-----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, Qh4gBBnLsfpkYtbxCtScQkhAicGLhprpg6YDaf5bDrwwLLOlaPWdyu93eD0hqTss vkYn2v7YVLy7mT+ry5cYSw== 0000813895-97-000017.txt : 19971208 0000813895-97-000017.hdr.sgml : 19971208 ACCESSION NUMBER: 0000813895-97-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971205 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO POWER CORP CENTRAL INDEX KEY: 0000813895 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 042891371 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10573 FILM NUMBER: 97733343 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: PO BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 FORMER COMPANY: FORMER CONFORMED NAME: TECOGEN INC DATE OF NAME CHANGE: 19920703 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 September 27, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-10573 THERMO POWER CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 04-2891371 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange 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 October 31, 1997, was approximately $30,918,000. As of October 31, 1997, the Registrant had 11,916,247 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended September 27, 1997, 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 March 13, 1998, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business Thermo Power Corporation (the Company or the Registrant) develops and commercializes environmentally sound and economically efficient power generation, cooling, lighting, and related products. At fiscal year-end 1997, the Company's business was divided into three segments. The Industrial Refrigeration Systems segment develops, manufactures, markets, and services industrial refrigeration and commercial cooling equipment, and also rents commercial cooling and industrial refrigeration equipment. The Engines segment develops, manufactures, markets, and services gasoline engines for recreational boats, propane and gasoline engines for lift trucks, and natural gas engines for fleet vehicles and industrial applications. The Cooling and Cogeneration Systems segment develops, manufactures, markets, and services natural gas cooling and cogeneration systems, and conducts research and development on applications of thermal energy and pollution control. The Company's thermoelectric cooling modules are used to control the temperature of laser diodes in fiber-optic telecommunication equipment and biomedical instruments, as well as thermal reference sources (TRSs), which are used for calibrating infrared imaging systems. The Company is also researching other potential applications for this technology. Through its 78%-owned ThermoLyte Corporation (ThermoLyte) subsidiary, formed in March 1995, the Company is developing and commercializing various gas-powered lighting products. On November 6, 1997, the Company declared unconditional in all respects its cash tender offer for the outstanding ordinary shares of Peek plc (Peek). The aggregate cost to acquire all outstanding Peek ordinary shares is estimated at approximately $163 million. The Company paid $2.3 million for shares acquired in fiscal 1997 and $147.9 million for shares acquired from September 28, 1997, through November 19, 1997. The Company owned 92% of the outstanding ordinary shares of Peek as of November 19, 1997. The Company expects to make payments for the remaining ordinary shares outstanding during the first quarter of fiscal 1998. To finance the acquisition of Peek, the Company used internal funds and borrowed $160.0 million from Thermo Electron. Peek, a London Stock Exchange-listed company, develops, markets, installs, and services equipment to monitor and regulate traffic flow, ease roadway congestion, improve safety, and collect data. Peek also manufactures density and flow meters, primarily used by the water and oil industries. Peek had revenues in calendar 1996, excluding revenues from businesses sold in 1996 and 1997, of approximately 140 million pounds sterling, or approximately $219 million, and profit on ordinary activities after taxation, excluding profits from businesses sold in 1996 and 1997, of approximately 8 million pounds sterling, or approximately $12 million. Peek's results of operations in calendar 1996 are unaudited and were accounted for in accordance with generally accepted accounting principles in the United Kingdom, which differ in certain respects from U.S. generally accepted accounting principles. 2PAGE The Company was originally incorporated in Massachusetts in June 1985 under the name Tecogen Inc., as a wholly owned subsidiary of Thermo Electron to succeed the business of Thermo Electron's Thermal Products Division. In March 1993, the Company's name was changed to Thermo Power Corporation. As of September 27, 1997, Thermo Electron owned 8,127,906 shares of the Company's common stock, representing 68% of such stock outstanding at that time. Thermo Electron is a world leader in environmental monitoring and analysis instruments, biomedical products such as heart-assist devices and mammography systems, papermaking and recycling equipment, biomass electric power generation, and other specialized products and technologies. Thermo Electron also provides a range of services related to environmental quality. During fiscal 19971, Thermo Electron purchased 213,100 shares of the Company's common stock in the open market at a total price of $1,815,000. 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 heading "Forward-looking Statements" in the Registrant's Fiscal 1997 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Industry Segments Financial information concerning the Company's industry segments is summarized in Note 11 to Consolidated Financial Statements in the Registrant's Fiscal 1997 Annual Report to Shareholders, which information is incorporated herein by reference. (c) Description of Business (i) Principal Products and Services Traffic Products The Company's Peek subsidiary develops, markets, installs, and services equipment to monitor and regulate traffic flow in cities and towns around the world. Peek offers hardware products and traffic management systems to ease roadway congestion, improve safety, and collect data. In addition, Peek develops and markets a series of field measurement products. 1 References to fiscal 1997, 1996, and 1995 herein are for the fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995, respectively. 3PAGE Hardware Products. Peek's hardware products include detectors, counter classifiers, traffic signals, controllers, and enforcement equipment. Peek offers a variety of detectors, including loop detectors, microwave detectors, and its Videotrak(R) video camera detectors. Detectors determine the speed, size, and direction of vehicles for use in traffic control. Counter classifiers analyze the data provided by detectors in order to determine traffic flow patterns and the types of vehicles on roadways for traffic planning. Peek manufactures and markets traffic signals with advanced optical designs for both vehicle intersections and pedestrian crossways. Controllers are electronic devices that automatically control the timing of signals to optimize the flow of traffic and coordinate pedestrian crossings in order to improve safety. Peek has also developed the Peek Guardian(TM) camera for law enforcement agencies. This product uses cameras to detect and record motor vehicle violations such as speeding and red light violations. Prices for Peek's hardware products range from approximately $60 for a simple loop detector to approximately $20,000 for a large Videotrak video camera. In addition, Peek supplies variable message signs, which display messages advising drivers of roadway hazards. The price for a large message sign can be more than $60,000. Traffic Systems. Peek produces three types of traffic systems: urban traffic control, motorway management, and public transport management. Urban Traffic Control (UTC). Peek offers two types of UTC systems: real-time adaptive control systems and traffic responsive systems. - Real-time Adaptive Control Systems. These systems measure flow of traffic and use the collected information to optimize the timing of traffic signals to achieve maximum traffic capacity across a city. Peek's SCOOT system runs algorithms on a central computer and communicates traffic signal timing to controllers to optimize traffic flow. Prices for a SCOOT system vary greatly depending on the size, complexity, and scope of the project, and can range from $150,000 to $25 million. Peek's SPOT system uses a distributed approach to optimize traffic flow, whereby signal timing is calculated by an individual controller using data from that controller and nearby controllers. Prices for relatively simple SPOT systems typically range from $50,000 to $150,000. - Traffic Responsive Systems. These systems analyze current traffic information provided by detectors and then select appropriate signal timing for intersections from a set of patterns that have been generated off-line. The Multi-Arterial Traffic System (MATS) is sold predominantly in the United States. The Electronic Traffic Control system (ETC), which is installed predominantly in Scandinavia, caters to asymmetrical town plans. Prices for traffic responsive systems generally range from $30,000 to $1.6 million depending on the scope and complexity of the project. Motorway Management. These systems identify when congestion, accidents, or other traffic disruptions occur using detectors, and generate information for message signs which can be used to broadcast messages imposing speed restrictions or advising travelers of lane 4PAGE closures and hazards. Peek provides systems that have direct control over message signs, predominantly in The Netherlands. Peek also offers systems in the United Kingdom that provide central control over message signs and are controlled by an operator. The third type of motorway management system is a low-cost PC-based system, which directly controls message signs and is sold predominantly in developing markets. Prices for Motorway Management Systems typically range from $500,000 to $8 million depending on the scope and the complexity of the project. Public Transport. Peek provides a range of public transport systems, including intersection priority systems, passenger information systems, fleet management systems, and bus terminal systems. Intersection priority systems use electronic tags on buses, which communicate with intersection controllers to ensure that buses are not delayed. The level of priority can be adjusted based on occupancy levels and adherence to schedules. Passenger information systems track the position of buses along a route in order to provide anticipated arrival times to passengers waiting at stops. Fleet management systems use electronic tags on buses to monitor the adherence to bus schedules and occupancy levels of buses in order to monitor the operating performance of the fleet, set vehicle maintenance schedules, and optimize the size of the fleet to achieve a desired level of service. Peek also designs and supplies electronic systems to bus terminals to provide information to waiting passengers and to allow the size of the terminals to be minimized. Prices for public transport systems vary greatly depending on the scope and complexity of the project and can range from $5,000 for a simple intersection priority system to several million dollars for an integrated public transportation solution for a city. Approximately 90 percent of Peek's revenues in calendar 1996, excluding revenues from businesses sold in 1996 and 1997, were from sales of traffic products. Field Measurement Products. Peek offers a series of field data products, including density meters, which measure the density of liquids and gases; flow meters, which are attached either to the inside or the outside of pipes to measure liquid or gas flow rates; current to pressure transducers, which are used in process control systems to convert electrical signals to pressure levels for direct control of valves; and alarm monitors, which are used in power stations to monitor turbine engines so that they do not overheat. Prices for Peek's field measurement products typically range from $400 to $10,000. In calendar 1996, approximately 10 percent of Peek's revenues, excluding revenues from businesses sold in 1996 and 1997, were from sales of field measurement products. Industrial Refrigeration Systems Industrial Refrigeration Packages. The Company's FES division designs, engineers, manufactures, and services industrial refrigeration equipment used for cooling, freezing, and cold-storage applications primarily in the food-processing, petrochemical, pharmaceutical, and liquefied-gas storage industries. FES supplies complete industrial refrigeration systems and various components for these systems. 5PAGE FES equipment for food and beverage customers is primarily standard products, such as screw-compressor packages, liquid-refrigerant pump packages, state-of-the-art control systems, plate and frame heat exchangers, and ASME (American Society of Mechanical Engineers) pressure vessels. The screw-compressor package, which consists of a screw compressor, an electric-drive motor, an oil separator, a control panel, and piping and tubing, constitutes the majority of this equipment. FES also manufactures screw-compressor packages powered by the Company's natural gas TecoDrive(R) engines. Examples of applications of industrial refrigeration equipment used by food and beverage processors include the freezing, storing, and warehousing of meats, fish, fruits, and vegetables; freezing of fruit juice concentrates; and controlling process temperatures in brewing and wine-making, and in soft drink carbonization, where the temperature of water is regulated to absorb a controlled quantity of carbon dioxide. In addition, FES manufactures screw-compressor packages used to cool inlet air for gas turbine generators at utilities. FES supplies custom-designed industrial refrigeration packages to petrochemical, pharmaceutical, and related industries for integration into their plants' refrigeration systems. These higher-cost packages require significant design engineering and are used in a wide variety of applications, such as chilling brine that cools chemicals used in the production of penicillin. In another application of a custom package, FES units are used to chill and condense toxic effluent gases normally released to flare. Approximately 83% of FES sales are of industrial refrigeration packages, of which 63% are standard units for the food and beverage industry, and approximately 37% are of custom units for the petrochemical and pharmaceutical industries. The average price for a standard food and beverage refrigeration package is approximately $50,000, and a representative price for a custom unit would be approximately $400,000, although prices for these units often exceed $1 million. FES refrigeration packages can be designed for use with any common refrigerant, but the majority of FES's units operate on ammonia. FES's utilization of ammonia, a cost-effective and environmentally safe substance compared with conventional chlorofluorocarbon (CFC)-based refrigerants, places FES in a leadership position to target the reduction of CFC systems. The production of CFCs was phased out in January 1996. Ammonia does not harm the ozone layer, costs much less than conventional refrigerants, and is widely available on a global basis. The Company's NuTemp subsidiary is a supplier of both remanufactured and new industrial refrigeration equipment for sale or rental. NuTemp serves numerous markets with its industrial refrigeration equipment, including the food-processing, petrochemical, and pharmaceutical industries. Ongoing retrofit programs to replace CFC-based equipment continue to provide a temporary rental business for NuTemp. One of NuTemp's key services is responding to emergency cooling situations by providing large-tonnage-capacity refrigeration equipment on short notice. The demand for NuTemp's equipment is typically highest in the summer period and can be adversely affected by cool summer weather. 