Exhibit 13
THERMO ELECTRON CORPORATION
Consolidated Financial Statements
1996
PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1996 1995 1994
-----------------------------------------------------------------------
Revenues:
Product and service revenues $2,766,002 $2,075,748 $1,559,744
Research and development
contract revenues 166,556 194,543 169,447
---------- ---------- ----------
2,932,558 2,270,291 1,729,191
---------- ---------- ----------
Costs and Operating Expenses:
Cost of product and service
revenues 1,657,746 1,239,762 928,645
Expenses for research and
development and new lines of
business (a) 301,457 272,809 233,099
Selling, general, and
administrative expenses 689,248 510,564 384,715
Restructuring and other
nonrecurring costs (Note 11) 37,641 21,938 650
---------- ---------- ----------
2,686,092 2,045,073 1,547,109
---------- ---------- ----------
Operating Income 246,466 225,218 182,082
Gain on Issuance of Stock by
Subsidiaries (Note 9) 126,599 80,815 25,283
Other Income (Expense), Net
(Note 10) 1,486 (7,225) (989)
---------- ---------- ----------
Income Before Income Taxes and
Minority Interest 374,551 298,808 206,376
Provision for Income Taxes
(Note 8) 110,845 98,711 70,703
Minority Interest Expense 72,890 60,515 30,962
---------- ---------- ----------
Net Income $ 190,816 $ 139,582 $ 104,711
========== ========== ==========
Earnings per Share:
Primary $ 1.35 $ 1.10 $ .90
========== ========== ==========
Fully diluted $ 1.22 $ .97 $ .80
========== ========== ==========
Weighted Average Shares:
Primary 141,525 126,626 116,500
========== ========== ==========
Fully diluted 175,700 159,246 151,229
========== ========== ==========
2PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Income (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
(a) Includes costs of:
Research and development
contracts $ 144,823 $ 167,120 $ 149,645
Internally funded research
and development 154,448 102,209 79,555
Other expenses for new lines
of business 2,186 3,480 3,899
---------- ---------- ----------
$ 301,457 $ 272,809 $ 233,099
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Balance Sheet
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 414,404 $ 462,861
Short-term available-for-sale investments,
at quoted market value (amortized cost of
$1,428,564 and $588,471; Note 2) 1,431,881 593,802
Accounts receivable, less allowances
of $34,321 and $29,318 616,545 493,313
Unbilled contract costs and fees 77,155 74,941
Inventories 432,960 332,786
Prepaid income taxes (Note 8) 129,802 75,685
Prepaid expenses 29,082 23,204
---------- ----------
3,131,829 2,056,592
---------- ----------
Property, Plant, and Equipment, at Cost, Net 704,447 715,588
---------- ----------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $58,500
and $60,780; Note 2) 68,807 61,845
---------- ----------
Long-term Held-to-Maturity Investments
(quoted market value of $26,083 and $24,942;
Note 2) 25,594 23,819
---------- ----------
Other Assets 127,632 101,138
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3, 8, and 11) 1,082,935 827,357
---------- ----------
$5,141,244 $3,786,339
========== ==========
4PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (Note 5) $ 153,787 $ 112,280
Accounts payable 203,643 172,823
Accrued payroll and employee benefits 122,079 93,930
Accrued income taxes 61,534 52,055
Accrued installation and warranty costs 69,006 37,267
Deferred revenue 45,715 24,014
Other accrued expenses (Note 3) 257,448 247,077
---------- ----------
913,212 739,446
---------- ----------
Deferred Income Taxes (Note 8) 81,726 60,096
---------- ----------
Other Deferred Items 81,020 69,830
---------- ----------
Long-term Obligations (Note 5):
Senior convertible obligations 369,997 458,925
Subordinated convertible obligations 1,009,470 343,076
Tax-exempt obligations - 128,567
Nonrecourse tax-exempt obligations 77,900 94,700
Other 92,975 92,809
---------- ----------
1,550,342 1,118,077
---------- ----------
Minority Interest 684,050 471,648
---------- ----------
Commitments and Contingencies (Note 6)
Common Stock of Subsidiaries Subject to
Redemption ($81,179 and $18,450
redemption value; Note 1) 76,525 17,513
---------- ----------
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; 149,996,979 and 89,006,032
shares issued 149,997 89,006
Capital in excess of par value 801,793 614,363
Retained earnings 795,312 604,496
Treasury stock at cost, 15,520 and 11,574
shares (570) (536)
Cumulative translation adjustment (504) 608
Deferred compensation (Note 4) (58) (2,271)
Net unrealized gain on available-for-sale
investments (Note 2) 8,399 4,063
---------- ----------
1,754,369 1,309,729
---------- ----------
$5,141,244 $3,786,339
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1996 1995 1994
----------------------------------------------------------------------------
Operating Activities:
Net income $ 190,816 $ 139,582 $ 104,711
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 115,167 85,869 65,028
Restructuring and other
nonrecurring costs (Note 11) 37,641 21,938 650
Equity in losses of unconsolidated
subsidiaries 28 203 4,019
Provision for losses on accounts
receivable 6,002 5,534 4,225
Increase in deferred income
taxes 20,869 4,277 9,403
Gain on issuance of stock by
subsidiaries (Note 9) (126,599) (80,815) (25,283)
(Gain) loss on sale of property,
plant, and equipment 81 (547) (15,025)
Gain on sale of investments (9,840) (9,305) (4,851)
Minority interest expense 72,890 60,515 30,962
Other noncash expenses 15,649 19,583 9,809
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (17,078) (52,649) (8,526)
Inventories (1,298) (32,267) 10,017
Other current assets (35,657) (9,447) (9,713)
Accounts payable (14,307) 19,198 804
Other current liabilities (29,859) 27,427 16,295
----------- ----------- ----------
Net cash provided by operating
activities 224,505 199,096 192,525
----------- ----------- ----------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (366,317) (330,698) (173,764)
Purchases of available-for-sale
investments (1,644,094) (570,064) (748,879)
Purchases of long-term held-to-
maturity investments - (22,300) -
Proceeds from sale and maturities of
available-for-sale investments 835,935 617,145 495,361
Purchases of property, plant, and
equipment (124,541) (64,016) (65,525)
Proceeds from sale of property,
plant, and equipment 10,500 5,702 21,391
Increase in other assets (26,144) (19,750) (7,097)
Decrease in net restricted funds - - 23,420
Other 3,385 (147) (565)
----------- ----------- -----------
Net cash used in investing activities $(1,311,276) $ (384,128) $ (455,658)
----------- ----------- -----------
6PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1996 1995 1994
----------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
long-term obligations (Note 5) $ 953,376 $ 203,387 $ 368,620
Repayment and repurchase of
long-term obligations (63,793) (18,012) (27,176)
Net proceeds from issuance of
Company and subsidiary common
stock (Note 9) 303,954 173,326 60,601
Purchases of subsidiary common
stock (140,903) (97,789) (101,481)
Increase (decrease) in short-
term notes payable (13,391) 1,438 16,683
Other (1,279) (226) 987
----------- ----------- -----------
Net cash provided by financing
activities 1,037,964 262,124 318,234
----------- ----------- -----------
Exchange Rate Effect on Cash 350 2,764 1,915
----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents (48,457) 79,856 57,016
Cash and Cash Equivalents at
Beginning of Year 462,861 383,005 325,989
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 414,404 $ 462,861 $ 383,005
=========== =========== ===========
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1996 1995 1994
----------------------------------------------------------------------
Common Stock, $1 Par Value
Balance at beginning of year $ 89,006 $ 53,558 $ 50,484
Issuance of stock under employees'
and directors' stock plans 892 571 153
Conversions of convertible
obligations 13,449 6,047 2,921
Acquisition through pooling-
of-interests (Note 3) - 1,143 -
Effect of three-for-two stock
splits 46,650 27,687 -
---------- ---------- ----------
Balance at end of year 149,997 89,006 53,558
---------- ---------- ----------
Capital in Excess of Par Value
Balance at beginning of year 614,363 493,058 474,193
Issuance of stock under employees'
and directors' stock plans 8,172 5,293 2,429
Tax benefit related to employees'
and directors' stock plans 12,821 9,666 -
Conversions of convertible
obligations 254,842 150,787 63,013
Acquisition through pooling-
of-interests (Note 3) - 17,888 -
Effect of three-for-two stock
splits (46,650) (27,687) -
Effect of majority-owned
subsidiaries' equity
transactions (41,755) (34,642) (46,577)
---------- ---------- ----------
Balance at end of year 801,793 614,363 493,058
---------- ---------- ----------
Retained Earnings
Balance at beginning of year 604,496 472,396 367,685
Net income 190,816 139,582 104,711
Acquisition through pooling-
of-interests (Note 3) - (6,645) -
Net loss of SensorMedics
Corporation for the quarter
ended December 30, 1995
(Note 3) - (837) -
---------- ---------- ----------
Balance at end of year $ 795,312 $ 604,496 $ 472,396
---------- ---------- ----------
8PAGE
Thermo Electron Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Treasury Stock
Balance at beginning of year $ (536) $ (1,631) $ (1,212)
Activity under employees' and
directors' stock plans (34) 1,095 (419)
---------- ---------- ----------
Balance at end of year (570) (536) (1,631)
---------- ---------- ----------
Cumulative Translation Adjustment
Balance at beginning of year 608 (3,557) (13,591)
Translation adjustment (1,112) 4,193 10,034
Acquisition through pooling-of-
interests (Note 3) - (28) -
---------- ---------- ----------
Balance at end of year (504) 608 (3,557)
---------- ---------- ----------
Deferred Compensation
Balance at beginning of year (2,271) (2,657) (3,839)
Amortization of deferred
compensation 296 386 1,182
ESOP II loan repayment (Note 4) 1,917 - -
---------- ---------- ----------
Balance at end of year (58) (2,271) (2,657)
---------- ---------- ----------
Net Unrealized Gain (Loss) on
Available-for-sale Investments
Balance at beginning of year 4,063 (3,681) -
Effect of change in accounting
principle (Note 2) - - 2,868
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) 4,336 7,744 (6,549)
---------- ---------- ----------
Balance at end of year 8,399 4,063 (3,681)
---------- ---------- ----------
Total Shareholders' Investment $1,754,369 $1,309,729 $1,007,486
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
9PAGE
Thermo Electron Corporation 1996 Financial Statements
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 environmental monitoring and analysis
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
environmental, laboratory, and metallurgical services and conducts
advanced-technology research and development.
