Exhibit 13
THERMO INSTRUMENT SYSTEMS INC.
Consolidated Financial Statements
1997
PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
---------------------------------------------------------------------------
Revenues (Note 14) $1,592,314 $1,209,362 $ 782,662
---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 842,009 654,165 403,443
Selling, general, and administrative
expenses (Note 9) 424,695 340,963 220,436
Research and development expenses 107,613 84,091 54,314
Nonrecurring (income) expense, net
(Notes 4 and 12) (1,257) 3,500 -
---------- ---------- ----------
1,373,060 1,082,719 678,193
---------- ---------- ----------
Operating Income 219,254 126,643 104,469
Interest Income 28,253 20,490 14,646
Interest Expense (includes $18,014,
$8,145, and $5,512 to parent
company) (45,894) (28,923) (18,129)
Gain on Issuance of Stock by
Subsidiaries (Note 11) 46,404 71,713 20,128
Gain on Sale of Related-party
Investments (Note 9) - - 2,227
---------- ---------- ----------
Income Before Provision for Income
Taxes and Minority Interest
Expense 248,017 189,923 123,341
Provision for Income Taxes (Note 6) 88,113 51,727 42,713
Minority Interest Expense 12,646 5,445 1,322
---------- ---------- ----------
Net Income $ 147,258 $ 132,751 $ 79,306
========== ========== ==========
Earnings per Share (Note 15):
Basic $ 1.21 $ 1.12 $ .70
========== ========== ==========
Diluted $ 1.09 $ 1.01 $ .64
========== ========== ==========
Weighted Average Shares (Note 15):
Basic 121,548 118,857 113,222
========== ========== ==========
Diluted 139,415 135,351 133,291
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 468,848 $ 522,688
Available-for-sale investments, at quoted
market value (amortized cost of $8,287 and
$7,430; Note 2) 8,328 7,452
Accounts receivable, less allowances of
$22,786 and $16,981 364,075 303,331
Unbilled contract costs and fees 9,191 6,043
Inventories 264,719 213,683
Prepaid expenses 19,292 13,417
Prepaid income taxes (Note 6) 54,915 58,296
---------- ----------
1,189,368 1,124,910
---------- ----------
Property, Plant, and Equipment, at Cost, Net 219,939 178,663
---------- ----------
Other Assets (Note 5) 45,477 32,454
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Notes 4 and 6) 896,369 588,373
---------- ----------
$2,351,153 $1,924,400
========== ==========
3PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (includes $55,000 due
to parent company in 1997; Notes 4 and 7) $ 116,226 $ 91,584
Accounts payable 97,516 83,161
Accrued payroll and employee benefits 59,745 51,728
Accrued income taxes (includes $20,000 and
$10,839 due to parent company) 61,409 39,686
Accrued installation and warranty expenses 42,404 44,211
Accrued acquisition expenses (Note 4) 33,789 30,025
Deferred revenue 41,759 35,959
Other accrued expenses 101,827 99,524
Due to parent company and affiliated
companies (Note 4) 22,027 12,329
---------- ----------
576,702 488,207
---------- ----------
Deferred Income Taxes (Note 6) 30,430 20,710
---------- ----------
Other Deferred Items 27,273 29,805
---------- ----------
Long-term Obligations (Notes 7 and 17):
Senior convertible obligations (includes
$140,000 due to parent company) 327,824 334,781
Subordinated convertible obligations 160,547 192,500
Other (includes $169,000 and $15,000 due to
parent company; Note 4) 184,823 26,933
---------- ----------
673,194 554,214
---------- ----------
Minority Interest 165,996 85,197
---------- ----------
Commitments and Contingencies (Note 8)
Shareholders' Investment (Notes 5 and 10):
Common stock, $.10 par value, 250,000,000
shares authorized; 122,645,040 and
97,674,228 shares issued 12,265 9,767
Capital in excess of par value 333,580 319,464
Retained earnings 571,899 424,641
Treasury stock at cost, 670,827 and 750,055
shares (6,965) (8,679)
Cumulative translation adjustment (33,257) 1,060
Net unrealized gain on available-for-sale
investments (Note 2) 36 14
---------- ----------
877,558 746,267
---------- ----------
$2,351,153 $1,924,400
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 147,258 $ 132,751 $ 79,306
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 54,993 44,233 25,257
Provision for losses on
accounts receivable 4,366 2,274 2,543
Nonrecurring (income) expense, net
(Notes 4 and 12) (1,257) 3,500 -
Gain on issuance of stock by
subsidiaries (Note 11) (46,404) (71,713) (20,128)
Gain on sale of related-party
investments (Note 9) - - (2,227)
Minority interest expense 12,646 5,445 1,322
Increase (decrease) in deferred
income taxes 2,742 (757) 2,196
Other noncash expenses 6,158 4,889 2,964
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (19,157) 1,394 (22,661)
Inventories 13,768 14,184 (7,433)
Other current assets 3,547 3,978 3,058
Accounts payable 14,317 (9,903) 1,202
Other current liabilities (23,868) (24,686) (12,552)
Other 205 290 (313)
--------- --------- ---------
Net cash provided by operating
activities 169,314 105,879 52,534
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 4) (508,059) (248,150) (89,469)
Refund of acquisition purchase price
(Note 4) 36,132 - -
Proceeds from sale of businesses
(Notes 3 and 12) 4,980 - 34,267
Purchases of available-for-sale
investments (9,000) (10,250) -
Proceeds from sale and maturities of
available-for-sale investments 10,250 3,000 17,825
Purchases of property, plant, and
equipment (29,198) (19,134) (10,313)
Proceeds from sale of property,
plant, and equipment 7,877 4,597 2,252
Other 2,030 530 (1,691)
--------- --------- ---------
Net cash used in investing activities $(484,988) $(269,407) $ (47,129)
--------- --------- ---------
5PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
Company and subsidiary common
stock (Note 11) $ 91,375 $ 127,024 $ 41,788
Net proceeds from issuance of
long-term obligations - 168,850 187,846
Proceeds from issuance of short- and
long-term obligations to parent
company (Note 7) 428,800 110,000 15,000
Repayment of short- and long-term
obligations to parent company
(Note 7) (220,000) (95,000) (15,000)
Increase (decrease) in short-term
obligations, net (21,528) (12,770) 7,584
Repayment of long-term obligations (7,817) (5,133) (1,373)
--------- --------- ---------
Net cash provided by financing
activities 270,830 292,971 235,845
--------- --------- ---------
Exchange Rate Effect on Cash (8,996) (1,988) 1,050
--------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents (53,840) 127,455 242,300
Cash and Cash Equivalents at
Beginning of Year 522,688 395,233 152,933
--------- --------- ---------
Cash and Cash Equivalents at End
of Year $ 468,848 $ 522,688 $ 395,233
========= ========= =========
Cash Paid For:
Interest $ 43,755 $ 25,837 $ 16,035
Income taxes $ 62,895 $ 42,636 $ 31,529
Noncash Activities:
Conversions of Company and subsidiary
convertible obligations $ 38,910 $ 67,594 $ 18,321
Fair value of assets of
acquired companies $ 673,382 $ 487,218 $ 161,985
Cash paid for acquired companies (545,303) (258,785) (93,004)
Due to affiliated company for
acquired company (19,117) - -
Issuance of subsidiary stock
options for acquired company (1,693) - -
--------- --------- ---------
Liabilities assumed of acquired
companies $ 107,269 $ 228,433 $ 68,981
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 9,767 $ 9,257 $ 4,816
Issuance of stock under employees'
and directors' stock plans 4 5 1
Conversions of convertible
obligations 45 505 160
Effect of stock splits 2,449 - 4,280
-------- -------- --------
Balance at end of year 12,265 9,767 9,257
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 319,464 248,468 233,765
Issuance of stock under employees'
and directors' stock plans 1,270 950 (1,023)
Tax benefit related to employees'
and directors' stock plans 514 199 1,950
Conversions of convertible
obligations 6,817 65,924 17,814
Effect of stock splits (2,449) - (4,280)
Effect of majority-owned
subsidiaries' equity
transactions 7,964 3,923 242
-------- -------- --------
Balance at end of year 333,580 319,464 248,468
-------- -------- --------
Retained Earnings
Balance at beginning of year 424,641 291,890 212,584
Net income 147,258 132,751 79,306
-------- -------- --------
Balance at end of year 571,899 424,641 291,890
-------- -------- --------
Treasury Stock
Balance at beginning of year (8,679) (9,724) (12,736)
Activity under employees' and
directors' stock plans 1,714 1,045 3,012
-------- -------- --------
Balance at end of year (6,965) (8,679) (9,724)
-------- -------- --------
Cumulative Translation Adjustment
Balance at beginning of year 1,060 2,814 1,991
Translation adjustment (34,317) (1,754) 823
-------- -------- --------
Balance at end of year $(33,257) $ 1,060 $ 2,814
-------- -------- --------
7PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Net Unrealized Gain on
Available-for-sale Investments
Balance at beginning of year $ 14 $ - $ 343
Change in net unrealized gain
on available-for-sale
investments (Note 2) 22 14 (343)
-------- -------- --------
Balance at end of year 36 14 -
-------- -------- --------
Total Shareholders' Investment $877,558 $746,267 $542,705
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Instrument Systems Inc. (the Company) develops, manufactures,
and services instruments and software used for the identification and
quantification of complex molecular compounds and elements in gases,
liquids, and solids. Uses include pharmaceutical drug research and
clinical diagnostics, monitoring and measuring environmental pollutants,
industrial inspection, and test and control for quality assurance and
productivity improvement. In addition, the Company develops,
manufactures, markets, and services equipment for the measurement,
preparation, storage, and automation of sample materials and photonics
and vacuum components for original equipment manufacturers.
