Exhibit 13
THERMO POWER CORPORATION
Consolidated Financial Statements
Fiscal Year 1997
PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Income
Year Ended
------------------------------------
(In thousands except Sept. 27, Sept. 28, Sept. 30,
per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Note 12) $121,046 $120,736 $103,255
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 99,154 100,379 79,823
Selling, general, and
administrative expenses (Note 6) 16,926 16,739 15,886
Research and development expenses 2,296 3,214 3,065
-------- -------- --------
118,376 120,332 98,774
-------- -------- --------
Operating Income 2,670 404 4,481
Interest Income 1,829 1,714 1,919
Interest Expense (18) (26) (23)
Gain on Sale of Investments, Net
(includes $53, $469, and $768 on
sale of related-party investments;
Notes 2 and 6) 53 208 730
-------- -------- --------
Income Before Income Taxes
and Minority Interest 4,534 2,300 7,107
Provision for Income Taxes (Note 5) 2,118 1,103 2,737
Minority Interest Expense 312 312 182
-------- -------- --------
Net Income $ 2,104 $ 885 $ 4,188
======== ======== ========
Earnings per Share $ .17 $ .07 $ .34
======== ======== ========
Weighted Average Shares 12,212 12,466 12,372
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Balance Sheet
Sept. 27, Sept. 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 19,347 $ 29,852
Available-for-sale investments, at quoted
market value (amortized cost of $9,129 and
$6,022; Notes 2 and 6) 9,171 6,028
Accounts receivable, less allowances of $757
and $589 21,012 18,054
Unbilled contract costs and fees 4,856 7,110
Inventories 19,884 18,637
Prepaid income taxes (Note 5) 3,118 2,921
Other current assets 219 324
-------- --------
77,607 82,926
-------- --------
Rental Assets, at Cost, Net 10,276 9,980
-------- --------
Property, Plant, and Equipment, at Cost, Net 10,591 9,767
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost of
$2,301 and $210; Notes 2, 6, and 13) 2,200 184
-------- --------
Other Assets 236 345
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,082 7,509
-------- --------
$107,992 $110,711
======== ========
3PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
Sept. 27, Sept. 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 9,622 $ 14,005
Accrued payroll and employee benefits 3,133 2,832
Billings in excess of contract costs and fees 1,353 1,017
Accrued warranty costs 3,435 2,323
Accrued income taxes 1,620 713
Other accrued expenses 3,240 3,806
Due to parent company and affiliated companies 496 511
-------- --------
22,899 25,207
-------- --------
Deferred Income Taxes (Note 5) 114 84
-------- --------
Long-term Obligations (Notes 9 and 10) 252 305
-------- --------
Commitments (Notes 6 and 7)
Common Stock of Subsidiary Subject to Redemption
($18,450 redemption value) 18,059 17,747
-------- --------
Shareholders' Investment (Notes 4 and 8):
Common stock, $.10 par value, 30,000,000
shares authorized; 12,493,371 and 12,487,149
shares issued 1,249 1,249
Capital in excess of par value 55,283 54,448
Retained earnings 13,811 11,707
Treasury stock at cost, 578,124 and 2,724
shares (3,636) (23)
Net unrealized loss on available-for-sale
investments (Note 2) (39) (13)
-------- --------
66,668 67,368
-------- --------
$107,992 $110,711
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
-----------------------------------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities
Net income $ 2,104 $ 885 $ 4,188
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization 3,156 3,033 2,082
Provision for losses on
accounts receivable 252 191 3
Minority interest expense 312 312 182
Gain on sale of investments,
net (Notes 2 and 6) (53) (208) (730)
Deferred income tax expense
(benefit) (403) 372 62
Other noncash items 3 - (191)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (3,210) 216 (4,568)
Inventories (1,247) 1,769 (7,889)
Unbilled contract costs
and fees 2,254 (766) (992)
Other current assets 105 428 (786)
Accounts payable (4,383) 740 3,333
Other current liabilities 3,318 238 196
-------- -------- --------
Net cash provided by (used in)
operating activities 2,208 7,210 (5,110)
-------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) - (860) (2,500)
Purchases of available-for-sale
investments (11,301) (5,000) (365)
Proceeds from sale and maturities
of available-for-sale investments 6,000 8,982 9,074
Proceeds from sale of related-party
investments (Note 6) 262 852 1,599
Increase in rental assets (3,191) (4,849) (3,865)
Proceeds from sale of rental
assets 1,522 2,268 1,017
Purchases of property, plant,
and equipment (2,431) (2,713) (2,101)
Other 21 140 273
-------- -------- --------
Net cash provided by (used in)
investing activities $ (9,118) $ (1,180) $ 3,132
-------- -------- --------
5PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
------------------------------------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
Company and subsidiary common
stock $ 71 $ 377 $ 18,064
Repurchases of Company common
stock (3,613) - -
Repayment of long-term obligations (53) (59) (56)
-------- -------- --------
Net cash provided by (used in)
financing activities (3,595) 318 18,008
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (10,505) 6,348 16,030
Cash and Cash Equivalents at
Beginning of the Year 29,852 23,504 7,474
-------- -------- --------
Cash and Cash Equivalents at End
of Year $ 19,347 $ 29,852 $ 23,504
======== ======== ========
Cash Paid for:
Interest $ 18 $ 26 $ 23
Income taxes $ 445 $ 894 $ 2,796
Noncash Investing Activities:
Fair value of assets of acquired
companies $ - $ 860 $ 2,500
Cash paid for acquired companies - (860) (2,500)
-------- -------- --------
Liabilities assumed of
acquired companies $ - $ - $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
Thermo Power Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 1,249 $ 1,248 $ 1,243
Issuance of stock under employees'
and directors' stock plans - 1 5
------- ------- -------
Balance at end of year 1,249 1,249 1,248
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 54,448 53,898 53,211
Issuance of stock under employees'
and directors' stock plans 71 58 534
Tax benefit related to employees'
and directors' stock plans
(Note 5) 764 492 153
------- ------- -------
Balance at end of year 55,283 54,448 53,898
------- ------- -------
Retained Earnings
Balance at beginning of year 11,707 10,822 6,634
Net income 2,104 885 4,188
------- ------- -------
Balance at end of year 13,811 11,707 10,822
------- ------- -------
Treasury Stock
Balance at beginning of year (23) (341) (613)
Purchases of Company common stock (3,613) - -
Issuance of stock under employees'
and directors' stock plans - 318 272
------- ------- -------
Balance at end of year (3,636) (23) (341)
------- ------- -------
Net Unrealized Loss on Available-for-
sale Investments
Balance at beginning of year (13) 198 -
Effect of change in accounting
principle (Note 2) - - 268
Change in net unrealized loss on
available-for-sale investments
(Note 2) (26) (211) (70)
------- ------- -------
Balance at end of year (39) (13) 198
------- ------- -------
Total Shareholders' Investment $66,668 $67,368 $65,825
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Power Corporation (the Company) manufactures, markets, and
services industrial refrigeration equipment, natural gas engines for
vehicular and stationary applications, marine engines, fork-lift engines,
and natural gas-fueled commercial cooling and cogeneration systems. The
Company also conducts research and development on applications of thermal
energy and rents commercial cooling and industrial refrigeration
equipment. In addition, the Company is developing and commercializing
various gas-powered lighting products.