6PAGE NuTemp also buys new and surplus commercial cooling equipment, which is remanufactured for sale or rental. NuTemp's customers in the commercial cooling industry include institutions, commercial building owners, and service contractors. The commercial cooling industry is currently coming into compliance with the Montreal Protocol which prohibits the production of CFC refrigerants effective January 1996. This retrofit process is creating an increase in the rental market for NuTemp's commercial cooling systems, which operate on alternative refrigerants, while customers install new equipment. Its commercial cooling equipment is used primarily in institutions and commercial buildings, as well as by service contractors. Revenues from industrial refrigeration packages were $65,205,000, $66,565,000, and $55,193,000 in fiscal 1997, 1996, and 1995, respectively. Engines Marine Engines. The Company's Crusader Engines division manufactures, markets, and services inboard marine engines and accessories both to OEM (original equipment manufacturer) boat companies and to a network of distributors who support dealers servicing Crusader's products in the field. Crusader's key customers are OEM manufacturers of the "cruiser" class boats and yachts, generally ranging in size from 25 to 45 feet in length. The purchase price of boats containing Crusader engines typically is in the $50,000 to $250,000 range. In fiscal 1997, sales to Crusader's top two customers accounted for approximately 44% of Crusader's marine engine sales. Revenues from marine engines were $17,007,000, $18,659,000, and $21,536,000 in fiscal 1997, 1996, and 1995, respectively. TecoDrive Gasoline and Natural Gas Engines for Vehicles. The Company's extensive development work on gasoline and dedicated compressed natural gas (CNG) engines has resulted in sales of a number of its TecoDrive engines for use in school buses, package-delivery vehicles, and other fleet vehicles. The CNG engines feature substantially lower emissions than other commercially available gasoline or natural gas engines. TecoDrive Natural Gas Engines for Industrial Applications. The Company manufactures natural gas engines for stationary and industrial applications. As a result of the positive response the Company has received from its customers in the industrial market, the Company has developed TecoDrive engines for other stationary applications, such as powering air and gas compressors. There are now four OEM manufacturers incorporating the Company's TecoDrive engines into their natural gas compressors for NGV refueling. Propane and Gasoline Engines for Lift Trucks. The Company manufactures 3.0-, 4.3-, 5.7-, and 7.4-liter propane and gasoline engines for installation into lift trucks. The Company sells lift truck engines to material handling equipment manufacturers and other lift-truck manufacturers. 7PAGE Cooling and Cogeneration Systems The Company designs, develops, manufactures, markets, and services packaged cooling and cogeneration systems fueled principally by natural gas for sale to a wide range of commercial, institutional, industrial, and multi-unit residential users. Many of these products are powered by the Company's dedicated TecoDrive natural gas engines. The Company's Tecochill commercial cooling and Tecogen(R) cogeneration products incorporate several proprietary features that are the result of the Company's advances in engine, thermal, and control technologies. One such proprietary feature is the Company's microprocessor-based control module, which automates the operation of such systems and can also include remote control, monitoring, and diagnostic capabilities. The standardized design of the Company's products also enable rapid installation and startup, facilitate maintenance, and allow competitive delivery time. The Company supports its customers by offering a comprehensive maintenance contract under which the Company assumes responsibility for substantially all maintenance, repairs, and replacement parts. The cost savings that result from use of the Company's packaged cooling and cogeneration systems are directly related to the retail price of electricity. In the past few years, electricity prices have declined in many areas, and rates remain relatively low on a historical basis in most regions. Given prevailing rate structures, demand for the Company's cooling and cogeneration systems has been less than anticipated. Tecochill Cooling Systems. The Company entered the gas-fueled cooling business by introducing its 150-ton gas-fueled cooling unit in 1988. The Company's Tecochill units are powered by the same TecoDrive engine used in the Company's small-scale cogeneration systems. Tecochill products are equipped with microprocessor controls allowing fully automated, unattended operation. Tecochill units can be programmed to run at different speeds to follow variable cooling loads for greater efficiency than conventional electric motor-driven air conditioners that run at a constant speed. These units are self-contained packages that are delivered to customer sites as finished products for standard installation. Tecochill units can be fitted with optional heat-recovery packages yielding hot water. The Company is currently offering additional gas-fueled air conditioning equipment for use in multi-unit residential buildings, nursing homes, hospitals, and similar institutions. Although the purchase price of the Company's Tecochill units is approximately 100-200% higher than that of electric motor-driven air conditioners of comparable sizes, lower operating costs associated with the use of Tecochill units generally lead to payback of the incremental capital cost in approximately four years. The average expected useful life of a Tecochill unit is comparable to that of an electric motor-driven air conditioner, typically 15 years. Sponsored Research and Development. The Company conducts research and development supported by outside sponsors. Revenues from sponsored research and development contracts were $4,688,000, $5,836,000, and 8PAGE $4,917,000 in fiscal 1997, 1996, and 1995, respectively. See "Research and Development." Regulation The demand for most of the Company's products is affected by various federal, state, and local energy and environmental laws and regulations. All of these laws and regulations are subject to revocation or amendment, and the Company cannot predict what effect revocation or amendment may have on the Company's sales, business, or operations. Traffic Products Demand for the Company's traffic products in the U.S. may be influenced by the Intermodal Surface Transportation Efficiency Act (ISTEA), which provides significant funding in the U.S. for intermodal surface transportation and advanced traffic management systems. The ISTEA has been extended through March 31, 1998. The failure of ISTEA to be further extended or reauthorized could adversely effect the Company's business. Industrial Refrigeration Systems The Company's ammonia-based refrigeration equipment and alternative-refrigerant commercial cooling systems benefit from the worldwide phaseout of CFC refrigerants. The Montreal Protocol was negotiated in 1987 under the sponsorship of the United Nations Environmental Program (UNEP) to protect the ozone layer. This agreement establishes a process to control substances that could deplete the ozone layer, including CFCs. Regulations have been promulgated by the EPA implementing these protocols in this country through limits on the production and consumption of CFCs and other ozone-depleting substances. Engines The market for the Company's TecoDrive natural gas engine is influenced by federal legislation that allows states to establish programs encouraging the use of alternative fuels, including natural gas, methanol, and ethanol. Many states have some type of alternative-fuel vehicles commission, legislation, or tax incentives. Natural gas is one of many alternative fuels that is addressed by these laws and regulations. Others include methanol, ethanol, liquefied petroleum gas, hydrogen, electricity, and reformulated gasoline. There can be no assurance that natural gas will become a preferred alternative fuel for vehicles or that existing and future laws or regulations, or their enforcement, will create material long-term demand for NGVs. Cooling and Cogeneration Systems The passage by Congress of the Public Utility Regulatory Policies Act of 1978 (PURPA), the adoption of regulations thereunder by the Federal Energy Regulatory Commission (FERC), and related state laws and regulations provide incentives for the development of qualifying 9PAGE small-power production and cogeneration systems such as those offered by the Company. PURPA and FERC regulations promulgated thereunder address three issues of importance to users that own or operate cogeneration systems, including those sold by the Company. First, PURPA exempts qualifying users from many federal and state regulations that pertain to electric utilities. Second, PURPA requires electric utilities to allow qualifying cogeneration providers to connect their cogeneration facilities to utilities' electric power systems. This mandatory connection enables users to purchase utility-generated electricity to start their cogeneration systems and assures users of a back-up source of electricity during peak periods of use and when the cogeneration systems are shut down for maintenance and repair. Third, PURPA requires utilities to purchase electricity produced by qualifying cogeneration providers at a price equivalent to utilities' avoided costs. Like all electric power-generating and other fossil fuel-burning systems, the Company's cooling and cogeneration products must comply with federal, state, and local environmental laws and regulations. Regulation of systems such as those sold by the Company is conducted primarily at the state and local level, where standards can vary. In particular, applicable environmental standards in California are stricter than comparable federal guidelines. The Company believes that its existing Tecochill and other Tecogen products comply with applicable federal and state environmental standards, including those currently in effect in California, although the Company cannot predict whether its products will comply with all environmental standards promulgated in the future. (ii) New Products The Company acquired Peek in November 1997. Peek's principal products are described above under "Description of Business--Principal Products and Services." The ThermoLyte family of lighting products is based on the Company's patented technology for a rigid mantle, the "bulb" in gas lights. This durable mantle allows the Company to design products that are portable, and use propane as a power source instead of batteries. Using propane offers several advantages over batteries, including a potentially infinite shelf life, substantially longer operating hours, constant brightness, and no battery disposal. ThermoLyte has introduced a line of propane-powered accent lights to the marketplace through the L.L. Bean store in Freeport, Maine. The accent light is a decorative, contemporary-style area light suitable for providing an alternative to candles, oil lamps, or battery-powered lights in the home or backyard. The Company is in the process of developing trade channels through which the Company will sell its accent lights, such as through home shopping - both through catalogs and television, partnerships with other major retailers, and selling over the Internet. (iii) Raw Materials The Company purchases engine blocks for its marine and certain other engines, as well as engines for certain of its smaller cooling and 10PAGE cogeneration products, from one supplier. It does not have a firm contract with this supplier. The Company generally maintains inventories of engine blocks sufficient to meet its needs for a three-month period. However, the inability of the Company to obtain either engines or engine blocks from this supplier would have a material adverse effect upon the Company's operations. (iv) Patents, Licenses, and Trademarks The Company considers its patents and licenses to be important in the present operation of its business. The Company, however, does not consider any one of its patents or related group of patents to be of such importance that its expiration, termination, or invalidity would materially affect the Company's business. The Company has research and development arrangements with the natural gas industry and various governmental agencies, and is required to pay royalties for any technologies developed or products commercialized under several of these arrangements. (v) Seasonal Influences Crusader's marine engine sales historically have been stronger in the first quarter of each calendar year, when boat builders purchase engines for boats to be sold for the upcoming boating season. Sales of marine engines generally decline gradually during the last three quarters of the calendar year, reaching their lowest levels in the fourth quarter. In addition, the demand for NuTemp's equipment is typically highest in the summer period and can be adversely affected by cool summer weather. There are no significant seasonal influences in the Company's other lines of business. (vi) Working Capital Requirements There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. (vii) Dependency on a Single Customer No single customer accounted for more than 10% of the Company's total revenues in fiscal 1997. In fiscal 1997, revenues from two customers accounted for 13% and 12% of Engines segment revenues. The loss of one or both of these customers would have a material adverse effect on the Engines segment. (viii) Backlog The backlog of firm orders for the Company's Peek subsidiary was approximately $80.2 million as of October 31, 1997. The backlog of firm orders for the Industrial Refrigeration Systems segment was $15.7 million as of September 27, 1997, compared with $22.2 million as of September 28, 1996. The backlog of firm orders for the Engines segment was $1.7 million as of September 27, 1997, compared with $1.0 million as of September 28, 11PAGE 1996. The backlog of firm orders for the Cooling and Cogeneration Systems segment was $2.5 million as of September 27, 1997, compared with $4.0 million as of September 28, 1996. The decrease in backlog for the Industrial Refrigeration Systems segment was primarily due to two large orders at fiscal year-end 1996. A significant portion of the Company's sales within the Industrial Refrigeration and Engines segments are large orders, the timing of which can lead to variability in the Company's quarterly revenues and net income. The Company believes that the majority of this backlog will be shipped during fiscal 1998. The Company does not believe that the size of its backlog is necessarily indicative of intermediate- or long-term trends in its business. (ix) Government Contracts Certain of the Company's contracts or subcontracts, in particular those of the Company's recently acquired Peek subsidiary, are with governmental entities and are subject to renegotiation of profits or termination. There are, however, no pending or, to the Company's knowledge, threatened renegotiations or terminations that are material to the Company. (x) Competition The Company experiences competition in most of its product lines. Additional competition may arise if markets in which the Company is active develop significantly. The Company is aware of several competitors for its product lines, some of whom have financial, marketing, and other resources greater than those of the Company. Traffic Products The market for traffic products and services is extremely competitive, and the Company expects that competition will continue to increase. The Company believes that the principal competitive factors in the traffic industry are price, functionality, reliability, service and support, and vendor and product reputation. The Company believes that its ability to compete successfully will depend on a number of factors both