoTrex Corporation. Dr. Hatsopoulos is the
brother of Mr. John N. Hatsopoulos, a Director, the President and the Chief
Financial Officer of the Company.
Mr. John N. Hatsopoulos has been the President of the Company since January
1997, and has served as Chief Financial Officer of the Company since 1988. Mr.
Hatsopoulos became a Director of the Company in September 1997. Prior to being
named President of Thermo Electron, Mr. Hatsopoulos served as an Executive
Vice President, a position he had held since 1986. Mr. Hatsopoulos is also a
director of LOIS/USA Inc., ONIX Systems Inc., Thermedics Inc., Thermedics
Detection Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo
Instrument Systems Inc., Thermo Power Corporation, Thermo TerraTech Inc. and
Thermo Vision Corporation.
Mr. Pantazelos has been an Executive Vice President of the Company for more
than five years.
Mr. Smith has been an Executive Vice President of the Company since November
1991, and was a Vice President of the Company from 1986 to 1991. Mr. Smith is
also the Chairman of the Board of Thermo Instrument Systems Inc. and was its
Chief Executive Officer and President from 1986 to January 1998 and March
1997, respectively. Mr. Smith is also the Chairman of the Board of Thermo
Power Corporation. Mr. Smith is also a director of Metrika Systems
Corporation, ONIX Systems Inc., Thermo BioAnalysis Corporation, Thermo
Instrument Systems Inc., Thermo Optek Corporation, Thermo Power Corporation,
ThermoQuest Corporation, ThermoSpectra Corporation and Thermo Vision
Corporation.
Mr. Kelleher has been Senior Vice President, Finance and Administration, of
the Company since June 1997, and served as its Vice President, Finance, from
1987 until 1997, and as its Controller from 1982 to January 1996. He is a
director of ThermoLase Corporation.
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<PAGE>
Mr. Rainville has been a Senior Vice President of the Company since March
1993, and served as a Vice President of the Company from 1986 to 1993. Mr.
Rainville has been President and Chief Executive Officer of Thermo Fibertek
Inc. since its inception in 1991. Mr. Rainville is also a director of Thermo
Ecotek Corporation, Thermo Fibergen Inc., Thermo Fibertek Inc., Thermo
Remediation Inc., and Thermo TerraTech Inc.
Mr. Wood has been a Senior Vice President of the Company since December
1995, and served as a Vice President of the Company from September 1994 to
December 1995. Mr. Wood has been the Chairman of the Board of Thermedics Inc.
since March 1998 and was its President and Chief Executive Officer from 1984
to March 1998. Mr. Wood is also a director of Thermedics Detection Inc.,
Thermo Cardiosystems Inc., Thermo Sentron Inc., Thermo Voltek Corp. and
Thermedics Inc.
Mr. Albertine has been a Director of the Company since 1986. Dr. Albertine
serves as Chairman of the Board and Chief Executive Officer of Albertine
Enterprises, Inc., an economic and public policy consulting firm he founded in
1990. He also serves as Chairman of The Jian Group Holdings, LLC, a full-
service mergers and acquisitions firm. Dr. Albertine is also a director of
American Precision Industries, Inc., Intermagnetics General Corp. and U.S.
Cast Products Inc.
Mr. Crisp has been a Director of the Company since 1974. Mr. Crisp was a
general partner of Venrock Associates, a venture capital investment firm, for
over five years until his retirement in September 1997. Mr. Crisp is also a
director of American Superconductor Corporation, Evans & Sutherland Computer
Corporation, Thermedics Inc., Thermo Power Corporation, ThermoTrex Corporation
and United States Trust Corporation.
Dr. Gyftopoulos has been a Director of the Company since 1976. Dr.
Gyftopoulos is Professor Emeritus of the Massachusetts Institute of
Technology, where he was the Ford Professor of Mechanical Engineering and of
Nuclear Engineering for more than 20 years until his retirement in 1996. Dr.
Gyftopoulos is also a director of Thermo BioAnalysis Corporation, Thermo
Cardiosystems Inc., ThermoLase Corporation, Thermo Remediation Inc.,
ThermoSpectra Corporation, Thermo Voltek Corp. and Trex Medical Corporation.
Mr. Jungers has been a Director of the Company since 1978. Mr. Jungers has
been a self-employed consultant on business and energy matters since 1977. Mr.
Jungers was employed by the Arabian American Oil Company from 1974 through
1977 as Chairman and Chief Executive Officer. Mr. Jungers is also a director
of The AES Corporation, Donaldson, Lufkin & Jenrette, Georgia-Pacific
Corporation, Thermo Ecotek Corporation and ThermoQuest Corporation.
Mr. McCabe has been a Director of the Company since 1962. He has served as
President of Pilot Capital Corporation, which is engaged in private
investments and provides acquisition services, since 1987. Mr. McCabe is also
a director of Borg-Warner Security Corporation, Church & Dwight Company,
Morrison-Knudsen Corporation and Thermo Optek Corporation.
Mr. Morris has been a Director of the Company since 1989. Dr. Morris served
as President of the Federal Reserve Bank of Boston from 1968 until he retired
in 1988. Dr. Morris also served as the Peter Drucker Professor of Management
at Boston College from 1989 to 1994. Dr. Morris is a trustee of SEI Mutual
Funds, The Capitol Mutual Funds, FFB Lexicon Funds, The Arbor Fund and is a
director of Thermo Remediation Inc.
Mr. Noble has been a Director of the Company since 1983. For more than 20
years, from 1959 to 1980, Mr. Noble served as the Chief Executive Officer of
Rubbermaid Incorporated, first with the title of President and then as
Chairman of the Board. Mr. Noble is also a director of Thermo Fibertek Inc.,
Thermo Power Corporation, Thermo Sentron Inc. and Thermo TerraTech Inc.
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<PAGE>
Ms. Olayan has been a Director of the Company since 1987. She has served
since 1995 as President and a director of Olayan America Corporation, a member
of the Olayan Group engaged in advisory services and private investments,
including real estate, and from 1986 until its merger into the Olayan America
Corporation in 1997, as President and a director of Competrol Real Estate
Limited. Ms. Olayan also served as President and a director of Crescent
Diversified Limited, another member of the Olayan Group engaged in private
investments, from 1985 until 1994. Ms. Olayan is also a director of ONIX
Systems Inc. and Trex Medical Corporation.
Dr. Syron has been a Director of the Company since September 1997. He has
served as Chairman and Chief Executive Officer of the American Stock Exchange
since 1994. Dr. Syron has also held various positions with the Federal Reserve
Bank of Boston, including President and Chief Executive Officer from 1989 to
1994. He has also served as President and Chief Executive Officer of the
Federal Home Loan Bank of Boston.
Mr. Wellington has been a Director of the Company since 1986. Mr. Wellington
serves as the President and Chief Executive Officer of Wellington Consultants,
Inc. and of Wellington Associates Inc., international business consulting
firms he founded in 1994 and 1989, respectively. Mr. Wellington is also a
director of Photoelectron Corporation.
S-41
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a discussion of certain anticipated United States income
and estate tax consequences of the ownership and disposition of the Common
Stock applicable to Non-United States Holders of such Common Stock. For the
purpose of this discussion, a "Non-United States Holder" is any corporation,
individual, partnership, estate or trust that is, as to the United States, a
foreign corporation, a non-resident alien individual, a foreign partnership or
a foreign estate or trust as such terms are defined in the United States
Internal Revenue Code of 1986, as amended (the "Code"). This discussion does
not deal with all aspects of United States income and estate taxation, does
not consider specific facts and circumstances that may be relevant to a
particular Non-United States Holder's tax position, and does not address
foreign, state and local tax consequences that may be relevant to Non-United
States Holders. Furthermore, the following discussion is based on current
provisions of the Code and administrative and judicial interpretations as of
the date hereof, all of which are subject to change. Prospective Non-United
States Holders are urged to consult their tax advisors regarding the United
States federal, state, local and foreign income and other tax consequences of
owning and disposing of Common Stock.
DIVIDENDS
Dividends paid to a Non-United States Holder will be subject to withholding
of United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty unless the dividends are
effectively connected with the conduct of a trade or business by the Non-
United States Holder within the United States and the Non-United States Holder
properly files United States Internal Revenue Service Form 4224 (or such other
applicable form that may be required by the Internal Revenue Service) with the
Company or its dividend paying agent. If the dividends are effectively
connected with such a U.S. trade or business, they will be subject to the
United States federal income tax on net income that applies to U.S. persons.
Certain Non-United States Holders that qualify for benefits under tax treaties
may be subject to 30% withholding tax, rather than U.S. taxes, if they
maintain the permanent establishment in the U.S. to which such dividends are
attributable. In the case of a Non-United States Holder that is a corporation,
such effectively connected dividend income may also be subject to the branch
profits tax (which is generally imposed at a 30% rate (or lower treaty rate)
on a foreign corporation on remitted effectively connected earnings and
profits). Non-United States Holders that are partnerships or trusts may be
subject to certain additional withholding requirements.
Under current United States Treasury regulations, dividends paid to an
address in a country outside the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above and,
under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. However, a
payor of dividends after December 31, 1998, may generally presume that a
holder is a Non-United States Holder only if it can reliably associate the
dividend payment with a beneficial ownership certificate (Internal Revenue
Service Form W-8) furnished by the person whose name is on the certificate or
by a foreign intermediary, flow-through entity or United States branch
withholding certificate. Certain of such intermediaries, entities or branches
must attach, to their own withholding certificates, the Forms W-8 furnished to
them by the beneficial owners of the Common Stock on which the dividend is
paid. In general, a Non-United States Holder must furnish a United States
taxpayer identification number to a payor of dividends or its paying agent in
order to claim the benefit of a withholding tax rate lower than 30% that is
allowable under a tax treaty and, under applicable Treasury regulations, may
be required to provide proof of tax residence in a treaty country and
certification of entitlement to treaty benefits. If the Common Stock is
"actively traded" within the meaning of Section 1092(d) of the Code and the
relevant Treasury regulations, however, a Non-United States Holder need not
furnish a United
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<PAGE>
States taxpayer identification number to the Company or its paying agent in
order to claim the benefit of a lower treaty rate for any dividends paid on
that stock, but nonetheless may be required to provide proof of tax residence
in a treaty country and certification of entitlement to treaty benefits. The
Company can not guarantee that the Common Stock will be actively traded at
such time (if ever) as a dividend distribution on that stock is made. A Non-
United States Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the Internal Revenue Service within the time period applicable to such
claims.
DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Common Stock unless (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder, (ii) the Non-United
States Holder is an individual who has a tax home in the United States and is
present in the United States for a period or periods aggregating 183 days or
more during the taxable year in which such disposition occurs and certain
other conditions are met, (iii) the Non-United States Holder is an individual
who is a former citizen of the United States whose loss of citizenship within
the preceding ten-year period had as one of its principal purposes the
avoidance of United States tax, or (iv) the Company is, or has been at any
time during the five-year period preceding the disposition, a "United States
real property holding corporation" for U.S. federal income tax purposes
(provided, generally, that the Common Stock is regularly traded on an
established securities market) and the Non-United States Holder disposing of
the Common Stock directly or indirectly owned more than 5% of the value of the
Common Stock at any time during such five-year period. A corporation is
generally a "United States real property holding corporation" if the fair
market value of its United States real property interests equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company must report annually to the Internal Revenue Service and to each
Non-United States Holder the amounts of dividends paid and tax withheld with
respect to shares of Common Stock held by such holder. These information
reporting requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. This information may also be made
available to the tax authorities of the country in which the Non-United States
Holder resides. United States backup withholding tax (imposed at a rate of 31%
on dividends paid to certain holders that fail to provide in the required
manner certain identifying information, such as the holder's name, address,
and taxpayer identification number, or under certain other circumstances)
generally does not apply with respect to dividends paid on or before December
31, 1998, if those dividends are subject to U.S. withholding tax at the 30%
statutory rate or at a reduced tax treaty rate or are paid to a Non-United
States Holder at an address outside of the United States (after December 31,
1998, a Non-United States Holder must comply with the beneficial ownership
certification requirements (discussed above) and, under applicable Treasury
regulations, may be required to provide proof of tax residence in a treaty
country and certification of entitlement to treaty benefits) or otherwise to a
Non-United States Holder who is an "exempt recipient" (such as a corporation).
If a Non-United States Holder sells shares of Common Stock through a U.S.
office of a broker, the broker is required to file an information return and
is required to apply backup withholding unless the Non-United States Holder is
an exempt recipient or has provided the broker with the information and
statements, under penalties of perjury, necessary to establish an exemption
from backup withholding. Under applicable regulations, if payment of the
proceeds of the sale of a share of Common Stock by a Non-United States Holder
is made to or through the foreign office of a broker, that broker will not be
required to apply backup withholding (provided that the foreign office
"effects"
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<PAGE>
the sale at that office) or, except as provided in the next sentence, to file
information returns. If, however, the broker is a U.S. person, a controlled
foreign corporation for U.S. tax purposes, or a foreign person 50% or more of
whose gross income for the three-year period ending with the close of the
taxable year preceding the year of payment (or for the part of that period
that the broker has been in existence) is effectively connected with the
conduct of a trade or business in the United States, under existing
regulations information reporting is required unless the broker has
documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met (and the foreign office "effects" the sale at
such office), or the payee otherwise establishes an exemption. The backup
withholding and information reporting rules are under review by the Internal
Revenue Service, and their application to the Common Stock could be changed by
future regulations.
ESTATE TAX
Common Stock owned, or treated as owned, by a nonresident alien individual
at the time of his death will be included in such holder's gross estate for
United States federal estate tax purposes and thus will be subject to United
States federal estate tax, unless an applicable estate tax treaty provides
otherwise.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the International Underwriters named
below, and each of such International Underwriters, for whom Smith Barney
Inc., Goldman Sachs International, Lehman Brothers International (Europe), and
HSBC Securities, Inc. are acting as representatives, has severally agreed to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Smith Barney Inc......................................... 342,000
Goldman Sachs International.............................. 341,000
Lehman Brothers International (Europe) .................. 341,000
HSBC Securities, Inc. ................................... 146,000
Cazenove & Co............................................ 65,000
Lazard Capital Markets................................... 65,000
---------
Total................................................ 1,300,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
of Common Stock offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus Supplement and in part to certain
securities dealers at such price less a concession of $1.04 per share. The
International Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain brokers and dealers.
After the shares of Common Stock are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
representatives.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 5,200,000 shares
of Common Stock in the United States. The initial public offering price and
aggregate underwriting discounts and commissions per share for the two
Offerings are identical. The closing of the offering made hereby is a
condition to the closing of the U.S. Offering, and vice versa. The
representatives of the U.S. Underwriters are Goldman, Sachs & Co., Smith
Barney Inc., Lehman Brothers Inc., and HSBC Securities, Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as a part of the distribution
of the shares offered as a part of the International Offering, and subject to
certain exceptions, it will (i) not, directly or indirectly, offer, sell
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<PAGE>
or deliver shares of Common Stock (a) in the United States or to any U.S.
persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to
observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the International Underwriters an option exercisable
for 30 days after the date of this Prospectus Supplement to purchase up to an
aggregate of 195,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the International Underwriters exercise their over-
allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 1,300,000 shares of Common Stock offered
hereby. The Company has granted the U.S. Underwriters a similar option to
purchase up to an aggregate of 780,000 additional shares of Common Stock.
The Company has agreed that, during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement, it will not offer, sell,
contract to sell, or otherwise dispose of any shares of Common Stock or any
securities of the Company that are substantially similar to the shares of
Common Stock, or any securities convertible into or exchangeable for, or that
represent the right to receive, shares of Common Stock or any such similar
securities, without the prior written consent of Goldman, Sachs & Co., except
for the shares of Common Stock offered in connection with the Offerings,
shares of Common Stock issuable pursuant to convertible debt securities, or
exchangeable debt securities issued by subsidiaries, outstanding on the date
of this Prospectus Supplement, shares of Common Stock or options to purchase
Common Stock issued pursuant to stock option, purchase and compensation plans
in existence on the date of this Prospectus Supplement and shares of Common
Stock issued as consideration for the acquisition of one or more businesses
provided that such Common Stock may not be resold prior to the expiration of
the 90-day period referenced above.
Each International Underwriter has further represented and agreed that:
(a) it has not offered or sold and will not offer or sell any shares of
Common Stock to persons in the United Kingdom prior to the expiry of
the period six months from the closing of the offering made hereby
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent)
for the purposes of their business or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
(b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving
the United Kingdom; and
(c) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue
of the shares of Common Stock to a person who is of a kind described in
article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
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<PAGE>
Buyers of shares of Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the initial public offering price.
In connection with the Offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the Offerings. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the Offerings for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Seth H. Hoogasian, Esq., General Counsel of the Company. Mr.
Hoogasian is a full-time employee of the Company and owns or has the right to
acquire 108,764 shares of Common Stock and 230,012 shares of the Common Stock
of the Company's subsidiaries. The validity of the Common Stock offered hereby
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
S-47
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statement of Income for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995.................................. F-3
Consolidated Balance Sheet as of January 3, 1998 and December 28, 1996.... F-4
Consolidated Statement of Cash Flows for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995.................................. F-6
Consolidated Statement of Shareholders' Investment for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of January
3, 1998, and December 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three years
in the period ended January 3, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
Electron Corporation and subsidiaries as of January 3, 1998, and December 28,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 1998
F-2
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Product and service revenues...... $ 3,392,575 $ 2,766,002 $ 2,075,748
Research and development contract
revenues......................... 165,745 166,556 194,543
------------- ------------- -------------
3,558,320 2,932,558 2,270,291
------------- ------------- -------------
Costs and Operating Expenses:
Cost of product and service
revenues......................... 1,973,265 1,657,746 1,239,762
Expenses for research and
development and new lines of
business (a)..................... 337,305 301,457 272,809
Selling, general, and
administrative expenses.......... 840,692 689,248 510,564
Restructuring and other
nonrecurring costs, net
(Note 11)........................ 1,272 37,641 21,938
------------- ------------- -------------
3,152,534 2,686,092 2,045,073
------------- ------------- -------------
Operating Income.................... 405,786 246,466 225,218
Gain on Issuance of Stock by
Subsidiaries (Note 9).............. 80,055 126,599 80,815
Other Income (Expense), Net (Note
10)................................ 2,626 1,486 (7,225)
------------- ------------- -------------
Income Before Income Taxes and
Minority Interest.................. 488,467 374,551 298,808
Provision for Income Taxes (Note
8)................................. 174,713 110,845 98,711
Minority Interest Expense........... 74,426 72,890 60,515
------------- ------------- -------------
NET INCOME.......................... $ 239,328 $ 190,816 $ 139,582
============= ============= =============
EARNINGS PER SHARE (Note 15):
Basic............................. $ 1.57 $ 1.35 $ 1.10
============= ============= =============
Diluted........................... $ 1.41 $ 1.17 $ .95
============= ============= =============
WEIGHTED AVERAGE SHARES (Note 15):
Basic............................. 152,489 141,525 126,626
============= ============= =============
Diluted........................... 176,082 175,605 158,562
============= ============= =============
(a)Includes costs of:
Research and development
contracts...................... $ 143,743 $ 144,823 $ 167,120
Internally funded research and
development.................... 191,629 154,448 102,209
Other expenses for new lines of
business....................... 1,933 2,186 3,480
------------- ------------- -------------
$ 337,305 $ 301,457 $ 272,809
============= ============= =============
</TABLE>
- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 593,580 $ 414,404
Short-term available-for-sale investments, at quoted
market value (amortized cost of $925,855 and
$1,428,564; Note 2)................................... 929,118 1,431,881
Accounts receivable, less allowances of $55,698 and
$34,321............................................... 797,399 616,545
Unbilled contract costs and fees....................... 69,375 77,155
Inventories............................................ 543,589 432,960
Prepaid income taxes (Note 8).......................... 118,182 129,802
Prepaid expenses....................................... 42,955 29,082
---------- ----------
3,094,198 3,131,829
---------- ----------
Property, Plant, and Equipment, at Cost, Net............. 789,046 704,447
---------- ----------
Long-term Available-for-sale Investments, at Quoted
Market Value (amortized cost of $49,581 and $84,094;
Note 2)................................................. 63,306 94,401
---------- ----------
Other Assets............................................. 157,108 127,632
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes
3, 8, and 11)........................................... 1,692,211 1,082,935
---------- ----------
$5,795,869 $5,141,244
========== ==========
</TABLE>
F-4
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term
obligations (Note 5)................................ $ 176,912 $ 153,787
Accounts payable..................................... 251,677 203,643
Accrued payroll and employee benefits................ 140,698 122,079
Accrued income taxes................................. 57,923 61,534
Accrued installation and warranty costs.............. 72,710 69,006
Deferred revenue..................................... 54,999 45,715
Other accrued expenses (Notes 1 and 3)............... 337,316 257,448
---------- ----------
1,092,235 913,212
---------- ----------
Deferred Income Taxes (Note 8)......................... 90,802 81,726
---------- ----------
Other Deferred Items................................... 59,082 81,020
---------- ----------
Long-term Obligations (Note 5):
Senior convertible obligations....................... 187,824 369,997
Subordinated convertible obligations................. 1,473,015 1,009,470
Nonrecourse tax-exempt obligations................... 37,600 77,900
Other................................................ 44,468 92,975
---------- ----------
1,742,907 1,550,342
---------- ----------
Minority Interest...................................... 719,622 684,050
---------- ----------
Commitments and Contingencies (Note 6)
Common Stock of Subsidiaries Subject to Redemption
($95,262 and $81,179 redemption value; Note 1)........ 93,312 76,525
---------- ----------
Shareholders' Investment (Notes 4 and 7):
Preferred stock, $100 par value, 50,000 shares
authorized; none issued.............................