Principles of Consolidation
The accompanying consolidated 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, and Thermo BioAnalysis Corporation
are majority-owned, public subsidiaries of Thermo Instrument. Thermo
Remediation Inc. is a majority-owned, public subsidiary 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. Metrika
Systems Corporation 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. 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 1996, 1995, and 1994 are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
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 1996 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 $421.1 million in 1996, $472.0
10PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Significant Accounting Policies (continued)
million in 1995, and $319.8 million in 1994. The percentage of completion
is 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
Primary earnings per share has been computed based on the weighted
average number of shares outstanding during the year. Because the effect
of the assumed exercise of the Company's stock options would be
11PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Significant Accounting Policies (continued)
immaterial, they have been excluded from the primary earnings per share
calculation. Fully diluted earnings per share has been computed assuming
the conversion of the Company's convertible obligations and elimination
of the related interest expense, as well as the exercise of stock options
and their related income tax effects.
Stock Splits
All share and per share information, except as noted below, has been
restated to reflect three-for-two stock splits, effected in the form of
50% stock dividends, which were distributed in June 1996 and May 1995.
Share information in the accompanying 1995 balance sheet has not been
restated for the stock split distributed in June 1996.
Cash and Cash Equivalents
Cash equivalents consists principally of U.S. government agency
securities, corporate notes, commercial paper, 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:
(In thousands) 1996 1995
----------------------------------------------------------------------
Raw materials and supplies $236,297 $175,346
Work in process 80,614 72,768
Finished goods 116,049 84,672
-------- --------
$432,960 $332,786
======== ========
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 and waste-recycling
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.
12PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Significant Accounting Policies (continued)
Property, plant, and equipment consists of the following:
(In thousands) 1996 1995
----------------------------------------------------------------------
Land $ 55,430 $ 47,848
Buildings 206,406 175,165
Alternative-energy and waste-recycling
facilities 247,361 382,257
Machinery, equipment, and leasehold
improvements 500,992 372,546
---------- ----------
1,010,189 977,816
Less: Accumulated depreciation and
amortization 305,742 262,228
---------- ----------
$ 704,447 $ 715,588
========== ==========
Other Assets
Other assets in the accompanying balance sheet includes the costs of
acquired trademarks, patents, product technology, and other specifically
identifiable intangible assets. These assets are being amortized using
the straight-line method over their estimated useful lives, which range
from 3 to 20 years. These assets were $39.9 million and $39.5 million,
net of accumulated amortization of $38.0 million and $31.5 million, at
year-end 1996 and 1995, 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 $96.4 million and $65.6 million at
year-end 1996 and 1995, 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, in December 1998 or 1999, any or all of their shares at $10.00
per share.
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, in September 2000 and 2001, one share
13PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Significant Accounting Policies (continued)
of Thermo Fibergen common stock at $12.75 per share. 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.
The difference between the redemption value and the original carrying
amount of common stock of subsidiaries subject to redemption is accreted
over the period through the first redemption period. The accretion is
charged to minority interest expense in the accompanying statement of
income. The 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.
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 1995 and 1994 have been reclassified to conform to
the presentation in the 1996 financial statements. The historical
information for 1995 has been restated to reflect the June 1996
acquisition of SensorMedics Corporation, which has been accounted for
under the pooling-of-interests method (Note 3). The historical financial
information for periods prior to 1995 has been restated to reflect the
March 1995 acquisition of Coleman Research Corporation, which has been
accounted for under the pooling-of-interests method (Note 3).
2. Available-for-sale and Held-to-maturity Investments
Effective January 2, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, certain of 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 (loss) on available-for-sale
investments." Effect of change in accounting principle in the
14PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale and Held-to-maturity Investments (continued)
accompanying 1994 statement of shareholders' investment represents the
unrealized gain, net of related tax effects, pertaining to
available-for-sale investments held by the Company on January 2, 1994.
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:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
--------------------------------------------------------------------------
1996
Government agency
securities $ 804,852 $ 804,142 $ 761 $ (51)
Corporate bonds 581,804 581,424 482 (102)
Other 114,032 101,498 12,855 (321)
---------- ---------- ---------- ----------
$1,500,688 $1,487,064 $ 14,098 $ (474)
========== ========== ========== ==========
1995
Government agency
securities $ 367,208 $ 366,659 $ 574 $ (25)
Corporate bonds 194,628 192,422 2,223 (17)
Tax-exempt securities 16,275 16,247 28 -
Other 77,536 73,923 3,885 (272)
---------- ---------- ---------- ----------
$ 655,647 $ 649,251 $ 6,710 $ (314)
========== ========== ========== ==========
Short- and long-term available-for-sale investments in the
accompanying 1996 balance sheet include equity securities of $34.4 million,
debt securities of $1,212.3 million with contractual maturities of one year
or less, debt securities of $252.4 million with contractual maturities of
more than one year through five years, and debt securities of $1.6 million
with contractual maturities of more than 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 $11.2 million, $9.8
million, and $6.7 million and gross realized losses of $1.4 million, $0.5
million, and $1.8 million in 1996, 1995, and 1994, respectively, relating
to the sale of available-for-sale investments.
15PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale and Held-to-maturity Investments (continued)
Held-to-maturity investments in the accompanying balance sheet
represents investments in U.S. treasury bonds that mature in February and
May 1998. It is the Company's intent to hold these securities to
maturity.
3. Acquisitions
In June 1996, the Company acquired SensorMedics in exchange for
1,289,781 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 and
sleep-disorder diagnosis, as well as high-frequency ventilation for
pediatric and neonatal care. SensorMedics also manufactures and markets
respiratory-gas analyzers, physiological testing equipment and recorders,
and pulse oximeters. The acquisition has been accounted for under the
pooling-of-interests method.
In March 1995, the Company acquired Coleman Research in exchange for
6,003,336 shares of the Company's common stock, including 304,292 shares
reserved for issuance upon exercise of assumed stock options. Coleman
Research provides systems integration, systems engineering, and
analytical services to government and commercial customers in the fields
of information technology, energy, the environment, software engineering,
launch systems, advanced radar and imaging, and health systems. The
acquisition has been accounted for under the pooling-of-interests method.
Historical financial information presented for 1995 and 1994 has been
restated to include the acquisitions of SensorMedics and Coleman
Research, respectively. Revenues and net income (loss) for 1995 and 1994,
as previously reported by the separate entities prior to the acquisitions
and as restated for the combined Company, are as follows:
(In thousands) 1995 1994
------------------------------------------------------------------------
Revenues:
Previously reported $2,207,417 $1,585,348
SensorMedics 62,874 -
Coleman Research - 143,843
---------- ----------
$2,270,291 $1,729,191
========== ==========
Net Income (Loss):
Previously reported $ 140,080 $ 103,410
SensorMedics (498) -
Coleman Research - 1,301
---------- ----------
$ 139,582 $ 104,711
========== ==========
16PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
All historical financial information has been restated to include the
acquisition of Coleman Research. Historical information for periods prior
to 1995 has not been restated to include SensorMedics due to
immateriality. The 1995 financial information combines the September 30
fiscal year-end financial information of SensorMedics and the calendar
year-end financial information of the Company. SensorMedics' revenues and
net loss of $14,769,000 and $837,000, respectively, for the three months
ended December 30, 1995, have not been included in the combined 1995
statement of income.
