-----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, J7V4u0Ho2ZRwz7VKtUcocFU00htDCye2JZ9QPtSMnfcbX9bDP5JUrSLvHEE4vFvV 7HrCVip0NnjScrW2R2KhLg== 0000097745-99-000017.txt : 19990325 0000097745-99-000017.hdr.sgml : 19990325 ACCESSION NUMBER: 0000097745-99-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990323 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: SEC FILE NUMBER: 001-08002 FILM NUMBER: 99570219 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02454 BUSINESS PHONE: 7816221000 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 January 2, 1999 [ ] 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 Identification No.) incorporation or organization) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02454-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------------------- ----------------------------------------- Common Stock, $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 29, 1999, was approximately $2,569,399,000. As of January 29, 1999, the Registrant had 158,133,782 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 2, 1999, 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 May 27, 1999, are incorporated by reference into Part III. PART I Item 1. Business (a) General Development of Business Thermo Electron Corporation and its subsidiaries (the Company or the Registrant) develop and manufacture a broad range of products that are sold worldwide. The Company is a world leader in monitoring, analytical, and biomedical instrumentation; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; and paper recycling and papermaking equipment. The Company also develops alternative-energy systems and clean fuels, provides a range of services including industrial outsourcing and environmental-liability management, and conducts research and development in advanced imaging, laser, and electronic information-management technologies. The Company performs its business through wholly owned subsidiaries and divisions, as well as majority-owned subsidiaries that are partially owned by the public or 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 by its various subsidiaries. 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 has acquired 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 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 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, 1999, the Company had 29 subsidiaries that have sold minority equity interests, 23 that are publicly traded and 6 that are privately held. In addition, in February 1999, the Company's Thermo Instrument Systems Inc. subsidiary completed the acquisition of Spectra-Physics AB, which has an 80%-owned public subsidiary, Spectra-Physics Lasers, Inc. During 1998, the Company announced a proposed reorganization involving the Company and certain of its subsidiaries. The goals of the proposed reorganization include consolidating and strategically realigning certain businesses to enhance their competitive market positions and improve management coordination and increasing liquidity in the public markets by providing larger market floats for the Company's publicly traded subsidiaries. If completed as proposed, the reorganization would reduce the number of the Company's majority-owned public subsidiaries from 23 to 16, excluding Spectra-Physics Lasers, Inc. Each component of the reorganization is subject to numerous conditions, as outlined in Note 17 to Consolidated Financial Statements in the Registrant's 1998* Annual Report to Shareholders, which information is incorporated herein by reference. 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 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 - -------------------- * References to 1998, 1997, and 1996 herein are for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996, respectively. 2 identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in the Registrant's 1998 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Segments Financial information concerning the Company's segments is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1998 Annual Report to Shareholders, which information is incorporated herein by reference. (c) Description of Business (i) Principal Products and Services The Company's products and services are divided into four segments: Measurement and Detection, Biomedical and Emerging Technologies, Energy and Environment, and Recycling and Resource Recovery. Products or services within a particular segment are provided by more than one subsidiary, and the businesses of one subsidiary (Thermedics Inc.) are included in two segments. The principal products and services offered by the Company in the four industry segments are described below. Measurement and Detection This segment includes the following businesses: Thermo Instrument Systems Inc. and all of its subsidiaries: Metrika Systems Corporation ONIX Systems Inc. Thermo BioAnalysis Corporation Thermo Optek Corporation ThermoQuest Corporation ThermoSpectra Corporation Thermo Vision Corporation and certain public subsidiaries of Thermedics Inc.: Thermedics Detection Inc. Thermo Sentron Inc. Thermo Voltek Corp. Thermo Instrument Systems Inc. Thermo Instrument, a majority-owned public subsidiary of the Company, is a worldwide leader in the development, manufacture, and marketing of measurement instruments used to monitor, collect, and analyze information. These systems are used for multiple applications in a range of industries, including industrial processing, food and beverage production, life sciences research, and medical diagnostics. 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 key acquisitions that have provided complementary technologies, specialized manufacturing or product-development expertise, and broader capabilities in marketing and distribution. 3 In February 1999, Thermo Instrument completed the acquisition of Spectra-Physics AB, a Swedish company that manufactures a wide range of laser-based instrumentation systems, primarily for the process-control, industrial measurement, construction, research, commercial, and government markets. Spectra-Physics reported revenues of $442 million in 1998 and has operations throughout North America and Europe, and a presence in the Pacific Rim. Spectra-Physics had approximately 17.6 million shares outstanding. The aggregate cost for Spectra-Physics will total approximately $355 million. Thermo Instrument adopted the Company's spinout strategy in an effort to more clearly focus its many measurement and detection technologies on specific market niches. Excluding Spectra-Physics Lasers, Inc., a public subsidiary of Spectra-Physics, Thermo Instrument has seven majority-owned public subsidiaries, described below. Metrika Systems manufactures on-line process-optimization systems that provide real-time nondestructive analysis of the composition of raw materials in basic-materials production processes including coal, cement, and minerals. In addition, Metrika Systems manufactures advanced systems used principally by manufacturers of finished flat metals, such as sheet metal, and web materials, such as rubber, plastic foils, and glass to measure and control parameters such as thickness and coating weight. ONIX Systems designs, develops, markets, and services sophisticated field-measurement instruments and on-line sensors for process-control industries, particularly the oil and gas industry. These systems provide real-time data collection, analysis, and local control functions to enhance production efficiency, improve process and quality control, ensure regulatory compliance, and increase employee safety. Thermo BioAnalysis develops, manufactures, and markets instruments, consumables, and information-management systems used in pharmaceutical research and production, and in clinical diagnostics, including point-of-care test kits for rapid diagnosis of certain illnesses. Thermo Optek is a worldwide leader in spectroscopy instrumentation for molecular and elemental analysis based upon energy and light measurements, as well as systems for materials sciences including surface analysis, characterization, preparation, and physical-properties analysis. ThermoQuest is a leading manufacturer of mass spectrometers, liquid chromatographs, and gas chromatographs for the pharmaceutical, environmental, and industrial marketplaces. These analytical instruments are used in the quantitative and qualitative chemical analysis of organic and inorganic compounds at ultratrace levels of detection. ThermoQuest also supplies scientific equipment for the preparation and preservation of chemical samples, and consumables for the chromatography industry. ThermoSpectra develops, manufactures, and markets precision imaging and inspection, temperature-control, and test and measurement instruments. These instruments are generally combined with proprietary operations and analysis software to provide industrial and research customers with integrated systems to address specific needs. Thermo Vision designs, manufactures, and markets a diverse array of photonics products (light-based technologies) including optical components, imaging sensors and systems, lasers, optically based instruments, opto-electronics, and fiber optics. These products are used in applications including medical diagnostics and analytical instrumentation; semiconductor manufacturing; X-ray imaging; physics, chemistry, and biology research; and telecommunications. Thermo Instrument also includes wholly owned businesses, which produce instruments and complete systems for detecting and monitoring environmental pollutants from industrial and mobile sources, for worker safety, and for detecting radioactive contamination. 4 Thermedics Inc. Three majority-owned public subsidiaries of Thermedics, a majority-owned public subsidiary of the Company, manufacture measurement and detection instruments. Thermedics Detection develops, manufactures, and markets high-speed on-line analysis systems used for product quality assurance, laboratory analysis, and security. Thermedics Detection provides X-ray imaging systems that monitor a wide range of containers for fill volume, net volume, and package integrity, as well as systems that detect trace amounts of contaminants in refillable bottles, for the beverage, food, and other industries. Thermedics Detection also makes instruments that measure moisture and other product components, including fat, protein, and solvents, in numerous consumer and industrial products, along with electrode-based chemical-measurement systems used in the agricultural, biomedical research, food processing, pharmaceutical, water-treatment, and other industries. The company also offers an ultrahigh-speed gas chromatograph that permits manufacturers to conduct laboratory-quality analysis for near-on-line process-control applications. In addition, Thermedics Detection makes security instruments that use trace particle- and vapor-detection techniques for forensics, search, and screening applications. Thermo Sentron designs and manufactures high-speed precision-weighing and inspection equipment for two principal markets, packaged goods and bulk materials, that use its products to meet quality and productivity objectives. The company's checkweighers and metal detectors are used primarily by the food-processing, pharmaceutical, and mail-order industries. Its bulk-materials product line includes conveyor-belt scales, solid level-measurement and conveyor-monitoring systems, and sampling systems sold to the mining and material-processing industries, as well as to electric utilities and chemical and other manufacturers. With its June 1998 acquisition of the product-monitoring group of Graseby Limited, a subsidiary of Smiths Industries plc, Thermo Sentron broadened its core product lines and also added the production of thermal printers that apply information such as bar codes, lot numbers, and "sell by" dates to labels on food and pharmaceutical products. Thermo Voltek designs, manufactures, and markets test instruments and a range of products related to power amplification, conversion, and quality. Thermo Voltek's power products are used in communications, broadcast, research, and medical imaging applications. Its test instruments allow manufacturers of electronic systems and integrated circuits to test for electromagnetic compatibility. Biomedical and Emerging Technologies This segment primarily includes the following businesses: Thermo Biomedical Certain subsidiaries of Thermedics Inc., including its public subsidiary Thermo Cardiosystems Inc. ThermoTrex Corporation Trex Medical Corporation ThermoLase Corporation Thermo Coleman Corporation This segment comprises a number of diverse businesses, both wholly and publicly owned, that supply a wide range of medical products such as medical systems and devices for diagnostic imaging, cardiovascular support, respiratory care, neurodiagnostics, sleep analysis, wireless patient monitoring, and hemostasis management. The Company's biomedical products are provided to hospitals, clinics, universities, private-practice medical offices, and medical research facilities. 5 Thermo Biomedical Thermo Biomedical consists of a group of wholly owned companies that serve a range of healthcare markets. Bear Medical Systems Inc. designs, manufactures, and markets respiratory products, primarily ventilators, for pediatric and adult care. Bird Medical Technologies, Inc. develops, manufactures, and sells respiratory-care equipment and accessories and infection-control products. Medical Data Electronics, Inc. is a manufacturer of wireless, portable patient-monitoring systems. Nicolet Biomedical Inc. is a leading manufacturer of instruments for assessing muscle, nerve, sleep, hearing, and brain blood-flow disorders, various neurologic disorders, and for related work in clinical neurophysiology. Nicolet Biomedical is also a leading manufacturer of products used to evaluate peripheral vascular disease, as well as products to detect fetal heartbeat. SensorMedics Corporation is a leading provider of systems for pulmonary function diagnosis, and a producer of respiratory gas analyzers, physiological testing equipment, and automated sleep-analysis systems. The Company's wholly owned Tecomet Inc. subsidiary provides specialty-metals fabrication services required for biocompatible orthopedic devices used in human joint reconstruction and trauma surgeries, surgical tools, and for high-quality aerospace and other commercial applications. Thermedics Inc. Thermo Cardiosystems, a majority-owned public subsidiary of Thermedics, and the wholly owned businesses of Thermedics also manufacture biomedical products. Thermo Cardiosystems has developed an implantable left ventricular-assist system (LVAS) called HeartMate(R) 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 produce adequate blood flow. 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. The air-driven HeartMate system has received both the European Conformity (CE) Mark and U.S. Food and Drug Administration (FDA) approval for commercial sale. The electric version of the LVAS, which also holds the CE Mark, was granted FDA approval in September 1998 for use as a bridge to transplant. In Europe, the electric device is used both as a bridge to transplant and as an alternative to medical therapy. Thermo Cardiosystems is also pursuing the development of next-generation devices, including high-speed rotary blood pumps that are relatively small and could potentially provide cardiac support in small adults and children. Thermo Cardiosystems is also a leading manufacturer of hemostasis-management products, including blood coagulation-monitoring instruments, and also supplies skin-incision devices used to draw small blood samples precisely and with minimal discomfort. Thermedics' wholly owned businesses provide proprietary thermoplastic polyurethanes used in medical disposables and industrial products, and enteral-feeding systems for patients who are unable to feed themselves but do not require intravenous support. ThermoTrex Corporation ThermoTrex, a majority-owned public subsidiary of the Company, including two majority-owned public subsidiaries, are included in the Biomedical and Emerging Technologies segment. 6 Trex Medical, a public subsidiary of ThermoTrex, designs, manufactures, and markets mammography equipment and minimally invasive digital breast-biopsy systems; general-purpose and specialized medical X-ray equipment, including imaging systems used during interventional cardiac procedures such as balloon angioplasty; and dental X-ray systems. Trex Medical sells its systems worldwide principally through a network of independent dealers and, to a lesser extent, on a direct basis. In addition, Trex Medical manufactures breast-biopsy and X-ray systems as an original equipment manufacturer for other medical equipment companies such as the General Electric Company. In early December 1997, Trex Medical submitted a 510(k) application to the FDA seeking clearance to market its digital imaging system for mammography, believing that this advanced technology could help radiologists manipulate and enhance image quality to scrutinize subtle differences that may otherwise go undetected on film-based X-rays. In December 1998, the FDA withdrew Trex Medical's application on the basis that it was unable to determine substantial equivalence between full-field digital mammography and conventional film-based systems from the data provided. In January 1999, the FDA deemed the application active again; however, Trex Medical will be required to submit additional information. ThermoLase, also a public subsidiary of ThermoTrex, developed a patented hair-removal system called SoftLight(R), 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. In May 1998, ThermoLase received 510(k) clearance from the FDA to use the SoftLight laser for cosmetic skin resurfacing. ThermoLase had initially implemented a strategy of offering its laser-based hair-removal services through a network of spas and through physician licensees. However, because results in the marketplace would not support the company's premium pricing structure and its substantial infrastructure costs, ThermoLase has reassessed its strategy and repositioned its offerings. ThermoLase added its new skin-resurfacing service, and in June 1998, acquired The Greenhouse Spa, Inc. in an effort to bring traditional destination spa services to its day spa network. Of its 15 original spas, ThermoLase announced the closure of three in the U.S. and one overseas, with the remaining domestic spas now operating under the Greenhouse name. ThermoLase is evaluating the performance of individual spas to determine which are most viable under the Greenhouse format and, if appropriate, will close or sell additional spas. Through its wholly owned Creative Beauty Innovations (CBI) subsidiary, ThermoLase also offers personal-care products such as lotions, cleansers, and energy drinks that are sold through the Greenhouse Spas and other high-end salons, department stores, and discount chains under both CBI brand names and private labels. Trex Communications Corporation, a majority-owned privately held subsidiary of ThermoTrex, manufactures and markets ground-based satellite communication systems and related components and has developed and is in early-stage testing of its laser communications technology designed to move very large amounts of data quickly, via lasers without the need for wires or licensing from the Federal Communications Commission. ThermoTrex, through a wholly owned business conducts sponsored research and development with the goal of commercializing 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 communications, avionics, digital imaging, signal processing, advanced-materials technology, and lasers. ThermoTrex is currently developing a number of additional technologies that it believes may have future commercial potential. These include a passive millimeter-wave camera intended to see through clouds and fog and certain opaque objects to enhance safety in aerial navigation, a space surveillance system designed to produce high-resolution images of low-earth-orbit satellites, a rapid optical beam steering laser radar system, and direct-detection digital imaging technology for certain medical imaging fields. 7 Thermo Coleman Corporation Thermo Coleman, a majority-owned privately held subsidiary of the Company, provides systems engineering, technology support, and information-technology services and products to government and commercial markets. Thermo Coleman also provides defense- and environmental-systems engineering, integration, and analysis services, and advanced technology research and development, primarily to the U.S. government. Using expertise gained from its government contract work, Thermo Coleman designs, develops, and commercializes services and products in areas such as information technology and sensor and measurement systems for customers in industries including healthcare, education, aircraft production, government, utilities, and entertainment. Thermo Information Solutions Inc., a majority-owned privately held subsidiary of Thermo Coleman, develops commercial applications for information technology, including integrated document management software, Internet products and services, and virtual reality products for education and entertainment. Other A wholly owned subsidiary of the Company, Thermo Digital Technologies, L.L.C., has a major contract to supply advanced digital passport printer technology to the U.S. Department of State for its 15 passport issuing centers throughout the country. This equipment prints photographic images and other personal data in a single step to enhance speed and security in passport production. Energy and Environment This segment includes the following businesses: Thermo Ecotek Corporation Thermo TerraTech Inc. ThermoRetec Corporation The Randers Killam Group Inc. Thermo Power Corporation Thermo Ecotek Corporation Thermo Ecotek, a majority-owned subsidiary of the Company, develops, owns, and operates independent (non-utility) electric power-generation facilities that use environmentally responsible technologies, develops and markets clean alternative fuels, and produces and sells biopesticides. Thermo Ecotek currently operates seven power plants fueled by agricultural and wood wastes known as biomass. Its facilities are typically 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 the development of additional biomass projects overseas and other power-generation projects both in the U.S. and overseas. In the U.S., where the Company believes that utility deregulation may present opportunities for updating aging plants, Thermo Ecotek purchased two deregulated plants in southern California in November 1997 for refurbishing and repowering, and recently acquired the rights to develop a similar site in Florida. Overseas, Thermo Ecotek formed a joint venture in Italy and is in the process of developing biomass-fueled electric power facilities that it will operate. In early 1998, Thermo Ecotek, through a wholly owned subsidiary's participation in a joint venture, indirectly acquired a majority interest in two energy centers in the Czech Republic. Thermo Ecotek is also expanding beyond power generation into other products and processes that protect the environment. In August 1995, through two wholly owned subsidiaries, Thermo Ecotek entered into a Limited Partnership Agreement with KFx Wyoming, Inc., a subsidiary of KFx, Inc., to develop, construct, and operate a coal- beneficiation plant in Gillette, Wyoming. The facility employs patented "clean coal" technology to remove excess moisture and increase energy from subbituminous coal extracted from Wyoming's Powder River Basin. Thermo Ecotek has also recently established a natural gas gathering, storage, and marketing business. Thermo Ecotek also develops, manufactures, and markets environmentally friendly products for agricultural pest control through its majority-owned privately held Thermo Trilogy Corporation subsidiary. 8 Thermo TerraTech Inc. Thermo TerraTech, a majority-owned public subsidiary of the Company, provides industrial outsourcing services and manufacturing support encompassing a broad range of specializations, including infrastructure engineering, design and construction, environmental compliance, laboratory testing, and metal treating. ThermoRetec, a majority-owned public subsidiary of Thermo TerraTech, is a national provider of environmental management services in the areas of industrial, nuclear, and soil remediation, as well as waste-fluids recycling. ThermoRetec helps clients manage problems associated with environmental compliance, waste management, and the cleanup of sites contaminated with organic or toxic wastes. The Randers Killam Group, another majority-owned public subsidiary of Thermo TerraTech, provides comprehensive engineering and outsourcing services in such areas as water and wastewater treatment, highway and bridge projects, process engineering, construction management, and operational services. Thermo EuroTech N.V., a majority-owned privately held subsidiary of Thermo TerraTech, provides remediation and recycling services in Europe, specializing in converting "off-spec" and contaminated petroleum fluids into usable oil products, and providing comprehensive in-plant waste management and recycling services to high-tech manufacturers. In addition, two wholly owned subsidiaries of Thermo TerraTech provide metallurgical processing services using thermal-treatment equipment for customers in the automotive, aerospace, defense, and other industries, and analytical laboratory services, primarily for pharmaceutical, environmental, and food testing. Thermo Power Corporation Thermo Power, a majority-owned public subsidiary of the Company, develops and commercializes advanced traffic-control systems and related products, industrial refrigeration equipment, and commercial cooling and cogeneration systems. The Company also conducts research and development on advanced power and pollution-control technologies, and offers propane-powered lighting products, as well as lighting products for the automotive, sporting goods, and marine markets. During 1998, Thermo Power completed its divestiture of the industrial and marine engine product lines of its Crusader Engines division. This divestiture was the result of changing market conditions that resulted in declining profitability at Crusader, and the desire to improve its focus on promoting its core traffic-control operations. Thermo Power's Peek plc subsidiary, acquired in November 1997, is a U.K.-based company that offers a range of traffic-control systems for urban traffic control, motorway management, and public transportation management in cities worldwide. Products include traffic-signal synchronization systems to minimize congestion, variable message systems to advise drivers of accidents or construction, video systems to provide real-time analysis of traffic flows at intersections and on highways, as well as automatic toll-collection systems. Peek also has developed high-resolution video equipment to aid police officers in monitoring traffic violations. Through its industrial refrigeration business, Thermo Power supplies standard and custom-designed industrial refrigeration systems used for cooling, freezing, and cold-storage applications primarily by the food-processing, petrochemical, and pharmaceutical industries. Thermo Power is also a supplier of both remanufactured and new commercial cooling equipment for sale or rental. The commercial cooling equipment is used primarily in institutions and commercial buildings, as well as by service contractors. Thermo Power, through its privately held subsidiary, ThermoLyte Corporation, is also developing and commercializing propane-powered lighting products for home or recreational use, and, through a recent acquisition, provides specialty lights for the automotive, sporting goods, and marine markets. In addition, Thermo Power designs, develops, markets, and services packaged cooling and cogeneration systems fueled principally by natural gas, and conducts sponsored research involving various instrumentation, control, and heat-recovery technologies. 9 Recycling and Resource Recovery This segment primarily includes the following businesses: Thermo Fibertek Inc. Thermo Fibergen Inc. Thermo Fibertek, a majority-owned public subsidiary of the Company, designs and manufactures stock-preparation equipment, accessories, and water-management systems for the paper and paper recycling industries. 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. Thermo Fibertek is a leading equipment manufacturer for the worldwide paper and paper recycling industries. Thermo Fibergen, a majority-owned public subsidiary of Thermo Fibertek, designs, builds, owns, and operates plants to help pulp and paper mill customers "close the loop" in their water and solids systems on a long-term contract basis. The plants clean and recycle water and long fiber for reuse in the papermaking process. In July 1998, the Company completed construction, and began operating, its first plant. Thermo Fibergen also uses a patented process to convert papermaking byproducts into granules that are used for various applications, including carriers for agricultural chemicals, oil and grease absorption, and cat box filler, with additional uses under development. This segment also includes two wholly owned subsidiaries of the Company that manufacture electroplating systems and related wastewater-treatment equipment and accessories, and produce steam turbines and compressors. (ii) and (xi) New Products; Research and Development 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. During 1998, 1997, and 1996, the Company expended $367.3 million, $335.4 million, and $299.3 million, respectively, on research and development. Of these amounts, $154.2 million, $143.7 million, and $144.8 million, respectively, were sponsored by customers and $213.2 million, $191.6 million, and $154.4 million, respectively, were Company-sponsored. (iii) Raw Materials Certain raw materials used in the manufacture of Thermo Cardiosystems' 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 delay shipments of Thermo Cardiosystems' LVAS. Except as described above, in the opinion of management, the Company has a readily available supply of raw materials for all of its significant products from various sources and does not anticipate any difficulties in obtaining the raw materials essential to its business. 10 (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 Certain businesses within the Energy and Environment segment are impacted by seasonal influences: Thermo Ecotek earns a disproportionately high share of its income from May through October due to the rate structures under the power-sales agreements relating to its California power 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 calendar quarter due to the rate structure under these agreements. Funding patterns of government entities, as well as seasonality, impact quarterly revenues and income at Thermo Power's Peek subsidiary. Peek has historically experienced relatively higher sales and net income in the second and fourth calendar quarters and relatively lower sales and net income in the first and third calendar quarters. While Thermo TerraTech conducts significant operations year-round, the majority of its businesses experience seasonal fluctuations due to adverse weather during winter months. 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. (viii) Backlog
