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 October
1, 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 October 28, 1994
----------------------------- -------------------------------
Common Stock, $1.00 par value 50,849,778PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of October 1, 1994 and
January 1, 1994 (In thousands)
October 1, January 1,
1994 1994
---------- ----------
Current Assets:
Cash and cash equivalents $ 307,181 $ 325,744
Short-term available-for-sale investments,
at market value (amortized cost of $636,992)
(Note 4) 635,047 -
Short-term investments - 374,450
Accounts receivable, less allowances of
$21,543 and $14,129 341,337 267,377
Unbilled contract costs and fees 33,775 32,574
Inventories:
Raw materials and supplies 129,049 110,437
Work in process and finished goods 112,692 82,385
Prepaid income taxes 47,758 39,258
Prepaid expenses 13,729 12,318
---------- ----------
1,620,568 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 767,548 581,894
Less: Accumulated depreciation and
amortization 168,602 134,423
---------- ----------
598,946 447,471
---------- ----------
Long-term Available-for-sale Investments,
at Market Value (amortized cost of $82,110)
(Note 4) 80,598 -
---------- ----------
Long-term Marketable Securities - 43,630
---------- ----------
Other Assets 105,921 102,347
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies 569,004 473,579
---------- ----------
$2,975,037 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(a) Consolidated Balance Sheet - Liabilities and Shareholders'
Investment as of October 1, 1994 and January 1, 1994 (In thousands
except share amounts)
October 1, January 1,
1994 1994
---------- ----------
Current Liabilities:
Notes payable $ 59,467 $ 45,851
Accounts payable 100,544 85,278
Accrued payroll and employee benefits 68,228 49,029
Accrued income taxes 14,960 7,713
Accrued installation and warranty costs 30,146 26,049
Other accrued expenses 214,116 202,326
---------- ----------
487,461 416,246
---------- ----------
Deferred Income Taxes and Other Items 126,434 106,539
---------- ----------
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 187,576 238,386
Tax-exempt obligations 130,938 -
Nonrecourse tax-exempt obligations 108,800 108,800
Other 19,386 25,275
---------- ----------
1,066,700 647,461
---------- ----------
Minority Interest 314,647 277,681
---------- ----------
Common Stock of Subsidiary Subject to
Redemption ($15,390 redemption value) 14,730 14,511
---------- ----------
Shareholders' Investment:
Common stock, $1 par value, 175,000,000
shares authorized; 50,951,625 and
47,950,580 shares issued 50,952 47,951
Capital in excess of par value 488,747 467,076
Retained earnings 436,573 362,138
Treasury stock at cost, 111,572 and 31,898
shares (4,818) (1,212)
Cumulative translation adjustment (1,271) (13,591)
Deferred compensation (2,922) (3,839)
Net unrealized loss on available-for-sale
investments (Note 4) (2,196) -
---------- ----------
965,065 858,523
---------- ----------
$2,975,037 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(b) Consolidated Statement of Income for the three months ended
October 1, 1994 and October 2, 1993 (In thousands except per share
amounts)
Three Months Ended
-------------------
Oct. 1, Oct. 2,
1994 1993
--------- ---------
Revenues:
Product sales and revenues $365,426 $282,526
Service revenues 35,774 29,842
Research and development contract revenues 5,254 6,012
-------- --------
406,454 318,380
-------- --------
Costs and Expenses:
Cost of products 209,351 166,121
Cost of services 25,979 22,378
Expenses for research and development and
new lines of business (a) 25,377 22,388
Selling, general and administrative expenses 98,885 67,917
Costs associated with divisional and product
restructuring 650 -
-------- --------
360,242 278,804
-------- --------
Gain on Issuance of Stock by Subsidiaries
(Note 2) 12,561 3,461
Other Income (Expense), Net (Note 3) (5,715) 238
-------- --------
Income Before Income Taxes and Minority Interest 53,058 43,275
Provision for Income Taxes 14,506 16,750
Minority Interest Expense 10,808 5,602
-------- --------
Net Income $ 27,744 $ 20,923
======== ========
Earnings per Share:
Primary $ .56 $ .45
======== ========
Fully diluted $ .48 $ .40
======== ========
Weighted Average Shares:
Primary 49,802 46,253
======== ========
Fully diluted 66,815 58,029
======== ========
(a) Includes costs of:
Research and development contracts $ 4,549 $ 5,049
Internally funded research and development 19,757 14,488
Other expenses for new lines of business 1,071 2,851
-------- --------
$ 25,377 $ 22,388