Common stock, $1 par value, 350,000,000 shares
authorized; 159,206,337 and 149,996,979 shares
issued.............................................. 159,206 149,997
Capital in excess of par value....................... 843,709 801,793
Retained earnings.................................... 1,034,640 795,312
Treasury stock at cost, 95,684 and 15,520 shares..... (3,839) (570)
Cumulative translation adjustment.................... (46,339) (504)
Deferred compensation (Note 4)....................... -- (58)
Net unrealized gain on available-for-sale investments
(Note 2)............................................ 10,532 8,399
---------- ----------
1,997,909 1,754,369
---------- ----------
$5,795,869 $5,141,244
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................... $ 239,328 $ 190,816 $139,582
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 135,738 115,167 85,869
Restructuring and other nonrecurring costs,
net (Note 11)............................... 1,272 37,641 21,938
Provision for losses on accounts receivable.. 9,078 6,002 5,534
Increase in deferred income taxes............ 1,111 20,869 4,277
Minority interest expense.................... 74,426 72,890 60,515
Gain on issuance of stock by subsidiaries
(Note 9).................................... (80,055) (126,599) (80,815)
Gain on sale of investments, net............. (5,077) (9,840) (9,305)
Other noncash items, net..................... 9,093 15,758 19,239
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable......................... (86,511) (17,078) (52,649)
Inventories................................. 9,159 (1,298) (32,267)
Other current assets........................ 31,445 (35,657) (9,447)
Accounts payable............................ (8,308) (14,307) 19,198
Other current liabilities................... (61,681) (29,859) 27,427
--------- ---------- --------
Net cash provided by operating activities..... 269,018 224,505 199,096
--------- ---------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 3).. (849,118) (366,317) (330,698)
Refund of acquisition purchase price (Note
3).......................................... 36,132 -- --
Proceeds from sale of businesses............. 27,102 -- --
Purchases of available-for-sale investments.. (973,687) (1,644,094) (592,364)
Proceeds from sale and maturities of
available-for-sale investments.............. 1,543,025 835,935 617,145
Purchases of property, plant, and equipment.. (111,605) (124,541) (64,016)
Proceeds from sale of property, plant, and
equipment................................... 15,633 10,500 5,702
Increase in other assets..................... (13,425) (26,144) (19,750)
Other........................................ 6,115 3,385 (147)
--------- ---------- --------
Net cash used in investing activities......... (319,828) (1,311,276) (384,128)
--------- ---------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
obligations (Note 5)........................ 490,821 953,376 203,387
Repayment of long-term obligations........... (78,287) (60,643) (14,702)
Net proceeds from issuance of Company and
subsidiary common stock (Note 9)............ 164,855 303,954 173,326
Purchases of subsidiary common stock and
debentures.................................. (311,092) (144,053) (101,099)
Increase (decrease) in short-term notes
payable..................................... (24,256) (13,391) 1,438
Other........................................ (4,291) (1,279) (226)
--------- ---------- --------
Net cash provided by financing activities..... 237,750 1,037,964 262,124
--------- ---------- --------
Exchange Rate Effect on Cash.................. (7,764) 350 2,764
--------- ---------- --------
Increase (Decrease) in Cash and Cash
Equivalents.................................. 179,176 (48,457) 79,856
Cash and Cash Equivalents at Beginning of
Year......................................... 414,404 462,861 383,005
--------- ---------- --------
Cash and Cash Equivalents at End of Year...... $ 593,580 $ 414,404 $462,861
========= ========== ========
See Note 12 for supplemental cash flow infor-
mation.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK, $1 PAR VALUE
Balance at beginning of year............. $ 149,997 $ 89,006 $ 53,558
Issuance of stock under employees' and
directors' stock plans.................. 866 892 571
Conversions of convertible obligations... 8,343 13,449 6,047
Effect of three-for-two stock splits..... -- 46,650 27,687
Acquisition through pooling-of-interests
(Note 3)................................ -- -- 1,143
---------- ---------- ----------
Balance at end of year................... 159,206 149,997 89,006
---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year............. 801,793 614,363 493,058
Issuance of stock under employees' and
directors' stock plans.................. 13,185 8,172 5,293
Tax benefit related to employees' and
directors' stock plans.................. 5,456 12,821 9,666
Conversions of convertible obligations... 164,537 254,842 150,787
Effect of majority-owned subsidiaries'
equity transactions..................... (141,262) (41,755) (34,642)
Effect of three-for-two stock splits..... -- (46,650) (27,687)
Acquisition through pooling-of-interests
(Note 3)................................ -- -- 17,888
---------- ---------- ----------
Balance at end of year................... 843,709 801,793 614,363
---------- ---------- ----------
RETAINED EARNINGS
Balance at beginning of year............. 795,312 604,496 472,396
Net income............................... 239,328 190,816 139,582
Acquisition through pooling-of-interests
(Note 3)................................ -- -- (7,482)
---------- ---------- ----------
Balance at end of year................... 1,034,640 795,312 604,496
---------- ---------- ----------
TREASURY STOCK
Balance at beginning of year............. (570) (536) (1,631)
Activity under employees' and directors'
stock plans............................. (3,269) (34) 1,095
---------- ---------- ----------
Balance at end of year................... (3,839) (570) (536)
---------- ---------- ----------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance at beginning of year............. (504) 608 (3,557)
Translation adjustment................... (45,835) (1,112) 4,193
Acquisition through pooling-of-interests
(Note 3)................................ -- -- (28)
---------- ---------- ----------
Balance at end of year................... (46,339) (504) 608
---------- ---------- ----------
DEFERRED COMPENSATION
Balance at beginning of year............. (58) (2,271) (2,657)
Amortization of deferred compensation.... 58 296 386
ESOP II loan repayment (Note 4).......... -- 1,917 --
---------- ---------- ----------
Balance at end of year................... -- (58) (2,271)
---------- ---------- ----------
NET UNREALIZED GAIN ON AVAILABLE-FOR-SALE
INVESTMENTS
Balance at beginning of year............. 8,399 4,063 (3,681)
Change in net unrealized gain on
available-for-sale investments (Note
2)...................................... 2,133 4,336 7,744
---------- ---------- ----------
Balance at end of year................... 10,532 8,399 4,063
---------- ---------- ----------
TOTAL SHAREHOLDERS' INVESTMENT............. $1,997,909 $1,754,369 $1,309,729
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Thermo Electron Corporation and its subsidiaries (the Company) develop,
manufacture, and market analytical and monitoring instruments; biomedical
products including heart-assist devices, respiratory-care equipment, and
mammography systems; paper recycling and papermaking equipment; alternative-
energy systems; industrial process equipment; and other specialized products.
The Company also provides industrial outsourcing, laboratory, and
metallurgical services, and conducts advanced-technology research and
development.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Thermo
Electron and its majority- and wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated. Majority-owned
public subsidiaries consist of Thermedics Inc., Thermo Instrument Systems
Inc., Thermo TerraTech Inc., Thermo Power Corporation, ThermoTrex Corporation,
Thermo Fibertek Inc., and Thermo Ecotek Corporation. Thermo Cardiosystems
Inc., Thermo Voltek Corp., Thermo Sentron Inc., and Thermedics Detection Inc.
are majority-owned, public subsidiaries of Thermedics. ThermoSpectra
Corporation, ThermoQuest Corporation, Thermo Optek Corporation, Thermo
BioAnalysis Corporation, Metrika Systems Corporation, and Thermo Vision
Corporation are majority-owned, public subsidiaries of Thermo Instrument.
Thermo Remediation Inc. and The Randers Group Incorporated are majority-owned,
public subsidiaries of Thermo TerraTech. ThermoLase Corporation and Trex
Medical Corporation are majority-owned, public subsidiaries of ThermoTrex.
Thermo Fibergen Inc. is a majority-owned, public subsidiary of Thermo
Fibertek. Thermo Information Solutions Inc. is a majority-owned, privately
held subsidiary. ONIX Systems Inc. is a majority-owned, privately held
subsidiary of Thermo Instrument. Thermo EuroTech N.V. is a majority-owned,
privately held subsidiary of Thermo TerraTech. ThermoLyte Corporation is a
majority-owned, privately held subsidiary of Thermo Power. Trex Communications
Corporation is a majority-owned, privately held subsidiary of ThermoTrex.
Thermo Trilogy Corporation is a majority-owned, privately held subsidiary of
Thermo Ecotek. The Company accounts for investments in businesses in which it
owns between 20% and 50% using the equity method.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1997, 1996, and 1995 are for the fiscal years ended January
3, 1998, December 28, 1996, and December 30, 1995, respectively. Fiscal year
1997 included 53 weeks; 1996 and 1995 each included 52 weeks.
REVENUE RECOGNITION
For the majority of its operations, the Company recognizes revenues upon
shipment of its products, or upon completion of services it renders. The
Company provides a reserve for its estimate of warranty and installation costs
at the time of shipment. Deferred revenue in the accompanying balance sheet
consists primarily of unearned revenue on service contracts. Substantially all
of the deferred revenue in the accompanying 1997 balance sheet will be
recognized within one year. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method. Revenues
recorded under the percentage-of-completion method were $440.4 million in
1997, $421.1 million in 1996, and $472.0 million in 1995. The percentage of
completion is
F-8
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined by relating either the actual costs or actual labor incurred to
date to management's estimate of total costs or total labor, respectively, to
be incurred on each contract. If a loss is indicated on any contract in
process, a provision is made currently for the entire loss. The Company's
contracts generally provide for billing of customers upon the attainment of
certain milestones specified in each contract. Revenues earned on contracts in
process in excess of billings are classified as unbilled contract costs and
fees in the accompanying balance sheet. There are no significant amounts
included in the accompanying balance sheet that are not expected to be
recovered from existing contracts at current contract values, or that are not
expected to be collected within one year, including amounts that are billed
but not paid under retainage provisions.
GAIN ON ISSUANCE OF STOCK BY SUBSIDIARIES
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain.
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary, by
the subsidiary's parent, or by the Company, gain recognition does not occur on
issuances subsequent to the date of a repurchase until such time as shares
have been issued in an amount equivalent to the number of repurchased shares.
Such transactions are reflected as equity transactions, and the net effect of
these transactions is reflected in the accompanying statement of shareholders'
investment as the effect of majority-owned subsidiaries' equity transactions.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 15). As a result, all previously reported earnings
per share have been restated; however, basic earnings per share equals the
Company's previously reported primary earnings per share for 1996 and 1995.
Basic earnings per share have been computed by dividing net income by the
weighted
F-9
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
average number of shares outstanding during the year. Diluted earnings per
share have been computed assuming the conversion of convertible obligations
and the elimination of the related interest expense, and the exercise of stock
options, as well as their related income tax effects.
STOCK SPLIT
All share and per share information was restated in 1996 to reflect a three-
for-two stock split, effected in the form of a 50% stock dividend, that was
distributed in June 1996.
CASH AND CASH EQUIVALENTS
Cash equivalents consists principally of corporate notes, commercial paper,
U.S. government-agency securities, money market funds, and other marketable
securities purchased with an original maturity of three months or less. These
investments are carried at cost, which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................ $260,458 $236,297
Work in process........................................... 108,327 80,614
Finished goods............................................ 174,804 116,049
-------- --------
$543,589 $432,960
======== ========
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings and improvements,
5 to 40 years; alternative-energy facilities, 5 to 25 years; machinery and
equipment, 2 to 20 years; and leasehold improvements, the shorter of the term
of the lease or the life of the asset.
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 59,867 $ 55,430
Buildings............................................... 235,103 206,406
Alternative-energy facilities........................... 247,361 247,361
Machinery, equipment, and leasehold improvements........ 617,582 500,992
--------- ---------
1,159,913 1,010,189
Less: Accumulated depreciation and amortization......... 370,867 305,742
--------- ---------
$ 789,046 $ 704,447
========= =========
</TABLE>
F-10
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER ASSETS
Other assets in the accompanying balance sheet includes intangible assets,
notes receivable, deferred debt expense, prepaid pension costs, and other
assets. Intangible assets include the costs of acquired trademarks, patents,
product technology, and other specifically identifiable intangible assets and
are being amortized using the straight-line method over their estimated useful
lives, which range from 3 to 20 years. Intangible assets were $50.5 million
and $39.9 million, net of accumulated amortization of $45.7 million and $38.0
million, at year-end 1997 and 1996, respectively.
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $134.7 million and $96.4 million at year-end 1997
and 1996, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of this asset.
If impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
COMMON STOCK OF SUBSIDIARIES SUBJECT TO REDEMPTION
In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one
share of ThermoLyte common stock and one redemption right, at $10.00 per unit,
for net proceeds of $17.3 million. Holders of the common stock issued in the
offering will have the option to require ThermoLyte to redeem any or all of
their shares at $10.00 per share in December 1998 or 1999. ThermoLyte common
stock subject to redemption of $18.1 million is included in other accrued
expenses in the accompanying 1997 balance sheet since it is redeemable in
December 1998. The redemption value is $18.5 million.
In September 1996, Thermo Fibergen sold 4,715,000 units, each unit
consisting of one share of Thermo Fibergen common stock and one redemption
right, at $12.75 per unit, for net proceeds of $55.8 million. The common stock
and redemption rights began trading separately on December 13, 1996. Holders
of a redemption right have the option to require Thermo Fibergen to redeem one
share of Thermo Fibergen common stock at $12.75 per share in September 2000 or
2001. The redemption rights carry terms that generally provide for their
expiration if the closing price of Thermo Fibergen's common stock exceeds $19
1/8 for 20 of any 30 consecutive trading days prior to September 2001.
In April 1997, ThermoLase completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing ThermoLase
common stock and $3.00 (in cash or ThermoLase common stock) for a new unit
consisting of one share of ThermoLase common stock and one redemption right.
The redemption right entitles the holder to sell the related share of common
stock to ThermoLase for $20.25 during the period from April 3, 2001, through
April 30, 2001. The redemption right will expire if the closing price of
ThermoLase common stock is at least $26.00 for 20 of any 30 consecutive
trading days. In connection with this offer, ThermoLase issued in April 1997,
2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5
million in cash, net of expenses. As a result of these transactions, $40.5
million was reclassified from "Shareholders' investment" and "Minority
interest" to "Common stock of subsidiaries subject to redemption," based on
the issuance of the 2,000,000 redemption rights, each carrying a maximum
liability of $20.25.
F-11
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between the redemption value and the original carrying amount
of ThermoLyte and Thermo Fibergen common stock subject to redemption is
accreted over the period through the first redemption period. Accretion is
charged to minority interest expense in the accompanying statement of income.
All redemption rights are guaranteed on a subordinated basis by the Company.
FOREIGN CURRENCY
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS No.
52, "Foreign Currency Translation." Resulting translation adjustments are
reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains and
losses are included in the accompanying statement of income and are not
material for the three years presented.
FORWARD CONTRACTS AND INTEREST RATE SWAP AGREEMENTS
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward
foreign exchange contracts to hedge firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. These
contracts principally hedge transactions denominated in U.S. dollars, British
pounds sterling, French francs, and Japanese yen. The purpose of the Company's
foreign currency hedging activities is to protect the Company's local currency
cash flows related to these commitments from fluctuations in foreign exchange
rates. Gains and losses arising from forward foreign exchange contracts are
recognized as offsets to gains and losses resulting from the transactions
being hedged.
Thermo Ecotek has interest rate swap agreements that convert its variable
rate obligations to fixed rate obligations (Note 5). Interest rate swap
agreements are accounted for under the accrual method. Amounts to be received
from or paid to the counterparties of the agreements are accrued during the
period to which the amounts relate and are reflected as interest expense. The
related amounts payable to the counterparties are included in other accrued
expenses in the accompanying balance sheet. The fair value of the swap
agreements is not recognized in the accompanying financial statements since
the agreements are accounted for as hedges.
The Company does not enter into speculative foreign currency or interest
swap agreements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRESENTATION
Certain amounts in 1996 and 1995 have been reclassified to conform to the
presentation in the 1997 financial statements.
F-12
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. AVAILABLE-FOR-SALE INVESTMENTS
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt and marketable equity securities
are considered available-for-sale investments in the accompanying balance
sheet and are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component of
shareholders' investment titled "Net unrealized gain on available-for-sale
investments."
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
MARKET COST UNREALIZED UNREALIZED
VALUE BASIS GAINS LOSSES
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Government-agency securities.... $ 385,476 $ 385,049 $ 451 $ (24)
Corporate bonds................. 513,956 513,427 717 (188)
Other........................... 92,992 76,960 16,628 (596)
---------- ---------- ------- -----
$ 992,424 $ 975,436 $17,796 $(808)
========== ========== ======= =====
1996
Government-agency securities.... $ 830,446 $ 829,736 $ 761 $ (51)
Corporate bonds................. 581,804 581,424 482 (102)
Other........................... 114,032 101,498 12,855 (321)
---------- ---------- ------- -----
$1,526,282 $1,512,658 $14,098 $(474)
========== ========== ======= =====
</TABLE>
Short- and long-term available-for-sale investments in the accompanying 1997
balance sheet include equity securities of $50.4 million and debt securities
of $803.3 million with contractual maturities of one year or less and $138.7
million with contractual maturities of more than one year through five years.