The Company's backlog of firm orders at year-end 1998 and 1997 was: (In thousands) 1998 1997 - -------------------------------------------------------------------------------------- ---------- ---------- Measurement and Detection $309,600 $331,600 Biomedical and Emerging Technologies 281,300 214,000 Energy and Environment 288,100 274,700 Recycling and Resource Recovery 77,300 75,200 -------- -------- $956,300 $895,500 ======== ========
Backlog at the Measurement and Detection segment decreased due to a $15.4 million decline at Thermo Instrument primarily due to lower backlog at Thermo Optek and ThermoSpectra, principally as a result of a decrease in demand in Asia and the slowdown in the semiconductor and related industries. To a lesser extent, the decrease in the Measurement and Detection segment backlog was due to Thermedics Detection's completion of its contract with the U.S. Federal Aviation Association and a decrease in demand at Thermo Voltek. 11 Backlog includes the uncompleted portion of research and development contracts and the uncompleted portion of certain contracts that are accounted for using the percentage-of-completion method. Certain of such firm orders are cancellable by the customer upon the payment of a cancellation charge. The Company believes substantially all of the year-end 1998 backlog will be filled during 1999. (ix) Government Contracts Not applicable. (x) Competition The Company is engaged in many highly competitive industries. The nature of the competition in each of the Company's segments is described below: Measurement and Detection Within the markets for the Company's analytical instrument products, the Company competes with several large corporations that have broad product offerings, such as Hewlett-Packard Company; Perkin-Elmer Corp.; Varian Associates, Inc.; and Hitachi, Ltd., as well as numerous smaller companies that address particular segments of the industry or 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. 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 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, ease of use, 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. Thermedics Detection's electrode-based chemical-measurement products compete with several international companies. In the markets for these products, the company competes on the basis of performance, service, technology, and price. Thermo Voltek competes in this market for electromagnetic compatibility testing equipment 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. Biomedical and Emerging Technologies Competition in the markets for most of the Company's biomedical products, including those manufactured by Thermo Cardiosystems, ThermoTrex, Nicolet Biomedical, Bird Medical Technologies, SensorMedics, Medical Data Electronics, and Bear Medical Systems, is based to a large extent upon technical performance. The Company is aware of one other company, Baxter Healthcare Corporation, that has received premarket approval (PMA) from the FDA for an implantable LVAS similar to Thermo Cardiosystems' LVAS. Also, the Company is aware of one other company, Thoratec Laboratories Corporation, that has received the same approval from the FDA for its cardiac-assist device. This is an external device, positioned on the outside of the patient's chest, and is intended for short-term use in the hospital environment. In November, this company announced that it had 12 received approval from the FDA for an investigational device exemption (IDE) for a portable power source. The Company is aware that other cardiac-assist devices are in various stages of development by other companies, including a total artificial heart that is currently undergoing clinical trials. The requirement of obtaining FDA approval for commercial sale of an LVAS in the United States is a significant barrier to entry into the United States 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 for commercial sale. In addition, other research groups and companies, some that have significantly greater resources than those of the Company, are developing cardiac 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, and price. Competition in the market for medical devices is also significantly affected by the reimbursement policies of government and private insurers. Any product for which reimbursement is not available from such third-party payors will be at a significant competitive disadvantage. 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 to be competitive in these markets it will be important to continue to be technologically innovative. The Company's SoftLight laser hair-removal system competes with other laser-based systems, electrolysis, and other traditional hair-removal methods, such as shaving and waxing. A number of other companies have received clearance from the FDA to market their laser-based systems for the removal of unwanted facial and body hair. In addition, the SoftLight system competes with electrolysis providers, many of whom are small practitioners with well-established networks of client relationships. The Company believes that competition for its hair-removal services is based primarily on efficacy, price, comfort, and safety. 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 the nature of the services offered, the quality of products and services, past performance, customer relationships, marketing competence, infrastructure, and price. Federal procurement policies increasingly emphasize past performance. As government funding becomes more scarce, particularly for defense projects, the competition for such funding will become more intense. Energy and Environment 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 (i.e., 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 market in which the Company's biopesticide business competes is highly competitive and subject to rapid technological change. Many competitors are large chemical and pharmaceutical companies with greater financial, marketing, and technological resources than the Company. The Company's biopesticide business competes primarily based on performance, quality, and price. 13 The market for traffic products and services is extremely competitive, and the Company expects that competition will continue to increase, with the principal factors being price, functionality, reliability, service and support, and vendor and product reputation, along with industry and general economic trends. The Company believes that it is a leading manufacturer and supplier of traffic products, and considers its major competitors to be Siemens AG and Econolite Control Products, Inc. However, the traffic market is highly fragmented and competition varies significantly depending on the individual product. 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 to a lesser extent, price. The Company believes it is a leader in remanufactured refrigeration equipment. The Company competes in this market primarily based on price, delivery time, and customized equipment. The Company seeks to compete 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. 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. Recycling and Resource Recovery The Company faces significant competition in the markets for paper recycling and water-handling equipment and papermaking accessories, and competes in these markets primarily on the basis of quality, price, service, technical expertise, and product innovation. A significant portion of the Company's business is generated from its existing customer base. To maintain this base, the Company has emphasized a problem-solving relationship with its customers. (xii) Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xiii) Number of Employees At January 2, 1999, the Company employed approximately 23,600 persons. (d) Financial Information About Geographic Areas Financial information about geographic areas is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1998 Annual Report to Shareholders, which information is incorporated herein by reference. 14 (e) Executive Officers of the Registrant Name Age Present Title (Fiscal Year First Became Executive Officer) ------------------------------------------------------------------------ George N. Hatsopoulos 72 Chairman of the Board and Chief Executive Officer (1956) Arvin H. Smith 69 President (1983) Brian D. Holt 49 Chief Operating Officer, Energy and Environment (1998) John T. Keiser 63 Chief Operating Officer, Biomedical and Emerging Technologies (1998) Earl R. Lewis 55 Chief Operating Officer, Measurement and Detection (1998) William A. Rainville 57 Chief Operating Officer, Recycling and Resource Recovery (1993) Theo Melas-Kyriazi 39 Chief Financial Officer and Vice President (1998) Paul F. Kelleher 56 Senior Vice President, Finance and Administration (1982) Each executive officer serves until his successor is chosen or appointed and qualified or until earlier resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have held comparable positions with the Company for at least the last five years. Mr. Smith was named President of the Company in September 1998. From 1984 until 1985, he served as a Vice President of the Company. In 1986, he was named Senior Vice President and, in 1991, Executive Vice President. Mr. Holt was appointed Chief Operating Officer, Energy and Environment, in September 1998. From March 1996 to September 1998 he was a Vice President of the Company. Mr. Holt has been President and Chief Executive Officer of Thermo Ecotek since February 1994. For more than five years prior to that time, he was President and Chief Executive Officer of Pacific Generation Company (financier, builder, owner, and operator of independent power facilities). Mr. Keiser was appointed Chief Operating Officer, Biomedical and Advanced Technology, in September 1998, and his title changed to Chief Operating Officer, Biomedical and Emerging Technologies, in March 1999. From 1985 until 1994, Mr. Keiser was President of Eberline Instrument division of Thermo Instrument. In 1994 he was appointed Senior Vice President of Thermedics and President of Thermo Biomedical. In March 1998, he was named President of Thermedics. Mr. Lewis was appointed Chief Operating Officer, Instrumentation, in September 1998, and his title was changed to Chief Operating Officer, Measurement and Detection, in March 1999. Mr. Lewis was a Vice President of the Company from March 1996 to June 1998 and a Senior Vice President of the Company from June 1998 to September 1998. Since 1990 Mr. Lewis has held various positions with Thermo Instrument, and effective March 1997, was named President and in January 1998 was named Chief Executive Officer of Thermo Instrument. Mr. Rainville was appointed Chief Operating Officer, Recycling and Resource Recovery, in September 1998. He was a Senior Vice President of the Company from 1993 until 1998 and was a Vice President of the Company from 1986 to 1993. Mr. Melas-Kyriazi was appointed Chief Financial Officer on January 1, 1999. He joined the Company in 1986 as Assistant Treasurer, and became Treasurer in 1998. He was named President and Chief Executive Officer of ThermoSpectra in 1994, a position he held until becoming Vice President of Corporate Strategy of the Company in 1998. The Company recently announced the appointment of Mr. Richard F. Syron as President and Chief Executive Officer, effective June 1, 1999. Dr. George Hatsopoulos will become non-executive Chairman of the Board and Mr. Smith will remain with the Company in an advisory role. Item 2. Properties The location and general character of the Company's principal properties by segment as of January 2, 1999, are: Measurement and Detection The Company owns approximately 2,176,000 square feet of office, engineering, laboratory, and production space, principally in Wisconsin, Ohio, Germany, the United Kingdom, California, New York, Massachusetts, and Italy, and leases approximately 3,867,000 square feet of office, engineering, laboratory, and production space, principally in Massachusetts, Texas, California, Wisconsin, New Hampshire, the United Kingdom, Germany, and Finland, under leases expiring from 1999 to 2017. 15 Biomedical and Emerging Technologies The Company owns approximately 538,000 square feet of office engineering, laboratory, and production space, principally in Illinois, California, Connecticut, and Texas, and leases approximately 2,300,000 square feet of office, engineering, laboratory, and production space, principally in California, Massachusetts, Texas, Florida, and France, under leases expiring from 1999 to 2013. Energy and Environment The Company owns approximately 1,137,000 square feet of office, engineering, laboratory, and production space, principally in California, Pennsylvania, Minnesota, and the United Kingdom, and leases approximately 1,124,000 square feet of office, engineering, laboratory, and production space, principally in Illinois, California, Massachusetts, Pennsylvania, Florida, the United Kingdom, and the Netherlands, under leases expiring from 1999 to 2023. 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. The Company owns approximately 72 acres of land from which it provides soil-remediation services principally in Maryland, Oregon, and California, and leases approximately 26 acres of land from which it provides soil-remediation and fluid-recycling services principally in New York, Arizona, and Washington, under leases expiring from 1999 to 2006. The Company also leases approximately 15 acres in Holland, consisting of office, production, and oil storage facilities, under a lease expiring in 2059. Recycling and Resource Recovery The Company owns approximately 1,474,000 square feet of office, engineering, laboratory, and production space, principally in France, Connecticut, Ohio, Massachusetts, and the United Kingdom, and leases approximately 282,000 square feet of office, engineering, laboratory, and production space, principally in Wisconsin and Sweden, under leases expiring from 1999 to 2006. 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 the near term in the event that the Company is unable to renew such leases on reasonable terms. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 16 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 dividend policy, is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information required under this item is included under the sections labeled "Ten Year Financial Summary" and "Dividend Policy" in the Registrant's 1998 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 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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 1998 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 January 2, 1999, and Supplementary Data are included in the Registrant's 1998 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. 17 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. 18 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 Comprehensive Income and 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 On December 10, 1998, the Company filed a Current Report on Form 8-K dated December 10, 1998, with respect to a proposed corporate reorganization. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 19 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 22, 1999 THERMO ELECTRON CORPORATION By: /s/ 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 22, 1999. Signature Title By: /s/ George N. Hatsopoulos Chief Executive Officer, Chairman of the George N. Hatsopoulos Board, and Director By: /s/ Theo Melas-Kyriazi Chief Financial Officer and Vice President Theo Melas-Kyriazi By: /s/ Paul F. Kelleher Senior Vice President, Finance and Paul F. Kelleher Administration(Chief Accounting Officer) By: /s/ John M. Albertine Director John M. Albertine By: /s/ Peter O. Crisp Director Peter O. Crisp By: /s/ Elias P. Gyftopoulos Director Elias P. Gyftopoulos By: /s/ John N. Hatsopoulos Vice Chairman of the Board and Director John N. Hatsopoulos By: /s/ Frank Jungers Director Frank Jungers By: /s/ Robert A. McCabe Director Robert A. McCabe By: /s/ Donald E. Noble Director Donald E. Noble By: /s/ Hutham S. Olayan Director Hutham S. Olayan By: /s/ Robert W. O'Leary Director Robert W. O'Leary By: /s/ Richard F. Syron Director Richard F. Syron By: /s/ Roger D. Wellington Director Roger D. Wellington 20 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 16, 1999 (except with respect to the matter discussed in Note 19, as to which the date is March 1, 1999). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 19 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the 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 16, 1999 21
SCHEDULE II THERMO ELECTRON CORPORATION Valuation and Qualifying Accounts (In thousands) Description Provision Accounts Accounts Other (a) Balance Balance at Charged to Recovered Written at End Beginning Expense Off of Year of Year - ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Allowance for Doubtful Accounts Year Ended January 2, 1999 $ 55,698 $ 10,038 $ 480 $(15,371) $ 1,762 $ 52,607 Year Ended January 3, 1998 $ 34,321 $ 9,078 $ 527 $ (8,594) $ 20,366 $ 55,698 Year Ended December 28, 1996 $ 29,318 $ 6,002 $ 760 $ (8,994) $ 7,235 $ 34,321
Description Balance at Established Activity Other (c) Balance Beginning as Cost of Charged at End of Acquisitions to of Year Year Reserve - ----------------------------------------- ------------ ------------- ------------ ----------- ------------ Accrued Acquisition Expenses (b) Year Ended January 2, 1999 $ 32,505 $ 12,112 $(17,496) $(3,929) $ 23,192 Year Ended January 3, 1998 $ 23,473 $ 35,456 $(20,775) $(5,649) $ 32,505 Year Ended December 28, 1996 $ 17,961 $ 41,683 $(28,998) $(7,173) $ 23,473 Description Balance at Provision Activity Balance Beginning Charged to Charged Other (f) at End of Expense (e) to Reserve of Year Year - ----------------------------------------- ------------ ------------- ----------- ------------ ------------ Accrued Restructuring Costs (d) Year Ended January 2, 1999 $ 826 $ 28,773 $(11,117) $ 258 $ 18,740 Year Ended January 3, 1998 $ 1,228 $ 4,340 $(4,748) $ 6 $ 826 Year Ended December 28, 1996 $ - $ 2,828 (1,653) $ 53 $ 1,228 (a) Includes allowance of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1998 Annual Report to Shareholders and the effect of foreign currency translation. (b) The nature of activity in this account is described in Note 3 to Consolidated Financial Statements in the Registrant's 1998 Annual Report to Shareholders. (c) Represents reversal of accrued acquisition expenses and corresponding reduction of cost in excess of net assets of acquired companies resulting from finalization of restructuring plans and the effect of foreign currency translation. (d) The nature of activity in this account is described in Note 11 to Consolidated Financial Statements in the Registrant's 1998 Annual Report to Shareholders. (e) Excludes provision of $15.7 million in 1998, $7.2 million in 1997, and $15.7 million in 1996, primarily for asset write-downs. (f) Represents the effect of foreign currency translation.
22
EXHIBIT INDEX Exhibit Number Description of Exhibit 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 (filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 [File No. 1-8002] and incorporated herein by reference). 4.1 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). 4.3 Indenture dated as of October 29, 1998, by and between the Registrant and Bankers Trust Company, as Trustee, relating to the issuance of senior debt securities by the Registrant (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated October 29, 1998, filed with the Securities and Exchange Commission on October 30, 1998, and incorporated herein by reference). 4.4 First Supplemental Indenture dated as of October 29, 1998, by and between the Registrant and Bankers Trust Company, as Trustee, relating to the issuance by the Registrant of $150,000,000 aggregate principal amount of its 7.625% Notes due 2008 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated October 29, 1998, filed with the Securities and Exchange Commission on October 30, 1998, incorporated herein by reference). 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 Thermo Electron Corporation 1998 Executive Retention Plan/Form of Executive Retention Agreement (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 [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). 23 Exhibit Number Description of Exhibit 10.4 Reserved. 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). 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 Revolving Credit Facility Letters from Barclays Bank PLC in favor of the Registrant and its subsidiaries (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.9 Stock Holdings Assistance Plan and Form of Promissory Note (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.10 - 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). 24 Exhibit Number Description of Exhibit 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.) 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 Amended and Restated Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998 [File No. 1-8002] and incorporated herein by reference). 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 527,343 shares, after adjustment to reflect 3-for-2 stock splits effected in July 1993 and April 1995, 5-for-4 stock splits effected in December 1995 and October 1997.) 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 750,356 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 splits effected in December 1995 and October 1997.) 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.) 25 Exhibit Number Description of Exhibit 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.) 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.) 26 Exhibit Number Description of Exhibit 10.38 Thermo Electron Corporation - ThermoRetec Corporation (formerly 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). 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). 10.46 Thermo Electron Corporation - Thermedics Detection Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.47 Thermo Electron Corporation - Metrika Systems Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.47 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.48 Thermo Electron Corporation - Thermo Vision Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.49 Thermo Electron Corporation - ONIX Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 27 Exhibit Number Description of Exhibit 10.50 Thermo Electron Corporation - The Randers Killam Group Inc. (formerly The Randers Group Incorporated) Nonqualified Stock Option Plan (filed as Exhibit 10.50 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.51 Thermo Electron Corporation - Trex Communications Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.51 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.52 Thermo Electron Corporation - Thermo Trilogy Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.53 Description of Arrangements Regarding Stock Ownership By Officers of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998 [File No. 1-8002] and incorporated herein by reference). 10.54 Letter Agreement dated as of September 15, 1998, between the Registrant and Mr. John N. Hatsopoulos (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.55 Subordinated Indenture, dated January 15, 1998, among the Registrant, Thermo Instrument Systems Inc., and Bankers Trust Company as trustee, relating to $250,000,000 principal amount of 4% Convertible Subordinated Debentures due 2005 issued by Thermo Instrument Systems Inc. (filed as Exhibit 4.1 to Thermo Instrument Systems' Current Report on Form 8-K filed with the Commission on January 16, 1998 [File No. 1-9786] and incorporated herein by reference). 10.56 Employment Agreement dated as of March 12, 1999, between the Registrant and Mr. Richard F. Syron. 13 Annual Report to Shareholders for the year ended January 2, 1999 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule.