Relationship with Thermo Electron Corporation
The Company was incorporated on May 28, 1986, as a wholly owned
subsidiary of Thermo Electron Corporation. As of January 3, 1998, Thermo
Electron owned 99,819,138 shares of the Company's common stock,
representing 82% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company; its wholly owned subsidiaries; its majority-owned public
subsidiaries, ThermoSpectra Corporation, ThermoQuest Corporation, Thermo
Optek Corporation, Thermo BioAnalysis Corporation, Metrika Systems
Corporation, and Thermo Vision Corporation; and its majority-owned,
privately held subsidiary, ONIX Systems Inc. All material intercompany
accounts and transactions have been eliminated. The Company accounts for
investments in businesses in which it owns between 20% and 50% using the
equity method.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
Revenue Recognition
The Company recognizes product revenues upon shipment of its products
and recognizes service contract revenues ratably over the term of the
contract. The Company provides a reserve for its estimate of warranty and
installation costs at the time of shipment. Deferred revenue in the
accompanying balance sheet consists primarily of unearned revenue on
service contracts. Substantially all of the deferred revenue in the
accompanying 1997 balance sheet will be recognized within one year.
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
9PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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, the Company, or Thermo Electron, 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 5). 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
The Company and Thermo Electron have a tax allocation agreement under
which the Company and its greater than 80%-owned subsidiaries, exclusive
of foreign operations, are included in Thermo Electron's consolidated
federal and certain state income tax returns. The agreement provides that
in years in which the Company has taxable income, it will pay to Thermo
Electron amounts comparable to the taxes the Company would have paid if
it had filed separate tax returns. If Thermo Electron's equity ownership
of the Company were to drop below 80%, the Company would be required to
file its own federal income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 15). As a result, all previously reported
earnings per share have been restated. Basic earnings per share have been
computed by dividing net income by the weighted average number of shares
outstanding during the year. Diluted earnings per share have been
computed assuming the conversion of convertible obligations and the
elimination of the related interest expense, and the exercise of stock
options, as well as their related income tax effects.
10PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Stock Split
All share and per share information, except for share information in
the accompanying 1996 balance sheet, has been restated to reflect a
five-for-four stock split, effected in the form of a 25% stock dividend,
which was distributed in October 1997.
Cash and Cash Equivalents
At year-end 1997 and 1996, $284.0 million and $459.1 million,
respectively, of the Company's cash equivalents were invested in a
repurchase agreement with Thermo Electron. Under this agreement, the
Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of
corporate notes, commercial paper, U.S. government-agency securities,
money market funds, and other marketable securities, in the amount of at
least 103% of such obligation. The Company's funds subject to the
repurchase agreement are readily convertible into cash by the Company.
The repurchase agreement earns a rate based on the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each
quarter. At year-end 1997 and 1996, the Company's cash equivalents also
include investments in short-term certificates of deposit of the
Company's foreign subsidiaries, which have an original maturity of three
months or less. Cash equivalents 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) 1997 1996
------------------------------------------------------------------------
Raw materials and supplies $118,611 $ 95,920
Work in process 52,870 47,518
Finished goods 93,238 70,245
-------- --------
$264,719 $213,683
======== ========
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; machinery and equipment, 1 to 12 years; and
leasehold improvements, the shorter of the term of the lease or the life
of the asset.
11PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
------------------------------------------------------------------------
Land $ 33,539 $ 31,048
Buildings 123,533 101,761
Machinery, equipment, and leasehold improvements 160,533 118,167
-------- --------
317,605 250,976
Less: Accumulated depreciation and amortization 97,666 72,313
-------- --------
$219,939 $178,663
======== ========
Other Assets
Other assets in the accompanying balance sheet includes the costs of
acquired trademarks, patents, and other specifically identifiable
intangible assets. These assets are amortized using the straight-line
method over their estimated useful lives, which range from 3 to 20 years.
These assets were $16.2 million and $15.5 million, net of accumulated
amortization of $19.3 million and $16.2 million, at year-end 1997 and
1996, respectively. Other assets in the accompanying 1997 balance sheet
also includes prepaid pension costs (Note 5).
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 over periods not
exceeding 40 years. Accumulated amortization was $78.0 million and $56.2
million at year-end 1997 and 1996, respectively. The Company assesses the
future useful life of this asset whenever events or changes in
circumstances indicate that the current useful life has diminished. The
Company considers the future undiscounted cash flows of the acquired
companies in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as
a loss.
Environmental Liabilities
The Company accrues for costs associated with the remediation of
environmental pollution when it is probable that a liability has been
incurred and the Company's proportionate share of the amount can be
reasonably estimated. Any recorded liabilities have not been discounted.
12PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for the three years presented.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to
manage certain exposures to foreign currencies. The Company enters into
forward foreign exchange contracts to hedge certain firm purchase and
sale commitments denominated in currencies other than its subsidiaries'
local currencies. These contracts principally hedge transactions
denominated in U.S. dollars, British pounds sterling, Japanese yen,
French francs, and German deutsche marks. The purpose of the Company's
foreign currency hedging activities is to protect the Company's local
currency cash flows related to these commitments from fluctuations in
foreign exchange rates. Gains and losses arising from forward foreign
exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter
into speculative foreign currency agreements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation
Certain amounts in 1996 and 1995 have been reclassified to conform to
the presentation in the 1997 financial statements.
2. Available-for-sale Investments
In accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt and marketable equity
securities are considered available-for-sale investments in the
accompanying balance sheet and are carried at market value, with the
difference between cost and market value, net of related tax effects,
recorded currently as a component of shareholders' investment titled "Net
unrealized gain on available-for-sale investments." The aggregate market
13PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
value, cost basis, and gross unrealized gains of available-for-sale
investments by major security type are as follows:
Gross
Market Cost Unrealized
(In thousands) Value Basis Gains
------------------------------------------------------------------------
1997
Corporate bonds $6,105 $6,091 $ 14
Equity securities 2,083 2,056 27
Other 140 140 -
------ ------ ------
$8,328 $8,287 $ 41
====== ====== ======
1996
Corporate bonds $7,452 $7,430 $ 22
====== ====== ======
The corporate bonds and other securities in the accompanying 1997
balance sheet have contractual maturities of one year or less. The cost
of available-for-sale investments that were sold was based on specific
identification in determining realized gains recorded in the accompanying
statement of income. Gain on sale of related-party investments in the
accompanying 1995 statement of income resulted from gross realized gains
relating to the sale of available-for-sale investments (Note 9).
3. Environmental Services Joint Venture
Effective April 4, 1994, the Company formed an environmental services
joint venture with Thermo TerraTech Inc., another public subsidiary of
Thermo Electron. The joint venture operated under the name Thermo Terra
Tech. The Company contributed its analytical laboratories and its nuclear
health physics and environmental science and engineering services
businesses. Thermo TerraTech contributed its environmental laboratory
business, which specializes in fast-response testing of
petroleum-contaminated soils and groundwater, and approximately $31
million in cash and short-term investments.
Effective April 2, 1995, the Company and Thermo TerraTech dissolved
their joint venture. Thermo TerraTech then purchased the services
businesses formerly operated by the joint venture from the Company for
$34.3 million in cash, which was the net book value of the services
businesses. The Company had owned 49% of the joint venture and had
accounted for its interest in the joint venture using the equity method.
14PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Acquisitions
In March 1997, the Company acquired 95% of Life Sciences
International PLC (Life Sciences), a London Stock Exchange-listed
company. Subsequently, the Company acquired the remaining shares of Life
Sciences' capital stock. The aggregate purchase price for Life Sciences
was approximately $442.8 million, net of $55.8 million of cash acquired.
The purchase price includes the repayment of $105.0 million of Life
Sciences' bank debt. Life Sciences manufactures laboratory science
equipment, appliances, instruments, consumables, and reagents for the
research, clinical, and industrial markets. In March 1997, to partially
finance the acquisition of Life Sciences, the Company borrowed $210.0
million from Thermo Electron pursuant to a promissory note due March 1999
(Note 7). The Company repaid $105.0 million of this promissory note in
September 1997 and the remaining $105.0 million in January 1998 (Note
17).
On November 6, 1997, Thermo Power Corporation, a majority-owned
subsidiary of Thermo Electron, acquired Peek plc. Thereafter, ONIX
Systems acquired from Thermo Power the stock of three businesses
comprising the Peek Measurement Business for $19.1 million. The purchase
price was determined based on the net book value of the Peek Measurement
Business at November 6, 1997, a pro rata allocation of Thermo Power's
total cost in excess of net assets of acquired companies recorded in
connection with its acquisition of Peek plc based on the 1997 revenues of
the Peek Measurement Business relative to Peek plc's total revenues, plus
an estimate of Thermo Power's tax liability that arises from the sale of
the business to ONIX Systems. The Peek Measurement Business manufactures
flow and density measurement systems for use in the water/wastewater and
oil and gas industries. The purchase price is included in due to parent
company and affiliated companies in the accompanying 1997 balance sheet.
During 1997, the Company made several other acquisitions for
approximately $46.2 million, net of cash acquired and including the
repayment of $1.3 million of bank debt, and the issuance of subsidiary
stock options valued at an aggregate $1.7 million. To partially finance
1997 acquisitions, ThermoSpectra borrowed an aggregate of $60.0 million
from Thermo Electron pursuant to promissory notes due 1999 and Thermo
Vision borrowed $3.8 million from Thermo Electron pursuant to a
promissory note due 2000 (Note 7).