On March 29, 1996, Thermo Instrument completed the acquisition of a
substantial portion of the businesses comprising the Scientific
Instruments Division of Fisons plc (Fisons), a wholly owned subsidiary of
Rhone-Poulenc Rorer Inc., for approximately 123.5 million British pounds
sterling in cash (approximately $188.9 million) and the assumption of
approximately 30.8 million British pounds sterling of indebtedness
(approximately $47.2 million). The purchase price is subject to
post-closing adjustments equal to the amounts by which the net tangible
assets and net debt of the acquired businesses on the closing date are
greater or less than certain target amounts agreed to by the parties.
Thermo Instrument and Fisons are attempting to agree on the required
adjustment to the purchase price based on their respective calculations
of the net tangible assets of the acquired businesses. If the parties are
unable to reach agreement, a firm of independent public accountants will
be appointed to determine the adjustment. Any adjustment would affect the
purchase price allocation, including the amount allocated to cost in
excess of net assets of acquired companies.
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 $194.8 million in cash,
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, subject to post-closing adjustments. In 1995, in addition to the
acquisition of Coleman Research, the Company and its majority-owned
subsidiaries made several other acquisitions for an aggregate of $339.1
million in cash, 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. In 1994, the Company and its
majority-owned subsidiaries made several acquisitions for an aggregate of
$174.3 million in cash.
These acquisitions, except for SensorMedics and Coleman Research,
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 $696.7 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 1996, is subject to
adjustment upon finalization of the purchase price allocation. Pro forma
data is not presented since the acquisitions were not material to the
Company's results of operations.
17PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
In connection with the acquisition of a substantial portion of the
businesses comprising the Scientific Instruments Division of Fisons,
Thermo Instrument has undertaken a restructuring of the acquired
businesses. In accordance with the requirements of Emerging Issues Task
Force Pronouncement (EITF) 95-3, Thermo Instrument is in the process of
completing a plan that includes 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 $38.1
million for estimated severance, excess facilities, and other exit costs
associated with the acquisition, $19.0 million of which was expended
during 1996, primarily for severance. Unresolved matters at year-end 1996
include completing the identification of specific employees for
termination and locations to be abandoned or consolidated, among other
decisions concerning the integration of the acquired businesses into
Thermo Instrument. In accordance with EITF 95-3, finalization of Thermo
Instrument's plan for restructuring the acquired businesses will not
occur beyond one year from the date of the acquisition. Any changes in
estimates of these costs prior to such finalization will be recorded as
adjustments to cost in excess of net assets of acquired companies.
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 Board Committee), including restricted
stock, stock options, stock bonus shares, or performance-based shares. To
date, only nonqualified stock options have been awarded under this plan.
The option recipients and the terms of options granted under these plans
are determined by the Board Committee. Generally, options presently
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
generally lapse ratably over a five to ten year period, depending on the
term of the option, which generally ranges from seven to twelve years.
Certain options have three-year terms, and the repurchase rights lapse in
their entirety on the second anniversary of the grant date. 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
18PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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.
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 1996, 1995, and
1994, the Company issued 285,448 shares, 330,444 shares, and 218,754
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. The loan repayment was
recorded as a reduction in deferred compensation in the accompanying
balance sheet. Annual contributions are made by the Company to the ESOP
I, and, through December 31, 1994, were made to the ESOP II.
Contributions are recorded as expense in the accompanying statement of
income. Shares are allocated to the plan participants based on employee
compensation. For these plans, the Company charged to expense $0.2
million, $0.3 million, and $1.1 million in 1996, 1995, and 1994,
respectively.
19PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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-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 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:
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Net income:
As reported $190,816 $139,582
Pro forma 181,880 137,587
Primary earnings per share:
As reported 1.35 1.10
Pro forma 1.29 1.09
Fully diluted earnings per share:
As reported 1.22 .97
Pro forma 1.17 .96
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 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:
1996 1995
-----------------------------------------------------------------------
Volatility 24% 24%
Risk-free interest rate 6.1% 6.0%
Expected life of options 5.2 years 5.0 years
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.
20PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's stock option activity is as follows:
1996 1995 1994
----------------- ----------------- ------------------
Weighted Weighted Range of
Number Average Number Average Number Option
(Shares in of Exercise of Exercise of Prices
thousands) Shares Price Shares Price Shares per Share
- -------------------------------------------------------------------------------
Options outstanding, $ 3.23-
beginning of year 8,302 $17.46 7,878 $14.92 6,663 $18.81
Assumed upon
acquisition
of Sensor-
Medics 150 14.97 - - - -
Assumed upon
acquisition
of Coleman - - 304 5.65 - -
17.19-
Granted 1,183 39.03 1,330 27.85 1,641 20.05
4.10-
Exercised (1,125) 10.71 (1,099) 8.69 (315) 13.91
5.13-
Forfeited (89) 26.97 (111) 16.67 (111) 18.39
------ ------ -----
Options outstanding, $ 3.23-
end of year 8,421 $21.24 8,302 $17.46 7,878 $20.05
====== ====== ====== ====== ===== ======
$ 3.23-
Options exercisable 8,406 $21.23 8,262 $17.51 7,878 $20.05
====== ====== ====== ====== ===== ======
Options available
for grant 1,291 2,397 3,627
====== ====== =====
Weighted average
fair value per
share of options
granted during
year $13.03 $ 9.39
====== ======
21PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at December
28, 1996, is as follows:
Options Outstanding
-------------------------------
Weighted
Average Weighted
Number Remaining Average
Range of of Contractual Exercise
Exercise Prices Shares Life Price
------------------------------------------------------------------------
(Shares in thousands)
$ 5.55 - $10.70 365 1.1 years $ 8.63
10.71 - 21.39 5,642 6.8 years 16.86
21.40 - 32.09 884 6.2 years 26.08
32.10 - 42.79 1,530 8.8 years 37.63
-----
$ 5.55 - $42.79 8,421 6.9 years $21.24
=====
The information disclosed above for options outstanding at December
28, 1996, does not differ materially for options exercisable.
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
contributed and charged to expense $10.1 million, $7.6 million, and $6.6
million in 1996, 1995, and 1994, 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 $8.8 million, $8.2 million, and $5.8 million in 1996, 1995, and
1994, respectively.
22PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Long-term Obligations and Other Financing Arrangements
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
5% Senior convertible debentures,
due 2001, convertible at $21.00 per share $ 175,216 $ 309,000
4 5/8% Senior convertible debentures,
due 1997, convertible at $14.33 per share - 82,325
4 1/4% Subordinated convertible debentures,
due 2003, convertible at $37.80 per share 585,000 -
4 7/8% Subordinated convertible debentures,
due 1997, convertible at $14.33 per share - 55,000
4 1/2% Senior convertible debentures,
due 2003, convertible into shares
of Thermo Instrument at $43.07 per share 172,500 -
3 3/4% Senior convertible debentures,
due 2000, convertible into shares of
Thermo Instrument at $16.93 per share 22,281 67,600
6 5/8% Subordinated convertible debentures,
due 2001, convertible into shares of
Thermo Instrument at $9.38 per share - 22,275
5% Subordinated convertible debentures,
due 2000, convertible into shares of
ThermoQuest at $16.50 per share 86,250 86,250
5% Subordinated convertible debentures,
due 2000, convertible into shares of
Thermo Optek at $14.85 per share 86,250 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 65,000 -
6 1/2% Subordinated convertible debentures,
due 1998, convertible into shares of
Thermedics at $10.42 per share - 8,037
Noninterest-bearing subordinated convertible
debentures, due 1997, convertible into shares
of Thermo Cardiosystems at $14.49 per share 3,755 11,642
3 3/4% Subordinated convertible debentures,
due 2000, convertible into shares of Thermo
Voltek at $7.83 per share 9,345 25,240
4 5/8% Subordinated convertible debentures,
due 2003, convertible into shares of
Thermo TerraTech at $15.90 per share 111,850 -
6 1/2% Subordinated convertible debentures,
due 1997, convertible into shares of
Thermo TerraTech at $10.33 per share 8,620 13,432
23PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Long-term Obligations and Other Financing Arrangements (continued)
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Noninterest-bearing subordinated convertible
debentures, due 2001, convertible into
shares of Thermo Ecotek at $13.56 per share $ 22,205 $ -
8.1% Nonrecourse tax-exempt obligation,
payable in semiannual installments, with
final payment in 2000 51,200 59,100
6.0% Nonrecourse tax-exempt obligation,
payable in semiannual installments, with
final payment in 2000 43,500 49,700
Tax-exempt obligations - 132,047
Other 113,289 104,476
---------- ----------
1,591,211 1,147,324
Less: Current maturities 40,869 29,247
---------- ----------
$1,550,342 $1,118,077
========== ==========
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 lieu of issuing all or a portion of Thermo Instrument's common
stock upon conversion of the 4 1/2% senior convertible debentures due
2003 issued by Thermo Instrument, Thermo Instrument has the option to
deliver shares of the Company's common stock with an aggregate value
equal to the market value of Thermo Instrument's common stock otherwise
issuable upon such conversion. The Company has agreed to sell at market
prices such number of shares of its common stock to Thermo Instrument as
may be required to exercise such option.
