-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V891Bq14fYY8VpcLzoB4LnKyD+OEzI+n62+BD+K2H2czUxTLSecAhsYNMU26Lp0C FXYK8CqmJcXyTwGS4DWPSw== 0000795986-97-000003.txt : 19970320 0000795986-97-000003.hdr.sgml : 19970320 ACCESSION NUMBER: 0000795986-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970319 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO INSTRUMENT SYSTEMS INC CENTRAL INDEX KEY: 0000795986 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042925809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09786 FILM NUMBER: 97559506 BUSINESS ADDRESS: STREET 1: 1275 HAMMERWOOD AVE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------ FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 28, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9786 THERMO INSTRUMENT SYSTEMS INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1275 Hammerwood Avenue Sunnyvale, California 94089 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ---------------------------- ----------------------- Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 24, 1997, was approximately $597,117,000. As of January 24, 1997, the Registrant had 96,931,388 shares of Common Stock outstanding. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Shareholders for the year ended December 28, 1996, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1997, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business. Thermo Instrument Systems Inc. (the Company or the Registrant) is a worldwide leader in the development, manufacture, and marketing of analytical instruments used to identify complex chemical compounds, toxic metals, and other elements in a broad range of liquids and solids, as well as instruments used to monitor radioactivity and air pollution, and to control, image, inspect, and measure various industrial processes and life sciences phenomena. Through its 72%-owned ThermoSpectra Corporation (ThermoSpectra) subsidiary, the Company develops, manufactures, and markets precision imaging, inspection, and measurement instrumentation that employ a variety of energy sources or signals as well as high-speed data acquisition and digital processing technologies. The Company's 93%-owned ThermoQuest Corporation (ThermoQuest) subsidiary develops, manufactures, and sells mass spectrometers, liquid chromatographs, and gas chromatographs for the pharmaceutical, environmental, and industrial marketplaces. These analytical instruments are used in the quantitative and qualitative chemical analysis of organic and inorganic compounds at ultra-trace levels of detection. Through its 93%-owned Thermo Optek Corporation (Thermo Optek) subsidiary, the Company develops, manufactures, and markets optical and energy-based analytical instruments and has key technologies in electro-optic components and systems. Thermo Optek's analytical instruments are used in the quantitative and qualitative chemical analysis of elements and molecular compounds in solids, liquids, and gases. Through its 67%-owned Thermo BioAnalysis Corporation (Thermo BioAnalysis) subsidiary, the Company develops, manufactures, and markets instruments and information management systems used in biochemical research and production, as well as in clinical diagnostics. The Company's 84%-owned Metrika Systems Corporation (Metrika Systems) subsidiary develops, manufactures, and markets on-line industrial process optimization systems that employ proprietary, ultra-high-speed measurement technologies. Through its wholly owned subsidiaries, the Company also manufactures monitoring instruments to detect and measure nuclear radiation and air pollutants, including toxic and combustible gases and participates in the process monitoring, analysis, gauging, and control instruments markets, primarily for the oil, gas, and petrochemical industries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the 2PAGE subsidiaries' growth. During 19961, ThermoQuest, Thermo Optek, and Thermo BioAnalysis sold shares of their common stock in initial public offerings and Metrika Systems sold shares of its common stock in a private placement for aggregate net proceeds of $125.0 million. See Note 11 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders for a description of the issuance of stock by the Company's subsidiaries. In September 1996, Thermo Optek announced its intent to spin out its Thermo Vision Corporation (Thermo Vision) subsidiary through a distribution of all of Thermo Vision's outstanding capital stock in the form of a dividend to Thermo Optek shareholders. The Company anticipates completing the spinout in 1997 and is seeking a Letter Ruling from the Internal Revenue Service stating that the proposed spinout will have no current tax effect on Thermo Optek or its shareholders. Thermo Optek would distribute the shares upon receipt of the Letter Ruling and satisfaction of other conditions, including the listing of the Thermo Vision shares on the American Stock Exchange. Upon completion of this proposed transaction, Thermo Vision would be a majority-owned subsidiary of the Company. The Company historically has expanded both through the acquisition of companies and product lines and through internal development of new products and technologies. During the past several years, the Company has completed a number of complementary acquisitions that have provided additional technologies, specialized manufacturing or product development expertise, and broader capabilities in marketing and distribution. In 1996, the Company's acquisitions included Oriel Corporation for $11.8 million in cash and the assumption of $0.7 million in debt; Corion Corporation for $5.1 million in cash; the DYNEX Technologies (formerly Dynatech Laboratories Worldwide) division of Dynatech Corporation for $43.2 million in cash; and a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123.5 million British pounds sterling in cash (approximately $188.9 million) and the assumption of approximately 30.8 million British pounds sterling of indebtedness (approximately $47.2 million). The purchase price for the Fisons businesses is subject to post-closing adjustments equal to the amounts by which the net tangible assets and net debt of the acquired businesses on the closing date are greater or less than certain target amounts agreed to by the parties. On March 12, 1997, the Company declared unconditional in all respects its cash tender offer for all outstanding shares of Life Sciences International PLC (Life Sciences) for 135 British pence per share (approximately $2.16 per share). As of that date, the Company had received acceptances representing approximately 91% of the Life Sciences shares outstanding and the Company owned an additional 3% of the outstanding Life Sciences shares. There are approximately 175 million Life Sciences shares outstanding. The Company has established March 26, 1997, as the date for payment for all shares to which acceptance had been received. In addition, the Company expects to repay approximately $72 million of Life Sciences' debt, net of acquired 1 References to 1996, 1995, and 1994 herein are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. 3PAGE cash expected to be used. Life Sciences, a London Stock Exchange-listed company, manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. The Company was incorporated in Delaware in May 1986 as a wholly owned subsidiary of Thermo Electron Corporation (Thermo Electron) to succeed the instruments businesses that were previously conducted by several Thermo Electron subsidiaries. As of December 28, 1996, Thermo Electron owned 79,207,044 shares, or 82%, of the Company's outstanding common stock. Thermo Electron is a world leader in environmental monitoring and analysis instruments, biomedical products such as heart-assist devices and mammography systems, paper-recycling and papermaking equipment, biomass electric power generation, and other specialized products and technologies. Thermo Electron also provides a range of services related to environmental quality. Thermo Electron intends for the foreseeable future to maintain at least 80% ownership of the Company, so that it may continue to file consolidated U.S. federal and certain state income tax returns with the Company. This may require the purchase by Thermo Electron of additional shares of common stock and/or convertible debentures of the Company from time to time as the number of outstanding shares of the Company increases. These and any other purchases may be made either in the open market or directly from the Company or pursuant to conversions of the Company's 3 3/4% senior convertible note due 2000 held by Thermo Electron. See Notes 5 and 7 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders for a description of the Company's outstanding stock options and convertible obligations. During 1996, Thermo Electron purchased 753,750 shares of the Company's common stock in the open market at a total cost of $24.6 million. Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. 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 under the caption "Forward-looking Statements" in the Registrant's 1996 Annual Report to Shareholders incorporated herein by reference. (b) Financial Information About Industry Segments. The Company operates in one business segment: the developing, manufacturing, and marketing of analytical instruments used to identify complex chemical compounds, toxic metals, and other elements in a broad range of liquids and solids, as well as instruments used to monitor radioactivity and air pollution, and to control, image, inspect, and measure various industrial processes and life sciences phenomena. 4PAGE (c) Description of Business. Principal Products and Services The Company manufactures and markets instruments that employ a variety of advanced analytical techniques to determine the composition, structure, and physical properties of natural and synthetic substances. The Company's instruments are used for analysis; test and measurement; environmental and nuclear monitoring; process control; and in life sciences applications. Revenues from analytical and test and measurement instruments were $772.0 million, $537.5 million, and $429.8 million in 1996, 1995, and 1994, respectively. ThermoSpectra develops, manufactures, and markets precision imaging, inspection, and measurement instrumentation based on high-speed data acquisition and digital processing technologies to provide industrial and research customers with integrated systems that address their specific needs. ThermoSpectra's products include digital oscillographic recorders and data acquisition systems that continuously measure and monitor signals from various sensors; digital storage oscilloscopes (DSOs) that are capable of taking hundreds of millions of measurements per second of transient signals or short bursts of data; X-ray microanalyzers used as accessories to electron microscopes to provide elemental materials analysis as a supplement to the microscopes' imaging capabilities; X-ray fluorescence instruments used for bulk and selected area sample analysis in the semiconductor and electronics industries; nondestructive X-ray inspection systems for process monitoring and quality control applications; and confocal laser scanning microscopes that use laser light to generate precise optical images primarily for life science applications. ThermoSpectra recently added a line of scanning probe microscopes that are used in industry and academia to test and measure the topography and other surface properties of materials, down to the atomic level. ThermoQuest manufactures commercial mass spectrometers and has pioneered many of the significant developments and applications of mass spectrometry. ThermoQuest's mass spectrometry products identify and measure the components of a sample for organic chemical compounds or for inorganic compounds. These instruments are used primarily by pharmaceutical companies for drug research, testing, and quality control; by environmental laboratories for testing water, air, and soil samples for compliance with environmental regulations; by chemical companies for research and quality control; by manufacturers for testing in certain industrial applications, such as the manufacture of silicon chips, and for quality control; by food and beverage companies for quality control and to test for product contamination; and in forensic applications. ThermoQuest provides both stand-alone mass spectrometers and combined systems that use its own chromatographs or those purchased from other companies. These products span a range of sensitivity, specificity, separation technologies, data-handling capabilities, sizes, and prices. ThermoQuest also manufactures high performance liquid chromatographs, gas chromatographs, and related instruments and equipment used principally in the research and development and production analysis of pharmaceuticals and chemicals, and for environmental analysis. These 5PAGE instruments separate the chemical components of substances for purposes of identification and measurement and are frequently used in environmental and industrial laboratories as stand-alone instruments or in conjunction with mass spectrometers, where the gas or liquid chromatograph separates a sample into individual chemical components for the mass spectrometer to identify. Thermo Optek develops, manufactures, and markets analytical instruments that utilize a range of optical spectroscopy and energy-based techniques. These instruments are used in the quantitative and qualitative chemical analysis of elements and molecular compounds in a wide variety of solids, liquids, and gases and are based on several optical spectroscopy techniques, including atomic emission (AE), atomic absorption (AA), Fourier transform infrared (FT-IR) and FT-Raman, and ultraviolet/visible (UV/Vis) technologies. AA and AE spectrometers are used to detect and measure metals and other elements in solid and liquid samples from ultratrace (parts per billion) to major concentrations based on the atomic spectra that a sample emits or absorbs when it is excited by an energy source. FT-IR and FT-Raman spectrometers are used to determine the molecular composition of samples by observing how they absorb or emit infrared light. UV/Vis spectrometry instruments are based upon the selective absorbence of ultraviolet radiation by various substances. Thermo Optek also offers a line of wavelength dispersive X-ray fluorescence instruments that provide elemental analysis of a wide variety of materials in a highly precise and generally nondestructive manner. Thermo Optek's products are used by its customers for productivity enhancement, research and development, quality control, and testing applications in the environmental testing, chemical, metallurgical, food and beverage, pharmaceutical, and petroleum industries; and by forensic laboratories, research organizations, and educational institutions. Through its Thermo Vision subsidiary, Thermo Optek addresses the photonics marketplace for optical components, imaging systems, analytical instruments, and lasers. Thermo Vision is pursuing applications of its photonics technologies for cost-effective, application-specific instruments and for optical components, systems, and subassemblies for analytical instrumentation. Thermo BioAnalysis develops, manufactures, and markets instruments and information management systems used in biochemical research and production, as well as in clinical diagnostics. The Company focuses on three principal product areas: life sciences