within and outside its control, including the pricing policies of its competitors and suppliers, the timing and quality of products introduced by the Company and others, the Company's ability to maintain a strong reputation in the traffic industry, and industry and general economic trends. The Company believes that it is a leading manufacturer and supplier of traffic products and considers its major competitor to be Siemens AG. However, the traffic market is highly fragmented and competition varies significantly depending on the individual product. The Company's competitors in the field measurement market include Air Monitor Corporation, Milltronics Limited, Panametrics, Inc., and Solartron Limited, a subsidiary of The Roxboro Group PLC. 12PAGE Industrial Refrigeration Systems The Company's sale of industrial refrigeration systems is subject to intense competition. The industrial refrigeration market is mature, highly fragmented, and extremely dependent on close customer contacts. Major industrial refrigeration companies, of which FES is one, account for approximately one-half of worldwide sales, with the balance generated by many smaller companies. The worldwide market is characterized by strong local manufacturers. The market leader worldwide, as well as in North America, is Frick Company and its affiliates, subsidiaries of York International Corporation (York). The Company believes that FES competes on the basis of its advanced control systems and overall quality, reliability, service, and to a lesser extent, price. The Company believes NuTemp is a leader in remanufactured refrigeration equipment. As part of its rental program, NuTemp offers an option to buy its equipment, a service that is unique in the industry. NuTemp's largest competitor is Aggreko, a subsidiary of Christian Salvesen PLC. Aggreko is a major supplier of rental equipment for the industrial refrigeration and commercial cooling markets. The Company believes that NuTemp competes on the basis of price, delivery time, and customized equipment. Engines Competition in the CNG vehicle and alternative-fuel engine markets is intense, and current or potential competitors in some or all segments of these markets include major automotive and natural gas companies and other companies that have greater financial resources than those of the Company. The Company believes it has the second largest share of the inboard marine engine market for "cruiser" class boats and yachts in the United States, behind the Mercury division of Brunswick Corporation. Crusader has experienced intense competition in the marine engine business in recent years, primarily from vertical integration of boat and engine manufacturers that has led to the acquisition of former Crusader customers by competing engine manufacturers. The Company believes that Crusader competes on the basis of quality, reliability, service, and pricing. Cooling and Cogeneration Systems The Company's Tecochill products are subject to competition from absorption air conditioning systems and electric motor-driven vapor compressor systems. Other manufacturers of natural gas-fueled engine-driven cooling systems have also entered the market. The Company believes it competes with producers of conventional cooling equipment on the basis of relative operating costs at times of peak electrical demand, and with other producers of natural gas-fueled cooling systems on the basis of quality, reliability, service, operational savings, and track record. 13PAGE In 1995, York entered the gas-engine cooling market, in partnership with Caterpillar Inc., and is a major competitor in large-capacity (+400 tons) cooling equipment. However, the Company's most competitive range is in smaller-capacity equipment. The Company's sale of cogeneration systems is subject to intense competition, both direct and indirect. Direct competitors consist of companies that sell cogeneration products resembling those sold by the Company. In addition, electric utility pricing programs provide competition for the Company's cogeneration products. Indirect competitors include manufacturers of conventional water heaters, air conditioners, and electric generator sets, since the economic benefits of the Company's cogeneration and cooling systems depend on the cost of conventional energy systems. The Company believes that it competes on the basis of several factors, including product quality and reliability, operational savings, ease of installation, service, and pricing. The Company's sponsored research and development is also subject to intense competition from many larger and smaller firms, universities, and other private and public research facilities. The Company competes for sponsored research and development contracts on the basis of several factors, including technical expertise, market experience, and past performance. (xi) Research and Development The Company has conducted research and development on applications of thermal energy for more than 30 years. The Company's research and development capability and expertise in engine, instrumentation, control, and heat-recovery technologies have enabled it to obtain support from outside sponsors, develop new products, and support existing products. The Company has experienced a decrease in sponsored research and development due to a reduction in funding. See "Description of Business -- Principle Products and Services -- Cooling and Cogeneration Systems." The Company's sponsored programs have been supported principally by the domestic natural gas industry and the federal government. Within the natural gas industry, the Company's principal sponsors have been the Gas Research Institute (GRI) and the Southern California Gas Company, which is the nation's largest gas utility. The Company has also obtained research and development funding from state governments and industrial companies. Sponsors of the Company's research and development generally own the rights to technology that is developed under these programs. During fiscal 1997, 1996, and 1995, the Company spent $2,296,000, $3,214,000, and $3,065,000, respectively, on internally funded research and development, and $3,776,000, $4,475,000, and $3,548,000, respectively, on research and development sponsored by others. In addition, in calendar 1996, Peek continued development of Videotrak video camera and commenced development of Peek Guardian camera and a motorway outstation to meet new Dutch specifications. Peek also continued to develop and enhance other traffic and field measurement products. In calendar 1996, Peek spent approximately $11.1 million on 14PAGE internally funded research and development, excluding research and development from businesses sold in 1996 and 1997. (xii) Environmental Protection Regulations The Company believes that compliance with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xiii) Number of Employees As of September 27, 1997, the Company employed approximately 486 people. Approximately 36 employees at the Company's Crusader division are represented by a labor union under a three-year collective bargaining agreement which expired on October 15, 1997, and has been extended for one year. The Company has experienced no work stoppages, and considers its relations with employees to be good. In addition, the Company's Peek subsidiary employed 1,486 employees as of September 27, 1997. Of these employees, 382 were located in The Netherlands, Denmark, Finland, and Sweden, and, in accordance with applicable law, were represented by a labor union. Peek has experienced no work stoppages and believes that its relations with its employees are good. (d) Financial Information about Exports by Domestic Operations Financial information about exports by domestic operations is summarized in Note 11 to Consolidated Financial Statements in the Registrant's Fiscal 1997 Annual Report to Shareholders, which information is incorporated herein by reference. (e) Executive Officers of the Registrant Present Title (Year First Became Executive Name Age Officer) ---------------------------------------------------------------------- J. Timothy Corcoran 51 President and Chief Executive Officer (1992) John N. Hatsopoulos 63 Chief Financial Officer and Vice President (1988) Paul F. Kelleher 55 Chief Accounting Officer (1985) 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. Mr. Corcoran has been Chief Executive Officer of the Company since October 1996, and President since April 1995. From November 1992 to April 1995, Mr. Corcoran was a Vice President of the Company, and has been President of FES since June 1990. Mr. Corcoran is a full-time employee of the Company, and Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require. 15PAGE Item 2. Properties The location and general character of the Company's principal properties by industry segment as of September 27, 1997, are as follows: Industrial Refrigeration Systems The Company owns approximately 157,000 square feet of office and manufacturing space in York, Pennsylvania, subject to a mortgage on the property, and approximately 15,000 square feet of manufacturing space in Humble, Texas. The Company also occupies approximately 164,000 square feet of office and manufacturing space in Chicago, Illinois, under a lease expiring in 2006. Engines The Company occupies approximately 104,000 square feet of manufacturing, engineering, and office space in Sterling Heights, Michigan, under leases expiring in 2000 and 2004. Cooling and Cogeneration Systems The Company occupies approximately 40,000 square feet of office and laboratory space in Waltham, Massachusetts, under an agreement providing for the sublease of the facility from Thermo Electron expiring in 2002. In addition, the Company leases approximately 8,000 square feet of office and manufacturing space in Salisbury, Maryland, under a lease agreement with an unrelated party expiring in 1999. In addition, the location and general character of the principal properties of the Company's Peek subsidiary, which was acquired in November 1997, are as follows: Peek owns an office and manufacturing facility of approximately 37,846 square feet in Winchester, Hampshire, in the United Kingdom. Peek also occupies approximately 78,585 square feet of office and manufacturing space in Hilversum, The Netherlands, pursuant to a lease agreement expiring in 1998. Peek intends to relocate its Hilversum operations to Amersfoort, The Netherlands, in 1998 and is currently negotiating a lease. Peek leases approximately 32,500 square feet of office and manufacturing space in Tallahassee, Florida, pursuant to a lease agreement expiring in 2004, and approximately 28,800 square feet of office and manufacturing space in Houston, Texas, pursuant to a lease agreement expiring in 2000. In addition, Peek owns approximately 96,300 additional square feet of manufacturing and office space worldwide and leases approximately 261,200 additional square feet of manufacturing and office space worldwide pursuant to lease arrangements that expire between 1998 and 2020. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 16PAGE 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 related matters, is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's Fiscal 1997 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 Fiscal 1997 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 Fiscal 1997 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 September 27, 1997, and Supplementary Data are included in the Registrant's Fiscal 1997 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable. 17PAGE 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. 18PAGE 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. 19PAGE 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 by the undersigned, thereunto duly authorized. Date: December 4, 1997 THERMO POWER CORPORATION By: J. Timothy Corcoran ----------------------------- J. Timothy Corcoran President and 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 December 4, 1997. Signature Title --------- ----- By:J. Timothy Corcoran President, Chief Executive Officer, --------------------------- and Director J. Timothy Corcoran 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:Arvin H. Smith Chairman of the Board and Director --------------------------- Arvin H. Smith By:Marshall J. Armstrong Director --------------------------- Marshall J. Armstrong By:Peter O. Crisp Director --------------------------- Peter O. Crisp By:Donald E. Noble Director --------------------------- Donald E. Noble 20PAGE Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Power Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Power Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 31, 1997 (except with respect to the matter discussed in Note 13 as to which the date is November 19, 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 19 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 consolidated 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 October 31, 1997 21PAGE SCHEDULE II THERMO POWER CORPORATION Valuation and Qualifying Accounts (In thousands) Balance Provision at Charged Accounts Balance Beginning to Accounts Written at End Description of Year Expense Recovered Off of Year --------------------------------------------------------------------------- Allowance for Doubtful Accounts Year Ended September 27, 1997 $ 589 $ 252 $ 3 $ (87) $ 757 Year Ended September 28, 1996 $ 530 $ 191 $ 26 $ (158) $ 589 Year Ended September 30, 1995 $ 590 $ 3 $ 16 $ (79) $ 530 22PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 3.1 Articles of Organization of the Registrant, as amended (filed as Exhibit 3(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993 [File No. 1-10573] and incorporated herein by reference). 3.2 By-laws of the Registrant, as amended (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 2, 1993 [File No. 1-10573] and incorporated herein by reference). 4.1 Specimen Common Stock Certificate (filed as Exhibit 4(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 2, 1993 [File No. 1-10573] and incorporated herein by reference). 10.1 $160,000,000 Promissory Note dated as of November 17, 1997, issued by the Registrant to Thermo Electron (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated November 6, 1997 [File No. 1-10573] and incorporated herein by reference). 10.2 Amended and Restated Corporate Services Agreement between the Registrant and Thermo Electron, dated as of January 3, 1993 (filed as Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 26, 1992 [File No. 1-10573] and incorporated herein by reference). 10.3 First Amendment to Lease dated September 30, 1994, between the Registrant and Thermo Electron Corporation (filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 1, 1994 [File No. 1-10573] and incorporated herein by reference). 10.4 Form of Indemnification Agreement between the Registrant and its directors and officers (filed as Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-14017] and incorporated herein by reference). 10.5 Tax Allocation Agreement dated September 25, 1985, between the Registrant and Thermo Electron (filed as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 3, 1987 [File No. 0-15920] and incorporated herein by reference). 10.6 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10(n) to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 26, 1992 [File No. 1-10573] and incorporated herein by reference). 23PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.7 Master Repurchase Agreement dated January 1, 1994, between the Registrant and Thermo Electron Corporation. 10.8 Master Reimbursement Agreement dated as of January 2, 1994, between the Registrant and Thermo Electron Corporation (filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 1, 1994 [File No. 1-10573] and incorporated herein by reference). 10.9 Lease, dated as of January 20, 1988, between Thermo Electron Corporation and Michael I. Gilson, Trustee (subsequently assigned to the Registrant; filed as Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 26, 1992 [File No. 1-10573] and incorporated herein by reference). 