In March 1996, the Company completed the acquisition of a substantial
portion of the businesses constituting the Scientific Instruments
Division of Fisons plc (the Fisons businesses), a wholly owned subsidiary
of Rhone-Poulenc Rorer Inc. (RPR), for approximately $181.2 million, net
of $7.7 million of cash acquired, and the assumption of approximately
$47.2 million of indebtedness. In December 1997, the Company and RPR
negotiated a post-closing adjustment under the terms of the purchase
agreement for the acquisition of the Fisons businesses pertaining to
determination of the net assets of the Fisons businesses at the date of
acquisition. This negotiation resulted in a refund to the Company of
$36.1 million, plus $3.8 million of interest from the date of
acquisition. The Company has recorded $33.1 million of the refund as a
reduction of cost in excess of net assets of acquired companies. The
remaining $3.0 million represented payment for uncollected accounts
15PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Acquisitions (continued)
receivable acquired by the Company that were guaranteed by RPR. In 1996,
the Company wrote off $3.5 million of acquired technology relating to
this acquisition, which represents the portion of the purchase price
allocated to technology in development based on estimated replacement
cost. The Fisons businesses are involved in the research, development,
manufacture, and sale of analytical instruments to industrial and
research laboratories worldwide.
To finance the acquisition of the Fisons businesses, the Company used
available cash in addition to borrowings from Thermo Electron (Note 7).
During 1996, the Company made several other acquisitions for an aggregate
$67.0 million in cash, net of cash acquired.
During 1995, the Company made several acquisitions for an aggregate
$89.5 million in cash, net of cash acquired.
These acquisitions have been accounted for using the purchase method
of accounting, and their 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 $631.9 million, which is being amortized 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 fiscal 1997, is subject to adjustment upon
finalization of the purchase price allocation. The Company has gathered
no information that indicates the final purchase price allocations will
differ materially from the preliminary estimates.
Based on unaudited data, the following table presents selected
financial information for the Company, Life Sciences, and the Fisons
businesses, on a pro forma basis, assuming the Company and Life Sciences
had been combined since the beginning of 1996 and the Company and the
Fisons businesses had been combined since the beginning of 1995. The
effect of the acquisitions not included in the pro forma data was not
material to the Company's results of operations.
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues $1,645,086 $1,637,582 $1,144,956
Net income 126,528 119,842 46,934
Earnings per share:
Basic 1.04 1.01 .41
Diluted .95 .92 .39
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Life Sciences been made at the beginning of 1996 or the
acquisition of the Fisons businesses been made at the beginning of 1995.
In connection with the acquisition of Life Sciences, the Company has
undertaken a restructuring of the acquired businesses. In accordance with
the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3,
the Company is in the process of completing a plan that primarily
16PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Acquisitions (continued)
includes reductions in staffing levels and abandonment of excess
facilities. As part of the cost of the acquisition, the Company
established reserves totaling $24.8 million, primarily for estimated
severance and excess facilities, $8.8 million of which was expended
during 1997, primarily for severance. Unresolved matters at January 3,
1998, included completing planned severances and the locations to be
abandoned or consolidated, among other decisions concerning the
integration of the acquired businesses into the Company. In accordance
with EITF 95-3, finalization of the Company's plan for restructuring the
acquired businesses will occur within 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.
During 1996, the Company had undertaken a restructuring of the Fisons
businesses. In 1996, the Company established reserves of $38.1 million as
part of the cost of the acquisition. During 1997 and 1996, the Company
expended $14.3 million and $19.0 million, respectively, for restructuring
costs, primarily for severance and abandoned-facility payments. In
connection with finalizing its restructuring plans for the Fisons
businesses, the Company recorded an additional $8.1 million of
acquisition reserves in the first quarter of 1997, primarily for the
abandonment of excess facilities, as well as for severance pay. This
amount was recorded as an increase in cost in excess of net assets of
acquired companies. At January 3, 1998, the remaining reserve for
restructuring the Fisons businesses was $11.1 million, as adjusted for
the impact of currency translation, and primarily represents ongoing
severance and abandoned-facility payments.
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has two stock-based compensation plans for its key
employees, directors, and others. These plans, adopted in 1993 and 1997,
permit 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 these plans. The
option recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options granted to date 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 may range from seven
to twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock
17PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
on the date of grant. Generally, all options have been granted at fair
market value. The Company also has a directors' stock option plan,
adopted in 1991, that provides for the grant of stock options in the
Company and its majority-owned subsidiaries to outside directors pursuant
to a formula approved by the Company's shareholders. Options in the
Company awarded under this plan are exercisable six months after the date
of grant and expire three or 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 the stock-based
compensation plans of Thermo Electron.
A summary of the Company's stock option activity is as follows:
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
(Shares of Exercise of Exercise of Exercise
in thousands) Shares Price Shares Price Shares Price
------------------------------------------------------------------------
Options outstanding,
beginning of year 4,066 $13.98 4,026 $11.88 4,747 $11.15
Granted 727 30.24 472 27.59 7 15.07
Exercised (263) 9.50 (255) 7.31 (468) 4.86
Forfeited (165) 17.56 (177) 12.00 (260) 11.38
----- ----- -----
Options outstanding,
end of year 4,365 $16.83 4,066 $13.98 4,026 $11.88
===== ====== ===== ====== ===== ======
Options exercisable 4,365 $16.83 4,066 $13.98 4,026 $11.88
===== ====== ===== ====== ===== ======
Options available
for grant 2,346 1,908 2,205
===== ===== =====
A summary of the status of the Company's stock options at January 3,
1998, is as follows:
Options Outstanding and Exercisable
-------------------------------------------
Weighted
Weighted Average Average
Range of Number Remaining Exercise
Exercise Prices of Shares Contractual Life Price
---------------------------------------------------------------------
(Shares in thousands)
$ 4.27 - $11.04 349 1.2 years $ 6.94
11.05 - 17.81 2,872 7.4 years 13.07
17.82 - 31.35 1,144 7.8 years 29.27
-----
$ 4.27 - $31.35 4,365 7.0 years $16.83
=====
18PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time U.S. employees are
eligible to participate in an employee stock purchase program sponsored
by the Company and Thermo Electron. Under this program, shares of the
Company's and Thermo Electron'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, the applicable shares of 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. During 1997, 1996, and
1995, the Company issued 51,707 shares, 62,466 shares, and 93,532 shares,
respectively, of its common stock under this program.
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 1997, 1996, and 1995 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Net income:
As reported $147,258 $132,751 $79,306
Pro forma 143,083 129,591 79,035
Basic earnings per share:
As reported 1.21 1.12 .70
Pro forma 1.18 1.09 .70
Diluted earnings per share:
As reported 1.09 1.01 .64
Pro forma 1.06 .99 .64
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.
19PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was
$11.09, $10.90, and $2.98 in 1997, 1996, and 1995, respectively. The fair
value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1997 1996 1995
------------------------------------------------------------------------
Volatility 28% 26% 26%
Risk-free interest rate 5.9% 6.2% 5.1%
Expected life of options 5.2 years 6.2 years 1.1 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.
401(k) Savings Plans and Employee Stock Ownership Plan
The majority of the Company's full-time U.S. employees are eligible
to participate in Thermo Electron's 401(k) savings plan. In addition,
certain of the Company's employees are eligible to participate in 401(k)
savings plans sponsored by the Company's Nicolet Instrument Corporation
and Finnigan Corporation subsidiaries. Contributions to the 401(k)
savings plans are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For
these plans, the Company contributed and charged to expense $6.0 million,
$4.9 million, and $3.9 million in 1997, 1996, and 1995, respectively.
Defined Benefit Pension Plan
Life Sciences has a defined benefit pension plan covering
substantially all of its full-time U.K. employees.
Net periodic pension costs (income) included the following
components:
(In thousands) 1997
--------------------------------------------------------------------
Service cost $ 2,749
Interest cost on projected benefit obligation 3,031
Return on plan assets (9,408)
Amortization of unrecognized net gain 3,169
-------
$ (459)
=======
20PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
The funded status of the Company's defined benefit pension plan is as
follows:
(In thousands) 1997
-----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $41,549
Nonvested benefits -
-------
Accumulated benefit obligations 41,549
Effect of projected future salary increases 4,341
-------
Projected benefit obligation 45,890
Less: Plan assets at fair value 63,707
-------
Excess of plan assets over projected benefit obligation 17,817
Unrecognized net gain (172)
-------
Prepaid pension costs $17,645
=======
Significant actuarial assumptions used to determine the net periodic
pension cost were as follows:
1997
----------------------------------------------------------------------
Discount rate 8.25%
Rate of increase in salary levels 8%
Rate of increase in pension rate 5%
Expected long-term rate of return on assets 10%
6. Income Taxes
The components of income before provision for income taxes and
minority interest expense are as follows:
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Domestic $186,133 $143,377 $ 95,999
Foreign 61,884 46,546 27,342
-------- -------- --------
$248,017 $189,923 $123,341
======== ======== ========
21PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Currently payable:
Federal $ 47,121 $ 29,593 $ 29,336
State 8,154 6,978 5,766
Foreign 26,242 27,100 11,490
-------- -------- --------
81,517 63,671 46,592
-------- -------- --------
Net deferred (prepaid):
Federal 3,860 (5,553) (3,628)
State 819 (1,178) (769)
Foreign 1,917 (5,213) 518
-------- -------- --------
6,596 (11,944) (3,879)
-------- -------- --------
$ 88,113 $ 51,727 $ 42,713
======== ======== ========
The Company and its majority-owned subsidiaries receive a tax
deduction upon exercise of nonqualified stock options by employees for
the difference between the exercise price and the market price of the
underlying common stock on the date of exercise. The provision for income
taxes that is currently payable does not reflect $1.6 million, $2.0
million, and $2.1 million of such benefits of the Company and its
majority-owned subsidiaries that have been allocated to capital in excess
of par value, directly or through the effect of majority-owned
subsidiaries' equity transactions, in 1997, 1996, and 1995, respectively.