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(b) Consolidated Statement of Income for the nine months ended
October 1, 1994 and October 2, 1993 (In thousands except per share
amounts)
Nine Months Ended
-----------------------
Oct. 1, Oct. 2,
1994 1993
---------- ----------
Revenues:
Product sales and revenues $1,031,795 $ 803,370
Service revenues 101,459 89,339
Research and development contract revenues 18,642 18,883
---------- ----------
1,151,896 911,592
---------- ----------
Costs and Expenses:
Cost of products 602,557 489,686
Cost of services 73,758 66,781
Expenses for research and development and
new lines of business (a) 75,372 64,842
Selling, general and administrative expenses 273,683 204,667
Costs associated with divisional and product
restructuring 650 5,845
---------- ----------
1,026,020 831,821
---------- ----------
Gain on Issuance of Stock by Subsidiaries
(Note 2) 21,284 25,179
Other Income (Expense), Net (Note 3) 1,285 (6,274)
---------- ----------
Income Before Income Taxes and Minority
Interest 148,445 98,676
Provision for Income Taxes 50,956 29,900
Minority Interest Expense 23,054 14,799
---------- ----------
Net Income $ 74,435 $ 53,977
========== ==========
Earnings per Share:
Primary $ 1.53 $ 1.27
========== ==========
Fully diluted $ 1.34 $ 1.14
========== ==========
Weighted Average Shares:
Primary 48,677 42,487
========== ==========
Fully diluted 64,007 54,283
========== ==========
(a) Includes costs of:
Research and development contracts $ 15,408 $ 15,441
Internally funded research and
development 57,094 44,307
Other expenses for new lines of business 2,870 5,094
---------- ----------
$ 75,372 $ 64,842
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(c) Condensed Consolidated Statement of Cash Flows for the nine months
ended October 1, 1994 and October 2, 1993 (In thousands)
Nine Months Ended
--------------------
Oct. 1, Oct. 2,
1994 1993
--------- ---------
Operating Activities:
Net cash provided by operating activities $ 110,638 $ 60,191
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (160,193) (116,686)
Purchases of property, plant and equipment (39,868) (26,232)
Proceeds from sale of property, plant and
equipment 17,501 2,647
Purchases of long-term investments - (19,226)
Proceeds from sale of long-term investments - 16,640
Purchases of available-for-sale investments (642,968) -
Proceeds from sale and maturities of
available-for-sale investments 354,606 -
Increase in short-term investments - (108,744)
(Increase) Decrease in assets related to
construction projects 23,420 (5,056)
Other (6,919) (2,013)
--------- ---------
Net cash used in investing activities (454,421) (258,670)
--------- ---------
Financing Activities:
Net proceeds from issuance of long-term
obligations (Note 5) 370,311 67,959
Repayment and repurchase of long-term
obligations (18,867) (4,840)
Proceeds from issuance of Company and
subsidiary common stock 46,288 333,280
Purchases of Company and subsidiary common
stock (76,503) (41,340)
Other 960 (187)
--------- ---------
Net cash provided by financing activities 322,189 354,872
--------- ---------
Exchange Rate Effect on Cash 3,031 (1,380)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (18,563) 155,013
Cash and Cash Equivalents at Beginning of Period 325,744 190,601
--------- ---------
Cash and Cash Equivalents at End of Period $ 307,181 $ 345,614
========= =========
6PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(c) Condensed Consolidated Statement of Cash Flows for the nine months
ended October 1, 1994 and October 2, 1993 (In thousands)
(continued)
Nine Months Ended
--------------------
Oct. 1, Oct. 2,
1994 1993
--------- ---------
Supplemental Cash Flow Information:
Provision for losses on accounts receivable $ 2,344 $ 2,157
Cash paid for:
Interest $ 41,095 $ 25,722
Income taxes $ 18,458 $ 7,683
Noncash financing activities:
Conversions of convertible obligations $ 88,210 $ 33,577
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - October 1, 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 nine-month periods ended October 1, 1994
and October 2, 1993, (b) the financial position at October 1, 1994,
and (c) the cash flows for the nine-month periods ended
October 1, 1994 and October 2, 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 nine-month period ended October 1, 1994,
resulted primarily from the following:
An initial public offering of 2,674,786 shares of ThermoLase
Corporation common stock in July 1994 at $6.00 per share for net
proceeds of $14.8 million resulted in a gain of $8.6 million
recorded by ThermoTrex Corporation.
