SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarter Ended
July 2, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)622-1000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Class Outstanding at July 29, 1994
----------------------------- ----------------------------
Common Stock, $1.00 par value 48,314,678
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of July 2, 1994 and
January 1, 1994 (In thousands)
July 2, January 1,
1994 1994
---------- ----------
Current Assets:
Cash and cash equivalents $ 289,697 $ 325,744
Short-term available-for-sale investments,
at market value (amortized cost of $663,420)
(Note 4) 662,454 -
Short-term investments - 374,450
Accounts receivable, net 309,311 267,377
Unbilled contract costs and fees 33,570 32,574
Inventories:
Raw materials and supplies 126,371 110,437
Work in process and finished goods 112,508 82,385
Prepaid income taxes 50,020 39,258
Prepaid expenses 13,836 12,318
---------- ----------
1,597,767 1,244,543
---------- ----------
Assets Related to Projects Under Construction:
Restricted funds - 34,100
Facilities under construction - 128,040
---------- ----------
- 162,140
---------- ----------
Property, Plant and Equipment, at Cost 750,286 581,894
Less: Accumulated depreciation and
amortization 156,777 134,423
---------- ----------
593,509 447,471
---------- ----------
Long-term Available-for-sale Investments,
at Market Value (amortized cost of $75,384)
(Note 4) 75,204 -
---------- ----------
Long-term Marketable Securities - 43,630
---------- ----------
Other Assets 106,732 102,347
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies 560,749 473,579
---------- ----------
$2,933,961 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
2
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(a) Consolidated Balance Sheet - Liabilities and Shareholders'
Investment as of July 2, 1994 and January 1, 1994 (In thousands
except share amounts)
July 2, January 1,
1994 1994
---------- ----------
Current Liabilities:
Notes payable $ 47,807 $ 45,851
Accounts payable 98,161 85,278
Accrued payroll and employee benefits 62,273 49,029
Accrued income taxes 19,286 7,713
Accrued installation and warranty costs 28,743 26,049
Other accrued expenses 221,465 202,326
---------- ----------
477,735 416,246
---------- ----------
Deferred Income Taxes and Other Items 117,012 106,539
---------- ----------
Liabilities Related to Projects Under
Construction:
Payables and accrued expenses - 10,680
Tax-exempt obligations - 142,069
---------- ----------
- 152,749
---------- ----------
Long-term Obligations (Notes 5 and 6):
Senior convertible obligations 620,000 275,000
Subordinated convertible obligations 249,501 238,386
Tax-exempt obligations 130,907 -
Nonrecourse tax-exempt obligations 108,800 108,800
Other 23,740 25,275
---------- ----------
1,132,948 647,461
---------- ----------
Minority Interest 298,898 277,681
---------- ----------
Common Stock of Subsidiary Subject to
Redemption ($15,390 redemption value) 14,657 14,511
---------- ----------
Shareholders' Investment:
Common stock, $1 par value, 175,000,000
shares authorized; 48,357,097 and
47,950,580 shares issued 48,357 47,951
Capital in excess of par value 446,765 467,076
Retained earnings 408,829 362,138
Treasury stock at cost, 42,832 and 31,898
shares (1,693) (1,212)
Cumulative translation adjustment (5,600) (13,591)
Deferred compensation (3,194) (3,839)
Net unrealized loss on available-for-sale
investments (Note 4) (753) -
---------- ----------
892,711 858,523
---------- ----------
$2,933,961 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(b) Consolidated Statement of Income for the three months ended
July 2, 1994 and July 3, 1993 (In thousands except per share
amounts)
Three Months Ended
-------------------
July 2, July 3,
1994 1993
--------- ---------
Revenues:
Product sales and revenues $ 355,161 $ 264,637
Service revenues 33,299 29,923
Research and development contract revenues 6,506 5,889
--------- ---------
394,966 300,449
--------- ---------
Costs and Expenses:
Cost of products 208,530 162,877
Cost of services 24,391 22,405
Expenses for research and development and
new lines of business (a) 26,611 21,479
Selling, general and administrative expenses 92,708 70,132
--------- ---------
352,240 276,893
--------- ---------
Gain on Issuance of Stock by Subsidiaries
(Note 2) 229 10,617