Actual maturities may differ from contractual maturities as a result of the
Company's intent to sell these securities prior to maturity and as a result of
put and call options that enable either the Company, the issuer, or both to
redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in
the accompanying statement of income. The net gain on sale of investments
resulted from gross realized gains of $5.2 million, $11.2 million, and $9.8
million and gross realized losses of $0.1 million, $1.4 million, and $0.5
million in 1997, 1996, and 1995, respectively, relating to the sale of
available-for-sale investments.
3. ACQUISITIONS
In March 1997, Thermo Instrument acquired 95% of Life Sciences International
PLC, 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 $442.8 million, net of $55.8 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.
F-13
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1997, in addition to the acquisition of Life Sciences, the Company and
its majority-owned subsidiaries made several other acquisitions for an
aggregate of $406.3 million in cash, net of cash acquired, the issuance of
subsidiary common stock and stock options valued at $4.5 million, and $5.1
million to be paid in the first quarter of 1998, subject to certain post-
closing adjustments. The Company does not expect that aggregate post-closing
adjustments, if any, will be material.
In June 1996, the Company acquired SensorMedics Corporation in exchange for
1,243,518 shares of the Company's common stock, including 156,590 shares
reserved for issuance upon exercise of assumed stock options and warrants.
SensorMedics manufactures systems for pulmonary function diagnosis,
respiratory-gas analyzers, physiological testing equipment, and automated
sleep-analysis systems. The acquisition has been accounted for under the
pooling-of-interests method.
Historical financial information presented for 1995 has been restated to
include the acquisition of SensorMedics. Revenues and net income (loss) for
1995, as previously reported by the separate entities prior to the acquisition
and as restated for the combined Company, are as follows:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Revenues:
Previously reported......................................... $2,207,417
SensorMedics................................................ 62,874
----------
$2,270,291
==========
Net Income (Loss):
Previously reported......................................... $ 140,080
SensorMedics................................................ (498)
----------
$ 139,582
==========
</TABLE>
In March 1996, Thermo Instrument completed the acquisition of a substantial
portion of the businesses constituting the Scientific Instruments Division of
Fisons plc (Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc
Rorer Inc. (RPR), for approximately $181.2 million in cash, net of $7.7
million of cash acquired, and the assumption of approximately $47.2 million of
indebtedness. In December 1997, Thermo Instrument and RPR negotiated a post-
closing adjustment under the terms of the purchase agreement for the Fisons
acquisition pertaining to determination of the net assets of the Fisons
businesses at the date of acquisition. This negotiation resulted in a refund
to Thermo Instrument of $36.1 million, plus $3.8 million of interest from the
date of acquisition. Thermo Instrument has recorded $33.1 million of the
refund as a reduction in cost in excess of net assets of acquired companies.
The remaining $3.0 million represented payment for uncollected accounts
receivable acquired by the Company that were guaranteed by RPR.
In 1996, in addition to the acquisitions of SensorMedics and the Fisons
businesses, the Company and its majority-owned subsidiaries made several other
acquisitions for an aggregate of $185.1 million in cash, net of cash acquired,
the issuance of common stock of the Company and its majority-owned
subsidiaries valued at $2.4 million, and the issuance of $26.6 million in
debt.
In March 1995, the Company acquired Coleman Research Corporation in exchange
for 6,003,336 shares of the Company's common stock, including 304,292 shares
reserved for issuance upon
F-14
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exercise of assumed stock options. This business was renamed Thermo Coleman
Corporation. Thermo Coleman provides systems integration, systems engineering,
analytical services, technology support, information technology services and
products, and advanced-technology research and development to government and
commercial customers. The acquisition has been accounted for under the
pooling-of-interests method.
In 1995, in addition to the acquisition of Thermo Coleman, the Company and
its majority-owned subsidiaries made several other acquisitions for an
aggregate of $330.7 million in cash, net of cash acquired, the issuance of
common stock and stock options of the Company's majority-owned subsidiaries
valued at $19.0 million, and the issuance of $22.3 million in debt.
These acquisitions, except for SensorMedics and Thermo Coleman, have been
accounted for using the purchase method of accounting, and the acquired
companies' results have been included in the accompanying financial statements
from their respective dates of acquisition. The aggregate cost of these
acquisitions exceeded the estimated fair value of the acquired net assets by
$1,239.8 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, for acquisitions completed
in 1997, is subject to adjustment upon finalization of the purchase price
allocation. The Company has gathered no information that indicates the final
purchase price allocations will differ materially from the preliminary
estimates. Pro forma data is not presented since the acquisitions were not
material to the Company's results of operations.
In connection with the acquisition of the Fisons businesses, Thermo
Instrument had undertaken a restructuring of the acquired businesses during
1996. In accordance with the requirements of Emerging Issues Task Force
Pronouncement (EITF) 95-3, Thermo Instrument finalized its restructuring plans
in the first quarter of 1997. The restructuring plans include reductions in
staffing levels, abandonment of excess facilities, and other costs associated
with exiting certain activities of the acquired businesses. As part of the
cost of the acquisition, Thermo Instrument established reserves totaling $46.2
million for estimated severance, excess facilities, and other exit costs
associated with the acquisition, $14.3 million and $19.0 million of which was
expended during 1997 and 1996, respectively, primarily for severance and
abandoned-facility payments. At January 3, 1998, the remaining reserve for
restructuring these businesses was $11.1 million, including the impact of
currency translation, and primarily represents ongoing severance and
abandoned-facility payments.
4. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others, which permit the award of stock-based incentives in the
stock of the Company and its majority-owned subsidiaries. The Company has a
nonqualified stock option plan, adopted in 1974, and an incentive stock option
plan, adopted in 1981, which permit the award of stock options to key
employees. The incentive stock option plan expired in 1991, and no grants were
made after that date. An equity incentive plan, adopted in 1989, permits the
grant of a variety of stock and stock-based awards as determined by the human
resources committee of the Company's Board of Directors (the
F-15
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Board Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. The option recipients and the terms of
options granted under these plans are determined by the Board Committee.
Generally, options outstanding under these plans are exercisable immediately,
but are subject to certain transfer restrictions and the right of the Company
to repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights may lapse
over periods ranging from one to ten years, depending on the term of the
option, which may range from three to twelve years. In addition, under certain
options, shares acquired upon exercise are restricted from resale until
retirement or other events. Nonqualified options are generally granted at fair
market value, although the Board Committee has discretion to grant options at
a price at or above 85% of the fair market value on the date of grant.
Incentive stock options must be granted at not less than the fair market value
of the Company's stock on the date of grant. Generally, stock options have
been granted at fair market value. The Company also has a directors' stock
option plan, adopted in 1993, that provides for the annual grant of stock
options of the Company and its majority-owned subsidiaries to outside
directors pursuant to a formula approved by the Company's shareholders.
Options awarded under this plan are exercisable six months after the date of
grant and expire three to seven years after the date of grant. In addition to
the Company's stock-based compensation plans, certain officers and key
employees may also participate in stock-based compensation plans of the
Company's majority-owned subsidiaries.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year........... 8,421 $21.24 8,302 $17.46 7,878 $14.92
Granted.................... 1,401 37.06 1,183 39.03 1,330 27.85
Exercised.................. (744) 13.37 (1,125) 10.71 (1,099) 8.69
Forfeited.................. (247) 29.45 (89) 26.97 (111) 16.67
Assumed upon acquisitions
through pooling-of-
interests (Note 3)........ -- -- 150 14.97 304 5.65
----- ------ ------
Options outstanding, end of
year........................ 8,831 $24.19 8,421 $21.24 8,302 $17.46
===== ====== ====== ====== ====== ======
Options exercisable.......... 8,821 $24.18 8,406 $21.23 8,262 $17.51
===== ====== ====== ====== ====== ======
Options available for grant.. 5,132 1,291 2,397
===== ====== ======
</TABLE>
F-16
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock options at January 3, 1998,
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE
EXERCISE PRICES SHARES LIFE PRICE
--------------- ------ ----------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
$ 6.33--$15.61.................................. 1,479 2.4 years $12.30
15.62-- 24.89.................................. 4,331 7.0 years 19.44
24.90-- 34.18.................................. 798 8.2 years 32.16
34.19-- 43.46.................................. 2,223 8.7 years 38.49
-----
$ 6.33--$43.46.................................. 8,831 6.8 years $24.19
=====
</TABLE>
The information disclosed above for options outstanding at January 3, 1998,
does not differ materially for options exercisable.
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by the Company. Under
this plan, shares of the Company's common stock can be purchased at the end of
a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, shares of the Company's common stock
could be purchased at 85% of the fair market value at the beginning of the
period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10% of
each participating employee's gross wages. Participants of employee stock
purchase programs sponsored by the Company's majority-owned public
subsidiaries may also elect to purchase shares of the common stock of the
subsidiary by which they are employed under the same general terms described
above. During 1997, 1996, and 1995, the Company issued 243,444 shares, 285,448
shares, and 330,444 shares, respectively, of its common stock under this plan.
Employee Stock Ownership Plan
The Company's Employees Stock Ownership Plan (ESOP) was split into two plans
effective December 31, 1994: ESOP I and ESOP II. The ESOP I covers eligible
full-time U.S. employees of the Company's corporate office and its wholly
owned subsidiaries. The ESOP II, terminated effective December 31, 1994,
covered employees of certain of the Company's majority-owned subsidiaries. The
Company loaned funds to the ESOP to purchase shares of common stock of the
Company and its majority-owned subsidiaries. The shares purchased by the ESOP
were recorded as deferred compensation in the accompanying balance sheet. The
loan to the ESOP II was repaid in full in 1996 and all expense related to the
plans had been recognized. The loan repayment was recorded as a reduction in
deferred compensation in the accompanying balance sheet. Shares are allocated
to the plan participants based on employee compensation. For these plans, the
Company charged to expense $0.2 million and $0.3 million in 1996 and 1995,
respectively.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-
F-17
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards in 1997, 1996, and 1995
under the Company's stock-based compensation plans been determined based on
the fair value at the grant dates consistent with the method set forth under
SFAS No. 123, the effect on the Company's net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported..................... $ 239,328 $ 190,816 $ 139,582
Pro forma....................... 224,337 181,880 137,587
Basic earnings per share:
As reported..................... 1.57 1.35 1.10
Pro forma....................... 1.47 1.29 1.09
Diluted earnings per share:
As reported..................... 1.41 1.17 .95
Pro forma....................... 1.32 1.12 .93
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years. Pro forma compensation expense for options granted is reflected over
the vesting period; therefore, future pro forma compensation expense may be
greater as additional options are granted.
The weighted average fair value per share of options granted was $15.14,
$13.03, and $9.39 in 1997, 1996, and 1995, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Volatility..................................... 26% 24% 24%
Risk-free interest rate........................ 6.2% 6.1% 6.0%
Expected life of options....................... 6.5 years 5.2 years 5.0 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
401(K) SAVINGS PLAN
The Company's 401(k) savings plan covers the majority of the Company's
eligible full-time U.S. employees. Contributions to the plan are made by both
the employee and the Company. Company contributions are based on the level of
employee contributions. For this plan, the Company
F-18
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contributed and charged to expense $13.9 million, $10.1 million, and $7.6
million in 1997, 1996, and 1995, respectively.
OTHER RETIREMENT PLANS
Certain of the Company's subsidiaries offer retirement plans, separate from
the Company's 401(k) savings plan. These retirement plans cover approximately
20% of the Company's U.S. employees. The majority of these subsidiaries offer
401(k) savings plans; however, one subsidiary offers a money purchase plan and
two subsidiaries offer profit-sharing plans. Company contributions to the
401(k) savings plans are based on the level of employee contributions. Company
contributions to the money purchase plan and profit-sharing plans are based on
formulas determined by the Company. For these plans, the Company contributed
and charged to expense $9.3 million, $8.8 million, and $8.2 million in 1997,
1996, and 1995, respectively.
5. LONG-TERM OBLIGATIONS AND OTHER FINANCING ARRANGEMENTS
Long-term obligations of the Company are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
5% Senior convertible debentures, due 2001, convertible
at $21.00 per share.................................... $ -- $ 175,216
4 1/4% Subordinated convertible debentures, due 2003,
convertible at $37.80 per share........................ 585,000 585,000
4 1/2% Senior convertible debentures, due 2003,
convertible into shares of Thermo Instrument at $34.46
per share.............................................. 172,500 172,500
3 3/4% Senior convertible debentures, due 2000,
convertible into shares of Thermo Instrument at $13.55
per share.............................................. 15,324 22,281
5% Subordinated convertible debentures, due 2000,
convertible into shares of ThermoQuest at $16.50 per
share.................................................. 80,591 86,250
5% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Optek at $13.94 per
share.................................................. 79,956 86,250
4 7/8% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Remediation at $17.92
per share.............................................. 34,950 34,950
Noninterest-bearing subordinated convertible debentures
due 2003, convertible into shares of Thermedics at
$32.68 per share....................................... 62,300 65,000
4 3/4% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Cardiosystems at
$31.42 per share....................................... 70,000 --
Noninterest-bearing subordinated convertible debentures,
due 1997, convertible into shares of Thermo
Cardiosystems at $14.49 per share...................... -- 3,755
3 3/4% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Voltek at $7.83 per
share.................................................. 7,750 9,345
4 5/8% Subordinated convertible debentures, due 2003,
convertible into shares of Thermo TerraTech at $15.90
per share.............................................. 111,850 111,850
6 1/2% Subordinated convertible debentures, due 1997,
convertible into shares of Thermo TerraTech at $10.33
per share.............................................. -- 8,620
</TABLE>
F-19
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
4 1/2% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Fibertek at $12.10 per
share................................................... $ 153,000 $ --
4 3/8% Subordinated convertible debentures, due 2004,
convertible into shares of ThermoLase at $17.39 per
share................................................... 115,000 --
3 1/4% Subordinated convertible debentures, due 2007,
convertible into shares of ThermoTrex at $27.00 per
share................................................... 114,500 --
Noninterest-bearing subordinated convertible debentures,
due 2001, convertible into shares of Thermo Ecotek at
$13.56 per share........................................ 8,118 22,205
4 7/8% Subordinated convertible debentures, due 2004,
convertible into shares of Thermo Ecotek at $16.50 per
share................................................... 50,000 --
8.1% Nonrecourse tax-exempt obligation, payable in
semiannual installments, with final payment in 2000..... 35,600 51,200
6.0% Nonrecourse tax-exempt obligation, payable in
semiannual installments, with final payment in 2000..... 23,900 43,500
Other.................................................... 93,857 113,289
---------- ----------
1,814,196 1,591,211
Less: Current maturities................................. 71,289 40,869
---------- ----------
$1,742,907 $1,550,342
========== ==========
</TABLE>
The debentures that are convertible into subsidiary common stock have been
issued by the respective subsidiaries and are guaranteed by the Company, on a
subordinated basis in most cases.
In the event of a change in control of the Company (as defined in the
related fiscal agency agreement) that has not been approved by the continuing
members of the Company's Board of Directors, each holder of the 4 1/4%
convertible debentures issued by the Company will have the right to require
the Company to buy all or part of the holder's debentures, at par value plus
accrued interest, within 50 calendar days after the date of expiration of a
specified approval period. In addition, certain of the obligations convertible
into subsidiary common stock become exchangeable for common stock of the
Company at an exchange price equal to 50% of the average price of the
Company's common stock for the 30 trading days preceding the change in
control.
Nonrecourse tax-exempt obligations represent obligations issued by the
California Pollution Control Financing Authority, the proceeds of which were
used to finance two alternative-energy facilities (Delano I and Delano II)
located in Delano, California. The obligations are credit-enhanced by a letter
of credit issued by a bank group. The obligations are payable only by a
subsidiary of Thermo Ecotek and are not guaranteed by the Company, except
under limited circumstances. As required by the financing bank group, Thermo
Ecotek entered into interest rate swap agreements that effectively convert
these obligations from floating rates to the fixed rates described above.
These swaps have terms expiring in 2000, commensurate with the final maturity
of the debt. During 1997 and 1996, the average variable rate received under
the interest rate swap agreements was 3.7% and 3.5%, respectively. The
notional amount of the swap agreements was $61.3 million and $95.7 million at
year-end 1997 and 1996, respectively. The interest rate swap agreements are
with a different
counterparty than the holders of the underlying debt. The Company believes,
however, that the credit risks associated with these swaps are minimal because
the agreements are with a large, reputable bank.
F-20
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The annual requirements for long-term obligations are as follows (In
thousands):
<TABLE>
<CAPTION>
<S> <C>
1998.......................................................... $ 71,289
1999.......................................................... 25,466
2000.......................................................... 224,244
2001.......................................................... 49,021
2002.......................................................... 2,940
2003 and thereafter........................................... 1,441,236
----------
$1,814,196
==========
</TABLE>
See Note 13 for fair value information pertaining to the Company's long-term
obligations.
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $105.7 million and $112.9 million in 1997
and 1996, respectively, of short-term bank borrowings and borrowings under
lines of credit of certain of the Company's subsidiaries. The weighted average
interest rate for these borrowings was 5.7% and 5.4% at year-end 1997 and
1996. Unused lines of credit were $205 million as of year-end 1997.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $73.6 million, $62.6 million, and
$48.8 million in 1997, 1996, and 1995, respectively. Future minimum payments
due under noncancelable operating leases at January 3, 1998, are $71.0 million
in 1998; $60.7 million in 1999; $52.2 million in 2000; $45.8 million in 2001;
$42.6 million in 2002; and $165.5 million in 2003 and thereafter. Total future
minimum lease payments are $437.8 million.
LITIGATION AND RELATED CONTINGENCIES
ThermoTrex is a defendant in a lawsuit brought by Fischer Imaging
Corporation, which alleges that the prone breast-biopsy systems of the Lorad
division of ThermoTrex's Trex Medical subsidiary infringe a Fischer patent on
a precision mammographic needle-biopsy system. Lorad's cumulative revenues
from this product totaled approximately $118.6 million through January 3,
1998.
Five former employees of Thermo Instrument's Epsilon Industrial, Inc.
(Epsilon) subsidiary have commenced an arbitration proceeding naming as joint
defendants Epsilon, Thermo Instrument, and certain affiliates of Thermo
Instrument, including the Company, alleging that these entities breached the
terms of certain agreements entered into with such employees at the time that
a predecessor of Epsilon acquired the assets and business of a company
formerly owned by such employees. The former employees are claiming actual
damages of between $27 million and $46 million, punitive damages of twice the
actual damages, attorneys' fees and expenses, and pre-judgment and post-
judgment interest, resulting from the alleged failure of Thermo Instrument and
such affiliates, to, among other things, use their best efforts to develop and
promote certain products acquired at that time. The arbitration proceeding,
which is binding and nonappealable, is expected to conclude in the second
quarter of 1998.
F-21
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Thermo Coleman has been named as a defendant in a lawsuit initiated by
certain former employees. This suit was filed under the "qui tam" provisions
of the Federal False Claims Act (the Act), which permit an individual to bring
suit in the name of the United States and, if the United States obtains a
judgment against the defendant, to share in any recovery. The suit alleges,
among other things, that Thermo Coleman violated the Act as a result of its
performance of certain support-service functions under a subcontract from a
third party, which, in turn, contracted directly with the U.S. government. The
complaint seeks an order requiring Thermo Coleman to cease and desist from
such allegedly improper practices, the award of treble damages in an
unspecified amount, plus other penalties. The amount of billings under the
contract activities in question were approximately $7.6 million. Under the
law, the U.S. government will investigate the allegations set forth in the
complaint, and then will determine whether it wishes to intervene and take
over the lawsuit. The Company has been advised that the U.S. government has
not completed its investigation and that no decision has been made on whether
the U.S. government will intervene in the lawsuit.
ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-
Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for
alleged violation of two U.S. patents owned by Finnigan pertaining to methods
used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in
United States District Court and the other was filed with the United States
International Trade Commission (ITC). In February 1998, an administrative law
judge at the ITC issued an initial determination to the effect that, although
one of Finnigan's patents was infringed, the patents were invalid for purposes
of this case. The ITC's jurisdiction on this matter is limited to the issue of
whether or not the defendants' products that use the patented methods can be
imported into the U.S. The judge's initial determination will be considered by
the full commission during the second quarter of 1998. Bruker has presented
counterclaims alleging that the Finnigan patents are invalid and unenforceable
and are not infringed by the mass spectrometers co-marketed by Bruker. They
also allege that Finnigan has violated antitrust laws by attempting to
maintain a monopoly position and restrain trade through enforcement of
allegedly fraudulently obtained patents. Bruker has asked for judgment
consistent with its counterclaims, and for three times the antitrust damages
(including attorney's fees) it has sustained.
The Company intends to vigorously defend these matters. In the opinion of
management, the ultimate liability for all such matters will not be material
to the Company's financial position, but an unfavorable outcome in one or more
of the matters described above could materially affect the results of
operations or cash flows for a particular quarter or annual period.
7. COMMON STOCK
At January 3, 1998, the Company had reserved 31,354,154 unissued shares of
its common stock for possible issuance under stock-based compensation plans,
for possible conversion of the Company's convertible debentures, and for
possible exchange of certain subsidiaries' convertible obligations into common
stock of the Company. Certain of the subsidiaries' obligations are
exchangeable into common stock of the Company in the event of a change in
control (as defined in the related fiscal agency agreement) that has not been
approved by the continuing members of the Company's Board of Directors (Note
5). The exchange price would be equal to 50% of the average price of the
Company's common stock for the 30 trading days preceding the change in
control.
In January 1996, the Company redeemed the share purchase rights outstanding
under its previously existing shareholder rights plan for $.02 per right, or
$.006 per share of the Company's common stock outstanding. Simultaneous with
this redemption, the Company distributed rights
F-22
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
under a new shareholder rights plan adopted by the Company's Board of
Directors to holders of outstanding shares of the Company's common stock. Each
right entitles the holder to purchase one ten-thousandth of a share of Series
B Junior Participating Preferred Stock, $100 par value, at a purchase price of
$250 per share, subject to adjustment. The rights will not be exercisable
until the earlier of (i) 10 days following a public announcement that a person
or group of affiliated or associated persons (an Acquiring Person) has
acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of common stock (the Stock Acquisition Date),
or (ii) 10 business days following the commencement of a tender offer or
exchange offer for 15% or more of the outstanding shares of common stock.
In the event that a person becomes the beneficial owner of 15% or more of
the outstanding shares of common stock, except pursuant to an offer for all
outstanding shares of common stock approved by the outside Directors, each
holder of a right (except for the Acquiring Person) will thereafter have the
right to receive, upon exercise, that number of shares of common stock that
equals the exercise price of the right divided by one half of the current
market price of the common stock. In the event that, at any time after any
person has become an Acquiring Person, (i) the Company is acquired in a merger
or other business combination transaction in which the Company is not the
surviving corporation or its common stock is changed or exchanged (other than
a merger that follows an offer approved by the outside Directors), or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a right (except for the Acquiring Person) shall thereafter have the
right to receive, upon exercise, the number of shares of common stock of the
acquiring company that equals the exercise price of the right divided by one
half of the current market price of such common stock.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the rights in whole, but not in part, at a price of $.01 per right
(payable in cash or stock). The rights expire on January 29, 2006, unless
earlier redeemed or exchanged.
8. INCOME TAXES
The components of income before income taxes and minority interest are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................................... $414,146 $313,069 $256,738
Foreign........................................... 74,321 61,482 42,070
-------- -------- --------
$488,467 $374,551 $298,808
======== ======== ========
</TABLE>
F-23
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal....................................... $105,889 $ 85,024 $ 72,932
Foreign....................................... 30,928 31,851 17,751
State......................................... 18,380 18,445 19,892
-------- -------- --------
155,197 135,320 110,575
-------- -------- --------
Net deferred (prepaid):
Federal....................................... 12,018 (19,994) (9,717)
Foreign....................................... 3,966 (2,275) 232
State......................................... 3,532 (2,206) (2,379)
-------- -------- --------
19,516 (24,475) (11,864)
-------- -------- --------
$174,713 $110,845 $ 98,711
======== ======== ========
</TABLE>
The Company and its majority-owned subsidiaries receive a tax deduction upon
exercise of nonqualified stock options by employees for the difference between
the exercise price and the market price of the underlying common stock on the
date of exercise. The provision for income taxes that is currently payable
does not reflect $15.4 million, $24.5 million, and $20.5 million of such
benefits of the Company and its majority-owned subsidiaries that have been
allocated to capital in excess of par value, directly or through the effect of
majority-owned subsidiaries' equity transactions, in 1997, 1996, and 1995,
respectively. In addition, the provision for income taxes that is currently
payable does not reflect $1.9 million, $6.5 million, and $3.0 million of tax
benefits used to reduce cost in excess of net assets of acquired companies in
1997, 1996, and 1995, respectively. The deferred provision for income taxes
does not reflect $5.9 million of tax benefits used to reduce cost in excess of
net assets of acquired companies in 1995.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before income taxes and minority interest due to the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory
rate........................................ $170,963 $131,093 $104,583
Increases (decreases) resulting from:
Gain on issuance of stock by subsidiaries.. (28,019) (44,310) (28,285)
State income taxes, net of federal tax..... 14,243 10,555 11,314
Foreign tax rate and tax law differential.. 8,937 8,528 3,785
Amortization and write-off of cost in
excess of net assets of acquired
companies................................. 9,918 8,643 7,484
Other, net................................. (1,329) (3,664) (170)
-------- -------- --------
$174,713 $110,845 $ 98,711
======== ======== ========
</TABLE>
F-24
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and accruals................................... $ 65,086 $ 84,253
Net operating loss and credit carryforwards............. 64,615 76,866
Inventory basis difference.............................. 29,829 22,906
Accrued compensation.................................... 17,775 14,435
Intangible assets....................................... 2,683 5,253
Other, net.............................................. 5,504 1,192
-------- --------
185,492 204,905
Less: Valuation allowance............................... 53,992 75,103
-------- --------
$131,500 $129,802
======== ========
Deferred income taxes:
Depreciation............................................ $ 92,672 $ 68,587
Intangible assets....................................... 7,906 8,254
Other................................................... 3,542 4,885
-------- --------
$104,120 $ 81,726
======== ========
</TABLE>
The valuation allowance relates to the uncertainty surrounding the
realization of tax loss carryforwards and the realization of tax benefits
attributable to accrued acquisition expenses and certain other tax assets of
the Company and certain subsidiaries. Of the year-end 1997 valuation
allowance, $49 million will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized. During 1997, the valuation allowance decreased primarily due to
the decrease in tax loss carryforwards.
At year-end 1997, the Company had foreign and federal net operating loss
carryforwards of $133 million and $37 million, respectively. Use of the
carryforwards is limited based on the future income of certain subsidiaries.
The federal net operating loss carryforwards expire in the years 1998 through
2012. Of the foreign net operating loss carryforwards, $10 million expire in
the years 1998 through 2004, and the remainder do not expire.
The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
its domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the Company
does not expect this basis difference to become subject to tax at the parent
level. The Company believes it can implement certain tax strategies to recover
its investment in its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on $216
million of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company currently
plans to keep these amounts permanently reinvested overseas.
9. TRANSACTIONS IN STOCK OF SUBSIDIARIES
Gain on issuance of stock by subsidiaries in the accompanying statement of
income results primarily from the following transactions:
F-25
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997
Initial public offering of 2,671,292 shares of Thermedics Detection common
stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain
of $17.1 million that was recorded by Thermedics.
Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for
net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest
5% subordinated convertible debentures, convertible at $16.50 per share into
949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million
and $7.8 million, respectively, that were recorded by Thermo Instrument.
Private placements of 1,212,260 shares and 94,000 shares of Thermo
Information Solutions 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.
Initial public offering of 2,300,000 shares of Metrika Systems common stock
at $15.50 per share for net proceeds of $32.5 million resulted in a gain of
$13.2 million that was recorded by Thermo Instrument.
Private placement of 2,832,500 shares of Trex Communications common stock at
$4.00 per share for net proceeds of $10.6 million resulted in a gain of $5.9
million that was recorded by ThermoTrex.
Private placement of 1,639,670 shares of ONIX Systems common stock at $14.25
per share for net proceeds of $22.0 million resulted in a gain of $7.9 million
that was recorded by Thermo Instrument.
Private placement of 1,160,900 shares of Thermo Trilogy common stock at
$8.25 per share for net proceeds of $8.9 million resulted in a gain of $4.1
million that was recorded by Thermo Ecotek.
Initial public offering of 1,139,491 shares of Thermo Vision common stock at
$7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3
million that was recorded by Thermo Instrument.
Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated
convertible debentures convertible at $14.85 per share and $13.94 per share,
respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a
gain of $3.2 million that was recorded by Thermo Instrument.
1996
Initial public offering of 3,450,000 shares of ThermoQuest common stock at
$15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2
million that was recorded by Thermo Instrument.
Private placements of 300,000 and 383,500 shares of Thermedics Detection
common stock at $10.00 and $10.75 per share, respectively, for aggregate net
proceeds of $7.0 million resulted in a gain of $5.7 million that was recorded
by Thermedics.
Initial public offering of 2,875,000 shares of Thermo Sentron common stock
at $16.00 per share for net proceeds of $42.3 million resulted in a gain of
$18.0 million that was recorded by Thermedics.
F-26
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Initial public offering of 3,450,000 shares of Thermo Optek common stock at
$13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1
million that was recorded by Thermo Instrument.
Initial public offering of 2,875,000 shares of Trex Medical common stock and
sale of 871,832 shares of Trex Medical common stock in a concurrent rights
offering at $14.00 per share and private placements of 100,000 and 300,000
shares of Trex Medical common stock at $10.75 and $14.50 per share,
respectively, for aggregate net proceeds of $54.3 million resulted in an
aggregate gain of $28.3 million that was recorded by ThermoTrex.
Initial public offering of 1,670,000 shares of Thermo BioAnalysis common
stock at $14.00 per share for net proceeds of $20.8 million resulted in a gain
of $9.8 million that was recorded by Thermo Instrument.
Private placement of 967,828 shares of Metrika Systems common stock at
$15.00 per share for net proceeds of $13.5 million resulted in a gain of $9.6
million that was recorded by Thermo Instrument.
1995
Initial public offering of 3,500,334 shares of Thermo Ecotek common stock at
$8.50 per share for net proceeds of $27.5 million resulted in a gain of $7.9
million.
Private placement of 1,601,500 shares of Thermo BioAnalysis common stock at
$10.00 per share for net proceeds of $14.9 million resulted in a gain of $9.5
million that was recorded by Thermo Instrument.
Private placement of 500,000 shares of Thermo Remediation common stock at
$13.25 per share for net proceeds of $6.6 million resulted in a gain of $1.6
million that was recorded by Thermo TerraTech.
Private placements of 150,000 and 50,000 shares of ThermoLase common stock
at $13.75 and $12.825 per share, respectively, and a public offering of
2,250,000 shares of ThermoLase common stock at $25.25 per share, for aggregate
net proceeds of $55.3 million resulted in an aggregate gain of $34.7 million
that was recorded by ThermoTrex.
Initial public offering of 1,725,000 shares of ThermoSpectra common stock at
$14.00 per share and a private placement of 202,000 shares of ThermoSpectra
common stock at $15.72 per share, for aggregate net proceeds of $24.9 million
resulted in an aggregate gain of $10.6 million that was recorded by Thermo
Instrument.
Conversion of $9.1 million of Thermo Voltek 3 3/4% subordinated convertible
debentures convertible at $7.83 per share into 1,163,098 shares of Thermo
Voltek common stock resulted in a gain of $3.5 million that was recorded by
Thermedics.
Private placement of 1,862,000 shares of Trex Medical common stock at $10.25
per share for net proceeds of $17.6 million resulted in a gain of $12.8
million that was recorded by ThermoTrex.
F-27
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's ownership percentage in these subsidiaries changed primarily
as a result of the transactions listed above, as well as the Company's
purchases of shares of its majority-owned subsidiaries' stock, the
subsidiaries' purchases of their own stock, the issuance of subsidiaries'
stock by the Company or by the subsidiaries under stock-based compensation
plans or in other transactions, and the conversion of convertible obligations
held by the Company, its subsidiaries, or by third parties.
The Company's ownership percentages at year end were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Thermedics.................................................... 58% 55% 51%
Thermo Cardiosystems (a)..................................... 59% 54% 55%
Thermo Voltek (a)............................................ 68% 51% 59%
Thermo Sentron (a)........................................... 78% 73% 100%
Thermedics Detection (b)..................................... 76% 94% 100%
Thermo Instrument............................................. 82% 82% 86%
ThermoSpectra (c)............................................ 83% 73% 72%
ThermoQuest (c).............................................. 88% 93% 100%
Thermo Optek (c)............................................. 92% 93% 100%
Thermo BioAnalysis (c)....................................... 78% 67% 80%
Metrika Systems (d).......................................... 60% 84% 100%
Thermo Vision (c)............................................ 80% 100% 100%
ONIX Systems (d)............................................. 87% 100% 100%
Thermo TerraTech.............................................. 82% 81% 81%
Thermo Remediation (e)....................................... 70% 68% 69%
Thermo EuroTech (f).......................................... 56% 53% 62%
The Randers Group (e)........................................ 96% 100% 100%
Thermo Power.................................................. 69% 64% 63%
ThermoLyte (g)............................................... 78% 78% 78%
ThermoTrex.................................................... 55% 51% 51%
ThermoLase (h)............................................... 70% 64% 65%
Trex Medical (i)............................................. 79% 79% 91%
Trex Communications (i)...................................... 78% 100% 100%
Thermo Fibertek............................................... 90% 84% 81%
Thermo Fibergen (j).......................................... 71% 68% 100%
Thermo Ecotek................................................. 88% 82% 83%
Thermo Trilogy (k)........................................... 87% 100% 100%
Thermo Information Solutions.................................. 79% 100% 100%
</TABLE>
- --------
(a) Reflects combined ownership by Thermedics and Thermo Electron.
(b) Reflects ownership by Thermedics.
(c) Reflects combined ownership by Thermo Instrument and Thermo Electron.
(d) Reflects ownership by Thermo Instrument.
(e) Reflects combined ownership by Thermo TerraTech and Thermo Electron.
(f) Reflects ownership by Thermo TerraTech.
(g) Reflects ownership by Thermo Power.
(h) Reflects combined ownership by ThermoTrex and Thermo Electron.
(i) Reflects ownership by ThermoTrex.
(j) Reflects ownership by Thermo Fibertek.
(k) Reflects ownership by Thermo Ecotek.
F-28
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. OTHER INCOME (EXPENSE), NET
The components of other income (expense), net, in the accompanying statement
of income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................. $ 90,559 $ 94,109 $ 62,146
Interest expense............................. (93,125) (96,695) (77,861)
Equity in losses of unconsolidated
subsidiaries................................ (1,018) (28) (203)
Gain on sale of investments, net............. 5,077 9,840 9,305
Other income (expense), net.................. 1,133 (5,740) (612)
-------- -------- --------
$ 2,626 $ 1,486 $ (7,225)
======== ======== ========
</TABLE>
11. RESTRUCTURING AND OTHER NONRECURRING COSTS, NET
Restructuring and other nonrecurring costs, net, in 1997 includes $7.8
million 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 that
resulted in 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. During 1997, the Company settled two
legal cases in which it was a defendant concerning development of a proposed
waste-to-energy facility and development and construction of an alternative-
energy facility. These matters were settled for amounts less than the damages
that had been sought by the plaintiffs and less than the amounts that had been
reserved by the Company. As a result, the Company reversed $9.7 million of
reserves previously established for these matters, which is included as a
reduction of restructuring and other nonrecurring costs in 1997. In addition,
the 1997 amount includes $3.4 million of restructuring and other nonrecurring
costs, primarily severance, at two majority-owned subsidiaries and at the
Company's wholly owned businesses and $1.4 million at ThermoTrex for the
write-off of acquired technology relating to an acquisition. This amount
represents the portion of the purchase price allocated to technology in
development at the acquired business. The 1997 amount also includes a gain of
$2.2 million from the sale of a business by ThermoSpectra and $0.6 million of
other nonrecurring costs.
The 1996 amount includes a write-off of $12.7 million of cost in excess of
net assets of acquired company and certain other intangible assets at
Thermedics' Corpak subsidiary, as a result of Thermedics no longer intending
to further invest in this business and reduced cash flows, such that analysis
indicated that the investment in these assets would not be recovered. The 1996
amount also includes $11.4 million of costs recorded by SensorMedics primarily
as a result of its merger with the Company, including employee compensation
that became payable as a result of the merger with the Company, certain
investment banking fees and other related transaction costs, the settlement of
a pre-acquisition legal dispute, and severance costs for terminated employees.
In addition, $4.4 million was recorded by the Company's wholly owned Peter
Brotherhood Ltd. subsidiary primarily for the write-off of a nontrade
receivable and severance costs, and $3.5 million and $4.9 million were
recorded by Thermo Instrument and Thermo Cardiosystems, respectively, for the
write-off of acquired technology relating to an acquisition at each
subsidiary. These amounts represent the portion of the purchase price
allocated to technology in development at the acquired businesses.
The 1995 amount includes $11.5 million to write off the Company's net
investment in a waste-recycling facility in San Diego County, California, that
was subsequently sold in 1996. The 1995
F-29
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount also includes $5.0 million to write off the cost in excess of net
assets of acquired companies at Thermo TerraTech's thermal-processing
equipment business due to this asset no longer being recoverable based on
discontinuing investment in this business and reduced cash flows, such that
analysis indicated that the investment in these assets would not be recovered.
In addition, $2.5 million was recorded to write off the cost in excess of net
assets of acquired companies at the Company's wholly owned Napco Inc.
subsidiary and $2.9 million was recorded for other nonrecurring costs at other
business units.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Paid For:
Interest................................... $ 100,165 $ 86,449 $ 72,714
Income taxes............................... $ 151,685 $ 91,536 $ 51,184
Noncash Activities:
Conversions of Company and subsidiary
convertible obligations................... $ 246,088 $ 390,494 $ 212,979
Exchange of subsidiary common stock for
common stock of subsidiary subject to
redemption................................ $ 40,500 $ -- $ --
Sale of waste-recycling facility........... $ -- $ 112,553 $ --
Assumption by buyer of waste-recycling
facility debt............................. $ -- $ 109,862 $ --
Acquisition of asset under capital lease... $ -- $ -- $ 47,101
Fair value of assets of acquired
companies................................. $1,210,319 $ 673,662 $ 521,558
Cash paid for acquired companies........... (924,336) (383,685) (339,075)
Issuance of Company and subsidiary common
stock and stock options for acquired
companies................................. (4,543) (2,351) (18,990)
Issuance of long-term obligations for
acquired companies........................ -- (26,560) (22,300)
Amount payable for acquired company........ (5,111) -- --
---------- --------- ---------
Liabilities assumed of acquired
companies............................... $ 276,329 $ 261,066 $ 141,193
========== ========= =========
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, notes
payable and current maturities of long-term obligations, accounts payable,
long-term obligations, forward foreign exchange contracts, and interest rate
swaps. The carrying amount of these financial instruments, with the exception
of available-for-sale investments, long-term obligations, forward foreign
exchange contracts, and interest rate swaps, approximates fair value due to
their short-term nature.