Relationship with Thermo Electron Corporation
The Company was incorporated on June 6, 1985, as a wholly owned
subsidiary of Thermo Electron Corporation. As of September 27, 1997,
Thermo Electron owned 8,127,906 shares of the Company's common stock,
representing 68% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company, its wholly owned subsidiaries, and its 78%-owned privately held
subsidiary, ThermoLyte Corporation. All material intercompany accounts
and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
September 30. References to fiscal 1997, 1996, and 1995 are for the
fiscal years ended September 27, 1997, September 28, 1996, and September
30, 1995, respectively.
Revenue Recognition
The Company recognizes revenues upon shipment of its products or upon
completion of services it renders, and recognizes rental revenues on a
straight-line basis over the term of the rental contract. The Company
provides a reserve for its estimate of warranty costs at the time of
shipment. Revenues and profits on contracts are recognized using the
percentage-of-completion method. Revenues recorded under the percentage-
of-completion method, including revenues from research and development
contracts, were $60,590,000 in fiscal 1997, $57,842,000 in fiscal 1996,
and $53,045,000 in fiscal 1995. The percentage of completion is
determined by relating the actual costs incurred to date to management's
estimate of total costs to be incurred on each contract. If a loss is
indicated on any contract in process, a provision is made currently for
the entire loss. Contracts at the Company's FES division generally
provide for the billing of customers on a fixed-price basis upon contract
completion. Contracts at the Company's Tecogen division generally provide
for the billing of customers on a cost-plus-fixed-fee basis as costs are
incurred. Revenues earned on contracts in process in excess of billings
are classified as unbilled contract costs and fees, and amounts billed in
excess of revenues are classified as billings in excess of contract costs
and fees in the accompanying balance sheet. There are no significant
amounts included in the accompanying balance sheet that are not expected
8PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year, including amounts
that are billed but not paid under retainage provisions.
Research and Development Arrangements
The Company has research and development arrangements with the
natural gas industry and various government agencies. Revenues in the
accompanying statement of income include $4,688,000, $5,836,000, and
$4,917,000 and cost of revenues include $3,776,000, $4,475,000, and
$3,548,000 related to these arrangements in fiscal 1997, 1996, and 1995,
respectively. The Company is required to pay royalties for any
technologies developed or products commercialized under several of these
arrangements. Selling, general, and administrative expenses in the
accompanying statement of income include royalty expense related to these
arrangements of $65,000, $71,000, and $51,000 in fiscal 1997, 1996, and
1995, respectively.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans
(Note 4). Accordingly, no accounting recognition is given to stock
options granted at fair market value until they are exercised. Upon
exercise, net proceeds, including tax benefits realized, are credited to
equity.
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the year. Because the effect of the
assumed exercise of stock options would be immaterial, they have been
excluded from the earnings per share calculation.
Cash and Cash Equivalents
As of September 27, 1997, $17,994,000 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 U.S. government-agency securities, corporate
notes, commercial paper, 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
9PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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. Cash equivalents are
carried at cost, which approximates market value.
Available-for-sale Investments
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," effective October 2, 1994, the Company's debt and
marketable equity securities are accounted for at market value (Note 2).
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
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 $17,570 $16,233
Work in process and finished goods 2,314 2,404
------- -------
$19,884 $18,637
======= =======
Rental Assets
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation on rental assets over an estimated useful life
of seven years. Accumulated depreciation was $3,369,000 and $2,378,000 at
fiscal year-end 1997 and 1996, respectively.
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, 40
years; machinery and equipment, 3 to 12 years; and leasehold
improvements, the shorter of the term of the lease or the life of the
asset. Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
------------------------------------------------------------------------
Land $ 252 $ 252
Buildings 5,731 5,558
Machinery, equipment, and leasehold improvements 13,654 11,770
------- -------
19,637 17,580
Less: Accumulated depreciation and amortization 9,046 7,813
------- -------
$10,591 $ 9,767
======= =======
10PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 40 years.
Accumulated amortization was $710,000 and $512,000 at fiscal year-end
1997 and 1996, respectively. The Company assesses the future useful life
of this asset whenever events or changes in circumstances indicate that
the current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of
carrying value over fair value is recorded as a loss.
Common Stock of Subsidiary Subject to Redemption
In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting
of one share of ThermoLyte common stock, $.001 par value, and one
redemption right, at $10.00 per unit, for net proceeds of $17,253,000.
Holders of the common stock purchased in the offering will have the
option to require ThermoLyte to redeem in December 1998 or 1999 any or
all of their shares at $10.00 per share. The redemption rights 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. The difference between
the redemption value and the original carrying amount of common stock of
subsidiary subject to redemption is accreted using the straight-line
method over the period ending December 1998, which corresponds to the
first redemption period. The accretion is charged to minority interest
expense in the accompanying statement of income. ThermoLyte is developing
various gas-powered lighting products for commercialization. Following
the offering, the Company owned 78% of ThermoLyte's outstanding common
stock.
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 fiscal 1996 and 1995 have been reclassified to
conform to the presentation in the fiscal 1997 financial statements.
2. Available-for-sale Investments
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
11PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
shareholders' investment titled "Net unrealized loss on available-for-
sale investments." Effect of change in accounting principle in the
accompanying fiscal 1995 statement of shareholders' investment represents
the unrealized gain, net of related tax effects, pertaining to
available-for-sale investments held by the Company on October 2, 1994.
The aggregate market value, cost basis, and gross unrealized gains
and losses of short- and long-term available-for-sale investments by
major security type are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
------------------------------------------------------------------------
1997
Government-agency securities $ 5,008 $ 4,982 $ 26 $ -
Corporate bonds 4,068 4,052 16 -
Other 2,295 2,396 - (101)
------- ------- ------- -------
$11,371 $11,430 $ 42 $ (101)
======= ======= ======= =======
1996
Government-agency securities $ 5,992 $ 5,986 $ 6 $ -
Other 220 246 - (26)
------- ------- ------- -------
$ 6,212 $ 6,232 $ 6 $ (26)
======= ======= ======= =======
Short- and long-term available-for-sale investments in the
accompanying fiscal 1997 balance sheet include equity securities of
$2,200,000 and debt securities of $9,171,000 with contractual maturities
of more than one year through five years. Actual maturities may differ
from contractual maturities as a result of the Company's intent to sell
these securities prior to maturity and as a result of put and call
options that enable either the Company, the issuer, or both, to redeem
these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification in determining realized gains and losses
recorded in the accompanying statement of income. Gain on sale of
investments, net, in the accompanying fiscal 1997 statement of income
resulted from gross realized gains relating to the sale of available-for-
sale investments. Gain on sale of investments, net, in the accompanying
fiscal 1996 and 1995 statement of income resulted from gross realized
gains of $469,000 and 768,000, respectively, and gross realized losses of
$18,000 and $38,000, respectively, relating to the sale of
available-for-sale investments, and a write-down of other investments of
$243,000 in fiscal 1996.
12PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions
In the first quarter of fiscal 1996, the Company acquired the
thermoelectric cooling module business of ThermoTrex Corporation for
$860,000, which was the net book value of the business acquired.
ThermoTrex is a majority-owned subsidiary of Thermo Electron. Because the
Company and the thermoelectric cooling module business were deemed for
accounting purposes to be under control of their common majority owner,
Thermo Electron, the transaction has been accounted for at historical
cost in a manner similar to the pooling-of-interests method. The results
of the thermoelectric cooling module business were not material to the
Company's results, and therefore the Company's historical financial
information for periods prior to fiscal 1996 has not been restated. The
results of the thermoelectric cooling module business have been included
in the accompanying financial statements from the date of acquisition.
Effective May 1, 1994, the Company acquired NuTemp, Inc. for
$7,947,000 in cash. In fiscal 1995, the Company paid an additional
$2,500,000 as a result of NuTemp having achieved certain previously
agreed upon performance goals through the period ending May 1, 1995. The
additional payment was recorded as an increase in cost in excess of net
assets of acquired companies, which is being amortized over 40 years.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. The Company's equity incentive plan permits the
grant of a variety of stock and stock-based awards as determined by the
human resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. To date, only nonqualified stock
options have been awarded under 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 periods ranging from three
to ten years after the first anniversary of the grant date, depending on
the term of the option, which may range from five 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 on the date of
grant. To date, all options have been granted at fair market value. The
Company also has a directors' stock option plan that provides for the
grant of stock options in the Company and its majority-owned subsidiary
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
13PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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 information is as follows:
1997 1996 1995
----------------- ---------------- ---------------
Range of
Weighted Weighted Option
Number Average Number Average Number Prices
(Shares in of Exercise of Exercise of per
thousands) Shares Price Shares Price Shares Share
-----------------------------------------------------------------------
Options outstanding, $ 4.20-
beginning of year 1,342 $ 9.35 1,406 $ 9.24 1,259 $10.15
8.95-
Granted 68 8.07 12 13.07 296 17.53
4.20-
Exercised (1) 5.45 (40) 6.76 (111) 9.58
7.45-
Forfeited (126) 9.03 (36) 8.98 (38) 9.58
----- ----- -----
Options outstanding, $ 4.20-
end of year 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53
===== ====== ===== ====== ===== ======
Options $ 4.20-
exercisable 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53
===== ====== ===== ====== ===== ======
Options available
for grant 49 75 97
===== ===== =====
Weighted average
fair value per
share of options
granted during
year $ 3.45 $ 4.83
====== ======
14PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at September
27, 1997, is as follows:
Options Outstanding and Exercisable
-------------------------------------------
Number Weighted Average
of Remaining Weighted Average
Range of Exercise Prices Shares Contractual Life Exercise Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 6.40 - $ 9.18 1,068 6.8 years $ 8.86
9.19 - 11.96 157 2.2 years 9.62
11.97 - 14.75 8 3.8 years 13.65
14.76 - 17.53 50 0.8 years 17.53
-----
$ 6.40 - $17.53 1,283 6.0 years $ 9.32
=====
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time 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 fiscal 1997, 1996,
and 1995, the Company issued 4,622 shares, 18,012 shares, and 25,859
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 fiscal 1997 and 1996 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
-----------------------------------------------------------------------
Net income:
As reported $2,104 $ 885
Pro forma 1,883 708
Earnings per share:
As reported .17 .07
Pro forma .15 .06
15PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1997 1996
-----------------------------------------------------------------------
Volatility 43% 43%
Risk-free interest rate 6.0% 5.7%
Expected life of options 4.2 years 3.3 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 Plan and Employee Stock Ownership Plan
The majority of the Company's employees are eligible to participate
in Thermo Electron's 401(k) savings plan and, prior to January 1, 1995,
certain employees were eligible to participate in Thermo Electron's
employee stock ownership plan (ESOP). Contributions to the 401(k) savings
plan 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 $666,000, $674,000, and
$653,000 in fiscal 1997, 1996, and 1995, respectively. Effective December
31, 1994, the ESOP was split into two plans: ESOP I, covering employees
of Thermo Electron's corporate office and its wholly owned subsidiaries,
and ESOP II, covering employees of certain of Thermo Electron's
majority-owned subsidiaries, including the Company. Also, effective
December 31, 1994, the ESOP II plan was terminated, and as a result, the
Company's employees are no longer eligible to participate in an ESOP.
16PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $2,067 $ 599 $2,150
State 454 132 525
------ ------ ------
2,521 731 2,675
------ ------ ------
Deferred (prepaid), net:
Federal (316) 305 54
State (87) 67 8
------ ------ ------
(403) 372 62
------ ------ ------
$2,118 $1,103 $2,737
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $764,000, $492,000, and $153,000 of such benefits that have
been allocated to capital in excess of par value in fiscal 1997, 1996,
and 1995, respectively.
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 34% to income before provision for income
taxes and minority interest due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $1,542 $ 782 $2,416
Increases (decreases) resulting from:
State income taxes, net of federal
benefit 242 131 353
Losses not benefited 258 214 -
Income from tax-preferred securities - (46) (122)
Nondeductible expenses 176 100 83
Other (100) (78) 7
------ ------ ------
$2,118 $1,103 $2,737
====== ====== ======
17PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Prepaid income taxes in the accompanying balance sheet consists of
the following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid income taxes:
Inventory basis difference $ 807 $ 730
Accrued warranty costs 1,340 906
Accrued compensation 650 596
Reserves and accruals 164 459
Allowance for doubtful accounts 295 230
Federal and state loss carryforwards 444 214
------ ------
3,700 3,135
Less: Valuation allowance (582) (214)
------ ------
$3,118 $2,921
====== ======
The valuation allowance relates to the uncertainty surrounding the
realization of net operating loss carryforwards and other tax assets of
the Company's ThermoLyte subsidiary. As of September 27, 1997, ThermoLyte
had net operating loss carryforwards of approximately $1.1 million that
begin to expire in fiscal 2011.
6. 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 pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
calendar year 1995 and 1994, respectively. The annual fee is reviewed and
adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $1,210,000, $1,262,000, and $1,250,000 in fiscal
1997, 1996, and 1995, respectively. 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
relationships among Thermo Electron and its majority-owned subsidiaries).
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. 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.
18PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Related-party Transactions (continued)
Related Party Revenues
The Company sells products in the ordinary course of business to a
wholly owned subsidiary of Thermo Electron. Sales of such products
totaled $423,000, $104,000, and $987,000 in fiscal 1997, 1996, and 1995,
respectively.
Other Related-party Services
The Company provides contract administration, data processing, and
other services to certain companies affiliated with Thermo Electron. The
Company is reimbursed for costs incurred based on actual usage. For these
services, the Company was reimbursed $105,000, $167,000, and $209,000 in
fiscal 1997, 1996, and 1995, respectively.