Other Income (Expense), Net (Note 3) 10,242 (3,244)
--------- ---------
Income Before Income Taxes and Minority Interest 53,197 30,929
Provision for Income Taxes 22,349 7,620
Minority Interest Expense 6,698 5,703
--------- ---------
Net Income $ 24,150 $ 17,606
========= =========
Earnings per Share:
Primary $ .50 $ .43
========= =========
Fully diluted $ .44 $ .39
========= =========
Weighted Average Shares:
Primary 48,269 40,630
========= =========
Fully diluted 65,530 52,410
========= =========
(a) Includes costs of:
Research and development contracts $ 5,317 $ 5,096
Internally funded research and development 20,498 15,050
Other expenses for new lines of business 796 1,333
--------- ---------
$ 26,611 $ 21,479
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
4
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(b) Consolidated Statement of Income for the six months ended
July 2, 1994 and July 3, 1993 (In thousands except per share
amounts)
Six Months Ended
-------------------
July 2, July 3,
1994 1993
--------- ---------
Revenues:
Product sales and revenues $ 666,369 $ 520,844
Service revenues 65,685 59,497
Research and development contract revenues 13,388 12,871
--------- ---------
745,442 593,212
--------- ---------
Costs and Expenses:
Cost of products 393,206 323,565
Cost of services 47,779 44,403
Expenses for research and development and
new lines of business (a) 49,995 42,454
Selling, general and administrative expenses 174,798 136,750
Costs associated with divisional and product
restructuring - 5,845
--------- ---------
665,778 553,017
--------- ---------
Gain on Issuance of Stock by Subsidiaries
(Note 2) 8,723 21,718
Other Income (Expense), Net (Note 3) 7,000 (6,512)
--------- ---------
Income Before Income Taxes and Minority Interest 95,387 55,401
Provision for Income Taxes 36,450 13,150
Minority Interest Expense 12,246 9,197
--------- ---------
Net Income $ 46,691 $ 33,054
========= =========
Earnings per Share:
Primary $ .97 $ .81
========= =========
Fully diluted $ .86 $ .73
========= =========
Weighted Average Shares:
Primary 48,114 40,605
========= =========
Fully diluted 62,425 52,385
========= =========
(a) Includes costs of:
Research and development contracts $ 10,859 $ 10,392
Internally funded research and development 37,337 29,819
Other expenses for new lines of business 1,799 2,243
--------- ---------
$ 49,995 $ 42,454
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
5
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(c) Condensed Consolidated Statement of Cash Flows for the six months
ended July 2, 1994 and July 3, 1993 (In thousands)
Six Months Ended
-------------------
July 2, July 3,
1994 1993
--------- ---------
Operating Activities:
Net cash provided by operating activities $ 73,838 $ 23,260
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (141,289) (112,781)
Purchases of property, plant and equipment (25,922) (20,232)
Proceeds from sale of property, plant and
equipment 17,245 1,959
Purchases of long-term investments - (14,061)
Proceeds from sale of long-term investments - 8,209
Purchases of available-for-sale investments (543,893) -
Proceeds from sale and maturities of
available-for-sale investments 234,722 -
Increase in short-term investments - (34,155)
Decrease in assets related to construction
projects 23,420 1,535
Other (5,190) (3,245)
--------- ---------
Net cash used in investing activities (440,907) (172,771)
--------- ---------
Financing Activities:
Net proceeds from issuance of long-term
obligations (Note 5) 368,405 -
Repayment and repurchase of long-term
obligations (12,112) (4,146)
Proceeds from issuance of Company and
subsidiary common stock 26,139 82,045
Purchases of Company and subsidiary common
stock (53,217) (36,655)
Other (11) 110
--------- ---------
Net cash provided by financing activities 329,204 41,354
--------- ---------
Exchange Rate Effect on Cash 1,818 (1,105)
--------- ---------
Decrease in Cash and Cash Equivalents (36,047) (109,262)
Cash and Cash Equivalents at Beginning of Period 325,744 190,601
--------- ---------
Cash and Cash Equivalents at End of Period $ 289,697 $ 81,339
========= =========
Cash Paid For:
Interest $ 22,519 $ 14,659
Income taxes $ 12,757 $ 4,248
Noncash Financing Activities:
Conversions of convertible obligations $ 26,285 $ 18,560
The accompanying notes are an integral part of these consolidated
financial statements.
