-----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, Qwt1lBLMmChehfWn3jFIhUGMSLYG4Y8/qd3lVoQ9+nb1duSfL6GAUT3hNEdF9uZt 9XLYzePCfx6yikVm3Ch0Ow== 0000097745-97-000026.txt : 19970321 0000097745-97-000026.hdr.sgml : 19970321 ACCESSION NUMBER: 0000097745-97-000026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08002 FILM NUMBER: 97559564 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 28, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8002 THERMO ELECTRON CORPORATION (Exact name of Registrant as specified in its charter) Delaware 04-2209186 (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: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $1.00 par value New York Stock Exchange Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 24, 1997, was approximately $5,267,295,000. As of January 24, 1997, the Registrant had 149,925,557 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 28, 1996, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 1997, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business Thermo Electron Corporation and its subsidiaries (the Company or the Registrant) develop, manufacture, and market environmental monitoring and analysis instruments; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; paper-recycling and papermaking equipment; alternative-energy systems; industrial process equipment; and other specialized products. The Company also provides a range of services for the personal care, environmental, laboratory analysis, and metals-processing industries, and conducts advanced- technology research and development. The Company performs its business through divisions and wholly owned subsidiaries, as well as majority-owned subsidiaries that are partially owned by the public or by private investors. A key element in the Company's growth has been its ability to commercialize innovative products and services emanating from research and development activities conducted at the Company's various subsidiaries and divisions. The Company's strategy has been to identify business opportunities arising from social, economic, and regulatory issues, and to seek a leading market share through the application of proprietary technology. As part of this strategy, the Company continues to focus on the acquisition of complementary businesses that can be integrated into its existing core businesses to leverage access to new markets. The Company believes that maintaining an entrepreneurial atmosphere is essential to its continued growth and development. To preserve this atmosphere, the Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary- level stock option incentive programs, as well as capital to support the subsidiaries' growth. The Company's wholly and majority-owned subsidiaries are provided with centralized corporate development, administrative, financial, and other services that would not be available to many independent companies of similar size. As of March 19, 1997, the Company had 22 subsidiaries that have sold minority equity interests, 19 of which are publicly traded and three of which are privately held. The Company is a Delaware corporation and was incorporated in 1956. The Company completed its initial public offering in 1967 and was listed on the New York Stock Exchange in 1980. 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 2PAGE not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the caption "Forward-looking Statements" in the Registrant's 1996 Annual Report to Shareholders incorporated herein by reference. (b) Financial Information About Industry Segments The Company's products and services are divided into six segments: Instruments, Alternative-energy Systems, Process Equipment, Biomedical Products, Environmental Services, and Advanced Technologies. Products or services within a particular segment are provided by more than one subsidiary, and certain subsidiaries' products or services are included in more than one segment. The principal products and services offered by the Company in the six industry segments are described below. Financial information concerning the Company's industry segments is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1996* Annual Report to Shareholders and is incorporated herein by reference. (c) Description of Business (i) Principal Products and Services Instruments The Company, through its Thermo Instrument Systems Inc. subsidiary, is a worldwide leader in the development, manufacture, and marketing of instruments used to identify and analyze air pollution, radioactivity, complex chemical compounds, toxic metals, and other elements in a broad range of liquids, solids, and gases. Thermo Instrument also provides instruments that control, monitor, image, inspect, and measure various industrial processes and life sciences phenomena. Thermo Instrument historically has expanded both through the acquisition of companies and product lines and through the internal development of new products and technologies. During the past several years, Thermo Instrument has completed a number of complementary acquisitions that have provided additional technologies, specialized manufacturing or product development expertise, and broader capabilities in marketing and distribution. In March 1996, Thermo Instrument completed the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc, (Fisons) a wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123.5 million British pounds sterling in cash (approximately $188.9 million) and the assumption of approximately 30.8 million British pounds sterling of indebtedness * References to 1996, 1995, and 1994 herein are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. 3PAGE (approximately $47.2 million). The purchase price is subject to a post-closing adjustment based on the net assets of the acquired businesses. The businesses acquired from Fisons substantially added to Thermo Instrument's research, development, manufacture, and sale of analytical instruments to industrial and research laboratories worldwide. Following the acquisition, certain of the Fisons businesses have been sold by Thermo Instrument to its public subsidiaries with complementary technologies and markets. On March 12, 1997, Thermo Instrument declared unconditional in all respects its cash tender offer for all outstanding shares of Life Sciences International PLC (Life Sciences) for 135 pence per share (approximately $2.16 per share). As of that date, Thermo Instrument had received acceptances representing approximately 91% of the Life Sciences shares outstanding and Thermo Instrument owned an additional 3% of the outstanding Life Sciences shares. There are approximately 175 million Life Sciences shares outstanding. Thermo Instrument has established March 26, 1997, as the date for payment for all shares as to which acceptance has been received. In addition, Thermo Instrument expects to repay approximately $72 million of Life Sciences's debt, net of acquired cash expected to be used. Life Sciences, a London Stock Exchange-listed company, manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. Thermo Instrument adopted the Company's spinout strategy in an effort to more clearly focus its many analytical technologies on specific niche markets. To date, Thermo Instrument has completed initial public offerings of ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation, and Thermo BioAnalysis Corporation, and a private equity offering of Metrika Systems Corporation. ThermoSpectra develops, manufactures, and markets precision imaging, inspection, and measurement instrumentation based on high-speed data acquisition and digital-processing technologies to provide industrial and research customers with integrated systems that address their specific needs. ThermoQuest is a leading manufacturer of commercial mass spectrometers that identify and measure the components of a sample for organic or inorganic compounds in the pharmaceutical, environmental, chemical, and food and beverage industries, and in forensic sciences. ThermoQuest also produces high performance liquid chromatographs, gas chromatographs, and related equipment used principally in the research and development and production monitoring of pharmaceuticals and chemicals, and for environmental monitoring. Thermo Optek is a worldwide leader in the development, manufacture, and marketing of analytical instruments that use a range of optical spectroscopy and energy-based techniques. Thermo Optek's instruments are used in the quantitative and qualitative chemical analysis of elements and molecular compounds in a variety of solids, liquids, and gases. Thermo BioAnalysis develops, manufactures, and markets instruments and information management systems used in biochemical research and 4PAGE production, as well as clinical diagnostics. Thermo BioAnalysis focuses on three principal product areas: life sciences instrumentation, information management systems, and health physics instrumentation. Metrika Systems manufactures process optimization systems that provide on-line, real-time analysis of the elemental composition of bulk raw materials in basic materials production processes, including coal, cement, and minerals. In addition, Metrika Systems manufactures industrial gauging and process control instruments and systems used principally by manufacturers of web-type materials, such as sheet metal, rubber, and plastic foils, to measure and control parameters such as thickness and coating weight of such materials. Thermo Instrument also has a number of wholly owned businesses that manufacture monitoring instruments for three principal markets: the detection and measurement of nuclear radiation; the monitoring of air pollutants including toxic and combustible gases; and process monitoring instruments and control systems for the oil, gas, and petrochemical industries. Alternative-energy Systems The Company's Alternative-energy Systems segment includes the operation of independent (non-utility) power plants. This segment also includes the manufacture, sale, and servicing of industrial refrigeration systems; natural gas and marine engines; packaged cooling and cogeneration systems; and steam turbines and compressors. Through its Thermo Ecotek Corporation subsidiary, the Company designs, develops, owns, and operates independent (non-utility) electric power generation facilities that use environmentally responsible fuels including agricultural and wood wastes, referred to as "biomass." Thermo Ecotek currently operates seven biomass facilities. Its facilities are developed and operated through joint ventures or limited partnerships in which it has a majority interest, or through wholly owned subsidiaries. Thermo Ecotek intends to pursue development of power-generation projects both in the U.S. and overseas. In 1996, Thermo Ecotek formed a joint venture in Italy to develop, own, and operate biomass-fueled electric power facilities, and in January 1997, announced an agreement to jointly develop a 30-megawatt power project in the Czech Republic. Thermo Ecotek is expanding beyond biomass power generation into other products and processes that protect the environment. In August 1995, Thermo Ecotek, through two wholly owned subsidiaries, entered into a Limited Partnership Agreement with KFx Wyoming, Inc., a subsidiary of KFx Inc. (in which Thermo Ecotek has a 17.8% interest), to develop, construct, and operate a coal-beneficiation plant in Gillette, Wyoming. The plant is expected to begin commercial operation later in 1997 and will employ patented "clean coal" technology to remove excess moisture and increase energy from subbituminous coal extracted from Wyoming's Powder River Basin. In May 1996, Thermo Ecotek acquired the assets, subject to certain liabilities, of the biopesticides division of W.R. Grace & Co. (renamed 5PAGE Thermo Trilogy), which develops, manufactures, and markets environmentally friendly products for agricultural pest control. In January 1997, Thermo Trilogy acquired the assets of biosys, inc., a producer of pheromone, neem/azadiractin, nematodes, and virus-based biopesticide products, as well as disease-resistant sugar cane. The Company, through its Thermo Power Corporation subsidiary, manufactures, markets, and services industrial refrigeration equipment, natural gas engines for vehicular and stationary applications, marine engines, fork-lift engines, and commercial cooling and cogeneration units. Through its industrial refrigeration business, Thermo Power supplies standard and custom-designed industrial refrigeration systems used primarily by the food-processing, petrochemical, and pharmaceutical industries. Thermo Power's refrigeration packages can be designed for use with any common refrigerant, but approximately 80% of the units produced operate on ammonia, a cost-effective and environmentally safe substance compared with conventional refrigerants based on chlorofluorocarbons. Thermo Power is also a supplier of both remanufactured and new commercial cooling equipment for sale or rent. Thermo Power's engine 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 stationary industrial applications, including cogeneration units, cooling and refrigeration systems, and compressor drives. Many of Thermo Power's products are powered by its low-emission TecoDrive(R) engines, which run solely on compressed natural gas (CNG). Through its privately held ThermoLyte Corporation subsidiary, Thermo Power is developing and commercializing a family of lighting products. The Company's Alternative-energy Systems segment also includes a U.K.-based manufacturer of steam turbines and compressors. Process Equipment The Company designs, manufactures, and sells advanced, custom- engineered processing machinery; paper-recycling and papermaking equipment; and thermal-processing and electroplating systems. Through its Thermo Fibertek Inc. subsidiary, the Company designs and manufactures processing machinery, accessories, and water-management systems for the paper and paper-recycling industries. Thermo Fibertek's custom-engineered systems remove debris, impurities, and ink from wastepaper, and process it into a fiber mix used to produce recycled paper. Thermo Fibertek's principal products include custom-engineered systems and equipment for the preparation of wastepaper for conversion into recycled paper, accessory equipment and related consumables important to the efficient operation of papermaking machines, and water-management systems essential for draining, purifying, and recycling process water. A wholly owned subsidiary of the Company entered into a $145 million contract in December 1994 for engineering, procurement, and construction 6PAGE services for an office wastepaper de-inking facility located in Menominee, Michigan. Thermo Fibertek supplied more than $16 million of equipment and services under the contract over a two-year period. Construction of the project was completed in 1996, with startup testing currently under way. In September 1996, Thermo Fibergen Inc. became a majority-owned public subsidiary of Thermo Fibertek. Thermo Fibergen's principal business consists of conducting research and development to commercialize equipment and systems for recovering materials from papermaking sludge generated by plants that produce virgin and recycled pulp and paper. Thermo Fibergen's GranTek Inc. subsidiary uses a patented process to convert papermaking sludge into granules that are used as carriers for agricultural chemicals. In February 1997, Thermo Fibertek entered into a letter of intent to acquire the assets, subject to certain liabilities, of the stock-preparation business of The Black Clawson Company (Black Clawson) for approximately $110 million in cash. Black Clawson is a leading supplier of recycling equipment used in processing fiber for the manufacture of "brown paper," such as that used for corrugated boxes. The transaction is subject to various conditions of closing. Through a wholly owned subsidiary, the Company also manufactures electroplating systems and related waste-treatment equipment and accessories, as well as aqueous systems for cleaning metal parts without using ozone-damaging solvents. Biomedical Products The Company's Biomedical Products segment comprises a number of diverse medical products businesses, both wholly and publicly owned. Its wholly owned Thermo Biomedical group made two acquisitions in 1996: SensorMedics Corporation, a leading provider of systems for pulmonary function diagnosis and a producer of respiratory gas analyzers, physiological testing equipment, and automated sleep analysis systems; and Medical Data Electronics, a manufacturer of patient-monitoring systems. Also part of the Company's Thermo Biomedical group is International Technidyne Corporation, a leading manufacturer of hemostasis management products, including blood coagulation-monitoring instruments, and a producer of skin-incision devices that can draw minute but medically significant blood samples through precisely controlled incisions. Nicolet Biomedical Inc., wholly owned subsidiary of the Company, is a leading manufacturer of biomedical instruments for assessing muscle, nerve, sleep, hearing, and brain blood-flow disorders, various neurologic disorders, and for related work in clinical neurophysiology. These instruments are used in hospitals, clinics, universities, private- practice medical offices, and medical research facilities. Another wholly owned subsidiary of the Company, Bird Medical Technologies, Inc. develops, manufactures, and sells respiratory care equipment and accessories and infection-control products to hospitals, 7PAGE subacute care facilities, outpatient surgical centers, doctors, dentists, the military, as well as other manufactures. Thermo Cardiosystems Inc., a public subsidiary of Thermedics Inc., has developed an implantable left ventricular-assist system (LVAS) called HeartMate(TM) that, when implanted alongside the natural heart, is designed to take over the pumping function of the left ventricle for patients whose hearts are too damaged or diseased to beat adequately on their own. Thermo Cardiosystems has two versions of the LVAS: a pneumatic (or air driven) system that can be controlled by either a bedside console or portable unit, and an electric system that features an internal electric motor powered by an external battery-pack worn by the patient. In April 1994, Thermo Cardiosystems received the European Conformity Mark (CE Mark) for commercial sale of the air-driven LVAS in all European Community countries. In October 1994, the U.S. Food and Drug Administration (FDA) granted approval for commercial sale of the air-driven LVAS in the United States. The electric version of the LVAS, which received the CE Mark in August 1995, is currently being used in clinical trials in the U.S. for patients awaiting heart transplants and may not be sold commercially in this country until it has received FDA approval. In December 1995, the FDA approved the protocol for conducting clinical trials using Thermo Cardiosystems' electric LVAS as an alternative to medical therapy. In December 1996, the Company began actively working with the FDA on the premarket approval application for commercial approval of the electric LVAS used as a bridge to transplant. In Europe, the device is used both as a bridge to transplant and as an alternative to heart transplants. In December 1996, Thermo Cardiosystems acquired the business of Nimbus Medical, Inc., a research and development organization involved for more than 20 years in ventricular-assist device and total artificial-heart technology, including high-speed rotary blood pumps, which are relatively small and could potentially provide cardiac support in small adults and children. Trex Medical Corporation, a public subsidiary of ThermoTrex Corporation, designs, manufactures, and markets a range of medical imaging systems. It is the world's leading manufacturer of mammography equipment and minimally invasive stereotactic breast-biopsy systems. Trex Medical also manufactures general-purpose and specialty radiographic systems. In 1996, Trex Medical significantly expanded its product lines through the acquisition of two businesses. XRE Corporation, acquired in May, designs, manufactures, and markets specialized X-ray systems used in the diagnosis and treatment of coronary artery disease and other vascular conditions. Continental X-Ray Corporation, acquired in September, produces a broad line of general-purpose and specialty X-ray systems, including radiographic/fluoroscopic systems used in hospitals to diagnose gastrointestinal disorders, and electrophysiology products that aid doctors in diagnosing cardiac arrhythmia. Trex Medical has developed a full-view digital imaging system that is currently in clinical trials, and plans to submit a 510(k) application to the FDA in 1997 to gain clearance to market this system commercially. The advantage of digital imaging is that the radiologist can manipulate 8PAGE and enhance the image quality to scrutinize subtle differences that may go undetected on film-based X-rays. After introducing the digital imaging system for mammography applications, the most technically challenging imaging modality, Trex Medical plans to develop its flat-panel digital technology for use in other of its products. ThermoLase Corporation, a public subsidiary of ThermoTrex, operates a national network of Spa Thira salons that offer its patented SoftLight(TM) hair-removal system, for which it received FDA clearance in April 1995. The SoftLight system uses a low-energy, dermatology laser in combination with a lotion to remove hair. ThermoLase currently has 10 spas open in the U.S., with two additional spas in development. ThermoLase also plans to submit a 510(k) application in 1997 for its laser-based skin-rejuvenation system, based on data from its clinical trials. In January 1996, ThermoLase formed a joint venture to market the SoftLight process in Japan for both hair removal and skin-rejuvenation, if and when available. In November, ThermoLase entered into a license agreement with a medical supply and service company in Saudi Arabia, to market its hair-removal process in that country. A joint venture was also established with a leading provider of premium hair- and skin-care services in France in November 1996. To complement its Spa Thira salons, ThermoLase has commenced a program to license the SoftLight hair-removal process to qualified service providers for use in their practices. ThermoLase also manufactures and markets skin-care, bath, and body products sold through department stores, salons, and spas, including the lotion that is an integral part of the SoftLight hair-removal system. Environmental Services Through its Thermo TerraTech Inc. subsidiary, the Company provides environmental and infrastructure planning and design services, with specialization in the areas of municipal and industrial water quality management, bridge and highway construction and reconstruction, and natural resource management. Thermo TerraTech also offers comprehensive environmental testing and analysis through a national network of laboratories serving the environmental, food, and pharmaceutical industries. Thermo Remediation Inc., a public subsidiary of Thermo TerraTech, provides services for the recycling of industrial fuel waste, and offers nuclear remediation and health physics services at radioactively contaminated sites. Thermo Remediation also operates centers that thermally treat soil to remove and destroy petroleum contamination from industrial sites and from former manufactured-gas plants, refineries, and other sources. Thermo Remediation also offers other remedial solutions, depending on the location, type, and extent of contamination, including bioremediation and the application of risk-based corrective actions. A majority-owned subsidiary of Thermo TerraTech, Thermo EuroTech N.V., provides wastewater treatment services and specializes in 9PAGE converting "off-spec" and contaminated petroleum fluids into usable oil products. In addition, metallurgical heat-treating services are provided for customers in the automotive, aerospace, defense, and other industries. The Company also provides metallurgical fabrication services, principally on high-temperature materials, for customers in the aerospace, medical, electronics, and nuclear industries. Advanced Technologies ThermoTrex conducts sponsored research and development and is attempting to commercialize new products based on advanced technologies developed in its laboratories. Sponsored research and development, conducted principally for the U.S. government, includes basic and applied research in communication, avionics, X-ray detection, signal processing, advanced-materials technology, and lasers. ThermoTrex is currently developing a number of technologies that it believes have future commercial potential. These include a laser communication system called lasercom, intended to help alleviate capacity constraints on existing communication systems; a passive microwave camera intended to "see" through clouds and fog to enhance safety in aerial navigation; and direct digital imaging systems for medical equipment to improve image quality for more accurate clinical diagnoses. Through a public subsidiary of Thermedics, Thermo Sentron Inc., the Company designs and manufactures high-speed precision-weighing and inspection equipment for packaging lines and industrial production. Thermo Sentron serves two principal markets, packaged goods and bulk materials, both of which use its products to meet quality and productivity objectives. Customers for Thermo Sentron's checkweighers are in the food-processing, pharmaceutical, mail-order, and other packaged-goods businesses. Thermo Sentron also sells metal detectors with a patented self-test feature, used to inspect packaged products for metal contamination, to food-processing and pharmaceutical companies. Its bulk-materials product line includes conveyor-belt scales, solid level-measurement and conveyor-monitoring systems, and sampling systems, all sold to customers in the mining and material-processing industries, as well as to electric utilities, chemical, and other manufacturing companies. Thermedics manufactures electrode-based chemical-measurement products used in the agriculture, biomedical research, food processing, pharmaceutical, sewage treatment, and many other industries. In laboratories, manufacturing plants, and in the field, Thermedics' products permit these industries to determine the presence and amount of relevant chemicals. Thermedics also manufactures on-line process monitors used by power plants and semiconductor manufacturers to detect contaminants in high-purity water. Thermedics Detection Inc., a public subsidiary of Thermedics, manufactures quality-assurance and explosives-detection products. Much of its technology involves rapid contents analysis. Thermedics Detection provides high-speed X-ray imaging systems that monitor liquid fill-level 10PAGE and other container characteristics for the beverage and other industries that assure the quality of refillable plastic containers that are principally used outside the United States. Moisture Systems Corporation and Rutter & Co., B.V., acquired by Thermedics Detection in January 1996, design, manufacture, and sell instruments that use near-infrared spectroscopy to measure moisture and other product components, including fat, protein, solvents, and other substances in numerous consumer and industrial products. Thermedics Detection also recently introduced an ultra-high-speed gas chromatograph that permits manufacturers to conduct laboratory-quality analysis for near on-line process-control applications. Thermedics Detection incorporates trace-detection technologies in products that screen baggage, people, and electronic equipment for the presence of a range of explosives. Its explosives detectors are in place at airports and border crossings and in forensics investigations, such as the attempt to identify the cause of the crash of TWA Flight 800. Thermedics Detection also has developed a lower-cost product designed for use in conjunction with its trace explosives detectors, and an automated system that can detect traces of explosives on people. Thermo Voltek Corp., a public subsidiary of Thermedics, designs, manufactures, and markets electromagnetic compatibility (EMC) testing instruments that simulate pulsed electromagnetic interference, radio frequency interference, and changes in AC voltage, to allow manufacturers of electronic systems and integrated circuits to test for resistance to those conditions. Thermo Voltek also manufactures high-voltage power-conversion systems and programmable power amplifiers, provides EMC consulting and systems-integration services, and distributes EMC-related products. The Company's wholly owned Coleman Research Corporation subsidiary provides systems integration, systems engineering, and analytical services to government and commercial customers in fields of information technology, software engineering, energy, the environment, launch systems, advanced radar and imaging, and health systems. Publicly and Privately Held Subsidiaries In 1983, the Company adopted a strategy of having certain subsidiaries sell a minority interest in a public or private offering to outside investors. An important goal of this strategy is to provide the entrepreneurial atmosphere and focused performance incentives of a separate business. As of March 19, 1997, the Company had 22 subsidiaries that have sold minority equity interests, 19 of which are publicly traded and three of which are privately held. Thermedics Inc. develops, manufactures, and markets product quality assurance systems, precision weighing and inspection equipment, explosives-detection devices, microweighing and electrochemistry instruments, as well as biomaterials and other biomedical products. Thermedics' products are included in the Biomedical Products and Advanced Technologies segments. 