10.10 Agreement, dated October 15, 1991, between Thermo Electron Corporation and International Union, United Automobile, Aerospace and Agricultural Implement Workers of America Local 203 (subsequently assigned to the Registrant) (filed as Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 26, 1992 [File No. 1-10573] and incorporated herein by reference). 10.11 Form of Redemption Rights of ThermoLyte Corporation and related Guarantee of Thermo Electron Corporation (filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 10.12 Guarantee Agreement between ThermoLyte Corporation and Thermo Electron Corporation (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 10.13 Incentive Stock Option Plan of the Registrant, as amended (filed as Exhibit 10(h) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993 [File No. 1-10573] 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 950,000 shares, after adjustment to reflect share increases approved in 1990, 1992, and 1993.) 24PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.14 Nonqualified Stock Option Plan of the Registrant, as amended (filed as Exhibit 10(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993 [File No. 1-10573] 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 950,000 shares, after adjustment to reflect share increases approved in 1990, 1992, and 1993.) 10.15 Equity Incentive Plan of the Registrant (filed as Attachment A to the Proxy Statement dated February 18, 1994, of the Registrant [File No. 1-10573] and incorporated herein by reference). 10.16 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(k) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-14017] and incorporated herein by reference). 10.17 Directors' Stock Option Plan of the Registrant, as amended (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 1, 1995 [File No. 1-10573] and incorporated herein by reference). 10.18 ThermoLyte Corporation Equity Incentive Plan (filed as Exhibit 10.71 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 10.19 Thermo Power - ThermoLyte Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.84 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). 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 such affiliated corporations. Thermo Electron's plans were filed as Exhibits 10.21 through 10.45 to the Annual Report on Form 10-K of Thermo Electron for the year ended December 28, 1996 [File No. 1-8002] and are incorporated herein by reference. 10.20 Amended and Restated Stock Holding Assistance Plan and Form of Promissory Note. 25PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 13 Annual Report to Shareholders for the fiscal year ended September 27, 1997 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Scehdule. EX-10.7 2 EXHIBIT 10.7 MASTER REPURCHASE AGREEMENT AGREEMENT dated as of the 1st day of January, 1994 between Thermo Electron Corporation, a Delaware corporation ("Seller"), and Thermo Power Corporation, a Massachusetts corporation (the "Buyer"). 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. 2PAGE 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 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. 3PAGE 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 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 4PAGE 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 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 5PAGE (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 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. (f) 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. (g) 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. 6PAGE 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 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. 19. 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 7PAGE as described in Sections 555 and 559 of Title 11 of the United States Code, as amended. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THERMO ELECTRON CORPORATION THERMO POWER CORPORATION By: /s/ Melissa F. Riordan By: /s/ J. Timothy Corcoran Melissa F. Riordan J. Timothy Corcoran Treasurer President EX-10.20 3 EXHIBIT 10.20 THERMO POWER CORPORATION RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Power Corporation (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 Power Corporation, a Massachusetts 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 Power Corporation 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 interpretations and decisions with regard to the Plan and the PAGE 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 on the fifth anniversary of the date of the Loan, provided that the Committee may, in its sole and 2PAGE 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. The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. 3PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO POWER CORPORATION Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Power Corporation (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), 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 to the Company from the Employee's annual cash incentive compensation (referred to as bonus), 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 occurring prior to the Maturity Date, such amount as may be designated by the Company but which shall not exceed 20% of the Employee's bonus payment. 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; 4PAGE (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 Commonwealth of Massachusetts and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-13 4 Exhibit 13 THERMO POWER CORPORATION Consolidated Financial Statements Fiscal Year 1997 PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Statement of Income Year Ended ------------------------------------ (In thousands except Sept. 27, Sept. 28, Sept. 30, per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Revenues (Note 12) $121,046 $120,736 $103,255 -------- -------- -------- Costs and Operating Expenses: Cost of revenues 99,154 100,379 79,823 Selling, general, and administrative expenses (Note 6) 16,926 16,739 15,886 Research and development expenses 2,296 3,214 3,065 -------- -------- -------- 118,376 120,332 98,774 -------- -------- -------- Operating Income 2,670 404 4,481 Interest Income 1,829 1,714 1,919 Interest Expense (18) (26) (23) Gain on Sale of Investments, Net (includes $53, $469, and $768 on sale of related-party investments; Notes 2 and 6) 53 208 730 -------- -------- -------- Income Before Income Taxes and Minority Interest 4,534 2,300 7,107 Provision for Income Taxes (Note 5) 2,118 1,103 2,737 Minority Interest Expense 312 312 182 -------- -------- -------- Net Income $ 2,104 $ 885 $ 4,188 ======== ======== ======== Earnings per Share $ .17 $ .07 $ .34 ======== ======== ======== Weighted Average Shares 12,212 12,466 12,372 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Balance Sheet Sept. 27, Sept. 28, (In thousands) 1997 1996 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 19,347 $ 29,852 Available-for-sale investments, at quoted market value (amortized cost of $9,129 and $6,022; Notes 2 and 6) 9,171 6,028 Accounts receivable, less allowances of $757 and $589 21,012 18,054 Unbilled contract costs and fees 4,856 7,110 Inventories 19,884 18,637 Prepaid income taxes (Note 5) 3,118 2,921 Other current assets 219 324 -------- -------- 77,607 82,926 -------- -------- Rental Assets, at Cost, Net 10,276 9,980 -------- -------- Property, Plant, and Equipment, at Cost, Net 10,591 9,767 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,301 and $210; Notes 2, 6, and 13) 2,200 184 -------- -------- Other Assets 236 345 -------- -------- Cost in Excess of Net Assets of Acquired Companies 7,082 7,509 -------- -------- $107,992 $110,711 ======== ======== 3PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Balance Sheet (continued) Sept. 27, Sept. 28, (In thousands except share amounts) 1997 1996 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Accounts payable $ 9,622 $ 14,005 Accrued payroll and employee benefits 3,133 2,832 Billings in excess of contract costs and fees 1,353 1,017 Accrued warranty costs 3,435 2,323 Accrued income taxes 1,620 713 Other accrued expenses 3,240 3,806 Due to parent company and affiliated companies 496 511 -------- -------- 22,899 25,207 -------- -------- Deferred Income Taxes (Note 5) 114 84 -------- -------- Long-term Obligations (Notes 9 and 10) 252 305 -------- -------- Commitments (Notes 6 and 7) Common Stock of Subsidiary Subject to Redemption ($18,450 redemption value) 18,059 17,747 -------- -------- Shareholders' Investment (Notes 4 and 8): Common stock, $.10 par value, 30,000,000 shares authorized; 12,493,371 and 12,487,149 shares issued 1,249 1,249 Capital in excess of par value 55,283 54,448 Retained earnings 13,811 11,707 Treasury stock at cost, 578,124 and 2,724 shares (3,636) (23) Net unrealized loss on available-for-sale investments (Note 2) (39) (13) -------- -------- 66,668 67,368 -------- -------- $107,992 $110,711 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Statement of Cash Flows Year Ended ----------------------------------- Sept. 27, Sept. 28, Sept. 30, (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Operating Activities Net income $ 2,104 $ 885 $ 4,188 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,156 3,033 2,082 Provision for losses on accounts receivable 252 191 3 Minority interest expense 312 312 182 Gain on sale of investments, net (Notes 2 and 6) (53) (208) (730) Deferred income tax expense (benefit) (403) 372 62 Other noncash items 3 - (191) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (3,210) 216 (4,568) Inventories (1,247) 1,769 (7,889) Unbilled contract costs and fees 2,254 (766) (992) Other current assets 105 428 (786) Accounts payable (4,383) 740 3,333 Other current liabilities 3,318 238 196 -------- -------- -------- Net cash provided by (used in) operating activities 2,208 7,210 (5,110) -------- -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 3) - (860) (2,500) Purchases of available-for-sale investments (11,301) (5,000) (365) Proceeds from sale and maturities of available-for-sale investments 6,000 8,982 9,074 Proceeds from sale of related-party investments (Note 6) 262 852 1,599 Increase in rental assets (3,191) (4,849) (3,865) Proceeds from sale of rental assets 1,522 2,268 1,017 Purchases of property, plant, and equipment (2,431) (2,713) (2,101) Other 21 140 273 -------- -------- -------- Net cash provided by (used in) investing activities $ (9,118) $ (1,180) $ 3,132 -------- -------- -------- 5PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Statement of Cash Flows (continued) Year Ended ------------------------------------ Sept. 27, Sept. 28, Sept. 30, (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Financing Activities: Net proceeds from issuance of Company and subsidiary common stock $ 71 $ 377 $ 18,064 Repurchases of Company common stock (3,613) - - Repayment of long-term obligations (53) (59) (56) -------- -------- -------- Net cash provided by (used in) financing activities (3,595) 318 18,008 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents (10,505) 6,348 16,030 Cash and Cash Equivalents at Beginning of the Year 29,852 23,504 7,474 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 19,347 $ 29,852 $ 23,504 ======== ======== ======== Cash Paid for: Interest $ 18 $ 26 $ 23 Income taxes $ 445 $ 894 $ 2,796 Noncash Investing Activities: Fair value of assets of acquired companies $ - $ 860 $ 2,500 Cash paid for acquired companies - (860) (2,500) -------- -------- -------- Liabilities assumed of acquired companies $ - $ - $ - ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Power Corporation 1997 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1997 1996 1995 ---------------------------------------------------------------------- Common Stock, $.10 Par Value Balance at beginning of year $ 1,249 $ 1,248 $ 1,243 Issuance of stock under employees' and directors' stock plans - 1 5 ------- ------- ------- Balance at end of year 1,249 1,249 1,248 ------- ------- ------- Capital in Excess of Par Value Balance at beginning of year 54,448 53,898 53,211 Issuance of stock under employees' and directors' stock plans 71 58 534 Tax benefit related to employees' and directors' stock plans (Note 5) 764 492 153 ------- ------- ------- Balance at end of year 55,283 54,448 53,898 ------- ------- ------- Retained Earnings Balance at beginning of year 11,707 10,822 6,634 Net income 2,104 885 4,188 ------- ------- ------- Balance at end of year 13,811 11,707 10,822 ------- ------- ------- Treasury Stock Balance at beginning of year (23) (341) (613) Purchases of Company common stock (3,613) - - Issuance of stock under employees' and directors' stock plans - 318 272 ------- ------- ------- Balance at end of year (3,636) (23) (341) ------- ------- ------- Net Unrealized Loss on Available-for- sale Investments Balance at beginning of year (13) 198 - Effect of change in accounting principle (Note 2) - - 268 Change in net unrealized loss on available-for-sale investments (Note 2) (26) (211) (70) ------- ------- ------- Balance at end of year (39) (13) 198 ------- ------- ------- Total Shareholders' Investment $66,668 $67,368 $65,825 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 7PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Power Corporation (the Company) manufactures, markets, and services industrial refrigeration equipment, natural gas engines for vehicular and stationary applications, marine engines, fork-lift engines, and natural gas-fueled commercial cooling and cogeneration systems. The Company also conducts research and development on applications of thermal energy and rents commercial cooling and industrial refrigeration equipment. In addition, the Company is developing and commercializing various gas-powered lighting products. Relationship with Thermo Electron Corporation The Company was incorporated on June 6, 1985, as a wholly owned subsidiary of Thermo Electron Corporation. As of September 27, 1997, Thermo Electron owned 8,127,906 shares of the Company's common stock, representing 68% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries, and its 78%-owned privately held subsidiary, ThermoLyte Corporation. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest September 30. References to fiscal 1997, 1996, and 1995 are for the fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995, respectively. Revenue Recognition The Company recognizes revenues upon shipment of its products or upon completion of services it renders, and recognizes rental revenues on a straight-line basis over the term of the rental contract. The Company provides a reserve for its estimate of warranty costs at the time of shipment. Revenues and profits on contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage- of-completion method, including revenues from research and development contracts, were $60,590,000 in fiscal 1997, $57,842,000 in fiscal 1996, and $53,045,000 in fiscal 1995. The percentage of completion is determined by relating the actual costs incurred to date to management's estimate of total costs to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. Contracts at the Company's FES division generally provide for the billing of customers on a fixed-price basis upon contract completion. Contracts at the Company's Tecogen division generally provide for the billing of customers on a cost-plus-fixed-fee basis as costs are incurred. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees, and amounts billed in excess of revenues are classified as billings in excess of contract costs and fees in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected 8PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. Research and Development Arrangements The Company has research and development arrangements with the natural gas industry and various government agencies. Revenues in the accompanying statement of income include $4,688,000, $5,836,000, and $4,917,000 and cost of revenues include $3,776,000, $4,475,000, and $3,548,000 related to these arrangements in fiscal 1997, 1996, and 1995, respectively. The Company is required to pay royalties for any technologies developed or products commercialized under several of these arrangements. Selling, general, and administrative expenses in the accompanying statement of income include royalty expense related to these arrangements of $65,000, $71,000, and $51,000 in fiscal 1997, 1996, and 1995, respectively. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share Earnings per share have been computed based on the weighted average number of shares outstanding during the year. Because the effect of the assumed exercise of stock options would be immaterial, they have been excluded from the earnings per share calculation. Cash and Cash Equivalents As of September 27, 1997, $17,994,000 of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of U.S. government-agency securities, corporate notes, commercial paper, money market funds, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily 9PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Cash equivalents are carried at cost, which approximates market value. Available-for-sale Investments Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective October 2, 1994, the Company's debt and marketable equity securities are accounted for at market value (Note 2). Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1997 1996 ------------------------------------------------------------------------ Raw materials and supplies $17,570 $16,233 Work in process and finished goods 2,314 2,404 ------- ------- $19,884 $18,637 ======= ======= Rental Assets The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation on rental assets over an estimated useful life of seven years. Accumulated depreciation was $3,369,000 and $2,378,000 at fiscal year-end 1997 and 1996, respectively. Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings, 40 years; machinery and equipment, 3 to 12 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of the following: (In thousands) 1997 1996 ------------------------------------------------------------------------ Land $ 252 $ 252 Buildings 5,731 5,558 Machinery, equipment, and leasehold improvements 13,654 11,770 ------- ------- 19,637 17,580 Less: Accumulated depreciation and amortization 9,046 7,813 ------- ------- $10,591 $ 9,767 ======= ======= 10PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over 40 years. Accumulated amortization was $710,000 and $512,000 at fiscal year-end 1997 and 1996, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Common Stock of Subsidiary Subject to Redemption In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one share of ThermoLyte common stock, $.001 par value, and one redemption right, at $10.00 per unit, for net proceeds of $17,253,000. Holders of the common stock purchased in the offering will have the option to require ThermoLyte to redeem in December 1998 or 1999 any or all of their shares at $10.00 per share. The redemption rights are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. The difference between the redemption value and the original carrying amount of common stock of subsidiary subject to redemption is accreted using the straight-line method over the period ending December 1998, which corresponds to the first redemption period. The accretion is charged to minority interest expense in the accompanying statement of income. ThermoLyte is developing various gas-powered lighting products for commercialization. Following the offering, the Company owned 78% of ThermoLyte's outstanding common stock. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in fiscal 1996 and 1995 have been reclassified to conform to the presentation in the fiscal 1997 financial statements. 2. Available-for-sale Investments The Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of 11PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale Investments (continued) shareholders' investment titled "Net unrealized loss on available-for- sale investments." Effect of change in accounting principle in the accompanying fiscal 1995 statement of shareholders' investment represents the unrealized gain, net of related tax effects, pertaining to available-for-sale investments held by the Company on October 2, 1994. The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses ------------------------------------------------------------------------ 1997 Government-agency securities $ 5,008 $ 4,982 $ 26 $ - Corporate bonds 4,068 4,052 16 - Other 2,295 2,396 - (101) ------- ------- ------- ------- $11,371 $11,430 $ 42 $ (101) ======= ======= ======= ======= 1996 Government-agency securities $ 5,992 $ 5,986 $ 6 $ - Other 220 246 - (26) ------- ------- ------- ------- $ 6,212 $ 6,232 $ 6 $ (26) ======= ======= ======= ======= Short- and long-term available-for-sale investments in the accompanying fiscal 1997 balance sheet include equity securities of $2,200,000 and debt securities of $9,171,000 with contractual maturities of more than one year through five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable either the Company, the issuer, or both, to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of income. Gain on sale of investments, net, in the accompanying fiscal 1997 statement of income resulted from gross realized gains relating to the sale of available-for- sale investments. Gain on sale of investments, net, in the accompanying fiscal 1996 and 1995 statement of income resulted from gross realized gains of $469,000 and 768,000, respectively, and gross realized losses of $18,000 and $38,000, respectively, relating to the sale of available-for-sale investments, and a write-down of other investments of $243,000 in fiscal 1996. 12PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions In the first quarter of fiscal 1996, the Company acquired the thermoelectric cooling module business of ThermoTrex Corporation for $860,000, which was the net book value of the business acquired. ThermoTrex is a majority-owned subsidiary of Thermo Electron. Because the Company and the thermoelectric cooling module business were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to the pooling-of-interests method. The results of the thermoelectric cooling module business were not material to the Company's results, and therefore the Company's historical financial information for periods prior to fiscal 1996 has not been restated. The results of the thermoelectric cooling module business have been included in the accompanying financial statements from the date of acquisition. Effective May 1, 1994, the Company acquired NuTemp, Inc. for $7,947,000 in cash. In fiscal 1995, the Company paid an additional $2,500,000 as a result of NuTemp having achieved certain previously agreed upon performance goals through the period ending May 1, 1995. The additional payment was recorded as an increase in cost in excess of net assets of acquired companies, which is being amortized over 40 years. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others. The Company's equity incentive plan permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under these plans. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over periods ranging from three to ten years after the first anniversary of the grant date, depending on the term of the option, which may range from five to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. To date, all options have been granted at fair market value. The Company also has a directors' stock option plan that provides for the grant of stock options in the Company and its majority-owned subsidiary to outside directors pursuant to a formula approved by the Company's shareholders. Options in the Company awarded under this plan are exercisable six months after the date of grant and expire three or seven 13PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron. A summary of the Company's stock option information is as follows: 1997 1996 1995 ----------------- ---------------- --------------- Range of Weighted Weighted Option Number Average Number Average Number Prices (Shares in of Exercise of Exercise of per thousands) Shares Price Shares Price Shares Share ----------------------------------------------------------------------- Options outstanding, $ 4.20- beginning of year 1,342 $ 9.35 1,406 $ 9.24 1,259 $10.15 8.95- Granted 68 8.07 12 13.07 296 17.53 4.20- Exercised (1) 5.45 (40) 6.76 (111) 9.58 7.45- Forfeited (126) 9.03 (36) 8.98 (38) 9.58 ----- ----- ----- Options outstanding, $ 4.20- end of year 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53 ===== ====== ===== ====== ===== ====== Options $ 4.20- exercisable 1,283 $ 9.32 1,342 $ 9.35 1,406 $17.53 ===== ====== ===== ====== ===== ====== Options available for grant 49 75 97 ===== ===== ===== Weighted average fair value per share of options granted during year $ 3.45 $ 4.83 ====== ====== 14PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at September 27, 1997, is as follows: Options Outstanding and Exercisable ------------------------------------------- Number Weighted Average of Remaining Weighted Average Range of Exercise Prices Shares Contractual Life Exercise Price ----------------------------------------------------------------------- (Shares in thousands) $ 6.40 - $ 9.18 1,068 6.8 years $ 8.86 9.19 - 11.96 157 2.2 years 9.62 11.97 - 14.75 8 3.8 years 13.65 14.76 - 17.53 50 0.8 years 17.53 ----- $ 6.40 - $17.53 1,283 6.0 years $ 9.32 ===== Employee Stock Purchase Program ------------------------------- Substantially all of the Company's full-time employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron. Under this program, shares of the Company's and Thermo Electron's common stock can be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. During fiscal 1997, 1996, and 1995, the Company issued 4,622 shares, 18,012 shares, and 25,859 shares, respectively, of its common stock under this program. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in fiscal 1997 and 1996 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows: (In thousands except per share amounts) 1997 1996 ----------------------------------------------------------------------- Net income: As reported $2,104 $ 885 Pro forma 1,883 708 Earnings per share: As reported .17 .07 Pro forma .15 .06 15PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to October 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1997 1996 ----------------------------------------------------------------------- Volatility 43% 43% Risk-free interest rate 6.0% 5.7% Expected life of options 4.2 years 3.3 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan and Employee Stock Ownership Plan The majority of the Company's employees are eligible to participate in Thermo Electron's 401(k) savings plan and, prior to January 1, 1995, certain employees were eligible to participate in Thermo Electron's employee stock ownership plan (ESOP). Contributions to the 401(k) savings plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For these plans, the Company contributed and charged to expense $666,000, $674,000, and $653,000 in fiscal 1997, 1996, and 1995, respectively. Effective December 31, 1994, the ESOP was split into two plans: ESOP I, covering employees of Thermo Electron's corporate office and its wholly owned subsidiaries, and ESOP II, covering employees of certain of Thermo Electron's majority-owned subsidiaries, including the Company. Also, effective December 31, 1994, the ESOP II plan was terminated, and as a result, the Company's employees are no longer eligible to participate in an ESOP. 16PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 5. Income Taxes The components of the provision for income taxes are as follows: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Currently payable: Federal $2,067 $ 599 $2,150 State 454 132 525 ------ ------ ------ 2,521 731 2,675 ------ ------ ------ Deferred (prepaid), net: Federal (316) 305 54 State (87) 67 8 ------ ------ ------ (403) 372 62 ------ ------ ------ $2,118 $1,103 $2,737 ====== ====== ====== The Company receives a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the Company's common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $764,000, $492,000, and $153,000 of such benefits that have been allocated to capital in excess of par value in fiscal 1997, 1996, and 1995, respectively. The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before provision for income taxes and minority interest due to the following: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Provision for income taxes at statutory rate $1,542 $ 782 $2,416 Increases (decreases) resulting from: State income taxes, net of federal benefit 242 131 353 Losses not benefited 258 214 - Income from tax-preferred securities - (46) (122) Nondeductible expenses 176 100 83 Other (100) (78) 7 ------ ------ ------ $2,118 $1,103 $2,737 ====== ====== ====== 17PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 5. Income Taxes (continued) Prepaid income taxes in the accompanying balance sheet consists of the following: (In thousands) 1997 1996 ------------------------------------------------------------- Prepaid income taxes: Inventory basis difference $ 807 $ 730 Accrued warranty costs 1,340 906 Accrued compensation 650 596 Reserves and accruals 164 459 Allowance for doubtful accounts 295 230 Federal and state loss carryforwards 444 214 ------ ------ 3,700 3,135 Less: Valuation allowance (582) (214) ------ ------ $3,118 $2,921 ====== ====== The valuation allowance relates to the uncertainty surrounding the realization of net operating loss carryforwards and other tax assets of the Company's ThermoLyte subsidiary. As of September 27, 1997, ThermoLyte had net operating loss carryforwards of approximately $1.1 million that begin to expire in fiscal 2011. 6. Related-party Transactions Corporate Services Agreement The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company pays Thermo Electron annually an amount equal to 1.0% of the Company's revenues. The Company paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in calendar year 1995 and 1994, respectively. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. For these services, the Company was charged $1,210,000, $1,262,000, and $1,250,000 in fiscal 1997, 1996, and 1995, respectively. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationships among Thermo Electron and its majority-owned subsidiaries). Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. 18PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 6. Related-party Transactions (continued) Related Party Revenues The Company sells products in the ordinary course of business to a wholly owned subsidiary of Thermo Electron. Sales of such products totaled $423,000, $104,000, and $987,000 in fiscal 1997, 1996, and 1995, respectively. Other Related-party Services The Company provides contract administration, data processing, and other services to certain companies affiliated with Thermo Electron. The Company is reimbursed for costs incurred based on actual usage. For these services, the Company was reimbursed $105,000, $167,000, and $209,000 in fiscal 1997, 1996, and 1995, respectively. Leases The Company leases an office and laboratory facility from Thermo Electron under an agreement expiring in 2002. The accompanying statement of income includes expenses from this operating lease of $170,000 in fiscal 1997, 1996, and 1995. The future minimum payments due under this operating lease as of September 27, 1997, are $326,000 per year through fiscal 2002. Total future minimum lease payments are $1,630,000. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Other Related-party Transactions In May 1997, the Company sold 420,000 shares of common stock of The Randers Group Incorporated to Thermo TerraTech Inc., a majority-owned subsidiary of Thermo Electron, for proceeds of $262,000, resulting in a gain of $53,000. In February 1996, the Company sold $365,000 principal amount of 6.5% subordinated convertible debentures to an unrelated party for net proceeds of $490,000, which resulted in a gain of $125,000. The debentures were issued by Thermo TerraTech Inc. In December 1995, the Company sold 10,969 shares of Thermo Electron common stock to an unrelated party for net proceeds of $362,000, which resulted in a gain of $344,000. In May 1995, the Company sold $920,000 principal amount of 6 1/2% subordinated convertible debentures to an unrelated party for net proceeds of $1,578,000, which resulted in a gain of $768,000. The debentures were issued by Thermedics Inc., a majority-owned subsidiary of Thermo Electron. 