6
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 2, 1994
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Electron Corporation (the Company) without audit
and, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair statement of (a) the results of
operations for the three- and six-month periods ended July 2, 1994 and
July 3, 1993, (b) the financial position at July 2, 1994, and (c) the
cash flows for the six-month periods ended July 2, 1994 and
July 3, 1993. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 1, 1994,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted
by Form 10-Q and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated
financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994, filed with the Securities and Exchange Commission.
2. Transactions in Stock of Subsidiaries
"Gain on issuance of stock by subsidiaries" in the accompanying
statement of income for the six-month period ended July 2, 1994,
resulted primarily from the following:
A public offering of 1,610,000 shares of ThermoTrex Corporation
common stock in March 1994 at $15.375 per share for net proceeds
of $23.0 million resulted in a gain of $7.3 million.
The conversion of $3.7 million of Thermedics Inc. 6 1/2%
subordinated convertible debentures, convertible at $10.42 per
share, into 357,597 shares of Thermedics common stock resulted in
a gain of $1.0 million.
7
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 2, 1994
(continued)
3. Other Income (Expense), Net
The components of "Other income (expense), net" in the
accompanying statement of income are:
Three Months Ended Six Months Ended
------------------ ------------------
July 2, July 3, July 2, July 3,
(In thousands) 1994 1993 1994 1993
--------------------------------------------------------------------
Royalty income $ 880 $ 429 $ 1,280 $ 994
Interest income 10,707 3,825 17,906 8,943
Interest expense (16,414) (7,629) (26,703) (15,485)
Equity in losses of
unconsolidated subsidiaries (631) (974) (1,838) (2,065)
Gain on sale of investments 3,720 914 4,331 867
Other income, net 11,980 191 12,024 234
-------- -------- -------- -------
$ 10,242 $ (3,244) $ 7,000 $ (6,512)
======== ======== ======== ========
4. Available-for-sale Investments
Effective January 2, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with SFAS
No. 115, 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 loss on available-for-sale investments." "Net unrealized
loss on available-for-sale investments" consists of (1) an unrealized
gain, net of related tax effects, of $2,868,000 that was recorded as a
cumulative effect of change in accounting principle adjustment and
(2) an unrealized loss, net of related tax effects, of $3,621,000
relating to the decline in the market value of available-for-sale
investments for the six-month period ended July 2, 1994.
8
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 2, 1994
(continued)
4. Available-for-sale Investments (continued)
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, as of July 2, 1994, are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
----------------------------------------------------------------------
Government agency
securities $270,998 $272,348 $ 578 $ 1,928
Corporate bonds 384,584 385,447 330 1,193
Tax-exempt securities 32,780 32,902 5 127
Other 49,296 48,107 2,082 893
-------- -------- -------- --------
$737,658 $738,804 $ 2,995 $ 4,141
======== ======== ======== ========
Available-for-sale investments in the accompanying balance sheet
at July 2, 1994, include $361,504,000 with contractual maturities of
one year or less, $336,185,000 with contractual maturities of over one
year through five years, and $39,969,000 with contractual maturities
of over five years. Expected maturities, as classified in the
accompanying balance sheet, 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 and/or the issuer 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. Gain on sale
of investments for the six-month period ended July 2, 1994, resulted
from gross realized gains of $5,579,000 and gross realized losses of
$1,248,000 relating to the sale of available-for-sale investments.
5. Issuance of Senior Convertible Obligations
On April 15, 1994, the Company issued and sold $345.0 million
principal amount of 5% senior convertible debentures due 2001. The
debentures are convertible into shares of the Company's common stock
at a conversion price of $47 1/4 per share.