11PAGE Thermo Cardiosystems Inc., a majority-owned subsidiary of Thermedics, develops, manufactures, and markets implantable left ventricular-assist systems and develops artificial hearts. Thermo Cardiosystems' products are included in the Biomedical Products segment. Thermo Voltek Corp., a majority-owned subsidiary of Thermedics, designs, manufactures, and markets electromagnetic compatibility (EMC) testing instruments, high-voltage power-conversion systems, and programmable power amplifiers; provides EMC consulting and systems-integration services; and distributes EMC-related products. Thermo Voltek's products and services are included in the Advanced Technologies segment. Thermo Sentron Inc., a majority-owned subsidiary of Thermedics, develops, manufactures, and markets high-speed precision-weighing and inspection equipment for producers of bulk materials and for packaging lines in the food-processing, pharmaceutical, mail-order, and other diverse industries. Thermo Sentron's products are included in the Advanced Technologies segment. Thermedics Detection Inc., a majority-owned subsidiary of Thermedics, develops, manufactures, and markets high-speed detection and measurement products used for product quality assurance, explosives detection, and laboratory analysis. Thermedics Detection's products are included in the Advanced Technologies segment. Thermo Instrument Systems Inc. develops, manufactures, and markets analytical instruments used to identify complex chemical compounds, toxic metals, and other elements in a broad range of liquids and solids, as well instruments used to monitor radioactivity and air pollution, and to control, image, inspect, and measure various industrial processes and life sciences phenomena. Thermo Instrument's products represent the Company's Instruments segment. ThermoSpectra Corporation, a majority-owned subsidiary of Thermo Instrument, develops, manufactures, and markets precision imaging, inspection, and measurement instrumentation based on high-speed data acquisition and digital-processing technologies. ThermoQuest Corporation, a majority-owned subsidiary of Thermo Instrument, develops, manufactures, and sells mass spectrometers, liquid chromatographs, and gas chromatographs for the pharmaceutical, environmental, and industrial markets. Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument, develops, manufactures, and markets optical and energy-based analytical instruments used in the quantitative and qualitative chemical analysis of elements and molecular compounds in solids, liquids, and gases. In addition, through its wholly owned Thermo Vision Corporation subsidiary, Thermo Optek addresses the photonics marketplace for optical components, imaging systems, analytical instruments, and lasers. 12PAGE Thermo BioAnalysis Corporation, a majority-owned subsidiary of Thermo Instrument, develops, manufactures, and markets instruments and information management systems used in biochemical research and production, as well as clinical diagnostics and health physics. Metrika Systems Corporation, a majority-owned, privately held subsidiary of Thermo Instrument, develops, manufactures, and markets systems to optimize on-line industrial processes, such as the production of raw materials and web-type materials, by employing proprietary, ultra-high speed measurement and analysis technologies. Thermo TerraTech Inc. provides environmental services and infrastructure planning and design encompassing a range of specializations within consulting and design, soil and water remediation, and laboratory testing. Thermo TerraTech also provides metal-treating services. Thermo TerraTech's products and services are included in the Environmental Services and Process Equipment segments. Thermo Remediation Inc., a majority-owned subsidiary of Thermo TerraTech, provides environmental services including industrial remediation, nuclear remediation, hazardous waste remedial cleanup, soil remediation, and waste fluids recycling. Thermo Remediation's services are included in the Environmental Services segment. Thermo EuroTech N.V., a majority-owned, privately held subsidiary of Thermo TerraTech, provides environmental services in The Netherlands, including recycling waste oils and refinery and drilling wastes. Thermo EuroTech's services are included in the Environmental Services segment. Thermo Power Corporation manufactures, markets, and services industrial refrigeration equipment, natural gas engines for vehicular and stationary applications, natural gas-fueled cooling and cogeneration systems, lift-truck engines, and marine engines. Thermo Power also conducts sponsored research and development on advanced systems for clean combustion and high-efficiency gas-fueled devices. Thermo Power's products are included in the Alternative-energy Systems segment. ThermoLyte Corporation, a majority-owned, privately held subsidiary of Thermo Power, is developing a line of propane-powered lighting products. ThermoTrex Corporation manufactures and markets medical imaging equipment, has developed a laser-based system for the removal of unwanted hair, and develops advanced technologies that are being developed for potential incorporation into commercial products for the medical imaging, personal-care, avionics, and communications industries. ThermoTrex's products are included in the Company's Biomedical Products and Advanced Technologies segments. ThermoLase Corporation, a majority-owned subsidiary of ThermoTrex, offers laser-based hair-removal services and manufactures skin-care and other personal-care products sold through department stores, salons, and spas. ThermoLase's products and services are included in the Biomedical Products segment. 13PAGE Trex Medical Corporation, a majority-owned subsidiary of ThermoTrex, designs, manufactures, and markets mammography equipment and minimally invasive stereotactic breast-biopsy systems used for the detection of breast cancer, as well as general-purpose X-ray systems and interventional X-ray imaging equipment. Trex Medical's products are included in the Biomedical Products segment. Thermo Fibertek Inc. develops, manufactures, and markets a range of equipment and accessory products for the domestic and international paper and paper-recycling industry, including de-inking and stock-preparation equipment and water-management systems. Thermo Fibertek's products are included in the Process Equipment segment. Thermo Fibergen Inc., a majority-owned subsidiary of Thermo Fibertek, is developing and commercializing equipment and systems to recover materials from pulp reside, or sludge, generated by paper and pulp mills. Thermo Fibergen also produces granules from papermaking sludge that are sold as carriers for agricultural chemicals. Thermo Ecotek Corporation develops and operates independent (non-utility) power plants that use clean combustion technology and alternative-energy sources, such as agricultural waste. The Company is also involved in engineered clean-coal production, as well as the development and production of botanical-based biopesticides for the agricultural industry. Thermo Ecotek's operations are included in the Alternative- energy Systems segment. (ii) New Products The Company's business includes the development and introduction of new products and may include entry into new business segments. The Company has made no commitments to new products that require the investment of a material amount of the Company's assets, nor does it have any definitive plans to enter new business segments that would require such an investment (see Section (xi) "Research and Development"). (iii) Raw Materials Certain raw materials used in the manufacturer of Thermo Cardiosystem's LVAS are available from only one or two suppliers. Thermo Cardiosystems is making efforts to minimize the risks associated with sole sources and ensure long-term availability, including qualifying alternative materials or developing alternative sources for materials and components supplied by a single source. Although the Company believes that it has adequate supplies of materials and components to meet demand for the LVAS for the foreseeable future, no assurance can be given that the Company will not experience shortages of certain materials or components in the future that could cause delays in the Thermo Cardiosystems' LVAS development program or adversely affect Thermo Cardiosystems' ability to manufacture and ship LVAS to meet demand. Except as described above, in the opinion of management, the Company has a readily available supply of raw materials for all of its 14PAGE significant products from various sources and does not anticipate any difficulties in obtaining the raw materials essential to its business. (iv) Patents, Licenses, and Trademarks The Company considers patents to be important in the present operation of its business; however, the Company does not consider any patent, or related group of patents, to be of such importance that its expiration or termination would materially affect the Company's business taken as a whole. The Company seeks patent protection for inventions and developments made by its personnel and incorporated into its products or otherwise falling within its fields of interest. Patent rights resulting from work sponsored by outside parties do not always accrue exclusively to the Company and may be limited by agreements or contracts. The Company protects some of its technology as trade secrets and, where appropriate, uses trademarks or registers its products. It also enters into license agreements with others to grant and/or receive rights to patents and know-how. (v) Seasonal Influences Thermo Ecotek earns a disproportionately high share of its income in the months of May through October due to the rate structures under the power sales agreements relating to its California plants, which provide strong incentives to operate during this period of high demand. Conversely, Thermo Ecotek historically has operated at a marginal profit during the first quarter due to the rate structure under these agreements. While Thermo TerraTech conducts significant operations year-round, the majority of its businesses experience seasonal fluctuations due to adverse weather during winter months. Such seasonal influences may have a material effect on its revenues. A number of Thermo TerraTech's operations were affected by adverse weather during the first quarter of 1996. There are no other material seasonal influences on the Company's sales of products and services. (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 any of the past three years. The Advanced Technologies segment derived approximately 16%, 27%, and 13% of its revenues in 1996, 1995, and 1994, respectively, from contracts with various agencies of the U.S. government and approximately 23% of its revenues in 1994 from one customer for a process-detection instrument. In connection with the development of power plants, Thermo Ecotek typically enters into 15PAGE long-term power supply contracts with a single customer for the sale of power generated by each plant. The Alternative-energy Systems segment derived 16% of its revenues in 1996, 1995, and 1994, from Pacific Gas & Electric and 16%, 15%, and 19% of its revenues in 1996, 1995, and 1994, respectively, from Southern California Edison. (viii) Backlog The Company's backlog of firm orders at year-end 1996 and 1995 was as follows: (In thousands) 1996 1995 ------------------------------------------------------------------------- Instruments $266,600 $188,700 Alternative-energy Systems 118,500 112,900 Process Equipment 52,300 114,800 Biomedical Products 107,700 87,800 Environmental Services 118,200 76,500 Advanced Technologies 148,600 117,200 -------- -------- $811,900 $697,900 ======== ======== The Process Equipment segment backlog in 1995 includes $54 million for the design and construction of an office wastepaper de-inking facility completed in 1996. Backlog includes the uncompleted portion of research and development contracts and the uncompleted portion of certain equipment contracts that are accounted for using the percentage-of-completion method. The Company believes approximately 95% of the 1996 backlog will be filled during 1997. (ix) Government Contracts Approximately 5% of the Company's total revenues in 1996 were derived from contracts or subcontracts with the federal government, which are subject to renegotiation of profits or termination. The Company does not have any knowledge of threatened or pending renegotiation or termination of any material contract or subcontract. (x) Competition The Company is engaged in many highly competitive industries. The nature of the competition in each of the Company's markets is described below: Instruments The Company is among the principal manufacturers of analytical instrumentation. Within the markets for the Company's analytical instrument products, the Company competes with several large corporations with broad product offerings, such as Hewlett-Packard Co., Perkin-Elmer Corp., Varian Associates, Inc., and Hitachi, Ltd., and numerous smaller companies that address only particular segments of the industry or 16PAGE specific geographic areas. The Company's instruments business generally competes on the basis of technical advances that result in new products and improved price/performance ratios, reputation among customers as a quality leader for products and services, and active research and application-development programs. To a lesser extent, the Company competes on the basis of price. Alternative-energy Systems The worldwide independent power market consists of numerous companies, ranging from small startups to multinational industrial companies. In addition, a number of regulated utilities have created subsidiaries that compete as non-utility generators. Non-utility generators often specialize in market "niches," such as a specific technology or fuel (for example, gas-fired cogeneration, refuse-to-energy, hydropower, geothermal, wind, solar, wood, or coal) or a specific region of the country where they believe they have a market advantage. However, many non-utility generators, including the Company, seek to develop projects on a best-available-fuel basis. The Company competes primarily on the basis of project experience, technical expertise, capital resources, and power pricing. 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 the Company is one, account for approximately one-half of worldwide sales, with the balance generated by many smaller companies. The Company competes principally on the basis of its advanced control systems and overall quality, reliability, service, and price. The Company believes it is a leader in remanufactured refrigeration equipment. The Company competes in this market based on price, delivery time, and customized equipment. The Company's sale of packaged 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 as well as electric utilities' pricing programs. Indirect competitors include manufacturers of conventional heating and cooling systems. Competition in the market for natural gas engines for vehicles is intense. Current and potential competitors include major automotive and natural gas companies and other companies that have substantially greater financial resources than those of the Company. The Company has experienced intense competition in the marine engine business in recent years as some of its former customers have been acquired by competitors following the vertical integration of the boating industry. Competition is primarily on the basis of quality, reliability, and service. Process Equipment The Company faces significant competition in the markets for paper- recycling and water handling equipment and papermachine accessories, and 17PAGE competes in these markets primarily on the basis of quality, service, technical expertise, and product innovation. The Company is a leading supplier of de-inking systems for paper recycling and accessory equipment for papermaking machines, and competes in these markets primarily on the basis of service, technical expertise, and performance. The market for thermal-processing systems is subject to intense competition worldwide. The Company is aware of at least eight companies that market a number of products comparable to the Company's, but competition for particular projects is typically limited to fewer companies. The Company competes on the basis of several factors, including technical performance, product quality and reliability, timely delivery, and price. Biomedical Products Competition in the markets for most of the Company's biomedical products, including those manufactured by Thermo Cardiosystems, ThermoTrex, International Technidyne, Nicolet Biomedical, Bird Medical Technologies, SensorMedics, and Medical Data Electronics, is based to a large extent upon technical performance. The Company is aware of one other company that has submitted a PMA application with the FDA for an implantable LVAS that would compete with Thermo Cardiosystems' LVAS. The Company is unaware whether this PMA application has been accepted for filing by the FDA. Also, the Company is aware of one other company that has received approval by the FDA Advisory Panel on Circulatory System Devices and subsequent commercial approval for its cardiac-assist device. This is an external device that is positioned on the outside of the patient's chest and is intended for short-term use in the hospital environment. The Company is also aware that a total artificial heart is currently undergoing clinical trials. The requirement of obtaining FDA approval for commercial sale of an LVAS is a significant barrier to entry into the U.S. market for these devices. There can be no assurance, however, that FDA regulations will not change in the future, reducing the time and testing required for others to obtain FDA approval. In addition, other research groups and companies are developing cardiac-assist systems using alternative technologies or concepts, one or more of which might prove functionally equivalent to or more suitable than the Company's systems. Among products that have been approved for commercial sale, the Company competes primarily on the basis of performance, service capability, reimbursement status, and price. The Company is one of a number of competitors in the markets for mammography and general radiographic systems and is one of two competitors in the market for stereotactic breast-biopsy systems. The Company competes in these markets primarily on the basis of product features, product performance, and reputation, as well as price and service. The markets in which the Company competes with these products are characterized by rapid technological change. The Company believes that in order for it to be competitive in these markets it will be important for it to continue to be technologically innovative. The Company's SoftLight laser hair-removal system competes with other laser-based systems, electrolysis, and other hair-removal products. 18PAGE In March 1997, Laser Industries Ltd., Mehl/Biophile International Corp., and Palomar Medical Technologies Inc. each announced that it had received clearance from the FDA to market its laser-based system for the removal of unwanted facial and body hair. The laser-based hair-removal market is characterized by rapid technological change and the Company believes that it must continue to be technologically innovative in order to compete in this market. In addition, the SoftLight system will compete with electrolysis providers, many of whom are small practitioners with well-established networks of client relationships. Finally, the SoftLight system competes with razors, hot wax, and other hair-removal products. Environmental Services The Company competes in the market for soil-remediation services based on its ability to offer customers superior protection from environmental liabilities. However, with relaxed regulatory standards in many states, the Company faces intense competition in local markets from landfills, other treatment technologies, and from companies competing with similar technologies, limiting the volume of soil to be treated and the prices that can be charged by the Company. Pricing is therefore a major competitive factor for the Company. The Company's metallurgical services business competes in specialty machining services. Competition is based principally on services provided, turnaround time, and price. Hundreds of independent analytical testing laboratories and consulting firms compete for environmental services business nationwide. Many of these firms use equipment and processes similar to those of the Company. Competition is based not only on price, but also on reputation for accuracy, quality, and the ability to respond rapidly to customer requirements. In addition, many industrial companies have their own in-house analytical testing capabilities. The Company believes that its competitive strength lies in certain niche markets within which the Company is recognized for its expertise. Advanced Technologies In its contract research and development business, the Company not only competes with other companies and institutions that perform similar services, but must also rely on the ability of government agencies and other clients to obtain allocations of research and development monies to fund contracts with the Company. The Company competes for research and development programs principally on the basis of technical innovations. As government funding becomes more scarce, particularly for defense projects, the competition for such funding will become more intense. In addition, as the Company's programs move from the development stage to commercialization, competition is expected to intensify. Thermedics' electrode-based chemical-measurement products compete with several international companies. In the markets for these products, Thermedics competes on the basis of performance, service, technology, and price. 19PAGE Thermo Sentron competes with several international and regional companies in the market for its products. Thermo Sentron's competitors in the packaged goods market differ from those in the bulk materials market. The principal competitive factors in both markets are customer service and support, quality, reliability, and price. Thermedics Detection's product quality assurance systems compete with chemical-detection systems manufactured by several companies and with other technologies and processes for product quality assurance. Competition in the markets for all of the Company's detection products is based primarily on performance, service, and price. There are a number of competitors in the market for instruments that detect explosives, including makers of other chemical-detection instruments as well as enhanced X-ray detectors. The Company expects that the Federal Aviation Administration (FAA) will purchase trace detection systems as part of the initial deployment of explosives-detection systems in the United States. The Company believes that companies, if any, whose devices are ultimately required by the FAA will have a substantial competitive advantage in the United States. Thermo Voltek is a leading supplier of pulsed electromagnetic interference testing equipment. The Company competes in this market primarily on the basis of performance, technical expertise, reputation, and price. In the market for power amplifiers, Thermo Voltek competes with several companies worldwide primarily on the basis of technical expertise, reputation, and price. (xi) Research and Development During 1996, 1995, and 1994, the Company expended $299,271,000, $269,329,000, and $229,200,000, respectively, on research and development. Of these amounts, $144,823,000, $167,120,000, and $149,645,000, respectively, were sponsored by customers and $154,448,000, $102,209,000, and $79,555,000, respectively, were Company-sponsored. (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 At December 28, 1996, the Company employed approximately 17,760 persons. (d) Financial Information about Exports by Domestic Operations and about Foreign Operations Financial information about exports by domestic operations and about foreign operations is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. 20PAGE (e) Executive Officers of the Registrant Present Title (Year First Name Age Became Executive Officer) ------------------------ --- -------------------------------------- George N. Hatsopoulos(1) 70 Chairman of the Board, Chief Executive Officer, and Director (1956) John N. Hatsopoulos(1) 62 President and Chief Financial Officer (1968) Peter G. Pantazelos 66 Executive Vice President (1968) Arvin H. Smith 67 Executive Vice President (1983) William A. Rainville 55 Senior Vice President (1993) John W. Wood Jr. 53 Senior Vice President (1995) Paul F. Kelleher 54 Vice President, Finance and Administration (1982) (1) George N. Hatsopoulos and John N. Hatsopoulos are brothers. Each executive officer serves until his successor is chosen or appointed and qualified or until earlier resignation, death, or removal. All executive officers, except Messrs. John Hatsopoulos, Rainville, and Wood, have held comparable positions with the Company for at least the last five years. Mr. John Hatsopoulos has been President of the Company since January 1997 and Chief Financial Officer of the Company since 1988. Mr. Rainville has been a Senior Vice President of the Company since 1993 and was a Vice President of the Company from 1986 to 1993. Mr. Wood has been President and Chief Executive Officer of Thermedics Inc. since 1984 and was a Vice President of the Company from 1994 to 1995, prior to becoming a Senior Vice President of the Company in 1995. Item 2. Properties The location and general character of the Company's principal properties by industry segment as of December 28, 1996, are as follows: Instruments The Company owns approximately 1,973,000 square feet of office, engineering, laboratory, and production space, principally in California, Colorado, Florida, New Mexico, Texas, Wisconsin, England, and Germany, and leases approximately 2,281,000 square feet of office, engineering, laboratory, and production space principally in California, Connecticut, Massachusetts, Ohio, Texas, Wisconsin, and England, under leases expiring from 1997 to 2017. Alternative-energy Systems The Company owns approximately 371,000 square feet of office, engineering, and production space, principally in Pennsylvania, England, and Massachusetts, and leases approximately 392,000 square feet of office, engineering, laboratory, and production space principally in Illinois, Michigan, and England, under leases expiring from 1997 to 2006. 21PAGE The Company operates four independent power plants in California, Maine, and New Hampshire, under leases expiring from 2000 to 2010. The Company owns three independent power plants in New Hampshire and California and a coal-beneficiation plant in Wyoming. Process Equipment The Company owns approximately 1,105,000 square feet of office, laboratory, and production space, principally in France, Connecticut, Massachusetts, and New York, and leases approximately 325,000 square feet of office, engineering, and production space principally in Wisconsin and Michigan, under leases expiring from 1997 to 2004. Biomedical Products The Company owns approximately 412,000 square feet of office and production space in Illinois, California, Connecticut, and New Jersey, and leases approximately 1,068,000 square feet of office, engineering, laboratory, and production space in Texas, Massachusetts, California, New York, Connecticut, and Illinois, under leases expiring from 1997 to 2012. Environmental Services The Company owns approximately 840,000 square feet of office, laboratory, and production space, principally in California, The Netherlands, Pennsylvania, and Minnesota, and leases approximately 550,000 square feet of office, engineering, laboratory, and production space principally in California, Pennsylvania, Massachusetts, New Hampshire, and New York, under leases expiring from 1997 to 2008. The Company owns approximately 96 acres of land from which it provides soil-remediation services principally in Maryland, South Carolina, and California, and leases approximately 29 acres of land from which it provides soil-remediation and fluid-recycling services in principally New York, Arizona, Washington, and Virginia, under leases expiring from 1997 to 2006. Advanced Technologies and Corporate Headquarters The Company owns approximately 153,000 square feet of office space principally in Massachusetts and New York, and leases approximately 1,108,000 square feet of office, engineering, and laboratory space principally in Florida, Massachusetts, California, and Minnesota, under leases expiring from 1997 to 2013. The Company believes that its facilities are in good condition and are suitable and adequate to meet its current needs, and that suitable replacements are available on commercially reasonable terms for any leases that expire in 1997 in the event that the Company is unable to renew such leases on reasonable terms. 22PAGE Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information concerning the market and market price for the Registrant's common stock, $1.00 par value, and related matters, is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information required under this item is included under the sections "Ten Year Financial Summary" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of December 28, 1996, are included in the Registrant's 1996 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable. 23PAGE 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. 24PAGE PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a), (d) Financial Statements and Schedules (1) The financial statements set forth in the list below are filed as part of this Report. (2) The 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 Schedule included 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. 25PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 19, 1997 THERMO ELECTRON CORPORATION By: George N. Hatsopoulos --------------------- George N. Hatsopoulos Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of March 19, 1997. Signature Title --------- ----- By:George N. Hatsopoulos Chief Executive Officer, Chairman ---------------------- George N. Hatsopoulos of the Board, and Director By:John N. Hatsopoulos President and Chief Financial ---------------------- John N. Hatsopoulos Officer By:Paul F. Kelleher Vice President, Finance and Adminis- ---------------------- Paul F. Kelleher tration (Chief Accounting officer) By:John M. Albertine Director ---------------------- John M. Albertine By:Peter O. Crisp Director ---------------------- Peter O. Crisp By:Elias P. Gyftopoulos Director ---------------------- Elias P. Gyftopoulos By:Frank Jungers Director ---------------------- Frank Jungers By:Robert A. McCabe Director ---------------------- Robert A. McCabe By:Frank E. Morris Director ---------------------- Frank E. Morris By:Donald E. Noble Director ---------------------- Donald E. Noble By:Hutham S. Olayan Director ---------------------- Hutham S. Olayan By:Roger D. Wellington Director ---------------------- Roger D. Wellington 26PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Electron Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 1997 (except with respect to the matter discussed in Note 16 as to which the date is March 12, 1997). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 25 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 12, 1997 27PAGE SCHEDULE II THERMO ELECTRON 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 Other(a) of Year - ------------------------------------------------------------------------------ Year Ended December 28, 1996 Allowance for Doubtful Accounts $29,318 $ 6,002 $ 760 $(8,994) $ 7,235 $34,321 Year Ended December 30, 1995 Allowance for Doubtful Accounts $21,664 $ 5,534 $ 5 $(6,422) $ 8,537 $29,318 Year Ended December 31, 1994 Allowance for Doubtful Accounts $14,174 $ 4,225 $ 268 $(4,649) $ 7,646 $21,664 (a) Allowances of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders and the effect of foreign currency translation. 28PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit ------------------------------------------------------------------------- 2.1 Amended and Restated Asset and Stock Purchase Agreement dated March 29, 1996, among the Registrant, Thermo Instrument, and Fisons plc (filed as Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 [File No. 1-8002] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Registrant hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 3.1 Restated Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 [File No. 1-8002] and incorporated herein by reference). 3.2 By-laws of the Registrant, as amended. 4.1 Fiscal Agency Agreement dated as of April 15, 1994, between the Registrant and Chemical Bank, pertaining to the Registrant's 5% Senior Convertible Debentures due 2001 (filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 1994 [File No. 1-8002] and incorporated herein by reference). Fiscal Agency Agreement dated as of January 3, 1996, between the Registrant and Chemical Bank pertaining to the Registrant's 4 1/4% Subordinated Convertible Debentures due 2003 (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-8002] and incorporated herein by reference). The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission upon request, a copy of each instrument with respect to other long-term debt of the Registrant or its consolidated subsidiaries. 4.2 Rights Agreement dated as of January 19, 1996, between the Registrant and The First National Bank of Boston, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A, declared effective by the Commission on January 31, 1996 [File No. 1-8002] and incorporated herein by reference). 29PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit ------------------------------------------------------------------------- 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). 10.2 Form of Severance Benefit Agreement with officers (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). 10.3 Form of Indemnification Agreement with directors and officers (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). 10.4 Loan and Reimbursement Agreement dated as of December 1, 1991, among North County Resource Recovery Associates; Union Bank of Switzerland; National Westminster Bank PLC and Banque Paribas, New York Branch, as lead managers; Credit Local de France as co-lead manager; and Union Bank of Switzerland as issuing bank and as agent (filed as Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). 10.5 Amended and Restated Reimbursement Agreement dated as of December 31, 1993, among Chemical Trust Company of California as Owner Trustee; Delano Energy Company Inc.; ABN AMRO Bank N.V., Boston Branch, for itself and as Agent; The First National Bank of Boston, as Co-agent; Barclays Bank PLC, as Co-agent; Societe Generale, as Co-agent; and BayBank, as Lead Manager (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-8002] and incorporated herein by reference). 10.6 Amended and Restated Participation Agreement dated as of December 31, 1991, among Delano Energy Company Inc.; Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation); Chemical Trust Company of California, as Owner Trustee; ABN AMRO Bank N.V., Boston Branch, as Co-agent; Bank of Montreal, as Co-agent; Barclays Bank PLC, as Co-agent; Society Generale, as Co-agent; BayBank, as Lead Manager; and ABN AMRO Bank N.V., Cayman Island Branch, and joined in by the Registrant (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-8002] and incorporated herein by reference). 30PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit -------------------------------------------------------------------------- 10.7 Turnkey Engineering, Procurement, Construction, and Initial Operation Agreement for a de-inking pulp facility dated as of November 1, 1994, between the Registrant, as contractor, and Great Lakes Pulp Partners I, L.P., as owner (filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-8002] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Company hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 10.8 Stock Holdings Assistance Plan and Form of Promissory Note. 10.9 - 10.20 Reserved. 10.21 Deferred Compensation for Directors of the Registrant (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 679,218 shares, after adjustment to reflect share increases approved in 1986 and 1992 and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.22 Amended and Restated Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-8002] and incorporated herein by reference). 10.23 Incentive Stock Option Plan of the Registrant (filed as Exhibit 4(d) to the Registrant's Registration Statement on Form S-8 [Reg. No. 33-8993] 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 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 31PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit -------------------------------------------------------------------------- 10.24 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 4(e) to the Registrant's Registration Statement on Form S-8 [Reg. No. 33-8993] and incorporated herein by reference). (Plan amended in 1984 to extend expiration date to December 14, 1994; maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.25 Equity Incentive Plan of the Registrant (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994 [File No. 1-8002] and incorporated herein by reference). (Plan amended in 1989 to restrict exercise price for SEC reporting persons to not less than 50% of fair market value or par value; maximum number of shares issuable is 10,575,000 shares, after adjustment to reflect 3-for-2 stock splits effected in October 1993, May 1995, and June 1996, and share increase approved in 1994.) 10.26 Thermo Electron Corporation - Thermedics Inc. Nonqualified Stock Option Plan (filed as Exhibit 4 to a Registration Statement on Form S-8 of Thermedics [Reg. No. 2-93747] and incorporated herein by reference). (Maximum number of shares issuable is 450,000 shares, after adjustment to reflect share increase approved in 1988, 5-for-4 stock split effected in January 1985, 4-for-3 stock split effected in September 1985, and 3-for-2 stock splits effected in October 1986 and November 1993.) 10.27 Thermo Electron Corporation - Thermo Instrument Systems Inc. (formerly Thermo Environmental Corporation) Nonqualified Stock Option Plan (filed as Exhibit 4(c) to a Registration Statement on Form S-8 of Thermo Instrument [Reg. No. 33-8034] and incorporated herein by reference). (Maximum number of shares issuable is 421,875 shares, after adjustment to reflect 3-for-2 stock splits effected in July 1993 and April 1995, 5-for-4 stock split effected in December 1995.) 32PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit ------------------------------------------------------------------------- 10.28 Thermo Electron Corporation - Thermo Instrument Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 600,285 shares, after adjustment to reflect share increase approved in 1988, 3-for-2 stock splits effected in January 1988, July 1993 and April 1995, and 5-for-4 stock split effected in December 1995.) 10.29 Thermo Electron Corporation - Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 108,000 shares, after adjustment to reflect 6-for-5 stock splits effected in July 1988 and March 1989 and 3-for-2 stock split effected in September 1989.) 10.30 Thermo Electron Corporation - Thermo Power Corporation (formerly Tecogen Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Amended in September 1995 to extend the plan expiration date to December 31, 2005.) 10.31 Thermo Electron Corporation - Thermo Cardiosystems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 250,000 shares, after adjustment to reflect share increases approved in 1990, 1992, and 1997, 3-for-2 stock split effected in January 1990, 5-for-4 stock split effected in May 1990, 2-for-1 stock split effected in November 1993, and 3-for-2 stock split effected in May 1996.) 10.32 Thermo Electron Corporation - Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 487,500 shares, after adjustment to reflect 3-for-2 stock split effected in October 1996.) 33PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit ------------------------------------------------------------------------- 10.33 Thermo Electron Corporation - ThermoTrex Corporation (formerly Thermo Electron Technologies Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 225,000 shares, after adjustment to reflect 3-for-2 stock split effected in October 1993 and share increase approved in March 1997.) 10.34 Thermo Electron Corporation - Thermo Fibertek Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 900,000 shares, after adjustment to reflect 2-for-1 stock split effected in September 1992 and 3-for-2 stock split effected in September 1995 and June 1996.) 10.35 Thermo Electron Corporation - Thermo Voltek Corp. (formerly Universal Voltronics Corp.) Nonqualified Stock Option Plan (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 86,250 shares, after adjustment to reflect 3-for-2 stock split effected in November 1993, share increase approved in September 1995, and 3-for-2 stock split effected in August 1996.) 10.36 Thermo Electron Corporation - Thermo BioAnalysis Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.31 to Thermo Power's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). (Maximum number of shares issuable is 150,000 shares, after share increase approved in March 1997.) 10.37 Thermo Electron Corporation - ThermoLyte Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.32 to Thermo Power's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). (Maximum number of shares issuable is 150,000 shares, after share increase approved in March 1997.) 10.38 Thermo Electron Corporation - Thermo Remediation Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.33 to Thermo Power's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 34PAGE EXHIBIT INDEX ------------- Exhibit Number Description of Exhibit ------------------------------------------------------------------------- 10.39 Thermo Electron Corporation - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.34 to Thermo Power's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 10.40 Thermo Electron Corporation - ThermoLase Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.35 to Thermo Power's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 [File No. 1-10573] and incorporated herein by reference). 10.41 Thermo Electron Corporation - ThermoQuest Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.41 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.42 Thermo Electron Corporation - Thermo Optek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.42 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.43 Thermo Electron Corporation - Thermo Sentron Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.43 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.44 Thermo Electron Corporation - Trex Medical Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.44 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.45 Thermo Electron Corporation - Thermo Fibergen Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.19 to Trex Medical's Annual Report on Form 10-K for the fiscal year ended September 28, 1996 [File No. 1-11827] and incorporated herein by reference). 11 Computation of earnings per share. 13 Annual Report to Shareholders for the year ended December 28, 1996 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. 35 EX-3.2 2 Exhibit 3.2 As amended and effective as of January 17, 1997 THERMO ELECTRON CORPORATION BY-LAWS TABLE OF CONTENTS ----------------- Title Page Article I - Offices ..................................... 1 Article II - Stockholders ............................... 1 Section 1.Annual Meeting ........................... 1 Section 2.Special Meetings ......................... 1 Section 3.Notice of Meetings ....................... 1 Section 4.Quorum ................................... 2 Section 5.Voting ................................... 2 Section 6.Presiding Officer and Secretary .......... 2 Section 7.Proxies .................................. 2 Section 8.Judges ................................... 2 Section 9.List of Stockholders ..................... 3 Article III- Directors .................................. 3 Section 1.Number, Election and Tenure .............. 3 Section 2.Vacancies ................................ 3 Section 3.Resignations ............................ 4 Section 4.Meetings ................................. 4 Section 5.Quorum ................................... 4 Section 6.Compensation of Directors ................ 4 Section 7.Committees ............................... 5 PAGE Title Page Article IV - Officers and Agents ........................ 5 Section 1.General Provisions ....................... 5 Section 2.The President ............................ 5 Section 3.Vice Presidents .......................... 6 Section 4.Chief Financial Officer .................. 6 Section 5.The Treasurer ........................... 6 Section 6.The Secretary ............................ 6 Section 7.Assistant Treasurer ...................... 7 Section 8.Assistant Secretary ...................... 7 Section 9.Other Officers ........................... 7 Section 10.Delegation of Duties .................... 7 Article V - Capital Stock ............................... 7 Section 1.Certificates for Shares .................. 7 Section 2.Transfer of Shares of Stock .............. 7 Section 3.Lost, Stolen or Destroyed Certificates ... 8 Section 4.Closing of Transfer Books; Record Date ... 8 Section 5.Maintenance of Stock Ledger .............. 8 Article VI - Seal ....................................... 9 Article VII - Waiver .................................... 9 Article VIII - Checks, Notes, Drafts, etc. .............. 9 Article IX - Amendments ................................. 9 PAGE THERMO ELECTRON CORPORATION BY-LAWS ARTICLE I - OFFICES The principal office of the Corporation in the State of Delaware is located at 100 West Tenth Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is called The Corporation Trust Company. The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II - STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held in the Corporation's offices in Waltham, Massachusetts, or at such other place within or without the State of Delaware, and at such time, as may be specified in the notice of meeting or waiver thereof, on the second Wednesday in May in each year or on such other date within six months of the end of the Corporation's fiscal year as may be fixed by the Board of Directors. Section 2. Special Meetings. A special meeting of the stockholders of the Corporation, unless otherwise regulated by statute, may be called by the President and shall be called by the President, the Secretary or an Assistant Secretary when directed to do so by resolution of the Board of Directors at a duly convened meeting of the Board, or at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. On failure of any officer above specified to call such special meeting when duly requested, the signers of such request may call such special meeting over their own signatures. Special meetings shall be held at such place within or without the State of Delaware as may be specified in the call thereof. Business transacted at all special meetings shall be confined to the objects stated in the call. Section 3. Notice of Meetings. Written notice of every meeting of the stockholders shall be served by the Secretary or an Assistant Secretary, either personally or by mail upon each stockholder of record entitled to vote at such meeting, at least ten days before the meeting. If mailed, the notice of a meeting shall be directed to a stockholder at his last known post office address. The notice of every meeting of the stockholders shall state the purpose or purposes for which the meeting is called and the time when and the place where it is to be held. PAGE 2 Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, at any meeting of the stockholders there must be present in person or by proxy the holders of record of a majority of all shares of stock issued and outstanding and entitled to vote upon any question to be considered at the meeting in order to constitute a quorum for the transaction of any business, but a lesser interest may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum be present, and thereupon any business may be transacted at the adjourned meeting which might have been transacted at the meeting originally called. Except as otherwise provided by law, or by the Certificate of Incorporation or by these By-Laws, the vote of a majority of the shares present and entitled to vote at a meeting shall decide any question brought before such meeting. Section 5. Voting. At every meeting of the stockholders, except as may be otherwise provided in the Certificate of Incorporation or in these By-Laws, every stockholder of the Corporation entitled to vote thereat shall be entitled to one vote for each share of stock entitled to vote standing in his name on the books of the Corporation at the time of the meeting, or, if a record date shall have been fixed as hereinafter provided, on such record date; but, except where the transfer books of the Corporation shall have been closed or a record date shall have been fixed, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Corporation within 20 days next preceding such election of directors. No person may be elected a director unless his name shall have first been put before the meeting or the stockholders by nomination of one of the stockholders. Upon the demand of any stockholder entitled to vote, the vote for directors, or the vote upon any question before a meeting, shall be by ballot, but otherwise the method of voting shall be discretionary with the presiding officer at the meeting. Section 6. Presiding Officer and Secretary. At all meetings of the stockholders, the President of the Corporation, or in his absence a Vice President or if none be present, the appointee of the meeting, shall preside. The Secretary of the Corporation, or in his absence an Assistant Secretary, or if none be present the appointee of the Presiding Officer of the meeting, shall act as Secretary of the meeting. Section 7. Proxies. Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy, but no proxy shall be voted on after three years from its date, unless such proxy provides for a longer period. Every proxy must be executed in writing by the stockholder himself, or by his duly authorized attorney, and dated, but need not be sealed, witnessed or acknowledged. Proxies shall be delivered to the Secretary of the Corporation before the meeting or to the Judges at the meeting. PAGE 3 Section 8. Judges. At each meeting of the stockholders at which the vote for directors or the vote upon any question before the meeting is taken by ballot, the polls shall be opened and closed by, and the proxies and ballots shall be received and taken in charge by, and all questions touching on the qualifications of voters and the validity of proxies and the acceptance and rejection of the same shall be decided by two Judges. Such Judges may be appointed by the Board of Directors before the meeting, but if no such appointment shall have been made, they shall be appointed by the meeting. If for any reason any Judge previously appointed shall fail to attend or refuse or be unable to serve, a Judge in his place shall be appointed by the meeting. Any appointment of Judges by the meeting shall be by per capita vote of the stockholders present and entitled to vote. Section 9. List of Stockholders. At least ten days prior to every election of directors a complete list of the stockholders entitled to vote at such election, arranged in alphabetical order and indicating the number of voting shares held by each, shall be prepared and certified by the Secretary or an Assistant Secretary. Such list shall be filed at the place where the election is to be held and shall, at all times during the usual hours for business and during the whole time of said election, be opened to the examination of any stockholder. ARTICLE III - DIRECTORS Section 1. Number, Election and Tenure. Except as may be otherwise specifically provided by law, the Restated Certificate of Incorporation or by these By-Laws, the power, business, property and affairs of the Corporation shall be exercised and managed by a board of directors which shall consist of not less than eight or more than twelve directors. Within such limit, the number of directors shall be determined by resolution of the board of directors. The board of directors shall be divided into three classes as nearly as equal in number as possible. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. Such classes shall consist of one class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1986; a second class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1987; and a third class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1988. At each annual meeting of stockholders beginning in 1986, the successors of the class of directors whose term expires at that annual meeting shall be elected for a three-year term. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, or until his earlier death, resignation, retirement, disqualification or removal. Except as provided in Section 2 of PAGE 4 this Article, directors shall be elected by a plurality of the votes cast at the annual meeting of stockholders. No director need be a stockholder. Section 2. Vacancies. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall be elected for the same remaining term as that of his predecessor in office. Any additional director of any class elected to fill a vacancy resulting from an increase in any such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. Section 3. Resignations. Any director may resign from his office at any time by delivering his resignation in writing to the Corporation, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Section 4. Meetings. The Board of Directors may hold its meetings in such place or places within or without the State of Delaware as the Board from time to time by resolution may determine or as shall be specified in the respective notices or waivers of notice thereof, and the directors may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, not inconsistent with these By-Laws, as they may deem proper. An annual meeting of the Board for the election of officers shall be held within three days following the day on which the annual meeting of the stockholders for the election of directors shall have been held. The Board of Directors from time to time by resolution may fix a time and place (or varying times and places) for the annual and other regular meetings of the Board; provided, that, unless a time and place is so fixed for any annual meeting of the Board, the same shall be held immediately following the annual meeting of the stockholders at the same place at which such meeting shall have been held. No notice of the annual or other regular meetings of the Board need be given. Other meetings of the Board of Directors shall be held whenever called by the President or by any two of the directors for the time being in office; and the Secretary or an Assistant Secretary shall give notice of each such meeting to each director by mailing the same not later than the second day before the meeting, or personally or by telegraphing, cabling or telephoning the same not later than the day before the meeting. No notice of a meeting need be given if all directors are present in person. Any business may be transacted at any meeting of the Board of Directors, whether or PAGE 5 not specified in a notice of the meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board, and such written consent is filed with the minutes of proceedings of the Board. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Restated Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If there be less than a quorum at any meeting of the Board of Directors, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time, without notice other than announcement at the meeting which shall be so adjourned, until a quorum shall be present. Section 6. Compensation of Directors. The Board of Directors shall have the power to fix the compensation of directors and members of committees of the Board. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors, as well as a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 7. Committees. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, from time to time designate an Executive Committee and such other committee or committees as it may determine, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise any powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have the power to authorize the seal of the corporation to be affixed to all papers which may require it. Any action required or permitted to be taken at any meeting of the committee may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of such committee, and such written consent is filed with the minutes of proceedings of the committee. ARTICLE IV - OFFICERS AND AGENTS Section 1. General Provisions. The officers of the Corporation shall be a President, a Chief Financial Officer, a Treasurer and a Secretary, and may include one or more Vice Presidents, one or more Assistant Treasurers and one or more PAGE 6 Assistant Secretaries, all of whom shall be appointed by the Board of Directors as soon as may be after the election of directors in each year. The President shall be chosen from among the directors. Any two offices, except those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged or verified by any two or more officers. Each of such officers shall serve until the annual meeting of the Board of Directors next succeeding his appointment and until his successor shall have been chosen and shall have qualified. The Board of Directors may appoint such officers, agents and employees as it may deem necessary or proper, who shall respectively have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. All officers, agents and employees appointed by the Board of Directors shall be subject to removal at any time by the affirmative vote of a majority of the whole Board. Other agents and employees may be removed at any time by the Board of Directors, by the officer appointing them, or by any other superior upon whom such power of removal may be conferred by the Board of Directors. The salaries of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer. Section 2. The President. The President shall be the principal executive officer of the Corporation and shall preside at all meetings of the stockholders and of the Board of Directors. Subject to the control of the Board of Directors, he shall have general charge of the business and affairs of the Corporation and shall keep the Board fully advised. At the direction of the Board of Directors, he shall have power in the name of the Corporation and on its behalf to execute any and all deeds, mortgages, contracts, agreements and other instruments in writing. He shall employ and discharge employees and agents of the Corporation, except such as shall hold their offices by appointment of the Board of Directors, but he may delegate these powers to other officers as to employees under their immediate supervision. He shall have such powers and perform such duties as generally pertain to the office of President, as well as such further powers and duties as may be prescribed by the Board of Directors. The President shall have full power and authority on behalf of the Corporation to execute any stockholders' consents and to attend and act and to vote in person or by proxy at any meetings of stockholders of any corporation in which the Corporation may own stock, and at any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock and which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors, by resolution from time to time, may confer like powers upon any other person or persons. Section 3. Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board of Directors or PAGE 7 the President may from time to time prescribe, and shall perform such other duties as may be prescribed in these By-Laws. In the absence or inability to act of the President, the Vice President next in order as designated by the Board of Directors or, in the absence of such designation, senior in length of service in such capacity who shall be present and able to act, shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Board of Directors. The performance of any duty by a Vice President shall be conclusive evidence of his power to act. Section 4. Chief Financial Officer. The Board of Directors shall designate the President or a Vice President to serve as the Chief Financial Officer of the Corporation. The Chief Financial Officer shall be responsible for the financial records and affairs of the Corporation and shall have such further powers and duties as are incident to the position of Chief Financial Officer, subject to the direction of the President and the Board of Directors. The Chief Financial Officer shall supervise the activities of the Treasurer of the Corporation, who shall be subordinate to and report to the Chief Financial Officer. The Chief Financial Officer shall perform such of the duties of the President on behalf of the Corporation as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. The Treasurer. The Treasurer shall have the care and custody of all funds and securities of the Corporation which may come into his hands and shall deposit the same to the credit of the Corporation in such bank or banks or other depository or depositories as the Board of Directors may designate. He may endorse all commercial documents requiring endorsements for or on behalf of the Corporation and may sign all receipts and vouchers for payments made to the Corporation. He shall be subordinate to and responsible to the President or Vice President who is designated Chief Financial Officer by the Board of Directors. He shall render an account of his transactions to the Board of Directors as often as they shall require the same and shall at all reasonable times exhibit his books and accounts to any director; shall cause to be entered regularly in books kept for that purpose full and accurate account of all moneys received and paid by him on account of the Corporation; and shall have such further powers and duties as are incident to the position of Treasurer, subject to the control of the Board of Directors. He may be required by the Board of Directors to give a bond for the faithful discharge of his duties in such sum and with such surety as the Board may require. Section 6. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders and shall attend to the giving and serving of all notices of the Corporation. He shall have custody of the seal of the Corporation and shall affix the seal to all certificates of shares of stock of the Corporation and to such other papers or PAGE 8 documents as may be proper and, when the seal is so affixed, he shall attest the same by his signature wherever required. He shall have charge of the stock certificate book, transfer book and stock ledger, and such other books and papers as the Board of Directors may direct. He shall, in general, perform all the duties of Secretary, subject to the control of the Board of Directors. Section 7. Assistant Treasurers. In the absence or inability of the Treasurer to act, any Assistant Treasurer may perform all the duties and exercise all of the powers of the Treasurer, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Treasurer shall also perform such other duties as the Treasurer or the Board of Directors may from time to time assign to him. Section 8. Assistant Secretaries. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Secretary shall also perform such other duties as the Secretary or the Board of Directors may from time to time assign to him. Section 9. Other Officers. Other officers shall perform such duties and have such powers as may from time to time be assigned to them by the Board of Directors. Section 10. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer, for the time being, the powers or duties, or any of them, of such officer upon any other officer, or upon any director. ARTICLE V - CAPITAL STOCK Section 1. Certificate for Shares. Certificates for shares of stock of the Corporation certifying the number and class of shares owned shall be issued to each stockholder in such form not inconsistent with the Certificate of Incorporation and these By-Laws, as shall be approved by the Board of Directors. The certificates for the shares of each class shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the seal of the Corporation shall be affixed thereto. All certificates exchanged or returned to the Corporation shall be cancelled. Section 2. Transfer of Shares of Stock. Transfers of shares shall be made only upon the books of the Corporation by the holder, in person or by attorney lawfully constituted in writing, and on the surrender of the certificate or certificates PAGE 9 for such shares properly assigned. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these By-Laws, as they may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. Section 3. Lost, Stolen or Destroyed Certificates. The Board of Directors, in their discretion, may require the owner of any certificate of stock alleged to have been lost, stolen or destroyed, or his legal representatives, to give the Corporation a bond in such sum as they may direct, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate, as a condition of the issue of a new certificate of stock in the place of any certificate theretofore issued alleged to have been lost, stolen or destroyed. Proper and legal evidence of such loss, theft or destruction shall be procured for the Board, if required. The Board of Directors, in their discretion, may refuse to issue such new certificate, save upon the order of some court having jurisdiction in such matters. Section 4. Closing of Transfer Books: Record Date. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding 50 days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding 50 days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Section 5. Maintenance of Stock Ledger. The original or a duplicate stock ledger containing the names and addresses of the PAGE 10 stockholders, and the number of shares held by them, respectively, shall at all times, during the usual hours for business, be open to the examination of every stockholder at the principal office or place of business of the Corporation in the State of Delaware. ARTICLE VI - SEAL The seal of the Corporation shall consist of a flat-faced circular die with the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware" inscribed thereon. ARTICLE VII - WAIVER Whenever any notice whatever is required to be given by statute or under the provisions of the Certificate of Incorporation or By-Laws of this Corporation a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. PAGE 11 ARTICLE VIII - CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors shall from time to time determine. ARTICLE IX - AMENDMENTS These By-Laws, or any of them, may be altered, amended or repealed, and new By-Laws may be adopted, (1) by the stockholders, at any annual meeting, or at any special meeting called for that purpose, as provided and subject to the limitations set forth in the Restated Certificate of Incorporation or (2) by the Board of Directors, (a) at any duly convened meeting by a majority vote of the whole Board, or (b) without a meeting by prior written consent signed by all members of the Board and filed with the minutes of proceedings of the Board, but any such action of the Board of Directors may be amended or repealed by the stockholders at any annual meeting or any special meeting called for that purpose as provided and subject to the limitations set forth in the Restated Certificate of Incorporation. The time and place, as fixed by these By-Laws, of the annual meeting of the stockholders for the election of directors shall not be changed within 60 days next before the day on which the election is to be held, and a notice of any change shall be given to each stockholder entitled to vote there at least 20 days before the election is held, in person or by letter mailed to his last known post office address. EX-10.8 3 Exhibit 10.8 THERMO ELECTRON CORPORATION RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Electron 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 Electron Corporation, a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Electron 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 PAGE interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable in five equal annual installments from the 2PAGE payment of annual cash incentive compensation (referred to as bonus) to the Key Employee by the Company, beginning with the first such bonus payment to occur after the date of the Note evidencing the Loan, and on each of the next four bonus payment dates, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. 3PAGE The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. 4PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO ELECTRON CORPORATION Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Electron Corporation (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), 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 the Company an amount equal to 20% of the initial principal amount of the Note from the payment of annual cash incentive compensation (referred to as bonus) to the Employee by the Company, beginning with the first such bonus payment to occur after the date of this Note, and on each of the next four bonus payment dates. Any amount remaining unpaid under this Note, if no demand has been made by the Company, shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; 5PAGE (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-11 4 Exhibit 11 Thermo Electron Corporation Computation of Earnings per Share 1996 1995 1994 ------------ ----------- ----------- Computation of Fully Diluted Earnings per Share: Income: Income per primary computation $190,816,000 $139,582,000 $104,711,000 Add: Convertible debt interest, net of tax 23,522,000 15,561,000 15,934,000 ------------ ------------ ------------ Income applicable to common stock assuming full dilution (a) $214,338,000 $155,143,000 $120,645,000 ------------ ------------ ------------ Shares: Weighted average shares outstanding 141,524,607 126,626,183 116,500,455 Add: Shares issuable from assumed conversion of convertible debentures 31,735,258 30,023,096 33,553,283 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,440,465 2,596,257 1,175,319 ------------ ------------ ------------ Weighted average shares outstanding, as adjusted (b) 175,700,330 159,245,536 151,229,057 ------------ ------------ ------------ Fully Diluted Earnings Per Share (a) / (b) $ 1.22 $ .97 $ .80 ============ ============ ============ EX-13 5 Exhibit 13 THERMO ELECTRON CORPORATION Consolidated Financial Statements 1996 PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1996 1995 1994 ----------------------------------------------------------------------- Revenues: Product and service revenues $2,766,002 $2,075,748 $1,559,744 Research and development contract revenues 166,556 194,543 169,447 ---------- ---------- ---------- 2,932,558 2,270,291 1,729,191 ---------- ---------- ---------- Costs and Operating Expenses: Cost of product and service revenues 1,657,746 1,239,762 928,645 Expenses for research and development and new lines of business (a) 301,457 272,809 233,099 Selling, general, and administrative expenses 689,248 510,564 384,715 Restructuring and other nonrecurring costs (Note 11) 37,641 21,938 650 ---------- ---------- ---------- 2,686,092 2,045,073 1,547,109 ---------- ---------- ---------- Operating Income 246,466 225,218 182,082 Gain on Issuance of Stock by Subsidiaries (Note 9) 126,599 80,815 25,283 Other Income (Expense), Net (Note 10) 1,486 (7,225) (989) ---------- ---------- ---------- Income Before Income Taxes and Minority Interest 374,551 298,808 206,376 Provision for Income Taxes (Note 8) 110,845 98,711 70,703 Minority Interest Expense 72,890 60,515 30,962 ---------- ---------- ---------- Net Income $ 190,816 $ 139,582 $ 104,711 ========== ========== ========== Earnings per Share: Primary $ 1.35 $ 1.10 $ .90 ========== ========== ========== Fully diluted $ 1.22 $ .97 $ .80 ========== ========== ========== Weighted Average Shares: Primary 141,525 126,626 116,500 ========== ========== ========== Fully diluted 175,700 159,246 151,229 ========== ========== ========== 2PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Income (continued) (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ (a) Includes costs of: Research and development contracts $ 144,823 $ 167,120 $ 149,645 Internally funded research and development 154,448 102,209 79,555 Other expenses for new lines of business 2,186 3,480 3,899 ---------- ---------- ---------- $ 301,457 $ 272,809 $ 233,099 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Balance Sheet (In thousands) 1996 1995 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 414,404 $ 462,861 Short-term available-for-sale investments, at quoted market value (amortized cost of $1,428,564 and $588,471; Note 2) 1,431,881 593,802 Accounts receivable, less allowances of $34,321 and $29,318 616,545 493,313 Unbilled contract costs and fees 77,155 74,941 Inventories 432,960 332,786 Prepaid income taxes (Note 8) 129,802 75,685 Prepaid expenses 29,082 23,204 ---------- ---------- 3,131,829 2,056,592 ---------- ---------- Property, Plant, and Equipment, at Cost, Net 704,447 715,588 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $58,500 and $60,780; Note 2) 68,807 61,845 ---------- ---------- Long-term Held-to-Maturity Investments (quoted market value of $26,083 and $24,942; Note 2) 25,594 23,819 ---------- ---------- Other Assets 127,632 101,138 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 3, 8, and 11) 1,082,935 827,357 ---------- ---------- $5,141,244 $3,786,339 ========== ========== 4PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1996 1995 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (Note 5) $ 153,787 $ 112,280 Accounts payable 203,643 172,823 Accrued payroll and employee benefits 122,079 93,930 Accrued income taxes 61,534 52,055 Accrued installation and warranty costs 69,006 37,267 Deferred revenue 45,715 24,014 Other accrued expenses (Note 3) 257,448 247,077 ---------- ---------- 913,212 739,446 ---------- ---------- Deferred Income Taxes (Note 8) 81,726 60,096 ---------- ---------- Other Deferred Items 81,020 69,830 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 369,997 458,925 Subordinated convertible obligations 1,009,470 343,076 Tax-exempt obligations - 128,567 Nonrecourse tax-exempt obligations 77,900 94,700 Other 92,975 92,809 ---------- ---------- 1,550,342 1,118,077 ---------- ---------- Minority Interest 684,050 471,648 ---------- ---------- Commitments and Contingencies (Note 6) Common Stock of Subsidiaries Subject to Redemption ($81,179 and $18,450 redemption value; Note 1) 76,525 17,513 ---------- ---------- Shareholders' Investment (Notes 4 and 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 149,996,979 and 89,006,032 shares issued 149,997 89,006 Capital in excess of par value 801,793 614,363 Retained earnings 795,312 604,496 Treasury stock at cost, 15,520 and 11,574 shares (570) (536) Cumulative translation adjustment (504) 608 Deferred compensation (Note 4) (58) (2,271) Net unrealized gain on available-for-sale investments (Note 2) 8,399 4,063 ---------- ---------- 1,754,369 1,309,729 ---------- ---------- $5,141,244 $3,786,339 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1996 1995 1994 ---------------------------------------------------------------------------- Operating Activities: Net income $ 190,816 $ 139,582 $ 104,711 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 115,167 85,869 65,028 Restructuring and other nonrecurring costs (Note 11) 37,641 21,938 650 Equity in losses of unconsolidated subsidiaries 28 203 4,019 Provision for losses on accounts receivable 6,002 5,534 4,225 Increase in deferred income taxes 20,869 4,277 9,403 Gain on issuance of stock by subsidiaries (Note 9) (126,599) (80,815) (25,283) (Gain) loss on sale of property, plant, and equipment 81 (547) (15,025) Gain on sale of investments (9,840) (9,305) (4,851) Minority interest expense 72,890 60,515 30,962 Other noncash expenses 15,649 19,583 9,809 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (17,078) (52,649) (8,526) Inventories (1,298) (32,267) 10,017 Other current assets (35,657) (9,447) (9,713) Accounts payable (14,307) 19,198 804 Other current liabilities (29,859) 27,427 16,295 ----------- ----------- ---------- Net cash provided by operating activities 224,505 199,096 192,525 ----------- ----------- ---------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (366,317) (330,698) (173,764) Purchases of available-for-sale investments (1,644,094) (570,064) (748,879) Purchases of long-term held-to- maturity investments - (22,300) - Proceeds from sale and maturities of available-for-sale investments 835,935 617,145 495,361 Purchases of property, plant, and equipment (124,541) (64,016) (65,525) Proceeds from sale of property, plant, and equipment 10,500 5,702 21,391 Increase in other assets (26,144) (19,750) (7,097) Decrease in net restricted funds - - 23,420 Other 3,385 (147) (565) ----------- ----------- ----------- Net cash used in investing activities $(1,311,276) $ (384,128) $ (455,658) ----------- ----------- ----------- 6PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1996 1995 1994 ---------------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of long-term obligations (Note 5) $ 953,376 $ 203,387 $ 368,620 Repayment and repurchase of long-term obligations (63,793) (18,012) (27,176) Net proceeds from issuance of Company and subsidiary common stock (Note 9) 303,954 173,326 60,601 Purchases of subsidiary common stock (140,903) (97,789) (101,481) Increase (decrease) in short- term notes payable (13,391) 1,438 16,683 Other (1,279) (226) 987 ----------- ----------- ----------- Net cash provided by financing activities 1,037,964 262,124 318,234 ----------- ----------- ----------- Exchange Rate Effect on Cash 350 2,764 1,915 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents (48,457) 79,856 57,016 Cash and Cash Equivalents at Beginning of Year 462,861 383,005 325,989 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 414,404 $ 462,861 $ 383,005 =========== =========== =========== See Note 12 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 7PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1996 1995 1994 ---------------------------------------------------------------------- Common Stock, $1 Par Value Balance at beginning of year $ 89,006 $ 53,558 $ 50,484 Issuance of stock under employees' and directors' stock plans 892 571 153 Conversions of convertible obligations 13,449 6,047 2,921 Acquisition through pooling- of-interests (Note 3) - 1,143 - Effect of three-for-two stock splits 46,650 27,687 - ---------- ---------- ---------- Balance at end of year 149,997 89,006 53,558 ---------- ---------- ---------- Capital in Excess of Par Value Balance at beginning of year 614,363 493,058 474,193 Issuance of stock under employees' and directors' stock plans 8,172 5,293 2,429 Tax benefit related to employees' and directors' stock plans 12,821 9,666 - Conversions of convertible obligations 254,842 150,787 63,013 Acquisition through pooling- of-interests (Note 3) - 17,888 - Effect of three-for-two stock splits (46,650) (27,687) - Effect of majority-owned subsidiaries' equity transactions (41,755) (34,642) (46,577) ---------- ---------- ---------- Balance at end of year 801,793 614,363 493,058 ---------- ---------- ---------- Retained Earnings Balance at beginning of year 604,496 472,396 367,685 Net income 190,816 139,582 104,711 Acquisition through pooling- of-interests (Note 3) - (6,645) - Net loss of SensorMedics Corporation for the quarter ended December 30, 1995 (Note 3) - (837) - ---------- ---------- ---------- Balance at end of year $ 795,312 $ 604,496 $ 472,396 ---------- ---------- ---------- 8PAGE Thermo Electron Corporation 1996 Financial Statements Consolidated Statement of Shareholders' Investment (continued) (In thousands) 1996 1995 1994 ----------------------------------------------------------------------- Treasury Stock Balance at beginning of year $ (536) $ (1,631) $ (1,212) Activity under employees' and directors' stock plans (34) 1,095 (419) ---------- ---------- ---------- Balance at end of year (570) (536) (1,631) ---------- ---------- ---------- Cumulative Translation Adjustment Balance at beginning of year 608 (3,557) (13,591) Translation adjustment (1,112) 4,193 10,034 Acquisition through pooling-of- interests (Note 3) - (28) - ---------- ---------- ---------- Balance at end of year (504) 608 (3,557) ---------- ---------- ---------- Deferred Compensation Balance at beginning of year (2,271) (2,657) (3,839) Amortization of deferred compensation 296 386 1,182 ESOP II loan repayment (Note 4) 1,917 - - ---------- ---------- ---------- Balance at end of year (58) (2,271) (2,657) ---------- ---------- ---------- Net Unrealized Gain (Loss) on Available-for-sale Investments Balance at beginning of year 4,063 (3,681) - Effect of change in accounting principle (Note 2) - - 2,868 Change in net unrealized gain (loss) on available-for-sale investments (Note 2) 4,336 7,744 (6,549) ---------- ---------- ---------- Balance at end of year 8,399 4,063 (3,681) ---------- ---------- ---------- Total Shareholders' Investment $1,754,369 $1,309,729 $1,007,486 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 9PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies Nature of Operations Thermo Electron Corporation and its subsidiaries (the Company) develop, manufacture, and market environmental monitoring and analysis instruments; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; paper-recycling and papermaking equipment; alternative-energy systems; industrial process equipment; and other specialized products. The Company also provides environmental, laboratory, and metallurgical services and conducts advanced-technology research and development. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Thermo Electron and its majority- and wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Majority-owned public subsidiaries consist of Thermedics Inc., Thermo Instrument Systems Inc., Thermo TerraTech Inc., Thermo Power Corporation, ThermoTrex Corporation, Thermo Fibertek Inc., and Thermo Ecotek Corporation. Thermo Cardiosystems Inc., Thermo Voltek Corp., Thermo Sentron Inc., and Thermedics Detection Inc. are majority-owned, public subsidiaries of Thermedics. ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation, and Thermo BioAnalysis Corporation are majority-owned, public subsidiaries of Thermo Instrument. Thermo Remediation Inc. is a majority-owned, public subsidiary of Thermo TerraTech. ThermoLase Corporation and Trex Medical Corporation are majority-owned, public subsidiaries of ThermoTrex. Thermo Fibergen Inc. is a majority-owned, public subsidiary of Thermo Fibertek. Metrika Systems Corporation is a majority-owned, privately held subsidiary of Thermo Instrument. Thermo EuroTech N.V. is a majority-owned, privately held subsidiary of Thermo TerraTech. ThermoLyte Corporation is a majority-owned, privately held subsidiary of Thermo Power. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1996, 1995, and 1994 are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon shipment of its products, or upon completion of services it renders. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Deferred revenue in the accompanying balance sheet consists primarily of unearned revenue on service contracts. Substantially all of the deferred revenue in the accompanying 1996 balance sheet will be recognized within one year. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $421.1 million in 1996, $472.0 10PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) million in 1995, and $319.8 million in 1994. The percentage of completion is determined by relating either the actual costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased by the subsidiary, by the subsidiary's parent, or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions, and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as the effect of majority-owned subsidiaries' equity transactions. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share Primary earnings per share has been computed based on the weighted average number of shares outstanding during the year. Because the effect of the assumed exercise of the Company's stock options would be 11PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) immaterial, they have been excluded from the primary earnings per share calculation. Fully diluted earnings per share has been computed assuming the conversion of the Company's convertible obligations and elimination of the related interest expense, as well as the exercise of stock options and their related income tax effects. Stock Splits All share and per share information, except as noted below, has been restated to reflect three-for-two stock splits, effected in the form of 50% stock dividends, which were distributed in June 1996 and May 1995. Share information in the accompanying 1995 balance sheet has not been restated for the stock split distributed in June 1996. Cash and Cash Equivalents Cash equivalents consists principally of U.S. government agency securities, corporate notes, commercial paper, money market funds, and other marketable securities purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out or weighted average basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1996 1995 ---------------------------------------------------------------------- Raw materials and supplies $236,297 $175,346 Work in process 80,614 72,768 Finished goods 116,049 84,672 -------- -------- $432,960 $332,786 ======== ======== Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 5 to 40 years; alternative-energy and waste-recycling facilities, 5 to 25 years; machinery and equipment, 2 to 20 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. 12PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) Property, plant, and equipment consists of the following: (In thousands) 1996 1995 ---------------------------------------------------------------------- Land $ 55,430 $ 47,848 Buildings 206,406 175,165 Alternative-energy and waste-recycling facilities 247,361 382,257 Machinery, equipment, and leasehold improvements 500,992 372,546 ---------- ---------- 1,010,189 977,816 Less: Accumulated depreciation and amortization 305,742 262,228 ---------- ---------- $ 704,447 $ 715,588 ========== ========== Other Assets Other assets in the accompanying balance sheet includes the costs of acquired trademarks, patents, product technology, and other specifically identifiable intangible assets. These assets are being amortized using the straight-line method over their estimated useful lives, which range from 3 to 20 years. These assets were $39.9 million and $39.5 million, net of accumulated amortization of $38.0 million and $31.5 million, at year-end 1996 and 1995, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method principally over 40 years. Accumulated amortization was $96.4 million and $65.6 million at year-end 1996 and 1995, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Common Stock of Subsidiaries Subject to Redemption In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one share of ThermoLyte common stock and one redemption right, at $10.00 per unit, for net proceeds of $17.3 million. Holders of the common stock issued in the offering will have the option to require ThermoLyte to redeem, in December 1998 or 1999, any or all of their shares at $10.00 per share. In September 1996, Thermo Fibergen sold 4,715,000 units, each unit consisting of one share of Thermo Fibergen common stock and one redemption right, at $12.75 per unit, for net proceeds of $55.8 million. The common stock and redemption rights began trading separately on December 13, 1996. Holders of a redemption right have the option to require Thermo Fibergen to redeem, in September 2000 and 2001, one share 13PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) of Thermo Fibergen common stock at $12.75 per share. The redemption rights carry terms that generally provide for their expiration if the closing price of Thermo Fibergen's common stock exceeds $19 1/8 for 20 of any 30 consecutive trading days prior to September 2001. The difference between the redemption value and the original carrying amount of common stock of subsidiaries subject to redemption is accreted over the period through the first redemption period. The accretion is charged to minority interest expense in the accompanying statement of income. The redemption rights are guaranteed on a subordinated basis by the Company. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in 1995 and 1994 have been reclassified to conform to the presentation in the 1996 financial statements. The historical information for 1995 has been restated to reflect the June 1996 acquisition of SensorMedics Corporation, which has been accounted for under the pooling-of-interests method (Note 3). The historical financial information for periods prior to 1995 has been restated to reflect the March 1995 acquisition of Coleman Research Corporation, which has been accounted for under the pooling-of-interests method (Note 3). 2. Available-for-sale and Held-to-maturity Investments Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, certain of the Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized gain (loss) on available-for-sale investments." Effect of change in accounting principle in the 14PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale and Held-to-maturity Investments (continued) accompanying 1994 statement of shareholders' investment represents the unrealized gain, net of related tax effects, pertaining to available-for-sale investments held by the Company on January 2, 1994. The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses -------------------------------------------------------------------------- 1996 Government agency securities $ 804,852 $ 804,142 $ 761 $ (51) Corporate bonds 581,804 581,424 482 (102) Other 114,032 101,498 12,855 (321) ---------- ---------- ---------- ---------- $1,500,688 $1,487,064 $ 14,098 $ (474) ========== ========== ========== ========== 1995 Government agency securities $ 367,208 $ 366,659 $ 574 $ (25) Corporate bonds 194,628 192,422 2,223 (17) Tax-exempt securities 16,275 16,247 28 - Other 77,536 73,923 3,885 (272) ---------- ---------- ---------- ---------- $ 655,647 $ 649,251 $ 6,710 $ (314) ========== ========== ========== ========== Short- and long-term available-for-sale investments in the accompanying 1996 balance sheet include equity securities of $34.4 million, debt securities of $1,212.3 million with contractual maturities of one year or less, debt securities of $252.4 million with contractual maturities of more than one year through five years, and debt securities of $1.6 million with contractual maturities of more than five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable either the Company, the issuer, or both to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of income. The net gain on sale of investments resulted from gross realized gains of $11.2 million, $9.8 million, and $6.7 million and gross realized losses of $1.4 million, $0.5 million, and $1.8 million in 1996, 1995, and 1994, respectively, relating to the sale of available-for-sale investments. 15PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale and Held-to-maturity Investments (continued) Held-to-maturity investments in the accompanying balance sheet represents investments in U.S. treasury bonds that mature in February and May 1998. It is the Company's intent to hold these securities to maturity. 