Available-for-sale investments are carried at fair value in the accompanying
balance sheet. The fair values were determined based on quoted market prices.
See Note 2 for fair value information pertaining to these financial
instruments.
F-30
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying amount and fair value of the Company's long-term obligations
and off-balance-sheet financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term obligations:
Convertible obligations.... $1,660,839 $1,856,570 $1,379,467 $1,616,239
Other...................... 82,068 83,898 170,875 171,722
---------- ---------- ---------- ----------
$1,742,907 $1,940,468 $1,550,342 $1,787,961
========== ========== ========== ==========
Off-balance-sheet financial
instruments:
Forward foreign exchange
contracts receivable...... $ (1,731) $ (1,370)
Interest rate swaps
payable................... $ 1,324 $ 1,643
</TABLE>
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the
respective year ends. The fair value of convertible obligations exceeds the
carrying amount primarily due to the market price of the Company's or
subsidiaries' common stock exceeding the conversion price of the convertible
obligations.
The Company had forward foreign exchange contracts of $46.6 million and
$19.7 million outstanding at year-end 1997 and 1996, respectively.
Additionally, the notional amount of the Company's interest rate swap
agreements was $61.3 million and $95.7 million at year-end 1997 and 1996,
respectively (Note 5). The fair value of such contracts and swap agreements is
the estimated amount that the Company would pay or receive upon termination of
the contract, taking into account the change in foreign exchange rates on
forward foreign exchange contracts, and market interest rates and the
creditworthiness of the counterparties on interest rate swap agreements.
14. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
The Company's business segments include the following:
. Instruments: biomedical, analytical, monitoring, and process control
instruments
. Alternative-energy Systems: clean power generation, biopesticides,
intelligent traffic-control systems, industrial-refrigeration systems,
natural gas engines, cooling and cogeneration units, turbines and
compressors
. Paper Recycling: paper recycling and papermaking equipment,
electroplating equipment
. Biomedical Products: mammography and minimally invasive breast-biopsy
systems, general-purpose X-ray systems, respiratory-care equipment, left
ventricular-assist systems, hematology products, neurophysiology
monitoring instruments, biomedical materials, laser-based hair- removal
systems, personal-care products
. Industrial Outsourcing: environmental-liability management, environmental
cleanup, laboratory analysis, metallurgical heat treating and fabrication
. Advanced Technologies: process-detection systems, security instruments,
precision weighing and inspection equipment, power-conversion
instruments, programmable power amplifiers, electronic test equipment,
development of avionics products, medical imaging equipment, and advanced
materials
F-31
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BUSINESS SEGMENT INFORMATION
Revenues:
Instruments............................... $1,592,314 $1,209,362 $ 782,662
Alternative-energy Systems................ 384,923 339,813 325,912
Paper Recycling........................... 278,911 286,312 317,951
Biomedical Products....................... 590,234 455,890 316,622
Industrial Outsourcing.................... 305,508 273,894 210,503
Advanced Technologies..................... 415,016 375,459 323,567
Intersegment Sales Elimination (a)........ (8,586) (8,172) (6,926)
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
Income Before Income Taxes and Minority
Interest:
Instruments............................... $ 235,674 $ 138,869 $ 113,651
Alternative-energy Systems................ 68,501 38,112 32,952
Paper Recycling........................... 31,101 36,115 29,071
Biomedical Products....................... 52,634 16,444 27,167
Industrial Outsourcing.................... 13,896 17,709 21,215
Advanced Technologies..................... 35,197 28,040 23,842
---------- ---------- ----------
Total Segment Income (b).................. 437,003 275,289 247,898
Corporate (c)............................. 51,464 99,262 50,910
---------- ---------- ----------
$ 488,467 $ 374,551 $ 298,808
========== ========== ==========
Identifiable Assets:
Instruments............................... $2,351,153 $1,924,400 $1,372,813
Alternative-energy Systems................ 873,407 617,154 695,849
Paper Recycling........................... 431,860 296,582 238,537
Biomedical Products....................... 992,719 691,836 596,467
Industrial Outsourcing.................... 389,980 396,901 335,726
Advanced Technologies..................... 466,004 389,586 301,059
Corporate (d)............................. 290,746 824,785 245,888
---------- ---------- ----------
$5,795,869 $5,141,244 $3,786,339
========== ========== ==========
Depreciation and Amortization:
Instruments............................... $ 54,993 $ 44,233 $ 25,257
Alternative-energy Systems................ 25,109 24,253 25,186
Paper Recycling........................... 7,438 5,333 5,228
Biomedical Products....................... 20,659 15,148 9,626
Industrial Outsourcing.................... 14,336 12,918 11,197
Advanced Technologies..................... 11,704 11,952 8,104
Corporate................................. 1,499 1,330 1,271
---------- ---------- ----------
$ 135,738 $ 115,167 $ 85,869
========== ========== ==========
Capital Expenditures:
Instruments............................... $ 29,198 $ 19,134 $ 10,313
Alternative-energy Systems (e)............ 26,588 42,537 14,024
Paper Recycling........................... 4,097 4,265 3,686
Biomedical Products....................... 24,898 29,731 9,768
Industrial Outsourcing.................... 17,936 18,710 19,499
Advanced Technologies..................... 7,550 9,412 6,266
Corporate................................. 1,338 752 460
---------- ---------- ----------
$ 111,605 $ 124,541 $ 64,016
========== ========== ==========
</TABLE>
F-32
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHICAL INFORMATION
Revenues:
United States............................. $2,723,254 $2,171,879 $1,790,058
United Kingdom............................ 417,072 312,522 156,863
Other Europe.............................. 558,828 536,496 353,595
Other..................................... 154,390 146,998 117,354
Transfers among geographical areas (a).... (295,224) (235,337) (147,579)
---------- ---------- ----------
$3,558,320 $2,932,558 $2,270,291
========== ========== ==========
Income Before Income Taxes and Minority
Interest:
United States............................. $ 339,871 $ 212,341 $ 201,815
United Kingdom............................ 35,265 11,359 5,609
Other Europe.............................. 47,281 32,813 26,835
Other..................................... 14,586 18,776 13,639
---------- ---------- ----------
Total Segment Income (b).................. 437,003 275,289 247,898
Corporate (c)............................. 51,464 99,262 50,910
---------- ---------- ----------
$ 488,467 $ 374,551 $ 298,808
========== ========== ==========
Identifiable Assets:
United States............................. $4,165,197 $3,372,448 $2,939,286
United Kingdom............................ 704,314 340,005 171,438
Other Europe.............................. 551,500 516,558 340,289
Other..................................... 104,087 87,449 89,439
Corporate (d)............................. 270,771 824,784 245,887
---------- ---------- ----------
$5,795,869 $5,141,244 $3,786,339
========== ========== ==========
Export Sales Included in United States
Revenues Above (f)........................ $ 593,850 $ 436,972 $ 340,736
========== ========== ==========
</TABLE>
- --------
(a) Intersegment sales and transfers among geographical areas are accounted
for at prices that are representative of transactions with unaffiliated
parties.
(b) Segment income is income before corporate general and administrative
expenses, other income and expense, minority interest expense, and income
taxes.
(c) Includes corporate general and administrative expenses, other income and
expense, and gain on issuance of stock by subsidiaries.
(d) Primarily cash and cash equivalents, short- and long-term investments, and
property and equipment at the Company's Waltham, Massachusetts,
headquarters.
(e) Includes $36.9 million in 1996 for the construction of a coal-
beneficiation plant in Gillette, Wyoming.
(f) In general, export revenues are denominated in U.S. dollars.
F-33
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC
Net income...................................... $239,328 $190,816 $139,582
-------- -------- --------
Weighted average shares......................... 152,489 141,525 126,626
-------- -------- --------
Basic earnings per share........................ $ 1.57 $ 1.35 $ 1.10
======== ======== ========
DILUTED
Net income...................................... $239,328 $190,816 $139,582
Effect of:
Convertible debentures........................ 18,814 23,523 15,561
Majority-owned subsidiaries' dilutive
securities................................... (9,925) (8,084) (5,177)
-------- -------- --------
Income available to common shareholders, as
adjusted....................................... $248,217 $206,255 $149,966
-------- -------- --------
Weighted average shares......................... 152,489 141,525 126,626
Effect of:
Convertible debentures........................ 21,596 31,735 30,023
Stock options................................. 1,997 2,345 1,913
-------- -------- --------
Weighted average shares, as adjusted............ 176,082 175,605 158,562
-------- -------- --------
Diluted earnings per share...................... $ 1.41 $ 1.17 $ .95
======== ======== ========
</TABLE>
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 January 3, 1998, there were 1,058,100
of such options outstanding, with exercise prices ranging from $39.43 to $43.46
per share.
F-34
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1997(A)
Revenues.................................. $763,505 $875,016 $909,850 $1,009,949
Gross profit.............................. 296,365 358,538 374,041 412,368
Net income................................ 52,058 56,158 61,859 69,253
Earnings per share:
Basic................................... .35 .37 .41 .44
Diluted................................. .31 .34 .36 .40
1996(B)
Revenues.................................. $652,385 $745,759 $739,981 $ 794,433
Gross profit.............................. 244,381 281,697 296,627 307,284
Net income................................ 41,023 44,919 51,242 53,632
Earnings per share:
Basic................................... .31 .32 .36 .36
Diluted................................. .26 .28 .31 .32
</TABLE>
- --------
(a) Results include nontaxable gains of $33.7 million, $15.2 million, $18.6
million, and $12.6 million in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
(b) Results include nontaxable gains of $28.9 million, $43.5 million, $38.5
million, and $15.7 million in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
F-35
<PAGE>
$1,000,000,000
THERMO ELECTRON CORPORATION
COMMON STOCK AND DEBT SECURITIES
----------------
Thermo Electron Corporation (the "Company") may offer and sell from time to
time, together or separately, shares of its common stock, $1.00 par value per
share (the "Common Stock"), and its debt securities ("Debt Securities"), which
may be either senior debt securities ("Senior Securities") or subordinated
debt securities ("Subordinated Securities"), consisting of debentures, notes
and/or other unsecured evidences of indebtedness. The Common Stock and the
Debt Securities in one or more series (collectively, the "Securities") may be
offered, separately or together, at prices and terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement") up to an
aggregate initial offering price of $1,000,000,000. Any Debt Securities sold
hereunder will be denominated in U.S. dollars. Specific terms of the
Securities for which this Prospectus is being delivered will be set forth in
the applicable accompanying Prospectus Supplement including, where applicable,
(i) in the case of Debt Securities, the specific designation, aggregate
principal amount, denominations, maturity, premium, rate of interest (or
method of calculation thereof) and time of payment thereof, terms for
redemption at the option of the Company or the holder, terms for any sinking
fund payments, subordination provisions, if any, terms, if any, providing for
conversion of the Debt Securities into Common Stock, the form of the Debt
Securities (which may be registered or bearer, or certificated or global), the
initial public offering price and certain other terms of the offering and sale
of the Debt Securities in respect of which this Prospectus is being delivered;
and (ii) in the case of Common Stock, the number of shares and initial public
offering price of the Common Stock and certain terms of the offering and sale
thereof. The Prospectus Supplement may also contain information, as
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities for which the
Prospectus Supplement is being delivered. The Common Stock is listed on the
New York Stock Exchange. Any Common Stock offered will be listed, subject to
notice of issuance, on such exchange.
The Securities may be sold by the Company directly or indirectly through
agents, underwriters or dealers as designated from time to time, or through a
combination of such methods. See "Plan of Distribution." The applicable
accompanying Prospectus Supplement will set forth the names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them. See "Plan of Distribution" for
possible indemnification arrangements with underwriters, dealers and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENCE.
----------------
The date of this Prospectus is March 12, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549; and at the Commission's regional offices at 500 West
Madison Street, Chicago, Illinois 60661; and 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission, including the Company; the address of such Web site is
http://www.sec.gov. The Common Stock is listed on the New York Stock Exchange,
and such material that relates to the Company may also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus constitutes a part. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
1-8002) are hereby incorporated by reference into this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended January 3, 1998;
(b) The description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A filed under the Exchange Act,
as such description may be amended from time to time; and
(c) The description of the Company's Preferred Stock Purchase Rights
which is contained in the Company's Registration Statement on Form 8-A
filed under the Exchange Act, as such description may be amended from time
to time.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained
herein or in a document all or any portion of which is incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
earlier statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than certain exhibits to such documents). Requests for such copies
should be directed to Sandra L. Lambert, Secretary, Thermo Electron
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046
(telephone: (781) 622-1000).
RISK FACTORS
In addition to the other information in this Prospectus and the applicable
Prospectus Supplement, prospective purchasers of the Securities offered hereby
should carefully consider the risk factors set forth in the Company's most
recent Annual Report on Form 10-K.
3
<PAGE>
THE COMPANY
The Company, a Delaware corporation, was founded in 1956, completed its
initial public offering in 1967, and was listed on the New York Stock Exchange
in 1980. The principal executive office of the Company is located at 81 Wyman
Street, Waltham, Massachusetts 02254-9046 (telephone: 781-622-1000).
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities will be used by the Company for
general corporate purposes, which may include repayment of outstanding
indebtedness, capital expenditures, working capital requirements, research and
development, repurchase of its Common Stock and other securities and the
securities of any of its subsidiaries through open-market purchases or
otherwise, and possible future acquisitions. The precise amount and timing of
the application of such proceeds will depend upon the funding requirements of
the Company, and the availability and cost of other funds. Pending these uses,
the Company expects to invest the net proceeds primarily in investment grade
interest or dividend bearing instruments.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES OF THE COMPANY
The following description sets forth certain general terms and provisions of
the Debt Securities of the Company to which any Prospectus Supplement may
relate. The particular terms of the Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may not
apply to the Debt Securities so offered will be described in the Prospectus
Supplement relating to such Debt Securities.
The Debt Securities constitute either senior Debt Securities (the "Senior
Securities") or subordinated Debt Securities (the "Subordinated Securities").
The Senior Securities are to be issued under an Indenture (the "Senior
Indenture"), to be entered into between the Company and Bankers Trust Company,
as trustee (the "Trustee"), the form of which Senior Indenture is filed as an
exhibit to the Registration Statement containing this Prospectus. The
Subordinated Securities will be issued under an Indenture (the "Subordinated
Indenture"), to be entered into between the Company and Bankers Trust Company,
as trustee (in such capacity, also the "Trustee"), the form of which
Subordinated Indenture is also filed as an exhibit to the Registration
Statement containing this Prospectus. The Senior Indenture and the
Subordinated Indenture are sometimes collectively referred to herein as the
"Indentures."
The following summary of certain provisions of the Debt Securities and the
Indentures does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Indentures, including
the definitions therein of certain terms. Wherever particular provisions or
defined terms of the Indentures are referred to, such provisions or defined
terms are incorporated herein by reference. Certain defined terms in the
Indentures are capitalized herein. Article or section references in
parentheses are to the applicable Indenture. References in this section to the
"Company" are solely to Thermo Electron Corporation and not to any of its
subsidiaries.
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "U.S. Dollars"
or "dollars").
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may
be issued thereunder up to an aggregate principal amount that may be
authorized from time to time by the Company. Debt Securities may be issued in
one or more series thereunder. The Senior Securities will be unsecured
obligations of the Company and will rank on a parity with all other unsecured
and unsubordinated indebtedness of the Company. Unless otherwise indicated in
the applicable Prospectus Supplement, the Subordinated Securities will be
unsecured and subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, in the manner and to the extent described
below under "Subordination of Subordinated Securities." The Company's rights
as a stockholder and the rights of its creditors, including holders of the
Debt Securities, to participate in the assets of any of the Company's
subsidiaries, as the case may be, upon a subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for specific terms, including (where
applicable): (1) the title or designation of such Debt Securities and the
series in which such Debt Securities shall be included; (2) the aggregate
principal amount of such Debt Securities and any limit on such aggregate
principal amount and the price or prices (expressed as a percentage of the
principal amount thereof) at which such Debt Securities will be issued; (3) if
there is more than one Trustee, the identity of the Trustees and, if not the
Trustee, the identity of each Security Registrar, and the identity of each
Paying Agent,
5
<PAGE>
Conversion Agent or Authenticating Agent with respect to the Debt Securities;
(4) the date or dates on which the principal of and premium, if any, on such
Debt Securities will be payable, or the method or methods, if any, by which
such date or dates will be determined; (5) the rate or rates (which may be
fixed or variable) at which such Debt Securities will bear interest, if any,
or the method or methods, if any, by which such rate or rates are to be
determined, the date or dates, if any, from which such interest will accrue or
the method or methods, if any, by which such date or dates are to be
determined, the interest payment dates, if any, on which such interest shall
be payable and the record dates, if any, for the interest payable on Debt
Securities in registered form on any interest payment dates, whether and under
what circumstances Additional Amounts on such Debt Securities will be payable,
and the basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months; (6) if the Debt Securities are to be
issuable in global form and are to be issuable in definitive form (whether
upon original issue or upon exchange of a temporary Debt Security) only upon
receipt of certain certificates or other documents or satisfaction of other
conditions, then the terms of such certificates, documents or conditions; (7)
the place or places where the principal of, premium, if any, and any interest
or any Additional Amounts with respect to such Debt Securities shall be
payable, the place or places where such Debt Securities may be surrendered for
registration of transfer and exchange, and the place or places of transfer,
exchange or conversion in the circumstances described in the Prospectus
Supplement or in the Indentures, if other than The City of New York; (8) the
period or periods within which, the price or prices at which and the other
terms and conditions upon which such Debt Securities may be redeemed at the
option of the Company; (9) the obligation, if any, of the Company to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof and the period or
periods within which, the price or prices at which, and the terms and
conditions upon which such Debt Securities shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation; (10) whether any
such Debt Securities are to be issuable in registered form ("Registered
Securities") or bearer form ("Bearer Securities") or both and, if in bearer
form, the terms and conditions relating thereto, including whether interest in
respect of any portion of a temporary Bearer Security in global form payable
in respect of an interest payment date therefor prior to the Exchange Date
shall be paid to any clearing organization with respect to the portion of such
temporary Bearer Security held for its account and any further terms and
conditions relating to the crediting of such interest payments to the persons
entitled thereto, and any limitations on issuance of such Bearer Securities
(including in exchange for registered Debt Securities of the same series);
(11) the authorized denominations in which Debt Securities will be issuable,
if other than denominations of $1,000 and any integral multiple thereof (in
the case of Registered Securities) or $1,000 or $10,000 (in the case of Bearer
Securities); (12) the terms, if any, on which such Debt Securities may be
exchanged for or converted into other securities of the Company; (13) whether
any such Debt Securities will be issued in temporary or permanent global form
and, if so, the identity of the depository or depositories for such global
Debt Security; (14) the index, formulas or other method, if any, with
reference to which the amount of any payment of principal of, premium, if any,
or interest on or any Additional Amounts with respect to the Debt Securities
will be determined; (15) the portion of the principal amount of such Debt
Securities which will be payable upon declaration of acceleration of the
Maturity thereof, if other than the stated principal amount thereof; (16) any
addition to, or modification or deletion of, any covenant or Event of Default
with respect to such Debt Securities; (17) the terms, if any, upon which Debt
Securities may be exchangeable for other Securities; (18) in the case of an
issue of Subordinated Securities, the subordination provisions, if different
from those described under "Subordination of Subordinated Securities" below;
(19) the applicability of any provisions described below under "Discharge,
Defeasance and Covenant Defeasance;" (20) the date(s) that the Securities are
to be dated; and (21) any other terms of such Debt Securities not inconsistent
with the provisions of the Indentures. As used in this Prospectus and any
Prospectus Supplement relating to the offering of any Debt Securities,
references to the principal of and premium, if any, and interest, if any, on
Debt Securities will be deemed to include mention of the payment of Additional
Amounts, if any, required by the terms of Debt Securities in such context.