9
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - July 2, 1994
(continued)
6. Subsequent Event
On July 20, 1994, the Company called for redemption on August 19,
1994, all of its outstanding 6 3/4% subordinated convertible
debentures due 2001. The redemption price is 103% of the principal
amount plus accrued interest to the redemption date. As of July 29,
1994, there was $59,675,000 principal amount of debentures
outstanding. As an alternative to redeeming for cash, the holders of
the debentures have the option of converting their debentures into
shares of the Company's common stock at a conversion price of $23.00
per share. The closing price of Thermo Electron common stock on the
New York Stock Exchange on July 29, 1994, was $39 7/8.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Second Quarter 1994 Compared With Second Quarter 1993
Sales for the second quarter of 1994 were $395.0 million, an
increase of $94.5 million, or 31%, over the second quarter of 1993.
Segment income was a record $48.9 million, compared with $28.4 million
in 1993, an increase of 72%. (Segment income is income before
corporate general and administrative expenses, costs associated with
divisional and product restructuring, other income and expense,
minority interest expense, and income taxes.)
Sales from the Instruments segment were $162.7 million in 1994, an
increase of $36.9 million, or 29%, over the second quarter of 1993.
Sales increased due to acquisitions made by Thermo Instrument Systems
Inc. during 1993 and its acquisition of several businesses within the
EnviroTech Measurements & Controls group of Baker Hughes Incorporated
on March 16, 1994. Segment income margin (segment income margin is
segment income as a percentage of sales) was 16.5% in 1994, compared
with 17.4% in 1993. Segment income margin declined principally due to
lower margins at the recently acquired businesses within the
EnviroTech Measurements & Controls group.
Sales from the Alternative-energy Systems segment were $70.9
million in 1994, an increase of $12.8 million, or 22%, over 1993.
Within this segment, sales from the Energy Systems group, which
consist of revenues from the operation of power plants and a
waste-recycling facility and, in 1993, revenues from construction of
large alternative-energy facilities, increased to $38.6 million from
$28.2 million in 1993. Increased revenues from the Energy Systems
group resulted primarily from an additional power plant and a
10
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Second Quarter 1994 Compared With Second Quarter 1993 (continued)
waste-recycling facility in operation during the second quarter of
1994 and, to a lesser extent, the absence of utility-imposed
curtailments of power output and improved performance at two
California plants. In addition, revenues increased due to annual
contractual energy rate increases under certain power sales contracts.
These increases were offset in part by the absence of construction
revenues in the second quarter of 1994, compared with $4.1 million in
1993. Sales from Thermo Power Corporation were $23.4 million, compared
with $19.7 million in 1993. Sales increased due to the inclusion of
$2.2 million in sales from NuTemp, Inc., which was acquired in May
1994, and due to increased demand for refrigeration packages, offset
in part by lower prices due to increased competition in the
refrigeration industry.
Segment income from the Alternative-energy Systems segment was
$7.4 million in 1994, compared with a loss of $0.3 million in 1993.
The Energy Systems group had segment income of $6.2 million, compared
with a loss of $0.6 million in 1993. The Energy Systems group
improvement resulted from the additional power plant and the
waste-recycling plant in operation during the second quarter of 1994,
the absence of utility-imposed curtailments of power output and
improved performance at two California plants, and annual contractual
energy rate increases under certain power sales contracts. In
addition, segment income improved as a result of lower lease expense,
offset in part by depreciation expense, resulting from the December
1993 purchase of the Delano I facility in Delano, California. Segment
income increased $0.8 million at Thermo Power as a result of increased
sales.