EX-10.56 2 EMPLOYMENT AGREEMENT AGREEMENT, made and entered into as of the 12th day of March, 1999 by and between Thermo Electron Corporation, a Delaware corporation (together with its successors and assigns permitted under this Agreement, the "Company"), and Mr. Richard F. Syron (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ the Executive and to enter into an agreement embodying the terms of such employment (the "Agreement") and the Executive desires to enter into the Agreement and to accept such employment, subject to the terms and provisions of the Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a "Party" and together the "Parties") agree as follows: . Definitions. () "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified. () "Base Salary" shall mean the salary provided for in Section 4 below or any increased salary granted to the Executive pursuant to Section 4. () "Board" shall mean the Board of Directors of the Company. () "Cause" shall mean: () the Executive commits a felony or any crime involving moral turpitude; or () in carrying out his duties, the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct resulting in material economic harm to the Company. () A "Change in Control" shall mean an event or occurrence set forth in Section 1.1 of the Executive Retention Agreement attached hereto as Exhibit A. () "Constructive Termination Without Cause" shall mean termination by the Executive of his employment after written notice to the Company within 30 days following the occurrence of any of the following events without his consent: () a reduction in the Executive's then current Base Salary or reference bonus opportunity; () the failure to elect or reelect the Executive to any of the positions described in Section 3(a) or the removal of him from any such position; () a material diminution in the Executive's duties or responsibilities; () a change in the reporting structure so that the Executive reports to someone other than the Board; or () the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company within 15 days after a merger, consolidation, sale or similar transaction. Following written notice from the Executive, as described above, the Company shall have 15 days in which to cure. If the Company fails to cure, the Executive's termination shall become effective on the 16th day following the written notice. () "Disability" shall mean the Executive's inability, due to physical or mental incapacity, to substantially perform his duties and responsibilities under this Agreement as determined by a medical doctor selected by the Company and the Executive. If the Parties cannot agree on a medical doctor, each Party shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purpose. () "Effective Date" shall mean June 1, 1999. () "Stock" shall mean the Common Stock of the Company. () "Transfer Restrictions" shall mean the transfer restrictions on the Stock covered by the Initial Stock Option described in Section 6(b) below. . Term of Employment. The Term of Employment shall begin on the Effective Date, and shall extend until the third anniversary of the Effective Date; provided, however, that the Term of Employment shall automatically extend for additional one year periods after the third anniversary of the Effective Date unless either Party shall give the other Party at least 12 months prior written notice that he/it is electing not to so extend the Term of Employment. Notwithstanding the foregoing, the Term of Employment may be earlier terminated by either Party in accordance with the provisions of Section 10. . Position, Duties and Responsibilities. () Commencing on the Effective Date and continuing for the remainder of the Term of Employment, the Executive shall be employed as the President and Chief Executive Officer and be responsible for the general management of the affairs of the Company. The Executive, in carrying out his duties under this Agreement, shall report to the Board. () The Board will nominate the Executive for election as a Director at the Annual Meeting of Stockholders to be held on May 27, 1999, to serve a three-year term expiring on the date of the Annual Meeting of Stockholders to be held in the year 2002. In the event of a termination of employment of the Executive for any reason (other than death), the Executive shall immediately resign as a Director of the Company and each of its subsidiaries. () Nothing herein shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations subject to the approval of the Board in each case (which approval has been given as to the boards listed in Exhibit B attached), (ii) serving on the boards of a reasonable number of trade associations and/or charitable organizations, (iii) engaging in charitable activities and community affairs, and (iv) managing his personal investments and affairs, provided that such activities set forth in this Section 3(c) do not materially interfere with the proper performance of his duties and responsibilities under Section 3(a). . Base Salary. The Executive shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, of $800,000. The Base Salary shall be reviewed annually for increase in the discretion of the Board. . Annual Incentive Award. During the Term of Employment, the Executive shall participate in the annual incentive program of the Company. Under such program, the Executive shall have a reference bonus each calendar year equal to $500,000, prorated for partial years. The actual bonus paid will be a multiple of the reference bonus (from zero to two times the reference bonus). The actual multiple will reflect a variety of subjective and objective factors, as determined by the Board. The Executive shall be paid his annual incentive award no later than other senior executives are paid their annual incentive awards. For the years 1999, 2000 and 2001, the Executive shall have a minimum guaranteed bonus of $145,833.32 for calendar 1999, $250,000 for calendar 2000, and $104,166.68 for the first five months of 2001 (the "Minimum Guaranteed Bonus" amounts). . Restricted Stock and Stock Option Awards. () Restricted Stock Awards. On the Effective Date, and on the first and second anniversaries of the Effective Date, the Company shall grant the Executive an award of a number of shares of Stock (the "Restricted Stock") having a market value equal to $200,000 based on the average of the closing prices per share of Stock on the New York Stock Exchange for the five business days preceding and including the corresponding grant date, substantially in accordance with the terms set forth in Exhibit C to this Agreement, except that vesting will occur on the third anniversary of each grant date. () Initial Stock Option Award. On the Effective Date, the Company shall grant the Executive a 7-year non-qualified stock option award, substantially in the form attached to this Agreement as Exhibit D, as modified by the terms of this Agreement, to purchase 1,000,000 shares of Stock,(the "Initial Stock Option") with Transfer Restrictions lapsing on the first three anniversaries of the date of grant (333,333 on June 1, 2000 and 2001 and 333,334 on June 1, 2002). The exercise price of the Initial Stock Option shall be the average of the closing prices of the Stock on the New York Stock Exchange for the five business days preceding and including June 1, 1999. . Employee Benefit Programs. During the Term of Employment, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded. The Executive shall be entitled to four weeks paid vacation per year of employment. . Perquisites. During the Term of Employment, the Executive shall be entitled to participate in all of the Company's executive perquisites in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior-level executives. . Reimbursement of Business and Other Expenses. () The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement including, without limitation, legal fees incurred in the negotiation and preparation of this Agreement, and the Company shall promptly reimburse him for such expenses, subject to documentation in accordance with the Company's policy. () In connection with establishing a new principal residence in the Boston area, the Company agrees to purchase the Executive's Bronxville house for $1,500,000, and at the closing of the sale, the Executive shall deliver to the Company a customary deed, together with related documents, conveying good and marketable title to the property, free and clear of all material easements and encumbrances. Following the purchase of the house, the Company will use its reasonable best efforts to resell the house at a price subject to the prior approval of the Executive, which approval shall not be unreasonably withheld. Upon the sale of the house by the Company, either (a) the Company will pay the Executive the excess, if any, of the gross sales price over $1,500,000, or (b) the Executive will pay the Company the excess, if any, of $1,500,000 over the gross sales price. The Company agrees to pay all closing costs, including brokerage fees, incurred in connection with the purchase and subsequent sale of the house. In addition, the Executive shall be entitled to reimbursement of his relocation expenses including all reasonable out-of-pocket expenses of moving his family and personal belongings to a new home in the Boston area. For a period of up to six months, he shall also be entitled to reimbursement for temporary living expenses in the Boston area while locating a permanent residence. To the extent that certain relocation expenses are considered taxable income to the Executive, the Company will relieve the Executive of the additional tax burden (federal, FICA, and state income taxes) from such costs as well as the tax impact of the tax reimbursement itself. . Termination of Employment. () Termination Due to Death. In the event that the Executive's employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to the following benefits: () Base Salary through the end of the month in which death occurs; () a pro-rata annual incentive award for the year in which the Executive's death occurs, based on the reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of death, payable when annual incentive awards are normally paid to other senior executives; () Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; all outstanding Initial Stock Options shall remain exercisable until the later of June 1, 2002 or two years from the date of death (but in no event beyond the option expiration date of June 1, 2006); and () the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse. () Termination Due to Disability. In the event that the Executive's employment is terminated by either party due to his Disability, he shall be entitled to the following benefits: () disability benefits in accordance with the long-term disability ("LTD") program then in effect for senior executives of the Company; () Base Salary through the end of the LTD elimination period; () a pro-rata annual incentive award for the year in which the Executive's termination occurs, based on the reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of termination, payable when annual incentive awards are normally paid to other senior executives; () Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; all outstanding Initial Stock Options shall remain exercisable until the later of June 1, 2002 or two years from the employment termination date (but in no event beyond the option expiration date of June 1, 2006); and () the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse. () the Executive shall be entitled to continued participation at Company expense in all medical and dental insurance coverage in which he was participating on the date of his termination until the earlier of (x) 18 months following the date of termination and (y) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer. In no event shall a termination of the Executive's employment for Disability occur until the Party terminating his employment gives written notice to the other Party in accordance with Section 24 below. () Termination by the Company for Cause. In the event the Company terminates the Executive's employment for Cause: () he shall be entitled to Base Salary through the date of the termination; () no further lapsing of Transfer Restrictions shall occur; Executive shall have 90 days to exercise all outstanding Initial Stock Options as to which Transfer Restrictions have previously lapsed; and () all Restricted Stock granted under Section 6 as to which restrictions have not lapsed shall be forfeited. () Termination without Cause or Constructive Termination without Cause. In the event the Executive's employment is terminated by the Company without Cause, other than due to Disability, death or the failure of the Company to extend this Agreement in accordance with Section 2 hereof, or in the event there is a Constructive Termination without Cause, the Executive shall be entitled to the following benefits: () Base Salary through the date of termination; () Base Salary, at the annualized rate in effect on the date of termination, for the greater of (x) 12 months and (y) the remaining Term of Employment following such termination (the "Salary Continuation Period"); () a pro-rata annual incentive award for the year in which termination occurs, based on his reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of termination, payable when annual incentive awards are normally paid to other senior executives; () an annual incentive award for the Salary Continuation Period, based on his reference bonus for the year in which termination occurs and payable on a pro-rata basis in equal installments over the Salary Continuation Period; () Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; the Initial Stock Options shall continue to be exercisable until the later of June 1, 2002 or two years from the employment termination date (but in no event beyond the option expiration date of June 1, 2006); () the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse; and () the Executive shall be entitled to continued participation at Company expense in all medical and dental insurance coverage in which he was participating on the date of his termination until the earlier of (x) 18 months following the date of termination and (y) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer. () Voluntary Termination. A termination of employment by the Executive on his own initiative, other than a termination due to death or Disability or a Constructive Termination without Cause, shall have the same consequences as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10(e) shall be effective upon 30 days prior written notice to the Company. () Other Termination Benefits. In the case of any of the foregoing terminations, the Executive or his estate shall also be entitled to: () the balance of any incentive awards due but not yet paid, including awards due for performance periods which have been completed, but which have not yet been paid; () any expense reimbursements due the Executive; () payment of all amounts when due as a result of the termination; () payment of any amounts due under Section 15(c); and () other benefits, if any, in accordance with applicable plans and programs of the Company. () Termination Following a Change in Control. Notwithstanding anything to the contrary in this Agreement or in the Executive Retention Agreement between the Executive and the Company, the form of which is attached hereto as Exhibit A, in the event the Executive's employment with the Company is terminated within 18 months following a Change in Control, the Executive shall be entitled to benefits equal to the greater of (a) the benefits due and payable to him under Section 4 of the Executive Retention Agreement as a result of such termination, or (b) the benefits due and payable to him under Section 10 of this Employment Agreement as a result of such termination. In furtherance thereof, it is the Parties' understanding that in the event of a termination under such circumstances, the Executive shall only be entitled to receive benefits payable under one or the other of the foregoing agreements (but not both) determined on a benefit by benefit basis by the Executive and that the term "Other Benefits" as defined in the Executive Retention Agreement shall not include benefits payable under this Employment Agreement. () Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. () No Mitigation; No Offset. The Executive shall not be required to mitigate the amount of any payment or benefit provided in this Section 10 by seeking other employment otherwise. Further, except as provided in Sections 10(b)(vi) and 10(d)(vii), the amount of any payment or benefits provided for in this Section 10 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer or be offset by any amount claimed to be owed by the Executive to the Company. . Confidentiality. () During the Term of Employment and thereafter, the Executive shall not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company, including such trade secret or proprietary or confidential information of any customer or other entity to which the Company owes an obligation not to disclose such information, which he acquires during the Term of Employment, including but not limited to records kept in the ordinary course of business, except (i) as such disclosure or use may be required or appropriate in connection with his work as an employee of the Company or (ii) when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. () Upon the termination of the Executive's employment, the Executive (or in the event of his death, the Executive's personal representative) shall promptly surrender to the Company the original and all copies of any materials containing confidential information of the Company which are then in the Executive's possession or control, provided, however, the Executive shall not be required to surrender his rolodexes, personal diaries and other items of a personal nature. . Noncompetition; Nonsolicitation. () The Executive acknowledges (i) that in the course of his employment with the Company he will become familiar with trade secrets and customer lists of, and other confidential information concerning, the Company and its Affiliates, customers, and clients and (ii) that his services will be of special, unique and extraordinary value to the Company. () The Executive agrees that during the Term of Employment and for a period of one year following his termination of employment (the "Noncompetition Period") he shall not in any manner, directly or indirectly, through any person, firm, corporation or enterprise, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or advisor or consultant to any person, firm, corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in any Competitive Activity. A Competitive Activity shall mean a business that (i)is being conducted by the Company or any Affiliate at the time in question and (ii) was being conducted, or was under active consideration to be conducted, by the Company or any Affiliate, at the date of the termination of the Executive's employment, provided that Competitive Activity shall not include a business of the Company contributing less than 5% of the Company's revenues for the year in question and provided further that an activity shall not be deemed to be a Competitive Activity if the activity contributes less than 5% of the revenues for the year in question of the business by which the Executive is employed or with which he is otherwise associated. () The Executive further agrees that during the Noncompetition Period he shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee of or advisor or consultant to the Company or any of its Affiliates to terminate or abandon his or her or its employment or relationship with the Company or any of its Affiliates for any purpose whatsoever, or (ii) in connection with any business to which Section 12(b) applies, call on, service, solicit or otherwise do business with any customer of the Company or any of its Affiliates; provided, however, that the restriction contained in clause (i) of this Section 12(c) shall not apply to, or interfere with, the proper performance by the Executive of his duties and responsibilities under Section 3 of this Agreement. () Nothing in this Section 12 shall prohibit the Executive from being a passive owner of not more than one percent of the outstanding common stock, capital stock and equity of any firm, corporation or enterprise so long as the Executive has no active participation in the management of business of such firm, corporation or enterprise. () If the restrictions stated herein are found by a court to be unreasonable, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. . Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration, to be held in Boston, Massachusetts, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs of the mediation, arbitration or litigation including, without limitation, reasonable attorneys' fees of both parties, shall be borne by the Company. Pending the resolution of the dispute, the Company shall continue payment of all amounts due and provisions of all benefits to which Executive is entitled, which amounts shall be subject to repayment to the Company if the Company prevails. . Remedies. The Parties acknowledge that in the event of a breach or threatened breach of Section 11 or 12 the Company shall not have an adequate remedy at law. Accordingly, in the event of any breach or threatened breach of Section 11 or 12, the Company shall be entitled to seek such equitable and injunctive relief as may be available to restrain the Executive and any business, firm, partnership, individual, corporation or entity participating in the breach or threatened breach from the violation of the provisions of Section 11 or 12. . Indemnification. () The Executive shall continue to be indemnified under the Indemnification Agreement signed as of September 25, 1997, a copy of which is attached as Exhibit E. () The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other senior executives. () The Company acknowledges the possibility that the Executive may lose significant benefits at his current employer because of his entering into this Agreement. In the event his current employer refuses to pay any such benefit, the Executive agrees to use his best efforts to obtain the benefit, including possible arbitration proceedings, if necessary. The Company will fully indemnify the Executive for all his expenses, including legal fees, incurred in attempting to obtain such benefits. If the Executive is not able to obtain the benefit before June 1, 2000, the Company will indemnify the Executive by paying an amount equal to the value of the benefit forfeited, but in no event more than $1.5 million. . Assignability; Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns. Rights or obligations of the Company under this Agreement may be assigned or transferred by the Company pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall take whatever action it reasonably can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law. . Representations. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. The Executive represents that he knows of no agreement between him and any other person, firm or organization that would be violated by the performance of his obligations under this Agreement. . Entire Agreement. This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto. . Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be. . Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Agreement. . Survivorship. Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive's employment. This Agreement itself (as distinguished from the Executive's employment) may not be terminated by either Party without the written consent of the other Party. . References. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. . Governing Law/Jurisdiction. This Agreement shall be governed in accordance with the laws of Massachusetts without reference to principles of conflict of laws. . Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally, (b) sent by certified or registered mail, postage prepaid, return receipt requested or (c) delivered by overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier) to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of: If to the Company: Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 Attention: Vice President and General Counsel Copy: Chairman, Human Resources Committee of the Board of Directors If to the Executive: Richard F. Syron c/o Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 . Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. . Counterparts. This Agreement may be executed in two or more counterparts. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. THERMO ELECTRON CORPORATION By: /s/George N. Hatsopoulos ---------------------------- George N. Hatsopoulos Chairman /s/Richard F. Syron ------------------- Richard F. Syron EX-13 3 Exhibit 13 Thermo Electron Corporation Consolidated Financial Statements 1998
Thermo Electron Corporation 1998 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ---------- Revenues Product and service revenues $3,690,545 $3,392,575 $2,766,002 Research and development contract revenues 177,051 165,745 166,556 ---------- ---------- ---------- 3,867,596 3,558,320 2,932,558 ---------- ---------- ---------- Costs and Operating Expenses: Cost of product and service revenues 2,186,893 1,973,265 1,657,746 Expenses for research and development (a) 367,343 335,372 299,271 Selling, general, and administrative expenses 937,640 842,625 691,434 Restructuring and other nonrecurring costs, net (Note 11) 44,450 1,272 37,641 ---------- ---------- ---------- 3,536,326 3,152,534 2,686,092 ---------- ---------- ---------- Operating Income 331,270 405,786 246,466 Gain on Issuance of Stock by Subsidiaries (Note 9) 51,775 80,055 126,599 Other Income, Net (Note 10) 8,465 2,626 1,486 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Extraordinary 391,510 488,467 374,551 Items Provision for Income Taxes (Note 8) 170,680 174,713 110,845 Minority Interest Expense 44,023 74,426 72,890 ---------- ---------- ---------- Income Before Extraordinary Items 176,807 239,328 190,816 Extraordinary Items, Net of Provision for Income Taxes and 5,094 - - Minority Interest of $8,247 (Note 5) ---------- ---------- ---------- Net Income $ 181,901 $ 239,328 $ 190,816 ========== ========== ========== Earnings per Share (Note 15) Basic $ 1.12 $ 1.57 $ 1.35 ========== ========== ========== Diluted $ 1.07 $ 1.41 $ 1.17 ========== ========== ========== Weighted Average Shares (Note 15) Basic 161,866 152,489 141,525 ========== ========== ========== Diluted 178,449 176,082 175,605 ========== ========== ========== (a) Includes Costs of: Research and development contracts $ 154,172 $ 143,743 $ 144,823 Internally funded research and development 213,171 191,629 154,448 ---------- ---------- ---------- $ 367,343 $ 335,372 $ 299,271 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2 Thermo Electron Corporation 1998 Financial Statements Consolidated Balance Sheet (In thousands) 1998 1997 - ---------------------------------------------------------------------------------- ------------ ----------- Assets Current Assets: Cash and cash equivalents $ 396,670 $ 593,580 Short-term available-for-sale investments, at quoted market value 1,150,585 929,118 (amortized cost of $1,144,785 and $925,855; Note 2) Accounts receivable, less allowances of $52,607 and $55,698 875,615 797,399 Unbilled contract costs and fees 87,031 69,375 Inventories 599,707 543,589 Prepaid income taxes (Note 8) 143,352 118,182 Prepaid expenses 48,369 42,955 ---------- ---------- 3,301,329 3,094,198 ---------- ---------- Property, Plant, and Equipment, at Cost, Net 832,962 789,046 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value 95,537 63,306 ---------- ---------- (amortized cost of $99,256 and $49,581; Note 2) Other Assets 186,168 157,108 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 3, 8, and 11) 1,915,649 1,692,211 ---------- ---------- $6,331,645 $5,795,869 ========== ========== 3 Thermo Electron Corporation 1998 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1998 1997 - ---------------------------------------------------------------------------------- ------------ ----------- Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (Note 5) $ 134,071 $ 176,912 Accounts payable 272,503 251,677 Accrued payroll and employee benefits 142,323 140,698 Accrued income taxes 92,623 57,923 Accrued installation and warranty costs 71,118 72,710 Deferred revenue 60,582 54,999 Other accrued expenses (Notes 1 and 3) 365,103 337,316 ---------- ---------- 1,138,323 1,092,235 ---------- ---------- Deferred Income Taxes (Note 8) 102,404 90,802 ---------- ---------- Other Deferred Items 73,580 59,082 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 187,042 187,824 Senior notes 150,000 - Subordinated convertible obligations 1,639,052 1,473,015 Nonrecourse tax-exempt obligations 15,500 37,600 Other 33,937 44,468 ---------- ---------- 2,025,531 1,742,907 ---------- ---------- Minority Interest 649,382 719,622 ---------- ---------- Commitments and Contingencies (Note 6) Common Stock of Subsidiaries Subject to Redemption ($95,262 redemption 94,301 93,312 value; Note 1) ---------- ---------- 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; 166,970,806 166,971 159,206 and 159,206,337 shares issued Capital in excess of par value 1,033,799 843,709 Retained earnings 1,216,541 1,034,640 Treasury stock at cost, 8,477,707 and 95,684 shares (151,643) (3,839) Accumulated other comprehensive items (Note 16) (17,544) (35,807) ---------- ---------- 2,248,124 1,997,909 ---------- ---------- $6,331,645 $5,795,869 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
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Thermo Electron Corporation 1998 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1998 1997 1996 - ------------------------------------------------------------------ ------------- ------------ ------------ Operating Activities Net income $ 181,901 $ 239,328 $ 190,816 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 162,277 135,738 115,167 Noncash restructuring and other nonrecurring costs 15,524 (3,068) 24,331 (income), net (Note 11) Provision for losses on accounts receivable 10,038 9,078 6,002 Change in deferred income taxes 2,476 1,111 20,869 Minority interest expense 44,023 74,426 72,890 Gain on issuance of stock by subsidiaries (Note 9) (51,775) (80,055) (126,599) Gain on sale of investments, net (12,872) (5,077) (9,840) Extraordinary items, net of income taxes and (5,094) - - minority interest (Note 5) Other noncash items, net 31,067 9,093 15,758 Changes in current accounts, excluding the effects of acquisitions and dispositions: Accounts receivable (10,845) (86,511) (17,078) Inventories (13,961) 9,377 (1,298) Other current assets (28,354) 31,445 (35,657) Accounts payable (13,689) (8,308) (14,307) Other current liabilities 17,745 (57,559) (16,549) ------------ ----------- ----------- Net cash provided by operating activities 328,461 269,018 224,505 ------------ ----------- ----------- Investing Activities Acquisitions, net of cash acquired (Note 3) (253,192) (849,118) (366,317) Refund of acquisition purchase price (Note 3) - 36,132 - Proceeds from sale of businesses 11,905 27,102 - Purchases of available-for-sale investments (2,194,838) (973,687) (1,644,094) Proceeds from sale and maturities of available-for-sale 1,936,558 1,543,025 835,935 investments Purchases of property, plant, and equipment (148,008) (111,605) (124,541) Proceeds from sale of property, plant, and equipment 16,373 15,633 10,500 Increase in other assets (18,116) (13,425) (26,144) Other 17,002 6,115 3,385 ------------ ----------- ----------- Net cash used in investing activities (632,316) (319,828) (1,311,276) ------------ ----------- ----------- Financing Activities Net proceeds from issuance of long-term obligations 394,068 490,821 953,376 (Note 5) Repayment of long-term obligations (75,775) (78,287) (60,643) Net proceeds from issuance of Company and subsidiary 476,139 164,855 303,954 common stock (Notes 7 and 9) Purchases of Company and subsidiary common stock and (658,999) (311,092) (144,053) subordinated convertible debentures (Note 5) Decrease in short-term notes payable (27,929) (24,256) (13,391) Other (5,326) (4,291) (1,279) ------------ ----------- ----------- Net cash provided by financing activities $ 102,178 $ 237,750 $ 1,037,964 ------------ ----------- ----------- 5 Thermo Electron Corporation 1998 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1998 1997 1996 - ------------------------------------------------------------------- ------------- ------------ ------------ Exchange Rate Effect on Cash $ 4,767 $ (7,764) $ 350 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents (196,910) 179,176 (48,457) Cash and Cash Equivalents at Beginning of Year 593,580 414,404 462,861 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 396,670 $ 593,580 $ 414,404 =========== =========== =========== See Note 12 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements.