The provision for income taxes that is currently payable does not reflect
$2.4 million, $4.7 million, and $3.0 million of tax benefits used to
reduce cost in excess of net assets of acquired companies in 1997, 1996,
and 1995, respectively. The deferred provision for income taxes does not
reflect $3.4 million of tax benefits used to reduce cost in excess of net
assets of acquired companies in 1995.
22PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% to income before provision for income
taxes and minority interest expense due to the following:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Provision for income taxes at
statutory rate $ 86,806 $ 66,473 $ 43,169
Increases (decreases) resulting from:
Gain on issuance of stock by
subsidiaries (16,241) (25,100) (7,045)
Net foreign losses not benefited and
tax rate differential 6,500 5,596 2,438
State income taxes, net of federal tax 5,832 3,770 3,248
Amortization of cost in excess of net
assets of acquired companies 4,492 2,445 2,432
Tax benefit of foreign sales
corporation (2,517) (2,102) (1,987)
Other, net 3,241 645 458
-------- -------- --------
$ 88,113 $ 51,727 $ 42,713
======== ======== ========
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
------------------------------------------------------------
Prepaid income taxes:
Tax loss carryforwards $ 43,559 $ 64,902
Reserves and accruals 33,717 38,929
Inventory basis difference 13,109 11,895
Accrued compensation 5,306 5,064
Allowance for doubtful accounts 2,459 2,399
Other, net - 9
-------- --------
98,150 123,198
Less: Valuation allowance 43,235 64,902
-------- --------
$ 54,915 $ 58,296
======== ========
Deferred income taxes:
Depreciation $ 24,928 $ 16,476
Intangible assets 5,502 4,234
-------- --------
$ 30,430 $ 20,710
======== ========
23PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The valuation allowance relates to uncertainty surrounding the
realization of certain tax assets, including in 1997 $104.8 million of
foreign tax loss carryforwards and $7.7 million of certain federal tax
loss carryforwards, the realization of which is limited to the future
income of certain subsidiaries. Of the $104.8 million of foreign tax loss
carryforwards, $24.3 million expire from 1998 through 2005 and the
remainder do not expire. The federal tax loss carryforwards expire from
1998 through 2010. Any tax benefit resulting from the use of the loss
carryforwards will first be used to reduce cost in excess of net assets
of acquired companies. The decrease in the valuation allowance results
primarily from the decrease in foreign net operating loss carryforwards,
primarily due to expiration and usage of the carryforwards.
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
$148 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.
7. Short- and Long-term Obligations
Short-term Obligations
Notes payable in the accompanying balance sheet includes $58.7
million and $89.3 million of bank borrowings at several of the Company's
foreign subsidiaries at year-end 1997 and 1996, respectively. The
weighted average interest rate for these borrowings was 4.80% and 5.25%
at year-end 1997 and 1996, respectively. Unused lines of credit were
$108.8 million at year-end 1997.
In June 1997, to finance the repayment of Life Sciences' debt, the
Company borrowed $115.0 million from Thermo Electron, which was repaid in
September 1997.
In connection with Thermo Optek's acquisition of Spectronic
Instruments, Inc. and VG Systems Limited from the Company, Thermo Optek
borrowed $40.0 million from Thermo Electron pursuant to a promissory note
due August 1998.
In connection with the 1996 acquisition of Kevex Instruments and
Kevex X-Ray from the Company, ThermoSpectra borrowed $15.0 million from
Thermo Electron pursuant to a promissory note due August 1998.
To finance the acquisition of the Fisons businesses (Note 4), the
Company used available cash in addition to borrowings of $89.0 million
from Thermo Electron. In April 1996, the Company repaid a portion of the
borrowings and issued a $65.0 million promissory note for the remaining
indebtedness, which was repaid in October 1996.
24PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Short- and Long-term Obligations (continued)
To partially finance the acquisition of the DYNEX Technologies
(DYNEX; formerly Dynatech Laboratories Worldwide) division of Dynatech
Corporation in February 1996, Thermo BioAnalysis borrowed $30.0 million
from Thermo Electron pursuant to a promissory note, which was repaid in
July 1996.
To partially finance the acquisition of Gould Instrument Systems,
Inc. in May 1995, ThermoSpectra borrowed $15.0 million from Thermo
Electron pursuant to a promissory note, which was repaid in August 1995.
The promissory notes due to Thermo Electron bear interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. The interest rate for the notes outstanding at
year-end 1997 and 1996 was 5.76% and 5.77%, respectively.
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
3 3/4% Senior convertible note to parent company,
due 2000, convertible at $13.55 per share $140,000 $140,000
3 3/4% Senior convertible debentures, due 2000,
convertible at $13.55 per share 15,324 22,281
4 1/2% Senior convertible debentures, due 2003,
convertible at $34.46 per share 172,500 172,500
5% Subordinated convertible debentures, due 2000,
convertible into shares of ThermoQuest
at $16.50 per share 80,591 96,250
5% Subordinated convertible debentures, due 2000,
convertible into shares of Thermo Optek
at $13.94 per share 79,956 96,250
10.23% Mortgage loan secured by property with a
net book value of $15,780, payable in monthly
installments with final payments in 2004 8,343 9,267
Promissory note to parent company, due 1999 (a) 105,000 -
Promissory notes to parent company from
ThermoSpectra, due 1999 (a) 60,000 -
Promissory note to parent company from Thermo
Vision, due 2000 (a) 3,800 -
Promissory note to parent company from
ThermoSpectra, due 1998 - 15,000
Other 10,101 4,788
-------- --------
675,615 556,336
Less: Current maturities of long-term obligations 2,421 2,122
-------- --------
$673,194 $554,214
======== ========
(a) Bears interest at the 90-day Commercial Paper Composite Rate plus 25
basis points.
25PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Short- and Long-term Obligations (continued)
The senior convertible debentures are guaranteed on a senior basis by
Thermo Electron. The 5% subordinated convertible debentures of
ThermoQuest and Thermo Optek are guaranteed on a subordinated basis by
Thermo Electron. The Company has agreed to reimburse Thermo Electron in
the event Thermo Electron is required to make a payment under the
guarantee.
In lieu of issuing all or a portion of the Company's common stock
upon conversion of the 3 3/4% senior convertible debentures due 2000, the
Company has the option to pay holders of the debentures cash equal to the
weighted average market price of the Company's common stock on the last
trading date prior to conversion.
During 1997, 1996, and 1995, convertible obligations of $38.9
million, $67.6 million, and $18.3 million, respectively, were converted
into common stock of the Company or its subsidiaries.
The annual requirements for long-term obligations as of January 3,
1998, are $2.4 million in 1998; $167.5 million in 1999; $322.2 million in
2000; $2.4 million in 2001; $2.2 million in 2002; and $178.9 million in
2003 and thereafter. Total future requirements of long-term obligations
are $675.6 million.
See Note 13 for the fair value information pertaining to the
Company's long-term obligations.
8. 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 $28.2 million, $21.1
million, and $11.1 million in 1997, 1996, and 1995, respectively. Future
minimum payments due under noncancellable operating leases at January 3,
1998, are $24.5 million in 1998; $20.6 million in 1999; $16.3 million in
2000; $13.0 million in 2001; $10.8 million in 2002; and $36.2 million in
2003 and thereafter. Total future minimum lease payments are $121.4
million.
Contingencies
In December 1996, five former employees of the Company's Epsilon
Industrial, Inc. (Epsilon) subsidiary commenced an arbitration proceeding
naming as joint defendants Epsilon, the Company, and certain affiliates
of the Company, alleging that these entities breached the terms of
certain agreements entered into with such employees at the time that a
predecessor of Epsilon acquired the assets and business of a company
formerly owned by such employees. The former employees are claiming
actual damages of between $27 million and $46 million, punitive damages
of twice the actual damages, attorneys' fees and expenses, and
pre-judgment and post-judgment interest, resulting from the alleged
failure of the Company and its affiliates to, among other things, use
best efforts to develop and promote certain products acquired at that
time. The arbitration proceeding, which is binding and non-appealable, is
expected to conclude in the second quarter of 1998.
26PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Commitments and Contingencies (continued)
ThermoQuest's Finnigan subsidiary has filed complaints against
Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard
Company, for alleged violation of two U.S. patents owned by Finnigan
pertaining to methods used in ion-trap mass spectrometers. One of
Finnigan's complaints was filed in United States District Court and the
other was filed with the United States International Trade Commission
(ITC). In February 1998, an administrative law judge at the ITC issued an
initial determination to the effect that, although one of Finnigan's
patents was infringed, the patents were invalid for purposes of this
case. The ITC's jurisdiction on this matter is limited to the issue of
whether or not the defendants' products that use the patented methods can
be imported into the U.S. The judge's initial determination will be
considered by the full commission during the second quarter of 1998.
Bruker has presented counterclaims alleging that the Finnigan patents are
invalid and unenforceable and are not infringed by the mass spectrometers
co-marketed by Bruker. They also allege that Finnigan has violated
antitrust laws by attempting to maintain a monopoly position and restrain
trade through enforcement of allegedly fraudulently obtained patents.
Bruker has asked for judgment consistent with its counterclaims, and for
three times the antitrust damages (including attorney's fees) it has
sustained.