Sales in the Process Equipment segment were $45.8 million,
compared with $38.2 million in 1993, an increase of 20%. Within this
segment, sales from Thermo Fibertek Inc. were $39.8 million, compared
with $30.8 million in 1993. This increase reflects the inclusion of
$9.3 million in revenues from AES Engineered Systems, which was
acquired from Albany International Corp. on June 30, 1993, and a $3.1
million increase in revenues from Thermo Fibertek's North American
paper-recycling equipment business due to increased demand. These
increases were offset primarily by a decline of $2.1 million in
revenues due to a decrease in demand for the environmental process
systems sold by Thermo Fibertek's Vickerys subsidiary as a result of
changes in U.K. environmental regulations that required modifications
to Vickerys' equipment. Vickerys has completed modifications to its
equipment and is currently field testing its new design. Sales of
Holcroft heat-treating systems remained depressed at $3.3 million,
compared with $3.8 million in 1993. Sales of automated electroplating
equipment from the Company's wholly owned Napco, Inc. subsidiary
declined to $2.8 million from $3.6 million in 1993, due to continuing
11
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Second Quarter 1994 Compared With Second Quarter 1993 (continued)
weak demand. The Process Equipment segment income margin was 9.8%,
compared with 5.6% in 1993. Thermo Fibertek's segment income margin
improved to 12.3% from 10.1% in 1993, primarily due to increased sales
and to an improved sales mix. Segment income declined by $0.3 million
at Holcroft as a result of lower sales, and improved by $0.8 million
at Napco as a result of efforts to reduce operating costs and the
completion of jobs with cost overruns in the 1993 period.
Sales in the Biomedical Products segment were $43.3 million in
1994, an increase of $12.8 million, or 42%, over 1993. Sales increased
$4.6 million due to the inclusion of sales from CBI Laboratories,
Inc., a manufacturer of skin-care and other personal-care products,
which was acquired by the Company's ThermoLase Corporation subsidiary
in December 1993. Sales of ThermoTrex Corporation's mammography and
biopsy systems increased $4.2 million, and sales of Thermo
Cardiosystems Inc.'s implantable left ventricular-assist devices
increased $1.5 million due to increased demand. Segment income margin
improved to 9.3%, compared with 2.3% in 1993, as a result of increased
sales.
Sales in the Services segment were $33.3 million in 1994, compared
with $29.9 million in 1993. Within this segment, sales from Thermo
Remediation Inc. increased $2.4 million, primarily due to an increase
in the volume of soil processed at its soil-remediation centers and,
to a lesser extent, the inclusion of revenues from a fluids recovery
company acquired in November 1993. Sales of metallurgical services and
analytical laboratory and environmental consulting services were about
the same level as 1993. Segment income margin improved to 10.1% from
6.5% in 1993 due to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $40.4 million,
compared with $18.4 million in 1993. Sales increased $18.3 million due
to the inclusion of sales from Ramsey Technology Inc., which was
acquired by Thermedics in March 1994, and sales from Comtest
Instrumentation, which was acquired by Thermo Voltek Corp. in August
1993. Sales also increased $1.9 million due to increased demand for
Thermedics' explosives-detection system. Segment income margin
declined to 7.0% in 1994, compared with 11.4% in 1993, as a result of
higher costs associated with the worldwide service organization for
Thermedics' high-speed product quality assurance system, lower margins
at acquired companies and, to a lesser extent, increased research and
development expenses at ThermoTrex to develop and commercialize new
products.
12
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Second Quarter 1994 Compared With Second Quarter 1993 (continued)
In 1983, the Company 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 incentive programs, as
well as capital to support the subsidiaries' growth. As a result of
the sale of stock by subsidiaries, the issuance of shares by
subsidiaries upon conversion of indebtedness, and similar
transactions, the Company recorded gains of $0.2 million in 1994 and
$10.6 million in 1993. Although the Company expects to continue this
strategy in the future, its goal is to continue increasing segment
income over the next few years so that gains generated by sales of
stock by its subsidiaries will represent a decreasing portion of net
income. 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.
"Other income (expense), net" in the accompanying statement of
income includes a gain of $12.0 million in 1994 resulting from the
sale of the Company's Peter Brotherhood Ltd. facility, in
Peterborough, England. Peter Brotherhood will relocate to a newly
constructed site in Peterborough later this year. Also included in
"Other income (expense), net" is equity in losses of unconsolidated
subsidiaries, which represents the Company's portion of results from
entities in which the Company's ownership percentage is 50% or less.