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 5% and 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 (CPCFA), the
proceeds of which were used to finance two alternative-energy facilities
(Delano I and Delano II) located in Delano, California. 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
24PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Long-term Obligations and Other Financing Arrangements (continued)
to the fixed rates described above. These swaps have terms expiring in
2000, commensurate with the final maturity of the debt. During 1996 and
1995, the average variable rate received under the interest rate swap
agreements was 3.5% and 3.8%, respectively.
Tax-exempt obligations in the accompanying 1995 balance sheet
represent obligations issued by the CPCFA in January 1992, the proceeds
of which were used to finance the construction of a waste-recycling
facility in San Diego County, California. This facility was sold during
1996 and the buyer assumed obligations under the outstanding debt. Of
these tax-exempt obligations, $93 million carried fixed rates of interest
ranging from 7.2% to 8.5%, and $39 million carried a floating rate of
interest that varied weekly based on short-term, tax-exempt markets. The
interest rate ranged from 3.9% to 6.7% in 1996 and 4.3% to 7.5% in 1995.
The annual requirements for long-term obligations are as follows:
(In thousands)
-----------------------------------------
1997 $ 40,869
1998 95,730
1999 40,596
2000 268,890
2001 199,521
2002 and thereafter 945,605
----------
$1,591,211
==========
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 $112.9 million and $83.0 million in
1996 and 1995, respectively, of short-term bank borrowings by certain of
the Company's subsidiaries. The weighted average interest rate for these
borrowings was 5.4% at year-end 1996 and 1995.
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 $48.0 million, $31.9
million, and $24.3 million in 1996, 1995, and 1994, respectively. Future
minimum payments due under noncancelable operating leases at December 28,
1996, are $42.2 million in 1997; $34.5 million in 1998; $27.6 million in
1999; $24.1 million in 2000; $21.7 million in 2001; and $86.8 million in
2002 and thereafter. Total future minimum lease payments are $236.9
million.
25PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
6. Commitments and Contingencies (continued)
Litigation and Related Contingencies
In a lawsuit relating to the Company's waste-recycling facility in
San Diego County, California, a third party, from which the Company
acquired certain development rights, alleges that fees totaling $7.9
million plus interest from 1992 and legal costs are due and payable by
the Company in connection with construction of the facility. The third
party also alleges tort claims for conversion and intentional
interference with contractual relations and seeks punitive damages under
such claims. The Company contends that no additional fees are payable
because the facility actually built was substantially different from the
one contemplated in the agreement with the third-party developer. The
trial is expected to occur during 1997. During 1996, the Company sold the
waste-recycling facility.
The Company has been sued by third-party developers of an
alternative-energy facility, constructed by the Company and its
subcontractors in 1988 and 1989 and leased and operated by a partnership
including Thermo Ecotek. The third-party developers seek $25 million in
damages for alleged misrepresentation, breach of contract, and other
causes of action. The dispute arises out of the development,
construction, and subsequent operating performance of the facility.
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 $73.8 million
through December 28, 1996.
In December 1996, five employees of Thermo Instrument's Epsilon
Industrial Inc. subsidiary commenced an arbitration proceeding alleging
that Epsilon, Thermo Instrument, and certain affiliates of Thermo
Instrument 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
employees are claiming damages of $36 million resulting from the alleged
failure of Thermo Instrument and its affiliates to use best efforts to
develop and promote certain products acquired at that time.
The Company intends to vigorously defend these matters. In the
opinion of management, the ultimate liability for all such matters,
together with the liability for all other pending legal proceedings,
asserted legal claims, and known potential legal claims that are probable
of assertion, will not be material to the Company's financial position,
but could materially affect the results of operations or cash flows for a
particular quarter or annual period.
7. Common Stock
At December 28, 1996, the Company had reserved 42,886,567 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
26PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
7. Common Stock (continued)
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. Simultaneously with this redemption, the Company distributed
rights 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.
27PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Income Taxes
The components of income before income taxes and minority interest
are as follows:
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Domestic $313,069 $256,738 $165,761
Foreign 61,482 42,070 40,615
-------- -------- --------
$374,551 $298,808 $206,376
======== ======== ========
The components of the provision for income taxes are as follows:
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Currently payable:
Federal $ 85,024 $ 72,932 $ 30,089
Foreign 31,851 17,751 16,343
State 18,445 19,892 9,672
-------- -------- --------
135,320 110,575 56,104
-------- -------- --------
Deferred (prepaid), net:
Federal (19,994) (9,717) 11,355
Foreign (2,275) 232 (243)
State (2,206) (2,379) 3,487
-------- -------- --------
(24,475) (11,864) 14,599
-------- -------- --------
$110,845 $ 98,711 $ 70,703
======== ======== ========
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 on the
date of exercise. The provision for income taxes that is currently
payable does not reflect $24.5 million, $20.5 million, and $3.5 million,
of tax benefits of the Company and its majority-owned subsidiaries from
employee exercises of stock options that have been allocated to capital
in excess of par value, directly or through the effect of majority-owned
subsidiaries' equity transactions, in 1996, 1995, and 1994, respectively.
In addition, the provision for income taxes that is currently payable
does not reflect $6.5 million, $3.0 million, and $0.1 million of tax
benefits used to reduce cost in excess of net assets of acquired
companies in 1996, 1995, and 1994, 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
28PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
federal income tax rate of 35% to income before income taxes and minority
interest due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $131,093 $104,583 $ 72,232
Increases (decreases) resulting from:
Gain on issuance of stock by
subsidiaries (44,310) (28,285) (8,849)
State income taxes, net of federal
tax 10,555 11,314 8,317
Investment and research and
development tax credits - - (2,786)
Foreign tax rate and tax law
differential 8,528 3,785 1,422
Amortization and write-off of cost
in excess of net assets of acquired
companies 8,643 7,484 3,450
Reduction in valuation allowance (3,212) (2,104) -
Other, net (452) 1,934 (3,083)
-------- -------- --------
$110,845 $ 98,711 $ 70,703
======== ======== ========
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $ 77,489 $ 34,212
Net operating loss and credit
carryforwards 76,866 35,462
Inventory basis difference 22,906 20,683
Accrued compensation 14,435 12,551
Allowance for doubtful accounts 6,764 5,758
Capitalized costs and joint
venture equity 5,253 4,821
Other, net 1,192 2,888
-------- --------
204,905 116,375
Less: Valuation allowance 75,103 40,690
-------- --------
$129,802 $ 75,685
======== ========
Deferred income taxes:
Depreciation $ 68,587 $ 55,608
Intangible assets 8,254 2,806
Other 4,885 1,682
-------- --------
$ 81,726 $ 60,096
======== ========
29PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
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 1996 valuation
allowance, $69.8 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 1996, the valuation allowance increased
primarily due to the establishment of valuation allowances for tax loss
carryforwards of acquired businesses.
At year-end 1996, the Company had foreign and federal net operating
loss carryforwards of $169 million and $6.4 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 2008 through 2010. Of the foreign net operating loss carryforwards,
$45 million expire in the years 1997 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
$168 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.
The Company believes that any additional U.S. tax liability due upon
remittance of such earnings would be immaterial due to available U.S.
foreign tax credits.
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:
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.
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.
30PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
9. Transactions in Stock of Subsidiaries (continued)
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 1,935,667 shares of Metrika Systems common stock
at $7.50 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.
1994
Public offering of 1,610,000 shares of ThermoTrex common stock at
$15.375 per share for net proceeds of $23.0 million resulted in a gain of
$7.9 million.
Initial public offering of 5,349,572 shares of ThermoLase common
stock at $3.00 per share for net proceeds of $14.8 million resulted in a
gain of $8.6 million that was recorded by ThermoTrex.
31PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
9. Transactions in Stock of Subsidiaries (continued)
Private placements of 1,505,000 shares of ThermoSpectra common stock
at $10.00 per share for net proceeds of $14.0 million resulted in a gain
of $6.5 million that was recorded by Thermo Instrument.
Conversion of $3.7 million of Thermedics 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.
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:
1996 1995 1994
---- ---- ----
Thermedics 55% 51% 51%
Thermo Cardiosystems (a) 54% 55% 58%
Thermo Voltek (a) 51% 59% 71%
Thermo Sentron (a) 73% 100% 100%
Thermedics Detection (b) 94% 100% 100%
Thermo Instrument 82% 86% 83%
ThermoSpectra (c) 73% 72% 86%
ThermoQuest (c) 93% 100% 100%
Thermo Optek (c) 93% 100% 100%
Thermo BioAnalysis (c) 67% 80% 100%
Metrika Systems (d) 84% 100% 100%
Thermo TerraTech 81% 81% 80%
Thermo Remediation (e) 68% 69% 65%
Thermo EuroTech (f) 53% 62% 64%
Thermo Power 64% 63% 60%
ThermoLyte (g) 78% 78% 100%
ThermoTrex 51% 51% 50%
ThermoLase (h) 64% 65% 69%
Trex Medical (h) 79% 91% 100%
Thermo Fibertek 84% 81% 81%
Thermo Fibergen (i) 68% 100% 100%
Thermo Ecotek 82% 83% 97%
____________________
(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 ownership by ThermoTrex.