Although the Company intends to vigorously defend these matters,
there can be no assurance as to their outcome. In the opinion of
management, while an unfavorable resolution of one or both of these
matters could materially affect the Company's results of operations and
cash flows in a particular quarter or year, any such resolution would not
have a material adverse effect on the Company's financial position.
The Company is also contingently liable with respect to certain other
lawsuits and matters which, in the opinion of management, will not have a
material effect upon the financial position of the Company or its results
of operations.
27PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company paid Thermo Electron
annually an amount equal to 1.0% of the Company's revenues in 1997 and
1996 and 1.2% of the Company's revenues in 1995. For these services, the
Company was charged $15.9 million, $12.1 million, and $9.4 million in
1997, 1996, and 1995, respectively. Beginning in 1998, the Company will
pay an annual fee equal to 0.8% of the Company's revenues. The annual fee
is reviewed and adjusted annually by mutual agreement of the parties.
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the
Company would have incurred on a stand-alone basis. The corporate
services agreement is renewed annually but can be terminated upon 30
days' prior notice by the Company or upon the Company's withdrawal from
the Thermo Electron Corporate Charter (the Thermo Electron Corporate
Charter defines the relationship among Thermo Electron and its
majority-owned subsidiaries). For additional items such as employee
benefit plans, insurance coverage, and other identifiable costs, Thermo
Electron charges the Company based upon costs attributable to the
Company.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Sale of Related-party Investments
During 1995, the Company sold its remaining investment in 6 1/2%
subordinated convertible debentures due 1998, which were issued by
Thermedics Inc., a majority-owned subsidiary of Thermo Electron. The
Company sold $2.3 million principal amount of the Thermedics debentures
in 1995 for net proceeds of $4.5 million, which resulted in a gain of
$2.2 million.
Short- and Long-term Obligations
See Note 7 for short- and long-term obligations of the Company held
by Thermo Electron.
10. Common Stock
At January 3, 1998, the Company had reserved 23,635,127 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and for issuance upon possible conversion of the
Company's convertible obligations.
28PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Issuance of Stock by Subsidiaries
Gain on issuance of stock by subsidiaries in the accompanying
statement of income results from the following transactions:
1997
Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per
share for net proceeds of $24.8 million and conversion of $15.7 million
of ThermoQuest 5% subordinated convertible debentures, convertible at
$16.50 per share, into 949,027 shares of ThermoQuest common stock
resulted in gains of $12.0 million and $7.8 million, respectively.
Initial public offering of 2,300,000 shares of Metrika Systems common
stock at $15.50 per share for net proceeds of $32.5 million resulted in a
gain of $13.2 million.
Private placements of 1,639,670 shares of ONIX Systems common stock
at $14.25 per share for net proceeds of $22.0 million resulted in a gain
of $7.9 million.
Conversion of $13.1 million and $3.2 million of Thermo Optek 5%
subordinated convertible debentures, convertible at $14.85 per share and
$13.94 per share, respectively, into 1,111,316 shares of Thermo Optek
common stock resulted in a gain of $3.2 million.
Initial public offering of 1,139,491 shares of Thermo Vision common
stock at $7.50 per share for net proceeds of $7.0 million resulted in a
gain of $2.3 million.
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.
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.
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.
Private placement of 967,828 shares of Metrika Systems common stock
at $15.00 per share for net proceeds of $13.5 million resulted in a gain
of $9.6 million.
1995
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.
Initial public offering of 1,725,000 shares of ThermoSpectra common
stock at $14.00 per share for net proceeds of $21.9 million resulted in a
gain of $9.3 million.
Private placement of 202,000 shares of ThermoSpectra common stock at
$15.72 per share for net proceeds of $3.0 million resulted in a gain of
$1.3 million.
29PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Issuance of Stock by Subsidiaries (continued)
The Company's ownership percentages of its majority-owned
subsidiaries at year end were as follows:
1997 1996 1995
----------------------------------------------------------------------
ThermoSpectra 77% 72% 72%
ThermoQuest 88% 93% 100%
Thermo Optek 91% 93% 100%
Thermo BioAnalysis 70% 67% 80%
Metrika Systems 60% 84% 100%
Thermo Vision (a) 78% 93% 100%
ONIX Systems 87% 100% 100%
(a)Thermo Vision was a wholly owned subsidiary of Thermo Optek until
December 1997, when Thermo Optek distributed to its shareholders 100%
of the common stock of Thermo Vision in the form of a dividend.
12. Nonrecurring (Income) Expense, Net
Nonrecurring income, net in 1997 reflects a gain of $2.2 million
recognized by ThermoSpectra on the sale of its Linac business for $5.0
million in cash and $2.1 million in equity securities, offset in part by
a $0.9 million charge incurred by ThermoSpectra, primarily related to
severance expense for employees terminated during the year at one of its
business units.
Nonrecurring expense in 1996 reflects the write-off of acquired
technology relating to the acquisition of the Fisons businesses (Note 4).
13. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
notes payable and current maturities of long-term obligations, accounts
payable, due to parent company and affiliated companies, long-term
obligations, and forward exchange contracts. The carrying amounts of
these financial instruments, with the exception of available-for-sale
investments, long-term obligations, and forward foreign exchange
contracts, approximate 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 (Note 2).
30PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments (continued)
The carrying amount and fair value of the Company's long-term
obligations and off-balance-sheet financial instruments are as follows:
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
-----------------------------------------------------------------------
Long-term obligations:
Convertible obligations $488,371 $767,769 $527,281 $681,550
Other 184,823 186,653 26,933 27,767
-------- -------- -------- --------
$673,194 $954,422 $554,214 $709,317
======== ======== ======== ========
Off-balance-sheet
financial instruments:
Forward exchange
contracts receivable $ 923 $ 886
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 and subsidiaries' common stock exceeding the conversion price
of certain of the convertible obligations.
The Company had forward foreign exchange contracts of $33.1 million
and $12.8 million at year-end 1997 and 1996, respectively. The fair value
of such contracts is the estimated amount that the Company would receive
if it were to terminate the contracts, taking into account the change in
foreign exchange rates.
31PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Geographical Data
The Company is engaged in one business segment: developing,
manufacturing, marketing, and servicing instruments and software used for
the identification and quantification of complex molecular compounds and
elements in gases, liquids, and solids. The following table shows data
for the Company by geographical area:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Revenues:
United States $1,010,964 $ 688,865 $ 520,485
United Kingdom 296,570 227,375 78,768
Germany 172,696 182,958 124,035
Other Europe 277,056 225,244 107,755
Other 108,277 104,885 79,368
Transfers among geographical
areas (a) (273,249) (219,965) (127,749)
---------- ---------- ----------
$1,592,314 $1,209,362 $ 782,662
========== ========== ==========
Income before provision for
income taxes and minority
interest expense:
United States $ 160,338 $ 97,114 $ 81,144
United Kingdom 27,586 14,333 5,128
Germany 11,309 9,894 8,703
Other Europe 31,937 15,350 12,505
Other 6,377 11,500 8,203
Corporate and
eliminations (b) (18,293) (21,548) (11,214)
---------- ---------- ----------
Total operating income 219,254 126,643 104,469
Interest and other income,
net 28,763 63,280 18,872
---------- ---------- ----------
$ 248,017 $ 189,923 $ 123,341
========== ========== ==========
Identifiable assets:
United States $1,354,197 $1,045,345 $ 888,620
United Kingdom 360,257 253,203 85,615
Germany 143,212 172,468 125,686
Other Europe 302,744 221,420 94,135
Other 68,080 57,435 62,090
Corporate and
eliminations (c) 122,663 174,529 116,667
---------- ---------- ----------
$2,351,153 $1,924,400 $1,372,813
========== ========== ==========
32PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Geographical Data (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Export revenues included in United
States revenues above (d):
Europe $ 142,014 $ 100,767 $ 88,418
Asia 124,441 107,796 80,839
Other 68,398 45,142 40,303
---------- ---------- ----------
$ 334,853 $ 253,705 $ 209,560
========== ========== ==========
(a)Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(b)Primarily corporate general and administrative expenses.
(c)Primarily cash, cash equivalents, and available-for-sale investments.
(d)In general, export revenues are denominated in U.S. dollars.
15. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Basic
Net income $147,258 $132,751 $ 79,306
-------- -------- --------
Weighted average shares 121,548 118,857 113,222
-------- -------- --------
Basic earnings per share $ 1.21 $ 1.12 $ .70
======== ======== ========
Diluted
Net income $147,258 $132,751 $ 79,306
Effect of:
Convertible obligations 8,089 5,288 5,729
Majority-owned subsidiaries'
dilutive securities (2,839) (922) (34)
-------- -------- --------
Income available to common
shareholders, as adjusted $152,508 $137,117 $ 85,001
-------- -------- --------
Weighted average shares 121,548 118,857 113,222
Effect of:
Convertible obligations 16,713 15,292 19,380
Stock options 1,154 1,202 689
-------- -------- --------
Weighted average shares, as adjusted 139,415 135,351 133,291
-------- -------- --------
Diluted earnings per share $ 1.09 $ 1.01 $ .64
======== ======== ========
33PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
15. Earnings per Share (continued)
In January 1998, the Company sold $250.0 million principal amount of
4% subordinated convertible debentures, which are convertible into shares
of the Company's common stock at a conversion price of $35.65 per share
(Note 17).