The loss was $0.6 million in 1994 and $1.0 million in 1993.
First Six Months 1994 Compared With First Six Months 1993
Sales for the first six months of 1994 were $745.4 million, an
increase of $152.2 million, or 26%, over the 1993 period. Segment
income was $90.8 million, an increase of $35.0 million, or 63%, over
the 1993 period.
Sales from the Instruments segment were $310.3 million, an
increase of $60.6 million, or 24%, over the 1993 period. Sales
increased due to acquisitions made by Thermo Instrument. Segment
income margin was 17% in both periods.
Sales from the Alternative-energy Systems segment were
$132.8 million in 1994, an increase of $19.3 million, or 17%, over
1993. Within this segment, sales from the Energy Systems group were
$70.8 million, compared with $57.5 million in 1993. Sales increased
due to the reasons discussed in the results of operations for the
13
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
First Six Months 1994 Compared With First Six Months 1993 (continued)
second quarter, offset in part by a decrease of $2.5 million in
revenues from the Company's Whitefield, New Hampshire plant, as a
result of an interruption of operations in January 1994, resulting
from damage to its turbine-generator. The Whitefield plant resumed
full operations in June 1994. Sales from Thermo Power were $45.4
million, compared with $38.4 million in 1993. This increase resulted
primarily from increased demand for refrigeration packages, offset in
part by lower prices due to increased competition in the refrigeration
industry and the inclusion of $2.2 million in sales from NuTemp, which
was acquired in May 1994.
Segment income from the Alternative-energy Systems segment was
$10.9 million in 1994, compared with a loss of $2.9 million in 1993.
Within this segment, the Energy Systems group had segment income of
$9.2 million, compared with a loss of $4.1 million in 1993. This
improvement is due to the same reasons discussed in the results of
operations for the second quarter. Segment income at Thermo Power
increased $0.9 million, as a result of increased sales.
Sales in the Process Equipment segment were $88.8 million,
compared with $75.7 million in 1993, an increase of 17%. Within this
segment, sales from Thermo Fibertek were $75.0 million, compared with
$58.9 million in 1993. This increase reflects the inclusion of $18.2
million in revenues from AES Engineered Systems, which was acquired on
June 30, 1993, and a $2.6 million increase in revenues from Thermo
Fibertek's North American paper-recycling equipment business due to
increased demand. These increases were offset in part by a decline of
$3.6 million in revenues due to a decrease in demand for the
environmental process systems sold by Thermo Fibertek's Vickerys
subsidiary as explained in the results of operations for the second
quarter and, to a lesser extent, by a decline of $1.4 million in
revenues due to the unfavorable effects of currency translation as a
result of a stronger U.S. dollar. Sales of Holcroft heat-treating
systems, which remain depressed, were $7.3 million, compared with $9.0
million in 1993. Sales of automated electroplating equipment from the
Company's wholly owned Napco subsidiary declined to $6.5 million from
$7.8 million in 1993, due to weak demand. The Process Equipment
segment income margin was 9.7%, compared with 7.2% in 1993. This
improvement results from the same factors as those discussed in the
results of operations for the second quarter.
Sales in the Biomedical Products segment were $84.3 million, an
increase of $22.8 million, or 37%, over 1993. Sales increased $8.5
million due to the inclusion of sales from CBI Laboratories, which was
acquired in December 1993. Sales of mammography and biopsy systems
14
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
First Six Months 1994 Compared With First Six Months 1993 (continued)
increased $7.4 million, while sales of Thermo Cardiosystems'
implantable left ventricular-assist devices increased $2.9 million,
sales of Thermedics' fragrance samplers increased $2.2 million, and
sales of blood coagulation-monitoring products at the Company's wholly
owned International Technidyne Corporation subsidiary increased $1.7
million, due to increased demand. Segment income margin improved to
7.8%, compared with 4.1% in 1993, as a result of the increased sales.