3. Acquisitions In June 1996, the Company acquired SensorMedics in exchange for 1,289,781 shares of the Company's common stock, including 156,590 shares reserved for issuance upon exercise of assumed stock options and warrants. SensorMedics manufactures systems for pulmonary function and sleep-disorder diagnosis, as well as high-frequency ventilation for pediatric and neonatal care. SensorMedics also manufactures and markets respiratory-gas analyzers, physiological testing equipment and recorders, and pulse oximeters. The acquisition has been accounted for under the pooling-of-interests method. In March 1995, the Company acquired Coleman Research in exchange for 6,003,336 shares of the Company's common stock, including 304,292 shares reserved for issuance upon exercise of assumed stock options. Coleman Research provides systems integration, systems engineering, and analytical services to government and commercial customers in the fields of information technology, energy, the environment, software engineering, launch systems, advanced radar and imaging, and health systems. The acquisition has been accounted for under the pooling-of-interests method. Historical financial information presented for 1995 and 1994 has been restated to include the acquisitions of SensorMedics and Coleman Research, respectively. Revenues and net income (loss) for 1995 and 1994, as previously reported by the separate entities prior to the acquisitions and as restated for the combined Company, are as follows: (In thousands) 1995 1994 ------------------------------------------------------------------------ Revenues: Previously reported $2,207,417 $1,585,348 SensorMedics 62,874 - Coleman Research - 143,843 ---------- ---------- $2,270,291 $1,729,191 ========== ========== Net Income (Loss): Previously reported $ 140,080 $ 103,410 SensorMedics (498) - Coleman Research - 1,301 ---------- ---------- $ 139,582 $ 104,711 ========== ========== 16PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) All historical financial information has been restated to include the acquisition of Coleman Research. Historical information for periods prior to 1995 has not been restated to include SensorMedics due to immateriality. The 1995 financial information combines the September 30 fiscal year-end financial information of SensorMedics and the calendar year-end financial information of the Company. SensorMedics' revenues and net loss of $14,769,000 and $837,000, respectively, for the three months ended December 30, 1995, have not been included in the combined 1995 statement of income. On March 29, 1996, Thermo Instrument completed the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123.5 million British pounds sterling in cash (approximately $188.9 million) and the assumption of approximately 30.8 million British pounds sterling of indebtedness (approximately $47.2 million). The purchase price is subject to post-closing adjustments equal to the amounts by which the net tangible assets and net debt of the acquired businesses on the closing date are greater or less than certain target amounts agreed to by the parties. Thermo Instrument and Fisons are attempting to agree on the required adjustment to the purchase price based on their respective calculations of the net tangible assets of the acquired businesses. If the parties are unable to reach agreement, a firm of independent public accountants will be appointed to determine the adjustment. Any adjustment would affect the purchase price allocation, including the amount allocated to cost in excess of net assets of acquired companies. In 1996, in addition to the acquisitions of SensorMedics and the Fisons businesses, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $194.8 million in cash, the issuance of common stock of the Company and its majority-owned subsidiaries valued at $2.4 million, and the issuance of $26.6 million in debt, subject to post-closing adjustments. In 1995, in addition to the acquisition of Coleman Research, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $339.1 million in cash, the issuance of common stock and stock options of the Company's majority-owned subsidiaries valued at $19.0 million, and the issuance of $22.3 million in debt. In 1994, the Company and its majority-owned subsidiaries made several acquisitions for an aggregate of $174.3 million in cash. These acquisitions, except for SensorMedics and Coleman Research, have been accounted for using the purchase method of accounting, and the acquired companies' results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $696.7 million, which is being amortized principally over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in 1996, is subject to adjustment upon finalization of the purchase price allocation. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. 17PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) In connection with the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons, Thermo Instrument has undertaken a restructuring of the acquired businesses. In accordance with the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3, Thermo Instrument is in the process of completing a plan that includes reductions in staffing levels, abandonment of excess facilities, and other costs associated with exiting certain activities of the acquired businesses. As part of the cost of the acquisition, Thermo Instrument established reserves totaling $38.1 million for estimated severance, excess facilities, and other exit costs associated with the acquisition, $19.0 million of which was expended during 1996, primarily for severance. Unresolved matters at year-end 1996 include completing the identification of specific employees for termination and locations to be abandoned or consolidated, among other decisions concerning the integration of the acquired businesses into Thermo Instrument. In accordance with EITF 95-3, finalization of Thermo Instrument's plan for restructuring the acquired businesses will not occur beyond one year from the date of the acquisition. Any changes in estimates of these costs prior to such finalization will be recorded as adjustments to cost in excess of net assets of acquired companies. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others, which permit the award of stock-based incentives in the stock of the Company and its majority-owned subsidiaries. The Company has a nonqualified stock option plan, adopted in 1974, and an incentive stock option plan, adopted in 1981, which permit the award of stock options to key employees. The incentive stock option plan expired in 1991, and no grants were made after that date. An equity incentive plan, adopted in 1989, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under this plan. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options presently outstanding under these plans are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over a five to ten year period, depending on the term of the option, which generally ranges from seven to twelve years. Certain options have three-year terms, and the repurchase rights lapse in their entirety on the second anniversary of the grant date. In addition, under certain options, shares acquired upon exercise are restricted from resale until retirement or other events. Nonqualified options are generally granted at fair market value, although the Board Committee has 18PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) discretion to grant options at a price at or above 85% of the fair market value on the date of grant. Incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, stock options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in 1993, that provides for the annual grant of stock options of the Company and its majority-owned subsidiaries to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in stock-based compensation plans of the Company's majority-owned subsidiaries. Employee Stock Purchase Plan ---------------------------- Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by the Company. Under this plan, shares of the Company's common stock can be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, shares of the Company's common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Participants of employee stock purchase programs sponsored by the Company's majority-owned public subsidiaries may also elect to purchase shares of the common stock of the subsidiary by which they are employed under the same general terms described above. During 1996, 1995, and 1994, the Company issued 285,448 shares, 330,444 shares, and 218,754 shares, respectively, of its common stock under this plan. Employee Stock Ownership Plan ----------------------------- The Company's Employees Stock Ownership Plan (ESOP) was split into two plans effective December 31, 1994: ESOP I and ESOP II. The ESOP I covers eligible full-time U.S. employees of the Company's corporate office and its wholly owned subsidiaries. The ESOP II, terminated effective December 31, 1994, covered employees of certain of the Company's majority-owned subsidiaries. The Company loaned funds to the ESOP to purchase shares of common stock of the Company and its majority-owned subsidiaries. The shares purchased by the ESOP were recorded as deferred compensation in the accompanying balance sheet. The loan to the ESOP II was repaid in full in 1996. The loan repayment was recorded as a reduction in deferred compensation in the accompanying balance sheet. Annual contributions are made by the Company to the ESOP I, and, through December 31, 1994, were made to the ESOP II. Contributions are recorded as expense in the accompanying statement of income. Shares are allocated to the plan participants based on employee compensation. For these plans, the Company charged to expense $0.2 million, $0.3 million, and $1.1 million in 1996, 1995, and 1994, respectively. 19PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in 1996 and 1995 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows: (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Net income: As reported $190,816 $139,582 Pro forma 181,880 137,587 Primary earnings per share: As reported 1.35 1.10 Pro forma 1.29 1.09 Fully diluted earnings per share: As reported 1.22 .97 Pro forma 1.17 .96 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1996 1995 ----------------------------------------------------------------------- Volatility 24% 24% Risk-free interest rate 6.1% 6.0% Expected life of options 5.2 years 5.0 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 20PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) Stock Option Activity A summary of the Company's stock option activity is as follows: 1996 1995 1994 ----------------- ----------------- ------------------ Weighted Weighted Range of Number Average Number Average Number Option (Shares in of Exercise of Exercise of Prices thousands) Shares Price Shares Price Shares per Share - ------------------------------------------------------------------------------- Options outstanding, $ 3.23- beginning of year 8,302 $17.46 7,878 $14.92 6,663 $18.81 Assumed upon acquisition of Sensor- Medics 150 14.97 - - - - Assumed upon acquisition of Coleman - - 304 5.65 - - 17.19- Granted 1,183 39.03 1,330 27.85 1,641 20.05 4.10- Exercised (1,125) 10.71 (1,099) 8.69 (315) 13.91 5.13- Forfeited (89) 26.97 (111) 16.67 (111) 18.39 ------ ------ ----- Options outstanding, $ 3.23- end of year 8,421 $21.24 8,302 $17.46 7,878 $20.05 ====== ====== ====== ====== ===== ====== $ 3.23- Options exercisable 8,406 $21.23 8,262 $17.51 7,878 $20.05 ====== ====== ====== ====== ===== ====== Options available for grant 1,291 2,397 3,627 ====== ====== ===== Weighted average fair value per share of options granted during year $13.03 $ 9.39 ====== ====== 21PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at December 28, 1996, is as follows: Options Outstanding ------------------------------- Weighted Average Weighted Number Remaining Average Range of of Contractual Exercise Exercise Prices Shares Life Price ------------------------------------------------------------------------ (Shares in thousands) $ 5.55 - $10.70 365 1.1 years $ 8.63 10.71 - 21.39 5,642 6.8 years 16.86 21.40 - 32.09 884 6.2 years 26.08 32.10 - 42.79 1,530 8.8 years 37.63 ----- $ 5.55 - $42.79 8,421 6.9 years $21.24 ===== The information disclosed above for options outstanding at December 28, 1996, does not differ materially for options exercisable. 401(k) Savings Plan The Company's 401(k) savings plan covers the majority of the Company's eligible full-time U.S. employees. Contributions to the plan are made by both the employee and the Company. Company contributions are based on the level of employee contributions. For this plan, the Company contributed and charged to expense $10.1 million, $7.6 million, and $6.6 million in 1996, 1995, and 1994, respectively. Other Retirement Plans Certain of the Company's subsidiaries offer retirement plans, separate from the Company's 401(k) savings plan. These retirement plans cover approximately 20% of the Company's U.S. employees. The majority of these subsidiaries offer 401(k) savings plans; however, one subsidiary offers a money purchase plan, and two subsidiaries offer profit-sharing plans. Company contributions to the 401(k) savings plans are based on the level of employee contributions. Company contributions to the money purchase plan and profit-sharing plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $8.8 million, $8.2 million, and $5.8 million in 1996, 1995, and 1994, respectively. 22PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ 5% Senior convertible debentures, due 2001, convertible at $21.00 per share $ 175,216 $ 309,000 4 5/8% Senior convertible debentures, due 1997, convertible at $14.33 per share - 82,325 4 1/4% Subordinated convertible debentures, due 2003, convertible at $37.80 per share 585,000 - 4 7/8% Subordinated convertible debentures, due 1997, convertible at $14.33 per share - 55,000 4 1/2% Senior convertible debentures, due 2003, convertible into shares of Thermo Instrument at $43.07 per share 172,500 - 3 3/4% Senior convertible debentures, due 2000, convertible into shares of Thermo Instrument at $16.93 per share 22,281 67,600 6 5/8% Subordinated convertible debentures, due 2001, convertible into shares of Thermo Instrument at $9.38 per share - 22,275 5% Subordinated convertible debentures, due 2000, convertible into shares of ThermoQuest at $16.50 per share 86,250 86,250 5% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Optek at $14.85 per share 86,250 86,250 4 7/8% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Remediation at $17.92 per share 34,950 34,950 Noninterest-bearing subordinated convertible debentures due 2003, convertible into shares of Thermedics at $32.68 per share 65,000 - 6 1/2% Subordinated convertible debentures, due 1998, convertible into shares of Thermedics at $10.42 per share - 8,037 Noninterest-bearing subordinated convertible debentures, due 1997, convertible into shares of Thermo Cardiosystems at $14.49 per share 3,755 11,642 3 3/4% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Voltek at $7.83 per share 9,345 25,240 4 5/8% Subordinated convertible debentures, due 2003, convertible into shares of Thermo TerraTech at $15.90 per share 111,850 - 6 1/2% Subordinated convertible debentures, due 1997, convertible into shares of Thermo TerraTech at $10.33 per share 8,620 13,432 23PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements (continued) (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Noninterest-bearing subordinated convertible debentures, due 2001, convertible into shares of Thermo Ecotek at $13.56 per share $ 22,205 $ - 8.1% Nonrecourse tax-exempt obligation, payable in semiannual installments, with final payment in 2000 51,200 59,100 6.0% Nonrecourse tax-exempt obligation, payable in semiannual installments, with final payment in 2000 43,500 49,700 Tax-exempt obligations - 132,047 Other 113,289 104,476 ---------- ---------- 1,591,211 1,147,324 Less: Current maturities 40,869 29,247 ---------- ---------- $1,550,342 $1,118,077 ========== ========== The debentures that are convertible into subsidiary common stock have been issued by the respective subsidiaries and are guaranteed by the Company, on a subordinated basis in most cases. In lieu of issuing all or a portion of Thermo Instrument's common stock upon conversion of the 4 1/2% senior convertible debentures due 2003 issued by Thermo Instrument, Thermo Instrument has the option to deliver shares of the Company's common stock with an aggregate value equal to the market value of Thermo Instrument's common stock otherwise issuable upon such conversion. The Company has agreed to sell at market prices such number of shares of its common stock to Thermo Instrument as may be required to exercise such option. In the event of a change in control of the Company (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors, each holder of the 5% and 4 1/4% convertible debentures issued by the Company will have the right to require the Company to buy all or part of the holder's debentures, at par value plus accrued interest, within 50 calendar days after the date of expiration of a specified approval period. In addition, certain of the obligations convertible into subsidiary common stock become exchangeable for common stock of the Company at an exchange price equal to 50% of the average price of the Company's common stock for the 30 trading days preceding the change in control. Nonrecourse tax-exempt obligations represent obligations issued by the California Pollution Control Financing Authority (CPCFA), the proceeds of which were used to finance two alternative-energy facilities (Delano I and Delano II) located in Delano, California. The obligations are payable only by a subsidiary of Thermo Ecotek and are not guaranteed by the Company, except under limited circumstances. As required by the financing bank group, Thermo Ecotek entered into interest rate swap agreements that effectively convert these obligations from floating rates 24PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements (continued) to the fixed rates described above. These swaps have terms expiring in 2000, commensurate with the final maturity of the debt. During 1996 and 1995, the average variable rate received under the interest rate swap agreements was 3.5% and 3.8%, respectively. Tax-exempt obligations in the accompanying 1995 balance sheet represent obligations issued by the CPCFA in January 1992, the proceeds of which were used to finance the construction of a waste-recycling facility in San Diego County, California. This facility was sold during 1996 and the buyer assumed obligations under the outstanding debt. Of these tax-exempt obligations, $93 million carried fixed rates of interest ranging from 7.2% to 8.5%, and $39 million carried a floating rate of interest that varied weekly based on short-term, tax-exempt markets. The interest rate ranged from 3.9% to 6.7% in 1996 and 4.3% to 7.5% in 1995. The annual requirements for long-term obligations are as follows: (In thousands) ----------------------------------------- 1997 $ 40,869 1998 95,730 1999 40,596 2000 268,890 2001 199,521 2002 and thereafter 945,605 ---------- $1,591,211 ========== See Note 13 for fair value information pertaining to the Company's long-term obligations. Notes payable and current maturities of long-term obligations in the accompanying balance sheet includes $112.9 million and $83.0 million in 1996 and 1995, respectively, of short-term bank borrowings by certain of the Company's subsidiaries. The weighted average interest rate for these borrowings was 5.4% at year-end 1996 and 1995. 6. Commitments and Contingencies Operating Leases The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $48.0 million, $31.9 million, and $24.3 million in 1996, 1995, and 1994, respectively. Future minimum payments due under noncancelable operating leases at December 28, 1996, are $42.2 million in 1997; $34.5 million in 1998; $27.6 million in 1999; $24.1 million in 2000; $21.7 million in 2001; and $86.8 million in 2002 and thereafter. Total future minimum lease payments are $236.9 million. 25PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 6. Commitments and Contingencies (continued) Litigation and Related Contingencies In a lawsuit relating to the Company's waste-recycling facility in San Diego County, California, a third party, from which the Company acquired certain development rights, alleges that fees totaling $7.9 million plus interest from 1992 and legal costs are due and payable by the Company in connection with construction of the facility. The third party also alleges tort claims for conversion and intentional interference with contractual relations and seeks punitive damages under such claims. The Company contends that no additional fees are payable because the facility actually built was substantially different from the one contemplated in the agreement with the third-party developer. The trial is expected to occur during 1997. During 1996, the Company sold the waste-recycling facility. The Company has been sued by third-party developers of an alternative-energy facility, constructed by the Company and its subcontractors in 1988 and 1989 and leased and operated by a partnership including Thermo Ecotek. The third-party developers seek $25 million in damages for alleged misrepresentation, breach of contract, and other causes of action. The dispute arises out of the development, construction, and subsequent operating performance of the facility. ThermoTrex is a defendant in a lawsuit brought by Fischer Imaging Corporation, which alleges that the prone breast-biopsy systems of the Lorad division of ThermoTrex's Trex Medical subsidiary infringe a Fischer patent on a precision mammographic needle-biopsy system. Lorad's cumulative revenues from this product totaled approximately $73.8 million through December 28, 1996. In December 1996, five employees of Thermo Instrument's Epsilon Industrial Inc. subsidiary commenced an arbitration proceeding alleging that Epsilon, Thermo Instrument, and certain affiliates of Thermo Instrument breached the terms of certain agreements entered into with such employees at the time that a predecessor of Epsilon acquired the assets and business of a company formerly owned by such employees. The employees are claiming damages of $36 million resulting from the alleged failure of Thermo Instrument and its affiliates to use best efforts to develop and promote certain products acquired at that time. The Company intends to vigorously defend these matters. In the opinion of management, the ultimate liability for all such matters, together with the liability for all other pending legal proceedings, asserted legal claims, and known potential legal claims that are probable of assertion, will not be material to the Company's financial position, but could materially affect the results of operations or cash flows for a particular quarter or annual period. 7. Common Stock At December 28, 1996, the Company had reserved 42,886,567 unissued shares of its common stock for possible issuance under stock-based compensation plans, for possible conversion of the Company's convertible debentures, and for possible exchange of certain subsidiaries' convertible obligations into common stock of the Company. Certain of the subsidiaries' obligations are exchangeable into common stock of the 26PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 7. Common Stock (continued) Company in the event of a change in control (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors (Note 5). The exchange price would be equal to 50% of the average price of the Company's common stock for the 30 trading days preceding the change in control. In January 1996, the Company redeemed the share purchase rights outstanding under its previously existing shareholder rights plan for $.02 per right, or $.006 per share of the Company's common stock outstanding. Simultaneously with this redemption, the Company distributed rights under a new shareholder rights plan adopted by the Company's Board of Directors to holders of outstanding shares of the Company's common stock. Each right entitles the holder to purchase one ten-thousandth of a share of Series B Junior Participating Preferred Stock, $100 par value, at a purchase price of $250 per share, subject to adjustment. The rights will not be exercisable until the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of common stock (the Stock Acquisition Date), or (ii) 10 business days following the commencement of a tender offer or exchange offer for 15% or more of the outstanding shares of common stock. In the event that a person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, except pursuant to an offer for all outstanding shares of common stock approved by the outside Directors, each holder of a right (except for the Acquiring Person) will thereafter have the right to receive, upon exercise, that number of shares of common stock that equals the exercise price of the right divided by one half of the current market price of the common stock. In the event that, at any time after any person has become an Acquiring Person, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or its common stock is changed or exchanged (other than a merger that follows an offer approved by the outside Directors), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a right (except for the Acquiring Person) shall thereafter have the right to receive, upon exercise, the number of shares of common stock of the acquiring company that equals the exercise price of the right divided by one half of the current market price of such common stock. At any time until 10 days following the Stock Acquisition Date, the Company may redeem the rights in whole, but not in part, at a price of $.01 per right (payable in cash or stock). The rights expire on January 29, 2006, unless earlier redeemed or exchanged. 27PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes The components of income before income taxes and minority interest are as follows: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Domestic $313,069 $256,738 $165,761 Foreign 61,482 42,070 40,615 -------- -------- -------- $374,551 $298,808 $206,376 ======== ======== ======== The components of the provision for income taxes are as follows: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Currently payable: Federal $ 85,024 $ 72,932 $ 30,089 Foreign 31,851 17,751 16,343 State 18,445 19,892 9,672 -------- -------- -------- 135,320 110,575 56,104 -------- -------- -------- Deferred (prepaid), net: Federal (19,994) (9,717) 11,355 Foreign (2,275) 232 (243) State (2,206) (2,379) 3,487 -------- -------- -------- (24,475) (11,864) 14,599 -------- -------- -------- $110,845 $ 98,711 $ 70,703 ======== ======== ======== The Company and its majority-owned subsidiaries receive a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price on the date of exercise. The provision for income taxes that is currently payable does not reflect $24.5 million, $20.5 million, and $3.5 million, of tax benefits of the Company and its majority-owned subsidiaries from employee exercises of stock options that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions, in 1996, 1995, and 1994, respectively. In addition, the provision for income taxes that is currently payable does not reflect $6.5 million, $3.0 million, and $0.1 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1996, 1995, and 1994, respectively. The deferred provision for income taxes does not reflect $5.9 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1995. The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory 28PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) federal income tax rate of 35% to income before income taxes and minority interest due to the following: (In thousands) 1996 1995 1994 ----------------------------------------------------------------------- Provision for income taxes at statutory rate $131,093 $104,583 $ 72,232 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (44,310) (28,285) (8,849) State income taxes, net of federal tax 10,555 11,314 8,317 Investment and research and development tax credits - - (2,786) Foreign tax rate and tax law differential 8,528 3,785 1,422 Amortization and write-off of cost in excess of net assets of acquired companies 8,643 7,484 3,450 Reduction in valuation allowance (3,212) (2,104) - Other, net (452) 1,934 (3,083) -------- -------- -------- $110,845 $ 98,711 $ 70,703 ======== ======== ======== Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1996 1995 ------------------------------------------------------------ Prepaid income taxes: Reserves and accruals $ 77,489 $ 34,212 Net operating loss and credit carryforwards 76,866 35,462 Inventory basis difference 22,906 20,683 Accrued compensation 14,435 12,551 Allowance for doubtful accounts 6,764 5,758 Capitalized costs and joint venture equity 5,253 4,821 Other, net 1,192 2,888 -------- -------- 204,905 116,375 Less: Valuation allowance 75,103 40,690 -------- -------- $129,802 $ 75,685 ======== ======== Deferred income taxes: Depreciation $ 68,587 $ 55,608 Intangible assets 8,254 2,806 Other 4,885 1,682 -------- -------- $ 81,726 $ 60,096 ======== ======== 29PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) The valuation allowance relates to the uncertainty surrounding the realization of tax loss carryforwards and the realization of tax benefits attributable to accrued acquisition expenses and certain other tax assets of the Company and certain subsidiaries. Of the year-end 1996 valuation allowance, $69.8 million will be used to reduce cost in excess of net assets of acquired companies when any portion of the related deferred tax asset is recognized. During 1996, the valuation allowance increased primarily due to the establishment of valuation allowances for tax loss carryforwards of acquired businesses. At year-end 1996, the Company had foreign and federal net operating loss carryforwards of $169 million and $6.4 million, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal net operating loss carryforwards expire in the years 2008 through 2010. Of the foreign net operating loss carryforwards, $45 million expire in the years 1997 through 2004, and the remainder do not expire. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. A provision has not been made for U.S. or additional foreign taxes on $168 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company currently plans to keep these amounts permanently reinvested overseas. The Company believes that any additional U.S. tax liability due upon remittance of such earnings would be immaterial due to available U.S. foreign tax credits. 