16. Unaudited Quarterly Information
(In thousands except per share amounts)
1997(a) First(b) Second Third Fourth
------------------------------------------------------------------------
Revenues $329,120 $405,235 $403,900 $454,059
Gross profit 155,672 194,741 188,901 210,991
Net income 33,587 37,219 37,273 39,179
Earnings per share:
Basic .28 .31 .31 .32
Diluted .25 .28 .28 .29
1996(c) First(d) Second Third Fourth
------------------------------------------------------------------------
Revenues $225,571 $321,552 $315,292 $346,947
Gross profit 107,364 144,524 147,803 155,506
Net income 34,043 35,296 30,521 32,891
Earnings per share:
Basic .30 .30 .25 .27
Diluted .26 .27 .23 .25
(a)Results include nontaxable gains of $12.0 million, $13.2 million,
$12.7 million, and $8.5 million in the first, second, third, and
fourth quarters, respectively, from the issuance of stock by
subsidiaries.
(b)Reflects the March 1997 acquisition of Life Sciences.
(c)Results include nontaxable gains of $24.3 million, $25.5 million,
$11.4 million, and $10.5 million in the first, second, third, and
fourth quarters, respectively, from the issuance of stock by
subsidiaries.
(d)Reflects the March 1996 acquisition of the Fisons businesses.
17. Subsequent Event
In January 1998, the Company sold at par value $250.0 million
principal amount of 4% subordinated convertible debentures due 2005 for
net proceeds of $243.8 million. The debentures are convertible into
shares of the Company's common stock at a conversion price of $35.65 per
share and are guaranteed on a subordinated basis by Thermo Electron. The
Company used a portion of the proceeds to repay a $105.0 million
promissory note to Thermo Electron. The $105.0 million promissory note
has been classified as long-term in the accompanying 1997 balance sheet,
as its repayment was made using the proceeds of debt with a maturity
beyond one year.
34PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Thermo Instrument Systems Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Instrument Systems Inc. (a Delaware corporation and 82%-owned subsidiary
of Thermo Electron Corporation) and subsidiaries as of January 3, 1998,
and December 28, 1996, and the related consolidated statements of income,
shareholders' investment, and cash flows for each of the three years in
the period ended January 3, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
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 Instrument Systems Inc. and subsidiaries as of January 3, 1998,
and December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 1998
35PAGE
Thermo Instrument Systems Inc. 1997 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
heading "Forward-looking Statements."
Results of Operations
The Company's revenues were $1,592.3 million in 1997, compared with
$1,209.4 million in 1996, and $782.7 million in 1995. The increases were
primarily due to acquisitions, which included Life Sciences in March
1997, a substantial portion of the businesses constituting the Scientific
Instruments Division of Fisons in March 1996, DYNEX and Oriel Corporation
in February 1996, the analytical instrument division of Analytical
Technology, Inc. in December 1995, and Gould Instrument Systems Inc. in
May 1995. Acquisitions added revenues of $407 million in 1997 and $404
million in 1996. In addition to the effect of acquisitions, revenues
increased in 1997 due to higher sales at ThermoQuest's existing mass
spectrometry business, partly as a result of the continued success of a
new product introduced in the first quarter of 1996, and due to increased
sales at Metrika Systems, primarily as a result of increased sales in
international markets from its on-line raw materials analyzer business.
Revenues also increased at ONIX Systems, primarily due to increased sales
of industry-specific instruments to the production segment of the oil and
gas industry. Revenues from Thermo Optek's existing businesses decreased
slightly due to the inclusion in 1996 of several large nonrecurring sales
to the Chinese and Japanese governments, a decrease in demand for
elemental products in Japan, and the elimination of certain unprofitable
acquired product lines, offset substantially by greater demand at one of
its business units. In addition to the effect of acquisitions, revenues
increased in 1996 due to greater demand experienced by ThermoQuest's mass
spectrometry business as a result of the introduction of two new
products, one in the third quarter of 1995 and another in the first
quarter of 1996, and, to a lesser extent, greater product demand at
Thermo Optek's Fourier transform infrared (FT-IR) and FT-Raman
spectrometry businesses. The increases in revenues in 1997 and 1996 were
offset in part by decreases of $46.8 million and $21.8 million,
respectively, due to the unfavorable effects of currency translation as a
result of the strengthening of the U.S. dollar relative to foreign
currencies in countries in which the Company operates.
International sales account for a significant portion of the
Company's total revenues. Although the Company seeks to charge its
customers in the same currency as its operating costs, the Company's
36PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (continued)
financial performance and competitive position can be affected by
currency exchange rate fluctuations. Where appropriate, the Company uses
short-term forward foreign exchange contracts to reduce its exposure to
currency fluctuations.
The gross profit margin was 47% in 1997, compared with 46% in 1996
and 48% in 1995. The increase in 1997 was primarily due to margin
improvements at certain of the businesses acquired from Fisons in 1996
and increased sales of ThermoQuest's higher-margin mass spectrometry
products. These increases were offset in part by the inclusion of
lower-margin revenues from acquired businesses, including Life Sciences,
which recorded an adjustment to expense of $3.6 million in 1997 relating
to the sale of inventories revalued at the date of acquisition and, to a
lesser extent, a decrease in the gross profit margin at ThermoSpectra,
primarily as a result of a one-time inventory write-off and a change in
sales mix at one of its business units. The gross profit margin decreased
in 1996 primarily due to lower margins at acquired businesses, including
Fisons, which included an adjustment to expense of $2.0 million in 1996
relating to the sale of inventories revalued at the date of acquisition.
Selling, general, and administrative expenses as a percentage of
revenues was 27% in 1997 and 28% in 1996 and 1995. The decrease in 1997
was primarily due to efforts to reduce selling and administrative
expenses at acquired businesses and, to a lesser extent, lower selling
costs associated with certain of the Life Sciences businesses.
Research and development expenses as a percentage of revenues
remained relatively unchanged at 6.8% in 1997, compared with 7.0% in
1996, and 6.9% in 1995.
In 1997, ThermoSpectra recognized a gain of $2.2 million on the sale
of its Linac business, which was offset in part by a charge by
ThermoSpectra of $0.9 million for severance costs for employees
terminated during 1997 (Note 12). In 1996, the Company wrote off $3.5
million of acquired technology relating to the acquisition of the Fisons
businesses (Note 4).
Interest income increased to $28.3 million in 1997 from $20.5 million
in 1996 and $14.6 million in 1995. The increase in 1997 was due to
interest income earned on invested proceeds from the issuance of $172.5
million principal amount of 4 1/2% senior convertible debentures by the
Company in October 1996 and, to a lesser extent, from the invested
proceeds from the sale of common stock by the Company's subsidiaries in
1997 and 1996 (Note 11). The increase in 1996 was primarily the result of
interest income earned on invested proceeds from the issuance of $96.3
million principal amount of 5% subordinated convertible debentures by
each of ThermoQuest and Thermo Optek in August 1995 and October 1995,
respectively, the sale of common stock by the Company's subsidiaries
(Note 11) and, to a lesser extent, the issuance of the 4 1/2% senior
convertible debentures. The increases in interest income in 1997 and 1996
were offset in part by a reduction in cash as a result of acquisitions.
Interest expense increased to $45.9 million in 1997 from $28.9
million in 1996 and $18.1 million in 1995. The increase in 1997 was
37PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (continued)
primarily due to the issuance of an aggregate $428.8 million of
promissory notes to Thermo Electron in connection with acquisitions
(Note 7), the issuance of 4 1/2% senior convertible debentures by the
Company in October 1996 and, to a lesser extent, the inclusion of
interest expense on debt assumed in connection with the acquisitions of
the Fisons businesses and Life Sciences, which has been subsequently
repaid. In September 1997, the Company repaid $220.0 million of its
outstanding promissory notes to Thermo Electron (Notes 4 and 7). The
increase in 1996 was primarily due to the issuance of the 5% subordinated
convertible debentures by ThermoQuest and Thermo Optek. To a lesser
extent, interest expense increased due to the issuance by the Company of
the 4 1/2% senior convertible debentures, the issuance of promissory
notes to Thermo Electron in connection with acquisitions (Note 7), and
the inclusion of interest expense on the debt assumed as part of the
acquisition of the Fisons businesses. The increases in interest expense
in 1997 and 1996 were offset in part by the conversion of a portion of
the Company's and subsidiaries' convertible obligations into common stock
of the Company and its subsidiaries.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell
a minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option programs, as well as capital to support the subsidiaries' growth.
As a result of the sale of stock by subsidiaries and issuance of stock by
subsidiaries upon conversion of convertible debentures, the Company
recorded gains of $46.4 million in 1997, $71.7 million in 1996, and $20.1
million in 1995 (Note 11). These gains represent an 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. The size and timing of these transactions are dependent on market
and other conditions that are beyond the Company's control. Accordingly,
there can be no assurance that the Company will be able to generate gains
from such transactions in the future. Further, in October 1995, the
Financial Accounting Standards Board (FASB) issued an exposure draft of a
Proposed Statement of Financial Accounting Standards, "Consolidated
Financial Statements: Policy and Procedures" (the Proposed Statement).
The Proposed Statement would establish new rules for how consolidated
financial statements should be prepared. If the Proposed Statement is
adopted, there would be significant changes in the way the Company
records certain transactions of its controlled subsidiaries. Among those
changes, any sale of the stock of a subsidiary that does not result in a
loss of control would be accounted for as a transaction in equity of the
consolidated entity with no gain or loss being recorded. The exposure
draft addresses the consolidation issues in two parts: consolidation
procedures, which includes proposed rule changes affecting the Company's
ability to recognize gains on issuances of subsidiary stock, and
consolidation policy, which does not address accounting for such gains.
During fiscal 1997, the FASB decided to focus its efforts on the
38PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (continued)
consolidation policy part of the exposure draft and to consider resuming
discussion on consolidation procedures after completion of the efforts on
consolidation policy. The timing and content of any final statement are
uncertain.