Sales in the Services segment were $65.7 million in 1994, compared
with $59.5 million in 1993. Within this segment, sales from Thermo
Remediation increased $5.5 million, primarily due to an increase in
the volume of soil processed at its soil-remediation centers and, to a
lesser extent, the inclusion of revenues from a fluids recovery
company acquired in November 1993. Sales of metallurgical services and
analytical laboratory and environmental consulting services were about
the same level as in 1993. Segment income margin improved to 10.3%
from 7.5% in 1993 due to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $65.7 million,
compared with $34.0 million in 1993. Sales increased $22.1 million due
to the inclusion of sales from the Ramsey Technology and Comtest
Instrumentation acquisitions. Sales also increased $2.6 million due to
increased demand for Thermedics' explosives-detection system, $4.3
million due to increased demand, principally from one customer, for
Thermedics' high-speed product quality assurance systems and related
services, and $2.4 million at ThermoTrex due to increased funding
levels on government-sponsored contracts. Segment income margin
declined to 7.3% from 11.4% in 1993 due to lower margins at acquired
businesses and, to a lesser extent, costs associated with the
worldwide service organization for Thermedics' high-speed product
quality assurance system and increased research and development
expenses at ThermoTrex to develop and commercialize new products.
The Company recorded gains as a result of the sale of stock by
subsidiaries of $8.7 million in the 1994 period and $21.7 million in
the 1993 period.
15
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Financial Condition
Liquidity and Capital Resources
Consolidated working capital was $1,120.0 million at July 2, 1994,
compared with $828.3 million at January 1, 1994. Included in working
capital were cash and short-term investments of $952.2 million at
July 2, 1994, compared with $700.2 million at January 1, 1994. In
addition, at July 2, 1994, the Company had $75.2 million of long-term
marketable securities, compared with $43.6 million at January 1, 1994.
On April 15, 1994, the Company issued and sold $345.0 million
principal amount of 5% senior convertible debentures due 2001. During
the first six months of 1994, the Company expended $141.3 million, net
of cash acquired, for acquisitions, and $25.9 million for purchases of
property, plant and equipment. In early 1994, the Company completed
construction of a waste-recycling facility in San Diego County,
California. Because this facility was not sold to a third party, the
Company is obligated under its service agreement with San Diego County
to contribute $15.0 million of equity to the project in 1994. The
Company has no material commitments for purchases of property, plant
and equipment and expects that, for 1994, such expenditures will
approximate the 1993 level. During the first six months of 1994, the
Company and its majority-owned subsidiaries expended $53.2 million to
purchase common stock of the Company's subsidiaries. The Company
expects that these purchases will continue.
A substantial percentage of the Company's consolidated cash and
short-term 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 Corporation
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
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.
16
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
The Company intends for the foreseeable future to maintain at
least 80% ownership of its Thermo Instrument and Thermo Fibertek
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 the Company 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. If the Company were to lose its ability to consolidate
for tax purposes with Thermo Instrument and/or Thermo Fibertek, the
Company would incur additional tax liabilities, which could be
substantial.
PART II - Other Information
Item 1 - Legal Proceedings
The Company participates in the operation of the Dade County
(Florida) Downtown Government Center cogeneration facility through a
joint venture with Rolls-Royce, Inc. As disclosed in the Company's
Quarterly Report on Form 10-Q for the quarter ended April 2, 1994, the
joint venture's lawsuit against Dade County (see Item 3 of the
Company's Annual Report on Form 10-K for the year ended January 1,
1994), including counterclaims by Dade County, was dismissed with
prejudice by agreement of the parties. The terms of the dismissal
include: (a) payment by Dade County, net of amounts paid by the joint
venture, of $1,500,000, (b) a joint request that the Federal Energy
Regulatory Commission (FERC) terminate its proceedings and vacate its
previous order, and (c) a joint request that the Florida Public
Service Commission (FPSC) dismiss the petition brought before it by
Dade County. FERC has not acted upon the request made to it by the
joint venture. FPSC granted the request for dismissal. Since the
settlement with Dade County, Florida Power & Light (FPL) has filed (a)
a motion at FERC opposing the request made to FERC by the joint
venture, and (b) a motion at FPSC, similar to one previously filed at
FPSC by Dade County, seeking a declaration that the joint venture was
engaged in the retail sale of electricity without complying with the
rules governing public utilities.