(Section 301)
6
<PAGE>
Under the Indenture, the terms of the Debt Securities of any series may
differ, and the Company, without the consent of the holders of the Debt
Securities of any series, may reopen a previous series of Debt Securities and
issue additional Debt Securities of such series. (Section 301)
Debt Securities may be issued at a discount from their stated principal
amount. United States Federal income tax considerations and other special
considerations applicable to any such Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Debt Securities may be issued that qualify as "Variable Rate Debt
Securities" for tax purposes. United States Federal income tax considerations
and other special considerations applicable to any such Variable Rate Debt
Securities will be described in the applicable Prospectus Supplement.
Debt Securities may also be issued that provide for the use of an index to
determine the amount of payments of principal of, premium, if any, or interest
on the series of which such Debt Securities are a part, but which do not
qualify as Variable Rate Debt Securities. Special Federal income tax,
accounting and other considerations applicable to such Indexed Securities will
be described in the applicable Prospectus Supplement.
SUBORDINATION OF SUBORDINATED SECURITIES
The Subordinated Securities will be subordinated in right of payment to the
prior payment in full of all existing and future Senior Indebtedness of the
Company. Senior Indebtedness of the Company is defined for this purpose as the
principal of, premium, if any, and interest and other amounts due on or with
respect to the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred or created: (a) indebtedness of
the Company for money borrowed by the Company (including, without limitation,
purchase money obligations and money borrowed from any of its affiliates),
whether or not evidenced by debentures, bonds, notes or other corporate debt
securities or similar instruments issued by the Company; (b) obligations to
reimburse any bank or other person in respect of amounts paid under letters of
credit; (c) leases of real property, equipment or other assets, which leases
are capitalized in the Company's financial statements in accordance with
generally accepted accounting principles; (d) commitment, standby and other
fees due and payable to financial institutions with respect to credit
facilities available to the Company; (e) obligations of the Company under
interest rate and currency swaps, floors, caps or other similar arrangements
intended to hedge interest rates or currency exposure; (f) obligations secured
by any mortgage, pledge, lien or other encumbrance on property which is owned
or held by the Company subject to such mortgage, pledge, lien or other
encumbrance, whether or not the obligations secured thereby shall have been
assumed by the Company; (g) obligations of the Company constituting guarantees
of indebtedness of or joint obligations with another or others which would be
included in the preceding clauses (a), (b), (c), (d), (e) or (f); and (h)
modifications, renewals, extensions or refundings of any of the indebtedness,
leases, fees or obligations referred to in the preceding clauses (a), (b),
(c), (d), (e), (f) or (g) or debentures, notes or other evidences of
indebtedness issued in exchange therefor; provided that Senior Indebtedness
shall not include any particular indebtedness, lease, fee or obligation,
modification, renewal, extension, refunding or exchanged securities if, under
the express provisions of the instrument creating or evidencing the same, or
pursuant to which the same is outstanding, such indebtedness, lease, fee or
obligation or such modification, renewal, extension or refunding thereof or
exchanged securities are stated to be not superior in right of payment to the
Subordinated Securities. (Article Seventeen of the Subordinated Indenture) The
Subordinated Securities will rank pari passu with each other. The obligations
represented by the Subordinated Securities may rank pari passu with certain
other obligations of the Company, if so indicated in the applicable Prospectus
Supplement.
Upon (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relative to the Company
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or its creditors, as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit or creditors or any other marshaling of assets and
liabilities of the Company, all principal of, premium, if any, and interest
due upon all Senior Indebtedness must be paid in full before the Holders of
the Subordinated Securities or the Trustee are entitled to receive or retain
any assets so distributed in respect of the Subordinated Securities. (Section
1702) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, such Senior Indebtedness shall first be paid in
full, or duly provided for in cash, before any payment is made by the Company,
directly or indirectly, on the Subordinated Securities. Upon the happening of
any event of default with respect to any Senior Indebtedness, as defined
therein or in the instrument under which it is outstanding, permitting the
holders to accelerate the maturity thereof, then, unless and until such event
of default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company, directly or indirectly, on account of
the principal of, premium, if any or interest on the Subordinated Securities
and any Coupons appertaining thereto. (Section 1703) By reason of these
provisions, in such events, Holders of the Subordinated Securities may recover
less, ratably, than other creditors of the Company, including holders of
Senior Indebtedness.
Subject to payment in full of all Senior Indebtedness of the Company, the
rights of Holders of the Subordinated Securities will be subrogated to the
rights of holders of Senior Indebtedness to receive payments or distributions
of cash, property or securities of the Company applicable to Senior
Indebtedness. (Section 1705)
The Subordinated Indenture places no limitation on the amount of additional
Senior Indebtedness or any other indebtedness that may be incurred by the
Company. The Company expects from time to time to incur additional
indebtedness, including Senior Indebtedness.
STRUCTURAL SUBORDINATION
The obligations represented by the Debt Securities are obligations
exclusively of the Company and not of its subsidiaries. Because the operations
of the Company are, in large part, conducted through subsidiaries, the cash
flow and the consequent ability to service debt of the Company, including the
obligations represented by the Debt Securities, are dependent, in part, upon
the earnings of its subsidiaries and the distribution of those earnings to the
Company or upon loans or other payments of funds by those subsidiaries to the
Company. Pursuant to the Thermo Electron Corporate Charter, to which the
Company and each of its majority-owned subsidiaries is a party (the
"Charter"), the combined financial resources of the Company and its
subsidiaries allow the Company to provide banking, credit, and other financial
services to its subsidiaries so that each member of the Thermo Electron group
of companies may benefit from the financial strength of the entire
organization. Toward that end, the Charter states that each member of the
group may be required to provide certain credit support to the consolidated
entity. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions is
subject in each instance to a fiduciary duty owed to the minority stockholders
of the relevant subsidiary. The subsidiaries are separate and distinct legal
entities and, except as provided in the Charter, have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Debt
Securities or to make any funds available therefor, whether by dividends,
loans or other payments. In addition, the payment of dividends and the making
of loans and advances to the Company by its subsidiaries may be subject to
statutory restrictions, and dividends paid by a subsidiary that does not
consolidate with the Company for tax purposes will be subject to taxation.
The obligations represented by the Debt Securities will be effectively
subordinated to all indebtedness and other liabilities, including current
liabilities and commitments under leases, if any, of the Company's
subsidiaries. Any right of the Company to receive assets of any of its
subsidiaries
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upon liquidation or reorganization of such subsidiary (and the consequent
right of the holders of the Debt Securities to participate in those assets)
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of
such subsidiary, in which case the claims of the Company would still be
subject to any security interests in the assets of such subsidiary and
subordinated to any indebtedness of such subsidiary senior to that held by the
Company. In addition, any minority stockholder of such subsidiary would be
entitled to participate in the assets of such subsidiary on the same terms as
the Company.
CONVERSION RIGHTS
Unless otherwise indicated in an applicable Prospectus Supplement, the
following provisions shall be applicable with respect to any Debt Security
that is convertible into Common Stock (a "Convertible Debt Security").
The Holder of any Convertible Debt Security will have the right, at the
Holder's option, to convert any portion of the principal amount of a
Convertible Debt Security that is an integral multiple of $1,000 into shares
of Common Stock at any time on or after (a) in the case of all Convertible
Debt Securities other than a temporary global Bearer Security, its date of
issuance and (b) in the case of Convertible Debt Securities represented by a
temporary global Bearer Security, the receipt of definitive Convertible Debt
Securities, and prior to the close of business on the maturity date, unless
previously redeemed or repurchased, at the Conversion Price per share set
forth in an applicable Prospectus Supplement (subject to adjustment as
described below). The right to convert a Convertible Debt Security called for
redemption or delivered for repayment will terminate at the close of business
on the fifth business day prior to the redemption date for such Convertible
Debt Security or the second business day preceding the repayment date, as the
case may be, unless the Company defaults in making the payment due upon
redemption or repayment, as the case may be. (Section 1201)
The right of conversion attaching to any Convertible Debt Security may be
exercised by the Holder by delivering the Convertible Debt Security at the
specified office of a Conversion Agent (which in the case of a Convertible
Debt Security which is a Bearer Debt Security (a "Bearer Convertible Debt
Security") will only be the office of any Conversion Agent outside the United
States), accompanied by a duly signed and completed notice of conversion. The
Conversion Date will be the date on which the Convertible Debt Security and
the duly signed and completed notice of conversion are so delivered. As
promptly as practicable on or after the Conversion Date, the Company will
issue and deliver to the Trustee a certificate or certificates for the number
of full shares of Common Stock issuable upon conversion, together with payment
in lieu of any fraction of a share; such certificate will be sent by the
Trustee to the appropriate Conversion Agent for delivery to the Holder.
Accrued interest from the immediately preceding interest payment date until
the Conversion Date will be paid within five business days after the
Conversion Date. Each Bearer Convertible Debt Security delivered for
conversion must be delivered with all Coupons maturing after the Conversion
Date. Coupons maturing on or before the Conversion Date and not in default
will be payable against surrender thereof, and Coupons so maturing but in
default will continue to be payable as set forth in the Indenture,
notwithstanding the exercise of the right of conversion by the Holder of the
Convertible Debt Security to which the Coupons appertain, but Coupons maturing
after the Conversion Date will not be paid. In the case of any Convertible
Debt Security that is a Registered Debt Security which has been converted
after any Regular Record Date but on or prior to the next Interest Payment
Date (other than any such Registered Debt Security whose Maturity is prior to
such Interest Payment Date), interest the Stated Maturity of which is on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest shall be paid to the Holder
of such Registered Convertible Debt Security on such Regular Record Date. No
other payment or adjustment for interest, or for any dividends in respect of
Common Stock, will be made upon conversion. Holders of Common Stock issued
upon conversion will not be entitled to receive any
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dividends payable to holders of Common Stock as of any record time before the
close of business on the Conversion Date. No fractional shares will be issued
upon conversion, but in lieu thereof, an appropriate amount will be paid in
cash by the Company based on the market price of the Common Stock at the close
of business on the day of conversion. (Sections 307, 1202 and 1203)
A Holder delivering a Convertible Debt Security for conversion will not be
required to pay any stamp and similar taxes or duties in respect of the issue
or delivery of Common Stock on conversion but will be required to pay any tax
or duty which may be payable in respect of any transfer involved in the issue
or delivery of the Common Stock in a name other than that of the Holder of the
Convertible Debt Security. Certificates representing shares of Common Stock
will not be issued or delivered unless all taxes and duties, if any, payable
by the Holder have been paid. (Sections 1202 and 1208)
The Conversion Price is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock
of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price (determined as
provided in the Indenture) of the Common Stock, (c) subdivisions, combinations
and reclassifications of Common Stock and (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, cash or assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to above, dividends and
distributions paid exclusively in cash out of the consolidated retained
earnings of the Company and mergers and consolidations to which the last
paragraph of this section applies). The Company reserves the right to make
such reductions in the Conversion Price in addition to those required in the
foregoing provisions as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. No adjustment of the Conversion Price
will be required to be made until the cumulative adjustments amount to 1.0% or
more of the Conversion Price. (Section 1204) Notices of any adjustments to the
Conversion Price pursuant to this paragraph will be given to all Holders in
the manner required in the Indenture. (Section 1205)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to the stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Convertible Debt
Securities are convertible is increased, such increase may be deemed for
federal income tax purposes to be the payment of a taxable dividend to Holders
of Convertible Debt Securities.
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all
or substantially all of the assets of the Company, each Convertible Debt
Security then outstanding will, without the consent of the Holder of any
Convertible Debt Security or Coupon, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Convertible Debt Security was convertible
immediately prior thereto (assuming such holder of Common Stock failed to
exercise any rights of election and that such Convertible Debt Security was
then convertible). (Section 1211)
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENTS
The Indentures provide that the Company may issue Debt Securities in
registered form only, in bearer form only, or in both registered and bearer
form.
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Unless otherwise indicated in the applicable Prospectus Supplement,
Registered Securities will be issued in denominations of $1,000 or any
integral multiple thereof, without interest Coupons, and definitive Bearer
Securities will be issued in denominations of $1,000 and $10,000, with
interest Coupons attached. (Section 302)
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal, premium, if any, and interest on the Registered Securities will be
payable, Registered Securities may be surrendered for registration of transfer
or exchange and Registered Securities may be surrendered for conversion at an
office or agency to be maintained by the Company in the Borough of Manhattan,
The City of New York, provided that payments of interest with respect to any
Registered Security may be made at the option of the Company by check mailed
to the address of the person entitled thereto or by transfer to an account
maintained by the payee with a bank located in the United States. No service
charge shall be made for any registration of transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge and any other expenses that may be
imposed in connection therewith, except in certain circumstances. (Sections
305, 307 and 1002)
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest on Bearer Securities will be
made, and Bearer Securities may be presented for conversion, subject to any
applicable laws and regulations, at such office or agency outside the United
States as is specified in the applicable Prospectus Supplement and as the
Company may designate from time to time. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest due on Bearer Securities
on any Interest Payment Date will be made only against surrender of the Coupon
relating to such Interest Payment Date. Unless otherwise indicated in the
applicable Prospectus Supplement, no payment of principal, premium or interest
or surrender for conversion with respect to any Bearer Security will be made
at any office or agency in the United States or by check mailed to any address
in the United States or by transfer to an account maintained with a bank
located in the United States; provided, however, that payment with respect to
Bearer Securities may be made and any Bearer Securities may be surrendered for
conversion, if applicable, at the Corporate Trust Office of the applicable
Trustee or at any office or agency designated by the Company in the Borough of
Manhattan, The City of New York, if (but only if) payment of the full amount
of such principal, premium or interest or the surrender of Bearer Securities
for conversion at all offices outside of the United States maintained for such
purpose by the Company is illegal or effectively precluded by exchange
controls or similar restrictions. (Sections 307 and 1002)
Unless otherwise indicated in the applicable Prospectus Supplement, Bearer
Securities (provided that all unmatured related Coupons and matured related
Coupons in default are attached) will be exchangeable for an equal aggregate
principal amount of Registered Securities of the same series in denominations
of $1,000 and integral multiples thereof without Coupons, and Registered
Securities will be exchangeable for an equal aggregate principal amount of
Registered Securities of different denominations, in each case without service
charge (other than the cost of delivery) but upon payment of any taxes and
other governmental charges, except in certain circumstances. Bearer Securities
may be exchanged for Registered Securities of the same series by surrender of
such Bearer Securities to be exchanged at any applicable Office or Agency for
such series, with all unmatured Coupons and all matured Coupons in default
thereto appertaining. If and so long as Registered Securities of a series are
represented solely by a global Debt Security (see "Global Securities" below),
a Bearer Security may be exchanged for a beneficial interest in such global
Debt Security only by and through a DTC Participant (as defined in "Global
Securities" below). In case a Bearer Security of any series is surrendered at
any such Office or Agency for such series in exchange for a Registered
Security of such series and like tenor after the close of business at such
Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the relevant Interest Payment Date, or
(ii) any Special Record Date and before the opening of
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business at such Office or Agency on the related date for payment of Defaulted
Interest, such Bearer Security shall be surrendered without the Coupon
relating to such Interest Payment Date or proposed date for payment of
Defaulted Interest, as the case may be, and interest or Defaulted Interest, as
the case may be, shall not be payable on such Interest Payment Date or
proposed date for payment of Defaulted Interest, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer
Security, but shall be payable only to the Holder of such Coupon when due in
accordance with the provisions of the Indentures. Unless otherwise indicated
in the applicable Prospectus Supplement, Registered Securities will not be
exchangeable for Bearer Securities. Registered Securities shall be registered
as provided in the Indenture. (Section 305)
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company shall not be required (i) to issue, register the transfer of or
exchange any Debt Securities during a period beginning at the opening of
business 15 days before the day of the selection for redemption of such Debt
Securities and ending at the close of business on the day of such selection,
or (ii) to register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of any Debt
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except, to
the extent provided with respect to such Bearer Security, that such Bearer
Security may be exchanged for a Registered Security of like tenor and the same
series, provided that such Registered Security shall be immediately
surrendered for redemption with written instruction for payment consistent
with the provisions of Indenture or (iv) to issue, register the transfer of or
exchange any Debt Security which, in accordance with its terms, has been
surrendered for repayment at the option of the holder of such Debt Security,
except the portion, if any, of such Security not to be so repaid. (Section
305)
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in the form of one or
more global securities, each of which will be deposited with, or on behalf of,
a depository (a "Depository"). Global Debt Securities may be issued in either
registered or bearer form and in either temporary or permanent form. The
Company anticipates that Bearer Securities will be represented initially by a
temporary global Debt Security in bearer form, without interest Coupons or
conversion rights, which will be deposited on the applicable closing date on
behalf of subscribers for the Bearer Securities represented thereby with a
common depository in London for their respective accounts at Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear
Clearance System ("Euroclear"), or Cedel Bank, S.A. ("Cedel"). Upon deposit of
the temporary global Debt Security, Euroclear or Cedel, as the case may be,
will credit each subscriber with a principal amount of Bearer Securities equal
to the principal amount thereof for which it has subscribed and paid. The
temporary global Debt Security will be exchangeable for definitive Bearer
Securities in denominations of $1,000 and $10,000 or other authorized
denominations, each with related interest Coupons attached, or Registered
Securities in denominations of $1,000 or an integral multiple thereof, if
permitted by the rules and procedures then in effect of Cedel, Euroclear and
The Depository Trust Company ("DTC"), commencing on the exchange date
specified in the applicable Prospectus Supplement (the "Exchange Date"), if
permitted. Exchange for definitive Bearer Securities will be made only upon
certification that the beneficial owners of such Bearer Securities are not
United States persons (as defined below) or other persons who have purchased
such Bearer Securities for resale to United States persons. No Bearer Debt
Security so delivered in exchange will be mailed or otherwise delivered to any
location in the United States. The temporary global Debt Security will be
exchangeable for Registered Securities in denominations of $1,000 or an
integral multiple thereof at any time without certification of non-U.S.
status; provided that such exchange is permitted by the rules and procedures
then in effect of Cedel and Euroclear, and provided, further, that if and so
long as Registered Securities of a series are represented solely by a global
Debt Security, such exchange may be effected only by and through a DTC
Participant (as defined below). A beneficial owner must
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exchange its share of the global Debt Security in bearer form for definitive
Debt Securities, in either registered or bearer form, before payments can be
collected or conversion rights exercised. (Section 304) Any additional or
differing terms of the depository arrangements will be described in the
Prospectus Supplement relating to a particular series of Debt Securities
issued in the form of temporary global Debt Securities.