A private placement of 700,000 shares of ThermoSpectra Corporation
common stock in September 1994 at $10.00 per share for net
proceeds of $6.5 million resulted in a gain of $3.3 million
recorded by Thermo Instrument Systems Inc.
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.
8PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - October 1, 1994
(continued)
3. Other Income (Expense), Net
The components of "Other income (expense), net" in the
accompanying statement of income are:
Three Months Ended Nine Months Ended
------------------ -------------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
(In thousands) 1994 1993 1994 1993
--------------------------------------------------------------------
Royalty income $ 206 $ 447 $ 1,486 $ 1,441
Interest income 12,117 8,108 30,023 17,051
Interest expense (16,496) (7,756) (43,199) (23,241)
Equity in losses of
unconsolidated subsidiaries (1,516) (1,514) (3,354) (3,579)
Gain (loss) on sale of
investments (87) 695 4,244 1,563
Other income, net 61 258 12,085 491
-------- -------- -------- --------
$ (5,715) $ 238 $ 1,285 $ (6,274)
======== ======== ======== ========
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 $5,064,000
relating to the decline in the market value of available-for-sale
investments for the nine-month period ended October 1, 1994.
9PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - October 1, 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 October 1, 1994, are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
----------------------------------------------------------------------
Government agency
securities $302,377 $304,327 $ 213 $ 2,163
Corporate bonds 324,125 324,995 161 1,031
Tax-exempt securities 33,857 33,991 7 141
Other 55,286 55,789 2,172 2,675
-------- -------- -------- --------
$715,645 $719,102 $ 2,553 $ 6,010
======== ======== ======== ========
Available-for-sale investments in the accompanying balance sheet
at October 1, 1994, include $430,382,000 with contractual maturities
of one year or less, $247,900,000 with contractual maturities of over
one year through five years, and $37,363,000 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 nine-month period ended October 1, 1994,
resulted from gross realized gains of $5,839,000 and gross realized
losses of $1,595,000 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.
10PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
(d) Notes to Consolidated Financial Statements - October 1, 1994
(continued)
6. Redemption of Subordinated Convertible Debentures
In July 1994, the Company called for redemption on August 19,
1994, all of its outstanding 6 3/4% subordinated convertible
debentures due 2001. During the quarter ended October 1, 1994, the
$59,675,000 principal amount of debentures outstanding was converted
into 2,594,494 shares of the Company's common stock.
7. Potential Acquisitions
In August 1994, the Company signed a letter of intent to acquire
Coleman Research Corporation in exchange for approximately 2,656,000
shares of the Company's stock in a transaction to be accounted for
under the pooling-of-interests method of accounting. The proposed
acquisition is subject to certain conditions, including the
negotiation and execution of a definitive merger agreement, receipt of
regulatory approvals including clearance from the Securities and
Exchange Commission, due diligence, approval by the Company's board of
directors, and approval by Coleman's shareholders and its board of
directors.
In October 1994, the Company commenced a cash tender offer at
$24.50 per share for all of the outstanding shares of common stock of
Puritan-Bennett Corporation. The total amount of funds required by the
Company to purchase all shares (on a fully diluted basis) and pay
related fees and expenses is expected to be approximately $320
million. The tender offer will expire on November 22, 1994. The
closing of the tender offer is subject to a condition that the number
of shares of Puritan-Bennett common stock tendered, together with the
shares owned by the Company, constitute a majority of the
Puritan-Bennett shares outstanding. The tender offer is also subject
to certain other conditions, including, but not limited to, the
condition that Puritan-Bennett's shareholder rights plan, and certain
anti-takeover provisions of Puritan-Bennett's articles of
incorporation and Delaware law, be made inapplicable to the
transaction. Puritan-Bennett, based in Overland Park, Kansas, is a
leading manufacturer of respiratory devices for hospital, home, and
aviation markets.
11PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Third Quarter 1994 Compared With Third Quarter 1993
Sales for the third quarter of 1994 were a record $406.5 million,
an increase of $88.1 million, or 28%, over the third quarter of 1993.
Segment income was a record $55.8 million, compared with $44.1 million
in 1993, an increase of 26%. (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 $161.6 million in 1994, an
increase of $38.4 million, or 31%, over the third quarter of 1993.
Sales increased due to acquisitions made by Thermo Instrument Systems
Inc. during 1994 and 1993, including its acquisition of several
businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated in March 1994. Segment income margin
(segment income margin is segment income as a percentage of sales) was
15.2% in 1994, compared with 17.7% in 1993. Segment income margin
declined principally due to lower margins at the acquired businesses
within the EnviroTech Measurements & Controls group.
Sales from the Alternative-energy Systems segment were $81.4
million in 1994, an increase of $11.4 million, or 16%, over 1993.
Sales from the Energy Systems group, which consist of revenues from
the operation of power plants and a waste-recycling facility,
increased to $46.9 million from $41.1 million in 1993. Increased
revenues from the Energy Systems group resulted primarily from an
additional power plant and a waste-recycling facility in operation
during the third quarter of 1994 and, to a lesser extent, the absence
of utility-imposed curtailments of power output, and from annual
contractual energy rate increases under certain power sales contracts.
The 1993 period includes $9.8 million of revenues recorded as a result
of an agreement with a utility to terminate a power sales contract.
Sales from Thermo Power Corporation were $24.2 million, compared with
$19.2 million in 1993. Sales increased due to the inclusion of $3.6
million in sales from NuTemp, Inc., which was acquired in May 1994,
and increased demand for refrigeration packages.
Segment income from the Alternative-energy Systems segment was
$15.0 million in 1994, compared with $12.7 million in 1994. The Energy
Systems group had segment income of $13.3 million, compared with $12.2
million in 1993. This improvement resulted from the additional power
plant and waste-recycling facility in operation during the third
quarter of 1994 and, to a lesser extent, the absence of
utility-imposed curtailments of power output and from improved
performance at two California plants, and annual contractual energy
rate increases under certain power sales contracts. In addition,
12PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Third Quarter 1994 Compared With Third Quarter 1993 (continued)
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. The 1993
period included $5.4 million of income from the termination of the
power sales contract discussed above. Segment income increased $1.0
million at Thermo Power as a result of increased sales as well as
lower expenses at Crusader Engines.
Sales in the Process Equipment segment were $46.3 million,
compared with $44.6 million in 1993. Within this segment, sales from
Thermo Fibertek Inc. were $40.4 million, compared with $37.3 million
in 1993. Increased demand for paper-recycling equipment and
flotation-dryers was offset in part by a decline of $0.9 million in
revenues due to a decrease in demand for the environmental process
systems sold by Thermo Fibertek's U.K. subsidiary. Sales of Holcroft
heat-treating systems remained depressed at $3.3 million, compared
with $3.9 million in 1993. Sales of automated electroplating equipment
from the Company's wholly owned Napco, Inc. subsidiary declined to
$2.6 million from $3.4 million in 1993, due to continuing weak demand.
The Process Equipment segment income margin was 10.8%, compared with
6.8% in 1993. Thermo Fibertek's segment income margin improved to
13.5% from 9.6% in 1993, primarily due to increased sales and an
improved sales mix. Holcroft and Napco had segment losses of $28,000
and $0.4 million in 1994, respectively, due to low sales levels.
Sales in the Biomedical Products segment were $45.8 million in
1994, an increase of $14.7 million, or 47%, over 1993. Sales increased
$4.3 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 $4.5 million, sales from wholly owned Nicolet
Biomedical and International Technidyne increased $2.7 million, sales
of Thermo Cardiosystems Inc.'s implantable left ventricular-assist
systems (LVAS) increased $1.7 million, and sales of Thermedics Inc.'s
Scent Seal fragrance samplers increased $1.2 million, all due to
increased demand. Segment income margin improved to 10.5%, compared
with 5.0% in 1993, as a result of increased sales and efforts to
reduce costs. Thermo Cardiosystems received U.S. Food and Drug
Administration approval for the commercial sale of its air-driven LVAS
in October 1994 and has announced a price increase on U.S. sales of
its air-driven LVAS, which will be phased in over six months.
13PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Third Quarter 1994 Compared With Third Quarter 1993 (continued)
Sales in the Services segment were $35.9 million in 1994, compared
with $29.8 million in 1993. Within this segment, sales from Thermo
Remediation Inc. increased $2.3 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 analytical laboratory and
environmental consulting services increased $2.6 million due to the
inclusion of $2.0 million in revenues from businesses acquired in 1994
and increased demand. Sales of metallurgical services were above 1993
levels. Segment income margin improved to 10.5% from 8.3% in 1993 due
to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $36.9 million,
compared with $20.4 million in 1993. Sales increased $14.8 million due
to the inclusion of sales from Ramsey Technology Inc., which was
acquired by Thermedics in March 1994. Sales also increased $2.1
million due to increased demand for Thermedics' EGIS explosives-
detection systems. Segment income margin declined to 7.1% in 1994,
compared with 12.0% in 1993, as a result of increased research and
development expenses at ThermoTrex to develop and commercialize new
products and lower margins at Ramsey.
A wholly owned subsidiary of the Company, Napco, Inc., is
challenging a $12.2 million jury verdict rendered against it in the
third quarter of 1994 in a contract dispute arising out of a defective
waste treatment system installed by Napco in 1984. The Company
believes the verdict is in error and is vigorously pursuing all
available post-trial remedies. These include having the verdict set
aside or substantially reduced and, if necessary, taking an appeal. In
the third quarter of 1994 the Company increased its reserve for
potential losses from pending litigation by approximately $4.0
million, which is reflected in Corporate general and administrative
expenses.
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 Company recorded gains of $12.6
million in 1994 and $3.5 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
14PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Third Quarter 1994 Compared With Third Quarter 1993 (continued)
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.
In the third quarter of 1994, the Company's ThermoTrex subsidiary
recorded restructuring expenses of $0.7 million, resulting from the
decision to close its division located in Massachusetts. The costs
primarily represent severance costs and, to a lesser extent, the costs
to write-off leasehold improvements.
"Other income (expense), net" in the accompanying statement of
income includes 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, primarily the operation
of the Dade County cogeneration facility. The loss from unconsolidated
subsidiaries was $1.5 million in both the 1994 and 1993 periods.
First Nine Months 1994 Compared With First Nine Months 1993
Sales for the first nine months of 1994 were $1,151.9 million, an
increase of $240.3 million, or 26%, over the 1993 period. Segment
income was $146.6 million, an increase of $46.7 million, or 47%, over
1993.
Sales from the Instruments segment were $471.9 million, an
increase of $99.0 million, or 27%, over the 1993 period. Sales
increased due to acquisitions made by Thermo Instrument. Segment
income margin declined to 16.5% in 1994 from 17.2% in 1993 as a result
of lower margins at recently acquired businesses.
Sales from the Alternative-energy Systems segment were $214.2
million in 1994, an increase of $30.7 million, or 17%, over 1993.
Sales from the Energy Systems group were $117.7 million, compared with
$98.6 million in 1993. Sales increased due to the reasons discussed in
the results of operations for the third quarter in addition to an
increase in sales at two California plants as a result of improved
performance due to significant repairs made in the first half of 1993.
These increases were offset in part by a decline 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 after damage
to its turbine-generator. The Whitefield plant resumed full
operations in June 1994. Sales from Thermo Power were $69.6 million,
compared with $57.6 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
15PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
First Nine Months 1994 Compared With First Nine Months 1993 (continued)
industry, and the inclusion of $5.8 million in sales from NuTemp,
which was acquired in May 1994.
Segment income from the Alternative-energy Systems segment was
$25.9 million in 1994, compared with $9.8 million in 1993. The Energy
Systems group had segment income of $22.5 million, compared with $8.1
million in 1993. This improvement is due to the reasons discussed in
the results of operations for the third quarter. Segment income at
Thermo Power increased $1.9 million as a result of increased sales.