Leases
The Company leases an office and laboratory facility from Thermo
Electron under an agreement expiring in 2002. The accompanying statement
of income includes expenses from this operating lease of $170,000 in
fiscal 1997, 1996, and 1995. The future minimum payments due under this
operating lease as of September 27, 1997, are $326,000 per year through
fiscal 2002. Total future minimum lease payments are $1,630,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Other Related-party Transactions
In May 1997, the Company sold 420,000 shares of common stock of The
Randers Group Incorporated to Thermo TerraTech Inc., a majority-owned
subsidiary of Thermo Electron, for proceeds of $262,000, resulting in a
gain of $53,000.
In February 1996, the Company sold $365,000 principal amount of 6.5%
subordinated convertible debentures to an unrelated party for net
proceeds of $490,000, which resulted in a gain of $125,000. The
debentures were issued by Thermo TerraTech Inc.
In December 1995, the Company sold 10,969 shares of Thermo Electron
common stock to an unrelated party for net proceeds of $362,000, which
resulted in a gain of $344,000.
In May 1995, the Company sold $920,000 principal amount of 6 1/2%
subordinated convertible debentures to an unrelated party for net
proceeds of $1,578,000, which resulted in a gain of $768,000. The
debentures were issued by Thermedics Inc., a majority-owned subsidiary of
Thermo Electron.
7. Commitments
In addition to the lease described in Note 6, the Company leases
equipment and manufacturing, engine testing, service, and office
facilities under various operating leases. The accompanying statement of
income includes expenses from operating leases of $1,219,000, $1,166,000,
and $1,044,000 in fiscal 1997, 1996, and 1995, respectively. Future
19PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Commitments (continued)
minimum payments due under noncancellable operating leases as of
September 27, 1997, are $970,000 in fiscal 1998; $952,000 in fiscal 1999;
$916,000 in fiscal 2000; $849,000 in fiscal 2001; $839,000 in fiscal
2002; and $2,502,000 in fiscal 2003 and thereafter. Total future minimum
lease payments are $7,028,000.
8. Common Stock
At September 27, 1997, the Company had reserved 1,487,860 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
9. Long-term Obligations
At September 27, 1997, the Company's long-term obligations included
a $222,000 mortgage loan, which is secured by property at the Company's
FES division with a net book value of $4,709,000. The loan is payable in
equal monthly installments with the final payment in fiscal 2001. The
interest rate on this loan is 75% of the prime rate, which was 6.38% and
6.19% at fiscal year-end 1997 and 1996, respectively.
The annual requirements for long-term obligations as of September
27, 1997, are $58,000 in fiscal 1998; $61,000 in fiscal 1999 and 2000;
and $130,000 in fiscal 2001. Total requirements of long-term obligations
are $310,000.
10. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
accounts payable, due to parent company and affiliated companies, and
long-term obligations. The carrying amounts of these financial
instruments, with the exception of available-for-sale investments and
long-term obligations, 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. See Note 2 for fair value information pertaining to
these financial instruments.
The carrying amounts of the Company's long-term obligations, which
approximate fair value, were $252,000 and $305,000 at September 27, 1997,
and September 28, 1996, respectively. The fair value of the Company's
long-term obligations was determined based on borrowing rates available
to the Company at the respective year-ends.
11. Segment Data, Export Sales, and Concentrations of Risk
The Company's business is divided into three segments. The
Industrial Refrigeration Systems segment develops, manufactures, markets,
and services industrial refrigeration and commercial cooling equipment,
and rents commercial cooling and industrial refrigeration equipment. The
Engines segment develops, manufactures, markets, and services gasoline
20PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Segment Data, Export Sales, and Concentrations of Risk (continued)
engines for recreational boats, propane and gasoline engines for lift
trucks, and natural gas engines for vehicular, cooling, pumping,
refrigeration, and other industrial applications. The Cooling and
Cogeneration Systems segment develops, manufactures, markets, and
services natural gas cooling and cogeneration systems, conducts research
and development on applications of thermal energy, and is developing and
commercializing a family of gas-powered lighting products.
Export revenues to Asia accounted for 13%, 7%, and 10% of the
Company's total revenues in fiscal 1997, 1996, and 1995, respectively.
Other export revenues accounted for 7%, 6%, and 5% of the Company's total
revenues in fiscal 1997, 1996, and 1995, respectively. In general, export
sales are denominated in U.S. dollars.
The Company purchases engine blocks for its marine and certain other
engines, as well as engines for certain of its smaller cooling and
cogeneration products, from one supplier. While the Company believes that
it has adequate supplies of materials to meet its needs for a three-month
period, no assurance can be given that the Company will not experience
shortages of engine blocks in the future that could delay shipments of
the Company's marine and certain other engines and its cooling and
cogeneration products.
Information for fiscal 1997, 1996, and 1995, with respect to the
Company's business segments, is shown in the following table.
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Revenues:
Industrial Refrigeration Systems $ 74,843 $ 73,312 $ 64,708
Engines 30,324 28,857 24,848
Cooling and Cogeneration Systems 17,819 20,477 15,873
Intersegment sales elimination (a) (1,940) (1,910) (2,174)
-------- -------- --------
$121,046 $120,736 103,255
======== ======== ========
Income before provision for income
taxes and minority interest:
Industrial Refrigeration Systems $ 5,331 $ 4,403 $ 6,689
Engines (23) (1,584) (120)
Cooling and Cogeneration Systems (647) 122 961
Corporate (b) (1,991) (2,537) (3,049)
-------- -------- --------
Total operating income 2,670 404 4,481
Interest and other income, net 1,864 1,896 2,626
-------- -------- --------
$ 4,534 $ 2,300 $ 7,107
======== ======== ========
Identifiable assets:
Industrial Refrigeration Systems $ 52,157 $ 52,707 $ 48,249
Engines 16,528 13,917 17,193
Cooling and Cogeneration Systems 22,178 22,953 23,549
Corporate (c) 17,129 21,134 19,426
-------- -------- --------
$107,992 $110,711 $108,417
======== ======== ========
21PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Segment Data, Export Sales, and Concentrations of Risk (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Depreciation and amortization:
Industrial Refrigeration Systems $ 2,606 $ 2,501 $ 1,551
Engines 319 295 329
Cooling and Cogeneration Systems 198 214 192
Corporate 33 23 10
-------- -------- --------
$ 3,156 $ 3,033 $ 2,082
======== ======== ========
Capital expenditures:
Industrial Refrigeration Systems $ 4,558 $ 6,959 $ 5,410
Engines 653 329 344
Cooling and Cogeneration Systems 382 240 150
Corporate 29 34 62
-------- -------- --------
$ 5,622 $ 7,562 $ 5,966
======== ======== ========
(a) Intersegment sales 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 short-term investments.