(i) Reflects ownership by Thermo Fibertek.
32PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
10. Other Income (Expense), Net
The components of other income (expense), net, in the accompanying
statement of income are as follows:
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Interest income $ 94,109 $ 62,146 $ 43,280
Interest expense (96,695) (77,861) (59,844)
Equity in losses of unconsolidated
subsidiaries (28) (203) (4,019)
Gain on sale of investments, net 9,840 9,305 4,851
Gain on sale of land - - 14,698
Other income (expense), net (5,740) (612) 45
-------- -------- --------
$ 1,486 $ (7,225) $ (989)
======== ======== ========
11. Restructuring and Other Nonrecurring Costs
Restructuring and other nonrecurring costs in 1996 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 analysis that indicates that the expected
future undiscounted cash flows from this business will be insufficient to
recover Thermedics' investment. 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 (Note 3). 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 in
connection with an acquisition at each subsidiary. These amounts
represent the portion of the purchase price allocated to technology in
development at acquired businesses, based on estimated replacement costs.
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; $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 analysis that indicates that the expected cash flows from
this business will be insufficient to recover Thermo TerraTech's
investment; $2.5 million to write off the cost in excess of net assets of
acquired companies at the Company's Napco subsidiary; and $2.9 million of
other nonrecurring costs.
The 1994 amount represents severance costs and, to a lesser extent,
the costs to write off leasehold improvements at ThermoTrex's East Coast
division.
33PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
12. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Cash Paid For:
Interest $ 86,449 $ 72,714 $ 47,745
Income taxes $ 91,536 $ 51,184 $ 27,456
Noncash Activities:
Conversions of the Company's and
subsidiaries' convertible
obligations $ 390,494 $ 212,979 $ 89,625
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 $ 673,662 $ 521,558 $ 250,404
Cash paid for acquired companies (383,685) (339,075) (174,330)
Issuance of the Company's and
subsidiaries' common stock
and stock options for acquired
companies (2,351) (18,990) -
Issuance of long-term obligations
for acquired companies (26,560) (22,300) -
--------- --------- ---------
Liabilities assumed of
acquired companies $ 261,066 $ 141,193 $ 76,074
========= ========= =========
13. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale and held-to-maturity investments,
accounts receivable, notes payable and current maturities of long-term
obligations, accounts payable, long-term obligations, forward 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 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. Held-to-maturity investments in the
accompanying balance sheet are carried at amortized cost. The fair values
of held-to-maturity investments are disclosed on the accompanying balance
sheet and were determined based on quoted market prices.
34PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments (continued)
The Company enters into forward exchange contracts to hedge certain
firm purchase and sale commitments denominated in currencies other than its
subsidiaries' local currencies, principally 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. The amounts of such forward exchange contracts at
year-end 1996 and 1995 were $19.7 million and $34.2 million, respectively.
Thermo Ecotek has interest rate swap agreements relating to its
nonrecourse tax-exempt obligations. 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.
The notional amount of the swap agreement was $95.7 million and $110.0
million at year-end 1996 and 1995, respectively.
The carrying amount and fair value of the Company's long-term
obligations and off-balance-sheet financial instruments are as follows:
1996 1995
----------------------- -----------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Long-term obligations:
Convertible
obligations $1,379,467 $1,616,239 $ 802,001 $1,354,682
Other long-term
obligations 170,875 171,722 316,076 336,070
---------- ---------- ---------- ----------
$1,550,342 $1,787,961 $1,118,077 $1,690,752
========== ========== ========== ==========
Off-balance-sheet
financial instruments:
Forward exchange
contracts
receivable $ (1,370) $ (1,015)
Interest rate swaps
payable $ 1,643 $ 3,467
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 fair value of forward exchange contracts and interest rate swap
agreements (used for hedging purposes) 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 exchange contracts,
and market interest rates and the creditworthiness of the counterparties on
interest rate swap agreements.
35PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segment and Geographical Information
The Company's business segments include the following:
Instruments: analytical, monitoring, process control and
imaging, inspection, and measurement instruments
Alternative-energy Systems: biomass power plants,
biopesticides, industrial-refrigeration systems, natural
gas engines, cooling and cogeneration units, turbines and
compressors
Process Equipment: paper-recycling and papermaking
equipment, metallurgical-processing systems,
electroplating equipment
Biomedical Products: biomedical materials, mammography and
needle-biopsy systems, general-purpose X-ray systems,
respiratory-care equipment, skin-incision devices, blood
coagulation-monitoring equipment, left ventricular-assist
systems, neurophysiology monitoring instruments,
laser-based hair-removal system, personal-care products
Environmental Services: on-site industrial remediation,
environmental sciences, industrial-fluids recycling,
nuclear monitoring and cleanup, thermal soil-remediation,
laboratory analysis, metallurgical heat treating and
fabrication
Advanced Technologies: process-detection systems,
explosives-detection instruments, precision weighing and
inspection equipment, electronic test equipment,
power-conversion instruments, programmable power
amplifiers, systems integration and engineering,
development of avionics products and medical equipment
36PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segment and Geographical Information (continued)
(In thousands) 1996 1995 1994
--------------------------------------------------------------------------
Business Segment Information
Revenues:
Instruments $1,209,362 $ 782,662 $ 649,992
Alternative-energy Systems 339,813 325,912 285,410
Process Equipment 286,312 317,951 190,217
Biomedical Products 455,890 316,622 180,318
Environmental Services 273,894 210,503 141,438
Advanced Technologies 375,459 323,567 286,523
Intersegment Sales Elimination (a) (8,172) (6,926) (4,707)
---------- ---------- ----------
$2,932,558 $2,270,291 $1,729,191
========== ========== ==========
Income Before Income Taxes and
Minority Interest:
Instruments $ 138,869 $ 113,651 $ 105,440
Alternative-energy Systems 38,112 32,952 34,451
Process Equipment 36,115 29,071 20,730
Biomedical Products 16,444 27,167 15,579
Environmental Services 17,709 21,215 14,853
Advanced Technologies 28,040 23,842 14,585
---------- ---------- ----------
Total Segment Income (b) 275,289 247,898 205,638
Equity in Losses of Unconsolidated
Subsidiaries (28) (203) (4,019)
Corporate (c) 99,290 51,113 4,757
---------- ---------- ----------
$ 374,551 $ 298,808 $ 206,376
========== ========== ==========
Identifiable Assets:
Instruments $1,924,400 $1,372,813 $1,011,916
Alternative-energy Systems 617,154 695,849 577,781
Process Equipment 296,582 238,537 191,846
Biomedical Products 691,836 596,467 348,634
Environmental Services 396,901 335,726 192,523
Advanced Technologies 389,586 301,059 236,108
Corporate (d) 824,785 245,888 503,127
---------- ---------- ----------
$5,141,244 $3,786,339 $3,061,935
========== ========== ==========
Depreciation and Amortization:
Instruments $ 44,233 $ 25,257 $ 22,070
Alternative-energy Systems 24,253 25,186 16,078
Process Equipment 5,333 5,228 4,780
Biomedical Products 15,148 9,626 6,376
Environmental Services 12,918 11,197 8,382
Advanced Technologies 11,952 8,104 6,109
Corporate 1,330 1,271 1,233
---------- ---------- ----------
$ 115,167 $ 85,869 $ 65,028
========== ========== ==========
37PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segment and Geographical Information (continued)
(In thousands) 1996 1995 1994
--------------------------------------------------------------------------
Capital Expenditures:
Instruments $ 19,134 $ 10,313 $ 7,574
Alternative-energy Systems (e) 42,537 14,024 31,717
Process Equipment 4,265 3,686 3,231
Biomedical Products 29,731 9,768 7,650
Environmental Services 18,710 19,499 7,559
Advanced Technologies 9,412 6,266 7,653
Corporate 752 460 141
---------- ---------- ----------
$ 124,541 $ 64,016 $ 65,525
========== ========== ==========
Geographical Information
Revenues:
United States $2,171,879 $1,790,058 $1,386,462
United Kingdom 312,522 156,863 125,000
Other Europe 536,496 353,595 244,048
Other 146,998 117,354 91,145
Transfers among geographical
areas (a) (235,337) (147,579) (117,464)
---------- ---------- ----------
$2,932,558 $2,270,291 $1,729,191
========== ========== ==========
Income Before Income Taxes and
Minority Interest:
United States $ 212,341 $ 201,815 $ 182,177
United Kingdom 11,359 5,609 2,002
Other Europe 32,813 26,835 11,313
Other 18,776 13,639 10,146
---------- ---------- ----------
Total Segment Income (b) 275,289 247,898 205,638
Equity in Losses of Unconsolidated
Subsidiaries (28) (203) (4,019)
Corporate (c) 99,290 51,113 4,757
---------- ---------- ----------
$ 374,551 $ 298,808 $ 206,376
========== ========== ==========
Identifiable Assets:
United States $3,372,448 $2,939,286 $2,110,843
United Kingdom 340,005 171,438 125,902
Other Europe 516,558 340,289 261,366
Other 87,449 89,439 60,697
Corporate (d) 824,784 245,887 503,127
---------- ---------- ----------
$5,141,244 $3,786,339 $3,061,935
========== ========== ==========
Export Sales Included in United
States Revenues Above (f) $ 436,972 $ 340,736 $ 265,298
========== ========== ==========
38PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
14. Business Segment and Geographical Information (continued)
(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.