The Company recorded a gain of $2.2 million in 1995 from the sale of
the Company's investment in subordinated convertible debentures issued by
Thermedics Inc., a majority-owned subsidiary of Thermo Electron (Note 9).
The effective tax rate was 36% in 1997, 27% in 1996, and 35% in 1995.
The effective tax rate increased in 1997 primarily due to a lower
nontaxable gain on issuance of stock by subsidiaries. The effective tax
rate decreased in 1996 primarily due to a higher nontaxable gain on
issuance of stock by subsidiaries. Excluding the impact of the gains on
issuance of stock by subsidiaries, the effective tax rates exceeded the
statutory federal income tax rate due to the inability to provide a tax
benefit on losses incurred at certain foreign subsidiaries, the impact of
foreign and state income taxes, the nondeductible amortization of cost in
excess of net assets of acquired companies and, in 1996, the write-off of
acquired technology in connection with the acquisition of the Fisons
businesses.
Minority interest expense increased to $12.6 million in 1997 from
$5.4 million in 1996, primarily due to higher earnings at Thermo
BioAnalysis, ThermoQuest, and Thermo Optek and, to a lesser extent,
minority interest associated with the Company's newly public Metrika
Systems subsidiary. These increases were offset in part by lower earnings
at ThermoSpectra.
See Note 8 for a description of certain legal proceedings involving
the Company.
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal
information systems and current products are either year 2000 compliant
or will be so prior to the year 2000 without incurring material costs.
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its
internal information systems and current products, which could result in
a material adverse effect on the Company's future results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
39PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Consolidated working capital was $612.7 million at January 3, 1998,
compared with $636.7 million at December 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$477.2 million at January 3, 1998, and $530.1 million at December 28,
1996. Of the $477.2 million balance at January 3, 1998, $290.4 million
was held by the Company's majority-owned subsidiaries and the balance was
held by the Company and its wholly owned subsidiaries. Cash provided by
operating activities in 1997 was $169.3 million. The Company used $19.2
million during the year to fund an increase in accounts receivable. Of
the total increase, $11.8 million was at ThermoQuest and resulted from
higher shipments in the fourth quarter and a competitive trend to
commercial terms of 30 days from ThermoQuest's past practice of obtaining
deposits on certain systems. The Company used $23.9 million of cash
during the year to reduce current liabilities, primarily for certain exit
costs relating to acquisitions (Note 4).
At January 3, 1998, $131.4 million of the Company's cash and cash
equivalents was held by its foreign subsidiaries. While this cash can be
used outside of the United States, including for acquisitions,
repatriation of this cash into the United States would be subject to
foreign withholding taxes and could also be subject to a United States
tax.
The Company's investing activities used $485.0 million of cash in
1997. The Company expended $508.1 million, net of cash acquired, for
acquisitions, including the repayment of $106.3 million of bank debt
(Note 4), and $29.2 million for purchases of property, plant, and
equipment. The Company recorded proceeds of $7.9 million from the sale of
property, plant, and equipment in 1997.
The Company's financing activities provided $270.8 million of cash in
1997. During 1997, to partially finance acquisitions, the Company and its
majority-owned subsidiaries borrowed an aggregate $428.8 million from
Thermo Electron pursuant to promissory notes with various dates of
maturity (Note 7). In September 1997, the Company repaid $220.0 million
of its outstanding promissory notes to Thermo Electron (Notes 4 and 7).
Net proceeds from the issuance of Company and subsidiary common stock
totaled $93.1 million (Note 11). In January 1998, the Company sold at par
value $250.0 million principal amount of 4% subordinated convertible
debentures due 2005 for net proceeds of $243.8 million. The Company used
a portion of the proceeds to repay a $105.0 million promissory note to
Thermo Electron.
In 1998, the Company plans to make expenditures of approximately $37
million for property, plant, and equipment. The Company believes that its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future. The Company has
historically complemented internal development with acquisitions of
businesses or technologies that extend the Company's presence in current
markets or provide opportunities to enter and compete effectively in new
markets. The Company will consider making acquisitions of such businesses
or technologies that are consistent with its plans for strategic growth.
The Company expects that it will finance these acquisitions through a
40PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
combination of internal funds, additional debt or equity financing from
the capital markets, or short-term borrowings from Thermo Electron
although there is no agreement with Thermo Electron to ensure that funds
will be available on acceptable terms or at all.
Market Risk
The Company is exposed to market risk from changes in foreign
currency exchange rates, interest rates, and equity prices, which could
affect its future results of operations and financial condition. The
Company manages its exposure to these risks through its regular operating
and financing activities. Additionally, the Company uses short-term
forward contracts to manage certain exposures to foreign currencies. The
Company enters into forward foreign exchange contracts to hedge firm
purchase and sale commitments denominated in currencies other than its
subsidiaries' local currencies. The Company does not engage in extensive
foreign currency hedging activities; however, the purpose of the
Company's foreign currency hedging activities is to protect the Company's
local currency cash flows related to these commitments from fluctuations
in foreign exchange rates. The Company's forward foreign exchange
contracts principally hedge transactions denominated in U.S. dollars,
British pounds sterling, Japanese yen, French francs, and German deutsche
marks. Gains and losses arising from forward contracts are recognized as
offsets to gains and losses resulting from the transactions being hedged.
The Company does not enter into speculative foreign currency agreements.
Foreign Currency Exchange Rates
Forward foreign exchange contracts are sensitive to changes in
foreign currency exchange rates. The fair value of forward foreign
exchange contracts 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. A 10% depreciation in year-end 1997 foreign
currency exchange rates related to the Company's contracts would result
in a decrease in the unrealized gain on forward foreign exchange
contracts of $2 million. Since the Company uses forward foreign exchange
contracts as hedges of firm purchase and sale commitments, the unrealized
gain or loss on forward foreign currency exchange contracts resulting
from changes in foreign currency exchange rates would be offset by a
corresponding change in the fair value of the hedged item.
The Company generally views its investment in foreign subsidiaries
with a functional currency other than the Company's reporting currency as
long-term. The Company's investment in foreign subsidiaries is sensitive
to fluctuations in foreign currency exchange rates. The functional
currencies of the Company's foreign subsidiaries are principally
denominated in British pounds sterling, German deutsche marks, Dutch
guilders, and French francs. The effect of a change in foreign exchange
rates on the Company's net investment in foreign subsidiaries is recorded
as a separate component of shareholders' investment. A 10% depreciation
41PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market Risk (continued)
in year-end 1997 functional currencies, relative to the U.S. dollar,
would result in a $12 million reduction of shareholders' investment.
Interest Rates
Certain of the Company's available-for-sale investments and long-term
obligations are sensitive to changes in interest rates. Interest rate
changes would result in a change in the fair value of these financial
instruments due to the difference between the market interest rate and
the rate at the date of purchase or issuance of the financial instrument.
A 10% decrease in year-end 1997 market interest rates would result in a
negative impact of $6 million on the net fair value of the Company's
interest-sensitive financial instruments.
Equity Prices
The Company's available-for-sale investment portfolio includes equity
securities that are sensitive to fluctuations in price. In addition, the
Company's and its subsidiaries' convertible obligations are sensitive to
fluctuations in the price of Company or subsidiary common stock into
which the obligations are convertible. Changes in equity prices would
result in changes in the fair value of the Company's available-for-sale
investments and convertible obligations due to the difference between the
current market price and the market price at the date of purchase or
issuance of the financial instrument. A 10% increase in the year-end 1997
market equity prices would result in a negative impact of $58 million on
the net fair value of the Company's price-sensitive equity financial
instruments.
42PAGE
Thermo Instrument Systems Inc. 1997 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 1998 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Risks Associated with Spinout of Subsidiaries. The Company has
adopted a strategy of spinning out certain of its businesses into
separate subsidiaries and having these subsidiaries sell a minority
interest to outside investors. As a result of the sale of stock by
subsidiaries, the issuance of stock by subsidiaries upon conversion of
convertible debentures, and similar transactions, the Company records
gains that represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
Further, in October 1995, the Financial Accounting Standards Board
(FASB) issued an exposure draft of a Proposed Statement of Financial
Accounting Standards, "Consolidated Financial Statements: Policy and
Procedures" (the Proposed Statement). The Proposed Statement would
establish new rules for how consolidated financial statements should be
prepared. If the Proposed Statement is adopted, there would be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The exposure draft addresses the
consolidation issues in two parts: consolidation procedures, which
includes proposed rule changes affecting the Company's ability to
recognize gains on issuances of subsidiary stock, and consolidation
policy, which does not address accounting for such gains. During fiscal
1997, the FASB decided to focus its efforts on the consolidation policy
part of the exposure draft and to consider resuming discussion on
consolidation procedures after completion of the efforts on consolidation
policy. The timing and content of any final statement are uncertain.
Uncertainty of Growth. Certain of the markets in which the Company
competes have been flat or declining over the past several years. The
Company has identified a number of strategies it believes will allow it
to grow its business, including acquiring complementary businesses;
developing new applications for its technologies; and strengthening its
presence in selected geographic markets. No assurance can be given that
the Company will be able to successfully implement these strategies, or
that these strategies will result in growth of the Company's business.