7. Commitments In addition to the lease described in Note 6, the Company leases equipment and manufacturing, engine testing, service, and office facilities under various operating leases. The accompanying statement of income includes expenses from operating leases of $1,219,000, $1,166,000, and $1,044,000 in fiscal 1997, 1996, and 1995, respectively. Future 19PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 7. Commitments (continued) minimum payments due under noncancellable operating leases as of September 27, 1997, are $970,000 in fiscal 1998; $952,000 in fiscal 1999; $916,000 in fiscal 2000; $849,000 in fiscal 2001; $839,000 in fiscal 2002; and $2,502,000 in fiscal 2003 and thereafter. Total future minimum lease payments are $7,028,000. 8. Common Stock At September 27, 1997, the Company had reserved 1,487,860 unissued shares of its common stock for possible issuance under stock-based compensation plans. 9. Long-term Obligations At September 27, 1997, the Company's long-term obligations included a $222,000 mortgage loan, which is secured by property at the Company's FES division with a net book value of $4,709,000. The loan is payable in equal monthly installments with the final payment in fiscal 2001. The interest rate on this loan is 75% of the prime rate, which was 6.38% and 6.19% at fiscal year-end 1997 and 1996, respectively. The annual requirements for long-term obligations as of September 27, 1997, are $58,000 in fiscal 1998; $61,000 in fiscal 1999 and 2000; and $130,000 in fiscal 2001. Total requirements of long-term obligations are $310,000. 10. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, available-for-sale investments, accounts receivable, accounts payable, due to parent company and affiliated companies, and long-term obligations. The carrying amounts of these financial instruments, with the exception of available-for-sale investments and long-term obligations, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. The carrying amounts of the Company's long-term obligations, which approximate fair value, were $252,000 and $305,000 at September 27, 1997, and September 28, 1996, respectively. The fair value of the Company's long-term obligations was determined based on borrowing rates available to the Company at the respective year-ends. 11. Segment Data, Export Sales, and Concentrations of Risk The Company's business is divided into three segments. The Industrial Refrigeration Systems segment develops, manufactures, markets, and services industrial refrigeration and commercial cooling equipment, and rents commercial cooling and industrial refrigeration equipment. The Engines segment develops, manufactures, markets, and services gasoline 20PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 11. Segment Data, Export Sales, and Concentrations of Risk (continued) engines for recreational boats, propane and gasoline engines for lift trucks, and natural gas engines for vehicular, cooling, pumping, refrigeration, and other industrial applications. The Cooling and Cogeneration Systems segment develops, manufactures, markets, and services natural gas cooling and cogeneration systems, conducts research and development on applications of thermal energy, and is developing and commercializing a family of gas-powered lighting products. Export revenues to Asia accounted for 13%, 7%, and 10% of the Company's total revenues in fiscal 1997, 1996, and 1995, respectively. Other export revenues accounted for 7%, 6%, and 5% of the Company's total revenues in fiscal 1997, 1996, and 1995, respectively. In general, export sales are denominated in U.S. dollars. The Company purchases engine blocks for its marine and certain other engines, as well as engines for certain of its smaller cooling and cogeneration products, from one supplier. While the Company believes that it has adequate supplies of materials to meet its needs for a three-month period, no assurance can be given that the Company will not experience shortages of engine blocks in the future that could delay shipments of the Company's marine and certain other engines and its cooling and cogeneration products. Information for fiscal 1997, 1996, and 1995, with respect to the Company's business segments, is shown in the following table. (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Revenues: Industrial Refrigeration Systems $ 74,843 $ 73,312 $ 64,708 Engines 30,324 28,857 24,848 Cooling and Cogeneration Systems 17,819 20,477 15,873 Intersegment sales elimination (a) (1,940) (1,910) (2,174) -------- -------- -------- $121,046 $120,736 103,255 ======== ======== ======== Income before provision for income taxes and minority interest: Industrial Refrigeration Systems $ 5,331 $ 4,403 $ 6,689 Engines (23) (1,584) (120) Cooling and Cogeneration Systems (647) 122 961 Corporate (b) (1,991) (2,537) (3,049) -------- -------- -------- Total operating income 2,670 404 4,481 Interest and other income, net 1,864 1,896 2,626 -------- -------- -------- $ 4,534 $ 2,300 $ 7,107 ======== ======== ======== Identifiable assets: Industrial Refrigeration Systems $ 52,157 $ 52,707 $ 48,249 Engines 16,528 13,917 17,193 Cooling and Cogeneration Systems 22,178 22,953 23,549 Corporate (c) 17,129 21,134 19,426 -------- -------- -------- $107,992 $110,711 $108,417 ======== ======== ======== 21PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 11. Segment Data, Export Sales, and Concentrations of Risk (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Depreciation and amortization: Industrial Refrigeration Systems $ 2,606 $ 2,501 $ 1,551 Engines 319 295 329 Cooling and Cogeneration Systems 198 214 192 Corporate 33 23 10 -------- -------- -------- $ 3,156 $ 3,033 $ 2,082 ======== ======== ======== Capital expenditures: Industrial Refrigeration Systems $ 4,558 $ 6,959 $ 5,410 Engines 653 329 344 Cooling and Cogeneration Systems 382 240 150 Corporate 29 34 62 -------- -------- -------- $ 5,622 $ 7,562 $ 5,966 ======== ======== ======== (a) Intersegment sales are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Primarily corporate general and administrative expenses. (c) Primarily cash, cash equivalents, and short-term investments. 12. Unaudited Quarterly Information (In thousands except per share amounts) 1997 First Second Third Fourth ----------------------------------------------------------------------- Revenues $28,786 $28,825 $33,839 $29,596 Gross profit 4,253 5,494 5,945 6,200 Net income 4 375 716 1,009 Earnings per share - .03 .06 .08 1996 First Second Third Fourth ----------------------------------------------------------------------- Revenues $27,452 $29,756 $32,429 $31,099 Gross profit 4,787 4,661 5,323 5,586 Net income (loss) 577 43 448 (183) Earnings (loss) per share .05 - .04 (.01) 22PAGE Thermo Power Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 13. Subsequent Event On November 6, 1997, the Company declared unconditional in all respects its cash tender offer for the outstanding ordinary shares of Peek plc (Peek). The aggregate cost to acquire all outstanding Peek ordinary shares is estimated at approximately $163 million. The Company paid $2.3 million for shares acquired in fiscal 1997, which are classified as long-term available-for-sale investments in the accompanying fiscal 1997 balance sheet, and $147.9 million for shares acquired from September 28, 1997, through November 19, 1997. The Company owned 92% of the outstanding ordinary shares of Peek as of November 19, 1997. The Company expects to make payments for the remaining ordinary shares outstanding during the first quarter of fiscal 1998. Pursuant to a promissory note, the Company borrowed $160.0 million from Thermo Electron to finance the acquisition of Peek. The promissory note is due November 1999, and bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set of the beginning of each quarter. Peek, a London Stock Exchange-listed company, develops, markets, installs, and services equipment to monitor and regulate traffic flow in cities and towns around the world. Peek offers a wide range of products, including hardware, such as loop detectors, traffic signals and controllers, and variable message signs, as well as traffic management systems that integrate these products to ease roadway congestion, improve safety, and collect data. Traffic management systems include variable message systems to advise drivers of accidents and other roadway hazards; traffic signal-timing systems that adapt continuously to changing conditions to minimize delays; video systems to give real-time analysis of traffic flows at intersections and on highways; and automatic toll-collection systems. The Company also offers high-resolution video equipment to aid police officers in capturing the information necessary to charge individuals with motor vehicle violations such as speeding and red light violations. 23PAGE Thermo Power Corporation 1997 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Power Corporation: We have audited the accompanying consolidated balance sheet of Thermo Power Corporation (a Massachusetts corporation and 68%-owned subsidiary of Thermo Electron Corporation) and subsidiaries as of September 27, 1997, and September 28, 1996, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended September 27, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Power Corporation and subsidiaries as of September 27, 1997, and September 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts October 31, 1997 (except with respect to the matter discussed in Note 13 as to which the date is November 19, 1997) 24PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operation under the heading "Forward-looking Statements." Overview The Company's business is divided into three segments: Industrial Refrigeration Systems, Engines, and Cooling and Cogeneration Systems. Through the Company's FES division, the Industrial Refrigeration Systems segment supplies standard and custom-designed industrial refrigeration systems used primarily by the food-processing, petrochemical, and pharmaceutical industries. NuTemp, Inc. is a supplier of both remanufactured and new industrial refrigeration and commercial cooling equipment for sale or rental. NuTemp's industrial refrigeration equipment is used primarily in the food-processing, petrochemical, and pharmaceutical industries, and its commercial cooling equipment is used primarily in institutions and commercial buildings, as well as by service contractors. The demand for NuTemp's equipment is typically highest in the summer period and can be adversely affected by cool summer weather. Within the Engines segment, the Company's Crusader Engines division manufactures gasoline engines for recreational boats; propane and gasoline engines for lift trucks; and natural gas engines for vehicular, cooling, pumping, refrigeration, and other industrial applications. The Cooling and Cogeneration Systems segment consists of the Company's Tecogen division and the Company's ThermoLyte Corporation subsidiary. Tecogen designs, develops, markets, and services packaged cooling and cogeneration systems fueled principally by natural gas for sale to a wide range of commercial, institutional, industrial, and multi-unit residential users. Certain large-capacity cooling systems are manufactured for Tecogen by FES, and the cogeneration systems are manufactured for Tecogen by Crusader. Tecogen also conducts research and development of natural gas-engine technology and on applications of thermal energy. ThermoLyte is developing and commercializing various gas-powered lighting products. The Company acquired Peek plc (Peek), a London Stock Exchange-listed company, in November 1997. Peek develops, markets, installs, and services equipment to monitor and regulate traffic flow in cities and towns around the world. Peek offers a wide range of products, including hardware, such as loop detectors, traffic signals and controllers, and variable message signs, as well as traffic management systems that integrate these products to ease roadway congestion, improve safety, and collect data. 25PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) Traffic management systems include variable message systems to advise drivers of accidents and other roadway hazards; traffic signal-timing systems that adapt continuously to changing conditions to minimize delays; video systems to give real-time analysis of traffic flows at intersections and on highways; and automatic toll-collection systems. The Company also offers high-resolution video equipment to aid police officers in capturing the information necessary to charge individuals with motor vehicle violations such as speeding and red light violations. Peek had revenues in calendar 1996, excluding revenues from businesses sold in 1996 and 1997, of approximately 140 million pounds sterling, or approximately $219 million, and profit on ordinary activities after taxation, excluding profit from businesses sold in 1996 and 1997, of approximately 8 million pound sterling, or approximately $12 million. Peek's results of operations in calendar 1996 are unaudited and were accounted for in accordance with generally accepted accounting principles in the United Kingdom, which differ in certain respects from U.S. generally accepted accounting principles. The Company's results of operations and financial position for fiscal 1998 are expected to be affected significantly by the acquisition of Peek. The Company will be required to modify or replace portions of its software and the software of Peek so that it will function properly in the year 2000. Costs associated with purchasing software which is year 2000 compliant, excluding costs associated with Peek, is included in estimated capital expenditures for fiscal 1998, disclosed in liquidity and capital resources. The cost of such new software will be capitalized and amortized over the software's useful life, and is not expected to have a material effect on the Company's results of operations. The Company is in the process of assessing the impact of the year 2000 issue on the operations of Peek, including the development of cost estimates for, and the extent of any programming changes that might be required to address, this issue. At this time, the Company is unable to determine the materiality of the year 2000 issue at Peek. Results of Operations Fiscal 1997 Compared With Fiscal 1996 Total revenues were $121,046,000 in fiscal 1997 and $120,736,000 in fiscal 1996. Industrial Refrigeration Systems segment revenues increased to $74,843,000 in 1997 from $73,312,000 in 1996, primarily due to greater demand for custom-designed industrial refrigeration packages and product services at FES and, to a lesser extent, increased demand for rental equipment at NuTemp. These improvements were offset in part by a decrease in demand for standard industrial refrigeration packages at FES. Engines segment revenues increased to $30,324,000 in 1997 from $28,857,000 in 1996, primarily due to an increase in lift-truck and TecoDrive(R) engine sales, offset in part by a decrease in sales of marine-engine related products. The increase in TecoDrive engine sales was principally due to a large nonrecurring order of $3.6 million from one customer. Cooling and 26PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1997 Compared With Fiscal 1996 (continued) Cogeneration Systems segment revenues were $17,819,000 in 1997, compared with $20,477,000 in 1996. Decreased revenues from sponsored research and development, gas-fueled cooling systems, and thermoelectric devices were offset in part by increased service revenues in 1997. The gross profit margin increased to 18% in fiscal 1997 from 17% in fiscal 1996. The gross profit margin for the Industrial Refrigeration Systems segment increased to 21% in 1997 from 20% in 1996, primarily