instrumentation, laboratory information management systems, and health physics instrumentation. The Company's life sciences instrumentation products include instruments and consumables based on proprietary immunoassay, optical biosensor, mass spectrometry, and capillary electrophoresis (CE) technologies. The Company's laboratory information management systems (LIMS) and chromatography data systems (CDS) are used in laboratories and clinical testing facilities. These systems are designed to facilitate the monitoring and analysis of samples throughout the laboratory or clinical lifecycle. The Company's health physics instrumentation includes radiation detection instrumentation and complete radiation monitoring systems for use in and around nuclear power plants and other facilities where radioactive materials are used. 6PAGE The Company's majority-owned, privately held Metrika Systems subsidiary manufactures equipment that provides on-line, real-time analysis of the elemental composition of bulk raw materials, such as coal and cement, in the basic materials production process. In addition, Metrika Systems manufactures industrial gauging and process control instruments and systems for measuring thickness and coating used principally by manufacturers of web-type materials, such as metal strip, rubber, and plastic foils. In other wholly owned businesses, the Company manufactures monitoring instruments for three principal markets: the detection and measurement of nuclear radiation; the monitoring of air pollutants, including toxic and combustible gases; and process monitoring, analysis, and control. The Company's nuclear radiation monitoring instruments detect and measure alpha, beta, gamma, neutron, and X-ray radiation emitted by natural sources and by radioactive materials used in nuclear power plants and certain governmental, industrial, and medical facilities. The Company is a leading manufacturer of a broad range of stand-alone and portable instruments and computer-integrated instrument systems used to ensure the safety of personnel from exposure to nuclear radiation. In addition, the Company is a major supplier of instruments and systems that are manufactured to European standards for personnel protection and environmental monitoring. The Company's air-monitoring instruments measure pollutants in ambient air and from stationary sources such as industrial smokestacks. The principal pollutants measured are oxides of nitrogen, sulfur dioxide, carbon monoxide, ozone, volatile organic compounds (VOCs), and airborne particulates. These instruments are used by utility and industrial customers to ensure compliance with environmental regulations; by government agencies to monitor air quality; and by research facilities. The Occupational Safety and Health Administration's safety requirements for protecting workers from toxic or explosive atmospheres in confined spaces are addressed with the Company's detectors, instruments, and systems for sensing, monitoring, and warning of such dangers. These worker-safety products are used in a wide range of applications, from large petrochemical plants, utilities, and industrial manufacturing facilities to commercial buildings. The Company also participates in the process monitoring, analysis, gauging, and control instruments markets, primarily for the oil, gas, and petrochemical industries. The Company manufactures and markets a number of process monitoring, analysis, and control systems including: analog and digital recorders for continuous process industries; process and laboratory analytical instruments and monitors to detect lethal gases for the oil, gas, and petrochemical industries; supervisory control and data acquisition software for process monitoring and operator interface in a variety of industrial processes; and turnkey, integrated systems to control networks of distant oil and gas wells. The Company also manufactures and markets process gauges and noncontacting and nonintrusive process control instrumentation to measure liquid levels, density, weight, and flows for a variety of industries. 7PAGE The Company's X-ray fluorescence instruments allow for the nondestructive analysis of inorganic elements. With the acquisition of Life Sciences, the Company manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. These operations are organized into four product groups including: laboratory products, serving the global research laboratory market; clinical products, serving the hospital and clinical laboratory markets; biosystems, serving the biotech and molecular biology R&D and QC labs; and industrial products, serving semiconductor manufacturers and other industries with water baths and chillers. The Company believes that this acquisition will extend its product offerings into new markets, such as clinical laboratory equipment, as well as enhance its presence in the bioanalytical instrumentation marketplace. Backlog The Company's backlog of firm orders was $266.6 million as of December 28, 1996, and $188.7 million as of December 30, 1995. The Company anticipates that substantially all of the backlog as of December 28, 1996, will be shipped or completed during 1997. The Company does not believe that the level of, or changes in the level of, its backlog is necessarily indicative of intermediate or long-term trends in its business. Competition The Company generally competes on the basis of technical advances that result in new products and improved price/performance ratios, reputation among customers as a quality leader for products and services, and active research and application-development programs. To a lesser extent, the Company competes on the basis of price. In many markets, the Company competes with large analytical instrument companies such as Hewlett-Packard Co. (Hewlett-Packard), Perkin-Elmer Corp. (Perkin-Elmer), Varian Associates, Inc. (Varian), and Hitachi, Ltd. (Hitachi). Certain products manufactured by the Company also compete with products sold by numerous smaller, specialized firms. ThermoSpectra competes in each of its markets primarily on the basis of technical advances that result in new products and improved price/performance ratios and reputation among customers as a quality leader for products and services. To a lesser extent, ThermoSpectra competes on the basis of price. The market for digital oscillographic recorders is characterized by competition among a number of competitors, including Astro-Med, Inc. and Yokogawa Corporation (Yokogawa). The general purpose DSO market is dominated by Tektronix, Inc. and Hewlett-Packard. The Company competes primarily in the high- and mid-ends of the X-ray microanalysis market. In the high end of this market, ThermoSpectra offers superior imaging and user-interface software. ThermoSpectra competes in the mid end of the X-ray microanalysis market on the basis of quality, performance, and price. The main competitor in this segment is Link Analytical Limited, a wholly owned subsidiary of Oxford Instruments plc (Oxford). In the X-ray inspection market, 8PAGE ThermoSpectra competes with smaller companies in the manual segment of the market, and primarily with Four Pi Systems, a subsidiary of Hewlett-Packard, in the automated segment. In the digital video segment of the confocal microscopy market, ThermoSpectra competes primarily with Nikon Inc. as well as Bio-Rad Laboratories, Inc. (Bio-Rad). The Company competes in the scanning probe microscope market on the basis of quality and, to a lesser extent, price. The dominant competitor in this market is Digital Instruments, Inc. ThermoQuest competes in each of its markets primarily on technical performance, customer service and support and, to a lesser extent, price. ThermoQuest's principal competitors in the mass spectrometry market include Hewlett-Packard, Micromass Ltd. (Micromass), Japan Electro Optical Laboratories, and the Sciex Division of Perkin-Elmer. ThermoQuest's principal competitors in the liquid chromatography market are Waters Technologies Corporation, Hewlett-Packard, Shimadzu Corporation (Shimadzu), Beckman Instruments, Inc. (Beckman), and Perkin-Elmer. In the gas chromatography market, ThermoQuest competes with numerous companies, including Hewlett-Packard, Varian, Perkin-Elmer, and Shimadzu. Thermo Optek competes in each of its markets primarily on the basis of performance, reliability, customer service, and price. In the market for AE and AA spectrometers and inductively coupled plasma/mass spectrometry instruments, Thermo Optek competes primarily with Perkin-Elmer and, to a lesser extent, Varian. Thermo Optek competes in the arc/spark market primarily with Spectro. In the FT-IR and FT-Raman markets, Thermo Optek competes primarily with Perkin-Elmer, the Digilab division of Bio-Rad, and Bruker Instruments, Inc. (Bruker). Thermo Optek's primary competitors in the UV/Vis instruments market are Perkin-Elmer, Shimadzu, and Hewlett-Packard. Thermo BioAnalysis competes in each of its markets primarily on the basis of technological innovation, cost, performance (including throughput and sensitivity), and flexibility. The Company's principal competitors in the immunoassay consumables or plastics market include Nunc-Nalge Inc., Greiner GmbH, and Corning-Costar Corp. In the detection systems market, the Company competes primarily with Bio-Tek Instruments, Inc. and Molecular Devices Corp. In the automated systems market, the Company's main competitors include BioChem Pharma Inc., Immunosystems, Inc., and Hamilton Bonaduz AG. The Company's dominant competitor in the market for optical biosensors is the Pharmacia Biosensor subsidiary of Pharmacia & Upjohn, Inc. In the matrix-assisted laser desorption/time-of-flight (MALDI-TOF) mass spectrometry market, principal competitors include PerSeptive Biosystems, Inc., Bruker, and Micromass. Thermo BioAnalysis' principal competitors in the CE market include Beckman, Bio-Rad, and Hewlett-Packard. Significant competitors in the LIMS and CDS markets include Perkin-Elmer, Beckman, and the Laboratory MicroSystems Inc. subsidiary of Instron Corp. Significant competitors in the health physics instrumentation market include the Instruments Group of EG&G, Inc., the Nuclear Products Division of Morgan Crucible Co., plc, and the Bicron/NE Technology division of Saint-Gobain-Norton Industrial Ceramics Corporation. 9PAGE Metrika Systems competes primarily on the basis of performance and, to a lesser extent, price in the coal, cement, and mineral industries. Scantech Holdings is the Company's primary competitor in these industries. Competition in the thickness gauging business is highly fragmented with numerous competitors competing in various end use market segments. As a result, competition varies according to the end use segment. Metrika Systems competes on the basis of quality, performance, and price. Metrika Systems' competitors in this market include Measurex, Toshiba, Yokogawa, IMS, and Asea Brown Boveri. The Company is a leading manufacturer of ambient air monitoring instruments and a major manufacturer of source monitoring and worker-safety monitoring instruments. The Company competes in these markets on the basis of technical performance and reliability, as well as customer service. The Company's principal competitors include Monitor Labs Incorporated, Advanced Pollution Instruments, and Mine Safety Appliances Co. The Company has a relatively small presence within the large and varied process control marketplace, which is extremely fragmented and comprises several large companies, including Fisher-Rosemount, Elsig Bailey, and Honeywell Process Control, as well as numerous smaller companies. The Company competes in this market primarily on the basis of technical performance, customer service, and reliability. Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. Number of Employees As of December 28, 1996, the Company employed approximately 6,870 people. (d) Financial Information About Exports by Domestic Operations and About Foreign Operations. Financial information about exports by domestic operations and about foreign operations is summarized in Note 13 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. 10PAGE (e) Executive Officers of the Registrant. Present Title (Year First Became Name Age Executive Officer) ------------------------- --- -------------------------------- Arvin H. Smith 67 Chief Executive Officer (1986) Earl R. Lewis 53 President and Chief Operating Officer (1990) Denis A. Helm 58 Senior Vice President (1986) Dr. Richard W.K. Chapman 52 Vice President (1994) Barry S. Howe 41 Vice President (1994) John N. Hatsopoulos * 62 Vice President and Chief Financial Officer (1988) Paul F. Kelleher 54 Chief Accounting Officer (1986) * John N. Hatsopoulos and George N. Hatsopoulos, a director of the Company, are brothers. Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until earlier resignation, death, or removal. All executive officers, except Mr. Lewis and Dr. Chapman, have held comparable positions for at least five years either with the Company or with its parent company, Thermo Electron. Mr. Lewis was named President of the Company in March 1997. Mr. Lewis served as Executive Vice President and Chief Operating Officer of the Company from January 1996 through March 1997, as a Senior Vice President from January 1994 through January 1996, and as a Vice President from March 1990 through January 1994. Dr. Chapman has been President and Chief Executive Officer of ThermoQuest since its inception in June 1995, and served as President of Finnigan Corporation (Finnigan), a subsidiary of ThermoQuest, from 1992 to 1995 and as Marketing Manager of Finnigan from 1989 to 1992. Messrs. Lewis, Helm, Chapman, and Howe are full-time employees of the Company. Messrs. Smith, Hatsopoulos, and Kelleher are full-time employees of Thermo Electron and certain of its subsidiaries, but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties The Company owns approximately 1,973,000 square feet of office, engineering, laboratory, and production space, principally in California, Colorado, Florida, New Mexico, Texas, Wisconsin, Germany, England, and Switzerland, and leases approximately 2,281,000 square feet of office, engineering, laboratory, and production space under leases expiring from 1997 through 2017, principally in California, Massachusetts, Connecticut, Ohio, Texas, England, France, Germany, and Japan. As of December 28, 1996, the Company had a $9.3 million mortgage loan that is secured by 200,000 square feet of property in California with a net book value of $16.0 million. The Company believes that its facilities are in good condition and are suitable and adequate for its present operations and that suitable space is readily available if any of such leases are not extended. 11PAGE Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information concerning the market and market price for the Registrant's common stock, $.10 par value, and dividend policy is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information required under this item is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of December 28, 1996, and Supplementary Data are included in the Registrant's 1996 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 12PAGE PART III Item 10. Directors and Executive Officers of the Registrant The information concerning directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 13PAGE PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a), (d) Financial Statements and Schedules. (1) The consolidated financial statements set forth in the list below are filed as part of this Report. (2) The consolidated financial statement schedule set forth in the list below is filed as part of this Report. (3) Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14. Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Statement Schedules filed herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto. (b) Reports on Form 8-K. None. (c) Exhibits. See Exhibit Index on the page immediately preceding exhibits. 14PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 19, 1997 THERMO INSTRUMENT SYSTEMS INC. By: Arvin H. Smith ---------------------- Arvin H. Smith Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of March 19, 1997. Signature Title --------- ----- By:Arvin H. Smith Chief Executive Officer, Chairman of ----------------------- the Board, and Director Arvin H. Smith By:John N. Hatsopoulos Vice President, Chief Financial ----------------------- Officer, and Director John N. Hatsopoulos By:Paul F. Kelleher Chief Accounting Officer ----------------------- Paul F. Kelleher By:Frank Borman Director ----------------------- Frank Borman By:George N. Hatsopoulos Director ----------------------- George N. Hatsopoulos By:Polyvios C. Vintiadis Director ----------------------- Polyvios C. Vintiadis PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo Instrument Systems Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Instrument Systems Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 11, 1997 (except with respect to the matter discussed in Note 15 as to which the date is March 12, 1997). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 11, 1997 PAGE SCHEDULE II THERMO INSTRUMENT SYSTEMS INC. Valuation and Qualifying Accounts (In thousands) Provision Balance at Charged Accounts Balance Beginning to Accounts Written at End Description of Year Expense Recovered Off Other(a) of Year - -------------------------------------------------------------------------------- Year Ended December 28, 1996 Allowance for Doubtful Accounts $12,569 $2,274 $ 69 $(5,015) $7,084 $16,981 Year Ended December 30, 1995 Allowance for Doubtful Accounts $ 8,779 $2,543 $ 191 $(2,942) $3,998 $12,569 Year Ended December 31, 1994 Allowance for Doubtful Accounts $ 8,456 $ 733 $ 126 $(2,736) $2,200 $ 8,779 (a) Includes allowance of businesses acquired during the year as described in Note 4 to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders, the effect of foreign currency translation, and a disposition in 1994 of $2,696,000. 17PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ---------- ----------------------------------------------------------- 2.1 Asset and Stock Purchase Agreement among the Registrant, Thermo Electron,. and Fisons plc dated March 1, 1995, as amended (filed as Exhibit 2.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and as Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 [File No. 1-9786] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Company hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 3.1 Amendment to Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 [File No. 1-9786] and incorporated herein by reference). 3.2 By-Laws of the Registrant (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 4.1 Fiscal Agency Agreement dated as of September 15, 1993, among the Registrant, Thermo Electron, and Chemical Bank as fiscal agent, relating to $70,000,000 principal amount of 3 3/4% senior convertible debentures due 2000 (filed as Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993 [File No. 1-9786] and incorporated by reference). 4.2 Senior convertible note purchase agreement by and between the Registrant and Thermo Electron as of September 15, 1993 (filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993 [File No. 1-9786] and incorporated by reference). The Registrant hereby agrees, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, to furnish to the Commission upon request, a copy of each instrument with respect to other long-term debt of the Registrant or its subsidiaries. 10.1 Amended and Restated Corporate Services Agreement, dated as of January 3, 1993, between Thermo Electron and the Registrant (filed as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 18PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ---------- ----------------------------------------------------------- 10.2 Tax Allocation Agreement dated as of May 29, 1986, between Thermo Electron and the Registrant (filed as Exhibit 10(b) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). 10.3 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 10.4 Form of Indemnification Agreement with Directors and Officers (filed as Exhibit 10(g) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-9786] and incorporated herein by reference). 10.5 Plan for sale of shares by the Registrant to Thermo Electron (filed as Exhibit 10(dd) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993 [File No. 1-9786] and incorporated herein by reference). 10.6 Master Repurchase Agreement dated December 28, 1996, between the Registrant and Thermo Electron. 10.7 Master Guarantee Reimbursement Agreement dated January 1, 1994, by and among the Registrant and Thermo Electron (filed as Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.8 $30,000,000 Promissory Note dated as of February 13, 1996, issued by Thermo BioAnalysis to Thermo Electron (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 [File No. 1-9786] and incorporated herein by reference). 10.9 $65,000,000 Promissory Note dated as of April 12, 1996, issued by the Registrant to Thermo Electron (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 [File No. 1-9786] and incorporated herein by reference). 10.10 Restated Stock Holdings Assistance Plan and Form of Promissory Note. 19PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ---------- ----------------------------------------------------------- 10.11-10.15 Reserved. 10.16 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(f) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). 10.17 Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.18 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10(c) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 2,812,500 shares, after adjustment to reflect share increase approved in 1990; 3-for-2 stock splits effected in January 1988, July 1993, and April 1995; and 5-for-4 stock split effected in December 1995). 10.19 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 2,812,500 shares, after adjustment to reflect share increase approved in 1990; 3-for-2 stock splits effected in January 1988, July 1993, and April 1995; and 5-for-4 stock split effected in December 1995). 10.20 Equity Incentive Plan of the Registrant (filed as Appendix A to the Proxy Statement dated April 27, 1993, of the Registrant [File No. 1-9786] and incorporated herein by reference). (Maximum number of shares issuable is 4,031,250 shares, after adjustment to reflect share increase approved in December 1993; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock split effected in December 1995). 10.21 Finnigan Corporation 1979 Long-term Incentive Stock Option Plan (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 20PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ---------- ----------------------------------------------------------- 10.22 Former Thermo Environmental Corporation Incentive Stock Option Plan (filed as Exhibit 10(d) to Thermo Environmental's Registration Statement on Form S-1 [Reg. No. 33-329] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Former Thermo Environmental Corporation Nonqualified Stock Option Plan is 1,160,156 shares, after adjustment to reflect share increase approved in 1987; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock split effected in December 1995). 10.23 Former Thermo Environmental Corporation Nonqualified Stock Option Plan (filed as Exhibit 10(e) to Thermo Environmental's Registration Statement on Form S-1 [Reg. No. 33-329] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Former Thermo Environmental Corporation Incentive Stock Option Plan is 1,160,156 shares, after adjustment to reflect share increase approved in 1987; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock split effected in December 1995). 10.24 Thermo Instrument Systems Inc. - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.51 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.25 Thermo Instrument Systems Inc. - ThermoQuest Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.65 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.26 Thermo Instrument Systems Inc. - Thermo BioAnalysis Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.64 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.27 Thermo Instrument Systems Inc. - Thermo Optek Corporation Nonqualified Stock Option Plan. 21PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ---------- ----------------------------------------------------------- In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron for services rendered to the Registrant or to such affiliated corporations. Thermo Electron's plans were filed as Exhibits 10.21 through 10.44 to the Annual Report on Form 10-K of Thermo Electron for the year ended December 30, 1995 [File No. 1-8002] and as Exhibit 10.19 to the Annual Report on Form 10-K of Trex Medical Corporation for the fiscal year ended September 28, 1996 [File No. 1-11827] and are incorporated herein by reference. 11 Statement re: Computation of Earnings per Share. 13 Annual Report to Shareholders for the year ended December 28, 1996 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. EX-10.6 2 Exhibit 10.6 AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT The Master Repurchase Agreement dated as of July 2, 1996 between Thermo Electron Corporation, a Delaware corporation ("Seller"), and Thermo Instrument Systems Inc., a Delaware corporation (the "Buyer"), is hereby amended and restated in its entirety as follows on and as of December 28, 1996. 1. Applicability From time to time Buyer and Seller may enter into transactions in which Seller agrees to transfer to Buyer certain securities and/or financial instruments ("Securities") against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Securities on demand, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement, unless otherwise agreed in writing. 2. Definitions (a) "Act of Insolvency", with respect to either party (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or such party seeking the appointment of a receiver, trustee, custodian or similar official for such party or any substantial part of its property; or (ii) the commencement of any such case or proceeding against such party, or another seeking such an appointment, which (A) is consented to or not timely contested by such party, (B) results in the entry of an order for relief, such an appointment or the entry of an order having a similar effect, or (C) is not dismissed within 15 days; or (iii) the making by a party of a general assignment for the benefit of creditors; or (iv) the admission in writing by a party of such party's inability to pay such party's debts as they become due; (b) "Additional Purchased Securities", Securities provided by Seller to Buyer pursuant to Paragraph 4(a) hereof; (c) "Income", with respect to any Security at any time, any principal thereof then payable and all interest, dividends or other distributions thereon; (d) "Market Value", with respect to any Securities as of any date, the price for such Securities on such date obtained from a generally recognized source agreed to by the parties or the most recent closing bid quotation from such a source, plus accrued Income to the extent not included therein (other than any Income transferred to Seller pursuant to Paragraph 6 hereof) as of such date (unless contrary to market practice for such Securities); PAGE (e) "Other Buyers", third parties that have entered into an agreement with Seller that is substantially similar to this Agreement; (f) "Pricing Rate", a rate equal to the Commercial Paper Composite rate for 90-day maturities provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated (or, if such rate is not available, a substantially equivalent rate agreed to by Buyer and Seller) plus 25 basis points, which rate shall be adjusted on the first business day of each fiscal quarter and shall be in effect for the entirety such fiscal quarter; (g) "Purchase Price", the price at which Purchased Securities are transferred by Seller to Buyer; (h) "Purchased Securities", the Securities transferred by Seller to Buyer in a Transaction hereunder, and any Securities substituted therefor in accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect to any Transaction at any time also shall include Additional Purchase Securities transferred pursuant to Paragraph 4(a) and shall exclude Securities returned pursuant to Paragraph 4(b); (i) "Repurchase Collateral Account", a book account maintained by Seller containing, among other Securities, the Purchased Securities; and (j) "Repurchase Price", for any Purchased Security, an amount equal to the Purchase Price paid by Buyer to Seller for such Purchased Security. 3. Transactions (a) A Transaction may be initiated by Buyer upon the transfer of the Purchase Price to Seller's account. Upon such transfer, Seller shall transfer to Buyer Purchased Securities having a Market Value equal to 103% of the Purchase Price. (b) Purchased Securities shall be held in custody for Buyer by Seller in the Repurchase Collateral Account. Seller shall indicate on its books for such account Buyer's ownership of the Purchased Securities. Upon reasonable request from Buyer, Seller shall provide Buyer with a complete list of Purchased Securities owned by Buyer. (c) Upon demand by Buyer or Seller, Seller shall repurchase from Buyer, and Buyer shall sell to Seller, for the Repurchase Price all or any part of the Purchased Securities then owned by Buyer. 4. Margin Maintenance (a) If at any time the aggregate Market Value of all Purchased Securities then owned by Buyer is less than 103% of the 2PAGE aggregate Repurchase Price for such Purchased Securities, then Seller shall transfer to Buyer additional Securities ("Additional Purchased Securities"), so that the aggregate Market Value of such Purchased Securities, including any such Additional Purchased Securities, will thereupon equal or exceed 103% of such aggregate Repurchase Price. (b) If at any time the aggregate Market Value of all Purchased Securities then owned by Buyer exceeds 103% of the aggregate Repurchase Price for such Purchased Securities, then Seller may transfer Purchased Securities to Seller, so that the aggregate Market Value of such Purchased Securities will thereupon not exceed 103% of such aggregate Repurchase Price. 5. Interest Payments If during any fiscal month Buyer owned Purchased Securities, then on the first day of the next following fiscal month Seller shall pay to Buyer an amount equal to the sum of the aggregate Repurchase Prices of the Purchased Securities owned by Buyer at the close of each day during the preceding fiscal month divided by the number of days in such month and the product multiplied by the Pricing Rate times the number of days in such month divided by 360. 6. Income Payments and Voting Rights Where a particular Transaction's term extends over an Income payment date on the Purchased Securities subject to that Transaction, Buyer shall, on the date such Income is payable, transfer to Seller an amount equal to such Income payment or payments with respect to any Purchased Securities subject to such Transaction. Seller shall retain all voting rights with respect to Purchased Securities sold to Buyer under this Agreement. 