9. Transactions in Stock of Subsidiaries Gain on issuance of stock by subsidiaries in the accompanying statement of income results primarily from the following transactions: 1996 Initial public offering of 3,450,000 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2 million that was recorded by Thermo Instrument. Private placements of 300,000 and 383,500 shares of Thermedics Detection common stock at $10.00 and $10.75 per share, respectively, for aggregate net proceeds of $7.0 million resulted in a gain of $5.7 million that was recorded by Thermedics. Initial public offering of 2,875,000 shares of Thermo Sentron common stock at $16.00 per share for net proceeds of $42.3 million resulted in a gain of $18.0 million that was recorded by Thermedics. Initial public offering of 3,450,000 shares of Thermo Optek common stock at $13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1 million that was recorded by Thermo Instrument. 30PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 9. Transactions in Stock of Subsidiaries (continued) Initial public offering of 2,875,000 shares of Trex Medical common stock and sale of 871,832 shares of Trex Medical common stock in a concurrent rights offering at $14.00 per share and private placements of 100,000 and 300,000 shares of Trex Medical common stock at $10.75 and $14.50 per share, respectively, for aggregate net proceeds of $54.3 million resulted in an aggregate gain of $28.3 million that was recorded by ThermoTrex. Initial public offering of 1,670,000 shares of Thermo BioAnalysis common stock at $14.00 per share for net proceeds of $20.8 million resulted in a gain of $9.8 million that was recorded by Thermo Instrument. Private placement of 1,935,667 shares of Metrika Systems common stock at $7.50 per share for net proceeds of $13.5 million resulted in a gain of $9.6 million that was recorded by Thermo Instrument. 1995 Initial public offering of 3,500,334 shares of Thermo Ecotek common stock at $8.50 per share for net proceeds of $27.5 million resulted in a gain of $7.9 million. Private placement of 1,601,500 shares of Thermo BioAnalysis common stock at $10.00 per share for net proceeds of $14.9 million resulted in a gain of $9.5 million that was recorded by Thermo Instrument. Private placement of 500,000 shares of Thermo Remediation common stock at $13.25 per share for net proceeds of $6.6 million resulted in a gain of $1.6 million that was recorded by Thermo TerraTech. Private placements of 150,000 and 50,000 shares of ThermoLase common stock at $13.75 and $12.825 per share, respectively, and a public offering of 2,250,000 shares of ThermoLase common stock at $25.25 per share, for aggregate net proceeds of $55.3 million resulted in an aggregate gain of $34.7 million that was recorded by ThermoTrex. Initial public offering of 1,725,000 shares of ThermoSpectra common stock at $14.00 per share and a private placement of 202,000 shares of ThermoSpectra common stock at $15.72 per share, for aggregate net proceeds of $24.9 million resulted in an aggregate gain of $10.6 million that was recorded by Thermo Instrument. Conversion of $9.1 million of Thermo Voltek 3 3/4% subordinated convertible debentures convertible at $7.83 per share into 1,163,098 shares of Thermo Voltek common stock resulted in a gain of $3.5 million that was recorded by Thermedics. Private placement of 1,862,000 shares of Trex Medical common stock at $10.25 per share for net proceeds of $17.6 million resulted in a gain of $12.8 million that was recorded by ThermoTrex. 1994 Public offering of 1,610,000 shares of ThermoTrex common stock at $15.375 per share for net proceeds of $23.0 million resulted in a gain of $7.9 million. Initial public offering of 5,349,572 shares of ThermoLase common stock at $3.00 per share for net proceeds of $14.8 million resulted in a gain of $8.6 million that was recorded by ThermoTrex. 31PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 9. Transactions in Stock of Subsidiaries (continued) Private placements of 1,505,000 shares of ThermoSpectra common stock at $10.00 per share for net proceeds of $14.0 million resulted in a gain of $6.5 million that was recorded by Thermo Instrument. Conversion of $3.7 million of Thermedics 6 1/2% subordinated convertible debentures convertible at $10.42 per share into 357,597 shares of Thermedics common stock resulted in a gain of $1.0 million. The Company's ownership percentage in these subsidiaries changed primarily as a result of the transactions listed above, as well as the Company's purchases of shares of its majority-owned subsidiaries' stock, the subsidiaries' purchases of their own stock, the issuance of subsidiaries' stock by the Company or by the subsidiaries under stock-based compensation plans or in other transactions, and the conversion of convertible obligations held by the Company, its subsidiaries, or by third parties. The Company's ownership percentages at year end were as follows: 1996 1995 1994 ---- ---- ---- Thermedics 55% 51% 51% Thermo Cardiosystems (a) 54% 55% 58% Thermo Voltek (a) 51% 59% 71% Thermo Sentron (a) 73% 100% 100% Thermedics Detection (b) 94% 100% 100% Thermo Instrument 82% 86% 83% ThermoSpectra (c) 73% 72% 86% ThermoQuest (c) 93% 100% 100% Thermo Optek (c) 93% 100% 100% Thermo BioAnalysis (c) 67% 80% 100% Metrika Systems (d) 84% 100% 100% Thermo TerraTech 81% 81% 80% Thermo Remediation (e) 68% 69% 65% Thermo EuroTech (f) 53% 62% 64% Thermo Power 64% 63% 60% ThermoLyte (g) 78% 78% 100% ThermoTrex 51% 51% 50% ThermoLase (h) 64% 65% 69% Trex Medical (h) 79% 91% 100% Thermo Fibertek 84% 81% 81% Thermo Fibergen (i) 68% 100% 100% Thermo Ecotek 82% 83% 97% ____________________ (a) Reflects combined ownership by Thermedics and Thermo Electron. (b) Reflects ownership by Thermedics. (c) Reflects combined ownership by Thermo Instrument and Thermo Electron. (d) Reflects ownership by Thermo Instrument. (e) Reflects combined ownership by Thermo TerraTech and Thermo Electron. (f) Reflects ownership by Thermo TerraTech. (g) Reflects ownership by Thermo Power. (h) Reflects ownership by ThermoTrex. (i) Reflects ownership by Thermo Fibertek. 32PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 10. Other Income (Expense), Net The components of other income (expense), net, in the accompanying statement of income are as follows: (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Interest income $ 94,109 $ 62,146 $ 43,280 Interest expense (96,695) (77,861) (59,844) Equity in losses of unconsolidated subsidiaries (28) (203) (4,019) Gain on sale of investments, net 9,840 9,305 4,851 Gain on sale of land - - 14,698 Other income (expense), net (5,740) (612) 45 -------- -------- -------- $ 1,486 $ (7,225) $ (989) ======== ======== ======== 11. Restructuring and Other Nonrecurring Costs Restructuring and other nonrecurring costs in 1996 includes a write-off of $12.7 million of cost in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak subsidiary, as a result of Thermedics no longer intending to further invest in this business and analysis that indicates that the expected future undiscounted cash flows from this business will be insufficient to recover Thermedics' investment. The 1996 amount also includes $11.4 million of costs recorded by SensorMedics primarily as a result of its merger with the Company, including employee compensation that became payable as a result of the merger with the Company, certain investment banking fees and other related transaction costs, the settlement of a pre-acquisition legal dispute, and severance costs for terminated employees (Note 3). In addition, $4.4 million was recorded by the Company's wholly owned Peter Brotherhood Ltd. subsidiary primarily for the write-off of a nontrade receivable and severance costs, and $3.5 million and $4.9 million were recorded by Thermo Instrument and Thermo Cardiosystems, respectively, for the write-off of acquired technology in connection with an acquisition at each subsidiary. These amounts represent the portion of the purchase price allocated to technology in development at acquired businesses, based on estimated replacement costs. The 1995 amount includes $11.5 million to write off the Company's net investment in a waste-recycling facility in San Diego County, California, that was subsequently sold in 1996; $5.0 million to write off the cost in excess of net assets of acquired companies at Thermo TerraTech's thermal-processing equipment business due to this asset no longer being recoverable based on discontinuing investment in this business and analysis that indicates that the expected cash flows from this business will be insufficient to recover Thermo TerraTech's investment; $2.5 million to write off the cost in excess of net assets of acquired companies at the Company's Napco subsidiary; and $2.9 million of other nonrecurring costs. The 1994 amount represents severance costs and, to a lesser extent, the costs to write off leasehold improvements at ThermoTrex's East Coast division. 33PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 12. Supplemental Cash Flow Information Supplemental cash flow information is as follows: (In thousands) 1996 1995 1994 ----------------------------------------------------------------------- Cash Paid For: Interest $ 86,449 $ 72,714 $ 47,745 Income taxes $ 91,536 $ 51,184 $ 27,456 Noncash Activities: Conversions of the Company's and subsidiaries' convertible obligations $ 390,494 $ 212,979 $ 89,625 Sale of waste-recycling facility $ 112,553 $ - $ - Assumption by buyer of waste- recycling facility debt $ 109,862 $ - $ - Acquisition of asset under capital lease $ - $ 47,101 $ - Fair value of assets of acquired companies $ 673,662 $ 521,558 $ 250,404 Cash paid for acquired companies (383,685) (339,075) (174,330) Issuance of the Company's and subsidiaries' common stock and stock options for acquired companies (2,351) (18,990) - Issuance of long-term obligations for acquired companies (26,560) (22,300) - --------- --------- --------- Liabilities assumed of acquired companies $ 261,066 $ 141,193 $ 76,074 ========= ========= ========= 13. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale and held-to-maturity investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, long-term obligations, forward exchange contracts, and interest rate swaps. The carrying amount of these financial instruments, with the exception of available-for-sale investments, long-term obligations, forward exchange contracts, and interest rate swaps, approximates fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. Held-to-maturity investments in the accompanying balance sheet are carried at amortized cost. The fair values of held-to-maturity investments are disclosed on the accompanying balance sheet and were determined based on quoted market prices. 34PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 13. Fair Value of Financial Instruments (continued) The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies, principally U.S. dollars, British pounds sterling, French francs, and Japanese yen. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The amounts of such forward exchange contracts at year-end 1996 and 1995 were $19.7 million and $34.2 million, respectively. Thermo Ecotek has interest rate swap agreements relating to its nonrecourse tax-exempt obligations. The interest rate swap agreements are with a different counterparty than the holders of the underlying debt. The Company believes, however, that the credit risks associated with these swaps are minimal because the agreements are with a large, reputable bank. The notional amount of the swap agreement was $95.7 million and $110.0 million at year-end 1996 and 1995, respectively. The carrying amount and fair value of the Company's long-term obligations and off-balance-sheet financial instruments are as follows: 1996 1995 ----------------------- ----------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value Long-term obligations: Convertible obligations $1,379,467 $1,616,239 $ 802,001 $1,354,682 Other long-term obligations 170,875 171,722 316,076 336,070 ---------- ---------- ---------- ---------- $1,550,342 $1,787,961 $1,118,077 $1,690,752 ========== ========== ========== ========== Off-balance-sheet financial instruments: Forward exchange contracts receivable $ (1,370) $ (1,015) Interest rate swaps payable $ 1,643 $ 3,467 The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The fair value of convertible obligations exceeds the carrying amount primarily due to the market price of the Company's or subsidiaries' common stock exceeding the conversion price of the convertible obligations. The fair value of forward exchange contracts and interest rate swap agreements (used for hedging purposes) is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates on forward exchange contracts, and market interest rates and the creditworthiness of the counterparties on interest rate swap agreements. 35PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information The Company's business segments include the following: Instruments: analytical, monitoring, process control and imaging, inspection, and measurement instruments Alternative-energy Systems: biomass power plants, biopesticides, industrial-refrigeration systems, natural gas engines, cooling and cogeneration units, turbines and compressors Process Equipment: paper-recycling and papermaking equipment, metallurgical-processing systems, electroplating equipment Biomedical Products: biomedical materials, mammography and needle-biopsy systems, general-purpose X-ray systems, respiratory-care equipment, skin-incision devices, blood coagulation-monitoring equipment, left ventricular-assist systems, neurophysiology monitoring instruments, laser-based hair-removal system, personal-care products Environmental Services: on-site industrial remediation, environmental sciences, industrial-fluids recycling, nuclear monitoring and cleanup, thermal soil-remediation, laboratory analysis, metallurgical heat treating and fabrication Advanced Technologies: process-detection systems, explosives-detection instruments, precision weighing and inspection equipment, electronic test equipment, power-conversion instruments, programmable power amplifiers, systems integration and engineering, development of avionics products and medical equipment 36PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (In thousands) 1996 1995 1994 -------------------------------------------------------------------------- Business Segment Information Revenues: Instruments $1,209,362 $ 782,662 $ 649,992 Alternative-energy Systems 339,813 325,912 285,410 Process Equipment 286,312 317,951 190,217 Biomedical Products 455,890 316,622 180,318 Environmental Services 273,894 210,503 141,438 Advanced Technologies 375,459 323,567 286,523 Intersegment Sales Elimination (a) (8,172) (6,926) (4,707) ---------- ---------- ---------- $2,932,558 $2,270,291 $1,729,191 ========== ========== ========== Income Before Income Taxes and Minority Interest: Instruments $ 138,869 $ 113,651 $ 105,440 Alternative-energy Systems 38,112 32,952 34,451 Process Equipment 36,115 29,071 20,730 Biomedical Products 16,444 27,167 15,579 Environmental Services 17,709 21,215 14,853 Advanced Technologies 28,040 23,842 14,585 ---------- ---------- ---------- Total Segment Income (b) 275,289 247,898 205,638 Equity in Losses of Unconsolidated Subsidiaries (28) (203) (4,019) Corporate (c) 99,290 51,113 4,757 ---------- ---------- ---------- $ 374,551 $ 298,808 $ 206,376 ========== ========== ========== Identifiable Assets: Instruments $1,924,400 $1,372,813 $1,011,916 Alternative-energy Systems 617,154 695,849 577,781 Process Equipment 296,582 238,537 191,846 Biomedical Products 691,836 596,467 348,634 Environmental Services 396,901 335,726 192,523 Advanced Technologies 389,586 301,059 236,108 Corporate (d) 824,785 245,888 503,127 ---------- ---------- ---------- $5,141,244 $3,786,339 $3,061,935 ========== ========== ========== Depreciation and Amortization: Instruments $ 44,233 $ 25,257 $ 22,070 Alternative-energy Systems 24,253 25,186 16,078 Process Equipment 5,333 5,228 4,780 Biomedical Products 15,148 9,626 6,376 Environmental Services 12,918 11,197 8,382 Advanced Technologies 11,952 8,104 6,109 Corporate 1,330 1,271 1,233 ---------- ---------- ---------- $ 115,167 $ 85,869 $ 65,028 ========== ========== ========== 37PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (In thousands) 1996 1995 1994 -------------------------------------------------------------------------- Capital Expenditures: Instruments $ 19,134 $ 10,313 $ 7,574 Alternative-energy Systems (e) 42,537 14,024 31,717 Process Equipment 4,265 3,686 3,231 Biomedical Products 29,731 9,768 7,650 Environmental Services 18,710 19,499 7,559 Advanced Technologies 9,412 6,266 7,653 Corporate 752 460 141 ---------- ---------- ---------- $ 124,541 $ 64,016 $ 65,525 ========== ========== ========== Geographical Information Revenues: United States $2,171,879 $1,790,058 $1,386,462 United Kingdom 312,522 156,863 125,000 Other Europe 536,496 353,595 244,048 Other 146,998 117,354 91,145 Transfers among geographical areas (a) (235,337) (147,579) (117,464) ---------- ---------- ---------- $2,932,558 $2,270,291 $1,729,191 ========== ========== ========== Income Before Income Taxes and Minority Interest: United States $ 212,341 $ 201,815 $ 182,177 United Kingdom 11,359 5,609 2,002 Other Europe 32,813 26,835 11,313 Other 18,776 13,639 10,146 ---------- ---------- ---------- Total Segment Income (b) 275,289 247,898 205,638 Equity in Losses of Unconsolidated Subsidiaries (28) (203) (4,019) Corporate (c) 99,290 51,113 4,757 ---------- ---------- ---------- $ 374,551 $ 298,808 $ 206,376 ========== ========== ========== Identifiable Assets: United States $3,372,448 $2,939,286 $2,110,843 United Kingdom 340,005 171,438 125,902 Other Europe 516,558 340,289 261,366 Other 87,449 89,439 60,697 Corporate (d) 824,784 245,887 503,127 ---------- ---------- ---------- $5,141,244 $3,786,339 $3,061,935 ========== ========== ========== Export Sales Included in United States Revenues Above (f) $ 436,972 $ 340,736 $ 265,298 ========== ========== ========== 38PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (a) Intersegment sales and transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, and income taxes. (c) Includes corporate general and administrative expenses, other income and expense, and gain on issuance of stock by subsidiaries. (d) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's Waltham, Massachusetts, headquarters. (e) Includes $36.9 million in 1996 for the construction of a coal- beneficiation plant in Gillette, Wyoming. (f) In general, export revenues are denominated in U.S. dollars. 15. Unaudited Quarterly Information (In thousands except per share amounts) 1996(a) First Second Third Fourth ------------------------------------------------------------------------- Revenues $652,385 $745,759 $739,981 $794,433 Gross profit 244,381 281,697 296,627 307,284 Net income 41,023 44,919 51,242 53,632 Earnings per share: Primary .31 .32 .36 .36 Fully diluted .27 .29 .32 .33 1995(b) First Second Third Fourth ------------------------------------------------------------------------- Revenues $493,174 $544,171 $585,988 $646,958 Gross profit 186,791 207,006 223,086 246,526 Net income 29,684 33,050 38,544 38,304 Earnings per share: Primary .24 .26 .30 .29 Fully diluted .22 .23 .27 .26 (a)Results include nontaxable gains of $28.9 million, $43.5 million, $38.5 million, and $15.7 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (b)Results include nontaxable gains of $12.9 million, $9.7 million, $43.0 million, and $15.2 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. 39PAGE Thermo Electron Corporation 1996 Financial Statements Notes to Consolidated Financial Statements 16. Subsequent Event On March 12, 1997, Thermo Instrument declared unconditional in all respects its cash tender offer for all outstanding shares of Life Sciences International PLC (Life Sciences) for 135 British pence per share (approximately $2.16 per share). As of that date, Thermo Instrument had received acceptances representing approximately 91% of the Life Sciences shares outstanding and Thermo Instrument owned an additional 3% of the outstanding Life Sciences shares. There are approximately 175 million Life Sciences shares outstanding. Thermo Instrument has established March 26, 1997, as the date for payment for all shares as to which acceptance has been received. In addition, Thermo Instrument expects to repay approximately $72 million of Life Science's debt, net of acquired cash expected to be used. Life Sciences, a London Stock Exchange-listed company, manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. 40PAGE Thermo Electron Corporation 1996 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited the accompanying consolidated balance sheet of Thermo Electron Corporation (a Delaware corporation) and subsidiaries as of December 28, 1996, and December 30, 1995, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended December 28, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Electron Corporation and subsidiaries as of December 28, 1996, and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 12, 1997 (except with respect to the matter discussed in Note 16 as to which the date is March 12, 1997) 41PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Forward-looking Statements." Overview The Company develops and manufactures a broad range of products that are sold worldwide. The Company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. The majority of the Company's businesses fall into four broad markets: environmental, energy, process control, and selected general purpose analytical, health, and safety instrumentation. An important component of the Company's strategy is to establish leading positions in its markets through the application of proprietary technology, whether developed internally or acquired. A key contribution to the growth of the Company's segment income (as defined in the results of operations below), particularly over the last several years, has been the ability to identify attractive acquisition opportunities, complete those acquisitions, and derive a growing income contribution from the newly acquired businesses as their profitability improves as they are integrated into the Company's business segments. The Company seeks to minimize its dependence on any specific product or market by maintaining and diversifying its portfolio of businesses and technologies. Similarly, the Company's goal is to maintain a balance in its businesses between those affected by various regulatory cycles and those more dependent on the general level of economic activity. Although the Company is diversified in terms of technology, product offerings, and geographic markets served, the future financial performance of the Company as a whole will be largely affected by the strength of worldwide economies and the continued adoption and diligent enforcement of environmental, health, and safety regulations and standards, among other factors. The Company believes that maintaining an entrepreneurial atmosphere is essential to its continued growth and development. In order to preserve this atmosphere, the Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by 42PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of income. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. In October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in the equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in 1997. Results of Operations 1996 Compared With 1995 Sales in 1996 were $2,932.6 million, an increase of $662.3 million, or 29%, over 1995. Segment income, excluding restructuring and other nonrecurring costs of $37.6 million in 1996 and $21.9 million in 1995 described below, increased 16% to $312.9 million in 1996 from $269.8 million in 1995. (Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, and income taxes.) Operating income, which includes restructuring and other nonrecurring costs, was $246.5 million in 1996, compared with $225.2 million in 1995. Financial results for 1995 have been restated to include SensorMedics, acquired in a pooling-of-interests transaction in June 1996 (Note 3). Instruments ----------- Sales from the Instruments segment were $1,209.4 million in 1996, an increase of $426.7 million, or 55%, over 1995. Sales increased primarily due to acquisitions made by Thermo Instrument, which added $404 million of sales in 1996. The remainder of the increase resulted primarily from greater demand at Thermo Instrument's mass spectrometry business as a result of recently introduced products and, to a lesser extent, greater demand at the Fourier transform infrared spectrometry business. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which Thermo Instrument operates decreased revenues by $21.8 million in 1996. Segment income margin (segment income margin is segment income as a 43PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) percentage of sales), excluding restructuring and other nonrecurring costs of $3.5 million in 1996, declined to 11.8% in 1996 from 14.5% in 1995, primarily due to lower margins at acquired businesses. Restructuring and other nonrecurring costs of $3.5 million represents the write-off of acquired technology relating to the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons (Note 3). Alternative-energy Systems -------------------------- Sales from the Alternative-energy Systems segment were $339.8 million in 1996, compared with $325.9 million in 1995. Within this segment, revenues from Thermo Ecotek were $154.3 million in 1996, compared with $141.4 million in 1995. This increase resulted primarily from higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire; increased revenues at the Delano plants in California resulting from fewer days of scheduled and unscheduled outages; and an acquisition that added $2.6 million in revenues. Pursuant to Thermo Ecotek's utility contracts for its four plants in California, there will be no further contractual energy rate increases beginning in 1998. Revenues from the Company's waste-recycling facility in southern California were $9.2 million in 1996, compared with $20.8 million in 1995. This facility was sold in July 1996. Sales at Peter Brotherhood declined 3% to $54.4 million as a result of lower demand for steam turbines. Sales from Thermo Power were $122.1 million in 1996, compared with $108.4 million in 1995. This increase resulted primarily from increased demand for custom-designed industrial refrigeration packages, remanufactured commercial cooling equipment, and the inclusion of revenues from lift-truck engines, offset in part by declines in revenues from marine-engine products and rental equipment. Segment income from the Alternative-energy Systems segment was $42.5 million in 1996, compared with $44.5 million in 1995, excluding restructuring and other nonrecurring costs of $4.4 million in 1996 and $11.5 million in 1995. Thermo Ecotek had segment income of $39.3 million in 1996, compared with $34.6 million in 1995. This improvement results from increased revenues and, to a lesser extent, lower fuel costs. Segment income from the Company's waste-recycling facility, excluding restructuring and other nonrecurring costs of $11.5 million in 1995, was $4.6 million in 1996 and $5.9 million in 1995. Results from this facility, net of related interest expense (not included in segment income), were approximately at the break-even level for both periods. Segment income at Thermo Power declined by $3.9 million to $1.1 million due to a change in sales mix, a cost increase in one of the major components of its industrial refrigeration packages, higher depreciation expense at NuTemp, and higher warranty expenses for marine-engine products and at NuTemp. Although Thermo Power expects to phase in a new manufacturer for the component that has increased in price, the cost increase is expected to adversely affect its segment income margin in 1997. Peter Brotherhood incurred a segment loss of $2.5 million in 1996, excluding restructuring and other nonrecurring costs, compared with a loss of $1.1 million in 1995. The decline resulted from increased costs to complete jobs in process as well as competitive pricing pressures. 44PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) Peter Brotherhood recorded restructuring and other nonrecurring costs of $4.4 million in 1996 primarily for the write-off of a nontrade receivable and severance costs. The Company recorded restructuring and other nonrecurring costs of $11.5 million for the Alternative-energy Systems segment in 1995. This amount represents the Company's net investment in a waste-recycling facility in southern California that contracted to process waste for San Diego County (the County) under a long-term service agreement. During the third quarter of 1995, the County paid the Company less than the amount due under the long-term service agreement, and in October 1995, the Company notified the County that the County was in default of the service agreement. The County was a party to the financing arrangements for the facility and was also in default of certain terms of such arrangements. As a result of the County's default under the service agreement and financing arrangements, the Company concluded that it would be unable to recover its investment in the facility. In 1996, in settlement of these matters, the facility was sold to the County for a nominal amount plus the County's assumption of the facility debt. Certain of Thermo Ecotek's plants have power-sales agreements with utilities under which the rates paid for power will convert from fixed rates to "avoided-cost" rates in the year 2000. Avoided-cost rates are currently substantially less than the fixed rates. One of these plants, located in Woodland, California, has conditions in its nonrecourse lease agreement that require funding of a "power reserve" in years prior to 2000, based on projections of operating cash flow shortfalls in the year 2000 and thereafter. The power reserve represents funds available to make lease payments in the event that revenues are not sufficient after the Woodland plant converts to avoided-cost rates. Without sufficient increases in avoided-cost rates or reductions in fuel costs and other operating expenses by the year 2000, Thermo Ecotek expects to either renegotiate its nonrecourse lease agreement or forfeit its interest in the Woodland plant. Beginning in the fourth quarter of 1996, Thermo Ecotek began to expense the funding of reserves required under the nonrecourse lease agreement. As a result, the Company expects that the results of the plant will be reduced to approximately breakeven in future years. During 1996, the plant contributed $4.6 million of segment income. Two of Thermo Ecotek's plants are located in New Hampshire and sell power to Public Service Company of New Hampshire (PSNH). In January 1997, PSNH's parent company, Northeast Utilities, disclosed in a filing with the Securities and Exchange Commission that if a proposed deregulation plan for the New Hampshire electric utility industry were adopted, PSNH could default on certain financial obligations and seek bankruptcy protection. In February 1997, the New Hampshire Public Utilities Commission voted to adopt a deregulation plan, and in March 1997, PSNH filed suit to block the plan. The effect of a PSNH bankruptcy or deregulation of the electric utility industry in New Hampshire on Thermo Ecotek's current rate orders for its two New Hampshire plants is uncertain. 45PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) Process Equipment ----------------- Sales in the Process Equipment segment were $286.3 million in 1996, compared with $318.0 million in 1995. A wholly owned subsidiary of the Company recorded revenues from a contract to design and construct an office wastepaper de-inking facility of $58.0 million in 1996 and $77.0 million in 1995. This contract was substantially completed in the first quarter of 1996. Sales from Thermo Fibertek declined 7%, to $192.2 million in 1996. Thermo Fibertek's revenues under a subcontract from Thermo Electron to supply equipment and services for the office wastepaper de-inking facility described above decreased $12.9 million. Revenues from Thermo Fibertek's recycling business declined an additional $7.5 million due to lower demand resulting from a severe drop in de-inked pulp prices, offset in part by $2.2 million of revenues from a business acquired during 1996. Revenues from Thermo Fibertek's accessories business increased $8.8 million primarily due to increased demand. The unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $1.7 million in 1996. Sales of Thermo TerraTech's thermal-processing equipment increased $8.3 million in 1996 due to increased demand, while sales of automated electroplating equipment by the Company's wholly owned Napco subsidiary declined $6.4 million in 1996. Segment income margin, excluding restructuring and other nonrecurring costs of $7.5 million in 1995, was 12.6% in 1996, compared with 11.5% in 1995. This improvement results primarily from a nonrecurring payment received under the office wastepaper de-inking facility contract in 1996, which represents certain cost savings on the contract, and increased revenues from Thermo TerraTech's thermal-processing equipment business from depressed levels in 1995. Restructuring and other nonrecurring costs of $7.5 million in 1995 represent the write-off of cost in excess of net assets of acquired companies, of which $5.0 million was recorded by Thermo TerraTech, and $2.5 million was recorded by Napco (Note 11). Biomedical Products ------------------- Sales in the Biomedical Products segment were $455.9 million in 1996, an increase of $139.3 million, or 44%, over 1995. Sales increased due to the inclusion of $111.7 million in sales from acquired businesses, as well as increased demand for certain products at Trex Medical, Thermo Cardiosystems' implantable left ventricular-assist systems (LVAS), and ThermoLase's hair-removal business. Segment income margin, excluding restructuring and other nonrecurring costs of $29.7 million in 1996, improved to 10.1% in 1996 from 8.6% in 1995. This improvement resulted primarily from higher margins at acquired businesses and increased sales at existing businesses. As ThermoLase opens additional spas in 1997, the effect of operating newer spas below maximum capacity while ThermoLase develops its client base, as well as pre-opening costs, will have a negative impact on its segment income margin. Restructuring and other nonrecurring costs of $29.7 million in 1996 included a write-off of $12.7 million of cost in excess of net assets of acquired company and certain 46PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) other intangible assets at Thermedics' Corpak subsidiary, $11.4 million of costs incurred by SensorMedics primarily as a result of its merger with the Company, and $4.9 million for Thermo Cardiosystem's write-off of acquired technology relating to a 1996 acquisition (Note 11). Environmental Services ---------------------- Sales in the Environmental Services segment were $273.9 million in 1996, an increase of $63.4 million, or 30%, over 1995. Revenues from Thermo TerraTech's remediation and recycling services increased to $121.2 million in 1996 from $67.5 million in 1995 due to the inclusion of $53.9 million in revenues from acquired businesses. This increase was offset in part by a decline in revenues from soil-remediation services of $4.9 million in 1996 due to declines in the volume of soil processed as a result of more relaxed regulatory standards in several states and competitive pricing pressures; and by a decline in revenues at Thermo TerraTech's radiochemistry laboratory businesses reflecting a reduction in spending at the U.S. Department of Energy (DOE) and reduced federal government budget appropriations. These trends are expected to continue for the foreseeable future. Sales of metallurgical services were $45.7 million in 1996, compared with $42.8 million in 1995. Sales increased due to increased demand for existing services, offset in part by a decline of $2.9 million resulting from the closing of a small metallurgical services division in 1995. Segment income, excluding restructuring and other nonrecurring costs of $0.1 million in 1996 and $2.0 million in 1995, was $17.8 million in 1996, compared with $23.2 million in 1995. Additional segment income from acquisitions was more than offset by costs incurred at Thermo EuroTech, relating primarily to the settlement of several contract disputes, as well as the impact of severe winter weather in early 1996, which affected all phases of Thermo EuroTech's business, and by the effect of lower sales and income from the traditionally higher-margin soil-remediation services. Restructuring and other nonrecurring costs of $2.0 million in 1995 were recorded primarily as a result of the decision to close a metallurgical services division. Advanced Technologies --------------------- Sales from the Advanced Technologies segment were $375.5 million in 1996, compared with $323.6 million in 1995. Sales increased $73.5 million due to the inclusion of sales from acquired businesses. Increases were offset in part by declines in revenues due to lower U.S. government contract funding at Coleman Research and ThermoTrex due to increased competition for government research and development funding. Segment income, excluding restructuring and other nonrecurring costs of $1.0 million in 1995, was $28.0 million in 1996, compared with $24.8 million in 1995. Segment income provided by acquired companies and additional income from certain businesses were offset in part by lower segment income at Coleman Research, as a result of lower revenues, and by a loss incurred at ThermoTrex's advanced technology research center, resulting from cost overruns and higher expenses to develop new lines of business. 47PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) Restructuring and other nonrecurring costs in 1995 primarily represent the write-off of intangible assets at ThermoTrex's East Coast division which was closed. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company recorded gains of $126.6 million in 1996 and $80.8 million in 1995. See Notes 1 and 9 for a more complete description of these transactions. Minority interest expense increased to $72.9 million in 1996 from $60.5 million in 1995. Minority interest expense includes $38.2 million in 1996 and $28.6 million in 1995 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. At year-end 1996, the Company was contingently liable with respect to certain lawsuits (Note 6). 1995 Compared With 1994 Sales in 1995 were $2,270.3 million, an increase of $541.1 million, or 31%, over 1994. Segment income, excluding restructuring and other nonrecurring costs described below of $21.9 million in 1995 and $0.7 million in 1994, increased 31% to $269.8 million from $206.3 million in 1994. Operating income, which includes restructuring and other nonrecurring costs, was $225.2 million, an increase of $43.1 million, or 24%, over 1994. Instruments ----------- Sales from the Instruments segment were $782.7 million in 1995, an increase of $132.5 million, or 20%, over 1994. Sales increased primarily due to acquisitions made by Thermo Instrument, which added $104 million of sales in 1995. The remaining sales increase was substantially due to the favorable effects of currency translation due to a weaker U.S. dollar in 1995. Segment income margin was 14.5% in 1995, compared with 16.2% in 1994. Segment income margin declined due to lower margins at acquired businesses and reduced shipments at Thermo Instrument's air-monitoring instruments subsidiary. Alternative-energy Systems -------------------------- Sales from the Alternative-energy Systems segment were $325.9 million in 1995, an increase of $40.5 million, or 14%, over 1994. Within this segment, revenues from Thermo Ecotek were $141.4 million in 1995, compared with $134.3 million in 1994. This increase results from a full year of revenues from the Whitefield, New Hampshire, plant which did not operate for most of the first half of 1994 due to major damage to the turbine-generator, as well as higher contractual energy rates in 1995 at all of Thermo Ecotek's facilities, excluding the facility in Hemphill, New Hampshire. These increases were offset largely by utility-imposed curtailment of power at the Woodland and Mendota plants in California. The utility that purchases the electrical output of these California plants has the right to curtail each plant's power output up to 1,000 hours per year during periods of low demand. The utility commonly 48PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1995 Compared With 1994 (continued) experiences low demand following periods of heavy rain or snow, when hydroelectric power is available. Revenues from the Company's waste-recycling facility in San Diego County, California declined by $0.8 million due to a reduction in the amounts paid by the facility's customer. The facility ceased processing waste during 1995 and the Company wrote off its net investment in this facility in the third quarter of 1995, as described in the results of operations for 1996. Sales at Peter Brotherhood increased $18.1 million to $56.2 million as a result of increased demand for steam turbines and, to a lesser extent, increased demand for special purpose machinery over depressed 1994 levels. Sales from Thermo Power increased $16.5 million to $108.4 million, due primarily to increased demand for refrigeration packages and marine engine-related products and, to a lesser extent, an acquisition in May 1994. Segment income from the Alternative-energy Systems segment, excluding restructuring and other nonrecurring costs of $11.5 million in 1995, was $44.5 million in 1995, compared with $34.5 million in 1994. Thermo Ecotek had segment income of $34.6 million in 1995, compared with $26.9 million in 1994. This improvement results from lower fuel costs at two of the California plants and higher contractual energy rates in 1995, offset in part by utility-imposed curtailment of power at the Woodland and Mendota facilities. Segment income at Thermo Power declined to $5.1 million in 1995 from $5.3 million in 1994, reflecting an increase in expenditures for research and development. Peter Brotherhood incurred a segment loss of $1.1 million in 1995, compared with a loss of $0.8 million in 1994, as a result of increased costs to complete jobs in process and competitive pricing pressures. Restructuring and other nonrecurring costs of $11.5 million in 1995 represents the write-off of the Company's net investment in its waste-recycling facility in San Diego County, California. This facility was sold in July 1996. Process Equipment ----------------- Sales in the Process Equipment segment were $318.0 million in 1995, compared with $190.2 million in 1994. A wholly owned subsidiary of the Company recorded revenues from a contract to design and construct an office wastepaper de-inking facility of $77.0 million. This contract was substantially completed in the first quarter of 1996. Sales from Thermo Fibertek increased $44.1 million to $206.7 million, primarily due to an increase of $22.3 million in sales of paper-recycling equipment, which included $14.7 million of sales under a subcontract from Thermo Electron to supply equipment and services for the office wastepaper de-inking facility described above, and due to increased demand at Thermo Fibertek's paper-recycling business in France. Sales from Thermo Fibertek's accessories and water-management businesses increased $12.5 million and $10.0 million, respectively, due principally to greater demand. The favorable effects of currency translation increased revenues by $2.7 million. Sales of Thermo TerraTech's thermal-processing equipment and Napco's automated electroplating equipment increased $2.6 million and $4.2 million, respectively, from depressed 1994 levels. Segment income margin, excluding restructuring and other nonrecurring costs of $7.5 million in 1995, was 11.5% in 1995, compared with 10.9% in 1994. Thermo 49PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1995 Compared With 1994 (continued) Fibertek's segment income margin improved to 16.2% from 12.9% in 1994, primarily due to increased sales and an improved sales mix. During 1995, the Process Equipment segment recorded restructuring and other nonrecurring costs of $7.5 million to write off costs in excess of net assets of acquired companies, of which $5.0 million was recorded by Thermo TerraTech and $2.5 million was recorded by Napco (Note 11). Biomedical Products ------------------- Sales in the Biomedical Products segment were $316.6 million in 1995, an increase of $136.3 million, or 76%, over 1994. This was due primarily to the inclusion of $62.9 million in sales from SensorMedics, acquired in June 1996 (Note 3); the inclusion of $31.6 million in sales from Bird Medical Technologies, Inc. and Bennett X-Ray Corporation, acquired in the third quarter of 1995; and increased demand for a number of the Company's biomedical products. Sales of Trex Medical's mammography and breast-biopsy systems increased 38% to $74.9 million; Thermo Cardiosystems' LVAS sales increased 98% to $20.6 million; ThermoLase's skin-care product sales increased 33% to $24.9 million; neurodiagnostic monitoring equipment sales by the Company's wholly owned Nicolet Biomedical Inc. subsidiary increased 12% to $53.1 million; and sales of blood coagulation-monitoring products and skin-incision devices by the Company's wholly owned International Technidyne Corporation subsidiary increased 13% to $32.3 million. Segment income margin was 8.6% in 1995 and 1994. Improvements resulting from increased sales and price increases for Thermo Cardiosystems' air-driven LVAS were offset by the inclusion of lower-margin revenues at SensorMedics and increased expenses incurred by ThermoLase to develop and commercialize its laser-based hair-removal process. Environmental Services ---------------------- Sales in the Environmental Services segment were $210.5 million in 1995, an increase of $69.1 million, or 49%, over 1994. Within this segment, sales from Thermo Remediation were $57.4 million in 1995, compared with $50.1 million in 1994. Sales from Thermo Remediation's soil-remediation and fluids-recycling services increased due to acquisitions, offset in part by lower sales at existing sites resulting from ongoing uncertainties with respect to changing regulatory standards, primarily in jurisdictions affecting two sites, as well as severe weather conditions at one site, and competitive pricing pressures. Thermo Remediation's sales from nuclear services at existing sites increased primarily due to a long-term environmental restoration contract for the DOE's Hanford site, offset in part by a decrease in radiochemistry laboratory work, reflecting a reduction in spending at the DOE. Sales of analytical laboratory and environmental consulting services increased $59.8 million, to $100.6 million, due to the inclusion of sales from acquired businesses. Sales of metallurgical services declined $2.0 million to $42.8 million, due to the effect of closing a small plant in 1995. Segment income margin, excluding restructuring and other nonrecurring costs of $1.9 million in 1995, improved to 11.0% from 10.5% in 1994, due primarily to higher sales, offset in part by higher legal expenses incurred within the environmental consulting services 50PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1995 Compared With 1994 (continued) operations. The restructuring and other nonrecurring costs included $1.5 million relating to the closing of a small metallurgical services division in the second quarter of 1995. Advanced Technologies --------------------- Sales from the Advanced Technologies segment were $323.6 million in 1995, compared with $286.5 million in 1994. Sales increased $22.3 million due to the inclusion of a full year of sales from Thermo Sentron Inc., acquired in March 1994, and sales from the Orion laboratory products division of Analytical Technology, Inc., acquired in December 1995. Sales at Thermo Voltek increased $12.7 million to $36.3 million, due to the inclusion of $7.2 million in sales from acquired businesses and, to a lesser extent, the introduction of a new product line and an increase in demand. Sales at Coleman Research increased $20.7 million to $164.6 million due to increased contract funding. Sales of Thermedics Detection's process-detection instruments declined $19.5 million to $18.5 million primarily due to lower demand from its principal customer, which has substantially completed its deployment of these systems, and sales of EGIS(R) explosives-detection systems declined $5.5 million to $4.6 million, primarily due to lower demand as a result of the shipment of several large orders in 1994. Segment income, excluding restructuring and other nonrecurring costs of $1.0 million in 1995 and $0.7 million in 1994, increased $9.6 million to $24.8 million as a result of improved margins at Coleman Research and Thermo Sentron, primarily due to efforts to control costs. These improvements were offset in part by a decline in segment income from Thermedics Detection, primarily as a result of lower sales. Restructuring and other nonrecurring costs of $1.0 million in 1995 were recorded by ThermoTrex as a result of the decision to close its East Coast division. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company recorded gains of $80.8 million in 1995 and $25.3 million in 1994. See Notes 1 and 9 for a more complete description of these transactions. Minority interest expense increased to $60.5 million in 1995 from $31.0 million in 1994. Minority interest expense includes $28.6 million in 1995 and $5.7 million in 1994 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. Other expense, net, in the accompanying statement of income includes a gain of $14.7 million in 1994 resulting from the sale of the Peter Brotherhood facility in the United Kingdom. Also included is equity in losses of unconsolidated subsidiaries, which represents the Company's portion of results from entities in which the Company's ownership is 50% or less, including the operation of the Dade County cogeneration facility. The loss associated with the Dade County facility was $1.6 million in 1995 and $5.7 million in 1994. In September 1994, the joint venture suspended operation of this plant. 51PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Consolidated working capital was $2,218.6 million at December 28, 1996, compared with $1,317.1 million at December 30, 1995. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,846.3 million at December 28, 1996, compared with $1,056.7 million at December 30, 1995. In addition, at December 28, 1996, the Company had $68.8 million of long-term available-for-sale investments and $25.6 million of long-term held-to-maturity investments, compared with $61.8 million of long-term available-for-sale investments and $23.8 million of long-term held-to-maturity investments at December 30, 1995. Of the total $1,940.7 million of cash, cash equivalents, short- and long-term available-for-sale and held-to-maturity investments at December 28, 1996, $1,181.0 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. During 1996, $224.5 million of cash was provided by operating activities. Cash provided by the Company's operating results was offset in part by cash used to fund an increase in other current assets of $35.7 million, primarily for prepaid taxes. In addition, cash of $29.9 million was used to decrease other current liabilities, primarily for expenditures to restructure certain activities of acquired businesses. During 1996, the Company's primary investing activities, excluding purchases, sales, and maturities of available-for-sale investments, included acquisitions and capital expenditures. In 1996, the Company expended $366.3 million, net of cash acquired, for acquisitions and $124.5 million for purchases of property, plant, and equipment. The Company's financing activities provided $1,038.0 million of cash in 1996. The Company and certain of its majority-owned subsidiaries issued long-term obligations for net proceeds of $953.4 million. Net proceeds from the issuance of Company and subsidiary common stock totaled $304.0 million. In addition, the Company repaid and repurchased long-term obligations of $63.8 million. During 1996, an aggregate principal amount of $390.5 million of the Company's and subsidiaries' convertible obligations was converted into shares of the Company's or subsidiaries' common stock. The Company intends, for the foreseeable future, to maintain at least 80% ownership of its Thermo Instrument, Thermo Fibertek, and Thermo Ecotek subsidiaries, which is required in order to continue to file a consolidated federal income tax return with these subsidiaries. In addition, the Company intends to maintain greater than 50% ownership of its other majority-owned subsidiaries so that it may continue to consolidate these subsidiaries for financial reporting purposes. This may require the purchase by the Company of additional shares or convertible debentures of these companies from time to time as the number of outstanding shares issued by these companies increases, either in the open market or directly from the subsidiaries. See Note 5 for a description of outstanding convertible debentures issued by Thermo Instrument and Thermo Ecotek. In addition, at December 28, 1996, Thermo Instrument, Thermo Fibertek, and Thermo Ecotek had outstanding stock options for 3,253,000 shares, 3,570,000 shares, and 1,420,000 shares, 52PAGE Thermo Electron Corporation 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) respectively, exercisable at various prices and subject to certain vesting schedules. The Company's other majority-owned subsidiaries also have outstanding stock options and/or convertible debentures. During 1996, the Company and its majority-owned subsidiaries expended $140.9 million to purchase common stock of certain of the Company's majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company's and its majority-owned subsidiaries' Boards of Directors. As of December 28, 1996, $60.6 million and $22.6 million remained under the Company's and the majority-owned subsidiaries' authorizations, respectively. The amount of purchases in a given reporting period may vary significantly. In 1997, the Company expects to make capital expenditures of approximately $140 million. In addition, as of March 18, 1997, the Company had completed, or become obligated to complete, acquisitions since year end, including the acquisition of Life Sciences (Note 16), for an aggregate purchase price of $483 million, including the repayment of debt. The Company also had agreements or nonbinding letters of intent to acquire new businesses totaling approximately $120 million. Proposed acquisitions of new businesses are subject to various conditions to closing, and there can be no assurance that all proposed transactions will be consummated. As discussed above, a substantial percentage of the Company's consolidated cash and investments is held by subsidiaries that are not wholly owned by the Company. This percentage may vary significantly over time. Pursuant to the Thermo Electron Corporate Charter (the Charter), to which each of the majority-owned subsidiaries of the Company is a party, the combined financial resources of Thermo Electron and its subsidiaries allow the Company to provide banking, credit, and other financial services to its subsidiaries so that each member of the Thermo Electron group of companies may benefit from the financial strength of the entire organization. Toward that end, the Charter states that each member of the group may be required to provide certain credit support to the consolidated entity. This credit may rank junior, pari passu with, or senior in priority to payment of the other indebtedness of these members. Nonetheless, the Company's ability to access assets held by its majority-owned subsidiaries through dividends, loans, or other transactions is subject in each instance to a fiduciary duty owed to the minority shareholders of the relevant subsidiary. In addition, dividends received by Thermo Electron from a subsidiary that does not consolidate with Thermo Electron for tax purposes are subject to tax. Therefore, under certain circumstances, a portion of the Company's consolidated cash and short-term investments may not be readily available to Thermo Electron or certain of its subsidiaries. 53PAGE Thermo Electron Corporation 1996 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in 1997 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Risks Associated with Acquisition Strategy. One of the Company's growth strategies is to supplement its internal growth with the acquisition of businesses and technologies that complement or augment the Company's existing product lines. Certain businesses acquired by the Company within the past year, including businesses within the former Scientific Instruments Division of Fisons plc, have had low levels of profitability. In addition, businesses that the Company may seek to acquire in the future may also be marginally profitable or unprofitable. In order for any acquired businesses to achieve the level of profitability desired by the Company, the Company must successfully change operations and improve market penetration. No assurance can be given that the Company will be successful in this regard. In addition, promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices in many countries. There can be no assurance that the Company will be able to complete pending or future acquisitions. In order to finance any such acquisitions, it may be necessary for the Company to raise additional funds either through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and may result in dilution to the Company's shareholders. Risks Associated with Spinout of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. In October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary 54PAGE Thermo Electron Corporation 1996 Financial Statements Forward-looking Statements that does not result in a loss of control would be accounted for as a transaction in the equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in 1997. Competition. The Company encounters and expects to continue to encounter significant competition in the sale of its products and services. The Company's competitors include a number of large multinational corporations, some of which may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than the Company. Competition could increase if new companies enter the market or if existing competitors expand their product lines or intensify efforts within existing product lines. There can be no assurance that the Company's current products, products under development, or ability to develop new technologies will be sufficient to enable it to compete effectively. Risks Associated With International Operations. International sales account for a substantial portion of the Company's revenues, and the Company intends to continue to expand its presence in international markets. International revenues are subject to a number of risks, including the following: fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax the Company's foreign income, impose tariffs, or adopt other restrictions on foreign trade; U.S. export licenses may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that any of these factors will not have a material adverse impact on the Company's business and results of operations. Rapid and Significant Technological Change and New Products. The markets for the Company's products are characterized by rapid and significant technological change, evolving industry standards and frequent new product introductions and enhancements. Many of the Company's products and products under development are technologically innovative and require significant planning, design, development, and testing at the technological, product, and manufacturing process levels. These activities require significant capital commitments and investment by the Company. In addition, products that are competitive in the Company's markets are characterized by rapid and significant technological change due to industry standards that may change on short notice and by the introduction of new products and technologies that render existing products and technologies uncompetitive or obsolete. There can be no assurance that any of the products currently being developed by the Company, or those to be developed in the future, will be technologically feasible or accepted by the marketplace, that any such development will be completed in any particular time frame, or that the Company's products or proprietary technologies will not become uncompetitive or obsolete. 