6
Thermo Electron Corporation 1998 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ----------- Comprehensive Income Net Income $ 181,901 $ 239,328 $ 190,816 ---------- ---------- ---------- Other Comprehensive Items (Note 16): Foreign currency translation adjustment 27,424 (45,835) (1,112) Unrealized gains (losses) on available-for-sale investments, (9,161) 2,133 4,336 net of reclassification adjustment ---------- ---------- ---------- 18,263 (43,702) 3,224 Minority interest (7,736) 12,874 139 ---------- ---------- ---------- 10,527 (30,828) 3,363 ---------- ---------- ---------- $ 192,428 $ 208,500 $ 194,179 ========== ========== ========== Shareholders' Investment Common Stock, $1 Par Value: Balance at beginning of year $ 159,206 $ 149,997 $ 89,006 Public offering of Company common stock (Note 7) 7,475 - - Issuance of stock under employees' and directors' stock plans 290 866 892 Conversions of convertible obligations - 8,343 13,449 Effect of three-for-two stock split - - 46,650 ---------- ---------- ---------- Balance at end of year 166,971 159,206 149,997 ---------- ---------- ---------- Capital in Excess of Par Value: Balance at beginning of year 843,709 801,793 614,363 Public offering of Company common stock (Note 7) 282,655 - - Activity under employees' and directors' stock plans (3,285) 13,185 8,172 Tax benefit related to employees' and directors' stock plans 10,938 5,456 12,821 Conversions of convertible obligations - 164,537 254,842 Effect of majority-owned subsidiaries' equity transactions (100,218) (141,262) (41,755) Effect of three-for-two stock split - - (46,650) ---------- ---------- ---------- Balance at end of year 1,033,799 843,709 801,793 ---------- ---------- ---------- Retained Earnings: Balance at beginning of year 1,034,640 795,312 604,496 Net income 181,901 239,328 190,816 ---------- ---------- ---------- Balance at end of year 1,216,541 1,034,640 795,312 ---------- ---------- ---------- Treasury Stock: Balance at beginning of year (3,839) (570) (536) Purchases of Company common stock (148,132) - - Activity under employees' and directors' stock plans 328 (3,269) (34) ---------- ---------- ---------- Balance at end of year $ (151,643) $ (3,839) $ (570) ---------- ---------- ---------- 7 Thermo Electron Corporation 1998 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued) (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ----------- Accumulated Other Comprehensive Items (Note 16): Balance at beginning of year $ (35,807) $ 7,895 $ 4,671 Other comprehensive items 18,263 (43,702) 3,224 ---------- ---------- ---------- Balance at end of year (17,544) (35,807) 7,895 ----------- ---------- ---------- Deferred Compensation: Balance at beginning of year - (58) (2,271) Amortization of deferred compensation - 58 296 ESOP II loan repayment (Note 4) - - 1,917 ---------- ---------- ---------- Balance at end of year - - (58) ---------- ---------- ---------- $2,248,124 $1,997,909 $1,754,369 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 8 Thermo Electron Corporation 1998 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Electron Corporation and its subsidiaries (the Company or the Registrant) develop and manufacture a range of products that are sold worldwide. The Company is a world leader in monitoring, analytical, and biomedical instrumentation; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; and paper recycling and papermaking equipment. The Company also develops alternative-energy systems and clean fuels, provides a range of services including industrial outsourcing and environmental-liability management, and conducts research and development in advanced imaging, laser, and electronic information-management technologies. The Company performs its business through wholly owned subsidiaries and divisions, as well as majority-owned subsidiaries that are partially owned by the public or private investors. Principles of Consolidation The accompanying financial statements include the accounts of Thermo Electron and its majority- and wholly owned subsidiaries. The Company's majority-owned public and privately held subsidiaries are listed in Note 9. All material intercompany accounts and transactions have been eliminated. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. During 1998, the Company announced a proposed reorganization involving certain of the Company's majority-owned subsidiaries (Note 17). Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1998, 1997, and 1996 are for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996, respectively. Fiscal years 1998 and 1996 each included 52 weeks; fiscal year 1997 included 53 weeks. 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 1998 balance sheet will be recognized within one year. Revenues on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $489.8 million, $440.4 million, and $421.1 million in 1998, 1997, and 1996, respectively. 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 comprehensive income and shareholders' investment as "Effect of majority-owned subsidiaries' equity transactions." 9 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 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 shareholders' investment. 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 Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects. Cash and Cash Equivalents Cash equivalents consists principally of corporate notes, U.S. government-agency securities, 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: (In thousands) 1998 1997 - ---------------------------------------------------------------------------------- ------------ ----------- Raw Materials and Supplies $267,901 $260,458 Work in Progress 127,144 108,327 Finished Goods 204,662 174,804 -------- -------- $599,707 $543,589 ======== ========
10 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 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; electric generating facilities, 25 years; coal-beneficiation facility, based upon units of production over the life of the facility; machinery and equipment, 1 to 15 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of:
(In thousands) 1998 1997 - ---------------------------------------------------------------------------------- ------------ ----------- Land $ 65,335 $ 59,867 Buildings 254,030 235,103 Electric Generating and Coal-beneficiation Facilities 331,319 247,361 Machinery, Equipment, and Leasehold Improvements 640,801 617,582 ---------- ---------- 1,291,485 1,159,913 Less: Accumulated Depreciation and Amortization 458,523 370,867 ---------- ---------- $ 832,962 $ 789,046 ========== ========== Other Assets Other assets in the accompanying balance sheet includes intangible assets, notes receivable, deferred debt expense, prepaid pension costs, and other assets. Intangible assets include the costs of acquired trademarks, patents, product technology, and other specifically identifiable intangible assets and are being amortized using the straight-line method over their estimated useful lives, which range from 3 to 20 years. Intangible assets were $62.7 million and $50.5 million, net of accumulated amortization of $54.1 million and $45.7 million, at year-end 1998 and 1997, 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 $186.8 million and $134.7 million at year-end 1998 and 1997, 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 have the option to require ThermoLyte to redeem any or all of their shares at $10.00 per share in December 1998 or December 1999. In December 1998, 1,707,000 shares of ThermoLyte common stock were redeemed for a total redemption value of $17.1 million. A payable for the redeemed common stock of ThermoLyte of $17.1 million and a liability for the remaining ThermoLyte common stock subject to redemption of $1.4 million are included in other accrued expenses in the accompanying 1998 balance sheet. The ThermoLyte common stock subject to redemption of $18.1 million was included in other accrued expenses in the accompanying 1997 balance sheet. 11 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 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 one share of Thermo Fibergen common stock at $12.75 per share in September 2000 or September 2001. 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. In April 1997, ThermoLase completed an exchange offer whereby its shareholders had the opportunity to exchange one share of existing ThermoLase common stock and $3.00 (in cash or ThermoLase common stock) for a new unit consisting of one share of ThermoLase common stock and one redemption right. The redemption right entitles the holder to sell the related share of common stock to ThermoLase for $20.25 during the period from April 3, 2001, through April 30, 2001. The redemption right will expire if the closing price of ThermoLase common stock is at least $26.00 for 20 of any 30 consecutive trading days. In connection with this offer, ThermoLase issued in April 1997, 2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5 million in cash, net of expenses. As a result of these transactions, $40.5 million was reclassified in 1997 from "Shareholders' investment" and "Minority interest" to "Common stock of subsidiaries subject to redemption," based on the issuance of the 2,000,000 redemption rights, each carrying a maximum liability of $20.25. The difference between the redemption value and the original carrying amount of ThermoLyte and Thermo Fibergen common stock subject to redemption is accreted over the period through the first redemption period. Accretion is charged to minority interest expense in the accompanying statement of income. ThermoLyte common stock subject to redemption was accreted to its full redemption value in December 1998. All 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 in the "Accumulated other comprehensive items" component of shareholders' investment. Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Forward Contracts and Interest Rate Swap Agreements The Company uses short-term forward foreign exchange contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, 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. Gains and losses arising from forward foreign exchange contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. Thermo Ecotek has interest rate swap agreements that convert its variable rate obligations to fixed rate obligations (Note 5). Interest rate swap agreements are accounted for under the accrual method. Amounts to be received from or paid to the counterparties of the agreements are accrued during the period to which the amounts relate and are reflected as interest expense. The related amounts payable to the counterparties are included in other accrued expenses in the accompanying balance sheet. The fair value of the swap agreements is not recognized in the accompanying financial statements since the agreements are accounted for as hedges. The Company does not enter into speculative foreign currency or interest swap agreements.
12 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in 1997 and 1996 have been reclassified to conform to the presentation in the 1998 financial statements. 2. Available-for-sale Investments The Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded in the "Accumulated other comprehensive items" component of shareholders' investment. 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:
(In thousands) Gross Gross Market Cost Unrealized Unrealized Value Basis Gains Losses - -------------------------------------------------- ------------- ------------- ------------- -------------- 1998 Corporate Bonds $ 698,607 $ 696,501 $ 2,253 $ (147) Government-agency Securities 420,920 420,341 602 (23) Other 126,595 127,199 6,362 (6,966) ---------- ---------- ---------- ---------- $1,246,122 $1,244,041 $ 9,217 $ (7,136) ========== ========== ========== ========== 1997 Corporate Bonds $ 513,956 $ 513,427 $ 717 $ (188) Government-agency Securities 385,476 385,049 451 (24) Other 92,992 76,960 16,628 (596) ---------- ---------- ---------- ---------- $ 992,424 $ 975,436 $ 17,796 $ (808) ========== ========== ========== ========== Short- and long-term available-for-sale investments in the accompanying 1998 balance sheet include equity securities of $38.3 million and debt securities of $809.1 million with contractual maturities of one year or less, $386.8 million with contractual maturities of more than one year through five years, and $11.9 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 features of the securities 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 $13.6 million, $5.2 million, and $11.2 million and gross realized losses of $0.7 million, $0.1 million, and $1.4 million in 1998, 1997, and 1996, respectively, relating to the sale of available-for-sale investments. 13 3. Acquisitions In 1998, the Company and its majority-owned subsidiaries made several acquisitions for $253.2 million in cash, net of cash acquired, the issuance of subsidiary common stock valued at $16.5 million, and $7.7 million, which was accrued as of January 2, 1999, subject to certain post-closing adjustments. The Company does not expect that aggregate post-closing adjustments will be material. In March 1997, Thermo Instrument acquired Life Sciences International PLC, a London Stock Exchange-listed company. The aggregate purchase price for Life Sciences was $442.8 million, net of $55.8 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In 1997, in addition to the acquisition of Life Sciences, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $406.3 million in cash, net of cash acquired, the issuance of subsidiary common stock and stock options valued at $4.5 million, and $5.1 million which was paid in the first quarter of 1998. In June 1996, the Company acquired SensorMedics Corporation in exchange for 1,243,518 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 diagnosis, respiratory-gas analyzers, physiological testing equipment, and automated sleep-analysis systems. The acquisition has been accounted for under the pooling-of-interests method. In March 1996, Thermo Instrument completed the acquisition of a substantial portion of the businesses constituting the Scientific Instruments Division of Fisons plc (the Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. (RPR), for approximately $181.2 million in cash, net of $7.7 million of cash acquired, and the assumption of approximately $47.2 million of indebtedness. In December 1997, Thermo Instrument and RPR negotiated a post-closing adjustment under the terms of the purchase agreement for the acquisition of the Fisons businesses pertaining to determination of the net assets of the Fisons businesses at the date of acquisition. This negotiation resulted in a refund to Thermo Instrument of $36.1 million, plus $3.8 million of interest from the date of acquisition. Thermo Instrument recorded $33.1 million of the refund as a reduction of cost in excess of net assets of acquired companies. The remaining $3.0 million represented payment for uncollected accounts receivable acquired by Thermo Instrument that were guaranteed by RPR. 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 $185.1 million in cash, net of cash acquired, 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. These acquisitions, except for SensorMedics, 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 $1,154.4 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 1998, is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. In connection with these acquisitions, the Company has undertaken restructuring activities at the acquired businesses. The Company's restructuring activities, which were accounted for in accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing levels and the abandonment of excess facilities. In connection with these restructuring activities, as part of the cost of the acquisitions, the Company established reserves as detailed below, primarily for severance and excess facilities. In accordance with EITF 95-3, the Company finalized, and for 1998 acquisitions intends to finalize, its restructuring plans no later than one year from the respective dates of the acquisitions. Unresolved matters at January 2, 1999, primarily included completion of planned 14 3. Acquisitions (continued) severances and abandonment of excess facilities for certain acquisitions completed during 1998. A summary of the changes in accrued acquisition expenses, which are included in other accrued expenses in the accompanying balance sheet, is: Abandonment of Excess (In thousands) Severance Facilities Other Total - ----------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 30, 1995 $ 7,499 $ 7,910 $ 2,552 $ 17,961 Reserves established 27,832 9,993 3,858 41,683 Usage (20,147) (6,134) (2,717) (28,998) Decrease due to finalization of (2,089) (3,357) (1,912) (7,358) restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation adjustment - - 185 185 -------- -------- -------- -------- Balance at December 28, 1996 13,095 8,412 1,966 23,473 Reserves established 18,207 12,737 4,512 35,456 Usage (13,580) (5,594) (1,601) (20,775) Decrease due to finalization of (3,364) (1,405) (393) (5,162) restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation adjustment - - (487) (487) -------- -------- -------- -------- Balance at January 3, 1998 14,358 14,150 3,997 32,505 Reserves established 7,265 3,912 935 12,112 Usage (12,296) (3,398) (1,802) (17,496) Decrease due to finalization of (1,980) (87) (2,555) (4,622) restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation adjustment - - 693 693 -------- -------- -------- -------- Balance at January 2, 1999 $ 7,347 $ 14,577 $ 1,268 $ 23,192 ======== ======== ======== ======== 15 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. Two of the plans permit the grant of nonqualified and incentive stock options to key employees. The incentive stock option plan expired in 1991, and no grants were made after that date. The Company also has an equity incentive plan, which 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. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options 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 may lapse over periods ranging from one to ten years, depending on the term of the option, which may range from one to twelve years. 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 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 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. In November 1998, the Company's employees, excluding its officers and directors, were offered the opportunity to exchange previously granted options to purchase shares of Company common stock for an amount of options equal to half of the number of options previously held, exercisable at a price equal to the fair market value at the time of the exchange offer. Holders of options to acquire 1,513,000 shares at a weighted average exercise price of $36.15 per share elected to participate in this exchange and, as a result, received options to purchase 756,000 shares of Company common stock at $18.08 per share, which are included in the 1998 grants in the table below. The other terms of the new options are the same as the exchanged options except that the holders may not sell shares purchased pursuant to such new options for six months from the exchange date. The options exchanged were canceled by the Company.
16 4. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is: 1998 1997 1996 ------------------- ------------------ ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Price Price Price Number Number Number of of of (Shares in thousands) Shares Shares Shares - ---------------------------------------------- --------- ---------- -------- ---------- --------- --------- Options Outstanding, Beginning of Year 8,831 $24.19 8,421 $21.24 8,302 $17.46 Granted 3,554 23.64 1,401 37.06 1,183 39.03 Exercised (625) 15.96 (744) 13.37 (1,125) 10.71 Forfeited (334) 33.38 (247) 29.45 (89) 26.97 Canceled due to exchange (1,513) 36.15 - - - - Assumed upon acquisition through - - - - 150 14.97 pooling-of-interests (Note 3) ----- ----- ----- Options Outstanding, End of Year 9,913 $22.38 8,831 $24.19 8,421 $21.24 ===== ====== ===== ====== ===== ====== Options Exercisable 9,909 $22.38 8,821 $24.18 8,406 $21.23 ===== ====== ===== ====== ===== ====== Options Available for Grant 3,417 5,132 1,291 ===== ===== =====
A summary of the status of the Company's stock options at January 2, 1999, is: Options Outstanding ----------------------------------------------------- Range of Exercise Prices Number Weighted Weighted of Average Average Shares Remaining Exercise (In thousands) Contractual Life Price - ---------------------------------------------------- -------------- ------------------- ------------------- $ 6.33 - $ 15.61 1,204 2.9 years $12.58 15.62 - 24.89 6,320 6.2 years 18.70 24.90 - 34.17 549 8.0 years 32.24 34.18 - 43.46 1,840 8.6 years 38.48 ----- $ 6.33 - $ 43.46 9,913 6.3 years $22.38 =====
The information disclosed above for options outstanding at January 2, 1999, does not differ materially for options exercisable. 17 4. Employee Benefit Plans (continued) 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. Prior to the 1998 plan year, shares of the Company's common stock could 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 were subject to a six-month resale restriction. Beginning in November 1998, shares of the Company's common stock may be purchased at 85% of the lower of the fair market value at the beginning or end of the period, and the shares purchased are 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 at which they are employed under the same general terms described above. The Company issued no shares of its common stock under this plan during 1998. During 1997 and 1996, the Company issued 243,000 shares and 285,000 shares, respectively, of its common stock under this plan. Employee Stock Ownership Plan The Company's Employee 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 and all expense related to the plans had been recognized. The loan repayment was recorded as a reduction in deferred compensation in the accompanying balance sheet. Shares are allocated to the plan participants based on employee compensation. For these plans, the Company charged to expense $0.2 million in 1996. 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 granted after 1994 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:
(In thousands except per share amounts) 1998 1997 1996 - --------------------------------------------------------------------------- ---------- ---------- --------- Net Income: As reported $ 181,901 $ 239,328 $190,816 Pro forma 158,602 224,337 181,880 Basic Earnings per Share: As reported 1.12 1.57 1.35 Pro forma .98 1.47 1.29 Diluted Earnings per Share: As reported 1.07 1.41 1.17 Pro forma .94 1.32 1.12 18 4. Employee Benefit Plans (continued) 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 weighted average fair value per share of options granted was $8.13, $15.14, and $13.03 in 1998, 1997, and 1996, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1998 1997 1996 - -------------------------------------------------------------------------- ---------- ---------- ---------- Volatility 29% 26% 24% Risk-free Interest Rate 4.8% 6.2% 6.1% Expected Life of Options 4.7 years 6.5 years 5.2 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan 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 $12.2 million, $13.9 million, and $10.1 million in 1998, 1997, and 1996, respectively. Other Retirement Plans Certain of the Company's subsidiaries offer retirement plans, in lieu of participation in the Company's principal 401(k) savings plan. Company contributions to these plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $17.7 million, $16.2 million, and $14.6 million in 1998, 1997, and 1996, respectively.