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third Fourth
-----------------------------------------------------------------------
Revenues $28,786 $28,825 $33,839 $29,596
Gross profit 4,253 5,494 5,945 6,200
Net income 4 375 716 1,009
Earnings per share - .03 .06 .08
1996 First Second Third Fourth
-----------------------------------------------------------------------
Revenues $27,452 $29,756 $32,429 $31,099
Gross profit 4,787 4,661 5,323 5,586
Net income (loss) 577 43 448 (183)
Earnings (loss) per share .05 - .04 (.01)
22PAGE
Thermo Power Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Subsequent Event
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for the outstanding ordinary shares of
Peek plc (Peek). The aggregate cost to acquire all outstanding Peek
ordinary shares is estimated at approximately $163 million. The Company
paid $2.3 million for shares acquired in fiscal 1997, which are
classified as long-term available-for-sale investments in the
accompanying fiscal 1997 balance sheet, and $147.9 million for shares
acquired from September 28, 1997, through November 19, 1997. The Company
owned 92% of the outstanding ordinary shares of Peek as of November 19,
1997. The Company expects to make payments for the remaining ordinary
shares outstanding during the first quarter of fiscal 1998.
Pursuant to a promissory note, the Company borrowed $160.0 million
from Thermo Electron to finance the acquisition of Peek. The promissory
note is due November 1999, and bears interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set of the beginning of each
quarter.
Peek, a London Stock Exchange-listed company, develops, markets,
installs, and services equipment to monitor and regulate traffic flow in
cities and towns around the world. Peek offers a wide range of products,
including hardware, such as loop detectors, traffic signals and
controllers, and variable message signs, as well as traffic management
systems that integrate these products to ease roadway congestion, improve
safety, and collect data. Traffic management systems include variable
message systems to advise drivers of accidents and other roadway hazards;
traffic signal-timing systems that adapt continuously to changing
conditions to minimize delays; video systems to give real-time analysis
of traffic flows at intersections and on highways; and automatic
toll-collection systems. The Company also offers high-resolution video
equipment to aid police officers in capturing the information necessary
to charge individuals with motor vehicle violations such as speeding and
red light violations.
23PAGE
Thermo Power Corporation 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Power Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Power Corporation (a Massachusetts corporation and 68%-owned subsidiary
of Thermo Electron Corporation) and subsidiaries as of September 27,
1997, and September 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for each of the three
years in the period ended September 27, 1997. 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 Power Corporation and subsidiaries as of September 27, 1997, and
September 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 27, 1997,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
October 31, 1997
(except with respect to the
matter discussed in Note 13
as to which the date is
November 19, 1997)
24PAGE
Thermo Power Corporation 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 Operation under the
heading "Forward-looking Statements."
Overview
The Company's business is divided into three segments: Industrial
Refrigeration Systems, Engines, and Cooling and Cogeneration Systems.
Through the Company's FES division, the Industrial Refrigeration Systems
segment supplies standard and custom-designed industrial refrigeration
systems used primarily by the food-processing, petrochemical, and
pharmaceutical industries. NuTemp, Inc. is a supplier of both
remanufactured and new industrial refrigeration and commercial cooling
equipment for sale or rental. NuTemp's industrial refrigeration equipment
is used primarily in the food-processing, petrochemical, and
pharmaceutical industries, and its commercial cooling equipment is used
primarily in institutions and commercial buildings, as well as by service
contractors. The demand for NuTemp's equipment is typically highest in
the summer period and can be adversely affected by cool summer weather.
Within the Engines segment, the Company's Crusader Engines division
manufactures gasoline engines for recreational boats; propane and
gasoline engines for lift trucks; and natural gas engines for vehicular,
cooling, pumping, refrigeration, and other industrial applications.
The Cooling and Cogeneration Systems segment consists of the
Company's Tecogen division and the Company's ThermoLyte Corporation
subsidiary. Tecogen designs, develops, markets, and services packaged
cooling and cogeneration systems fueled principally by natural gas for
sale to a wide range of commercial, institutional, industrial, and
multi-unit residential users. Certain large-capacity cooling systems are
manufactured for Tecogen by FES, and the cogeneration systems are
manufactured for Tecogen by Crusader. Tecogen also conducts research and
development of natural gas-engine technology and on applications of
thermal energy. ThermoLyte is developing and commercializing various
gas-powered lighting products.
The Company acquired Peek plc (Peek), a London Stock Exchange-listed
company, in November 1997. Peek develops, markets, installs, and services
equipment to monitor and regulate traffic flow in cities and towns around
the world. Peek offers a wide range of products, including hardware, such
as loop detectors, traffic signals and controllers, and variable message
signs, as well as traffic management systems that integrate these
products to ease roadway congestion, improve safety, and collect data.
25PAGE
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
Traffic management systems include variable message systems to advise
drivers of accidents and other roadway hazards; traffic signal-timing
systems that adapt continuously to changing conditions to minimize
delays; video systems to give real-time analysis of traffic flows at
intersections and on highways; and automatic toll-collection systems. The
Company also offers high-resolution video equipment to aid police
officers in capturing the information necessary to charge individuals
with motor vehicle violations such as speeding and red light violations.
Peek had revenues in calendar 1996, excluding revenues from businesses
sold in 1996 and 1997, of approximately 140 million pounds sterling, or
approximately $219 million, and profit on ordinary activities after
taxation, excluding profit from businesses sold in 1996 and 1997, of
approximately 8 million pound sterling, or approximately $12 million.
Peek's results of operations in calendar 1996 are unaudited and were
accounted for in accordance with generally accepted accounting principles
in the United Kingdom, which differ in certain respects from U.S.
generally accepted accounting principles. The Company's results of
operations and financial position for fiscal 1998 are expected to be
affected significantly by the acquisition of Peek.
The Company will be required to modify or replace portions of its
software and the software of Peek so that it will function properly in
the year 2000. Costs associated with purchasing software which is year
2000 compliant, excluding costs associated with Peek, is included in
estimated capital expenditures for fiscal 1998, disclosed in liquidity
and capital resources. The cost of such new software will be capitalized
and amortized over the software's useful life, and is not expected to
have a material effect on the Company's results of operations. The
Company is in the process of assessing the impact of the year 2000 issue
on the operations of Peek, including the development of cost estimates
for, and the extent of any programming changes that might be required to
address, this issue. At this time, the Company is unable to determine the
materiality of the year 2000 issue at Peek.
Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Total revenues were $121,046,000 in fiscal 1997 and $120,736,000 in
fiscal 1996. Industrial Refrigeration Systems segment revenues increased
to $74,843,000 in 1997 from $73,312,000 in 1996, primarily due to greater
demand for custom-designed industrial refrigeration packages and product
services at FES and, to a lesser extent, increased demand for rental
equipment at NuTemp. These improvements were offset in part by a decrease
in demand for standard industrial refrigeration packages at FES. Engines
segment revenues increased to $30,324,000 in 1997 from $28,857,000 in
1996, primarily due to an increase in lift-truck and TecoDrive(R) engine
sales, offset in part by a decrease in sales of marine-engine related
products. The increase in TecoDrive engine sales was principally due to a
large nonrecurring order of $3.6 million from one customer. Cooling and
26PAGE
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
Cogeneration Systems segment revenues were $17,819,000 in 1997, compared
with $20,477,000 in 1996. Decreased revenues from sponsored research and
development, gas-fueled cooling systems, and thermoelectric devices were
offset in part by increased service revenues in 1997.