Sales in the Process Equipment segment were $135.0 million,
compared with $120.3 million in 1993. Within this segment, sales from
Thermo Fibertek were $115.4 million, compared with $96.3 million in
1993. This increase reflects the inclusion of an additional $16.8
million in sales from AES Engineered Systems, which was acquired in
June 1993, and an increase of $5.6 million in sales of paper-recycling
equipment, due to increased demand. These increases were offset in
part by a decline of $4.5 million in sales due to a decrease in demand
for the environmental process systems sold by Thermo Fibertek's U.K.
subsidiary. Sales of Holcroft heat-treating systems, which remain
depressed, declined $2.3 million in 1994, and sales of automated
electroplating equipment from the Company's wholly owned Napco
subsidiary declined $2.1 million in 1994 due to weak demand. The
Process Equipment segment income margin was 10.1%, compared with 7.1%
in 1993. Thermo Fibertek's segment income margin improved to 12.5%
from 10.2% in 1993, primarily due to increased sales and an improved
sales mix. Holcroft and Napco had segment losses of $26,000 and $0.6
million in 1994, respectively, due to low sales levels.
Sales in the Biomedical Products segment were $130.2 million, an
increase of $37.4 million, or 40%, over 1993. Sales increased $12.9
million due to the inclusion of sales from CBI Laboratories, which was
acquired in December 1993. Sales of ThermoTrex's mammography and
biopsy systems increased 44%, to $39.2 million, sales of Thermo
Cardiosystems' implantable LVAS increased $4.5 million, sales of
Thermedics' Scent Seal fragrance samplers increased $3.4 million, and
sales of International Technidyne's blood coagulation-monitoring
products and skin incision devices increased 16% to $20.8 million due
to increased demand. Segment income margin improved to 8.7%, compared
with 4.4% in 1993, as a result of increased sales and efforts to
reduce costs.
16PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
First Nine Months 1994 Compared With First Nine Months 1993 (continued)
Sales in the Services segment were $101.5 million, compared with
$89.3 million in 1993. Within this segment, sales from Thermo
Remediation increased $7.8 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 analytical laboratory and
environmental consulting services increased 5%, due to the inclusion
of revenues from businesses acquired in 1994, while sales of
metallurgical services increased $2.1 million, to $32.1 million, due
to increased demand. Segment income margin improved to 10.4% from 7.8%
in 1993 due to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $102.6 million,
compared with $54.4 million in 1993. Sales increased $36.6 million due
to the acquisitions of Ramsey in March 1994, and Comtest
Instrumentation in August 1993. Sales increased $4.7 million due to
increased demand for Thermedics' EGIS explosives-detection systems,
and $3.5 million due to increased demand, principally from one
customer, for Thermedics' process detection instruments. Segment
income margin declined to 7.2% from 11.6% in 1993 as a result of
increased research and development expenses at ThermoTrex to develop
and commercialize new products and, to a lesser extent, lower margins
at acquired businesses.
The Company recorded gains as a result of the sale of stock by
subsidiaries of $21.3 million in 1994 and $25.2 million in 1993.
Financial Condition
Liquidity and Capital Resources
Consolidated working capital was $1,133.1 million at October
1, 1994, compared with $828.3 million at January 1, 1994. Included in
working capital were cash and short-term investments of $942.2 million
at October 1, 1994, compared with $700.2 million at January 1, 1994.
In addition, at October 1, 1994, the Company had $80.6 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 nine months of 1994, the Company expended $160.2 million,
net of cash acquired, for acquisitions, and $39.9 million for
purchases of property, plant and equipment. In early 1994, the Company
completed construction of a waste-recycling facility in San Diego
17PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
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. The Company has
commenced a tender offer for shares of Puritan-Bennett Corporation,
which could involve the expenditure of up to $320 million (see Note 7
to Consolidated Financial Statements). During the first nine months of
1994, the Company and its majority-owned subsidiaries expended $76.5
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.
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
18PAGE
FORM 10-Q
October 1, 1994
THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
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 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
19PAGE
FORM 10-Q
October 1, 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 8th day
of November 1994.
THERMO ELECTRON CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Vice President, Finance
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
20PAGE
EXHIBIT INDEX
Exhibit Number Document Page
-------------- -------- ----
11 Statement re: Computation of earnings per share
27 Financial Data Schedule
21