19
5. Long-term Obligations and Other Financing Arrangements (In thousands except per share amounts) 1998 1997 - ---------------------------------------------------------------------------------- ------------ ----------- 4 1/2% Senior Convertible Debentures, Due 2003, Convertible Into Shares $ 172,500 $ 172,500 of Thermo Instrument at $34.46 per Share 3 3/4% Senior Convertible Debentures, Due 2000, Convertible Into Shares 14,542 15,324 of Thermo Instrument at $13.55 per Share 7 5/8% Senior Notes, Due 2008 150,000 - 4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $37.80 per 585,000 585,000 Share 4% Subordinated Convertible Debentures, Due 2005, Convertible Into 250,000 - Shares of Thermo Instrument at $35.65 per Share 5% Subordinated Convertible Debentures, Due 2000, Convertible Into 67,631 80,591 Shares of ThermoQuest at $16.50 per Share 5% Subordinated Convertible Debentures, Due 2000, Convertible Into 71,155 79,956 Shares of Thermo Optek at $13.94 per Share Noninterest-bearing Subordinated Convertible Debentures, Due 2003, 31,565 62,300 Convertible Into Shares of Thermedics at $32.68 per Share 2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 15,859 - Shares of Thermedics at $14.93 4 3/4% Subordinated Convertible Debentures, Due 2004, Convertible Into 70,000 70,000 Shares of Thermo Cardiosystems at $31.42 per Share 3 3/4% Subordinated Convertible Debentures, Due 2000, Convertible Into 5,250 7,750 Shares of Thermo Voltek at $7.83 per Share 4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 111,850 111,850 Shares of Thermo TerraTech at $15.90 per Share 4 7/8% Subordinated Convertible Debentures, Due 2000, Convertible Into 34,525 34,950 Shares of ThermoRetec at $17.92 per Share 2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible Into 6,999 - Shares of Thermo EuroTech at $5.25 per Share 4 1/2% Subordinated Convertible Debentures, Due 2004, Convertible Into 153,000 153,000 Shares of Thermo Fibertek at $12.10 per Share 3 1/4% Senior Convertible Debentures, Due 2007, Convertible Into Shares 78,948 114,500 of ThermoTrex at $27.00 per Share 4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 110,500 115,000 Shares of ThermoLase at $17.39 per Share Noninterest-bearing Subordinated Convertible Debentures, Due 2001, 1,820 8,118 Convertible Into Shares of Thermo Ecotek at $13.56 per Share 4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 44,950 50,000 Shares of Thermo Ecotek at $16.50 per Share 8.3% Nonrecourse Tax-exempt Obligation, Payable in Semiannual 27,200 35,600 Installments, With Final Payment in 2000 6.0% Nonrecourse Tax-exempt Obligation, Payable in Semiannual 10,400 23,900 Installments, With Final Payment in 2000 Other 60,198 93,857 ---------- ---------- 2,073,892 1,814,196 Less: Current Maturities 48,361 71,289 ---------- ---------- $2,025,531 $1,742,907 ========== ========== 20 5. Long-term Obligations and Other Financing Arrangements (continued) In October 1998, the Company issued and sold $150.0 million principal amount of 7 5/8% senior notes due 2008. Proceeds of $138.0 million were net of $10.4 million incurred on treasury rate lock agreements entered into by the Company to hedge the interest rate on the notes and other associated costs. As a result of the rate lock agreements and associated costs, the effective interest rate on the senior notes is 8.87%. 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 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 4 1/4% subordinated 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, the proceeds of which were used to finance two alternative-energy facilities (Delano I and Delano II) located in Delano, California. The obligations are credit-enhanced by a letter of credit issued by a bank group. 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 to the fixed rates described above. These swaps have terms expiring in 2000, commensurate with the final maturity of the debt. During 1998 and 1997, the average variable rate received under the interest rate swap agreements was 3.5% and 3.7%, respectively. The notional amount of the swap agreements was $41.5 million and $61.3 million at year-end 1998 and 1997, respectively. The interest rate swap agreements are with a different counterparty than the holders of the underlying debt. Management believes that any credit risk associated with these swaps is remote. The annual requirements for long-term obligations are: (In thousands) - ----------------------------------------------------------------------------------------------- ----------- 1999 $ 48,361 2000 221,318 2001 14,421 2002 5,038 2003 922,218 2004 and thereafter 862,536 ---------- $2,073,892 ========== 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 $85.7 million and $105.6 million in 1998 and 1997, respectively, of short-term bank borrowings and borrowings under lines of credit of certain of the Company's subsidiaries. The weighted average interest rate for these borrowings was 4.1% and 5.7% at year-end 1998 and 1997, respectively. Unused lines of credit were $234 million as of year-end 1998. During 1998, ThermoTrex repurchased $35.6 million principal amount of its 3 1/4% subordinated convertible debentures for $30.5 million in cash, which resulted in an extraordinary gain recorded by ThermoTrex. In addition, during 1998, certain majority-owned subsidiaries of Thermo Instrument repurchased $14.3 million principal amount of their subordinated convertible debentures for $13.3 million in cash, which resulted in an extraordinary gain recorded by Thermo Instrument. Thermedics and one of its majority-owned subsidiaries also repurchased $14.2 million principal amount of their subordinated convertible debentures for $11.4 million in cash, which resulted in an extraordinary gain recorded by Thermedics during 1998. 21 5. Long-term Obligations and Other Financing Arrangements (continued) In June 1998, Thermedics offered holders of its noninterest-bearing subordinated convertible debentures due 2003, convertible at $32.68 per share, the opportunity to exchange such debentures for newly issued 2 7/8% subordinated convertible debentures due 2003, convertible at $14.93 per share. Holders of $21.7 million principal amount of outstanding debentures exchanged such debentures for $15.9 million principal amount of newly issued debentures. Thermedics recognized an extraordinary gain on this transaction in accordance with the provisions of EITF 96-19. The Company recorded aggregate extraordinary gains from these transactions of $5.1 million, net of taxes and minority interest of $8.2 million. 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 $83.8 million, $73.6 million, and $62.6 million in 1998, 1997, and 1996, respectively. Future minimum payments due under noncancelable operating leases at January 2, 1999, are $71.3 million in 1999, $61.8 million in 2000, $54.1 million in 2001, $48.7 million in 2002, $40.3 million in 2003, and $133.3 million in 2004 and thereafter. Total future minimum lease payments are $409.5 million. Letters of Credit Outstanding letters of credit, principally relating to performance bonds, totaled $100.6 million at January 2, 1999. Litigation and Related Contingencies Trex Medical is a defendant in a lawsuit brought by Fischer Imaging Corporation, which alleges that the prone breast-biopsy systems of the Lorad division of Trex Medical infringe Fischer's patents on a precision mammographic needle-biopsy system and a motorized mammographic biopsy apparatus. Lorad's cumulative revenues from these products totaled approximately $147.2 million through January 2, 1999. Thermo Coleman has been named as a defendant in a lawsuit initiated by certain former employees. This suit was filed under the "qui tam" provisions of the Federal False Claims Act (the Act), which permit an individual to bring suit in the name of the United States and, if the United States obtains a judgment against the defendant, to share in any recovery. The suit alleges, among other things, that Thermo Coleman violated the Act as a result of its performance of certain support-service functions under a subcontract from a third party, which, in turn, contracted directly with the U.S. government. The complaint seeks an order requiring Thermo Coleman to cease and desist from such allegedly improper practices, the award of treble damages in an unspecified amount, plus other penalties. The amount of billings under the contract activities in question were approximately $7.6 million. The U.S. government has decided not to intervene in the lawsuit. ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents owned by Finnigan pertaining to methods used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in United States District Court and the other was filed with the United States International Trade Commission (ITC). In April 1998, the ITC determined that the defendants did not engage in unfair practices in U.S. import trade with respect to the Finnigan patents, and that the Finnigan patents are invalid and/or not infringed. Finnigan has appealed the ITC's determination with respect to one of its patents to the United States Court of Appeals for the Federal Circuit (CAFC). The CAFC heard arguments in the appeal on March 4, 1999. Bruker has presented counterclaims alleging that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers co-marketed by Bruker. They also allege that Finnigan has violated antitrust laws by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorney's fees) it has sustained. 22 6. Commitments and Contingencies (continued) The Company intends to vigorously defend these matters. In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 7. Common Stock In April 1998, the Company sold 7,475,000 shares of its common stock at $40.625 per share for net proceeds of $290.1 million. During 1998, in a series of transactions with an institutional counterparty, the Company sold put options for 5,001,000 shares of its common stock at an average exercise price per share of $14.76 and purchased call options for 2,500,500 shares of its common stock at an average exercise price per share of $15.62. No cash was exchanged as a result of these transactions. After completion of these transactions, the Company has a maximum potential obligation under the put options to buy back 5,001,000 shares for an aggregate of $73.8 million. These put and call options are exercisable only at maturity and expire between November 1999 and April 2000. The Company has the right to settle the put options by physical settlement of the options or by net share settlement using shares of the Company's common stock. Under the call options, the Company has the right, but not the obligation, to purchase from the counterparty 2,500,500 shares of its common stock at an average price per share of $15.62. The Company may, from time to time, enter into additional put and call option arrangements. At January 2, 1999, the Company had reserved 32,746,998 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 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. Simultaneous 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 (a Unit) of Series B Junior Participating Preferred Stock, $100 par value, at a purchase price of $250 per Unit, 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.
23 7. Common Stock (continued) 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. 8. Income Taxes The components of income before income taxes, minority interest, and extraordinary items are:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- ----------- ---------- ---------- Domestic $ 284,982 $414,146 $313,069 Foreign 106,528 74,321 61,482 --------- -------- -------- $ 391,510 $488,467 $374,551 ========= ======== ======== The components of the provision for income taxes are: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- ----------- ---------- ---------- Currently Payable: Federal $ 88,236 $105,889 $ 85,024 Foreign 44,197 30,928 31,851 State 16,696 18,380 18,445 --------- ------- ---------- 149,129 155,197 135,320 --------- ------- ---------- Net Deferred (Prepaid): Federal 23,741 12,018 (19,994) Foreign (4,242) 3,966 (2,275) State 2,052 3,532 (2,206) --------- ------- ---------- 21,551 19,516 (24,475) --------- ------- ---------- $ 170,680 $174,713 $ 110,845 ========= ======== ========= The Company and its majority-owned subsidiaries receive a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $16.6 million, $15.4 million, and $24.5 million of such benefits of the Company and its majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions, in 1998, 1997, and 1996, respectively. In addition, the provision for income taxes that is currently payable does not reflect $4.4 million, $1.9 million, and $6.5 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1998, 1997, and 1996, respectively. 24 8. Income Taxes (continued) The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 35% to income before income taxes, minority interest, and extraordinary items due to: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- ----------- ---------- ---------- Provision for Income Taxes at Statutory Rate $137,029 $170,963 $ 131,093 Increases (Decreases) Resulting From: Gain on issuance of stock by subsidiaries (18,121) (28,019) (44,310) Valuation allowance for ThermoLase losses 20,459 - - State income taxes, net of federal tax 12,186 14,243 10,555 Amortization and write-off of cost in excess of net assets of 9,538 9,918 8,643 acquired companies Foreign tax rate and tax law differential 2,670 8,937 8,528 Other, net 6,919 (1,329) (3,664) -------- ------- --------- $170,680 $174,713 $ 110,845 ======== ======== ========= Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of: (In thousands) 1998 1997 - ------------------------------------------------------------------------------------- ---------- ---------- Prepaid Income Taxes: Net operating loss and credit carryforwards $123,982 $ 64,615 Reserves and accruals 83,461 65,086 Inventory basis difference 36,085 29,829 Accrued compensation 18,315 17,775 Intangible assets 1,560 2,683 Other, net 17,088 5,504 -------- -------- 280,491 185,492 Less: Valuation allowance 131,042 53,992 -------- -------- $149,449 $131,500 ======== ======== Deferred Income Taxes: Depreciation $ 85,445 $ 92,672 Intangible assets 13,465 7,906 Other 9,591 3,542 -------- -------- $108,501 $104,120 ======== ======== 25 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 certain tax assets of the Company and certain subsidiaries. Of the year-end 1998 valuation allowance, $95 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 1998, the valuation allowance increased primarily due to pre-acquisition loss carryforwards and other deferred tax assets at an acquired business and increased uncertainty surrounding the realization of tax loss carryforwards at ThermoLase. At year-end 1998, the Company had federal and foreign net operating loss carryforwards of $97 million and $155 million, respectively. In addition, the Company had $88 million of foreign capital loss carryforwards. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal net operating loss carryforwards expire in the years 1999 through 2012. Of the foreign net operating loss carryforwards, $40 million expire in the years 1999 through 2004, and the remainder do not expire. Substantially all of the foreign capital loss carryforwards 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 $282 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested overseas. 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: 1998 Public offering of 5,175,000 shares of Trex Medical common stock at $13.75 per share for net proceeds of $66.9 million resulted in a gain of $23.8 million that was recorded by ThermoTrex. Private placement of 781,921 shares of Thermo Trilogy common stock at $8.25 per share for net proceeds of $6.0 million resulted in a gain of $2.2 million that was recorded by Thermo Ecotek. Initial public offering of 3,300,000 shares of ONIX Systems common stock at $14.50 per share for net proceeds of $43.7 million resulted in a gain of $10.0 million that was recorded by Thermo Instrument. Private placement of 1,543,000 shares of Thermo Coleman common stock at $10.00 per share for net proceeds of $14.3 million resulted in a gain of $7.2 million. Public offering of 2,450,000 shares of Thermo BioAnalysis common stock at $18.125 per share for net proceeds of $41.5 million resulted in a gain of $5.9 million that was recorded by Thermo Instrument. Conversion of $1.8 million of Thermo Optek 5% subordinated convertible debentures, convertible at $13.94 per share, into 127,646 shares of Thermo Optek common stock resulted in a gain of $0.9 million that was recorded by Thermo Instrument. Conversion of $4.0 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share, into 239,393 shares of ThermoQuest common stock resulted in a gain of $1.8 million that was recorded by Thermo Instrument. 26 9. Transactions in Stock of Subsidiaries (continued) 1997 Initial public offering of 2,671,292 shares of Thermedics Detection common stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain of $17.1 million that was recorded by Thermedics. Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share, into 949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million and $7.8 million, respectively, that were recorded by Thermo Instrument. Private placements of 1,212,260 shares and 94,000 shares of Thermo Information Solutions common stock at $9.00 and $10.00 per share, respectively, for aggregate net proceeds of $11.0 million resulted in a gain of $6.6 million. Initial public offering of 2,300,000 shares of Metrika Systems common stock at $15.50 per share for net proceeds of $32.5 million resulted in a gain of $13.2 million that was recorded by Thermo Instrument. Private placement of 2,832,500 shares of Trex Communications common stock at $4.00 per share for net proceeds of $10.6 million resulted in a gain of $5.9 million that was recorded by ThermoTrex. Private placements of 1,639,640 shares of ONIX Systems common stock at $14.25 per share for net proceeds of $22.0 million resulted in a gain of $7.9 million that was recorded by Thermo Instrument. Private placement of 1,160,900 shares of Thermo Trilogy common stock at $8.25 per share for net proceeds of $8.9 million resulted in a gain of $4.1 million that was recorded by Thermo Ecotek. Initial public offering of 1,139,491 shares of Thermo Vision common stock at $7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3 million that was recorded by Thermo Instrument. Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated convertible debentures, convertible at $14.85 per share and $13.94 per share, respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a gain of $3.2 million that was recorded by Thermo Instrument. 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. 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 967,828 shares of Metrika Systems common stock at $15.00 per share for net proceeds of $13.5 million resulted in a gain of $9.6 million that was recorded by Thermo Instrument. 27 9. Transactions in Stock of Subsidiaries (continued) The Company's ownership percentage in these subsidiaries changed primarily as a result of the transactions listed above, purchases of shares of certain majority-owned subsidiaries' stock by the Company or its direct subsidiaries, certain 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, the conversion of convertible obligations held by the Company, its subsidiaries, or by third parties, and the issuance of subsidiaries' stock in connection with acquisitions. The Company's ownership percentages at year end were: 1998 1997 1996 - -------------------------------------------------------------------------- ---------- ---------- ---------- Thermedics Inc. 74% 58% 55% Thermedics Detection Inc. (a) 88% 76% 94% Thermo Cardiosystems Inc. (a) 60% 59% 54% Thermo Sentron Inc. (a) 86% 78% 73% Thermo Voltek Corp. (a) 69% 68% 51% Thermo Ecotek Corporation 94% 88% 82% Thermo Trilogy Corporation (b) 80% 87% 100% Thermo Fibertek Inc. 91% 90% 84% Thermo Fibergen Inc. (a) 73% 71% 68% Thermo Instrument Systems Inc. 85% 82% 82% Metrika Systems Corporation (a) 76% 60% 84% ONIX Systems Inc. (a) 81% 87% 100% Thermo BioAnalysis Corporation (a) 84% 78% 67% Thermo Optek Corporation (a) 95% 92% 93% ThermoQuest Corporation (a) 90% 88% 93% ThermoSpectra Corporation (a) 92% 83% 73% Thermo Vision Corporation(a) 80% 80% 100% Thermo Power Corporation 79% 69% 64% ThermoLyte Corporation (b) 98% 78% 78% Thermo TerraTech Inc. 86% 82% 81% The Randers Killam Group Inc. (a) 96% 96% 100% ThermoRetec Corporation (a) 71% 70% 68% Thermo EuroTech N.V. (a)(b) 89% 56% 53% ThermoTrex Corporation 64% 55% 51% ThermoLase Corporation (a) 80% 70% 64% Trex Medical Corporation (a) 77% 79% 79% Trex Communications Corporation (b) 69% 78% 100% Thermo Coleman Corporation (b) 87% 100% 100% Thermo Information Solutions Inc. (b) 79% 79% 100% (a) Reflects combined ownership by direct parent company and Thermo Electron. (b) Privately held subsidiary. 28 10. Other Income, Net The components of other income, net, in the accompanying statement of income are: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- ---------- ---------- ----------- Interest Income $ 99,284 $ 90,559 $ 94,109 Interest Expense (104,035) (93,125) (96,695) Equity in Losses of Unconsolidated Subsidiaries (723) (1,018) (28) Gain on Sale of Investments, Net 12,872 5,077 9,840 Other Income (Expense), Net 1,067 1,133 (5,740) --------- --------- ---------- $ 8,465 $ 2,626 $ 1,486 ========= ========= ========== 11. Restructuring and Other Nonrecurring Costs, Net 1998 During 1998, the Company recorded restructuring and related costs and other nonrecurring costs of $59.9 million as described below, including restructuring and other nonrecurring costs of $44.4 million, inventory write-downs of $8.6 million, and a tax asset write-off of $6.9 million. Restructuring costs were accounted for in accordance with EITF 94-3. The inventory write-downs are included in cost of revenues and the tax asset write-off is included in the provision for income taxes in the accompanying statement of income. Thermo Instrument Thermo Instrument recorded restructuring and related costs and other nonrecurring costs of $31.8 million in 1998. Restructuring costs of $21.6 million consist of $16.2 million related to severance costs for approximately 780 employees across all functions, $4.2 million related primarily to facility-closing costs, $0.8 million for the write-off of cost in excess of net assets of acquired companies for a business that was closed, and $0.4 million related to the loss on the sale of a division. The charge for facility-closing costs includes $2.0 million for write-downs of related fixed assets. In addition, Thermo Instrument recorded $8.6 million of inventory write-downs, included in cost of revenues in the accompanying statement of income, related to discontinuing certain product lines and increased excess and obsolescence reserves associated with lower product demand. In connection with these actions, Thermo Instrument expects to incur additional costs in early 1999 totaling $2.4 million, for costs not permitted as charges in 1998, pursuant to EITF 94-3. These costs primarily include costs for certain employee relocation, moving, and related costs. Thermo Instrument expects to complete the implementation of its restructuring plan in 1999. As of year-end 1998, Thermo Instrument had terminated approximately 500 employees and had expended $7.4 million of the established reserves. In addition, five former employees of Thermo Instrument's Epsilon Industrial, Inc. subsidiary had sought damages in an arbitration proceeding for alleged breaches of agreements entered into with such employees prior to Epsilon's acquisition by Thermo Instrument. The arbitrators rendered a decision with respect to such claims during 1998, and Thermo Instrument recorded $1.6 million of nonrecurring costs related to the resolution of this matter in 1998. ThermoTrex ThermoLase recorded restructuring and related costs of $17.0 million during 1998, including $6.9 million for the write-off of a tax asset. Restructuring costs of $8.2 million recorded during 1998 consist of $4.6 million related to the closure of three Spa Thira locations and $3.6 million in connection with the closure of another spa that was operated under a joint venture agreement, primarily to liquidate the joint venture and to write-off ThermoLase's remaining investment. The $4.6 million of costs includes $2.4 million for the write-off of leasehold improvements and related spa assets and $2.2 million primarily for abandoned-facility payments. ThermoLase also recorded restructuring costs 29 11. Restructuring and Other Nonrecurring Costs, Net (continued) of $1.9 million related to certain actions, including the relocation of its headquarters from California to Texas, where it maintains another facility. This amount included $1.1 million for severance for 40 terminated employees and $0.8 million for the write-off of fixed assets no longer of use. In addition, ThermoLase also recorded a charge of $6.9 million to write off certain tax assets, primarily loss carryforwards due to uncertainty concerning their realization as a result of ThermoLase's recent operating results. This amount is included in provision for income taxes in the accompanying 1998 statement of income. ThermoLase's investment in leasehold improvements and related equipment at its remaining spas totaled approximately $16.7 million at year-end 1998. The realizability of these assets is dependent on future cash flows from spa operations. ThermoLase's future cash flows from operating its spas are dependent on the degree of success it experiences following the transition of its existing spas to full-service luxury day spas offering an expanded line of services and products, operated under The Greenhouse Spa, Inc. name. It is reasonably possible that actual cash flows from spa operations will vary significantly from ThermoLase's estimates of such cash flows. As a result, the carrying amount of spa assets could change significantly in the near term. Additionally, at year-end 1998, ThermoLase has operating lease commitments of approximately $28 million related to these spas. In the event any additional spas close in the future, the amount of lease obligations related to such spas in excess of income from subleasing the facilities would be recorded as a loss. In connection with purchases of ThermoLase common stock, the Company has recorded cost in excess of net assets of acquired companies, which totaled $27 million at year-end 1998. The realizability of this asset is also dependent on the future success of ThermoLase. Thermo TerraTech Thermo TerraTech recorded restructuring costs of $10.2 million during 1998. Of these restructuring costs, $9.2 million was recorded by ThermoRetec, in connection with the closure of two soil-recycling facilities. The costs included a write-down of fixed assets to their estimated disposal value and a write-off of intangible assets, including cost in excess of net assets of acquired companies, as well as other closure costs. In addition, Thermo TerraTech recorded $1.0 million of restructuring costs for abandoned-facility payments relating to the consolidation of the facilities of another business. Other During 1998, Thermo Power recorded restructuring and other nonrecurring costs of $1.0 million relating to a loss on discontinuance and subsequent sale of its engines business and the Company's wholly owned SensorMedics subsidiary recorded restructuring costs of $0.8 million, primarily for severance, in connection with a reorganization of a subsidiary in the Netherlands. The 1998 amount also includes a gain of $1.4 million from the sale of a business at Thermo Information Solutions and restructuring and other nonrecurring costs of $0.5 million. The remaining liability for severance and facility-closing costs of $18.7 million, as adjusted for the impact of foreign currency translation, is included in other accrued expenses in the accompanying 1998 balance sheet. 1997 During 1997, the Company recorded restructuring and other nonrecurring costs of $1.3 million as described below. Thermo TerraTech Thermo TerraTech recorded restructuring costs of $7.8 million in 1997 to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in ThermoRetec's soil-remediation business that resulted in closure of two soil-remediation sites during 1997 and reduced cash flows at certain other sites, such that analysis indicated that the investment in these assets would not be recovered. 30 11. Restructuring and Other Nonrecurring Costs, Net (continued) Other During 1997, the Company settled two legal cases in which it was a defendant concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, the Company reversed $9.7 million of reserves previously established for these matters, which is included as a reduction of restructuring and other nonrecurring costs in 1997. In addition, the 1997 amount includes $4.0 million of restructuring and other nonrecurring costs, primarily severance, at several businesses and $1.4 million at Trex Communications for the write-off of in-process technology relating to an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business. The 1997 amount also includes a gain of $2.2 million from the sale of a business by ThermoSpectra. 1996 During 1996, the Company recorded restructuring and other nonrecurring costs of $37.6 million as described below. Thermedics Thermedics recorded restructuring and other nonrecurring costs of $17.6 million during 1996. The 1996 amount 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 reduced cash flows, such that analysis indicated that the investment in these assets would not be recovered. In addition, Thermo Cardiosystems recorded $4.9 million for the write-off of in-process technology relating to an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business. Wholly Owned Businesses SensorMedics recorded nonrecurring costs of $11.4 million during 1996, primarily as a result of its merger with the Company, including employee compensation that became payable as a result of the merger, certain investment banking fees and other related transaction costs, the settlement of a pre-acquisition legal dispute, and severance costs for terminated employees. The 1996 amount also included a write-off of a nontrade receivable and severance costs of $4.4 million that was recorded by Peter Brotherhood Ltd. and $0.7 million of other nonrecurring costs. Thermo Instrument Thermo Instrument recorded restructuring costs of $3.5 million for the write-off of in-process technology relating to an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business.