The gross profit margin increased to 18% in fiscal 1997 from 17% in
fiscal 1996. The gross profit margin for the Industrial Refrigeration
Systems segment increased to 21% in 1997 from 20% in 1996, primarily due
to higher margins at FES, resulting from lower warranty expenses,
manufacturing efficiencies, and a decrease in the cost of a major
component, and higher margins at NuTemp resulting from increased
revenues. FES experienced a cost increase in the major component in
fiscal 1996, for which the Company has begun receiving deliveries from an
additional supplier at a lower cost. The gross profit margin for the
Engines segment increased to 9% in 1997 from 5% in 1996, primarily due to
a reduction in warranty expenses and lower overhead expenses resulting
from the consolidation of two manufacturing facilities at Crusader and,
to a lesser extent, startup costs in fiscal 1996 associated with the
introduction of lift-truck engines. The gross profit margin for the
Cooling and Cogeneration Systems segment decreased to 19% in 1997 from
22% in 1996, primarily due to lower revenues and higher warranty expenses
for gas-fueled cooling systems.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 14% in fiscal 1997 and 1996. Research and
development expenses decreased to $2,296,000 in 1997 from $3,214,000 in
1996, primarily due to lower spending on natural gas-engine products and
gas-powered lighting products, primarily due to the completion of the
current phase of development efforts for these products.
Net gain on sale of investments in fiscal 1996 primarily represents a
gain of $344,000 relating to the sale of the Company's remaining
investment in Thermo Electron common stock and a gain of $125,000
relating to the sale of the Company's remaining investment in
subordinated convertible debentures issued by Thermo TerraTech Inc., a
majority-owned subsidiary of Thermo Electron (Note 6). These gains were
largely offset by a write-down of other investments.
The effective tax rate was 47% in fiscal 1997 and 48% in fiscal 1996.
The effective tax rate exceeded the statutory federal income tax rate
primarily due to an increase in the valuation allowance for net operating
loss carryforwards and other tax assets of the Company's ThermoLyte
subsidiary, and the impact of state income taxes.
Fiscal 1996 Compared With Fiscal 1995
Total revenues increased 17% to $120,736,000 in fiscal 1996 from
$103,255,000 in fiscal 1995. Industrial Refrigeration Systems segment
revenues increased 13% to $73,312,000 in 1996 from $64,708,000 in 1995.
Revenues at FES increased $7,717,000 in 1996, primarily due to greater
demand for custom-designed industrial refrigeration packages, offset in
part by lower sales of standard refrigeration systems. Revenues at NuTemp
increased $887,000, primarily due to increased demand for remanufactured
commercial cooling equipment, offset in part by lower demand for rental
equipment resulting from generally milder summer temperatures in 1996
27PAGE
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
compared with 1995. Engines segment revenues increased 16% to $28,857,000
in 1996 from $24,848,000 in 1995, primarily due to the inclusion of
revenues from lift-truck engines and increased demand for gasoline and
TecoDrive natural gas engines, offset in part by a decrease of $2,877,000
in revenues from marine-engine related products. Revenues from
marine-engine related products declined primarily due to increased
competition and a decrease in demand. Cooling and Cogeneration Systems
segment revenues increased 29% to $20,477,000 in 1996 from $15,873,000 in
1995, primarily due to an increase in revenues from gas-fueled cooling
systems. Results for the Cooling and Cogeneration Systems segment in 1995
include a fee of $1,187,000 received from one of the Company's
distributors of packaged cogeneration systems to satisfy the financial
obligations under a minimum purchase contract.
The gross profit margin decreased to 17% in fiscal 1996 from 23% in
fiscal 1995. The gross profit margin for the Industrial Refrigeration
Systems segment decreased to 20% in 1996 from 25% in 1995, primarily due
to lower margins at FES resulting from a change in sales mix. FES' sales
to the petrochemical industry, which have inherently lower margins,
increased in 1996 from 1995. To a lesser extent, the gross profit margin
decreased due to an increase in depreciation expense at NuTemp resulting
from an increase in rental assets, lower manufacturing efficiencies at
FES, and higher warranty expenses at NuTemp in 1996 compared with 1995.
The gross profit margin for the Engines segment decreased to 5% in 1996
from 11% in 1995, primarily due to unusually high warranty expenses and,
to a lesser extent, startup costs associated with the introduction of
lift-truck engines. The gross profit margin for the Cooling and
Cogeneration Systems segment decreased to 22% in 1996 from 29% in 1995,
primarily due to the inclusion in 1995 of a fee received from one of the
Company's distributors of packaged cogeneration systems discussed above.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 14% in fiscal 1996 from 15% in fiscal 1995,
primarily due to an increase in total revenues. Research and development
expenses were $3,214,000 in fiscal 1996, compared with $3,065,000 in
fiscal 1995. An increase in research and development expenses for
gas-fueled lighting products was largely offset by a decrease in spending
on research and development of natural gas-engine products.
Interest income decreased to $1,714,000 in fiscal 1996 from
$1,919,000 in fiscal 1995. Interest income earned on invested proceeds
from ThermoLyte's March 1995 private placement was more than offset by a
decrease in interest income earned on the Company's other investments due
to lower average invested balances. The net gain on sale of investments
in fiscal 1996 is described in the results of operations for fiscal 1997.
The net gain on sale of investments in fiscal 1995 primarily represents a
gain of $768,000 relating to the sale of the Company's investment in
subordinated convertible debentures issued by Thermedics Inc., a
majority-owned subsidiary of Thermo Electron (Note 6).
The effective tax rate was 48% in fiscal 1996, compared with 39% in
fiscal 1995. These rates exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes and, in fiscal 1996, a
28PAGE
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
valuation allowance established for net operating loss carryforwards and
other tax assets of the Company's ThermoLyte subsidiary.
Liquidity and Capital Resources
Working capital was $54,708,000 at September 27, 1997, compared with
$57,719,000 at September 28, 1996. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $28,518,000 at
September 27, 1997, compared with $35,880,000 at September 28, 1996. Of
the $28,518,000 balance at September 27, 1997, $15,519,000 was held by
ThermoLyte and the remainder was held by the Company and its wholly owned
subsidiaries.
During fiscal 1997, $2,208,000 of cash was provided by operating
activities. Cash provided by the Company's operating results was reduced
by a decrease in accounts payable of $4,383,000, an increase in accounts
receivable of $3,210,000, and an increase in inventories of $1,247,000.
These reductions in cash were offset in part by an increase in other
current liabilities of $3,318,000 and a decrease in unbilled contract
costs and fees of $2,254,000. The decrease in accounts payable was
principally due to the timing of purchases of materials for large
contracts. The increase in accounts receivable was primarily due to the
timing of billings on percentage-of-completion contracts, reflected in
the decrease in unbilled contract costs and fees, as well as increased
shipments at the end of fiscal 1997. Other current liabilities increase
principally due to an increase in accrued warranty costs and accrued
income taxes. Inventories increased primarily due to expanded purchases
of one component prior to its expected redesign by its manufacturer.
During fiscal 1997, the Company's primary investing activities,
excluding available-for-sale investment activity, included $5,622,000
expended for purchases of rental assets and property, plant, and
equipment and $1,522,000 in proceeds received from the sale of rental
assets.