Risks Associated with Acquisition Strategy. One of the Company's
growth strategies is to supplement its internal growth with the
43PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Forward-looking Statements
acquisition of businesses and technologies that complement or augment the
Company's existing product lines. Certain businesses acquired by the
Company have had low levels of profitability. In addition, businesses
that the Company may seek to acquire in the future may also be marginally
profitable or unprofitable. In order for any acquired businesses to
achieve the level of profitability desired by the Company, the Company
must successfully change operations and improve market penetration. No
assurance can be given that the Company will be successful in this
regard. In addition, promising acquisitions are difficult to identify and
complete for a number of reasons, including competition among prospective
buyers, the need for regulatory approvals, including antitrust approvals,
and the high valuations of businesses resulting from historically high
stock prices in many countries. Acquisitions made by the Company may be
made at substantial premiums over the fair value of the net assets of the
acquired companies. There can be no assurance that the Company will be
able to complete pending or future acquisitions or that the Company will
be able to successfully integrate any acquired business into its existing
business or make such businesses profitable. In order to finance any such
acquisitions, it may be necessary for the Company to raise additional
funds either through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable
to the Company and may result in dilution to the Company's shareholders.
Risks Associated with Technological Change, Obsolescence, and the
Development and Acceptance of New Products. The market for the Company's
products and services is characterized by rapid and significant
technological change and evolving industry standards. New product
introductions responsive to these factors require significant planning,
design, development, and testing at the technological, product, and
manufacturing process levels, and may render existing products and
technologies uncompetitive or obsolete. There can be no assurance that
the Company's products will not become uncompetitive or obsolete. In
addition, industry acceptance of new technologies developed by the
Company may be slow to develop due to, among other things, existing
regulations written specifically for older technologies and general
unfamiliarity of users with new technologies.
Possible Adverse Effect From Consolidation in the Environmental
Market and Changes in Environmental Regulations. One of the important
markets for the Company's products is environmental analysis. During the
past several years, there has been a contraction in the market for
analytical instruments used for environmental analysis. This contraction
has caused consolidation in the businesses serving this market. Such
consolidation may have an adverse impact on certain of the Company's
businesses. In addition, most air, water, and soil analysis is conducted
to comply with federal, state, local, and foreign environmental
regulations. These regulations are frequently specific as to the type of
technology required for a particular analysis and the level of detection
required for that analysis. The Company develops, configures, and markets
its products to meet customer needs created by existing and anticipated
environmental regulations. These regulations may be amended or eliminated
in response to new scientific evidence or political or economic
44PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Forward-looking Statements
considerations. Any significant change in environmental regulations could
result in a reduction in demand for the Company's products.
Risks Associated With the Sale of Products to the Pharmaceutical
Industry. The pharmaceutical industry is one of the important markets for
the Company's products. Although the Company's existing general purpose
analytical equipment and services are not subject to regulation by the
U.S. Food and Drug Administration (the FDA), FDA regulations apply to the
processes and production facilities used to manufacture pharmaceutical
products. Any material change by a pharmaceutical company in its
manufacturing process or equipment could necessitate additional FDA
review and approval. Such requirements may make it more difficult for the
Company to sell its products and services to pharmaceutical customers
that have already applied for or obtained approval for production
processes using different equipment and supplies. Any changes in the
regulations that apply to the processes and production facilities used to
manufacture pharmaceutical products may adversely affect the market for
the Company's products. In addition, from time to time as a result of
industry consolidation and other factors, the pharmaceutical industry has
reduced its capital expenditures for equipment such as that manufactured
by the Company, and there can be no assurance that further changes in the
pharmaceutical industry will not adversely affect demand for the
Company's products.
Risks Associated With Dependence on Capital Spending Policies and
Government Funding. The Company's customers include pharmaceutical and
chemical companies, laboratories, 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 levels are based on a wide variety of factors, including the
resources available to make such purchases, the spending priorities among
various types of research 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.
Possible Adverse Impact of Significant International Operations.
International revenues accounted for a significant portion of the
Company's total revenues in 1997, and the Company expects that
international revenues will continue to account for a significant portion
of the Company's revenues in the future. Sales to customers in foreign
countries 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 could impose withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, or adopt
other restrictions on foreign trade; export licenses, if required, may be
45PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Forward-looking Statements
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
effect on the Company's business and results of operations.
Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company
believes that the principal competitive factors affecting the market for
its products include product performance, price, reliability, and
customer service. The Company's competitors include large multinational
corporations and their operating units. Some of the Company's competitors
have substantially greater financial, marketing, and other resources than
those of the Company. As a result, they 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. In addition, 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 discover new technologies will be sufficient to
enable it to compete effectively with its competitors.
Risks Associated with Protection, Defense, and Use of Intellectual
Property. The Company holds many patents relating to various aspects of
its products, and believes that proprietary technical know-how is
critical to many of its products. Proprietary rights relating to the
Company's products are protected from unauthorized use by third parties
only to the extent that they are covered by valid and enforceable patents
or are maintained in confidence as trade secrets. There can be no
assurance 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 and, in the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the
Company's products or gain access to its trade secrets and know-how.
Proceedings initiated by the Company to protect its proprietary rights
could result in substantial costs to the Company. There can be no
assurance that competitors of the Company will not initiate litigation to
challenge the validity of the Company's patents, or that they will not
use their resources to design comparable products that do not infringe
the Company's patents. There may also be pending or issued patents held
by parties not affiliated with the Company that relate to the Company's
products or technologies. The Company may need to acquire licenses to, or
contest the validity of, any such patents. There can be no assurance that
any license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
The Company could incur substantial costs in defending itself in suits
brought against it or in suits in which the Company may assert its patent
rights against others. If the outcome of any such litigation is
unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected. Further, the laws of
some jurisdictions do not protect the Company's proprietary rights to the
46PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Forward-looking Statements
same extent as the laws of the U.S. and there can be no assurance that
available protections will be adequate. In addition, 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.
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems and on products sold as well
as products purchased by the Company. The Company believes that its
internal information systems and current products are either year 2000
compliant or will be so prior to the year 2000 without incurring material
costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance
for its internal information systems and current products, which could
result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
47PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Selected Financial Information
(In thousands
except per share
amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993
---------------------------------------------------------------------------
Statement of
Income Data:
Revenues $1,592,314 $1,209,362 $ 782,662 $ 649,992 $ 529,278
Income from
continuing
operations 147,258 132,751 79,306 58,261 42,793
Net income 147,258 132,751 79,306 60,220 44,764
Earnings per
share from
continuing
operations:
Basic 1.21 1.12 .70 .53 .41
Diluted 1.09 1.01 .64 .49 .39
Earnings per
share:
Basic 1.21 1.12 .70 .55 .43
Diluted 1.09 1.01 .64 .50 .40
Balance Sheet
Data:
Working
capital $ 612,666 $ 636,703 $ 489,895 $ 230,306 $ 238,053
Total assets 2,351,153 1,924,400 1,372,813 1,011,917 891,141
Long-term
obligations 673,194 554,214 441,034 263,559 286,161
Shareholders'
investment 877,558 746,267 542,705 440,763 358,055
(a)Reflects the March 1997 acquisition of Life Sciences and nontaxable
gains of $46.4 million from the issuance of stock by subsidiaries.
(b)Reflects the March 1996 acquisition of the Fisons businesses, the
October 1996 issuance of $172.5 million principal amount of
4 1/2% senior convertible debentures due 2003, and nontaxable gains of
$71.7 million from the issuance of stock by subsidiaries.
(c)Reflects the August and October 1995 issuance of $96.3 million
principal amount of 5% subordinated convertible debentures due 2000 by
each of ThermoQuest and Thermo Optek, respectively, and nontaxable
gains of $20.1 million from the issuance of stock by subsidiaries.
(d)Reflects the March 1994 acquisition of several businesses within the
EnviroTech Measurements & Controls group of Baker Hughes Incorporated
and nontaxable gains of $6.5 million from the issuance of stock by
subsidiary.
48PAGE
Thermo Instrument Systems Inc. 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol THI. The following table sets forth the high and low
sale prices of the Company's common stock for 1997 and 1996, as reported
in the consolidated transaction reporting system. Prices were restated to
reflect a five-for-four stock split distributed in October 1997 in the
form of a 25% stock dividend.
1997 1996
---------------------- ----------------------
Quarter High Low High Low
---------------------------------------------------------------------
First $29 1/5 $23 1/10 $24 2/5 $19 7/10
Second 28 1/2 22 1/2 34 7/10 22 4/5
Third 34 1/5 24 3/5 31 23 3/5
Fourth 34 1/2 23 30 1/10 23 1/5
As of January 30, 1998, the Company had 2,997 holders of record of
its common stock. This does not include holdings in street or nominee
names. The closing market price on the American Stock Exchange for the
Company's common stock on January 30, 1998, was $29 1/8 per share.
Common stock of the Company's majority-owned public subsidiaries is
traded on the American Stock Exchange: ThermoSpectra Corporation (symbol
THS), ThermoQuest Corporation (symbol TMQ), Thermo Optek Corporation
(symbol TOC), Thermo BioAnalysis Corporation (symbol TBA), Metrika
Systems Corporation (MKA), and Thermo Vision Corporation (VIZ).
Shareholder Services
Shareholders of Thermo Instrument Systems Inc. who desire information
about the Company are invited to contact John N. Hatsopoulos, Chief
Financial Officer, Thermo Instrument Systems Inc., 81 Wyman Street, P.O.
Box 9046, Waltham, Massachusetts 02254-9046, (781) 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. Distribution
of printed quarterly reports is limited to the second quarter only. All
material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/thi1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company 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:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
49PAGE
Thermo Instrument Systems Inc. 1997 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
January 3, 1998, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Instrument Systems Inc., 81 Wyman Street, P.O.
Box 9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 1,
1998, at 9:00 a.m. at the Hyatt Regency Hotel, Scottsdale, Arizona.