7. Security Interest Although the parties intend that all Transactions hereunder be sales and purchases and not loans, in the event any such Transactions are deemed to be loans, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under each such Transaction and this Agreement, and shall be deemed to have granted to Buyer a security interest in, all of the Purchased Securities with respect to all Transactions hereunder and all proceeds thereof. 8. Payment and Transfer Unless otherwise mutually agreed, all transfers of funds hereunder shall be in immediately available funds. As used herein with respect to Securities, "transfer" is intended to have 3PAGE the same meaning as when used in Section 8-313 of the Massachusetts Uniform Commercial Code or, where applicable, in any federal regulation governing transfers of the Securities. 9. Substitution Buyer hereby grants Seller the authority to manage, in Seller's sole discretion, the Purchased Securities held in custody for Buyer by Seller in the Repurchase Collateral Account. Buyer expressly agrees that Seller may (i) substitute other Securities for any Purchased Securities and (ii) commingle Purchased Securities with other Securities held in the Repurchase Collateral Account. Substitutions shall be made by transfer to Buyer of such other Securities and transfer to Seller of the Purchased Securities for which substitution is being made. After substitution, the substituted Securities shall be deemed to be Purchased Securities. Securities which are substituted for Purchased Securities shall have a Market Value at the time of substitution equal to or greater than the Market Value of the Purchase Securities for which such Securities were substituted. 10. Representations Each of Buyer and Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance, (ii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf, (iii) it has obtained all authorizations of any governmental body required in connection with this Agreement and the Transactions hereunder and such authorizations are in full force and effect and (iv) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any law, ordinance, charter, by-law or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected. On the date for any Transaction Buyer and Seller shall each be deemed to repeat all the foregoing representations made by it. 11. Events of Default In the event that (i) Seller fails to repurchase or Buyer fails to transfer Purchased Securities upon demand for repurchase from either Buyer or Seller, (ii) Seller or Buyer fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii) Buyer fails to make payment to Seller pursuant to Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with respect to Seller or Buyer, (vi) any representation made by Seller or Buyer shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or (vii) Seller or Buyer shall admit to the other its inability to, or its intention not 4PAGE to, perform any of its obligations hereunder (each an "Event of Default"): (a) At the option of the nondefaulting party, exercised by written notice to the defaulting party (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of any Act of Insolvency), Seller shall become obligated to repurchase, and Buyer shall become obligated to sell, all Purchased Securities then owned by Buyer for the Repurchase Price of such Purchased Securities. (b) If Seller is the defaulting party and Buyer exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, (i) the Seller's obligations hereunder to repurchase all Purchased Securities in such Transactions shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by Buyer and applied to the aggregate unpaid Repurchase Prices owed by Seller, and (iii) Seller shall immediately deliver to Buyer any Purchased Securities subject to such Transactions then in Seller's possession. (c) In all Transactions in which Buyer is the defaulting party, upon tender by Seller of payment of the aggregate Repurchase Prices for all such Transactions, Buyer's right, title and interest in all Purchased Securities subject to such Transactions shall be deemed transferred to Seller, and Buyer shall deliver all such Purchased Securities to Seller. (d) After one business day's notice to the defaulting party (which notice need not be given if an Act of Insolvency shall have occurred, and which may be the notice given under subparagraph (a) of this Paragraph or the notice referred to in clause (ii) of the first sentence of this Paragraph), the nondefaulting party may: (i) as to Transactions in which Seller is the defaulting party, (A) immediately sell, in a recognized market at such price or prices as Buyer may reasonably deem satisfactory, any or all Purchased Securities subject to such Transactions and apply the proceeds thereof to the aggregate unpaid Repurchase Prices and any other amounts owing by Seller hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Securities, to give Seller credit for such Purchased Securities in an amount equal to the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source, against the aggregate unpaid Repurchase Prices and any other amounts owing by Seller hereunder; and (ii) as to Transactions in which Buyer is the defaulting party, (A) purchase securities ("Replacement Securities") of the same class and amount as any Purchased Securities that are not delivered by Buyer to Seller as required 5PAGE hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Securities, to be deemed to have purchased Replacement Securities at the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source. (e) As to Transactions in which Buyer is the defaulting party, Buyer shall be liable to Seller (i) with respect to Purchased Securities (other than Additional Purchased Securities), for any excess of the price paid (or deemed paid) by Seller for Replacement Securities therefor over the Repurchase Price for such Purchased Securities and (ii) with respect to Additional Purchased Securities, for the price paid (or deemed paid) by Seller for the Replacement Securities therefor. (g) The defaulting party shall be liable to the nondefaulting party for the amount of all reasonable legal or other expenses incurred by the nondefaulting party in connection with or as a consequence of an Event of Default. (h) The nondefaulting party shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law. 12. Single Agreement Buyer and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted. 13. Entire Agreement; Severability This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. Each provision and agreement and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be 6PAGE enforceable notwithstanding the unenforceability of any such other provision or agreement. 14. Non-assignability; Termination The rights and obligations of the parties under this Agreement and under any Transactions shall not be assigned by either party without the prior written consent of the other party. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. This Agreement may be canceled by either party upon giving written notice to the other, except that this Agreement shall, notwithstanding such notice, remain applicable to any Transactions then outstanding. 15. Governing Law This Agreement shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the conflict of law principles thereof. 16. No Waivers, Etc. No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a wavier of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. 17. Intent (a) The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except insofar as the type of Securities subject to such Transaction or the term of such Transaction would render such definition inapplicable), and a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended. (b) It is understood that either party's right to liquidate Securities delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Paragraph 11 hereof, is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of Title 11 of the United States Code, as amended. 7PAGE IN WITNESS WHEREOF, the parties have executed this Agreement as of December 28, 1996. THERMO ELECTRON CORPORATION THERMO INSTRUMENT SYSTEMS INC. By:_____________________________ By:_______________________ Name: Jonathan W. Painter Name: Earl Lewis Title: Treasurer Title: President EX-10.10 3 Exhibit 10.10 THERMO INSTRUMENTS SYSTEMS INC. RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Instrument Systems Inc. (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Stock Holding Policy. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo Instrument Systems Inc., a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Instrument Systems Inc. Stock Holding Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Stock Holding Policy shall be administered by the Committee, which shall have authority to interpret the Plan and the Stock Holding Policy and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's PAGE interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable in five equal annual installments from the 2PAGE payment of annual cash incentive compensation (referred to as bonus) to the Key Employee by the Company, beginning with the first such bonus payment to occur after the date of the Note evidencing the Loan, and on each of the next four bonus payment dates, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. 3PAGE The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. 4PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO INSTRUMENT SYSTEMS INC. Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Instrument Systems Inc. (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay the Company an amount equal to 20% of the initial principal amount of the Note from the payment of annual cash incentive compensation (referred to as bonus) to the Employee by the Company, beginning with the first such bonus payment to occur after the date of this Note, and on each of the next four bonus payment dates. Any amount remaining unpaid under this Note, if no demand has been made by the Company, shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; 5PAGE (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-10.27 4 Exhibit 10.27 THERMO INSTRUMENT SYSTEMS INC. THERMO OPTEK CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Thermo Optek Corporation ("Subsidiary"), a subsidiary of Thermo Instrument Systems Inc. (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 1,000,000 shares (as adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend in April 1996), subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which PAGE shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the PAGE "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Options shall not be transferable, otherwise than by will or the laws of descent and distribution, except as may be authorized by the Committee, in its sole discretion. T he Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting transfer shall be set forth in the written option agreement executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement shall also provide that in case of any reclassification or change PAGE of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided, that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. PAGE 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2006 and no options shall be granted hereunder thereafter. EX-11 5 Exhibit 11 THERMO INSTRUMENT SYSTEMS INC. Computation of Earnings per Share 1996 1995 1994 ------------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share from Continuing Operations: Income: Income from continuing operations $132,751,000 $ 79,304,000 $ 58,261,000 Add: Convertible obligation interest, net of tax 5,288,000 5,729,000 6,315,000 ------------ ------------ ------------ Income from continuing operations applicable to common stock assuming full dilution (a) $138,039,000 $ 85,033,000 $ 64,576,000 ------------ ------------ ------------ Shares: Weighted average shares outstanding 95,085,318 90,577,966 88,173,053 Add: Shares issuable from assumed conversion of convertible obligations 12,233,650 15,503,734 17,539,251 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 992,648 870,643 410,542 ------------ ------------ ------------ Weighted average shares outstanding, as adjusted (b) 108,311,616 106,952,343 106,122,846 ------------ ------------ ------------ Fully Diluted Earnings per Share from Continuing Operations (a) / (b) $ 1.27 $ .80 $ .61 ============ ============ ============ PAGE Exhibit 11 THERMO INSTRUMENT SYSTEMS INC. Computation of Earnings per Share (continued) 1996 1995 1994 ------------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share: Income: Net income $132,751,000 $ 79,306,000 $ 60,220,000 Add: Convertible obligation interest, net of tax 5,288,000 5,729,000 6,315,000 ------------ ------------ ------------ Income applicable to common stock assuming full dilution (a) $138,039,000 $ 85,035,000 $ 66,535,000 ------------ ------------ ------------ Shares: Weighted average shares outstanding 95,085,318 90,577,966 88,173,053 Add: Shares issuable from assumed conversion of convertible obligations 12,233,650 15,503,734 17,539,251 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 992,648 870,643 410,542 ------------ ------------ ------------ Weighted average shares outstanding, as adjusted (b) 108,311,616 106,952,343 106,122,846 ------------ ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ 1.27 $ .80 $ .63 ============ ============ ============ EX-13 6 Exhibit 13 THERMO INSTRUMENT SYSTEMS INC. Consolidated Financial Statements 1996 PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1996 1995 1994 -------------------------------------------------------------------------- Revenues (Note 13) $1,209,362 $ 782,662 $ 649,992 ---------- ---------- ---------- Costs and Operating Expenses: Cost of revenues 654,165 403,443 335,341 Selling, general, and administrative expenses (Note 9) 340,963 220,436 174,490 Research and development expenses 84,091 54,314 42,924 Write-off of acquired technology (Note 4) 3,500 - - ---------- ---------- ---------- 1,082,719 678,193 552,755 ---------- ---------- ---------- Operating Income 126,643 104,469 97,237 Interest Income 20,490 14,646 5,935 Interest Expense (includes $8,145, $5,512, and $5,384 to parent company) (28,923) (18,129) (15,761) Gain on Issuance of Stock by Subsidiaries (Note 11) 71,713 20,128 6,469 Gain on Sale of Related Party Investments (Note 9) - 2,227 2,000 ---------- ---------- ---------- Income from Continuing Operations Before Provision for Income Taxes and Minority Interest Expense 189,923 123,341 95,880 Provision for Income Taxes (Note 6) 51,727 42,713 37,507 Minority Interest Expense 5,445 1,324 112 ---------- ---------- ---------- Income from Continuing Operations 132,751 79,304 58,261 Income from Discontinued Operations (net of applicable income taxes of $1,655 in 1994; Note 3) - 2 1,959 ---------- ---------- ---------- Net Income $ 132,751 $ 79,306 $ 60,220 ========== ========== ========== Earnings per Share from Continuing Operations: Primary $ 1.40 $ .88 $ .66 ========== ========== ========== Fully diluted $ 1.27 $ .80 $ .61 ========== ========== ========== Earnings per Share: Primary $ 1.40 $ .88 $ .68 ========== ========== ========== Fully diluted $ 1.27 $ .80 $ .63 ========== ========== ========== Weighted Average Shares: Primary 95,085 90,578 88,173 ========== ========== ========== Fully diluted 108,312 106,952 106,123 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Balance