15. Unaudited Quarterly Information
(In thousands except per share amounts)
1996(a) First Second Third Fourth
-------------------------------------------------------------------------
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:
Primary .31 .32 .36 .36
Fully diluted .27 .29 .32 .33
1995(b) First Second Third Fourth
-------------------------------------------------------------------------
Revenues $493,174 $544,171 $585,988 $646,958
Gross profit 186,791 207,006 223,086 246,526
Net income 29,684 33,050 38,544 38,304
Earnings per share:
Primary .24 .26 .30 .29
Fully diluted .22 .23 .27 .26
(a)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.
(b)Results include nontaxable gains of $12.9 million, $9.7 million, $43.0
million, and $15.2 million in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
39PAGE
Thermo Electron Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
16. Subsequent Event
On March 12, 1997, Thermo Instrument declared unconditional in all
respects its cash tender offer for all outstanding shares of Life Sciences
International PLC (Life Sciences) for 135 British pence per share
(approximately $2.16 per share). As of that date, Thermo Instrument had
received acceptances representing approximately 91% of the Life Sciences
shares outstanding and Thermo Instrument owned an additional 3% of the
outstanding Life Sciences shares. There are approximately 175 million Life
Sciences shares outstanding. Thermo Instrument has established March 26,
1997, as the date for payment for all shares as to which acceptance has
been received. In addition, Thermo Instrument expects to repay
approximately $72 million of Life Science's debt, net of acquired cash
expected to be used. Life Sciences, a London Stock Exchange-listed company,
manufactures laboratory science equipment, appliances, instruments,
consumables, and reagents for the research, clinical, and industrial
markets.
40PAGE
Thermo Electron Corporation 1996 Financial Statements
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
December 28, 1996, and December 30, 1995, and the related consolidated
statements of income, shareholders' investment, and cash flows for each
of the three years in the period ended December 28, 1996. 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 December 28, 1996, and
December 30, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1997 (except with
respect to the matter discussed
in Note 16 as to which the date
is March 12, 1997)
41PAGE
Thermo Electron Corporation 1996 Financial Statements
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 immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
caption "Forward-looking Statements."
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 four broad markets: environmental,
energy, process control, and selected general purpose analytical, health,
and safety instrumentation.
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 their profitability improves as they are
integrated into the Company's business segments.
The Company seeks to minimize its dependence on any specific product
or market by maintaining 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
environmental, health, and safety 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 incentive programs, as well as capital to
support the subsidiaries' growth. As a result of the sale of stock by
42PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
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.
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 could 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 FASB expects to issue a final statement or a revised
exposure draft in 1997.
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. (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, was $246.5 million in 1996,
compared with $225.2 million in 1995. Financial results for 1995 have
been restated to include SensorMedics, acquired in a pooling-of-interests
transaction in June 1996 (Note 3).
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 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 the Fourier transform infrared spectrometry business. 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.
Segment income margin (segment income margin is segment income as a
43PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
percentage of sales), 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 a
substantial portion of the businesses comprising the Scientific
Instruments Division of Fisons (Note 3).
Alternative-energy Systems
--------------------------
Sales from the Alternative-energy Systems 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. 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 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 from the Alternative-energy Systems segment was $42.5
million in 1996, compared with $44.5 million in 1995, excluding
restructuring and other nonrecurring costs of $4.4 million in 1996 and
$11.5 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, 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 break-even level for both periods.
Segment income at Thermo Power declined by $3.9 million to $1.1 million
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. Although Thermo Power expects to phase in a new
manufacturer for the component that has increased in price, the cost
increase is expected to adversely affect its segment income margin in
1997. Peter Brotherhood incurred a segment loss of $2.5 million in 1996,
excluding restructuring and other nonrecurring costs, 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.
44PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
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.
The Company recorded restructuring and other nonrecurring costs of
$11.5 million for the Alternative-energy Systems segment in 1995. This
amount represents the Company's net investment in a waste-recycling
facility in southern California that contracted to process waste for 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.
Certain of Thermo Ecotek's plants have power-sales agreements with
utilities under which the rates paid for power will convert from fixed
rates to "avoided-cost" rates in the year 2000. Avoided-cost rates are
currently substantially less than the fixed rates. One of these plants,
located in Woodland, California, has conditions in its nonrecourse lease
agreement that require funding of a "power reserve" in years prior to
2000, based on projections of operating cash flow shortfalls in the year
2000 and thereafter. The power reserve represents funds available to make
lease payments in the event that revenues are not sufficient after the
Woodland plant converts to avoided-cost rates. Without sufficient
increases in avoided-cost rates or reductions in fuel costs and other
operating expenses by the year 2000, Thermo Ecotek expects to either
renegotiate its nonrecourse lease agreement or forfeit its interest in
the Woodland plant. Beginning in the fourth quarter of 1996, Thermo
Ecotek began to expense the funding of reserves required under the
nonrecourse lease agreement. As a result, the Company expects that the
results of the plant will be reduced to approximately breakeven in future
years. During 1996, the plant contributed $4.6 million of segment income.
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 voted to adopt a deregulation plan, and in March 1997, PSNH
filed suit to block the plan. The effect of a PSNH bankruptcy or
deregulation of the electric utility industry in New Hampshire on Thermo
Ecotek's current rate orders for its two New Hampshire plants is
uncertain.
45PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
Process Equipment
-----------------
Sales in the Process Equipment 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 first
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 results primarily from a
nonrecurring payment received under the office wastepaper de-inking
facility contract in 1996, which represents 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 (Note 11).
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' implantable left ventricular-assist systems (LVAS), and
ThermoLase's hair-removal business. Segment income margin, excluding
restructuring and other nonrecurring costs of $29.7 million in 1996,
improved to 10.1% in 1996 from 8.6% in 1995. This improvement resulted
primarily from higher margins at acquired businesses and increased sales
at existing businesses. As ThermoLase opens additional spas in 1997, the
effect of operating newer spas below maximum capacity while ThermoLase
develops its client base, as well as pre-opening costs, will have a
negative impact on its segment income margin. 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
46PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
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, and $4.9 million for Thermo Cardiosystem's write-off of
acquired technology relating to a 1996 acquisition (Note 11).
Environmental Services
----------------------
Sales in the Environmental Services 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 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 (DOE) and reduced federal
government budget appropriations. These trends are expected to continue
for the foreseeable future. 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 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 primarily as a
result of the decision to close 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. Increases were
offset in part by declines in revenues due to lower U.S. government
contract funding at Coleman Research 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 Coleman Research, as a result of lower revenues, and by a loss
incurred at ThermoTrex's advanced technology research center, resulting
from cost overruns and higher expenses to develop new lines of business.
47PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
Restructuring and other nonrecurring costs in 1995 primarily represent
the write-off of intangible assets at ThermoTrex's East Coast division
which was closed.
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.
At year-end 1996, the Company was contingently liable with respect to
certain lawsuits (Note 6).
1995 Compared With 1994
Sales in 1995 were $2,270.3 million, an increase of $541.1 million,
or 31%, over 1994. Segment income, excluding restructuring and other
nonrecurring costs described below of $21.9 million in 1995 and $0.7
million in 1994, increased 31% to $269.8 million from $206.3 million in
1994. Operating income, which includes restructuring and other
nonrecurring costs, was $225.2 million, an increase of $43.1 million, or
24%, over 1994.
Instruments
-----------
Sales from the Instruments segment were $782.7 million in 1995, an
increase of $132.5 million, or 20%, over 1994. Sales increased primarily
due to acquisitions made by Thermo Instrument, which added $104 million
of sales in 1995. The remaining sales increase was substantially due to
the favorable effects of currency translation due to a weaker U.S. dollar
in 1995. Segment income margin was 14.5% in 1995, compared with 16.2% in
1994. Segment income margin declined due to lower margins at acquired
businesses and reduced shipments at Thermo Instrument's air-monitoring
instruments subsidiary.
Alternative-energy Systems
--------------------------
Sales from the Alternative-energy Systems segment were $325.9 million
in 1995, an increase of $40.5 million, or 14%, over 1994. Within this
segment, revenues from Thermo Ecotek were $141.4 million in 1995,
compared with $134.3 million in 1994. This increase results from a full
year of revenues from the Whitefield, New Hampshire, plant which did not
operate for most of the first half of 1994 due to major damage to the
turbine-generator, as well as higher contractual energy rates in 1995 at
all of Thermo Ecotek's facilities, excluding the facility in Hemphill,
New Hampshire. These increases were offset largely by utility-imposed
curtailment of power at the Woodland and Mendota plants in California.