31
12. Supplemental Cash Flow Information (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ----------- Cash Paid For Interest $ 92,084 $ 100,165 $ 86,449 Income taxes 117,999 151,685 91,536 Noncash Activities Conversions of Company and subsidiary convertible obligations $ 18,910 $ 246,088 $ 390,494 Issuance of subsidiary subordinated convertible debentures 15,859 - - in connection with exchange offer Exchange of subsidiary common stock for common stock of - 40,500 - subsidiary subject to redemption Sale of waste-recycling facility - - 112,553 Assumption by buyer of waste-recycling facility debt - - 109,862 Fair value of assets of acquired companies $ 404,431 $1,210,319 $ 673,662 Cash paid for acquired companies (274,825) (924,336) (383,685) Issuance of Company and subsidiary common stock and stock (16,450) (4,543) (2,351) options for acquired companies Issuance of long-term obligations for acquired companies - - (26,560) Amount payable for acquired company (7,715) (5,111) - ---------- ---------- ---------- Liabilities assumed of acquired companies $ 105,441 $ 276,329 $ 261,066 ========== ========== ==========
13. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, long-term obligations, common stock of subsidiaries subject to redemption, forward foreign exchange contracts, and interest rate swaps. The carrying amount of cash and cash equivalents, accounts receivable, notes payable and current maturities of long-term obligations, and accounts payable 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. The carrying amount and fair value of the Company's long-term obligations and off-balance-sheet financial instruments are:
1998 1997 ------------------------ ------------------------ Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - -------------------------------------------------------- ------------ ------------ ----------- ------------ Long-term Obligations: Convertible obligations $ 1,826,094 $ 1,577,598 $1,660,839 $ 1,856,570 Other 199,437 207,403 82,068 83,898 ----------- ----------- ---------- ----------- $ 2,025,531 $ 1,785,001 $1,742,907 $ 1,940,468 =========== =========== ========== =========== 32 13. Fair Value of Financial Instruments (continued) 1998 1997 ------------------------ ------------------------ Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - -------------------------------------------------------- ------------ ------------ ----------- ------------ Common Stock of Subsidiaries Subject to Redemption $ 94,301 $ 85,876 $ 93,312 $ 89,093 Off-balance-sheet Financial Instruments: Forward foreign exchange contracts payable $ 703 $ (1,731) (receivable) Interest rate swaps payable (receivable) $ (989) $ 1,324 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 common stock of subsidiaries subject to redemption was determined based upon quoted market prices. The notional amounts of forward foreign exchange contracts outstanding totaled $47.1 million and $46.6 million at year-end 1998 and 1997, respectively. Additionally, the notional amount of the Company's interest rate swap agreements was $41.5 million and $61.3 million at year-end 1998 and 1997, respectively (Note 5). The fair value of such contracts and swap agreements 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 foreign exchange contracts, and market interest rates and the creditworthiness of the counterparties on interest rate swap agreements. 14. Business Segment and Geographical Information The Company's businesses are managed in four segments: - Measurement and Detection: monitoring, analytical, biomedical, and process-control instruments - Biomedical and Emerging Technologies: medical imaging systems, respiratory-care equipment, left ventricular-assist systems, hematology products, neurophysiology monitoring instruments, biomedical materials, personal-care products and services, and systems engineering, information-management services and products, and research in communications, avionics, digital imaging, signal processing, advanced materials, and lasers - Energy and Environment: clean-power generation, biopesticides, traffic-control systems, industrial-refrigeration systems, and environmental-liability management, environmental cleanup, laboratory analysis, and metallurgical heat treating services - Recycling and Resource Recovery: paper recycling and papermaking equipment, water-management systems, and resource-recovery facilities and services 33 14. Business Segment and Geographical Information (continued) (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ----------- Business Segment Information Revenues: Measurement and Detection (a) $1,888,259 $1,820,032 $1,422,501 Biomedical and Emerging Technologies (b) 894,126 812,844 647,309 Energy and Environment (c) 793,168 640,790 555,687 Recycling and Resource Recovery (d) 299,403 293,240 315,233 Intersegment (e) (7,360) (8,586) (8,172) ---------- ---------- ---------- $3,867,596 $3,558,320 $2,932,558 ========== ========== ========== Income Before Income Taxes, Minority Interest, and Extraordinary Items: Measurement and Detection $ 220,891 $ 265,583 $ 162,219 Biomedical and Emerging Technologies 43,863 63,121 26,666 Energy and Environment 64,468 79,193 58,603 Recycling and Resource Recovery 33,492 29,106 27,801 ---------- ---------- ---------- Total Segment Income (f) 362,714 437,003 275,289 Corporate (g) 28,796 51,464 99,262 ---------- ---------- ---------- $ 391,510 $ 488,467 $ 374,551 ========== ========== ========== Identifiable Assets: Measurement and Detection $2,923,832 $2,696,336 $2,240,426 Biomedical and Emerging Technologies 1,208,294 1,135,252 783,830 Energy and Environment 1,202,346 1,202,901 967,992 Recycling and Resource Recovery 478,584 468,856 323,052 Corporate (h) 518,589 292,524 825,944 ---------- ---------- ---------- $6,331,645 $5,795,869 $5,141,244 ========== ========== ========== Depreciation and Amortization: Measurement and Detection $ 69,461 $ 62,117 $ 51,548 Biomedical and Emerging Technologies 32,913 27,209 21,505 Energy and Environment 47,056 36,032 33,923 Recycling and Resource Recovery 9,882 8,881 6,861 Corporate 2,965 1,499 1,330 ---------- ---------- ---------- $ 162,277 $ 135,738 $ 115,167 ========== ========== ========== Capital Expenditures: Measurement and Detection $ 35,719 $ 32,728 $ 24,320 Biomedical and Emerging Technologies 25,140 30,432 35,787 Energy and Environment 75,899 42,268 59,081 Recycling and Resource Recovery 8,639 4,839 4,601 Corporate 2,611 1,338 752 ---------- ---------- ---------- $ 148,008 $ 111,605 $ 124,541 ========== ========== ========== 34 14. Business Segment and Geographical Information (continued) (In thousands) 1998 1997 1996 - ----------------------------------------------------------------------- ----------- ----------- ----------- Geographical Information Revenues (i): United States $2,885,035 $2,732,335 $2,171,879 England 417,659 387,606 312,522 Other 870,779 724,935 670,678 Transfers among geographical areas (e) (305,877) (286,556) (222,521) ---------- ---------- ---------- $3,867,596 $3,558,320 $2,932,558 ========== ========== ========== Long-lived Assets (j): United States $ 726,287 $ 697,127 $ 594,955 Other 128,758 112,232 142,352 ---------- ---------- ---------- $ 855,045 $ 809,359 $ 737,307 ========== ========== ========== Export Sales Included in United States Revenues Above (k) $ 600,594 $ 593,850 $ 436,972 ========== ========== ========== (a) Includes intersegment sales of $1,893,000, $2,520,000, and $1,895,000 in 1998, 1997, and 1996, respectively. (b) Includes intersegment sales of $5,025,000, $5,051,000, and $6,228,000 in 1998, 1997, and 1996, respectively. (c) Includes intersegment sales of $435,000, $698,000, and $45,000 in 1998, 1997, and 1996, respectively. (d) Includes intersegment sales of $7,000, $317,000, and $4,000 in 1998, 1997, and 1996, respectively. (e) Intersegment sales and transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (f) Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, income taxes, and extraordinary items. (g) Includes corporate general and administrative expenses, other income and expense, and gain on issuance of stock by subsidiaries. (h) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's Waltham, Massachusetts, headquarters. (i) Revenues are attributed to countries based on selling location. (j) Includes property, plant, and equipment, net and other long-term tangible assets. (k) In general, export revenues are denominated in U.S. dollars.
35 15. Earnings per Share
Basic and diluted earnings per share were calculated as follows: (In thousands except per share amounts) 1998 1997 1996 - --------------------------------------------------------------------------- ---------- --------- ---------- Basic Net Income $ 181,901 $239,328 $ 190,816 --------- -------- --------- Weighted Average Shares 161,866 152,489 141,525 --------- -------- --------- Basic Earnings per Share $ 1.12 $ 1.57 $ 1.35 ========= ======== ========= Diluted Net Income $ 181,901 $239,328 $ 190,816 Effect of: Convertible obligations 14,669 18,814 23,523 Majority-owned subsidiaries' dilutive securities (5,106) (9,925) (8,084) --------- -------- --------- Income Available to Common Shareholders, as Adjusted $ 191,464 $248,217 $ 206,255 --------- -------- --------- Weighted Average Shares 161,866 152,489 141,525 Effect of: Convertible obligations 15,476 21,596 31,735 Stock options 1,107 1,997 2,345 --------- -------- --------- Weighted Average Shares, as Adjusted 178,449 176,082 175,605 --------- -------- --------- Diluted Earnings per Share $ 1.07 $ 1.41 $ 1.17 ========= ======== ========= The computation of diluted earnings per share for each period excludes the effect of assuming the exercise of certain outstanding stock options because the effect would be antidilutive. As of January 2, 1999, there were 7,920,851 of such options outstanding, with exercise prices ranging from $17.06 to $43.46 per share. In addition, the computation of diluted earnings per share for 1998 excludes the effect of assuming the repurchase of 5,001,000 shares of Company common stock at a weighted average exercise price of $14.76 per share in connection with put options (Note 7), because the effect would be antidilutive. During 1998, the Company recorded extraordinary gains in connection with the repurchase and exchange of subsidiary subordinated convertible debentures, which increased basic and diluted earnings per share by $.03 (Note 5). 36 16. Comprehensive Income During the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This pronouncement sets forth requirements for disclosure of the Company's comprehensive income and accumulated other comprehensive items. In general, comprehensive income combines net income and "other comprehensive items," which represents certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses on available-for-sale investments. Accumulated other comprehensive items in the accompanying balance sheet consists of: (In thousands) 1998 1997 - ------------------------------------------------------------------------------------- ---------- ---------- Cumulative Translation Adjustment $(18,915) $(46,339) Net Unrealized Gain on Available-for-sale Investments 1,371 10,532 -------- -------- $(17,544) $(35,807) ======== ======== Unrealized gains (losses) on available-for-sale investments, a component of other comprehensive items in the accompanying statement of comprehensive income and shareholders' investment, includes: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- ---------- ---------- ----------- Unrealized Holding Gains (Losses) Arising During the Year (net $ (1,309) $ 5,332 $ 10,240 of income tax provision (benefit) of $(726), $3,110, and $6,828) Reclassification Adjustment for Gains Included in Net Income (7,852) (3,199) (5,904) (net of income tax provision of $5,020, $1,878, and $3,936) -------- -------- -------- Net Unrealized Gains (Losses) (net of income tax provision $ (9,161) $ 2,133 $ 4,336 (benefit) of $(5,746), $1,231, and $2,892) ======== ======== ======== 37 17. Proposed Reorganization During 1998, the Company announced a proposed reorganization involving the Company and certain of its subsidiaries. The goals of the proposed reorganization include consolidating and strategically realigning certain businesses to enhance their competitive market positions and improve management coordination and increasing liquidity in the public markets by providing larger market floats for the Company's publicly traded subsidiaries. If completed as proposed, the reorganization would reduce the number of the Company's majority-owned public subsidiaries from 23 to 16. Each component of the reorganization is subject to numerous conditions, including the following (not all of which are applicable to each component): establishment of prices and/or exchange ratios; confirmation of anticipated tax consequences; approval by the boards of directors (including the independent directors) of each of the affected majority-owned subsidiaries; negotiation and execution of definitive purchase and sale or merger agreements; clearance, where necessary, by the Securities and Exchange Commission of any necessary documents regarding the proposed transactions; and, where appropriate, fairness opinions from one or more investment banking firms on certain financial aspects of the transactions. One or more of the transactions may not occur if the applicable conditions previously described are not satisfied. The Company may transfer its wholly owned Thermo Biomedical group of subsidiaries to Thermedics. The Company would transfer the Thermo Biomedical group of subsidiaries to Thermedics in exchange for newly issued shares of common stock of Thermedics and for Thermedics' equity interests in Thermo Sentron, Thermedics Detection, and Thermo Voltek. Thermedics Detection and Thermo Sentron would then be taken private and become wholly owned subsidiaries of the Company. The public shareholders of Thermedics Detection and Thermo Sentron would receive cash in exchange for their shares of common stock of Thermedics Detection and Thermo Sentron, respectively. Thermo Voltek has signed a definitive merger agreement with Thermedics, which, if the remaining shareholder approvals are secured, will make Thermo Voltek 100%-owned by Thermedics and the Company. ThermoSpectra, a majority-owned public subsidiary of Thermo Instrument, may be taken private. The public shareholders of ThermoSpectra would receive cash in exchange for their shares of common stock. The Randers Killam Group, ThermoRetec, and Thermo EuroTech, may merge into Thermo TerraTech. Shareholders of each of the Randers Killam Group, ThermoRetec, and Thermo EuroTech would receive shares of common stock of Thermo TerraTech in exchange for their shares of common stock of the Randers Killam Group, ThermoRetec, and Thermo EuroTech, respectively. Thermo Power may be taken private and become a wholly owned subsidiary of the Company. The public shareholders of Thermo Power would receive cash in exchange for their shares of common stock of Thermo Power.