In addition, the Company anticipates that any global Debt Security in
registered form will be deposited with, or on behalf of DTC, and that such
global Debt Security will be permanent and will be registered in the name of
Cede & Co., DTC's nominee. The Company further anticipates that the following
provisions will apply to the Depository arrangements with respect to any such
global Debt Security in registered form. Any additional or differing terms of
the depository arrangements will be described in the Prospectus Supplement
relating to a particular series of Debt Securities issued in the form of
global Debt Securities.
So long as DTC or its nominee is the registered owner of a global Debt
Security, DTC or its nominee, as the case may be, will be considered the sole
Holder of the Debt Securities represented by such global Debt Security for all
purposes under the applicable Indenture. Except as described below, owners of
beneficial interests in a global Debt Security will not be entitled to have
Debt Securities represented by such global Debt Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities in definitive form and will not be considered the owners or Holders
thereof under the applicable Indenture. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form; accordingly, such laws may limit the transferability of
beneficial interests in a global Debt Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
global Debt Security in registered form will be exchangeable for definitive
Registered Securities of the same series only if (i) DTC notifies the Company
that it is unwilling or unable to continue as Depository or DTC ceases to be a
clearing agency registered under the Exchange Act (if so required by
applicable law or regulation) and, in either case, a successor Depository is
not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such ineligibility, (ii) the Company in its sole
discretion determines that the global Debt Securities shall be exchangeable
for definitive Registered Securities and delivers a Company Order to the
Trustee to such effect or (iii) there shall have occurred and be continuing an
Event of Default under the Indenture with respect to the Debt Securities of
any series. Upon any such exchange, owners of a beneficial interest in the
global Debt Security or Securities in registered form will be entitled to
physical delivery of individual Debt Securities in definitive form of like
tenor, terms and rank, equal in principal amount to such beneficial interest,
and to have such Debt Securities in definitive form registered in the names of
the beneficial owners, which names shall be provided by DTC's relevant
participants (as identified by DTC) to the Trustee. Unless otherwise described
in the applicable Prospectus Supplement, Debt Securities so issued in
definitive form will be issued in denominations of $1,000 or any integral
multiple thereof, and will be issued in registered form only, without Coupons.
(Section 305)
The following is based on information furnished to the Company:
DTC will act as securities Depository for the global Debt Securities in
registered form. These Debt Securities will be issued as fully Registered
Securities registered in the name of Cede & Co. (DTC's partnership nominee).
One fully registered Debt Security certificate will be issued and deposited
with DTC with respect to each series of Debt Securities, each in the aggregate
principal amount of such series (except that if the aggregate principal amount
of a series of Debt Securities exceeds $200 million (or such other amount as
shall be permitted by DTC from time to time) one certificate will be issued
with respect to each $200 million of principal amount and an additional
certificate will be issued with respect to any remaining principal amount of
such series).
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner will not receive written
confirmation from DTC of its purchase, but is expected to receive a written
confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Debt Securities are accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Debt Securities, except in the event that use of the
book-entry system for the Debt Securities is discontinued.
To facilitate subsequent transfers, the Debt Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of the Debt Securities with DTC and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC
has no knowledge of the actual Beneficial Owners of the Debt Securities; DTC
records reflect only the identity of the Direct Participants to whose accounts
such Debt Securities are credited, which may or may not be the Beneficial
Owners. The Participants remain responsible for keeping account of their
holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if any,
on the registered Debt Securities in global form will be made to Cede & Co.
DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt
of funds and corresponding detail information from the issuer, on the payment
date in accordance with their respective holdings as shown on DTC's records.
Payments by Direct and Indirect Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of
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customers in bearer form or registered in "street name", and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
Trustee, or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal (premium, if any)
and interest, if any, to Cede & Co. is the responsibility of the Company or
the Trustee, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to DTC. If less than all of
the Debt Securities of a series represented by global Debt Securities in
registered form are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such issue to be
redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the global Debt Security repaid by
the Company, through its Participant, to the Trustee, and shall effect
delivery of such interest in a global Debt Security by causing the Direct
Participant to transfer the Participant's interest in the global Debt Security
or Securities representing such interest, on DTC's records, to such Trustee.
The requirement for physical delivery of Debt Securities in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
global Debt Security or Securities representing such Debt Securities are
transferred by Direct Participants on DTC's records and followed by a book-
entry credit of the tendered Debt Securities to the Trustee's account.
DTC may discontinue providing its services as Depository with respect to the
Debt Securities at any time by giving reasonable notice to the Company or the
Trustee. Under such circumstances, in the event that a successor Depository is
not appointed, Debt Security certificates are required to be printed and
delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor Depository). In that event, Debt
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
None of the Company, the Trustee or any applicable paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a global Debt Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interest.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States tax laws and regulations, Bearer Securities
may not be offered or sold prior to the Exchange Date specified in the
applicable Prospectus Supplement, or at any time if part of a distributor's
unsold allotment, to a person who is within the United States or to a United
States person other than (i) certain financial institutions located outside
the United States that agree in writing to comply with the requirements of
Section 165(j)(3)(A), (B), or (C) of the United States Internal Revenue Code
of 1986, as amended (the "Code") and the regulations thereunder, (ii) the
United States offices of exempt distributors, or (iii) United States offices
of international organizations or foreign central banks. United States tax
laws and regulations also require that Bearer Securities not be mailed or
otherwise delivered to any location in the United States. Any underwriters,
agents and dealers participating in the offering of Debt Securities must
covenant that they will not offer or
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sell during the applicable restricted period (as defined in the Code and the
regulations thereunder) any Bearer Securities within the United States or to
United States persons (other than the persons described above) or deliver in
connection with the sale of Bearer Securities during the restricted period any
Bearer Securities within the United States, and that they have in effect
procedures reasonably designed to ensure that their employees and agents who
are directly engaged in selling the Bearer Securities are aware of the
restrictions described above. No definitive Bearer Security will be delivered
in connection with its original issuance nor will interest be paid on any
Bearer Security until receipt of written certification of non-U.S. status
described above under "--Global Securities."
As used herein, "United States person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or
organized in or under the laws of the United States, any estate, the income of
which is subject to United States federal income taxation regardless of its
source, and any trust if a court within the United States is able to exercise
primary supervision of the administration thereof and one or more United
States persons has the authority to control all substantial decisions thereof,
or any other person included within the definition of United States person
under the Code and the regulations thereunder; and "United States" means the
United States of America (including the states thereof and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction. Purchasers of Bearer Securities will be subject to certification
procedures and may be affected by certain limitations under United States tax
laws. (Section 101)
Unless otherwise indicated in the applicable Prospectus Supplement, the
temporary global Bearer Security and the definitive Bearer Securities and
interest Coupons will bear the following legend: "Any United States person who
holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the United States Internal Revenue Code." The sections referred to
in such legend provide that any United States person holding a Bearer Security
or interest Coupon, with certain limited exceptions, will not be entitled to
deduct any loss incurred with respect to such Bearer Security or interest
Coupon and will not be entitled to any capital gain treatment with respect to
any sale, redemption or other disposition of such Bearer Security or interest
Coupon but will be taxed thereon at ordinary income rates instead.
REDEMPTION
REDEMPTION AT THE OPTION OF THE COMPANY
The applicable Prospectus Supplement will specify whether or not the Debt
Securities will be redeemable at the option of the Company and the terms upon
which such Debt Securities may be so redeemed.
Notice of intention to redeem redeemable Debt Securities will be given in
accordance with "Notices" below. In the case of redemption of all Debt
Securities of a series, notice will be given by the Trustee not more than 60
nor less than 20 days prior to the Redemption Date. Notices of redemption will
specify, among other things, (i) the Redemption Date; (ii) the Redemption
Price, and accrued interest, if any; (iii) in the case of a partial
redemption, the identification and aggregate principal amount of Debt
Securities to be redeemed and the aggregate principal amount of the Debt
Securities which will be outstanding after such partial redemption; (iv) that,
on the Redemption Date, the Redemption Price shall become due and payable upon
each such Debt Security or portion thereof to be redeemed, and, if applicable,
that interest thereon shall cease to accrue on and after said date; (v) if
applicable, the Conversion Price, the date on which the right to convert the
Debt Securities to be redeemed will terminate and the places where such Debt
Securities, together with all unmatured Coupons and any matured Coupons in
default appertaining thereto, may be surrendered for conversion; (vi) the
place or places where such Securities, together (in the case of Bearer
Securities)
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with all Coupons appertaining thereto, if any, maturing after the Redemption
Date, are to be surrendered for payment of the Redemption Price and any
accrued interest and Additional Amounts pertaining thereto; (vii) that the
redemption is for a sinking fund, if such is the case; (viii) that, unless
otherwise specified in such notice, Bearer Securities of any series, if any,
surrendered for redemption must be accompanied by all Coupons maturing
subsequent to the Redemption Date or the amount of any such missing Coupon or
Coupons will be deducted from the Redemption Price, unless security or
indemnity satisfactory to the Company, the Trustee and any Paying Agent is
furnished; and (ix) if Bearer Securities of any series are to be redeemed and
any Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to
redemption on the Redemption Date, the last date, as determined by the
Company, on which such exchanges may be made. All redemption notices are
irrevocable, except in the case of certain redemptions for taxation reasons
specified in the next succeeding subsection. (Section 1104).
REDEMPTION FOR TAXATION REASONS
If the Company has or will become obligated to pay Additional Amounts (as
described below under "Payment of Additional Amounts to Non United States
Persons") as a result of any change in, or amendment to, the laws (including
any regulations or rulings promulgated thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in, or amendment to, the application or official
interpretation of such laws, regulations or rulings (any such change or
amendment being herein referred to as a "Tax Law Change"), and such
obligations cannot be avoided by the Company taking reasonable measures
available to it, the Debt Securities held by Persons who are not United States
persons and to whom such Additional Amounts have or will become payable (the
"Tax Affected Debt Securities") may be redeemed, at the option of the Company,
in whole but not in part. Such redemption of Tax Affected Debt Securities
shall be upon not less than 20 nor more than 60 days' prior notice as provided
under "Notices" below, at a redemption price equal to 100% of the principal
amount of the Tax Affected Debt Securities, plus accrued interest to the
redemption date and any Additional Amounts then payable; provided, however,
that (1) no such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which the Company would be obligated to pay any
such Additional Amounts were a payment in respect of the Tax Affected Debt
Securities then due and (2) at the time such notice of redemption is given,
the obligation to pay such Additional Amounts remains in effect. Prior to the
publication of any notice of redemption pursuant to this paragraph, the
Company shall deliver to the Trustee (a) a certificate stating that the
Company is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right of the Company so to
redeem have occurred and (b) an opinion of counsel selected by the Company to
the effect that the Company has or will become obligated to pay such
Additional Amounts as a result of a Tax Law Change. The Company's right to
redeem the Tax Affected Debt Securities shall continue as long as the Company
is obligated to pay such Additional Amounts, notwithstanding that the Company
shall have theretofore made payments of Additional Amounts. (Section 1102)
In addition, if the Company determines, based upon a written opinion of
counsel selected by the Company, that, as a result of a Tax Law Change, any
payment made outside the United States by the Company or any of its Paying
Agents of the full amount of principal, premium, if any, or interest due with
respect to any Bearer Debt Security or Coupon appertaining thereto would be
subject to any certification, identification or other information reporting
requirement of any kind, the effect of which is the disclosure to the Company,
any Paying Agent or any governmental authority of the nationality, residence
or identity of a beneficial owner of such Bearer Debt Security or Coupon who
is not a United States person as defined below under "Payment of Additional
Amounts to Non United States Persons" (other than such a requirement (a) which
would not be applicable to a payment made by the Company or any one of its
Paying Agents (i) directly to the beneficial owner or (ii) to any custodian,
nominee or other agent of the beneficial owner, (b) which can be satisfied by
the custodian, nominee
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or other agent certifying that the beneficial owner is not a United States
person, provided that in each case referred to in clauses (a) (ii) and (b)
payment by such custodian, nominee or other agent to such beneficial owner is
not otherwise subject to any such requirement, or (c) which would not be
applicable but for the fact that a Bearer Debt Security constitutes a "United
States real property interest," as defined in Section 897(c)(1) of the Code,
with respect to the beneficial owner of such Bearer Debt Security, the Company
at its election will either (x) redeem the Bearer Securities, as a whole but
not in part, at a redemption price equal to 100% of the principal amount
thereof, plus accrued interest to the redemption date, or (y) if and so long
as the conditions of the third paragraph under "Payment of Additional Amounts
to Non United States Persons" are satisfied, pay the Additional Amounts
specified in such paragraph. The Company will make such determination and
election and notify the Trustee thereof in writing as soon as practicable, and
the Trustee will promptly give notice of such determination (the
"Determination Notice"), in each case stating the effective date of such
certification, identification or information reporting requirement, whether
the Company will redeem the Bearer Securities or will pay the Additional
Amounts specified in the third paragraph under "Payment of Additional Amounts"
and (if applicable) the last date by which the redemption of the Bearer
Securities shall take place. If the Company elects to redeem the Bearer
Securities, such redemption shall take place on a date not later than one year
after publication of the Determination Notice, as the Company elects by notice
in writing to the Trustee at least 75 days before that date, unless shorter
notice is acceptable to the Trustee. Notwithstanding the foregoing, the
Company shall not be required to so redeem the Bearer Securities if the
Company, based upon a written opinion of counsel selected by the Company,
subsequently determines, not less than 30 days prior to the Redemption Date,
that subsequent payments would not be subject to any such requirement, in
which case the Company will notify the Trustee in writing of its determination
not to so redeem the Bearer Securities, and the Trustee will promptly give
notice to the Holders of the Bearer Securities of that determination and any
earlier redemption notice will thereupon be revoked and of no further effect.
If the Company elects as provided in clause (y) above to pay Additional
Amounts, the Company may, as long as the Company is obligated to pay such
Additional Amounts, redeem all the Bearer Securities, at any time, as a whole
but not in part, at a redemption price equal to 100% of the principal amount
thereof plus accrued interest to the redemption date and any Additional
Amounts then payable. (Section 1102)
REPAYMENT AT OPTION OF HOLDER
Unless otherwise specified in an applicable Prospectus Supplement, each
holder of a Convertible Debt Security shall have the right to cause the
Company to repay such Convertible Debt Security (or portions thereof in
integral multiples of $1,000) for a cash amount equal to 100% of the principal
amount thereof plus accrued interest to the redemption date and any Additional
Amounts then payable, if a Repayment Event (as defined below) occurs or has
occurred. The "Repayment Date" for this purpose shall be the ninetieth (90th)
day after the later of the Exchange Date or the date a Repayment Event has
occurred. (Section 1502) Notice with respect to the occurrence of a Repayment
Event will be given to all Holders of Convertible Debt Securities with
repayment rights in accordance with "Notices" below and not later than 30 days
after the later of the Exchange Date or the date of such Repayment Event.
Notices of repayment will specify, among other things, (i) the Repayment Date;
(ii) the date by which the repurchase right must be exercised; (iii) the price
at which the Convertible Debt Securities are to be repaid, including accrued
interest and Additional Amounts, if any; (iv) if applicable, the Conversion
Price then in effect, the date on which the right to convert the Securities to
be repaid will terminate and the place or places where such Securities,
together (in the case of Bearer Securities) with all unmatured Coupons and any
matured Coupons in default appertaining thereto, may be surrendered for
conversion; and (v) a description of the repayment right procedures that a
Holder must follow and the place or places where such Securities, together (in
the case of Bearer Securities) with all Coupons appertaining thereto, if any,
maturing after the Repayment Date, are to be surrendered for payment (or the
amount of any such missing Coupon or Coupons will
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be deducted from any amount due to such Holder) and any accrued interest and
Additional Amounts, if any, pertaining thereto. (Section 1503)
To be repaid, a Convertible Debt Security must be received by the Trustee
with a duly executed written notice, substantially in the form provided on the
reverse side of such Convertible Debt Security, at the place of payment not
earlier than 60 days nor later than 30 days prior to the Repayment Date. Each
Bearer Convertible Debt Security delivered for repayment must be delivered
with all unmatured Coupons. Once notice is given by the Holder to the Paying
Agent, it is irrevocable. However, holders of Convertible Debt Securities will
retain the right to require such Convertible Debt Securities to be converted
into Common Stock until two business days prior to the Repayment Date.
(Sections 1201 and 1504)
A "Repayment Event" shall have occurred if the Common Stock (or other equity
securities into which the Debt Securities are then convertible) is neither
listed for trading on a United States national securities exchange, the Nasdaq
National Market nor approved for trading on an established automated over-the-
counter trading market in the United States. (Section 1502)
Certain of the Company's existing and future agreements relating to its
indebtedness could prohibit the repayment by the Company of the Convertible
Debt Securities pursuant to the exercise by a Convertible Debt Security holder
of the foregoing option, depending on the financial circumstances of the
Company at the time any such repayment may occur, because such repayment could
cause a breach of certain financial ratio and/or other covenants contained in
such agreements. Such a breach may constitute an event of default under such
indebtedness and thereby restrict the Company's ability to repay the
Convertible Debt Securities. See "Subordination of Debt Securities" above.
COVENANTS OF THE COMPANY
The Indenture does not contain any financial covenants or similar
restrictions respecting the Company, and in the absence of such provisions,
holders of the Debt Securities will have no protection (other than their
rights upon an event of default, as described under "Events of Default" below)
from adverse changes in the Company's financial condition. The Indenture also
does not contain provisions which may afford the holders of any of the Debt
Securities protection in the event of a highly leveraged transaction or
similar transaction involving the Company. Any such provisions, if applicable
to any Debt Securities, will be described in the Prospectus Supplement or
Prospectus Supplements relating thereto.