Sheet (In thousands) 1996 1995 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 522,688 $ 395,233 Available-for-sale investments, at quoted market value (amortized cost of $7,430; Note 2) 7,452 - Accounts receivable, less allowances of $16,981 and $12,569 303,331 211,906 Unbilled contract costs and fees 6,043 3,800 Inventories 213,683 154,914 Prepaid expenses 13,417 9,450 Prepaid income taxes (Note 6) 58,296 31,233 ---------- ---------- 1,124,910 806,536 ---------- ---------- Property, Plant, and Equipment, at Cost, Net 178,663 133,677 ---------- ---------- Patents and Other Assets 32,454 29,611 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 4 and 6) 588,373 402,989 ---------- ---------- $1,924,400 $1,372,813 ========== ========== 3PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1996 1995 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable (Note 7) $ 89,462 $ 55,822 Accounts payable 83,161 55,626 Accrued payroll and employee benefits 51,728 33,025 Accrued income taxes (includes $10,839 and $8,096 due to parent company) 39,686 25,875 Accrued installation and warranty expenses 44,211 17,962 Accrued acquisition expenses (Note 4) 30,025 20,687 Deferred revenue 35,959 20,759 Other accrued expenses 101,646 73,966 Due to parent company 12,329 12,919 ---------- ---------- 488,207 316,641 ---------- ---------- Deferred Income Taxes (Note 6) 20,710 20,168 ---------- ---------- Other Deferred Items 29,805 23,718 ---------- ---------- Long-term Obligations (Note 7): Senior convertible obligations (includes $140,000 due to parent company) 334,781 207,600 Subordinated convertible obligations 192,500 214,775 Other (includes $15,000 in 1996 due to parent company) 26,933 18,659 ---------- ---------- 554,214 441,034 ---------- ---------- Minority Interest 85,197 28,547 ---------- ---------- Commitments and Contingencies (Note 8) Shareholders' Investment (Notes 5 and 10): Common stock, $.10 par value, 250,000,000 shares authorized; 97,674,228 and 92,566,341 shares issued 9,767 9,257 Capital in excess of par value 319,464 248,468 Retained earnings 424,641 291,890 Treasury stock at cost, 750,055 and 917,985 shares (8,679) (9,724) Cumulative translation adjustment 1,060 2,814 Net unrealized gain on available-for-sale investments (Note 2) 14 - ---------- ---------- 746,267 542,705 ---------- ---------- $1,924,400 $1,372,813 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1996 1995 1994 ----------------------------------------------------------------------- Operating Activities: Net income $ 132,751 $ 79,306 $ 60,220 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on accounts receivable 2,274 2,543 733 Depreciation and amortization 44,233 25,257 22,810 Write-off of acquired technology (Note 4) 3,500 - - Gain on issuance of stock by subsidiaries (Note 11) (71,713) (20,128) (6,469) Gain on sale of related party investments (Note 9) - (2,227) (2,000) Minority interest expense 5,445 1,324 112 Increase (decrease) in deferred income taxes (757) 2,196 1,816 Other noncash expenses 4,889 2,964 363 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 1,394 (22,661) (2,586) Inventories 14,184 (7,433) 6,422 Other current assets 3,978 3,058 (12) Accounts payable (9,903) 1,202 7,745 Other current liabilities (37,456) (4,968) (8,315) Other 290 (315) (84) --------- --------- --------- Net cash provided by operating activities 93,109 60,118 80,755 --------- --------- --------- Investing Activities: Acquisitions, net of cash acquired (Note 4) (248,150) (89,469) (101,336) Proceeds from sale of services businesses (Note 3) - 34,267 - Purchases of available-for-sale investments (10,250) - (23,105) Proceeds from sale and maturities of available-for-sale investments 3,000 17,825 16,250 Purchases of property, plant, and equipment (19,134) (10,313) (8,190) Proceeds from sale of property, plant, and equipment 4,597 2,252 2,075 Other 530 (1,691) (861) --------- --------- --------- Net cash used in investing activities $(269,407) $ (47,129) $(115,167) --------- --------- --------- 5PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1996 1995 1994 ----------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of Company and subsidiaries' common stock (Note 11) $ 127,024 $ 41,788 $ 17,446 Net proceeds from issuance of long-term obligations 168,850 187,846 - Proceeds from issuance of notes payable to parent company (Note 7) 110,000 15,000 - Repayment of notes payable to parent company (Note 7) (95,000) (15,000) - Repayment of long-term obligations, net (5,133) (1,373) (7,948) --------- --------- --------- Net cash provided by financing activities 305,741 228,261 9,498 --------- --------- --------- Exchange Rate Effect on Cash (1,988) 1,050 405 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 127,455 242,300 (24,509) Cash and Cash Equivalents at Beginning of Year 395,233 152,933 177,442 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 522,688 $ 395,233 $ 152,933 ========= ========= ========= Cash Paid For: Interest $ 25,837 $ 16,035 $ 14,782 Income taxes $ 42,636 $ 31,529 $ 24,913 Noncash Activities: Conversions of convertible obligations $ 67,594 $ 18,321 $ 14,107 Transfer of services businesses to Thermo Terra Tech joint venture $ - $ - $ 31,301 Fair value of assets of acquired companies $ 487,218 $ 161,985 $ 147,696 Cash paid for acquired companies (258,785) (93,004) (100,855) --------- --------- --------- Liabilities assumed of acquired companies $ 228,433 $ 68,981 $ 46,841 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Common Stock, $.10 Par Value Balance at beginning of year $ 9,257 $ 4,816 $ 4,708 Issuance of stock under employees' and directors' stock plans 5 1 4 Conversions of convertible obligations 505 160 104 Effect of stock splits - 4,280 - --------- --------- --------- Balance at end of year 9,767 9,257 4,816 --------- --------- --------- Capital in Excess of Par Value Balance at beginning of year 248,468 233,765 219,703 Issuance of stock under employees' and directors' stock plans 950 (1,023) (785) Tax benefit related to employees' and directors' stock plans 199 1,950 1,120 Conversions of convertible obligations 65,924 17,814 13,727 Effect of stock splits - (4,280) - Effect of majority-owned subsidiaries' equity transactions 3,923 242 - --------- --------- --------- Balance at end of year 319,464 248,468 233,765 --------- --------- --------- Retained Earnings Balance at beginning of year 291,890 212,584 152,364 Net income 132,751 79,306 60,220 --------- --------- --------- Balance at end of year 424,641 291,890 212,584 --------- --------- --------- Treasury Stock Balance at beginning of year (9,724) (12,736) (15,850) Issuance of stock under employees' and directors' stock plans 1,045 3,012 3,114 --------- --------- --------- Balance at end of year (8,679) (9,724) (12,736) --------- --------- --------- Cumulative Translation Adjustment Balance at beginning of year 2,814 1,991 (2,870) Translation adjustment (1,754) 823 4,861 --------- --------- --------- Balance at end of year $ 1,060 $ 2,814 $ 1,991 --------- --------- --------- 7PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Consolidated Statement of Shareholders' Investment (continued) (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Net Unrealized Gain on Available-for-sale Investments Balance at beginning of year $ - $ 343 $ - Effect of change in accounting principle (Note 2) - - 1,885 Change in net unrealized gain on available-for-sale investments (Note 2) 14 (343) (1,542) -------- --------- --------- Balance at end of year 14 - 343 -------- --------- --------- Total Shareholders' Investment $ 746,267 $ 542,705 $ 440,763 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo Instrument Systems Inc. 1996 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 markets analytical instruments used to identify complex chemical compounds, toxic metals, and other elements in a broad range of liquids and solids, as well as instruments used to monitor radioactivity and air pollution, and to control, image, inspect, and measure various industrial processes and life-sciences phenomena. Relationship with Thermo Electron Corporation The Company was incorporated on May 28, 1986, as a wholly owned subsidiary of Thermo Electron Corporation (Thermo Electron). As of December 28, 1996, Thermo Electron owned 79,207,044 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 (ThermoSpectra), ThermoQuest Corporation (ThermoQuest), Thermo Optek Corporation (Thermo Optek), and Thermo BioAnalysis Corporation (Thermo BioAnalysis); and its majority-owned privately held subsidiary, Metrika Systems Corporation (Metrika Systems). 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. The Company's ownership percentages of its majority-owned subsidiaries at year end were as follows: 1996 1995 1994 ------------------------------------------------------------------------ ThermoSpectra 72% 72% 86% ThermoQuest 93% 100% 100% Thermo Optek 93% 100% 100% Thermo BioAnalysis 67% 80% 100% Metrika Systems 84% 100% 100% Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1996, 1995, and 1994 are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. Revenue Recognition 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 1996 balance sheet will be recognized within one year. 9PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased either 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 "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 its 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 Primary earnings per share has been computed based on the weighted average number of shares outstanding during the year. Because the effect of the assumed exercise of stock options would be immaterial, they have been excluded from the primary earnings per share calculation. Fully diluted earnings per share has been computed assuming the conversion of the Company's dilutive convertible obligations and elimination of the related interest expense, as well as the exercise of stock options and their related income tax effects. 10PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Stock Splits All share and per share information was restated in 1995 to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, distributed in April 1995, and a five-for-four stock split, effected in the form of a 25% stock dividend, distributed in December 1995. Cash and Cash Equivalents As of December 28, 1996, $459.1 million 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 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. As of December 28, 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 fair market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out or weighted average basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1996 1995 ------------------------------------------------------------------------ Raw materials and supplies $108,497 $ 80,959 Work in process 47,518 40,851 Finished goods 57,668 33,104 -------- -------- $213,683 $154,914 ======== ======== 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, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. 11PAGE Thermo Instrument Systems Inc. 1996 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) 1996 1995 ------------------------------------------------------------------------ Land $ 31,048 $ 23,578 Buildings 101,761 78,075 Machinery, equipment, and leasehold improvements 118,167 87,432 -------- -------- 250,976 189,085 Less: Accumulated depreciation and amortization 72,313 55,408 -------- -------- $178,663 $133,677 ======== ======== Patents and Other Assets Patents and 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 $15.5 million and $17.0 million, net of accumulated amortization of $16.2 million and $13.1 million, at year-end 1996 and 1995, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over 40 years. Accumulated amortization was $56.2 million and $38.0 million at year-end 1996 and 1995, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. 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. 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. 12PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in 1995 have been reclassified to conform to the presentation in the 1996 financial statements. 2. Available-for-sale Investments Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, 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." Effect of change in accounting principle in the accompanying 1994 statement of shareholders' investment represents the unrealized gain, net of related tax effects, pertaining to available-for-sale investments held by the Company on January 2, 1994. Available-for-sale investments in the accompanying 1996 balance sheet represents investments in corporate bonds with contractual maturities of one year or less. The difference between the market value and the cost basis of available-for-sale investments at December 28, 1996, was $22,000, which represents gross unrealized gains on those investments. 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 statement of income resulted from gross realized gains relating to the sale of available-for-sale investments (Note 9). 3. Discontinued Operations Effective April 4, 1994, the Company formed an environmental services joint venture with Thermo TerraTech Inc. (Thermo TerraTech), 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. 13PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 3. Discontinued Operations (continued) 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 owned 49% of the joint venture and accounted for its interest in the joint venture using the equity method. Prior to the joint venture's formation on April 2, 1994, the Company's services businesses comprised its Services segment and were consolidated in the Company's financial statements. The sale of the services businesses to Thermo TerraTech represents the Company's disposal of its Services segment. Accordingly, the operating results of the Company's Services segment for the three-month period ended April 2, 1994, and the equity in the income of the joint venture recorded by the Company are classified as "Income from discontinued operations" in the accompanying statement of income. Revenues from the Company's Services segment for the three-month period ended April 2, 1994, were $12.2 million. 4. Acquisitions On March 29, 1996, the Company completed the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123.5 million British pounds sterling in cash (approximately $188.9 million) and the assumption of approximately 30.8 million British pounds sterling of indebtedness (approximately $47.2 million). The purchase price is subject to post-closing adjustments equal to the amounts by which the net tangible assets and net debt of the acquired businesses on the closing date are greater or less than certain target amounts agreed to by the parties. The Company and Fisons are attempting to agree on the required adjustment to the purchase price based on their respective calculations of the net tangible assets of the acquired businesses. If the parties are unable to reach agreement, a firm of independent public accountants will be appointed to determine the adjustment. Any adjustment would affect the purchase price allocation, including the amount allocated to cost in excess of net assets of acquired companies. In 1996, the Company wrote off $3.5 million of acquired technology in connection with this acquisition, which represents the portion of the purchase price allocated to technology in development based on estimated replacement cost. The businesses acquired from Fisons are involved in the research, development, manufacture, and sale of analytical instruments to industrial and research laboratories worldwide. To finance the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons, 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 $69.9 million in cash, subject to certain post-closing adjustments. During 1995, the Company made several acquisitions for an aggregate $93.0 million in cash. 14PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 4. Acquisitions (continued) In March 1994, the Company acquired several businesses within the EnviroTech Measurements & Controls group of Baker Hughes Incorporated (Baker Hughes) for a purchase price of $89.7 million in cash. The Company acquired the EnviroTech Controls, NORAN Instruments, TN Technologies, and Tremetrics businesses, which collectively design, manufacture, and market a variety of process control, process measurement, and laboratory analytical products for use in a wide range of industrial, energy, environmental, and research applications. During 1994, the Company made several other acquisitions for an aggregate $11.2 million in cash. 