38 18. Unaudited Quarterly Information
(In thousands except per share amounts) 1998 First Second Third Fourth - ----------------------------------------------------------- ----------- ----------- ----------- ------------ Revenues $ 944,263 $ 947,799 $ 977,169 $ 998,365 Gross Profit 371,842 386,814 383,415 384,460 Income Before Extraordinary Items 64,770 59,622 15,651 36,764 Net Income (a) 65,493 61,785 17,582 37,041 Earnings per Share (a): Basic .41 .37 .11 .23 Diluted .37 .34 .10 .23 1997 First Second Third Fourth - ----------------------------------------------------------- ----------- ----------- ----------- ------------ Revenues $ 763,505 $ 875,016 $ 909,850 $ 1,009,949 Gross Profit 296,365 358,538 374,041 412,368 Net Income 52,058 56,158 61,859 69,253 Earnings per Share: Basic .35 .37 .41 .44 Diluted .31 .34 .36 .40 (a) Reflects extraordinary items, net of taxes and minority interest, of $0.7 million, $2.2 million, $1.9 million, and $0.3 million in the first, second, third, and fourth quarters, respectively. The extraordinary items increased basic earnings per share by $.01 in each of the first, second, and third quarters and diluted earnings per share by $.01 in each of the second and third quarters. 19. Subsequent Event On February 22, 1999, Thermo Instrument declared unconditional in all respects its cash tender offer for all outstanding shares of Spectra-Physics AB, a Stockholm Stock Exchange-listed company, for 160 Swedish krona per share (approximately $20 per share). As of that date, the Company had purchased or received acceptances representing approximately 98% of the Spectra-Physics shares outstanding. There were approximately 17.6 million Spectra-Physics shares outstanding. The aggregate cost for Spectra-Physics will total approximately $355 million. Payment was made for all shares as to which acceptances had been received by March 1, 1999. The acquisition will be accounted for using the purchase method of accounting and its results will be included in the Company's results from the date of acquisition. Spectra-Physics manufactures a wide range of laser-based instrumentation systems, primarily for the process-control, industrial measurement, construction, research, commercial, and government markets. Spectra-Physics had revenues of approximately $442 million in 1998, with operations throughout North America and Europe, and a presence in the Pacific Rim. 39 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 January 2, 1999, and January 3, 1998, and the related consolidated statements of income, cash flows, and comprehensive income and shareholders' investment for each of the three years in the period ended January 2, 1999. 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 January 2, 1999, and January 3, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 1999, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 16, 1999 (except with respect to the matter discussed in Note 19, as to which the date is March 1, 1999) 40 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Forward-looking Statements." 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 business segments: measurement and detection, biomedical and emerging technologies, energy and environment, and recycling and resource recovery. 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. Another component that has contributed 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 they are integrated into the Company's business segments and their profitability improves. The Company seeks to minimize its dependence on any specific product or market by maintaining a diverse 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 health, safety, and environmental 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 adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock option programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries and the issuance of stock by subsidiaries upon conversion of convertible debentures, 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. During 1998, the Company proposed a reorganization plan that would simplify its structure by reducing the number of public subsidiaries from 23 to 16 (Note 17). 41 Overview (continued) Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures." In February 1999, the FASB issued a revision of the earlier document entitled "Consolidated Financial Statements: Purpose and Policy." The October 1995 exposure draft proposed new rules for how consolidated financial statements should be prepared. Under that proposed statement, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for in equity of the consolidated entity with no gain or loss being recorded. The 1995 exposure draft addressed rule changes concerning consolidation procedures which would affect the Company's ability to record gains on issuance of subsidiary stock and consolidation policy which does not affect the accounting for such gains. The February 1999 revised exposure draft addresses only consolidation policy. The FASB has indicated that it will consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and contents of any final statement on consolidation procedures are uncertain. Results of Operations 1998 Compared With 1997 Sales in 1998 were $3,867.6 million, an increase of $309.3 million, or 9%, over 1997. Segment income, excluding inventory write-downs of $8.6 million and restructuring and other nonrecurring costs, net, of $44.4 million in 1998 and $1.3 million in 1997, described below, decreased to $415.8 million in 1998 from $438.3 million in 1997. (Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, income taxes, and extraordinary items.) Operating income, which includes inventory write-downs and restructuring and other nonrecurring costs, net, was $331.3 million in 1998, compared with $405.8 million in 1997. Measurement and Detection Sales from the Measurement and Detection segment increased $68.2 million to $1,888.3 million in 1998. Sales increased due to acquisitions made by Thermo Instrument and Thermo Sentron, which added $181.2 million of revenues in 1998. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the Measurement and Detection segment operates decreased revenues by $14.9 million in 1998. Revenues from Thermo Instrument's analytical products, excluding the effects of acquisitions and currency translation, decreased $61.7 million, primarily due to lower sales to customers in Asia due to unstable economic conditions in that region and, to a lesser extent, lower sales to customers in the semiconductor industry. Revenues from Thermo Instrument's industrial products, excluding the effects of acquisitions and currency translation, decreased $18.3 million, primarily due to lower revenues at ThermoSpectra's existing businesses as a result of a downturn in the semiconductor industry and lower sales to customers overseas. Revenues at Thermedics Detection decreased $12.8 million, due in part to lower shipments of its Alexus(R) systems following the fulfillment in 1997 of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base. In addition, demand for Thermedics Detection's near-infrared analyzers and explosives-detection systems decreased in 1998. Backlog at the Measurement and Detection segment decreased $22.0 million during 1998. Backlog declined $15.4 million at Thermo Instrument primarily due to lower backlog at Thermo Optek and ThermoSpectra, principally as a result of a slowdown in the semiconductor and related industries and a decrease in demand in Asia. To a lesser extent, the decrease in the Measurement and Detection segment backlog was due to Thermedics Detection's completion of a contract with the U.S. Federal Aviation Administration (FAA) and a decrease in demand at Thermo Voltek. In addition, revenues from Thermo Instrument's process-control products are expected to be adversely impacted in the first half of 1999 by a decrease in capital spending in the oil and gas and cement industries and increased competition for process-control products relating to raw-materials analysis. 42 1998 Compared With 1997 (continued) Segment income margin (segment income margin is segment income as a percentage of sales), excluding restructuring and other nonrecurring costs of $23.2 million in 1998 and nonrecurring income of $1.3 million in 1997, decreased to 12.9% in 1998 from 14.5% in 1997, primarily due to the effect on segment income margin of lower revenues at certain business units and $8.6 million of inventory write-downs for discontinued product lines and excess inventories caused by lower product demand. Segment income margin in the 1997 period included the unfavorable effect of an adjustment to expense of $3.6 million relating to the sale of inventories revalued at the time of the acquisition of Life Sciences International PLC by Thermo Instrument and an inventory write-down at ThermoSpectra. Restructuring and other nonrecurring costs of $20.8 million in 1998 were recorded by wholly and majority-owned subsidiaries of Thermo Instrument, primarily for severance costs. In connection with the closing of certain facilities, Thermo Instrument expects to incur additional costs in early 1999 totaling $2.4 million. Thermo Instrument expects to complete the implementation of its restructuring plan in 1999. Also in 1998, Thermo Instrument recorded $1.6 million of nonrecurring costs relating to the resolution of an arbitration proceeding and wrote off $0.8 million of cost in excess of net assets of acquired companies for a business that has been closed (Note 11). Nonrecurring income of $1.3 million in 1997 represents a gain of $2.2 million from the sale of a business by ThermoSpectra, offset in part by $0.9 million of severance costs for employees terminated at one of ThermoSpectra's business units. Biomedical and Emerging Technologies Sales from the Biomedical and Emerging Technologies segment were $894.1 million in 1998, an increase of $81.3 million, or 10%, over the 1997 period. Sales increased due to the inclusion of $103.8 million of sales from acquired businesses. In addition, higher demand in 1998 resulted in increased sales from the specialty-metals fabrication services business as well as higher revenues at Thermo Cardiosystems and, to a lesser extent, Bird Medical Technologies, Inc. These increases were offset in part by lower revenues in the existing business units of Trex Medical and, to a lesser extent, ThermoLase. The decrease in revenues at Trex Medical's existing businesses totaled $22.5 million. More than half of this decrease resulted from the loss of a major customer following its acquisition by another corporation. Sales to this customer totaled $26.5 million in 1998. In addition, revenues decreased at Trex Medical due to lower demand for breast-biopsy and other medical-imaging equipment. Revenue growth at Trex Medical is expected to significantly decrease in the first half of 1999 as a result of the loss of the significant customer, a slowing of sales of breast-biopsy systems, and the effect in 1998 of a $9.0 million nonrecurring order from a customer located in Russia. The decrease in revenues at ThermoLase was due to lower demand at ThermoLase's spa services business, a decline of $5.9 million in fees from international licensing arrangements and, to a lesser extent, lower revenues from the sale of beauty products. In response to the decrease in revenues, ThermoLase significantly reduced its prices in April 1998 in an attempt to establish an optimum price point that would result in increased demand and higher revenues. In addition, in June 1998, ThermoLase acquired The Greenhouse Spa, Inc., a full-service, luxury, destination spa. Following this acquisition, ThermoLase announced plans to close four spas, three of which have been closed, and has converted its remaining eleven Spa Thira locations into full-service luxury day spas offering an expanded line of services and products. Because costs at the spas continue to be high relative to revenues, ThermoLase does not plan to expand its day spa operation and is assessing whether particular spas should be closed or sold. Revenues decreased slightly at Thermo Coleman, where an increase in government contract revenues was offset by lower kiosk revenues at its Thermo Information Solutions unit. Thermo Information Solutions exited the kiosk business in 1998 due to inherently low margins, lower than expected orders from its sole customer, and the absence of additional orders. Segment income, excluding restructuring and nonrecurring costs of $10.0 million in 1998 and $1.9 million in 1997, decreased to $53.8 million in 1998 from $65.1 million in 1997. This change resulted primarily from $10.1 million of lower segment income at Trex Medical and $9.0 million of increased segment loss (excluding restructuring costs) at ThermoLase. The lower segment income at Trex Medical was primarily due to the decrease in revenues at 43 1998 Compared With 1997 (continued) existing businesses without a corresponding decrease in costs. The segment loss at ThermoLase, excluding restructuring costs of $10.1 million, totaled $27.4 million in 1998 and increased due to lower revenues as well as fixed costs of operating more spas. In addition, ThermoLase reported operating losses from its beauty products subsidiary in 1998, compared with profitable operations in 1997. The effect of continuing to operate its spas below maximum capacity will continue to have a negative effect on ThermoLase's segment income. These decreases in segment income were offset in part by improved results at certain businesses, primarily Bird Medical Technologies and the specialty-metals fabrication services business. Restructuring and other nonrecurring costs of $10.1 million in 1998 were recorded by ThermoLase in connection with the announced closure of four spas and relocation of its headquarters to Texas where it maintains another facility. The degree to which ThermoLase is successful in improving its profitability will affect the future of its remaining spas and the realizability of related assets (Note 11). Restructuring and other nonrecurring costs in 1998 also include $0.8 million at SensorMedics Corporation, primarily for severance, in connection with the reorganization of a subsidiary in the Netherlands and $0.5 million at certain of the Company's other wholly owned businesses. In addition, Thermo Information Solutions sold an Internet dial-up service business in 1998, resulting in nonrecurring income of $1.4 million. Restructuring and other nonrecurring costs in 1997 includes $1.4 million at Trex Communications for the write-off of in-process technology associated with an acquired business and $0.5 million at certain of the Company's wholly owned businesses to close certain foreign sales offices. Energy and Environment Sales from the Energy and Environment segment increased to $793.2 million in 1998 from $640.8 million in 1997. Revenues from Thermo Ecotek increased to $206.2 million in 1998 from $189.5 million in 1997, primarily due to the inclusion of $8.4 million of revenues from newly acquired power operations in the Czech Republic and higher contractual energy rates at certain facilities. In addition, the 1998 period included $1.9 million of nonrecurring revenue from fees received for the release of Thermo Ecotek's rights to certain power-generating equipment, while the 1997 period included $8.2 million of nonrecurring revenue from a contractual settlement with a utility, relating to a cogeneration facility Thermo Ecotek had planned to develop and construct on Staten Island, New York. From various dates in 1998 onward, no further rate increases will occur at Thermo Ecotek's four energy facilities in California. In addition, as noted below, the periods during which Thermo Ecotek receives fixed rates for power at these facilities ends in 1999 or 2000. The change from fixed rates to avoided cost rates under the terms of the contracts, as discussed below, will have a significant adverse effect on Thermo Ecotek's revenues and profitability. Revenues from Thermo Ecotek's Thermo Trilogy biopesticide subsidiary increased to $31.3 million in 1998 from $21.4 million in 1997, primarily due to the inclusion of revenues from an acquired business. Sales at Thermo Power increased to $281.4 million in 1998 from $155.8 million in 1997, due to the inclusion of $131.8 million of revenues from acquired businesses, primarily Peek plc, acquired in November 1997. This increase was offset in part by a decrease in revenues at Thermo Power's Crusader engines division, which was sold in December 1998. Sales at Crusader totaled $23.0 million in 1998, with approximate breakeven segment income. Revenues at Thermo TerraTech increased to $305.5 million in 1998 from $295.5 million in 1997. Revenues from Thermo TerraTech's thermal-processing equipment business, sold in October 1997, were $25.3 million in 1997. Revenues from Thermo TerraTech's environmental-liability management services increased to $156.7 million in 1998 from $136.5 million in 1997, primarily due to higher demand at certain business units and, to a lesser extent, the inclusion of $17.5 million of sales from acquired businesses. These increases were offset in part by a $16.6 million decrease in revenues at one of ThermoRetec's business units resulting from a decline in the number of contracts in process. Revenues from Thermo TerraTech's engineering and design services increased $14.3 million in 1998 due to the inclusion of $7.4 million of revenues from an acquired business and an increase in construction and labor management services. 44 1998 Compared With 1997 (continued) Segment income, excluding restructuring and other nonrecurring costs of $11.2 million in 1998 and nonrecurring income of $1.9 million in 1997, was $75.7 million in 1998, compared with $77.3 million in 1997. Thermo Ecotek's segment income was $44.5 million in 1998, compared with $50.4 million in 1997. The decrease resulted primarily from the inclusion in 1997 of $8.2 million of segment income from the contractual settlement with a utility. In addition, Thermo Ecotek's coal-beneficiation facility in Gillette, Wyoming, began operations in April 1998. This facility reported operating losses in 1998 and Thermo Ecotek expects that it will continue to do so in the future. The economics of this facility arise primarily from tax benefits associated with its production. In 1998, the facility's losses included the effect of certain operational issues described below. The decrease in segment income at Thermo Ecotek was offset in part by higher contractual energy rates at certain facilities, nonrecurring income of $1.9 million described above, the inclusion of results of the newly acquired Czech Republic power operations, and improved profitability at Thermo Trilogy. Segment income at Thermo Power, excluding restructuring and other nonrecurring costs of $1.0 million in 1998, improved to $17.4 million in 1998 from $7.5 million in 1997, primarily due to contributions from Peek. Segment income at Thermo TerraTech, excluding restructuring and other nonrecurring costs of $10.2 million in 1998 and $7.8 million in 1997, was $14.4 million in 1998, compared with $18.2 million in 1997. Segment income declined in 1998 due to a loss incurred at one of ThermoRetec's business units as a result of losses on certain remedial-construction contracts and a decline in the number of contracts in process. In addition, the 1997 period included segment income of $1.8 million from Thermo TerraTech's thermal-processing equipment business, which was sold in October 1997. These decreases in segment income were offset in part by higher segment income from other business units within Thermo TerraTech, principally due to higher revenues. Restructuring and other nonrecurring costs of $10.2 million in 1998 and $7.8 million in 1997 were recorded by Thermo TerraTech, principally to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in ThermoRetec's soil-remediation business. This resulted in the closure of two soil-remediation sites during 1997 and two additional sites in 1998. The 1998 charge also included $1.0 million for abandoned-facility payments at Thermo TerraTech relating to the consolidation of facilities. The 1997 charge also included a write down of ThermoRetec's investment in certain other soil-recycling sites in response to reduced cash flows, which indicated that the investment in these assets would not be recovered. Restructuring and other nonrecurring costs of $1.0 million were recorded by Thermo Power in 1998 relating to a loss on discontinuance and subsequent sale of its engines business. During 1997, the Company settled two legal cases in which it was a defendant, concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, in 1997, the Company reversed $9.7 million of reserves previously established for these matters, which is included in restructuring and other nonrecurring costs, net (Note 11). The power-sales agreements for Thermo Ecotek's Woodland, Mendota, and Delano plants in California are so-called standard offer #4 (SO#4) contracts, which require Pacific Gas & Electric (PG&E), in the case of Woodland and Mendota, and Southern California Edison (SCE), in the case of Delano I and Delano II, to purchase the power output of the projects at fixed rates until 2000. However, with respect to Woodland and Mendota, PG&E has asserted that the fixed rates under its agreements will terminate mid-1999, although Thermo Ecotek disputes this assertion. Thereafter, the utility will pay a rate based upon the costs that would have otherwise been incurred by the purchasing utilities in generating their own electricity or in purchasing it from other sources (avoided cost). At present, the avoided cost is substantially lower than the payments currently being made by PG&E and SCE to Thermo Ecotek under the fixed-rate portions of its contracts. In addition, although it is difficult to predict future levels of avoided cost, based on current estimates, avoided cost is expected to be substantially lower in 2000 than the rates currently being paid by PG&E and SCE under its fixed-rate contracts. Thermo Ecotek expects, that at current avoided cost rates, absent sufficient reductions in fuel prices and other operating costs, Thermo Ecotek's Mendota and Delano plants will operate 45 1998 Compared With 1997 (continued) at substantially reduced operating income levels or at a loss beginning in 2000. In 1998, the Mendota and Delano plants' aggregate operating income was approximately $41.7 million. Further, if the Woodland plant were to operate at projected avoided cost levels, substantial losses would result, primarily due to nonrecourse lease obligations that extend beyond 2000. Absent sufficient reductions in fuel prices and other operating costs, under such circumstances Thermo Ecotek would draw down power reserve funds to cover operating cash shortfalls and then, should such funds be depleted, either renegotiate its nonrecourse lease for the Woodland plant or forfeit its interest in the plant. The results of the Woodland facility were approximately breakeven in 1998 and 1997, as a result of recording as an expense the funding of reserves required under Woodland's nonrecourse lease agreement to cover proposed shortfalls in lease payments. If PG&E ultimately prevails in its assertion that its obligation to pay fixed rates ends in mid-1999, and if Thermo Ecotek is unsuccessful in renegotiating the terms of its lease or its power purchase agreement with PG&E, Thermo Ecotek's investment in its Woodland operating assets could be impaired by approximately $3 to $5 million, based on projected cash flows. This impairment and the operating losses that would arise in 1999 and thereafter if the Woodland facility's operating costs exceeded its revenues would have a material adverse effect on Thermo Ecotek's future results of operations. Two of Thermo Ecotek's plants are located in New Hampshire and have rate orders from the New Hampshire Public Utilities Commission (NHPUC) to sell all of their power to Public Service Company of New Hampshire (PSNH). The assets of PSNH were acquired in 1990 by Northeast Utilities (NU) in connection with PSNH's federal bankruptcy reorganization plan. Thereafter, PSNH sought to renegotiate some of the terms of certain rate orders with small power producers, including the plants that Thermo Ecotek operates in New Hampshire. PSNH reached an agreement in principle with Thermo Ecotek's plants to settle the renegotiation of their rate orders. The settlement agreement is subject to the approval of the NHPUC. In January 1997, NU publicly announced 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, NHPUC voted to adopt a deregulation plan, and in March 1997, PSNH filed suit to block the plan. The federal district court issued a restraining order which prohibits the NHPUC from implementing the deregulation plan as it affects PSNH pending the outcome of the suit. In May 1998, NHPUC issued a written ruling rejecting the settlement agreements and modifications that would impact PSNH's ability to finance and secure the settlement agreement. No assurances may be made as to the outcome of this matter. An unfavorable resolution of this matter, including the bankruptcy of PSNH, could have a material adverse effect on Thermo Ecotek's results of operations and financial position. As discussed above, Thermo Ecotek began reporting the results of operations of its coal-beneficiation facility, located near Gillette, Wyoming, in April 1998. Although the facility has operated and produced commercially salable product, Thermo Ecotek has encountered certain difficulties in optimizing its performance to achieve optimal and sustained operation. Thermo Ecotek has addressed and resolved certain problems previously encountered, however, it continues to experience other operational problems. Thermo Ecotek is actively exploring solutions to these problems. Because the technology being developed is new and untested, no assurance can be given that other difficulties will not arise or that Thermo Ecotek will be able to correct these problems and achieve optimal and sustained performance. Recycling and Resource Recovery Sales in the Recycling and Resource Recovery segment increased to $299.4 million in 1998 from $293.2 million in 1997. Sales from Thermo Fibertek increased to $247.4 million in 1998 from $239.6 million in 1997, primarily due to an increase in revenues of $14.0 million from Thermo Black Clawson, acquired in May 1997. An increase in revenues from Thermo Black Clawson due to the inclusion of revenues for the full twelve-month period in 1998 was offset in part by a decrease in its revenues due to lower demand in Asia, Europe, and North America, and a decrease in revenues from Thermo Fibertek's accessories and water-management product lines. The unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $2.4 million in 1998. In February 1999, Thermo Fibertek sold its Thermo Wisconsin, Inc. subsidiary for approximately $13.0 million in cash. Thermo Wisconsin's revenues and 46 1998 Compared With 1997 (continued) segment income in 1998 totaled approximately $18.9 million and $2.7 million, respectively. In addition, a decrease in sales of automated electroplating equipment at Napco was offset in part by higher revenues from sales of turbine generators at Peter Brotherhood Ltd. Segment income, excluding restructuring costs of $2.5 million in 1997, improved to $33.5 million in 1998 from $31.6 million in 1997. This increase resulted primarily from improvements at Thermo Fibertek, and lower costs in 1998 associated with a dispute concerning an office wastepaper de-inking facility completed in 1996. These improvements were offset in part by a decrease in segment income at Napco due to lower sales. Thermo Fibertek recorded restructuring and other nonrecurring costs of $1.1 million in 1997 relating to the consolidation of two of its subsidiaries into the operations of Thermo Black Clawson. Peter Brotherhood recorded a charge of $1.4 million in 1997 related primarily to severance for employees terminated. Gain on Issuance of Stock by Subsidiaries As a result of the sale of stock by subsidiaries and the issuance of stock by subsidiaries upon conversion of convertible debentures, the Company recorded gains of $51.8 million in 1998 and $80.1 million in 1997. See Notes 1 and 9 of Notes to Consolidated Financial Statements for a more complete description of these transactions. Minority interest expense decreased to $44.0 million in 1998 from $74.4 million in 1997. Minority interest expense includes $13.9 million in 1998 and $19.0 million in 1997 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. Minority interest expense decreased primarily as a result of lower income at the Company's majority-owned subsidiaries. Income Taxes Excluding nontaxable gains from issuance of subsidiary stock and, in 1998, the effect of a write-off of $6.9 million of tax assets, the Company's effective tax rates were 48% and 43% in 1998 and 1997, respectively. The tax assets written off were at ThermoLase and consisted primarily of tax loss carryforwards (Note 8). The effective tax rate increased in 1998 primarily as a result of a valuation allowance established at ThermoLase for net operating loss carryforwards due to increased uncertainty surrounding their realization. The effective tax rate also increased due to the larger relative effect of nondeductible expenses, including amortization and the write off of cost in excess of net assets of acquired companies, due to lower income. In 1998, the effective tax rate exceeded the statutory federal income tax rate primarily due to the valuation allowance established for ThermoLase tax loss carryforwards, nondeductible expenses, and state income taxes. In 1997, the effective tax rate exceeded the statutory federal tax rate primarily due to nondeductible expenses and state income taxes. Contingent Liabilities At year-end 1998, the Company was contingently liable with respect to certain lawsuits (Note 6). In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 1997 Compared With 1996 Sales in 1997 were $3,558.3 million, an increase of $625.8 million, or 21%, over 1996. Segment income, excluding restructuring and other nonrecurring costs, net, of $1.3 million in 1997 and $37.6 million in 1996, described below, increased to $438.3 million in 1997 from $312.9 million in 1996. Operating income, which includes restructuring and other nonrecurring costs, net, increased to $405.8 million in 1997 from $246.5 million in 1996. 