The utility that purchases the electrical output of these California
plants has the right to curtail each plant's power output up to 1,000
hours per year during periods of low demand. The utility commonly
48PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1995 Compared With 1994 (continued)
experiences low demand following periods of heavy rain or snow, when
hydroelectric power is available. Revenues from the Company's
waste-recycling facility in San Diego County, California declined by $0.8
million due to a reduction in the amounts paid by the facility's
customer. The facility ceased processing waste during 1995 and the
Company wrote off its net investment in this facility in the third
quarter of 1995, as described in the results of operations for 1996.
Sales at Peter Brotherhood increased $18.1 million to $56.2 million as a
result of increased demand for steam turbines and, to a lesser extent,
increased demand for special purpose machinery over depressed 1994
levels. Sales from Thermo Power increased $16.5 million to $108.4
million, due primarily to increased demand for refrigeration packages and
marine engine-related products and, to a lesser extent, an acquisition in
May 1994.
Segment income from the Alternative-energy Systems segment, excluding
restructuring and other nonrecurring costs of $11.5 million in 1995, was
$44.5 million in 1995, compared with $34.5 million in 1994. Thermo Ecotek
had segment income of $34.6 million in 1995, compared with $26.9 million
in 1994. This improvement results from lower fuel costs at two of the
California plants and higher contractual energy rates in 1995, offset in
part by utility-imposed curtailment of power at the Woodland and Mendota
facilities. Segment income at Thermo Power declined to $5.1 million in
1995 from $5.3 million in 1994, reflecting an increase in expenditures
for research and development. Peter Brotherhood incurred a segment loss
of $1.1 million in 1995, compared with a loss of $0.8 million in 1994, as
a result of increased costs to complete jobs in process and competitive
pricing pressures. Restructuring and other nonrecurring costs of $11.5
million in 1995 represents the write-off of the Company's net investment
in its waste-recycling facility in San Diego County, California. This
facility was sold in July 1996.
Process Equipment
-----------------
Sales in the Process Equipment segment were $318.0 million in 1995,
compared with $190.2 million in 1994. A wholly owned subsidiary of the
Company recorded revenues from a contract to design and construct an
office wastepaper de-inking facility of $77.0 million. This contract was
substantially completed in the first quarter of 1996. Sales from Thermo
Fibertek increased $44.1 million to $206.7 million, primarily due to an
increase of $22.3 million in sales of paper-recycling equipment, which
included $14.7 million of sales under a subcontract from Thermo Electron
to supply equipment and services for the office wastepaper de-inking
facility described above, and due to increased demand at Thermo
Fibertek's paper-recycling business in France. Sales from Thermo
Fibertek's accessories and water-management businesses increased $12.5
million and $10.0 million, respectively, due principally to greater
demand. The favorable effects of currency translation increased revenues
by $2.7 million. Sales of Thermo TerraTech's thermal-processing equipment
and Napco's automated electroplating equipment increased $2.6 million and
$4.2 million, respectively, from depressed 1994 levels. Segment income
margin, excluding restructuring and other nonrecurring costs of $7.5
million in 1995, was 11.5% in 1995, compared with 10.9% in 1994. Thermo
49PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1995 Compared With 1994 (continued)
Fibertek's segment income margin improved to 16.2% from 12.9% in 1994,
primarily due to increased sales and an improved sales mix. During 1995,
the Process Equipment segment recorded restructuring and other
nonrecurring costs of $7.5 million to write off costs 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 (Note 11).
Biomedical Products
-------------------
Sales in the Biomedical Products segment were $316.6 million in 1995,
an increase of $136.3 million, or 76%, over 1994. This was due primarily
to the inclusion of $62.9 million in sales from SensorMedics, acquired in
June 1996 (Note 3); the inclusion of $31.6 million in sales from Bird
Medical Technologies, Inc. and Bennett X-Ray Corporation, acquired in the
third quarter of 1995; and increased demand for a number of the Company's
biomedical products. Sales of Trex Medical's mammography and
breast-biopsy systems increased 38% to $74.9 million; Thermo
Cardiosystems' LVAS sales increased 98% to $20.6 million; ThermoLase's
skin-care product sales increased 33% to $24.9 million; neurodiagnostic
monitoring equipment sales by the Company's wholly owned Nicolet
Biomedical Inc. subsidiary increased 12% to $53.1 million; and sales of
blood coagulation-monitoring products and skin-incision devices by the
Company's wholly owned International Technidyne Corporation subsidiary
increased 13% to $32.3 million. Segment income margin was 8.6% in 1995
and 1994. Improvements resulting from increased sales and price increases
for Thermo Cardiosystems' air-driven LVAS were offset by the inclusion of
lower-margin revenues at SensorMedics and increased expenses incurred by
ThermoLase to develop and commercialize its laser-based hair-removal
process.
Environmental Services
----------------------
Sales in the Environmental Services segment were $210.5 million in
1995, an increase of $69.1 million, or 49%, over 1994. Within this
segment, sales from Thermo Remediation were $57.4 million in 1995,
compared with $50.1 million in 1994. Sales from Thermo Remediation's
soil-remediation and fluids-recycling services increased due to
acquisitions, offset in part by lower sales at existing sites resulting
from ongoing uncertainties with respect to changing regulatory standards,
primarily in jurisdictions affecting two sites, as well as severe weather
conditions at one site, and competitive pricing pressures. Thermo
Remediation's sales from nuclear services at existing sites increased
primarily due to a long-term environmental restoration contract for the
DOE's Hanford site, offset in part by a decrease in radiochemistry
laboratory work, reflecting a reduction in spending at the DOE. Sales of
analytical laboratory and environmental consulting services increased
$59.8 million, to $100.6 million, due to the inclusion of sales from
acquired businesses. Sales of metallurgical services declined $2.0
million to $42.8 million, due to the effect of closing a small plant in
1995. Segment income margin, excluding restructuring and other
nonrecurring costs of $1.9 million in 1995, improved to 11.0% from 10.5%
in 1994, due primarily to higher sales, offset in part by higher legal
expenses incurred within the environmental consulting services
50PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1995 Compared With 1994 (continued)
operations. The restructuring and other nonrecurring costs included $1.5
million relating to the closing of a small metallurgical services
division in the second quarter of 1995.
Advanced Technologies
---------------------
Sales from the Advanced Technologies segment were $323.6 million in
1995, compared with $286.5 million in 1994. Sales increased $22.3 million
due to the inclusion of a full year of sales from Thermo Sentron Inc.,
acquired in March 1994, and sales from the Orion laboratory products
division of Analytical Technology, Inc., acquired in December 1995. Sales
at Thermo Voltek increased $12.7 million to $36.3 million, due to the
inclusion of $7.2 million in sales from acquired businesses and, to a
lesser extent, the introduction of a new product line and an increase in
demand. Sales at Coleman Research increased $20.7 million to $164.6
million due to increased contract funding. Sales of Thermedics
Detection's process-detection instruments declined $19.5 million to $18.5
million primarily due to lower demand from its principal customer, which
has substantially completed its deployment of these systems, and sales of
EGIS(R) explosives-detection systems declined $5.5 million to $4.6
million, primarily due to lower demand as a result of the shipment of
several large orders in 1994. Segment income, excluding restructuring and
other nonrecurring costs of $1.0 million in 1995 and $0.7 million in
1994, increased $9.6 million to $24.8 million as a result of improved
margins at Coleman Research and Thermo Sentron, primarily due to efforts
to control costs. These improvements were offset in part by a decline in
segment income from Thermedics Detection, primarily as a result of lower
sales. Restructuring and other nonrecurring costs of $1.0 million in 1995
were recorded by ThermoTrex as a result of the decision to close its East
Coast division.
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 $80.8 million in 1995
and $25.3 million in 1994. See Notes 1 and 9 for a more complete
description of these transactions. Minority interest expense increased to
$60.5 million in 1995 from $31.0 million in 1994. Minority interest
expense includes $28.6 million in 1995 and $5.7 million in 1994 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.
Other expense, net, in the accompanying statement of income includes
a gain of $14.7 million in 1994 resulting from the sale of the Peter
Brotherhood facility in the United Kingdom. Also included is equity in
losses of unconsolidated subsidiaries, which represents the Company's
portion of results from entities in which the Company's ownership is 50%
or less, including the operation of the Dade County cogeneration
facility. The loss associated with the Dade County facility was $1.6
million in 1995 and $5.7 million in 1994. In September 1994, the joint
venture suspended operation of this plant.
51PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Consolidated working capital was $2,218.6 million at December 28,
1996, compared with $1,317.1 million at December 30, 1995. Included in
working capital were cash, cash equivalents, and short-term
available-for-sale investments of $1,846.3 million at December 28, 1996,
compared with $1,056.7 million at December 30, 1995. In addition, at
December 28, 1996, the Company had $68.8 million of long-term
available-for-sale investments and $25.6 million of long-term
held-to-maturity investments, compared with $61.8 million of long-term
available-for-sale investments and $23.8 million of long-term
held-to-maturity investments at December 30, 1995. Of the total $1,940.7
million of cash, cash equivalents, short- and long-term
available-for-sale and held-to-maturity investments at December 28, 1996,
$1,181.0 million was held by the Company's majority-owned subsidiaries
and the balance was held by the Company and its wholly owned
subsidiaries.