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 $350.8 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 1996, is subject to adjustment upon finalization of the purchase price allocation. Based on unaudited data, the following table presents selected financial information for the Company and the businesses acquired from Fisons on a pro forma basis, assuming the companies 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) 1996 1995 ------------------------------------------------------------------------ Revenues $1,278,824 $1,144,956 Income from continuing operations 112,973 45,528 Earnings per share from continuing operations: Primary 1.19 .50 Fully diluted 1.09 .48 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of the businesses from Fisons been made at the beginning of 1995. In connection with the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons, 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 includes reductions in staffing levels, abandonment of excess facilities, and other costs associated with exiting certain activities of the acquired businesses. As part of the cost of the acquisition, the Company established reserves totaling $38.1 million for estimated severance, excess facilities, and other exit costs associated with the acquisition, $19.0 million of which was expended during 1996, primarily for severance. Unresolved matters at December 28, 1996, included completing identification of specific employees for termination and 15PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 4. Acquisitions (continued) 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 not occur beyond one year from the date of the acquisition. Any changes in estimates of these costs prior to such finalization will be recorded as adjustments to cost in excess of net assets of acquired companies. 5. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others. Two of these plans, adopted in 1986, permit the grant of nonqualified and incentive stock options. A third plan, adopted in 1993, 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 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 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. 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 16PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) 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 1996, 1995, and 1994, the Company issued 49,973 shares, 74,826 shares, and 97,125 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 1996 and 1995 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows: (In thousands except per share amounts) 1996 1995 ----------------------------------------------------------------------- Income from continuing operations: As reported $132,751 $79,304 Pro forma 129,591 79,033 Primary earnings per share from continuing operations: As reported 1.40 .88 Pro forma 1.36 .87 Fully diluted earnings per share from continuing operations: As reported 1.27 .80 Pro forma 1.25 .79 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1996 1995 ----------------------------------------------------------------------- Volatility 26% 26% Risk-free interest rate 6.2% 5.1% Expected life of options 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 17PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) 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. Stock Option Activity A summary of the Company's stock option activity is as follows: 1996 1995 1994 ---------------- ---------------- ----------------- Weighted Weighted Range of Number Average Number Average Number Option (Shares of Exercise of Exercise of Prices in thousands) Shares Price Shares Price Shares per Share -------------------------------------------------------------------------- Options outstanding, $ 2.85- beginning of year 3,221 $14.85 3,798 $13.94 3,552 18.02 15.08- Granted 378 34.49 6 18.84 744 16.58 2.85- Exercised (204) 9.14 (375) 6.08 (353) 12.64 2.85- Forfeited (142) 15.00 (208) 14.22 (145) 16.68 ----- ----- ----- Options outstanding, $ 3.29- end of year 3,253 $17.48 3,221 $14.85 3,798 18.02 ===== ====== ===== ====== ===== ====== $ 3.29- Options exercisable 3,253 $17.48 3,221 $14.85 3,791 18.02 ===== ====== ===== ====== ===== ====== Options available for grant 1,526 1,764 1,564 ===== ===== ===== Weighted average fair value per share of options granted during year $13.63 $ 3.72 ====== ====== 18PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at December 28, 1996, 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) $ 5.16 - $10.42 328 1.9 years $ 7.79 10.43 - 19.14 2,547 8.2 years 16.21 27.87 - 36.58 378 9.7 years 34.49 ----- $ 5.16 - $36.58 3,253 7.7 years $17.48 ===== 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 and, prior to 1995, certain of the Company's employees were eligible to participate in Thermo Electron's employee stock ownership plan (ESOP). 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 $4.9 million, $3.9 million, and $3.9 million in 1996, 1995, and 1994, 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. 6. Income Taxes The components of income from continuing operations before provision for income taxes and minority interest expense are as follows: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Domestic $143,377 $ 95,999 $ 77,840 Foreign 46,546 27,342 18,040 -------- -------- -------- $189,923 $123,341 $ 95,880 ======== ======== ======== 19PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) The components of the provision for income taxes are as follows: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Currently payable: Federal $ 29,593 $ 29,336 $ 17,682 State 6,978 5,766 5,499 Foreign 27,100 11,490 7,977 -------- -------- -------- 63,671 46,592 31,158 -------- -------- -------- Net deferred (prepaid): Federal (5,553) (3,628) 5,480 State (1,178) (769) 1,207 Foreign (5,213) 518 (338) -------- -------- -------- (11,944) (3,879) 6,349 -------- -------- -------- $ 51,727 $ 42,713 $ 37,507 ======== ======== ======== 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 $2.0 million, $2.1 million, and $1.1 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 1996, 1995, and 1994, respectively. The provision for income taxes that is currently payable does not reflect $4.7 million and $3.0 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 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. 20PAGE Thermo Instrument Systems Inc. 1996 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 from continuing operations before provision for income taxes and minority interest expense due to the following: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Provision for income taxes at statutory rate $ 66,473 $ 43,169 $ 33,558 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (25,100) (7,045) (2,264) Net foreign losses not benefited and tax rate differential 5,596 2,438 817 State income taxes, net of federal tax 3,770 3,248 4,359 Amortization of cost in excess of net assets of acquired companies 2,445 2,432 2,089 Tax benefit of foreign sales corporation (2,102) (1,987) (1,602) Other, net 645 458 550 -------- -------- -------- $ 51,727 $ 42,713 $ 37,507 ======== ======== ======== Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1996 1995 ------------------------------------------------------------- Prepaid income taxes: Tax loss carryforwards $ 64,902 $ 22,549 Reserves and accruals 38,929 12,165 Inventory basis difference 11,895 9,553 Accrued compensation 5,064 4,439 Allowance for doubtful accounts 2,399 1,454 Other, net 9 3,622 -------- -------- 123,198 53,782 Less: Valuation allowance 64,902 22,549 -------- -------- $ 58,296 $ 31,233 ======== ======== Deferred income taxes: Depreciation $ 16,476 $ 14,039 Intangible assets 4,234 5,130 Other - 999 -------- -------- $ 20,710 $ 20,168 ======== ======== 21PAGE Thermo Instrument Systems Inc. 1996 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 1996 $150.0 million of foreign tax loss carryforwards, $1.4 million of certain state tax-deferred assets, and $6.4 million of federal tax loss carryforwards, the realization of which is limited to the future income of certain subsidiaries. Of the $150.0 million of foreign tax loss carryforwards, $45 million expire from 1997 through 2004 and the remainder do not expire. The federal tax loss carryforwards expire from 2008 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 increase in the valuation allowance results primarily from valuation allowances established for tax loss carryforwards of businesses acquired in 1996. 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 $105 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company currently plans to keep these amounts permanently reinvested overseas. The Company believes that any additional U.S. tax liability due upon remittance of such earnings would be immaterial due to available U.S. foreign tax credits. 7. Short- and Long-term Obligations Short-term Obligations Notes payable in the accompanying balance sheet represents bank borrowings at several of the Company's foreign subsidiaries. The weighted average interest rate for these borrowings was 5.25% and 4.27% at year-end 1996 and 1995, respectively. To finance the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons (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 from Thermo Electron and issued a $65.0 million promissory note for the remaining indebtedness, which was repaid in October 1996. 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. (GIS) in May 1995, ThermoSpectra borrowed $15.0 million from Thermo Electron pursuant to a promissory note, which was repaid in August 1995. 22PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 7. Short- and Long-term Obligations (continued) Long-term Obligations Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ 3 3/4% Senior convertible note, due 2000, convertible at $16.93 per share (a) $140,000 $140,000 3 3/4% Senior convertible debentures, due 2000, convertible at $16.93 per share (b) 22,281 67,600 4 1/2% Senior convertible debentures, due 2003, convertible at $43.07 per share (b) 172,500 - 6 5/8% Subordinated convertible debentures, due 2001, convertible at $9.38 per share (c) - 22,275 5% Subordinated convertible debentures, due 2000, convertible into shares of ThermoQuest at $16.50 per share (c) 96,250 96,250 5% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Optek at $14.85 per share (c) 96,250 96,250 10.23% Mortgage loan secured by property with a net book value of $16,042, payable in monthly installments with final payments in 2004 9,267 10,101 Promissory note to parent company from ThermoSpectra, due 1998 (d) 15,000 - Other 4,788 10,885 -------- -------- 556,336 443,361 Less: Current maturities of long-term obligations 2,122 2,327 -------- -------- $554,214 $441,034 ======== ======== (a) Represents an obligation to Thermo Electron. (b) Guaranteed on a senior basis by Thermo Electron. (c) Guaranteed on a subordinated basis by Thermo Electron. (d) Bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis points. The $96.3 million principal amount 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 trading date prior to conversion. In lieu of issuing all or a portion of the Company's common stock upon conversion of the 4 1/2% senior convertible debentures due 2003, the Company has the option to deliver shares of Thermo Electron common stock 23PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 7. Short- and Long-term Obligations (continued) with an aggregate value equal to the market value of the Company's common stock otherwise issuable upon such conversion. Thermo Electron has agreed to sell at market prices such number of shares of its common stock to the Company as the Company may require to exercise such option. During 1996, 1995, and 1994, convertible obligations of $67.6 million, $18.3 million, and $14.1 million, respectively, were converted into common stock of the Company. The annual requirements for long-term obligations as of December 28, 1996, are: $2.1 million in 1997; $16.2 million in 1998; $1.2 million in 1999; $356.1 million in 2000; $1.4 million in 2001; and $179.3 million in 2002 and thereafter. Total future requirements of long-term obligations are $556.3 million. See Note 12 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 $21.1 million, $11.1 million, and $9.0 million in 1996, 1995, and 1994, respectively. Future minimum payments due under noncancellable operating leases at December 28, 1996, are: $15.5 million in 1997; $12.6 million in 1998; $10.1 million in 1999; $8.7 million in 2000; $7.5 million in 2001; and $29.5 million in 2002 and thereafter. Total future minimum lease payments are $83.9 million. Contingencies In December 1996, five employees of the Company's Epsilon Industrial, Inc. (Epsilon) subsidiary commenced an arbitration proceeding alleging that Epsilon, the Company, and certain affiliates of the Company breached the terms of certain agreements entered into with such employees at the time that a predecessor of Epsilon acquired the assets and business of a company formerly owned by such employees. The employees are claiming damages of $36 million resulting from the alleged failure of the Company and its affiliates to use best efforts to develop and promote certain products acquired at that time. The Company believes that it has meritorious defenses to the claim and intends to contest the matter vigorously. However, due to the inherent uncertainty of dispute resolution, the Company cannot predict the outcome of this matter. In the opinion of management, while an unfavorable resolution of this matter could materially affect the Company's results of operations 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. 24PAGE Thermo Instrument Systems Inc. 1996 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 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 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 $12.1 million, $9.4 million, and $8.3 million in 1996, 1995, and 1994, 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 relationship 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. 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. (Thermedics), 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. During 1994, the Company sold $4.0 million principal amount of the Thermedics debentures for net proceeds of $5.9 million, which resulted in a gain of $2.0 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 December 28, 1996, the Company had reserved 16,945,293 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. 