due to higher margins at FES, resulting from lower warranty expenses, manufacturing efficiencies, and a decrease in the cost of a major component, and higher margins at NuTemp resulting from increased revenues. FES experienced a cost increase in the major component in fiscal 1996, for which the Company has begun receiving deliveries from an additional supplier at a lower cost. The gross profit margin for the Engines segment increased to 9% in 1997 from 5% in 1996, primarily due to a reduction in warranty expenses and lower overhead expenses resulting from the consolidation of two manufacturing facilities at Crusader and, to a lesser extent, startup costs in fiscal 1996 associated with the introduction of lift-truck engines. The gross profit margin for the Cooling and Cogeneration Systems segment decreased to 19% in 1997 from 22% in 1996, primarily due to lower revenues and higher warranty expenses for gas-fueled cooling systems. Selling, general, and administrative expenses as a percentage of revenues remained unchanged at 14% in fiscal 1997 and 1996. Research and development expenses decreased to $2,296,000 in 1997 from $3,214,000 in 1996, primarily due to lower spending on natural gas-engine products and gas-powered lighting products, primarily due to the completion of the current phase of development efforts for these products. Net gain on sale of investments in fiscal 1996 primarily represents a gain of $344,000 relating to the sale of the Company's remaining investment in Thermo Electron common stock and a gain of $125,000 relating to the sale of the Company's remaining investment in subordinated convertible debentures issued by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo Electron (Note 6). These gains were largely offset by a write-down of other investments. The effective tax rate was 47% in fiscal 1997 and 48% in fiscal 1996. The effective tax rate exceeded the statutory federal income tax rate primarily due to an increase in the valuation allowance for net operating loss carryforwards and other tax assets of the Company's ThermoLyte subsidiary, and the impact of state income taxes. Fiscal 1996 Compared With Fiscal 1995 Total revenues increased 17% to $120,736,000 in fiscal 1996 from $103,255,000 in fiscal 1995. Industrial Refrigeration Systems segment revenues increased 13% to $73,312,000 in 1996 from $64,708,000 in 1995. Revenues at FES increased $7,717,000 in 1996, primarily due to greater demand for custom-designed industrial refrigeration packages, offset in part by lower sales of standard refrigeration systems. Revenues at NuTemp increased $887,000, primarily due to increased demand for remanufactured commercial cooling equipment, offset in part by lower demand for rental equipment resulting from generally milder summer temperatures in 1996 27PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1996 Compared With Fiscal 1995 (continued) compared with 1995. Engines segment revenues increased 16% to $28,857,000 in 1996 from $24,848,000 in 1995, primarily due to the inclusion of revenues from lift-truck engines and increased demand for gasoline and TecoDrive natural gas engines, offset in part by a decrease of $2,877,000 in revenues from marine-engine related products. Revenues from marine-engine related products declined primarily due to increased competition and a decrease in demand. Cooling and Cogeneration Systems segment revenues increased 29% to $20,477,000 in 1996 from $15,873,000 in 1995, primarily due to an increase in revenues from gas-fueled cooling systems. Results for the Cooling and Cogeneration Systems segment in 1995 include a fee of $1,187,000 received from one of the Company's distributors of packaged cogeneration systems to satisfy the financial obligations under a minimum purchase contract. The gross profit margin decreased to 17% in fiscal 1996 from 23% in fiscal 1995. The gross profit margin for the Industrial Refrigeration Systems segment decreased to 20% in 1996 from 25% in 1995, primarily due to lower margins at FES resulting from a change in sales mix. FES' sales to the petrochemical industry, which have inherently lower margins, increased in 1996 from 1995. To a lesser extent, the gross profit margin decreased due to an increase in depreciation expense at NuTemp resulting from an increase in rental assets, lower manufacturing efficiencies at FES, and higher warranty expenses at NuTemp in 1996 compared with 1995. The gross profit margin for the Engines segment decreased to 5% in 1996 from 11% in 1995, primarily due to unusually high warranty expenses and, to a lesser extent, startup costs associated with the introduction of lift-truck engines. The gross profit margin for the Cooling and Cogeneration Systems segment decreased to 22% in 1996 from 29% in 1995, primarily due to the inclusion in 1995 of a fee received from one of the Company's distributors of packaged cogeneration systems discussed above. Selling, general, and administrative expenses as a percentage of revenues decreased to 14% in fiscal 1996 from 15% in fiscal 1995, primarily due to an increase in total revenues. Research and development expenses were $3,214,000 in fiscal 1996, compared with $3,065,000 in fiscal 1995. An increase in research and development expenses for gas-fueled lighting products was largely offset by a decrease in spending on research and development of natural gas-engine products. Interest income decreased to $1,714,000 in fiscal 1996 from $1,919,000 in fiscal 1995. Interest income earned on invested proceeds from ThermoLyte's March 1995 private placement was more than offset by a decrease in interest income earned on the Company's other investments due to lower average invested balances. The net gain on sale of investments in fiscal 1996 is described in the results of operations for fiscal 1997. The net gain on sale of investments in fiscal 1995 primarily represents a gain of $768,000 relating to the sale of the Company's investment in subordinated convertible debentures issued by Thermedics Inc., a majority-owned subsidiary of Thermo Electron (Note 6). The effective tax rate was 48% in fiscal 1996, compared with 39% in fiscal 1995. These rates exceeded the statutory federal income tax rate primarily due to the impact of state income taxes and, in fiscal 1996, a 28PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1996 Compared With Fiscal 1995 (continued) valuation allowance established for net operating loss carryforwards and other tax assets of the Company's ThermoLyte subsidiary. Liquidity and Capital Resources Working capital was $54,708,000 at September 27, 1997, compared with $57,719,000 at September 28, 1996. Included in working capital are cash, cash equivalents, and available-for-sale investments of $28,518,000 at September 27, 1997, compared with $35,880,000 at September 28, 1996. Of the $28,518,000 balance at September 27, 1997, $15,519,000 was held by ThermoLyte and the remainder was held by the Company and its wholly owned subsidiaries. During fiscal 1997, $2,208,000 of cash was provided by operating activities. Cash provided by the Company's operating results was reduced by a decrease in accounts payable of $4,383,000, an increase in accounts receivable of $3,210,000, and an increase in inventories of $1,247,000. These reductions in cash were offset in part by an increase in other current liabilities of $3,318,000 and a decrease in unbilled contract costs and fees of $2,254,000. The decrease in accounts payable was principally due to the timing of purchases of materials for large contracts. The increase in accounts receivable was primarily due to the timing of billings on percentage-of-completion contracts, reflected in the decrease in unbilled contract costs and fees, as well as increased shipments at the end of fiscal 1997. Other current liabilities increase principally due to an increase in accrued warranty costs and accrued income taxes. Inventories increased primarily due to expanded purchases of one component prior to its expected redesign by its manufacturer. During fiscal 1997, the Company's primary investing activities, excluding available-for-sale investment activity, included $5,622,000 expended for purchases of rental assets and property, plant, and equipment and $1,522,000 in proceeds received from the sale of rental assets. The Company's financing activities used $3,595,000 of cash in fiscal 1997, primarily due to $3,613,000 of cash expended for the purchase of Company common stock. The Company's Board of Directors has authorized the repurchase, through March 17, 1998, of up to $5,000,000 of its own securities. Any such purchases are funded from working capital. As of September 27, 1997, $1,387,000 remained under the Company's authorization. On November 6, 1997, the Company declared unconditional in all respects its cash tender offer for all outstanding ordinary shares of Peek. The aggregate cost to acquire all outstanding Peek ordinary shares is estimated at approximately $163 million. The Company paid $2.3 million for shares acquired in fiscal 1997 and $147.9 million for shares acquired from September 28, 1997, through November 19, 1997. The Company owned 92% of the outstanding ordinary shares of Peek as of November 19, 1997. The Company expects to make payments for the remaining ordinary shares outstanding during the first quarter of fiscal 1998. To finance the acquisition of Peek, the Company used internal funds and borrowed $160.0 million from Thermo Electron. (Note 13) 29PAGE Thermo Power Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) ThermoLyte's common stock is subject to redemption in December 1998 or 1999, the redemption value of which is $18,450,000 (Note 1). In fiscal 1998, the Company expects to make capital expenditures for the purchase of rental assets and property, plant, and equipment of approximately $3.5 million, excluding capital expenditures of Peek which have yet to be determined by the Company. The Company believes its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future. 30PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in fiscal 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Ability to Manage Change. The Company has recently experienced significant growth in the number of its employees, the demands on its operating and financial systems, and the geographic area of its operations. In November 1997, the Company acquired Peek plc (Peek), a public company in the United Kingdom, which has more than 1,200 employees located throughout Europe, Asia, and the United States, and had revenues in calendar 1996, excluding revenues of businesses sold in 1996 and 1997, of approximately 140 million pounds sterling, or approximately $219 million. This acquisition has resulted in new and increased responsibilities for the Company's administrative, operational, development, and financial personnel. In order to manage the Company's changing business, Peek's management and other employees must be assimilated into the Company's existing operations. There can be no assurance that the Company will be successful in retaining Peek's key employees and integrating them into the Company. The Company's success depends to a significant extent on the ability of its officers and key employees to operate effectively, both independently and as a group, and this ability may be impeded by the Company's rapid geographic expansion, potential disruption of the Company's business, and diversion of management's attention from other business concerns due to the Peek acquisition. In addition, there can be no assurance that the Company's systems, procedures, and controls will be adequate to support the significant expansion of the Company's operations. Any failure of the Company's management to manage change effectively could have a material adverse effect on the Company's business, financial condition, and results of operations. Transition of Product Focus; Dependence on New Products. Since its inception, the Company has derived a substantial majority of its revenues from development and commercialization of power generation, refrigeration and cooling, engines, and related products. While these products are expected to continue to generate a significant amount of the Company's revenues for the foreseeable future, a substantial portion of the Company's revenues is now expected to be derived from the sale of electronics and associated hardware and software for the traffic industry, as well as from providing integration services for such electronics, hardware, and software, through the Company's recently acquired Peek subsidiary. A substantial portion of the Company's efforts, particularly its product development and marketing efforts, will be focused on the traffic market. The Company has had no prior experience in the traffic industry, and there can be no assurance that the Company will be able to successfully market and sell its newly acquired products and services. The Company's future success will depend significantly on its ability to develop, introduce, and integrate new products in the traffic 31PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements market and to continue to improve the performance, features, and reliability of Peek's current products. In order for Peek to achieve the level of profitability desired by the Company, the Company must successfully reduce Peek's expenses and improve market penetration. No assurance can be given that the Company will be successful in this regard. Any failure or inability of the Company's traffic products to perform substantially as anticipated or to achieve market acceptance would have a material adverse effect on the Company's business, financial condition, and results of operations. Risks Associated With International Operations. The Company intends to continue to expand its presence in international markets. In calendar 1996, sales originating outside of the United States accounted for approximately 70% of the Company's recently acquired Peek subsidiary's revenues. International revenues are subject to a number of risks, including the following: fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax the Company's foreign income, impose tariffs, or adopt other restrictions on foreign trade; U.S. export licenses, if required, may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that any of these factors will not have a material adverse impact on the Company's business, financial condition, and results of operations. Reliance on Sales to Governmental Entities and Custom Contracts. The majority of Peek's sales are to governmental entities. Sales to governmental entities generally account for approximately 70% of Peek's revenues. The Company intends to focus its marketing of Peek's products and services on various governmental entities, including the U.S. Federal Highway Administration and comparable overseas agencies, regional counties of governments, state, and city traffic engineers, public transit authorities, public toll operators, law enforcement agencies, and tunnel and bridge authorities. Any decrease in purchases by these government bodies, including, without limitation, decreases as the result of a shift in priorities or overall budgeting limitations, could have an adverse effect on the Company's business, financial condition, and results of operations. In addition, most of Peek's contracts require the development and integration of customized products for a fixed fee. Contracts with governmental entities often permit the purchaser to cancel the agreement at any time. A significant overrun in Peek's expenses or cancellation of a significant contract could also result in a material adverse effect on the Company's business, financial condition, and results of operations. 32PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements Competition. The Company encounters and expects to continue to encounter intense competition in the sale of its products. Although the Company has a proprietary position with respect to certain features of its products, the core technologies relating to its cooling and cogeneration products are mature and available to other companies. A number of companies, including companies with greater financial resources than those of the Company, offer products that compete with those offered by the Company, and there can be no assurance that other companies will not develop competitive products. In addition, electric utility pricing programs provide competition for the Company's cooling and cogeneration products. The market for traffic products and services is extremely competitive, and the Company expects that competition will continue to increase. The Company believes that the principal competitive factors in the traffic industry are price, functionality, reliability, service and support, and vendor and product reputation. The Company believes that its ability to compete successfully will depend on a number of factors both within and outside its control, including the pricing policies of its competitors and suppliers, the timing and quality of products introduced by the Company and others, the Company's ability to maintain a strong reputation in the traffic industry, and industry and general economic trends. In the traffic market, the Company currently competes with companies with greater financial resources and name recognition. The introduction by one of these competitors or a new competitor of a technologically superior product would have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will be able to compete successfully with existing or new competitors. The Company's sale of industrial refrigeration systems is subject to intense competition. The industrial refrigeration market is mature, highly fragmented, and extremely dependent on close customer contacts. Competition in the compressed natural gas (CNG) vehicle and alternative-fuel engine markets is intense, and current and potential competitors in some or all segments of these markets include major automotive and natural gas companies and other companies that have greater financial resources than the Company. If the CNG vehicle business is to succeed, natural gas will need to be economically attractive compared with other alternative fuels, such as ethanol and methanol, and compared with improved gasoline formulas. Several companies offer marine engines that compete with those manufactured by Crusader. In addition, in recent years, certain large manufacturers of marine engines have vertically integrated their respective businesses by acquiring boat manufacturers that previously had been independent purchasers of engines from Crusader and other engine manufacturers. The number of potential buyers of Crusader's engines has decreased accordingly. Dependence of Markets on Government Regulation. The natural gas vehicle market is in its formative stage. The use of CNG engines in vehicles in the United States results primarily from governmental regulations mandating or encouraging the use of alternative fuels. The Company's CNG engine business is subject to the demand driven by various 33PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements provisions of the 1990 Clean Air Act, as well as energy and environmental legislation that has been or may be enacted at state and local levels, which may be more stringent than federal laws. Natural gas is one of many alternative fuels that are addressed by the regulations. Others include methanol, ethanol, propane, hydrogen, electricity, and reformulated gasoline. There can be no assurance that natural gas will become a preferred alternative fuel for vehicles or that existing and future regulations or their enforcement will create material long-term demand for natural gas-powered vehicles. The Public Utility Regulatory Policies Act of 1978 (PURPA) and state laws and regulations implementing PURPA prohibit discrimination by electric utilities against cogeneration providers and require utilities to purchase co-generated electricity under certain conditions. Under these regulations, certain classes of facilities are exempt from the provisions of the Public Utility Holding Company Act, as well as many state laws and regulations regarding the setting of electricity rates and the financial and organizational regulation of electric utilities, and certain provisions of the Federal Power Act. Because the Company's current customers typically do not sell power to electric utilities, the Company does not rely to a significant extent on the provisions of PURPA that require utilities to purchase electricity from cogeneration providers. However, recent bills in Congress have proposed amendments to, and in some cases, the repeal of, certain of these laws or regulations. Any such amendment or repeal could have a material adverse effect on the Company's cogeneration business. The Intermodal Surface Transportation Efficiency Act (ISTEA) provides significant funding in the United States for intermodal surface transportation and advanced traffic management systems. The ISTEA has been extended until March 31, 1998. The failure to further extend or reauthorize ISTEA could have a material adverse effect on demand for the Company's traffic products in the United States. Importance of Energy Prices. The cost savings that result from use of the Company's packaged cooling and cogeneration systems are directly related to the retail price of electricity. In the past several years, electricity prices have declined in many areas and rates remain relatively low on a historical basis in many regions. Given prevailing rate structures, demand for the Company's cooling and cogeneration systems has been less than anticipated. Although the Company believes that increases in demand, as well as potential increases in the cost of fuel, will lead to eventual increases in electricity rates, there can be no assurance that electricity prices will increase in the future. The economic benefits of the Company's natural gas engine products and packaged cooling and cogeneration systems are also affected by the cost of natural gas. A significant increase in the relative cost of natural gas could also have a material adverse effect on the sale of certain of the Company's products. Incentives for Cooling Systems. Purchasers of the Company's Tecochill(R) cooling systems often receive investment incentives for the purchase of Tecochill equipment from gas utilities or state or municipal governments. Although the Company has no reason to believe these 34PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements incentives will be discontinued, elimination of these incentives could have a material adverse effect on sales of the Company's Tecochill systems. Risks Associated with Protection, Defense, and Use of Intellectual Property and Ownership of Technology Rights. The Company holds several patents relating to various aspects of its products. Proprietary rights relating to the Company's products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that patents will be issued from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology and, in the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products or gain access to its trade secrets and know-how. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company's patents, or that they will not use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company's products or technologies. The Company may need to acquire licenses to, or contest the validity of, any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. In addition, the Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. In addition, a significant percentage of the Company's research and development is sponsored by third parties. Sponsors of these programs generally own the rights to technology that is developed as a result of the Company's work under the programs. These rights could limit the Company's ability to commercialize any technological breakthroughs made in the course of such work. No Assurance of Development and Commercialization of ThermoLyte Products; Uncertain Market Acceptance; Potential Product Liability. The Company's ThermoLyte subsidiary is developing and commercializing propane-fueled lighting products. Product development involves a high degree of risk, and returns to investors are dependent upon successful development and commercialization of the ThermoLyte products. There can 35PAGE Thermo Power Corporation 1997 Financial Statements Forward-looking Statements be no assurance that the Company will be able to build the sales and marketing organization necessary for the successful commercialization of its products. In addition, as with any new technology, there is substantial risk that the marketplace may not accept or be receptive to the potential benefits of such technology. Market acceptance of the Company's proposed products will depend, in large part, upon the ability of the Company to demonstrate the safety of such products and their advantages over commercially available alternatives. There can be no assurance that the ThermoLyte products will be accepted by the public. Finally, because the ThermoLyte products will be powered by propane or a similar fuel that is combustible, the Company may be subject to potential product liability damages. The Company intends to design the ThermoLyte products to minimize these effects and believes that it will be able to obtain insurance against such liabilities on terms acceptable to the Company. However, no assurance can be given that damages from product liability will not have a material adverse impact on the results of operations, financial condition, or reputation of the Company. 36PAGE Thermo Power Corporation 1997 Financial Statements Selected Financial Information (In thousands except per share amounts) 1997 1996 1995(a) 1994(b) 1993 -------------------------------------------------------------------------- Statement of Income Data: Revenues $121,046 $120,736 $103,255 $ 89,334 $ 75,429 Net income 2,104 885 4,188 3,248 1,923 Earnings per share .17 .07 .34 .26 .18 Balance Sheet Data: Working capital $ 54,708 $ 57,719 $ 60,140 $ 43,143 $ 50,467 Total assets 107,992 110,711 108,417 82,621 79,513 Long-term obligations 252 305 364 344 3,395 Common stock of subsidiary subject to redemption 18,059 17,747 17,435 - - Shareholders' investment 66,668 67,368 65,825 60,475 56,599 (a)Reflects the net proceeds from the private placement of shares of ThermoLyte Corporation in March 1995. (b)Reflects the May 1994 acquisition of NuTemp, Inc. 37PAGE Thermo Power Corporation 1997 Financial Statements Common Stock Market Information The following table shows the market range for the Company's common stock based on reported sales prices on the American Stock Exchange (symbol THP) for fiscal 1997 and 1996. 1997 1996 ----------------- ------------------ Quarter High Low High Low ------------------------------------------------------------------------ First $11 1/4 $ 7 3/4 $16 1/4 $12 1/4 Second 9 1/4 6 1/8 16 1/8 11 3/8 Third 7 5 1/2 17 3/8 11 3/4 Fourth 9 7/8 5 5/8 12 5/8 9 5/16 As of October 31, 1997, the Company had 459 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the American Stock Exchange for the Company's common stock on October 31, 1997, was $8 3/8 per share. Shareholder Services Shareholders of Thermo Power Corporation who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer and Vice President, Thermo Power Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Quarterly distribution of printed reports is limited to the second quarter report only. All quarterly reports and press releases are available through the Internet from Thermo Electron's home page (http://www.thermo.com/subsid/thp.html). Stock Transfer Agent American Stock Transfer & Trust Company is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. 38PAGE Thermo Power Corporation 1997 Financial Statements Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended September 27, 1997, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer and Vice President, Thermo Power Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Friday, March 13, 1998, at 10:00 a.m. at Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts. 39 EX-21 5 Exhibit 21 THERMO POWER CORPORATION Subsidiaries of the Registrant At November 19, 1997, Thermo Power Corporation owned the following companies: State or Registrant's Jurisdiction % of Name of Incorporation Ownership --------------------------------------- ---------------- ------------ NuTemp, Inc. Illinois 100% Peek plc Scotland 92 Peek Data Limited England and Wales 100 Peek Group Services Limited England and Wales 100 Dubilier Warminster Limited England and Wales 100 International Resistance Co Limited England and Wales 100 Minicircuits Limited England and Wales 100 Peek International Limited England and Wales 100 Peek Corporation Delaware 100 Brandt Instruments,Inc. Delaware 100 Peek Traffic USA, Inc. Florida 100 Peek Measurement, Inc. Texas 100 Peek Traffic, Inc. Delaware 100 Polysonics International, Inc. U.S. Virgin Islands 100 Saratec Measurement, Inc. Florida 100 Signal Control Company Delaware 100 Signal Maintenance, Inc. Delaware 100 Transyt Corporation Florida 100 Peek Traffic GmbH Germany 100 Peek International B.V. The Netherlands 100 Peek Traffic AB Sweden 100 Peek Trafik a-s Denmark 100 Peek Trafikk AS Norway 100 Peek Traffic OY Finland 100 Peek Traffic B.V. The Netherlands 100 Peek Fleetlogic B.V. The Netherlands 100 Peek Traffic Projects B.V. The Netherlands 100 Peek Limited Hong Kong 85 Peek Trafikk Sendirian Berhad Malaysia 100 Peek Traffic (Thailand) Limited Thailand 100 Sichuan Modern Control System Engineering Company Limited China 41* PAGE Exhibit 21 THERMO POWER CORPORATION Subsidiaries of the Registrant (continued) State or Registrant's Jurisdiction % of Name of Incorporation Ownership --------------------------------------- ---------------- ------------ Peek Investments Limited England and Wales 100 Dubilier America Inc. Delaware 100 ACI Holdings, Inc. New York 100 Peek Systems Limited England and Wales 100 Sotwell Limited England and Wales 100 Peek Technology Limited England and Wales 100 Peek Measurement Limited England and Wales 100 Peek Environmental Limited England and Wales 100 Sarasota Data Products Limited England and Wales 100 Sarasota Instrumentation Limited England and Wales 100 Peek Traffic Limited England and Wales 100 GK Instruments Limited England and Wales 100 Sarasota Traffic Limited England and Wales 100 Streeteramet Limited England and Wales 100 Weighwrite Limited England and Wales 100 Radley Services Limited England and Wales 100 Atest Electronics Limited England and Wales 100 Bartsign Limited England and Wales 100 Greenpar Holdings Limited England and Wales 100 Helvetia Automatic Products Limited England and Wales 100 Peek Field Services Limited England and Wales 100 Peek Traffic Systems B.V. The Netherlands 100 Radley (1) Limited England and Wales 100 Smartways Limited England and Wales 100 Tollstar Limited England and Wales 100 Takepine Limited United Kingdom 100 Tecogen Securities Corporation Massachusetts 100 ThermoLyte Corporation Delaware 78 * Participating interest EX-23 6 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated October 31, 1997 (except with respect to the matter discussed in Note 13 as to which the date is November 19, 1997), included in or incorporated by reference into Thermo Power Corporation's Annual Report on Form 10-K for the year ended September 27, 1997, into the Company's previously filed Registration Statements as follows: Registration Statement No. 33-19061 on Form S-8, Registration Statement No. 33-19062 on Form S-8, Registration Statement No. 33-25051 on Form S-8, Registration Statement No. 33-52814 on Form S-8, Registration Statement No. 33-87674 on Form S-8, Registration Statement No. 33-87686 on Form S-8, Registration Statement No. 33-87692 on Form S-8, and Registration Statement No. 33-65273 on Form S-8. Arthur Andersen LLP Boston, Massachusetts December 4, 1997 EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS SEP-27-1997 SEP-27-1997 19,347 9,171 21,769 757 19,884 77,607 19,637 9,046 107,992 22,899 252 0 0 1,249 65,419 107,992 121,046 121,046 99,154 99,154 2,296 252 18 4,534 2,118 2,104 0 0 0 2,104 .17 0
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