During 1996, $224.5 million of cash was provided by operating
activities. Cash provided by the Company's operating results was offset
in part by cash used to fund an increase in other current assets of $35.7
million, primarily for prepaid taxes. In addition, cash of $29.9 million
was used to decrease other current liabilities, primarily for
expenditures to restructure certain activities of acquired businesses.
During 1996, the Company's primary investing activities, excluding
purchases, sales, and maturities of available-for-sale investments,
included acquisitions and capital expenditures. In 1996, the Company
expended $366.3 million, net of cash acquired, for acquisitions and
$124.5 million for purchases of property, plant, and equipment.
The Company's financing activities provided $1,038.0 million of cash
in 1996. The Company and certain of its majority-owned subsidiaries
issued long-term obligations for net proceeds of $953.4 million. Net
proceeds from the issuance of Company and subsidiary common stock totaled
$304.0 million. In addition, the Company repaid and repurchased long-term
obligations of $63.8 million.
During 1996, an aggregate principal amount of $390.5 million of the
Company's and subsidiaries' convertible obligations was converted into
shares of the Company's or subsidiaries' common stock.
The Company intends, for the foreseeable future, to maintain at least
80% ownership of its Thermo Instrument, Thermo Fibertek, 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 December 28, 1996, Thermo
Instrument, Thermo Fibertek, and Thermo Ecotek had outstanding stock
options for 3,253,000 shares, 3,570,000 shares, and 1,420,000 shares,
52PAGE
Thermo Electron Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
respectively, exercisable at various prices and subject to certain
vesting schedules. The Company's other majority-owned subsidiaries also
have outstanding stock options and/or convertible debentures.
During 1996, the Company and its majority-owned subsidiaries expended
$140.9 million to purchase common stock of certain of the Company's
majority-owned subsidiaries. These purchases were made pursuant to
authorizations by the Company's and its majority-owned subsidiaries'
Boards of Directors. As of December 28, 1996, $60.6 million and $22.6
million remained under the Company's and the majority-owned subsidiaries'
authorizations, respectively. The amount of purchases in a given
reporting period may vary significantly.
In 1997, the Company expects to make capital expenditures of
approximately $140 million. In addition, as of March 18, 1997, the
Company had completed, or become obligated to complete, acquisitions
since year end, including the acquisition of Life Sciences (Note 16), for
an aggregate purchase price of $483 million, including the repayment of
debt. The Company also had agreements or nonbinding letters of intent to
acquire new businesses totaling approximately $120 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.
53PAGE
Thermo Electron Corporation 1996 Financial Statements
Forward-looking Statements
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 1997 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
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 acquired by the
Company within the past year, including businesses within the former
Scientific Instruments Division of Fisons plc, 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. There can be no assurance that the Company will
be able to complete pending or future acquisitions. 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.
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 could 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
54PAGE
Thermo Electron Corporation 1996 Financial Statements
Forward-looking Statements
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 FASB expects to issue a final statement or a revised
exposure draft in 1997.
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.
Risks Associated With International Operations. International sales
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.
55PAGE
Thermo Electron Corporation 1996 Financial Statements
Forward-looking Statements
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.
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
56PAGE
Thermo Electron Corporation 1996 Financial Statements
Forward-looking Statements
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.
57PAGE
Thermo Electron Corporation 1996 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the New York Stock Exchange
(symbol TMO) for 1996 and 1995. Prices have been restated to reflect
three-for-two stock splits, effected in the form of 50% stock dividends,
which were distributed in June 1996 and May 1995.
1996 1995
------------------ ------------------
Quarter High Low High Low
---------------------------------------------------------------------
First $42 1/12 $30 2/5 $22 5/6 $19 1/2
Second 44 3/8 38 4/5 27 1/3 21 7/9
Third 41 7/8 31 3/4 31 1/12 26 2/3
Fourth 41 1/8 29 3/4 34 2/3 28 1/4
As of January 24, 1997, the Company had 9,185 holders of record of
its common stock. This does not include holdings in street or nominee
names. The closing market price on the New York Stock Exchange for the
Company's common stock on January 24, 1997, was $35 7/8 per share.
Common stock of the Company's majority-owned public subsidiaries is
traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo
Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), Thermo Sentron Inc.
(TSR), Thermedics Detection Inc. (TDX), Thermo Instrument Systems Inc.
(THI), ThermoSpectra Corporation (THS), ThermoQuest Corporation (TMQ),
Thermo Optek Corporation (TOC), Thermo BioAnalysis Corporation (TBA),
Thermo TerraTech Inc. (TTT), Thermo Remediation Inc. (THN), Thermo Power
Corporation (THP), ThermoTrex Corporation (TKN), ThermoLase Corporation
(TLZ), Trex Medical Corporation (TXM), Thermo Fibertek Inc. (TFT), Thermo
Fibergen Inc. (TFG), and Thermo Ecotek Corporation (TCK).
Shareholder Services
Shareholders of Thermo Electron Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, President
and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 622-1111.
A mailing list is maintained to enable shareholders whose stock is held
in street name, and other interested individuals, to receive quarterly
reports, annual reports, and press releases as quickly as possible.
Beginning in 1997, quarterly distribution will be limited to the second
quarter only. All quarterly reports and press releases are available
through the Internet from Thermo Electron's home page on the World Wide
Web (http://www.thermo.com).
Stock Transfer Agent
Bank of Boston is the stock transfer agent and maintains shareholder
activity records. The agent will respond to questions on issuance of
stock certificates, change of ownership, lost stock certificates, and
change of address. For these and similar matters, please direct inquiries
to:
Bank of Boston
c/o Boston EquiServe Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02266-8040
(617) 575-3120
58PAGE
Thermo Electron Corporation 1996 Financial Statements
Dividend Policy
The Company has never paid cash dividends 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 Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, President
and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Tuesday, June 3,
1997, at 4:00 p.m. at the Hyatt Regency Hotel, Hilton Head, South
Carolina.
59PAGE
Thermo Electron Corporation 1996 Financial Statements
Ten Year Financial Summary
(In millions except per share amounts)
1996(a) 1995 1994(b) 1993(c) 1992(d) 1991(e) 1990 1989 1988 1987
-------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Statement of
Income Data:
Revenues $2,932.6 $2,270.3 $1,729.2 $1,354.5 $999.2 $842.5 $744.5 $640.3 $553.7 $430.8
Gross Profit 1,130.0 863.4 650.9 482.3 326.7 256.5 233.8 176.0 157.4 121.9
Operating
Income 246.5 225.2 182.1 119.2 70.5 43.6 40.9 23.6 25.8 15.8
Income Before
Cumulative
Effect of
Change in
Accounting
Principle 190.8 139.6 104.7 76.9 60.9 48.5 35.5 27.3 23.3 21.2
Net Income 190.8 139.6 104.7 76.9 59.5 48.5 35.5 27.3 23.3 21.2
Earnings per
Share Before
Cumulative
Effect of
Change in
Accounting
Principle:
Primary 1.35 1.10 .90 .74 .64 .56 .46 .36 .32 .28
Fully diluted 1.22 .97 .80 .67 .60 .53 .43 .36 .32 .28
Earnings per
Share:
Primary 1.35 1.10 .90 .74 .62 .56 .46 .36 .32 .28
Fully diluted 1.22 .97 .80 .67 .59 .53 .43 .36 .32 .28
60PAGE
Thermo Electron Corporation 1996 Financial Statements
Ten Year Financial Summary (continued)
(In millions)
1996(a) 1995 1994(b) 1993(c) 1992(d) 1991(e) 1990 1989 1988 1987
-------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Balance Sheet
Data:
Working Capital$2,218.6 $1,317.1 $1,150.7 $ 833.8 $ 508.7 $ 468.4 $244.1 $277.6 $220.1 $211.8
Total Assets 5,141.2 3,786.3 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 528.5 465.0
Long-term
Obligations 1,550.3 1,118.1 1,049.9 647.6 494.2 255.1 210.5 177.0 152.9 136.1
Minority
Interest 684.1 471.6 327.7 277.7 164.3 122.5 83.9 51.8 22.6 25.8
Common Stock of
Subsidiaries
Subject to
Redemption 76.5 17.5 - 14.5 5.5 5.5 8.7 13.1 - -
Shareholders'
Investment 1,754.4 1,309.7 1,007.5 873.7 563.8 489.5 314.1 229.2 196.4 175.3
(a)Reflects the issuance of $585.0 million principal amount of convertible debentures.
(b)Reflects the issuance of $345.0 million principal amount of convertible debentures.
(c)Reflects the Company's 1993 public offering of common stock for net proceeds of $246.0 million.
(d)Reflects the issuance of $260.0 million principal amount of convertible debentures and the
adoption in 1992 of Statement of Financial Accounting Standards No. 106, "Accounting for
Post-retirement Benefits Other Than Pensions."
(e)Reflects the issuance of $164.0 million principal amount of convertible debentures.