25PAGE Thermo Instrument Systems Inc. 1996 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: 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 1,935,667 shares of Metrika Systems common stock at $7.50 per share for net proceeds of $13.5 million resulted in a gain of $9.6 million. 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. 1994 Private placement of 1,505,000 shares of ThermoSpectra common stock at $10.00 per share for net proceeds of $14.0 million resulted in a gain of $6.5 million. 12. 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, accounts payable, due to parent company, 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 exchange contracts, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying 1996 balance sheet. The fair values were determined based on quoted market prices (Note 2). The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies, principally U.S. dollars, British pounds sterling, French francs, German deutsche marks, and Japanese yen. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these 26PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 12. Fair Value of Financial Instruments (continued) commitments from fluctuations in foreign exchange rates. The amounts of such forward exchange contracts at year-end 1996 and 1995 were $12.8 million and $12.2 million, respectively. The carrying amount and fair value of the Company's long-term obligations and off-balance-sheet financial instruments are as follows: 1996 1995 ------------------ ------------------ Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ---------------------------------------------------------------------- Long-term obligations: Convertible obligations $527,281 $681,550 $422,375 $595,482 Other long-term obligations 26,933 27,767 18,659 19,122 -------- -------- -------- -------- $554,214 $709,317 $441,034 $614,604 ======== ======== ======== ======== Off-balance-sheet financial instruments: Forward exchange contracts receivable $ 886 $ 462 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 the Company's convertible obligations exceeds the carrying amount primarily due to the market price of the Company's common stock at the respective year-ends exceeding the conversion price of certain of the convertible obligations. The fair value of forward exchange 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. 27PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 13. Geographical Data The Company is engaged in one business segment: developing, manufacturing, and marketing analytical, monitoring, process control, and imaging, inspection, and measurement instruments. The following table shows data for the Company by geographical area: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Revenues: United States $ 688,865 $ 520,485 $ 457,121 United Kingdom 227,375 78,768 57,752 Germany 182,958 124,035 96,338 Other Europe 225,244 107,755 72,633 Other 104,885 79,368 59,663 Transfers among geographical areas (a) (219,965) (127,749) (93,515) ---------- ---------- ---------- $1,209,362 $ 782,662 $ 649,992 ========== ========== ========== Income from continuing operations before provision for income taxes and minority interest expense: United States $ 97,114 $ 81,144 $ 86,189 United Kingdom 14,333 5,128 3,569 Germany 9,894 8,703 3,168 Other Europe 15,350 12,505 6,823 Other 11,500 8,203 7,490 Corporate and eliminations (b) (21,548) (11,214) (10,002) ---------- ---------- ---------- Total operating income 126,643 104,469 97,237 Interest and other income (expense), net 63,280 18,872 (1,357) ---------- ---------- ---------- $ 189,923 $ 123,341 $ 95,880 ========== ========== ========== Identifiable assets: United States $1,045,345 $ 888,620 $ 595,329 United Kingdom 253,203 85,615 46,959 Germany 172,468 125,686 114,536 Other Europe 221,420 94,135 53,664 Other 57,435 62,090 37,947 Corporate and eliminations (c) 174,529 116,667 163,482 ---------- ---------- ---------- $1,924,400 $1,372,813 $1,011,917 ========== ========== ========== 28PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 13. Geographical Data (continued) (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Export revenues included in United States revenues above (d): Europe $ 100,767 $ 88,418 $ 70,903 Asia 107,796 80,839 57,249 Other 45,142 40,303 25,412 ---------- ---------- ---------- $ 253,705 $ 209,560 $ 153,564 ========== ========== ========== (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. 29PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 14. Unaudited Quarterly Information (In thousands except per share amounts) 1996(a) First Second(b) 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: Primary .37 .37 .32 .34 Fully diluted .33 .34 .29 .31 1995(c) First Second Third Fourth ------------------------------------------------------------------------ Revenues $172,944 $185,744 $193,899 $230,075 Gross profit 84,914 90,916 93,535 109,854 Income from continuing operations 16,914 18,673 21,881 21,836 Net income 16,916 18,673 21,881 21,836 Earnings per share from continuing operations: Primary .19 .21 .24 .24 Fully diluted .17 .19 .22 .22 Earnings per share: Primary .19 .21 .24 .24 Fully diluted .17 .19 .22 .22 (a) 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. (b) Reflects the March 29, 1996, acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons. (c) Results include nontaxable gains of $4.7 million, $4.8 million, $9.3 million, and $1.3 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. 30PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 15. Subsequent Event On March 12, 1997, the Company declared unconditional in all respects its cash tender offer for all outstanding shares of Life Sciences International PLC (Life Sciences) for 135 British pence per share (approximately $2.16 per share). As of that date, the Company had received acceptances representing approximately 91% of the Life Sciences shares outstanding and the Company owned an additional 3% of the outstanding Life Sciences shares. There are approximately 175 million Life Sciences shares outstanding. The Company has established March 26, 1997, as the date for payment for all shares as to which acceptance had been received. In addition, the Company expects to repay approximately $72 million of Life Sciences' debt, net of acquired cash expected to be used. Life Sciences, a London Stock Exchange-listed company, manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. 31PAGE Thermo Instrument Systems Inc. 1996 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 December 28, 1996, and December 30, 1995, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended December 28, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 December 28, 1996, and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 11, 1997 (except with respect the matter discussed in Note 15 as to which the date is March 12, 1997) 32PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Forward-looking Statements." Results of Operations The Company's revenues were $1,209.4 million in 1996, compared with $782.7 million in 1995 and $650.0 million in 1994. The increases were primarily due to acquisitions, which included a substantial portion of the businesses comprising the Scientific Instruments Divisions of Fisons in March 1996, DYNEX in February 1996, Oriel Corporation in February 1996, the analytical instrument division of ATI in December 1995, GIS in May 1995, the Analytical Instruments Division of Baird Corporation in January 1995, and several businesses within the EnviroTech Measurements & Controls group of Baker Hughes in March 1994. Acquisitions added revenues of $404 million in 1996 and $104 million in 1995. The remainder of the increase in revenues in 1996 resulted primarily from 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 1996 were offset by a decrease of $21.8 million in revenues 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. The remainder of the increase in revenues in 1995 was substantially a result of the favorable effects of currency translation due to the decline in the value of the U.S. dollar relative to foreign currencies in countries where the Company operates. An increase in revenues in 1995 from certain existing businesses was offset in part by a decline in revenues from the Company's air monitoring instruments subsidiary as most orders in response to Phases I and II of the Clean Air Act of 1990 have been completed. 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 financial performance and competitive position can be affected by currency exchange rate fluctuations. Where appropriate, the Company uses forward exchange contracts to reduce its exposure to currency fluctuations. 33PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) The gross profit margin was 46% in 1996, compared with 48% in 1995 and 1994. The gross profit margin decreased in 1996 primarily due to lower margins at acquired businesses. Selling, general, and administrative expenses as a percentage of revenues was 28% in 1996 and 1995 and 27% in 1994. Selling, general, and administrative expenses as a percentage of revenues increased in 1995 from 1994 due to higher costs as a percentage of revenues at acquired businesses and reduced revenues from the Company's air monitoring instruments subsidiary as discussed above. The Company's goal is to continue to reduce selling, general, and administrative expenses as a percentage of revenues at its newly acquired businesses. Research and development expenses as a percentage of revenues were 7.0% in 1996, 6.9% in 1995, and 6.6% in 1994. The increase is consistent with the Company's objective to develop and market new products. In 1996, the Company wrote off $3.5 million of acquired technology in connection with the acquisition of the businesses from Fisons (Note 4). Interest income increased to $20.5 million in 1996 from $14.6 million in 1995 and $5.9 million in 1994. 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 issuance of common stock by the Company's subsidiaries (Note 11) and, to a lesser extent, the issuance of $172.5 million principal amount of 4 1/2% senior convertible debentures by the Company in October 1996. The increase in interest income in 1996 was offset in part by a reduction in cash as a result of acquisitions. The increase in interest income in 1995 was primarily the result of interest income earned on invested proceeds from the issuance of the 5% subordinated convertible debentures by ThermoQuest and Thermo Optek and higher prevailing interest rates in 1995 compared with 1994. Interest income also increased in 1995, to a lesser extent, as a result of interest income earned on invested proceeds from the issuance of common stock by the Company's subsidiaries in the first three quarters of 1995 and the third and fourth quarters of 1994 (Note 11). The increase in interest income in 1995 was offset in part by a reduction in cash as a result of acquisitions. Interest expense increased to $28.9 million in 1996 from $18.1 million in 1995 and $15.8 million in 1994. The increase in interest expense 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 Fisons acquisition. The increases in 1996 were offset in part by the conversion of a portion of the Company's convertible obligations into common stock of the Company. The increase in interest expense in 1995 was primarily due to the issuance of the 5% subordinated convertible debentures by ThermoQuest and Thermo Optek, offset in part by the 34PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) conversion of a portion of the Company's convertible obligations into common stock of the Company. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries, the Company recorded gains of $71.7 million in 1996, $20.1 million in 1995, and $6.5 million in 1994 (Note 11). These gains represent an increase in the Company's proportionate share of the subsidiary's equity 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. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in 1997. Accordingly, there can be no assurance that the Company will be able to realize gains from such transactions in the future. The Company recorded gains of $2.2 million and $2.0 million in 1995 and 1994, respectively, from the sale of the Company's investment in Thermedics Inc. subordinated convertible debentures (Note 9). Thermedics Inc. is a majority-owned subsidiary of Thermo Electron. The effective tax rate was 27% in 1996, 35% in 1995, and 39% in 1994. The effective tax rate decreased in 1996 and 1995 primarily due to a higher nontaxable gain on issuance of stock by subsidiaries. Excluding the impact of the gain 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 the write-off of acquired technology in connection with the acquisition of the businesses from Fisons in March 1996. Effective April 2, 1995, the Company and Thermo TerraTech dissolved their Thermo Terra Tech joint venture. Thermo TerraTech then purchased the services businesses formerly operated by the joint venture from the Company. Prior to the joint venture's formation on April 2, 1994, the Company's services businesses comprised its Services segment and were consolidated in the Company's financial statements. The sale of the 35PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) businesses to Thermo TerraTech represents the Company's disposal of its Services segment (Note 3). See Note 8 for a description of an arbitration proceeding involving the Company. Liquidity and Capital Resources Consolidated working capital was $636.7 million at December 28, 1996, compared with $489.9 million at December 30, 1995, an increase of $146.8 million. Included in working capital are cash, cash equivalents, and available-for-sale investments of $530.1 million at December 28, 1996, and $395.2 million at December 30, 1995. Of the $530.1 million balance at December 28, 1996, $16.6 million was held by ThermoSpectra, $182.4 million by ThermoQuest, $63.6 million by Thermo Optek, $45.5 million by Thermo BioAnalysis, $20.2 million by Metrika Systems, and $201.8 million by the Company and its wholly owned subsidiaries. Cash provided by operations in 1996 was $93.1 million. Inventories decreased $14.2 million primarily due to improved inventory management at certain subsidiaries. Other current liabilities decreased $37.5 million primarily due to restructuring expenditures at businesses acquired by the Company in 1996. At December 28, 1996, $59.2 million of the Company's cash and cash equivalents was held by its foreign subsidiaries. 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 $269.4 million of cash in 1996. During 1996, the Company expended $248.2 million, net of cash acquired, for acquisitions (Note 4) and $19.1 million for the purchase of property, plant, and equipment. The Company's financing activities provided $305.7 million of cash in 1996. During 1996, ThermoQuest, Thermo Optek, Thermo BioAnalysis, and Metrika Systems sold shares of their common stock for aggregate net proceeds of $125.0 million (Note 11). During 1996, the Company issued $110.0 million and repaid $95.0 million of notes payable to Thermo Electron in connection with acquisitions (Note 7). In October 1996, the Company issued and sold $172.5 million principal amount of 4 1/2% senior convertible debentures for net proceeds of $168.9 million (Note 7). In 1997, the Company plans to make expenditures of approximately $21 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 combination of internal funds, additional debt or equity financing from the capital markets, or short-term borrowings from Thermo Electron. On March 12, 1997, the Company declared unconditional in all respects its cash tender offer for all outstanding shares of Life 36PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) Sciences for 135 British pence per share (approximately $2.16 per share), or approximately $378 million. As of that date, the Company had received acceptances representing approximately 91% of the Life Sciences shares outstanding and the Company owned an additional 3% of the outstanding Life Sciences shares. The Company has established March 26, 1997, as the date for payment for all shares as to which acceptance had been received. In addition, the Company expects to repay approximately $72 million of Life Sciences' debt, net of acquired cash expected to be used (Note 15). 37PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in 1997 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Risks Associated with Spinout of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in 1997. 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 acquisition of businesses and technologies that complement or augment the Company's existing product lines. Certain businesses acquired by the Company within the past year, including businesses within the former analytical instrument division of Analytical Technology, Inc. and the former Scientific Instruments Division of Fisons plc, have had low levels of profitability. In addition, businesses that the Company may seek to acquire in the future may also be marginally profitable or unprofitable. In order for any acquired businesses to achieve the level of profitability desired by the Company, the Company must successfully 38PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Forward-looking Statements change operations and improve market penetration. No assurance can be given that the Company will be successful in this regard. In addition, promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices in many countries. There can be no assurance that the Company will be able to complete pending or future acquisitions. In order to finance any such acquisitions, it may be necessary for the Company to raise additional funds either through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and may result in dilution to the Company's shareholders. Risks Associated with 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 three 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 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 39PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Forward-looking Statements 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 sales accounted for a significant portion of the Company's total revenues in 1996, and the Company expects that international sales 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 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 other 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 40PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Forward-looking Statements 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. 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. 41PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Selected Financial Information (In thousands except per share amounts) 1996(a) 1995(b) 1994(c) 1993(d) 1992 ----------------------------------------------------------------------- Statement of Income Data: Revenues $1,209,362 $ 782,662 $ 649,992 $ 529,278 $ 368,532 Income from continuing operations 132,751 79,304 58,261 42,793 31,666 Net income 132,751 79,306 60,220 44,764 33,130 Earnings per share from continuing operations: Primary 1.40 .88 .66 .51 .39 Fully diluted 1.27 .80 .61 .48 .38 Earnings per share: Primary 1.40 .88 .68 .53 .41 Fully diluted 1.27 .80 .63 .50 .39 Balance Sheet Data: Working capital $ 636,703 $ 489,895 $ 230,306 $ 238,053 $ 68,412 Total assets 1,924,400 1,372,813 1,011,917 891,141 686,425 Long-term obligations 554,214 441,034 263,559 286,161 170,092 Shareholders' investment 746,267 542,705 440,763 358,055 272,723 (a)Reflects the March 1996 acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc, 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. (b)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. (c)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. (d)Reflects the February 1993 acquisition of Spectra-Physics Analytical, Inc., the April 1993 sale of the biomedical instruments products business of the Company's Nicolet Instrument Corporation subsidiary, and the September 1993 issuance of $210.0 million aggregate principal amount of 3 3/4% senior convertible obligations due 2000. 42PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Common Stock Market Information The following table shows the market range for the Company's common stock based on reported sales prices on the American Stock Exchange (symbol THI) for 1996 and 1995. Prices were restated in 1995 to reflect a three-for-two stock split distributed in April 1995 and a five-for-four stock split distributed in December 1995. 1996 1995 --------------------- ----------------------- Quarter High Low High Low ------------------------------------------------------------------------ First $30 1/2 $24 5/8 $18 13/15 $15 13/15 Second 43 3/8 28 1/2 20 1/5 17 1/5 Third 38 3/4 29 1/2 22 2/5 19 4/5 Fourth 37 5/8 29 27 1/10 21 1/2 As of January 24, 1997, the Company had 2,897 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 24, 1997, was $34 3/8 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), and Thermo BioAnalysis Corporation (symbol TBA). 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, (617) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Beginning in 1997, quarterly distribution will be limited to the second quarter only. All quarterly reports and press releases are available through the Internet from Thermo Electron's home page on the World Wide Web (http://www.thermo.com/subsid/thi.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 43PAGE Thermo Instrument Systems Inc. 1996 Financial Statements Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended December 28, 1996, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, 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 2, 1997, at 10:00 a.m., at the Hyatt Regency Hotel, Hilton Head, South Carolina. 44 EX-21 7 Exhibit 21 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant As of February 28, 1997, the Registrant owned the following subsidiaries: STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ----------------------------------------------------------------------------- Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 Flow Automation (UK) Limited United Kingdom 100 Gas Tech Inc. California 100 Gas Tech Australia, Pty. Ltd. Australia 50* Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Houston Atlas Inc. Texas 100 Metrika Systems Corporation Delaware 84 Eberline Radiometrie S.A. France 100 Gamma-Metrics California 100 Gamma-Metrics International F.S.C. Inc. Guam 100 Thermo Instrument Systems GmbH Germany 100 Eberline Instruments GmbH Germany 100 Thermo Instrument Systems Limited United Kingdom 100 National Nuclear Corporation California 100 Optek-Nicolet Holdings Inc. Wisconsin 100 Thermo Instrument Controls Limited United Kingdom 100 Thermo Optek Corporation Delaware 93 (additionally, .30% of the shares are owned directly by The Thermo Electron Companies Inc.) ARL Applied Research Laboratories S.A. Switzerland 100 Fisons Instruments (Proprietary) South Africa 100 Limited Thermo Optek Wissenschaftliche Gerate Austria 100 GesmbH ATI Acquisition Corp. Wisconsin 100 Mattson Instruments Limited United Kingdom 100 Thermo Elemental Limited United Kingdom 100 Thermo Optek Limited United Kingdom 100 Unicam Limited United Kingdom 100 Unicam Export Limited United Kingdom 100 Unicam Analytical Inc. Canada 100 Unicam Analytical Technology The The Netherlands 100 Netherlands B.V. Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Fisons Instruments Inc. Canada 100 Fisons Instruments Nordic AB Sweden 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Europe Limited United Kingdom 100 Spectra-Tech, Inc. Wisconsin 100 Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Page 1PAGE THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ----------------------------------------------------------------------------- Planweld Holding Limited United Kingdom 100 Nicolet Instrument Limited United Kingdom 100 Planweld Limited United Kingdom 100 Hilger Analytical Limited United Kingdom 100 Thermo Electron Limited United Kingdom 100 Thermo Instrument Systems Japan Delaware 100 Holdings, Inc. Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Jarrell Ash Corporation Massachusetts 100 Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument China 100 Technology Co. Limited Thermo Instrument Systems (F.E.) China 100 Limited Thermo Instruments (Canada) Inc. Canada 100 Eberline Instruments (Canada) Ltd. Canada 100 Thermo Optek France S.A. France 100 Thermo Optek Holding B.V. The Netherlands 100 Baird Europe B.V. The Netherlands 100 Baird France S.A.R.L. France 100 Thermo Group B.V. The Netherlands 100 Thermo Vision Corporation Delaware 100 CID Technologies Inc. New York 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Oriel Foreign Sales Corp. U.S. Virgin 100 Islands Scientific Measurement Systems Inc. Colorado 100 ThermoSpectra Corporation Delaware 75 (additionally, .88% of the shares are owned directly by The Thermo Electron Companies Inc.) Diametrix Detectors, Inc. Delaware 50 Gould Instrument Systems, Inc. Ohio 100 Kevex Instruments Inc. Delaware 100 Kevex X-Ray Inc. Delaware 100 Nicolet Instrument Technologies Inc. Wisconsin 100 NORAN Instruments Inc. Wisconsin 100 Park Acquisition Corp. Delaware 100 ThermoSpectra B.V. The Netherlands 100 Nicolet Technologies B.V. The Netherlands 100 Bakker Electronics Limited United Kingdom 100 NORAN Instruments B.V. The Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoSpectra Limited United Kingdom 100 Nicolet Technologies Ltd. United Kingdom 100 Thermo Spectra S.A. France 100 Nicolet Technologies S.A.R.L. France 100 Page 2PAGE THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ----------------------------------------------------------------------------- Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 ThermoQuest Corporation Delaware 93 (50% of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, .12% of the shares are owned directly by The Thermo Electron Companies Inc.) Finnigan FT/MS Inc. Delaware 100 Finnigan Corporation Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, Inc. California 100 Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT AG Switzerland 100 Finnigan MAT Canada, Ltd. Canada 100 Finnigan MAT GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products S.R.L. Italy 100 Thermo Instruments Australia Pty Australia 100 Limited ThermoQuest Ltd. United Kingdom 100 Finnigan MAT Ltd. United Kingdom 100 Finnigan MAT AB Sweden 100 Thermo Separation Products Ltd. United Kingdom 100 Finnigan Properties, Inc. California 100 Masslab Limited United Kingdom 100 ThermoQuest B.V. The Netherlands 100 Thermo Separation Products B.V. The Netherlands 100 Thermo Separation Products B.V. B.A. Belgium 100 ThermoQuest France S.A. France 100 Finnigan Automass S.A. France 100 Finnigan MAT S.A.R.L. France 100 Thermo Separation Products S.A. France 100 ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Gerate GmbH Austria 100 Thermo Separation Products AG Switzerland 100 Thermo Separation Products Inc. Delaware 100 ThermoQuest GmbH Germany 100 Thermo Separation Products GmbH Germany 100 ThermoQuest K.K. Japan 100 SID Instruments Inc. Delaware 100 FI Instruments Inc. Delaware 100 Fisons Instruments BV The Netherlands 100 Fisons Instruments NV Belgium 100 Page 3PAGE THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ----------------------------------------------------------------------------- Fisons Instruments K.K. Japan 100 Fisons Instruments S.A. France 100 HB Instruments Inc. Delaware 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. United Kingdom 100 Thermo Haake (U.K.) Limited United Kingdom 100 Thermo Instrument (S.E.A.) Pte Limited Singapore 100 Thermo Instrumentos Cientificos S.A. Spain 100 Thermo VG Systems Limited United Kingdom 100 Spectrace Instruments Inc. California 100 Thermo BioAnalysis Corporation Delaware 67 (4.7% of which shares are owned directly by Quest-TSP Holdings Inc. and 2% of which shares are owned directly by Quest-Finnigan Holdings Inc.) Dynatech Laboratories spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 DYNEX Technologies Inc. Virginia 100 Thermo BioAnalysis GmbH Germany 100 Dynatech Deutschland GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100 Thermo BioAnalysis Holding, Limited United Kingdom 100 Dynex Technologies Limited United Kingdom 100 Thermo BioAnalysis Ltd. United Kingdom 100 Thermo FAST UK Limited United Kingdom 100 Thermo LabSystems Limited United Kingdom 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Thermo LabSystem (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 Thermo Environmental Instruments Inc. California 100 Thermo Instrument Controls Inc. Delaware 100 Flow Automation Inc. Texas 100 Thermo Instrument Controls de Mexico, Mexico 100 S.A. de C.V.(1% of which shares are owned directly by Thermo Instrument Systems Inc.) VG Gas Analysis Systems Inc. Massachusetts 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 VG Gas Analysis Limited United Kingdom 100 Van Hengel Holding B.V. The Netherlands 100 Eberline Monitoring GmbH Germany 100 Fisons Instruments Vertriebs GmbH Germany 100 Page 4PAGE THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ----------------------------------------------------------------------------- Gebruder Haake GmbH Germany 100 Thermo Instrument Systems B.V. The Netherlands 100 Euroglas B.V. The Netherlands 100 Thermo Automation Services (ThAS) B.V. The Netherlands 100 This Analytical B.V. The Netherlands 100 This Gas Analysis B.V. The Netherlands 100 This Lab Systems B.V. The Netherlands 100 This Scientific B.V. The Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 TN Spectrace Europe B.V. The Netherlands 100 Westronics Inc. Texas 100 * Joint Venture/Partnership EX-23 8 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 11, 1997 (except with respect to the matter discussed in Note 15 as to which the date is March 12, 1997), included in or incorporated by reference into Thermo Instrument Systems Inc.'s Annual Report on Form 10-K for the year ended December 28, 1996, into the Company's previously filed Registration Statements as follows: Registration Statement No. 33-14980 on Form S-8, Registration Statement No. 33-16461 on Form S-8, Registration Statement No. 33-14974 on Form S-8, Post Effective Amendment to Registration Statement on Form S-4 No. 33-32579-02 on Form S-8, Registration Statement No. 33-33577 on Form S-8, Registration Statement No. 33-36221 on Form S-8, Registration Statement No. 33-37866 on Form S-8, Registration Statement No. 33-42270 on Form S-3, Registration Statement No. 33-69526 on Form S-3, Registration Statement No. 33-65275 on Form S-8, and Registration Statement No. 33-37559 on Form S-8. Arthur Andersen LLP Boston, Massachusetts March 19, 1997 EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 522,688 7,452 320,312 16,981 213,683 1,124,910 250,976 72,313 1,924,400 488,207 399,214 0 0 9,767 736,500 1,924,400 1,209,362 1,209,362 654,165 654,165 87,591 2,274 28,923 189,923 51,727 132,751 0 0 0 132,751 1.40 1.27
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