55PAGE Thermo Electron Corporation 1996 Financial Statements Forward-looking Statements Possible Adverse Effect from Changes in Governmental Regulations. The Company competes in several markets which involve compliance by its customers with federal, state, local, and foreign regulations, such as environmental, health and safety, and food and drug regulations. The Company develops, configures, and markets its products to meet customer needs created by such regulations. These regulations may be amended or eliminated in response to new scientific evidence or political or economic considerations. Any significant change in regulations could adversely affect demand for the Company's products in regulated markets. Risks Associated with Dependence on Capital Spending Policies and Government Funding. The Company's customers include pharmaceutical and chemical companies, laboratories, universities, healthcare providers, paper manufacturers, consumer product companies, government agencies, and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for the Company's products. Such spending is based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of equipment, public policy, and the effects of different economic cycles. Any decrease in capital spending by any of the customer groups that account for a significant portion of the Company's sales could have a material adverse effect on the Company's business and results of operations. Dependence on Patents and Proprietary Rights. The Company places considerable importance on obtaining patent and trade secret protection for significant new technologies, products, and processes because of the length of time and expense associated with bringing new products through the development process and to the marketplace. The Company's success depends in part on its ability to develop patentable products and obtain and enforce patent protection for its products both in the United States and in other countries. The Company owns numerous United States and foreign patents, and intends to file additional applications for patents as appropriate to cover its products. No assurance can be given that patents will issue from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology. In addition, no assurance can be given that any issued patents owned by or licensed to the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. There can be no assurance that third parties will not assert claims against the Company that the Company infringes the intellectual property rights of such parties. The Company could incur substantial costs and diversion of management resources with respect to the defense of any such claims, which could have a material adverse effect on the Company's business, financial condition, and results of operations. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block the Company's ability to make, use, sell, distribute, or market its products and services in the United States or abroad. In the event that a claim relating to intellectual property is asserted against the Company, the Company may seek licenses to such intellectual property. There can be no assurance, however, that such licenses could be obtained on commercially reasonable terms, if at all. The failure to obtain the necessary licenses 56PAGE Thermo Electron Corporation 1996 Financial Statements Forward-looking Statements or other rights could preclude the sale, manufacture, or distribution of the Company's products and, therefore, could have a material adverse effect on the Company's business, financial condition, and results of operations. The Company relies on trade secrets and proprietary know-how, which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. 57PAGE Thermo Electron Corporation 1996 Financial Statements Common Stock Market Information The following table shows the market range for the Company's common stock based on reported sales prices on the New York Stock Exchange (symbol TMO) for 1996 and 1995. Prices have been restated to reflect three-for-two stock splits, effected in the form of 50% stock dividends, which were distributed in June 1996 and May 1995. 1996 1995 ------------------ ------------------ Quarter High Low High Low --------------------------------------------------------------------- First $42 1/12 $30 2/5 $22 5/6 $19 1/2 Second 44 3/8 38 4/5 27 1/3 21 7/9 Third 41 7/8 31 3/4 31 1/12 26 2/3 Fourth 41 1/8 29 3/4 34 2/3 28 1/4 As of January 24, 1997, the Company had 9,185 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the New York Stock Exchange for the Company's common stock on January 24, 1997, was $35 7/8 per share. Common stock of the Company's majority-owned public subsidiaries is traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), Thermo Sentron Inc. (TSR), Thermedics Detection Inc. (TDX), Thermo Instrument Systems Inc. (THI), ThermoSpectra Corporation (THS), ThermoQuest Corporation (TMQ), Thermo Optek Corporation (TOC), Thermo BioAnalysis Corporation (TBA), Thermo TerraTech Inc. (TTT), Thermo Remediation Inc. (THN), Thermo Power Corporation (THP), ThermoTrex Corporation (TKN), ThermoLase Corporation (TLZ), Trex Medical Corporation (TXM), Thermo Fibertek Inc. (TFT), Thermo Fibergen Inc. (TFG), and Thermo Ecotek Corporation (TCK). Shareholder Services Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact John N. Hatsopoulos, President and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Beginning in 1997, quarterly distribution will be limited to the second quarter only. All quarterly reports and press releases are available through the Internet from Thermo Electron's home page on the World Wide Web (http://www.thermo.com). Stock Transfer Agent Bank of Boston is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: Bank of Boston c/o Boston EquiServe Limited Partnership P.O. Box 8040 Boston, Massachusetts 02266-8040 (617) 575-3120 58PAGE Thermo Electron Corporation 1996 Financial Statements Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended December 28, 1996, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, President and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Tuesday, June 3, 1997, at 4:00 p.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina. 59PAGE Thermo Electron Corporation 1996 Financial Statements Ten Year Financial Summary (In millions except per share amounts)
1996(a) 1995 1994(b) 1993(c) 1992(d) 1991(e) 1990 1989 1988 1987 -------- -------- -------- -------- ------ ------ ------ ------ ------ ------ Statement of Income Data: Revenues $2,932.6 $2,270.3 $1,729.2 $1,354.5 $999.2 $842.5 $744.5 $640.3 $553.7 $430.8 Gross Profit 1,130.0 863.4 650.9 482.3 326.7 256.5 233.8 176.0 157.4 121.9 Operating Income 246.5 225.2 182.1 119.2 70.5 43.6 40.9 23.6 25.8 15.8 Income Before Cumulative Effect of Change in Accounting Principle 190.8 139.6 104.7 76.9 60.9 48.5 35.5 27.3 23.3 21.2 Net Income 190.8 139.6 104.7 76.9 59.5 48.5 35.5 27.3 23.3 21.2 Earnings per Share Before Cumulative Effect of Change in Accounting Principle: Primary 1.35 1.10 .90 .74 .64 .56 .46 .36 .32 .28 Fully diluted 1.22 .97 .80 .67 .60 .53 .43 .36 .32 .28 Earnings per Share: Primary 1.35 1.10 .90 .74 .62 .56 .46 .36 .32 .28 Fully diluted 1.22 .97 .80 .67 .59 .53 .43 .36 .32 .28 60PAGE Thermo Electron Corporation 1996 Financial Statements Ten Year Financial Summary (continued) (In millions) 1996(a) 1995 1994(b) 1993(c) 1992(d) 1991(e) 1990 1989 1988 1987 -------- -------- -------- -------- ------ ------ ------ ------ ------ ------ Balance Sheet Data: Working Capital$2,218.6 $1,317.1 $1,150.7 $ 833.8 $ 508.7 $ 468.4 $244.1 $277.6 $220.1 $211.8 Total Assets 5,141.2 3,786.3 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 528.5 465.0 Long-term Obligations 1,550.3 1,118.1 1,049.9 647.6 494.2 255.1 210.5 177.0 152.9 136.1 Minority Interest 684.1 471.6 327.7 277.7 164.3 122.5 83.9 51.8 22.6 25.8 Common Stock of Subsidiaries Subject to Redemption 76.5 17.5 - 14.5 5.5 5.5 8.7 13.1 - - Shareholders' Investment 1,754.4 1,309.7 1,007.5 873.7 563.8 489.5 314.1 229.2 196.4 175.3 (a)Reflects the issuance of $585.0 million principal amount of convertible debentures. (b)Reflects the issuance of $345.0 million principal amount of convertible debentures. (c)Reflects the Company's 1993 public offering of common stock for net proceeds of $246.0 million. (d)Reflects the issuance of $260.0 million principal amount of convertible debentures and the adoption in 1992 of Statement of Financial Accounting Standards No. 106, "Accounting for Post-retirement Benefits Other Than Pensions." (e)Reflects the issuance of $164.0 million principal amount of convertible debentures.
EX-21 6 Exhibit 21 THERMO ELECTRON CORPORATION Subsidiaries of the Registrant As of February 28, 1997, the Registrant owned the following subsidiaries: STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Coleman Research Corporation Florida 100 Coleman Information Services Corporation Delaware 100 Coleman Services Incorporated Delaware 100 Traveller Information Services, Inc. Alabama 75 Nicolet Biomedical Inc. California 100 Eden Medical Electronics, Inc. Delaware 100 Eden Medizinische Elektronik GmbH Germany 100 Neuroscience Limited United Kingdom 100 Nicolet Biomedical Japan Inc. Japan 100 Nicolet Biomedical Ltd. United Kingdom 100 Nicolet Biomedical S.A.R.L. France 100 Peter Brotherhood Holdings Ltd. United Kingdom 100 Peter Brotherhood Limited United Kingdom 100 D.S.T. Pattern & Engineering Co. Ltd. United Kingdom 100 FES International Limited United Kingdom 100 Link Control Technology Ltd. United Kingdom 100 Machtech Ltd. United Kingdom 100 Peter Brotherhood Pension Fund Trustees Ltd. United Kingdom 100 Sensonics Ltd. United Kingdom 100 Thermo Electron Realty Limited United Kingdom 100 Turboflex Limited United Kingdom 100 T & A Nash (Penn) Limited United Kingdom 100 Torsiflex Limited United Kingdom 100 (50% of which shares are owned directly by Peter Brotherhood Limited) Vikram Brotherhood Turbines Ltd. United Kingdom 51* Thermo Holdings Limited United Kingdom 100 SensorMedics Corporation Delaware 100 SensorMedics B.V. The Netherlands 100 SensorMedics Critical Care Corporation California 100 SensorMedics (Deutschland) GmbH Germany 100 SensorMedics FSC Corporation Virgin Islands 100 Termo Electron, S.A. de C.V. Mexico 100 The Thermo Electron Companies Inc. Wisconsin 100 Bird Medical Technologies, Inc. California 100 Bird International, Inc. U.S. Virgin 100 Islands Bird Products Corporation California 100 Bird Life Design Corporation California 100 Stackhouse, Inc. California 100 Gulf Precision, Inc. Arizona 100 Seeley Enterprises, Inc. New Mexico 100 International Technidyne Corporation Delaware 100 International Technidyne Corporation Limited United Kingdom 100 Loftus Furnace Company Pennsylvania 100 Medical Data Electronics, Inc. Delaware 100 Met-Therm, Inc. Ohio 100 NAPCO, Inc. Connecticut 100 Page 1PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ North East Surgical Tool Corp. Massachusetts 100 Nicolet Biomedical of California Inc. California 100 North Carbondale Minerals, Inc. California 100 Overly, Inc. Wisconsin 100 Perfection Heat Treating Company Michigan 100 San Marcos Resource Recovery, Inc. California 100 Southern Ocean County Resource Recovery, Inc. New Jersey 100 Staten Island Cogeneration Corporation New York 100 TE Great Lakes Inc. Michigan 100 TEC Cogeneration Inc. Florida 100 South Florida Cogeneration Associates Florida 50* TEC Energy Corporation California 100 North County Resource Recovery Associates California 100* (50% of which is owned directly by San Marcos Resource Recovery, Inc.) Tecomet Inc. Massachusetts 100 Thermedics Inc. Massachusetts 55 Orion Foreign Sales Corp. U.S. Virgin 100 Islands Orion Research Limited United Kingdom 100 Orion Research Puerto Rico, Inc. Delaware 100 Corpak Inc. Massachusetts 100 Walpak Company Illinois 100 Orion Research, Inc. Massachusetts 100 Russell pH Limited Scotland 100 Thermedics Detection Inc. Massachusetts 94 Rutter & Co. The Netherlands 100 Rutter Instrumentation S.A.R.L. France 90 Systech B.V. The Netherlands 50 ThermedeTec Corporation Delaware 100 Thermedics Detection de Argentina S.A. Argentina 100 (1% of which shares are owned directly by Thermedics Detection Inc.) Thermedics Detection de Mexico, S.A. Mexico 100 de C.V. Thermedics Detection GmbH Germany 100 Thermedics Detection Limited United Kingdom 100 Thermedics Detection Scandinavia AS Norway 100 Thermo Sentron Inc. Delaware 73 (additionally, 2.53% of the shares are owned directly by The Thermo Electron Companies Inc.) Ramsey France S.A.R.L. France 100 Ramsey Ingenieros S.A. Spain 100 Ramsey Italia S.R.L. Italy 100 Tecno Europa Elettromeccanica S.R.L. Italy 100 Ramsey Technology Inc. Massachusetts 100 Xuzhou Ramsey Technology Co., Limited China 50* Thermo Sentron Australia Pty. Ltd.. Australia 100 Thermo Sentron B.V. The Netherlands 100 Page 2PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Thermo Sentron Canada Inc. Canada 100 Thermo Sentron GmbH Germany 100 Thermo Sentron Limited United Kingdom 100 Hitech Electrocontrols Limited United Kingdom 100 Hitech Licenses Ltd. United Kingdom 100 Hitech Metal Detectors Ltd. United Kingdom 100 Thermo Sentron SEC Corporation Massachusetts 100 Thermo Sentron (South Africa) Pty. Ltd. South Africa 100 TMD Securities Corporation Massachusetts 100 Thermo Cardiosystems Inc. Massachusetts 54 (additionally, .13% of the shares are owned directly by The Thermo Electron Companies Inc.) Nimbus Inc. Massachusetts 100 TCA Securities Corporation Massachusetts 100 Thermo Voltek Corp. Delaware 52 (additionally, .53% of the shares are owned directly by The Thermo Electron Companies Inc.) Comtest Europe B.V. The Netherlands 100 Comtest Instrumentation, B.V. The Netherlands 100 Comtest Italia S.R.L. Italy 100 Comtest Limited United Kingdom 100 TVL Securities Corporation Delaware 100 UVC Realty Corp. New York 100 Thermo Administrative Services Corporation Delaware 100 Thermo Amex Management Company Inc. Delaware 100 Thermo Amex Finance, L.P. Delaware 99* Thermo Amex Convertible Growth Fund Delaware 99* I., L.P. Thermo Ecotek Corporation Delaware 82 Caribbean Cogeneration Company, Inc. Massachusetts 100 Delano Energy Company Inc. Delaware 100 Delano Operations Company, Inc. California 100 Eco Fuels Inc. Wyoming 100 EuroEnergy Group, B.V. Italy 50* Gatepeak Corporation Delaware 100 KFP Operating Company, Inc. Delaware 100 Independent Power Services Corporation Nevada 100 SFS Corporation New Hampshire 100 TCK Fuels Inc. Delaware 100 KFx Fuel Partners, L.P. Delaware 95* (2% of which is owned directly by Eco Fuels Inc.) Tenpeak Corporation Nevada 100 TES Securities Corporation Delaware 100 Thermendota, Inc. California 100 Mendota Biomass Power, Ltd. California 60* MBPL Agriwaste Corporation California 100 Thermo Ecotek International Holdings Inc. Cayman Islands 100 Page 3PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Thermo Ecotek International Inc. Cayman Islands 100 TCK Cogeneration Dominicana Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) TCK Dominicana Holdings Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) Thermo EuroVentures sro Czech Republic 100 Thermo Electron of Maine, Inc. Maine 100 Gorbell/Thermo Electron Power Company Maine 80* Thermo Electron of New Hampshire, Inc. New Hampshire 100 Hemphill Power and Light Company New Hampshire 66* Thermo Electron of Whitefield, Inc. New Hampshire 100 Whitefield Power and Light Company New Hampshire 100* (39% of which is owned directly by SFS Corporation) Thermo Fuels Company, Inc. California 100 Thermo Trilogy Corporation Delaware 100 AgriSense-BCS, Ltd. United Kingdom 100 Woodland Biomass Power, Inc. California 100 Woodland Biomass Power, Ltd. California 100* (.1% of which is owned directly by Thermo Ecotek Corporation) Thermo Electron Foundation, Inc. Massachusetts 100 Thermo Electron Metallurgical Services, Inc. Texas 100 Thermo Fibertek Inc. Delaware 84 AES Equipos y Sistemas S.A. de C.V. Mexico 100 Enviroprint Inc. Delaware 100 Fibertek Construction Company, Inc. Maine 100 Thermo AES Canada Inc. Canada 100 Thermo Web Systems, Inc. Massachusetts 100 Fiberprep Inc. Delaware 95 (31.05% of which shares are owned directly by E. & M. Lamort, S.A.) Fiberprep Securities Corporation Delaware 100 Thermo Wisconsin, Inc. Wisconsin 100 Thermo Fibergen Inc. Delaware 69 GranTek Inc. Wisconsin 100 Thermo Fibertek U.K. Limited United Kingdom 100 Vickerys Holdings Limited United Kingdom 100 Vickerys Limited United Kingdom 100 Paperlines Limited New Zealand 100 Vickerys Projects Limited United Kingdom 100 Winterburn Limited United Kingdom 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Lamort Equipementos Industrials Ltda. Brazil 60* Lamort GmbH Germany 100 Lamort Iberia S.A. Spain 100 Lamort Italia S.R.L. Italy 100 Page 4PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Lamort Paper Services Ltd. United Kingdom 100 Nordiska Lamort Lodding A.B. Sweden 100 Thermo Instrument Systems Inc. Delaware 82 Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 Flow Automation (UK) Limited United Kingdom 100 Gas Tech Inc. California 100 Gas Tech Australia, Pty. Ltd. Australia 50* Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Houston Atlas Inc. Texas 100 Metrika Systems Corporation Delaware 84 Eberline Radiometrie S.A. France 100 Gamma-Metrics California 100 Gamma-Metrics International F.S.C. Inc. Guam 100 Thermo Instrument Systems GmbH Germany 100 Eberline Instruments GmbH Germany 100 Thermo Instrument Systems Limited United Kingdom 100 National Nuclear Corporation California 100 Optek-Nicolet Holdings Inc. Wisconsin 100 Thermo Instrument Controls Limited United Kingdom 100 Thermo Optek Corporation Delaware 93 (additionally, .30% of the shares are owned directly by The Thermo Electron Companies Inc.) ARL Applied Research Laboratories S.A. Switzerland 100 Fisons Instruments (Proprietary) South Africa 100 Limited Thermo Optek Wissenschaftliche Gerate Austria 100 GesmbH ATI Acquisition Corp. Wisconsin 100 Mattson Instruments Limited United Kingdom 100 Thermo Elemental Limited United Kingdom 100 Thermo Optek Limited United Kingdom 100 Unicam Limited United Kingdom 100 Unicam Export Limited United Kingdom 100 Unicam Analytical Inc. Canada 100 Unicam Analytical Technology The The Netherlands 100 Netherlands B.V. Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Fisons Instruments Inc. Canada 100 Fisons Instruments Nordic AB Sweden 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Europe Limited United Kingdom 100 Spectra-Tech, Inc. Wisconsin 100 Page 5PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited United Kingdom 100 Nicolet Instrument Limited United Kingdom 100 Planweld Limited United Kingdom 100 Hilger Analytical Limited United Kingdom 100 Thermo Electron Limited United Kingdom 100 Thermo Instrument Systems Japan Delaware 100 Holdings, Inc. Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Jarrell Ash Corporation Massachusetts 100 Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument China 100 Technology Co. Limited Thermo Instrument Systems (F.E.) China 100 Limited Thermo Instruments (Canada) Inc. Canada 100 Eberline Instruments (Canada) Ltd. Canada 100 Thermo Optek France S.A. France 100 Thermo Optek Holding B.V. The Netherlands 100 Baird Europe B.V. The Netherlands 100 Baird France S.A.R.L. France 100 Thermo Group B.V. The Netherlands 100 Thermo Vision Corporation Delaware 100 CID Technologies Inc. New York 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Oriel Foreign Sales Corp. U.S. Virgin 100 Islands Scientific Measurement Systems Inc. Colorado 100 ThermoSpectra Corporation Delaware 75 (additionally, .88% of the shares are owned directly by The Thermo Electron Companies Inc.) Diametrix Detectors, Inc. Delaware 50 Gould Instrument Systems, Inc. Ohio 100 Kevex Instruments Inc. Delaware 100 Kevex X-Ray Inc. Delaware 100 Nicolet Instrument Technologies Inc. Wisconsin 100 NORAN Instruments Inc. Wisconsin 100 Park Acquisition Corp. Delaware 100 ThermoSpectra B.V. The Netherlands 100 Nicolet Technologies B.V. The Netherlands 100 Bakker Electronics Limited United Kingdom 100 NORAN Instruments B.V. The Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoSpectra Limited United Kingdom 100 Nicolet Technologies Ltd. United Kingdom 100 Page 6PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Thermo Spectra S.A. France 100 Nicolet Technologies S.A.R.L. France 100 Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 ThermoQuest Corporation Delaware 93 (50% of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, .12% of the shares are owned directly by The Thermo Electron Companies Inc.) Finnigan FT/MS Inc. Delaware 100 Finnigan Corporation Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, Inc. California 100 Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT AG Switzerland 100 Finnigan MAT Canada, Ltd. Canada 100 Finnigan MAT GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products S.R.L. Italy 100 Thermo Instruments Australia Pty Australia 100 Limited ThermoQuest Ltd. United Kingdom 100 Finnigan MAT Ltd. United Kingdom 100 Finnigan MAT AB Sweden 100 Thermo Separation Products Ltd. United Kingdom 100 Finnigan Properties, Inc. California 100 Masslab Limited United Kingdom 100 ThermoQuest B.V. The Netherlands 100 Thermo Separation Products B.V. The Netherlands 100 Thermo Separation Products B.V. B.A. Belgium 100 ThermoQuest France S.A. France 100 Finnigan Automass S.A. France 100 Finnigan MAT S.A.R.L. France 100 Thermo Separation Products S.A. France 100 ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Gerate GmbH Austria 100 Thermo Separation Products AG Switzerland 100 Thermo Separation Products Inc. Delaware 100 ThermoQuest GmbH Germany 100 Thermo Separation Products GmbH Germany 100 ThermoQuest K.K. Japan 100 SID Instruments Inc. Delaware 100 FI Instruments Inc. Delaware 100 Page 7PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Fisons Instruments BV The Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 100 Fisons Instruments S.A. France 100 HB Instruments Inc. Delaware 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. United Kingdom 100 Thermo Haake (U.K.) Limited United Kingdom 100 Thermo Instrument (S.E.A.) Pte Limited Singapore 100 Thermo Instrumentos Cientificos S.A. Spain 100 Thermo VG Systems Limited United Kingdom 100 Spectrace Instruments Inc. California 100 Thermo BioAnalysis Corporation Delaware 67 (4.7% of which shares are owned directly by Quest-TSP Holdings Inc. and 2% of which shares are owned directly by Quest-Finnigan Holdings Inc.) Dynatech Laboratories spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 DYNEX Technologies Inc. Virginia 100 Thermo BioAnalysis GmbH Germany 100 Dynatech Deutschland GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100 Thermo BioAnalysis Holding, Limited United Kingdom 100 Dynex Technologies Limited United Kingdom 100 Thermo BioAnalysis Ltd. United Kingdom 100 Thermo FAST UK Limited United Kingdom 100 Thermo LabSystems Limited United Kingdom 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Thermo LabSystem (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 Thermo Environmental Instruments Inc. California 100 Thermo Instrument Controls Inc. Delaware 100 Flow Automation Inc. Texas 100 Thermo Instrument Controls de Mexico, Mexico 100 S.A. de C.V.(1% of which shares are owned directly by Thermo Instrument Systems Inc.) VG Gas Analysis Systems Inc. Massachusetts 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 VG Gas Analysis Limited United Kingdom 100 Van Hengel Holding B.V. The Netherlands 100 Page 8PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Eberline Monitoring GmbH Germany 100 Fisons Instruments Vertriebs GmbH Germany 100 Gebruder Haake GmbH Germany 100 Thermo Instrument Systems B.V. The Netherlands 100 Euroglas B.V. The Netherlands 100 Thermo Automation Services (ThAS) B.V. The Netherlands 100 This Analytical B.V. The Netherlands 100 This Gas Analysis B.V. The Netherlands 100 This Lab Systems B.V. The Netherlands 100 This Scientific B.V. The Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 TN Spectrace Europe B.V. The Netherlands 100 Westronics Inc. Texas 100 Thermo Leasing Corporation Delaware 100 Thermo Capital Company LLC Delaware 50* Thermo Power Corporation Massachusetts 65 NuTemp, Inc. Illinois 100 Takepine Limited United Kingdom 100 Tecogen Securities Corporation Massachusetts 100 ThermoLyte Corporation Delaware 78 Thermo TerraTech Inc. Delaware 81 CarlanKillam Consulting Group, Inc. Florida 100 Carlan Consulting Group of Alabama, Inc. Alabama 100 CarlanKillam Construction Services, Inc. Florida 100 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Metallurgical, Inc. Minnesota 100 Cal-Doran Metallurgical Services, Inc. California 100 Metal Treating Inc. Wisconsin 100 Normandeau Associates, Inc. New Hampshire 100 Thermo Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Knowledge Delaware 100 Corporation Elson T. Killam Associates, Inc. New Jersey 100 Bettigole Andrews Clark & Killam New York 100 Associates Inc. N. H. Bettigole Co., Inc. Delaware 100 N. H. Bettigole, P.A. New Jersey 100 N. H. Bettigole, P.C. New York 100 Duncan, Lagnese and Associates, Pennsylvania 100 Incorporated E3-Killam, Inc. New York 100 Killam Associates, Inc. Ohio 100 Killam Management and Operational New Jersey 100 Services, Inc. Page 9PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Fellows, Read & Associates, Inc. New Jersey 100 Killam Associates, New England Inc. Delaware 100 George A. Schock & Associates, Inc. New Jersey 100 Jennison Engineering, Inc. Vermont 100 Thermo EuroTech N.V. The Netherlands 53 Amerika Tankinstallaties B.V. The Netherlands 100 Grond- & Watersaneringstechniek The Netherlands 100 Nederland B.V. High-Tech Trouble-Shooters B.V. The Netherlands 100 Jac. Amerika en Zonen B.V. The Netherlands 100 Refining & Trading Holland B.V. The Netherlands 100 Thermo Remediation Inc. Delaware 69 (additionally, 1.45% of the shares are owned directly by The Thermo Electron Companies Inc.) Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 IEM Sealand Corporation Virginia 100 Remediation Technologies, Inc. Delaware 100 RETEC Thermal, Inc. Delaware 100 ReTec/Tetra L.C. Texas 50* Thermo Fluids Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of South Carolina Delaware 100 Inc. TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 TMA/Hanford, Inc. Washington 100 Thermo Securities Corporation Delaware 100 Thermo Soil Recyclers Inc. Massachusetts 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Partnership Delaware 60* ThermoTrex Corporation Delaware 51 ThermoLase Corporation Delaware 64 CBI Laboratories, Inc. Texas 100 ThermoDess S.A.S. France 50* ThermoLase France L.L.C. Delaware 50* ThermoLase Japan L.L.C. Wyoming 50* ThermoTrex East Inc. Massachusetts 100 Trex Medical Corporation Delaware 79 Page 10PAGE THERMO ELECTRON CORPORATION Subsidiaries of the Registrant STATE OR PERCENT NAME JURISDICTION OF OF INCORPORATION OWNERSHIP ------------------------------------------------------------------------------ Bennett X-Ray Corporation New York 100 Bennett International Corporation U.S. Virgin 100 Islands Eagle X-Ray, Inc. New York 100 Island X-Ray Incorporated New York 100 Continental X-Ray Corporation Delaware 100 Thermo Lorad F.S.C. Inc. U.S. Virgin 100 Islands Trex Communications Corporation Delaware 100 XRE Corporation Delaware 100 TMO, Inc. Massachusetts 100 TMOI Inc. Delaware 100 Thermo Biomedical Inc. Delaware 100 Thermo Electron Export Inc. Barbados 100 (equally owned among TMO, TMD, TCA, TCK, TFT, THI, THP, TTT, TVL, TLZ, THS, TBA, TOC, TMQ and TXM ) Thermo Electron (London) Ltd. United Kingdom 50* Thermo Finance (UK) Limited United Kingdom 100 * Joint Venture/Partnership EX-23 7 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 12, 1997 (except with respect to the matter discussed in Note 16 as to which the date is March 12, 1997) included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended December 28, 1996 into the Company's previously filed Registration Statement No. 33-00182 on Form S-8, Registration Statement No. 33-8993 on Form S-8, Registration Statement No. 33-8973 on Form S-8, Registration Statement No. 33-16460 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 33-25052 on Form S-8, Registration Statement No. 33-37865 on Form S-8, Registration Statement No. 33-37867 on Form S-8, Registration Statement No. 33-36223 on Form S-8, Registration Statement No. 33-52826 on Form S-8, Registration Statement No. 33-52804 on Form S-8, Registration Statement No. 33-52806 on Form S-8, Registration Statement No. 33-52800 on Form S-8, Registration Statement No. 33-37868 on Form S-3, Registration Statement No. 33-35657 on Form S-3, Registration Statement No. 33-34752 on Form S-3, Registration Statement No. 33-39434 on Form S-3, Registration Statement No. 33-12748 on Form S-3, Registration Statement No. 33-39773 on Form S-3, Registration Statement No. 33-40669 on Form S-3, Registration Statement No. 33-41256 on Form S-3, Registration Statement No. 33-42694 on Form S-3, Registration Statement No. 33-43706 on Form S-3, Registration Statement No. 33-45401 on Form S-3, Registration Statement No. 33-45603 on Form S-3, Registration Statement No. 33-50924 on Form S-3, Registration Statement No. 33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8, Registration Statement No. 33-54185 on Form S-3, Registration Statement No. 33-54347 on Form S-8, Registration Statement No. 33-54453 on Form S-8, Registration Statement No. 33-59544 on Form S-3, Registration Statement No. 333-00197 on Form S-3, Registration Statement No. 033-65237 on Form S-8, Registration Statement No. 033-61561 on Form S-8, Registration Statement No. 033-58487 on Form S-8, Registration Statement No. 333-01277 on Form S-3, Registration Statement No. 333-01809 on Form S-3, Registration Statement No. 333-01893 on Form S-3, Registration Statement No. 333-19549 on Form S-3, Registration Statement No. 333-19535 on Form S-8, and Registration Statement No. 333-19633-01 on Form S-3. Arthur Andersen LLP Boston, Massachusetts March 19, 1997 EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 414,404 1,431,881 650,866 34,321 432,960 3,131,829 1,010,189 305,742 5,141,244 913,212 1,550,342 0 0 149,997 1,604,372 5,141,244 2,766,002 2,932,558 1,657,746 1,802,569 194,275 6,002 96,695 301,661 110,845 190,816 0 0 0 190,816 1.35 1.22 THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF PRODUCT AND SERVICE REVENUES" AND "RESEARCH AND DEVELOPMENT CONTRACTS". THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "RESTRUCTURING AND OTHER NONRECURRING COSTS", "INTERNALLY FUNDED RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
-----END PRIVACY-ENHANCED MESSAGE-----