PAYMENT OF ADDITIONAL AMOUNTS TO NON UNITED STATES PERSONS
Unless otherwise specified in an applicable Prospectus Supplement, the
Company will pay to the holder of any Debt Security or any related Coupon who
is not a United States person (as defined below) such additional amounts
("Additional Amounts") as may be necessary in order that every net payment of
the principal of, premium, if any, and interest on such Debt Security, after
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the United
States or any political subdivision or taxing authority thereof or therein,
will not be less that the amount provided for in such Debt Security or in such
Coupon to be then due and payable; provided, however, that the foregoing
obligations to pay Additional Amounts shall not apply to any one or more of
the following:
(a) any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor,
beneficiary, member, stockholder of or possessor of a power over such
Holder, if such Holder is an estate, a trust, a partnership or a
corporation) and the United States or any political subdivision or taxing
authority thereof or therein, including, without
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limitation, such Holder (or such fiduciary, settlor, beneficiary, member,
stockholder or possessor) being or having been a citizen or resident of the
United States or treated as a resident thereof, or being or having been
engaged in trade or business or present therein, or having had a permanent
establishment therein, (ii) such Holder's present or former status as a
personal holding company, a foreign personal holding company with respect
to the United States, a controlled foreign corporation, a passive foreign
investment company, or a foreign private foundation or foreign tax exempt
entity for United States tax purposes, or a corporation which accumulates
earnings to avoid United States Federal income tax, or (iii) such Holder's
status as a bank extending credit pursuant to a loan agreement entered into
in the ordinary course of business;
(b) any tax, assessment or other governmental charge which would not have
been so imposed but for the presentation by the Holder of such Debt
Security or any related Coupon for payment on a date more than 15 days
after the date on which such payment became due and payable or the date on
which payment thereof is duly provided for, whichever occurs later;
(c) any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or governmental charge;
(d) any tax, assessment or other governmental charge which would not have
been imposed but for the failure to comply with any certification,
identification or other reporting requirements concerning the nationality,
residence, identity or connection with the United States of the Holder or
beneficial owner of such Debt Security or any related Coupon, if compliance
is required by statute or by regulation or ruling of the United States
Treasury Department as a precondition to exemption from such tax,
assessment or other governmental charge;
(e) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of,
premium, if any, or interest on such Debt Security;
(f) any tax, assessment or other governmental charge imposed as a result
of a Person's past or present actual or constructive ownership, including
by virtue of the right to convert Debt Securities, of 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote;
(g) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from any payment of the principal of, premium,
if any, or interest on such Debt Security, if such payment can be made
without such withholding by any other Paying Agent in Western Europe;
(h) any tax, assessment or other governmental charge imposed on a Holder
that is a partnership or a fiduciary, but only to the extent that any
beneficial owner or member of the partnership or beneficiary or settlor
with respect to the fiduciary would not have been entitled to the payment
of Additional Amounts had the beneficial owner, member, beneficiary or
settlor directly received its beneficial or distributive stock of payments
on such Debt Security;
(i) any tax, assessment or other governmental charge which would not have
been imposed but for the fact that such Debt Security constitutes a "United
States real property interest," as defined in Section 897(c)(1) of the
Internal Revenue Code, and the regulations thereunder, with respect to the
beneficial owner of such Debt Security; or
(j) any combination of items (a), (b), (c), (d), (e), (f), (g), (h) and
(i) (Section 1004)
As used herein, "United States" means the United States of America
(including the states and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction and a "United
States person" is a person that is, for United States federal income tax
purposes, (a) a citizen or a resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under
the laws of the United States or of any political
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subdivision thereof, (c) an estate the income of which is subject to United
States federal income taxation regardless of source, (d) any trust if a
court within the United States is able to exercise primary supervision of
the administration thereof and one or more United States persons has the
authority to control all substantial decisions thereof, or (e) any other
person included within the definition of United States person under the
Code and the regulations thereunder. (Sections 101 and 1004)
Notwithstanding the foregoing, if and so long as a certification,
identification or other information reporting requirement referred to in the
second paragraph under "Redemption for Taxation Reasons" above would be fully
satisfied by payment of a backup withholding tax or similar charge, the
Company may elect, by so stating in the Determination Notice, to have the
provisions of this paragraph apply in lieu of redeeming the Bearer Debt
Security pursuant to such second paragraph. In such event, the Company will
pay as Additional Amounts such amounts as may be necessary so that every net
payment made, following the effective date of such requirements, outside the
United States by the Company or any Paying Agent of principal of, and premium,
if any, due in respect of any Bearer Debt Security, or interest represented by
any Coupon, the beneficial owner of which is not a United States person (but
without any requirement that the nationality, residence or identity of such
beneficial owner be disclosed to the Company, any Paying Agent or any
governmental authority), after deduction or withholding for or on account of
such backup withholding tax or similar charge, other than a backup withholding
tax or similar charge which is (a) the result of a certification,
identification or information reporting requirement described in the first
parenthetical clause of such second paragraph, (b) imposed as a result of the
fact that the Company or any Paying Agent has actual knowledge that the
beneficial owner of such Bearer Debt Security or Coupon is within the category
of persons described in clause (a) of the first paragraph under this heading
or (c) imposed as a result of presentation of such Bearer Debt Security or
Coupon for payment more than 15 days after the date on which such payment
becomes due and payable or on which payment thereof is duly provided for,
whichever occurs later, will not be less than the amount provided for in such
Bearer Debt Security or Coupon to be then due and payable. (Section 1004)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay any interest on, or any
Additional Amounts payable in respect of any interest on, any Debt Security of
that series when due, continued for 10 days, and in the case of the
Subordinated Securities, whether or not such payment is prohibited by the
subordination provisions of the Subordinated Indenture; (b) failure to pay
principal or any premium on any Debt Security of that series when due, upon
maturity, redemption or otherwise, and in the case of the Subordinated
Securities, whether or not such payment is prohibited by the subordination
provisions of the Subordinated Indenture; (c) default in the deposit of any
sinking fund payment or analogous payment, when due by the terms of the Debt
Securities of that series, and in the case of the Subordinated Securities,
whether or not such payment is prohibited by the subordination provisions of
the Subordinated Indenture; (d) failure to perform any other covenant or
breach of a warranty of the Company in the applicable Indenture (other than a
covenant expressly included in such Indenture solely for the benefit of a
series of Debt Securities other than that series) or any Debt Security of such
series, continued for 60 days after written notice as provided in the
applicable Indenture; (e) any acceleration of the maturity of any indebtedness
of the Company for borrowed money in an aggregate principal amount exceeding
$25,000,000, unless otherwise specified in the applicable Prospectus
Supplement, or a failure to pay such indebtedness at its stated maturity, if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled within 20 days after written notice as provided in the Indentures;
(f) certain events of bankruptcy, insolvency or reorganization of the Company;
and (g) any other Event of Default provided with respect to Debt Securities of
that series. (Section 501) No Event of Default with respect to any particular
series of Debt Securities necessarily
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constitutes an Event of Default with respect to any other series of Debt
Securities. The Indentures provide that the Trustee thereunder may withhold
notice to the holders of the Debt Securities of any series of the occurrence
of a default with respect to the Debt Securities of such series (except a
default in payment of principal, premium, if any, interest, Additional
Amounts, if any, or sinking fund payments, if any) if the Trustee considers it
in the interest of the Holders to do so. (Section 602) If an Event of Default
with respect to Debt Securities of any series at the time outstanding shall
occur and be continuing, either the applicable Trustee or the Holders of at
least 25% in principal amount of the Debt Securities of that series may
declare the principal amount of all Debt Securities of that series (or if any
Debt Securities of such series are Original Issue Discount Securities or
Indexed Securities, such portion of the principal amount of such Debt
Securities as may be specified by the terms thereof) to be due and payable
immediately; provided that in the case of certain events of bankruptcy,
insolvency or reorganization, such principal amount (or portion thereof),
premium, if any, interest and Additional Amounts, if any, shall automatically
become due and payable. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of the Debt Securities of that
series may, under certain circumstances, rescind and annul such acceleration.
(Section 502) For information as to waiver of default, see "Modifications,
Waivers and Meetings." Reference is made to the Prospectus Supplement relating
to each series of Debt Securities which are Original Issue Discount Securities
or Indexed Securities for the particular provisions relating to acceleration
of the Maturity of a portion of the principal amount of such Original Issue
Discount Securities or Indexed Securities upon the occurrence of an Event of
Default and the continuation thereof.
The Indentures provide that, subject to the duty of the respective Trustees
thereunder during default to act with the required standard of care, such
Trustee will be under no obligation to exercise any of its rights or powers
under the respective Indentures at the request or direction of any of the
Holders of the Debt Securities unless they shall have offered to such Trustee
reasonable indemnity. (Section 601) Subject to such provisions for
indemnification of the Trustees, the Holders of a majority in principal amount
of the Debt Securities of any series affected will have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or exercising any trust or power
conferred on such Trustee, with respect to the Debt Securities of such series.
(Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given to the applicable Trustee written
notice of a continuing Event of Default with respect to the Debt Securities of
that series, (ii) the Holders of at least 25% in aggregate principal amount of
the Outstanding Debt Securities of that series have made written request, and
such Holder or Holders have offered reasonable indemnity to such Trustee to
institute such proceeding as trustee, and (iii) such Trustee for 60 days after
receipt of such notice has failed to institute such proceeding, and has not
received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any
premium or interest or Additional Amounts on such Debt Security on or after
the applicable due date specified in such Debt Security or the right to
convert such Debt Security. (Section 508)
The Company will be required to furnish to the Trustees annually a statement
as to whether there is a default in the performance or observance of certain
covenants. (Section 1005)
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon the direction of the Company, the Indenture shall cease to be of
further effect with respect to any series of Debt Securities and any Coupons
appertaining thereto issued thereunder specified by the Company (subject to
the survival of certain provisions thereof, including the obligation to pay
Additional Amounts to the extent described below) when (i) either (A) all
outstanding Debt Securities of such series and, in the case of Bearer
Securities, all Coupons appertaining thereto, have been delivered to the
Trustee for cancellation (subject to certain exceptions) or (B) all Debt
Securities of such series have become due and payable or will become due and
payable at their stated maturity within one year and such securities are not
convertible or exchangeable for other securities or are to be called for
redemption within one year and such securities are not convertible or
exchangeable for other securities, and the Company has irrevocably deposited
with the Trustee, in trust, funds in Dollars in an amount sufficient to pay
the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest, if any (and, to the extent that (x) the Debt
Securities of such series provide for the payment of Additional Amounts upon
the occurrence of certain events of taxation, assessment or governmental
charge with respect to payments on such Debt Securities and (y) the amount of
any such Additional Amounts is at the time of deposit reasonably determinable
by the Company, any such Additional Amounts) to the date of such deposit (if
such Debt Securities have become due and payable) or to the Maturity thereof,
as the case may be, (ii) the Company has paid all other sums payable under the
Indenture with respect to the Debt Securities of such series, and (iii)
certain other conditions are met. If the Debt Securities of any such series
provide for the payment of Additional Amounts, the Company will remain
obligated, following such deposit, to pay Additional Amounts on such Debt
Securities to the extent that the amount thereof exceeds the amount deposited
in respect of such Additional Amounts as aforesaid. (Section 401)
If so provided in the applicable Prospectus Supplement, the Company may
elect with respect to any series of Debt Securities either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for, among other things, the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of taxation, assessment
or governmental charge with respect to payments on such Debt Securities to the
extent that the amount thereof exceeds the amount deposited in respect of such
Additional Amounts as provided below, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities, to hold moneys for payment in
trust, and, if applicable, to exchange or convert such Debt Securities into
other securities in accordance with their terms) ("defeasance"), or (b) to
omit to comply with its obligations with respect to certain restrictive
covenants in Section 1005 (Statement as to Compliance), Section 102
(Compliance Certificates and Opinions), and, to the extent specified pursuant
to Section 301, any other covenant applicable to such Debt Securities in the
Indenture, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to the Debt
Securities of such series ("covenant defeasance"), in either case upon the
irrevocable deposit with the Trustee (or other qualifying trustee), in trust
for such purpose, of an amount, in U.S. dollars and/or Government Obligations
(as defined in the Indenture) which through the scheduled payment of principal
and interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of and any premium and any interest on (and,
to the extent that (x) the Debt Securities of such series provide for the
payment of Additional Amounts and (y) the amount of any such Additional
Amounts is at the time of deposit reasonably determinable by the Company, any
such Additional Amounts with respect to) such Debt Securities, and any
mandatory sinking fund or analogous payments thereon, on the due dates
therefor, whether upon maturity, redemption or otherwise. (Section 402)
Such defeasance or covenant defeasance shall only be effective if, among
other things, (i) it shall not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement to
which the Company is a party or is bound, and (ii) the Company has delivered
to the
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Trustee an opinion of counsel (as specified in the Indenture) to the effect
that the holders of such Debt Securities and Coupons appertaining thereto will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance or covenant defeasance, as the case may be, and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred. It shall also be a condition to the effectiveness
of such defeasance (but not covenant defeasance) that no Event of Default or
event which with notice or lapse of time or both would become an Event of
Default with respect to Debt Securities and Coupons appertaining thereto of
such series shall have occurred and been continuing on the date of, or during
the period ending on the 91st day after the date of, such deposit into trust.
(Section 402)
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than an Event of Default with
respect to any other covenant as to which there has been covenant defeasance,
the amount of monies and/or Government Obligations deposited with the Trustee
to effect such covenant defeasance may not be sufficient to pay amounts due on
such Debt Securities and Coupons appertaining thereto at the time of any
acceleration resulting from such Event of Default. However, the Company and
Thermo Electron would remain liable to make payment of such amounts due at the
time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting or restricting such defeasance or covenant defeasance with
respect to the Debt Securities of a particular series.
MODIFICATION, WAIVERS AND MEETINGS
The Indenture contains provisions permitting the Company and the Trustee
thereunder, with the consent of the holders of a majority in principal amount
of the outstanding Debt Securities of each series and affected by a
modification or amendment, to modify or amend any of the provisions of the
Indenture or of the Debt Securities of such series or the rights of the
holders of the Debt Securities of such series under the Indenture, provided
that no such modification or amendment shall, among other things, (i) change
the Stated Maturity of the principal of, or premium, if any, or any
installment of principal or interest on or Additional Amounts with respect to
any Debt Securities or any sinking fund or analogous payment with respect
thereof or reduce the principal amount thereof or any premium thereon, or the
rate of interest thereon (or modify the calculation of such rate), or change
the obligation of the Company to pay Additional Amounts, or reduce the amount
of principal of any Debt Security that would be due and payable upon an
acceleration of the maturity thereof, or adversely affect any right of
repayment at the option of any Holder, or change the provisions of the
Indentures relating to the Place of Payment for Bearer Debt Securities being
located outside the United States, or the Currency in which the principal of,
any premium or interest on, or any Additional Amounts with respect to any Debt
Security or any sinking or analogous fund payment in respect thereof, is
payable, or impair the Holder's right to institute suit to enforce the payment
of any such Debt Securities, or (ii) reduce the aforesaid percentage in
principal amount of Debt Securities of any series, the consent of the Holders
of which is required for any such modification or amendment or the consent of
whose holders is required for any waiver (of compliance with certain
provisions of the Indenture or certain defaults thereunder and their
consequences) or reduce the requirements for a quorum or voting at a meeting
of holders of such Debt Securities. (Section 902) The Indenture also contains
provisions permitting the Company and the Trustee, without the consent of the
holders of any Debt Securities issued thereunder, to modify or amend the
Indenture in order to, among other things, (a) add to the Events of Default or
the covenants of the Company for the benefit of the holders of all or any
series of Debt Securities; (b) to add or change any provisions of the
Indenture to facilitate the issuance of Bearer Securities; (c) to establish
the form or terms of Debt Securities of any series and any related
24
<PAGE>
Coupons; (d) to cure any ambiguity or correct or supplement any provision
therein which may be defective or inconsistent with other provisions therein,
or to make any other provisions with respect to matters or questions arising
under the Indenture which shall not adversely affect the interests of the
Holders of any series of Debt Securities in any material respect; or (e) to
amend or supplement any provision contained in the Indenture, provided that
such amendment or supplement does not apply to any Outstanding Debt Securities
issued prior to the date of such amendment or supplement and entitled to the
benefits of such provision. (Section 901)
The Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of any series may, on behalf of all Holders of Debt Securities
of that series, waive any past default under the Indenture with respect to
Debt Securities of that series and its consequences, except a default in the
payment of the principal of, or premium, if any, or interest on or any
Additional Amounts with respect to, any Debt Securities or any Coupons
appertaining thereto of such series or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security of such series affected. (Section 513)
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of each series. (Section 1601) A meeting may be called at any
time by the Trustee, and also, upon request, by the Company or the Holders of
at least 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given in accordance with the provisions
of the Indenture. (Section 1602) Except for any consent which must be given by
the Holder of each outstanding Debt Security affected thereby, as described
above, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum (as described below) is present may be adopted by
the affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which may be made, given or taken by
the Holders of a specified percentage, which is less or more than a majority,
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that series. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series and the related
Coupons. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series, subject to
certain exceptions. (Section 1604)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any Holders of Debt Securities, may
consolidate or merge with or into, or transfer or lease its properties or
assets substantially as an entirety to, any Person, and any other Person may
consolidate or merge with and into, or transfer or lease properties or assets
substantially as an entirety to, the Company provided that (i) the Person (if
other than the Company) formed by any such consolidation or into which the
Company is merged or which acquires or leases the properties or assets of the
Company substantially as an entirety is a corporation, partnership or trust
organized and validly existing under the laws of any United States
jurisdiction or, subject to certain additional requirements, a corporation,
limited liability company, partnership or trust organized under the laws of a
jurisdiction other than the United States, that assumes the Company's
obligations on the Debt Securities and under the Indentures, (ii) immediately
after giving effect to such transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and (iii) certain other
conditions are met. Upon compliance with these provisions by a successor
corporation, the Company would be relieved from its obligations under the
Securities and under the Indenture. (Article Eight)
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<PAGE>
NOTICES
Notice to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. Notice
to Holders of Bearer Securities, if any, will be given by publication in a
leading daily newspaper in the English language of general circulation in New
York City and, if such Debt Securities are then listed on any stock exchange
outside the United States, in a daily newspaper of general circulation in the
city that such stock exchange requires. (Section 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the
purpose of making payment and for all other purposes. Title to Bearer
Securities passes on delivery. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts applicable to
agreements made or instruments entered into and, in each case, performed in
said state, except that the rights, protections, obligations, indemnities and
immunities of the Trustee under the Indentures shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to the conflicts of laws principles of either state. (Section 113)
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received
in respect of any such claim as security or otherwise. (Section 611) The
Trustee will be permitted to engage in certain other transactions; however, if
it acquires any conflicting interest and there is a default under the Debt
Securities, it must eliminate such conflict or resign. (Section 613)
The Trustee serves as a depositary of funds of, and performs other services
for, the Company and its subsidiaries, and is trustee and fiscal agent under
several other indentures and fiscal agency agreements pursuant to which
debentures of the Company and various of its subsidiaries have been issued.
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<PAGE>
PLAN OF DISTRIBUTION
The Securities may be sold to or through underwriters or to dealers acting
as principals for their own account, and also may be sold directly to other
purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Securities by them may be deemed to be underwriting discounts
and commissions, under the Securities Act. Any such underwriter or agent will
be identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Any Securities issued hereunder (other than Common Stock) will be new issues
of securities with no established trading market. The Company may not apply
for the listing of any Securities (other than the Common Stock) on any
national securities exchange or on Nasdaq. No assurance can be given as to the
liquidity of the trading market for any such Securities.
Certain of the underwriters, dealers or agents and their associates may be
customers of, engage in transactions with, and perform services for, the
Company in the ordinary course of business.
VALIDITY OF SECURITIES
The validity of the Securities to which this Prospectus relates will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of the
Company. Mr. Hoogasian is a full-time employee of the Company. The validity of
the Securities offered hereby will be passed upon for any relevant
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements of the Company incorporated by reference in this
Prospectus and the financial statement schedules incorporated by reference in
the Registration Statement of which this Prospectus forms a part have been
audited by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods as indicated in their reports with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said reports.
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[ART WORK]
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THOSE TO WHICH THEY RELATE IN ANY JURISDICTION WHERE SUCH OFFER OR SOLIC-
ITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S- 3
Risk Factors............................................................. S- 7
Use of Proceeds.......................................................... S-11
Price Range of Common Stock.............................................. S-11
Dividend Policy.......................................................... S-11
Capitalization........................................................... S-12
Selected Financial Information........................................... S-13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-14
Business................................................................. S-27
Management............................................................... S-39
Certain United States Tax Consequences to Non-United States Holders...... S-42
Underwriting............................................................. S-45
Legal Opinions........................................................... S-47
Index to Consolidated Financial Statements............................... F- 1
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 3
Risk Factors............................................................. 3
The Company.............................................................. 4
Use of Proceeds.......................................................... 4
Description of Debt Securities of the Company............................ 5
Plan of Distribution..................................................... 27
Validity of Securities................................................... 27
Experts.................................................................. 27
</TABLE>
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6,500,000 SHARES
THERMO ELECTRON CORPORATION
COMMON STOCK
[LOGO]
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PROSPECTUS
APRIL 6, 1998
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SALOMON SMITH BARNEY INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
HSBC INVESTMENT BANKING
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