The Company's financing activities used $3,595,000 of cash in fiscal
1997, primarily due to $3,613,000 of cash expended for the purchase of
Company common stock. The Company's Board of Directors has authorized the
repurchase, through March 17, 1998, of up to $5,000,000 of its own
securities. Any such purchases are funded from working capital. As of
September 27, 1997, $1,387,000 remained under the Company's
authorization.
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for all outstanding ordinary shares of
Peek. The aggregate cost to acquire all outstanding Peek ordinary shares
is estimated at approximately $163 million. The Company paid $2.3 million
for shares acquired in fiscal 1997 and $147.9 million for shares acquired
from September 28, 1997, through November 19, 1997. The Company owned 92%
of the outstanding ordinary shares of Peek as of November 19, 1997. The
Company expects to make payments for the remaining ordinary shares
outstanding during the first quarter of fiscal 1998. To finance the
acquisition of Peek, the Company used internal funds and borrowed $160.0
million from Thermo Electron. (Note 13)
29PAGE
Thermo Power Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
ThermoLyte's common stock is subject to redemption in December 1998
or 1999, the redemption value of which is $18,450,000 (Note 1).
In fiscal 1998, the Company expects to make capital expenditures for
the purchase of rental assets and property, plant, and equipment of
approximately $3.5 million, excluding capital expenditures of Peek which
have yet to be determined by the Company. The Company believes its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future.
30PAGE
Thermo Power Corporation 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 fiscal 1998 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Ability to Manage Change. The Company has recently experienced
significant growth in the number of its employees, the demands on its
operating and financial systems, and the geographic area of its
operations. In November 1997, the Company acquired Peek plc (Peek), a
public company in the United Kingdom, which has more than 1,200 employees
located throughout Europe, Asia, and the United States, and had revenues
in calendar 1996, excluding revenues of businesses sold in 1996 and 1997,
of approximately 140 million pounds sterling, or approximately
$219 million. This acquisition has resulted in new and increased
responsibilities for the Company's administrative, operational,
development, and financial personnel. In order to manage the Company's
changing business, Peek's management and other employees must be
assimilated into the Company's existing operations. There can be no
assurance that the Company will be successful in retaining Peek's key
employees and integrating them into the Company. The Company's success
depends to a significant extent on the ability of its officers and key
employees to operate effectively, both independently and as a group, and
this ability may be impeded by the Company's rapid geographic expansion,
potential disruption of the Company's business, and diversion of
management's attention from other business concerns due to the Peek
acquisition. In addition, there can be no assurance that the Company's
systems, procedures, and controls will be adequate to support the
significant expansion of the Company's operations. Any failure of the
Company's management to manage change effectively could have a material
adverse effect on the Company's business, financial condition, and
results of operations.
Transition of Product Focus; Dependence on New Products. Since its
inception, the Company has derived a substantial majority of its revenues
from development and commercialization of power generation, refrigeration
and cooling, engines, and related products. While these products are
expected to continue to generate a significant amount of the Company's
revenues for the foreseeable future, a substantial portion of the
Company's revenues is now expected to be derived from the sale of
electronics and associated hardware and software for the traffic
industry, as well as from providing integration services for such
electronics, hardware, and software, through the Company's recently
acquired Peek subsidiary. A substantial portion of the Company's efforts,
particularly its product development and marketing efforts, will be
focused on the traffic market. The Company has had no prior experience in
the traffic industry, and there can be no assurance that the Company will
be able to successfully market and sell its newly acquired products and
services. The Company's future success will depend significantly on its
ability to develop, introduce, and integrate new products in the traffic
31PAGE
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
market and to continue to improve the performance, features, and
reliability of Peek's current products. In order for Peek to achieve the
level of profitability desired by the Company, the Company must
successfully reduce Peek's expenses and improve market penetration. No
assurance can be given that the Company will be successful in this
regard. Any failure or inability of the Company's traffic products to
perform substantially as anticipated or to achieve market acceptance
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
Risks Associated With International Operations. The Company intends
to continue to expand its presence in international markets. In calendar
1996, sales originating outside of the United States accounted for
approximately 70% of the Company's recently acquired Peek subsidiary's
revenues. International revenues are subject to a number of risks,
including the following: fluctuations in exchange rates may affect
product demand and adversely affect the profitability in U.S. dollars of
products and services provided by the Company in foreign markets where
payment for the Company's products and services is made in the local
currency; agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign
customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs, or adopt other restrictions on foreign trade;
U.S. export licenses, if required, may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more
difficult to enforce. There can be no assurance that any of these factors
will not have a material adverse impact on the Company's business,
financial condition, and results of operations.
Reliance on Sales to Governmental Entities and Custom Contracts. The
majority of Peek's sales are to governmental entities. Sales to
governmental entities generally account for approximately 70% of Peek's
revenues. The Company intends to focus its marketing of Peek's products
and services on various governmental entities, including the U.S. Federal
Highway Administration and comparable overseas agencies, regional
counties of governments, state, and city traffic engineers, public
transit authorities, public toll operators, law enforcement agencies, and
tunnel and bridge authorities. Any decrease in purchases by these
government bodies, including, without limitation, decreases as the result
of a shift in priorities or overall budgeting limitations, could have an
adverse effect on the Company's business, financial condition, and
results of operations. In addition, most of Peek's contracts require the
development and integration of customized products for a fixed fee.
Contracts with governmental entities often permit the purchaser to cancel
the agreement at any time. A significant overrun in Peek's expenses or
cancellation of a significant contract could also result in a material
adverse effect on the Company's business, financial condition, and
results of operations.
32PAGE
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. Although the
Company has a proprietary position with respect to certain features of
its products, the core technologies relating to its cooling and
cogeneration products are mature and available to other companies. A
number of companies, including companies with greater financial resources
than those of the Company, offer products that compete with those offered
by the Company, and there can be no assurance that other companies will
not develop competitive products. In addition, electric utility pricing
programs provide competition for the Company's cooling and cogeneration
products.
The market for traffic products and services is extremely
competitive, and the Company expects that competition will continue to
increase. The Company believes that the principal competitive factors in
the traffic industry are price, functionality, reliability, service and
support, and vendor and product reputation. The Company believes that its
ability to compete successfully will depend on a number of factors both
within and outside its control, including the pricing policies of its
competitors and suppliers, the timing and quality of products introduced
by the Company and others, the Company's ability to maintain a strong
reputation in the traffic industry, and industry and general economic
trends. In the traffic market, the Company currently competes with
companies with greater financial resources and name recognition. The
introduction by one of these competitors or a new competitor of a
technologically superior product would have a material adverse effect on
the Company's business, financial condition, and results of operations.
There can be no assurance that the Company will be able to compete
successfully with existing or new competitors.
The Company's sale of industrial refrigeration systems is subject to
intense competition. The industrial refrigeration market is mature,
highly fragmented, and extremely dependent on close customer contacts.
Competition in the compressed natural gas (CNG) vehicle and
alternative-fuel engine markets is intense, and current and potential
competitors in some or all segments of these markets include major
automotive and natural gas companies and other companies that have
greater financial resources than the Company. If the CNG vehicle business
is to succeed, natural gas will need to be economically attractive
compared with other alternative fuels, such as ethanol and methanol, and
compared with improved gasoline formulas.