The settlement also contemplates certain initiatives designed to
improve the financial performance of the joint venture's facility,
including one or more of the following: (a) Dade County creating a
municipal utility to purchase all of the facility's power, and if FPL
17
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
PART II - Other Information (continued)
Item 1 - Legal Proceedings (continued)
refuses to wheel excess power, obtaining an order from FERC requiring
FPL to wheel electricity in excess of that used at the Downtown
Government Center project to other County facilities, (b) the joint
venture's acquisition of the generating equipment from Florida Energy
Partners and subsequent transfer of such equipment to Dade County, and
if FPL refuses self-service wheeling, the obtaining of an order from
FPSC requiring FPL to permit self-service wheeling by the County of
excess electricity from the facility to other County facilities, and
(c) construction by the joint venture, at its expense, of a
transmission line to transmit electricity to other County facilities.
Because these initiatives have numerous and complex conditions and
requirements associated with them, the implementation of which has
been opposed by FPL and/or which need the approval of other third
parties, no assurances can be given as to the likelihood that any one
of them will be successful. Moreover, if FERC does not grant the
aforementioned request and rejects FPL's challenges, or FPSC rules in
favor of FPL, then FERC or FPSC, as the case may be, could impose
liabilities or otherwise issue rulings which could result in the joint
venture being in default under its arrangements with Florida Energy
Partners, the potential consequences of which include facility
regulation or shut-down, refund liability, and other consequences as
described in the Company's most recent Form 10-K.
The Company's wholly owned Napco, Inc. subsidiary has settled the
previously disclosed matter of "Timothy R.E. Keeney, Commissioner of
Environmental Protection vs. Napco, Inc." pertaining to alleged
violations of Connecticut state law relating primarily to labeling and
storage of on-site containers allegedly containing hazardous
materials, and related record-keeping matters. The subsidiary agreed
to pay the Connecticut Department of Environmental Protection a civil
penalty of $350,000 to settle this matter.
Item 4 - Submission of Matters to a Vote of Security Holders
On May 24, 1994, at the Annual Meeting of Shareholders, the
shareholders elected a class of three incumbent directors to a
three-year term expiring in 1997. The directors reelected at the
meeting were: Dr. John M. Albertine, Mr. Peter O. Crisp, and Mr. Roger
D. Wellington. Dr. Albertine received 38,886,390 shares voted in favor
of his election and 237,216 shares withheld, Mr. Crisp received
38,896,339 shares voted in favor of his election and 227,267 shares
withheld, and Mr. Wellington received 38,883,795 shares voted in favor
of his election and 239,811 shares withheld. No broker nonvotes were
recorded on the election of directors.
18
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
PART II - Other Information (continued)
Item 4 - Submission of Matters to a Vote of Security Holders (continued)
The shareholders also approved a proposal to increase the
authorized common stock of the Company to 175 million shares as
follows: 37,331,700 shares voted in favor, 1,461,022 shares voted
against, and 330,884 shares abstained. A proposal to amend the
Company's equity incentive plan to comply with Section 162(m) of the
Internal Revenue Code and to increase the shares available under the
plan by 2,000,000 shares was also approved as follows: 33,806,443
shares voted in favor, 4,547,978 shares voted against and 769,185
shares abstained. No broker nonvotes were recorded on either proposal.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
19
FORM 10-Q
July 2, 1994
THERMO ELECTRON CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized as of the 9th day
of August 1994.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
20
EXHIBIT INDEX
Exhibit Number Document Page
3(i) Amended and Restated Certificate of Incorp-
oration of the Registrant (filed as Exhibit 4.1
to the Registrant's Registration Statement on
Form S-8 [Reg. No. 33-54347] and incorporated
herein by reference)
10.1 Equity Incentive Plan, as amended, of the
Registrant
11 Statement re: Computation of earnings per share
21