Several companies offer marine engines that compete with those
manufactured by Crusader. In addition, in recent years, certain large
manufacturers of marine engines have vertically integrated their
respective businesses by acquiring boat manufacturers that previously had
been independent purchasers of engines from Crusader and other engine
manufacturers. The number of potential buyers of Crusader's engines has
decreased accordingly.
Dependence of Markets on Government Regulation. The natural gas
vehicle market is in its formative stage. The use of CNG engines in
vehicles in the United States results primarily from governmental
regulations mandating or encouraging the use of alternative fuels. The
Company's CNG engine business is subject to the demand driven by various
33PAGE
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
provisions of the 1990 Clean Air Act, as well as energy and environmental
legislation that has been or may be enacted at state and local levels,
which may be more stringent than federal laws. Natural gas is one of many
alternative fuels that are addressed by the regulations. Others include
methanol, ethanol, propane, hydrogen, electricity, and reformulated
gasoline. There can be no assurance that natural gas will become a
preferred alternative fuel for vehicles or that existing and future
regulations or their enforcement will create material long-term demand
for natural gas-powered vehicles.
The Public Utility Regulatory Policies Act of 1978 (PURPA) and state
laws and regulations implementing PURPA prohibit discrimination by
electric utilities against cogeneration providers and require utilities
to purchase co-generated electricity under certain conditions. Under
these regulations, certain classes of facilities are exempt from the
provisions of the Public Utility Holding Company Act, as well as many
state laws and regulations regarding the setting of electricity rates and
the financial and organizational regulation of electric utilities, and
certain provisions of the Federal Power Act. Because the Company's
current customers typically do not sell power to electric utilities, the
Company does not rely to a significant extent on the provisions of PURPA
that require utilities to purchase electricity from cogeneration
providers. However, recent bills in Congress have proposed amendments to,
and in some cases, the repeal of, certain of these laws or regulations.
Any such amendment or repeal could have a material adverse effect on the
Company's cogeneration business.
The Intermodal Surface Transportation Efficiency Act (ISTEA) provides
significant funding in the United States for intermodal surface
transportation and advanced traffic management systems. The ISTEA has
been extended until March 31, 1998. The failure to further extend or
reauthorize ISTEA could have a material adverse effect on demand for the
Company's traffic products in the United States.
Importance of Energy Prices. The cost savings that result from use of
the Company's packaged cooling and cogeneration systems are directly
related to the retail price of electricity. In the past several years,
electricity prices have declined in many areas and rates remain
relatively low on a historical basis in many regions. Given prevailing
rate structures, demand for the Company's cooling and cogeneration
systems has been less than anticipated. Although the Company believes
that increases in demand, as well as potential increases in the cost of
fuel, will lead to eventual increases in electricity rates, there can be
no assurance that electricity prices will increase in the future. The
economic benefits of the Company's natural gas engine products and
packaged cooling and cogeneration systems are also affected by the cost
of natural gas. A significant increase in the relative cost of natural
gas could also have a material adverse effect on the sale of certain of
the Company's products.
Incentives for Cooling Systems. Purchasers of the Company's
Tecochill(R) cooling systems often receive investment incentives for the
purchase of Tecochill equipment from gas utilities or state or municipal
governments. Although the Company has no reason to believe these
34PAGE
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
incentives will be discontinued, elimination of these incentives could
have a material adverse effect on sales of the Company's Tecochill
systems.
Risks Associated with Protection, Defense, and Use of Intellectual
Property and Ownership of Technology Rights. The Company holds several
patents relating to various aspects 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 be issued 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. 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.
In addition, a significant percentage of the Company's research and
development is sponsored by third parties. Sponsors of these programs
generally own the rights to technology that is developed as a result of
the Company's work under the programs. These rights could limit the
Company's ability to commercialize any technological breakthroughs made
in the course of such work.
No Assurance of Development and Commercialization of ThermoLyte
Products; Uncertain Market Acceptance; Potential Product Liability. The
Company's ThermoLyte subsidiary is developing and commercializing
propane-fueled lighting products. Product development involves a high
degree of risk, and returns to investors are dependent upon successful
development and commercialization of the ThermoLyte products. There can
35PAGE
Thermo Power Corporation 1997 Financial Statements
Forward-looking Statements
be no assurance that the Company will be able to build the sales and
marketing organization necessary for the successful commercialization of
its products. In addition, as with any new technology, there is
substantial risk that the marketplace may not accept or be receptive to
the potential benefits of such technology. Market acceptance of the
Company's proposed products will depend, in large part, upon the ability
of the Company to demonstrate the safety of such products and their
advantages over commercially available alternatives. There can be no
assurance that the ThermoLyte products will be accepted by the public.
Finally, because the ThermoLyte products will be powered by propane or a
similar fuel that is combustible, the Company may be subject to potential
product liability damages. The Company intends to design the ThermoLyte
products to minimize these effects and believes that it will be able to
obtain insurance against such liabilities on terms acceptable to the
Company. However, no assurance can be given that damages from product
liability will not have a material adverse impact on the results of
operations, financial condition, or reputation of the Company.
36PAGE
Thermo Power Corporation 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997 1996 1995(a) 1994(b) 1993
--------------------------------------------------------------------------
Statement of Income
Data:
Revenues $121,046 $120,736 $103,255 $ 89,334 $ 75,429
Net income 2,104 885 4,188 3,248 1,923
Earnings per share .17 .07 .34 .26 .18
Balance Sheet Data:
Working capital $ 54,708 $ 57,719 $ 60,140 $ 43,143 $ 50,467
Total assets 107,992 110,711 108,417 82,621 79,513
Long-term
obligations 252 305 364 344 3,395
Common stock of
subsidiary subject
to redemption 18,059 17,747 17,435 - -
Shareholders'
investment 66,668 67,368 65,825 60,475 56,599
(a)Reflects the net proceeds from the private placement of shares of
ThermoLyte Corporation in March 1995.
(b)Reflects the May 1994 acquisition of NuTemp, Inc.
37PAGE
Thermo Power Corporation 1997 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the American Stock Exchange
(symbol THP) for fiscal 1997 and 1996.
1997 1996
----------------- ------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $11 1/4 $ 7 3/4 $16 1/4 $12 1/4
Second 9 1/4 6 1/8 16 1/8 11 3/8
Third 7 5 1/2 17 3/8 11 3/4
Fourth 9 7/8 5 5/8 12 5/8 9 5/16
As of October 31, 1997, the Company had 459 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 October 31, 1997, was $8 3/8 per share.
Shareholder Services
Shareholders of Thermo Power Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer and Vice President, Thermo Power Corporation, 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.
Quarterly distribution of printed reports is limited to the second
quarter report only. All quarterly reports and press releases are
available through the Internet from Thermo Electron's home page
(http://www.thermo.com/subsid/thp.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
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.
38PAGE
Thermo Power Corporation 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 27, 1997, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer and Vice President, Thermo Power Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Friday, March 13,
1998, at 10:00 a.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
39