47 1997 Compared With 1996 (continued) Measurement and Detection Sales from the Measurement and Detection segment were $1,820.0 million in 1997, an increase of $397.5 million, or 28%, over 1996. Sales increased primarily due to acquisitions, which added $417 million of sales in 1997. In addition, revenues from Thermo Instrument's analytical products increased in 1997 due to higher sales at ThermoQuest's existing mass spectrometry business, due in part to the continued success of a new product introduced in the first quarter of 1996, offset in part by a decrease at Thermo Optek. Revenues from Thermo Optek's existing businesses decreased slightly due to the inclusion in 1996 of several large nonrecurring sales to the Chinese and Japanese governments, a decrease in demand for elemental products in Japan, and the elimination of certain unprofitable acquired product lines, offset substantially by greater demand at one of its business units. Revenues from Thermo Instrument's process control products increased as a result of improvements at ONIX Systems, primarily due to increased sales of industry-specific instruments to the production segment of the oil and gas industry, and at Metrika Systems, primarily due to increased sales in international markets at its on-line raw-materials analyzer business. Revenues increased $9.8 million at Thermedics Detection primarily due to the completion in 1997 of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base, which contributed $6.6 million of revenues. In addition, Thermedics Detection's sales increased due to $3.2 million of revenues from EGIS security systems sold to the FAA. Revenues decreased at Thermo Voltek due to lower demand for electrostatic compatibility test products, resulting from the declining influence of IEC 801, the European Union directive on electromagnetic compatibility that took effect on January 1, 1996. The unfavorable effects of currency translation decreased revenues by $49.5 million in 1997. Segment income margin, excluding nonrecurring income, net, of $1.3 million in 1997 and nonrecurring costs of $3.5 million in 1996, improved to 14.5% in 1997 from 11.6% in 1996. The improvement was primarily due to operating margin improvement at certain of the Fisons businesses acquired in 1996 and increased sales of ThermoQuest's higher-margin mass spectrometry products. In addition, segment income margin improved at Thermedics Detection due to higher sales in 1997 and the inclusion of higher costs in 1996 for inventory obsolescence and other adjustments. The improvement in segment income margin was offset by the inclusion of lower-margin revenues at certain acquired businesses, including Life Sciences, which recorded an adjustment to expense of $3.6 million relating to the sale of inventories revalued at the date of acquisition and, to a lesser extent, a decrease in segment income margin at ThermoSpectra, primarily as a result of an inventory write-off and a change in sales mix at one of its business units. The 1996 period included a charge of $2.0 million relating to the sale of inventories revalued at the date of the acquisition of the Fisons businesses. In addition, Thermo Voltek had lower profitability in 1997. Nonrecurring income of $1.3 million in 1997 represents a $2.2 million gain on the sale of a business by ThermoSpectra, offset in part by $0.9 million of severance costs for employees terminated during 1997 at one of ThermoSpectra's business units. During 1996, the Company recorded nonrecurring costs of $3.5 million, which represented the write-off of acquired technology relating to the acquisition of the Fisons businesses (Note 11). Biomedical and Emerging Technologies Sales from the Biomedical and Emerging Technologies segment were $812.8 million in 1997, an increase of $165.5 million, or 26%, over 1996. Sales increased due to the inclusion of $76.2 million in sales from acquired businesses, increased demand at Trex Medical and Bird Medical, and growth at ThermoLase's hair-removal business due to the opening of new spas and higher revenues from physician- and international-licensing arrangements. Sales at Thermo Coleman were $156.2 million in 1997, compared with $144.2 million in 1996. This increase resulted primarily from its Thermo Information Solutions subsidiary's contract to supply kiosk units and, to a lesser extent, higher integrated document management revenues, offset in part by a decrease in revenues from government contracts. Sales of kiosk units increased to $16.5 million in 1997 from $1.4 million in 1996. These increases in revenues were offset in part by a $4.7 million decline in sales of Thermo Cardiosystems' left ventricular-assist systems (LVAS), which Thermo Cardiosystems believes resulted from delayed orders as customers awaited approval from the U.S. Food and Drug Administration (FDA) for commercial sale of its advanced electric LVAS as a bridge to transplant. 48 1997 Compared With 1996 (continued) Segment income, excluding restructuring and other nonrecurring costs of $1.9 million in 1997 and $29.7 million in 1996, increased to $65.1 million in 1997 from $56.3 million in 1996. This increase resulted substantially from improvements at existing businesses, primarily at Bird Medical, SensorMedics, and Trex Medical's existing businesses and, to a lesser extent, the inclusion of segment income from acquired businesses. In addition, ThermoTrex's advanced-technology research center incurred a loss in 1996 due to cost overruns and higher expenses for new lines of business. This increase in segment income was offset in part by an increase in segment loss at ThermoLase to $18.4 million in 1997 from $7.6 million in 1996, due to the operations of its spa services business, which operated below maximum capacity, and by pre-opening costs incurred in connection with new spa openings. Thermo Cardiosystems' profitability declined by $4.7 million primarily due to a decrease in LVAS revenues and Thermo Coleman had lower profits primarily due to a loss at Thermo Information Solutions compared with profitable operations in 1996. Restructuring and other nonrecurring costs in 1997 included $1.4 million at Trex Communications for a write-off of in-process technology relating to an acquisition and $0.5 million at certain of the Company's wholly owned businesses to close certain foreign sales offices. 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 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, $4.9 million for Thermo Cardiosystems' write-off of in-process technology relating to an acquisition, and $0.7 million of other costs (Note 11). Energy and Environment Sales from the Energy and Environment segment were $640.8 million in 1997, compared with $555.7 million in 1996. Within this segment, revenues from Thermo Ecotek increased to $189.5 million in 1997 from $154.3 million in 1996. Revenues from Thermo Ecotek's Thermo Trilogy biopesticide subsidiary increased $18.7 million to $21.4 million, primarily due to the inclusion of revenue from two acquired businesses. Thermo Ecotek's revenues in 1997 included $8.2 million of nonrecurring revenue from a contractual settlement with a utility, under which Thermo Ecotek surrendered its rights to a power-sales agreement. In addition, higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire, contributed to higher revenues in 1997. Revenues in 1996 from the Company's wholly owned waste-recycling facility in southern California, which was sold in July 1996, were $9.2 million. Sales from Thermo Power increased to $155.8 million in 1997 from $122.1 million in 1996, primarily due to $38.8 million of sales from Peek, acquired in November 1997, as well as higher engine sales due to a $3.6 million nonrecurring order from one customer, offset in part by lower demand for Thermo Power's remaining product lines. Revenues at Thermo TerraTech increased to $295.5 million in 1997 from $270.3 million in 1996. Revenues from Thermo TerraTech's environmental-liability management services increased to $136.5 million in 1997 from $121.2 million in 1996, primarily due to the inclusion of $22.9 million of sales from acquired businesses, offset in part by a $6.4 million decrease in revenues at one of ThermoRetec's business units resulting from a decline in the number of contracts in process. In addition, revenues from ThermoRetec's soil-remediation services decreased 18% to $18.5 million, resulting from lower volumes of soil processed due to overcapacity in the industry and, to a lesser extent, competitive pricing pressures early in the year. Revenues from engineering and design services increased $5.7 million due to the inclusion of $12.8 million from acquired businesses, offset in part by a decrease in revenues due to the completion of two large contracts. Revenues from Thermo TerraTech's thermal-processing equipment business were $25.3 million in 1997 and $25.5 million in 1996. This business was sold in October 1997 for a nominal loss. Segment income, excluding nonrecurring income, net, of $1.9 million in 1997, was $77.3 million in 1997, compared with $58.7 million in 1996. Thermo Ecotek's segment income was $50.4 million in 1997, compared with $39.3 million in 1996. The increase primarily resulted from $8.2 million of segment income from the contractual settlement with a utility and, to a lesser extent, higher contractual energy rates. These increases were offset in part by a decrease in Thermo Ecotek's segment income of $4.6 million in 1997 as a result of the funding of certain reserves required in connection with a nonrecourse lease agreement for its Woodland, California plant. The Woodland plant's results were approximately breakeven in 1997. Segment income in 1996 from the Company's waste-recycling facility, which was sold in July 1996, was $4.6 million. Results from this facility, net of related interest expense (not included 49 1997 Compared With 1996 (continued) in segment income), were approximately breakeven in 1996. Segment income at Thermo Power improved to $7.5 million from $1.1 million in 1996, primarily due to contributions from Peek and, to a lesser extent, improved segment income at its engines and industrial refrigeration businesses, due to increased engine revenues, lower warranty costs in both businesses, as well as lower overhead as a result of consolidating two engine manufacturing facilities. Segment income at Thermo TerraTech, excluding restructuring costs of $7.8 million in 1997, increased to $18.2 million in 1997 from $13.7 million in 1996. Segment income improved in 1997 due to the effect in 1996 of costs incurred at Thermo TerraTech to reduce redundancies at regional laboratories, and 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. The effect of these improvements was offset in part by a decline in segment income from soil-remediation services due to lower sales as discussed above and lower segment income from engineering and design services due to the completion of two large contracts. Restructuring and other nonrecurring income, net, of $1.9 million, consisted of $9.7 million of previously established litigation reserves that were reversed upon settlement of a related matter and $7.8 million at ThermoRetec principally to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in its soil-remediation business. This resulted in the closure of two soil-remediation sites during 1997 and reduced cash flows at certain other sites, such that analysis indicated that the investment in these assets would not be recovered (Note 11). Recycling and Resource Recovery Sales in the Recycling and Resource Recovery segment were $293.2 million in 1997, compared with $315.2 million in 1996. A wholly owned subsidiary of the Company recorded $58.0 million of revenues in 1996 from a contract to design and construct an office wastepaper de-inking facility. This contract was substantially completed in the second quarter of 1996. Sales from Thermo Fibertek increased 25% to $239.6 million in 1997 from $192.2 million in 1996, primarily due to revenues of $52.7 million from acquired businesses, principally Thermo Black Clawson, which was acquired in May 1997. Increases in revenues from Thermo Fibertek's accessories, water-management, and other businesses were substantially offset by an $11.3 million decrease in revenues at its recycling business due to a continuing decrease in demand resulting from a severe drop in de-inked pulp prices in 1996. In addition, the unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $6.3 million in 1997. Sales of automated electroplating equipment by Napco increased $3.4 million to $14.0 million, primarily due to higher demand. Sales at Peter Brotherhood declined to $39.6 million in 1997 from $54.4 million in 1996, primarily due to the disposal of certain business units, which resulted in a $14.2 million decrease in revenues. The business units were sold for a nominal loss. Segment income, excluding restructuring and other nonrecurring costs of $2.5 million in 1997 and $4.4 million in 1996, was $31.6 million in 1997, compared with $32.2 million in 1996. This decline primarily resulted from lower sales at Thermo Fibertek's recycling business. In addition, the Company recorded a segment loss in 1997 on the contract to design and construct the office wastepaper de-inking facility due to a reserve established in 1997 for disputed contractual items relating to this facility. Excluding restructuring and other nonrecurring costs of $1.4 million in 1997 and $4.4 million in 1996, Peter Brotherhood was profitable in 1997, compared with a segment loss of $2.5 million in 1996. Thermo Fibertek recorded restructuring and other nonrecurring costs of $1.1 million in 1997 relating to the consolidation of the operations of two of its subsidiaries into the operations of Thermo Black Clawson. Peter Brotherhood recorded $1.4 million of restructuring costs in 1997, primarily for severance. In 1996, Peter Brotherhood incurred $4.4 million of nonrecurring costs related primarily to the write-off of a nontrade receivable and severance costs (Note 11). 50 1997 Compared With 1996 (continued) Gain on Issuance of Stock by Subsidiaries As a result of the sale of stock by subsidiaries and issuance of stock by subsidiaries upon conversion of convertible debentures, the Company recorded gains of $80.1 million in 1997 and $126.6 million in 1996. See Notes 1 and 9 of Notes to Consolidated Financial Statements for a more complete description of these transactions. Minority interest expense increased to $74.4 million in 1997 from $72.9 million in 1996. Minority interest expense includes $19.0 million in 1997 and $38.2 million in 1996 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. Income Taxes Excluding nontaxable gains from issuance of subsidiary stock, the Company's effective tax rates were 43% and 45% in 1997 and 1996, respectively. The effective tax rate decreased in 1997 primarily as a result of the lower relative effect of higher foreign tax rates and tax law differentials and the lower relative effect of amortization of cost in excess of net assets of acquired companies. In both periods, the effective tax rates exceed the statutory federal income tax rate primarily due to nondeductible expenses and state income taxes. Liquidity and Capital Resources Consolidated working capital was $2,163.0 million at January 2, 1999, compared with $2,002.0 million at January 3, 1998. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,547.3 million at January 2, 1999, compared with $1,522.7 million at January 3, 1998. In addition, the Company had $95.5 million of long-term available-for-sale investments at January 2, 1999, compared with $63.3 million at January 3, 1998. Of the total $1,642.8 million of cash, cash equivalents, and short- and long-term available-for-sale investments at January 2, 1999, $1,243.9 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. Cash provided by operating activities was $328.5 million during 1998. An increase in accounts receivable used $10.9 million of cash, primarily at Thermo Power due to slower payment patterns at its Peek subsidiary. Cash of $14.0 million was used to fund an increase in inventories, principally at Trex Medical due to lower than anticipated sales. The increase in inventories at Trex Medical was offset in part by a decrease at Thermo Instrument. An increase in other current assets used $28.4 million of cash, primarily due to an increase in prepaid income taxes and, to a lesser extent, an increase in unbilled contract costs and fees as result of the timing of billings on percentage-of-completion contracts. In addition, the Company used $13.7 million of cash to fund a decrease in accounts payable, resulting principally from the timing of payments. These reductions in cash provided by operating activities were offset in part by a $17.7 million increase in other current liabilities, which was principally due to reserves established for restructuring costs in 1998. During 1998, the Company's primary investing activities, excluding available-for-sale investments activity, included acquisitions and the purchase of property, plant, and equipment. The Company expended $253.2 million, net of cash acquired, for acquisitions and expended $148.0 million for purchases of property, plant, and equipment. The Company's financing activities provided $102.2 million of cash during 1998. Net proceeds from the issuance of long-term obligations totaled $394.1 million (Note 5). Net proceeds from the issuance of Company and subsidiary stock, which includes $290.1 million of proceeds from the April 1998 sale of Company common stock (Note 7), totaled $476.1 million. In addition, the Company used $75.8 million of cash for the repayment of long-term obligations and $27.9 million of cash to fund a decrease in short-term notes payable. During 1998, an aggregate principal amount of $18.9 million of subsidiary convertible obligations were converted into shares of subsidiary common stock. 51 Liquidity and Capital Resources (continued) During 1998, the Company expended $148.1 million to purchase shares of its common stock and the Company and certain of its majority-owned subsidiaries expended $510.9 million to purchase shares of common stock and debentures of certain of the Company's majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company's and certain majority-owned subsidiaries' Boards of Directors. As of January 2, 1999, $127.3 million remained under the Company's authorization and $44.5 million and 126,000 shares remained under authorizations of the Company's majority-owned subsidiaries. Subsequent to January 2, 1999, certain majority-owned subsidiaries received additional authorizations totaling $15.0 million. In addition to these authorizations, Thermedics entered into a merger agreement with its Thermo Voltek subsidiary to acquire all of the outstanding shares of Thermo Voltek's common stock that Thermedics and the Company do not own, including the assumption of Thermo Voltek's $5.3 million principal amount of 3 3/4% subordinated convertible debentures due 2000, for a total transaction cost estimated to be approximately $25 million. The Company may also expend additional amounts to complete its reorganization plans (Note 17). The Company has no material commitments for purchases of property, plant, and equipment and expects that for 1999, such expenditures will approximate the current level of expenditures. Since January 2, 1999, the Company and its majority-owned subsidiaries have expended approximately $377 million on acquisitions of businesses and as of March 18, 1999, the Company's majority-owned subsidiaries had agreements or nonbinding letters of intent to acquire new businesses totaling approximately $15 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. Market Risk The Company is exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Additionally, the Company uses short-term forward contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The Company does not engage in extensive foreign currency hedging activities; however, the purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The Company's forward foreign exchange contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, French francs, and Japanese yen. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company does not enter into speculative foreign currency agreements. 52 Market Risk (continued) Interest Rates Certain of the Company's short- and long-term available-for-sale investments, long-term obligations, and interest rate swap agreements are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase or issuance of the financial instrument. A 10% decrease in year-end 1998 market interest rates would result in a negative impact to the Company of $158 million on the net fair value of its interest-sensitive financial instruments. Foreign Currency Exchange Rates The Company generally views its investment in foreign subsidiaries with a functional currency other than the Company's reporting currency as long-term. The Company's investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of the Company's foreign subsidiaries are principally denominated in British pounds sterling, French francs, and German marks. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is reflected in the "Accumulated other comprehensive items" component of shareholders' investment. A 10% depreciation in year-end 1998 functional currencies, relative to the U.S. dollar, would result in an $82 million reduction of shareholders' investment. The fair value of forward foreign exchange contracts is sensitive to changes in foreign currency exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign currency exchange rates. A 10% depreciation in year-end 1998 foreign currency exchange rates related to the Company's contracts would result in a increase in the unrealized loss on forward foreign exchange contracts of $3 million. Since the Company uses forward foreign exchange contracts as hedges of firm purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts resulting from changes in foreign currency exchange rates would be offset by a corresponding change in the fair value of the hedged item. Certain of the Company's cash and cash equivalents are denominated in currencies other than the functional currency of the depositor and are sensitive to changes in foreign currency exchange rates. A 10% depreciation in the related foreign currency exchange rates would result in a negative impact of $2 million on the Company's net income. Equity Prices The Company's available-for-sale investment portfolio includes equity securities that are sensitive to fluctuations in price. In addition, the Company's and its subsidiaries' convertible obligations are sensitive to fluctuations in the price of Company or subsidiary common stock into which the obligations are convertible. Changes in equity prices would result in changes in the fair value of the Company's available-for-sale investments and convertible obligations due to the difference between the current market price and the market price at the date of purchase or issuance of the financial instrument. A 10% increase in the year-end 1998 market equity prices would result in a negative impact to the Company of $53 million on the net fair value of its price-sensitive equity financial instruments, principally its convertible obligations. The Company's common stock of subsidiaries subject to redemption is sensitive to fluctuations in the price of the underlying redeemable common stock. The holder of a redemption right may require the Company to redeem one share of common stock at a special price per share at various dates through September 2001. If the underlying common stock is trading on the open market at a price that is less than the redemption price on the redemption date, then the holders of redemption rights would more likely than not exercise their redemption rights. In the event all redemption rights are exercised, the Company may use up to $95 million in cash to settle redemption obligations. In addition, changes in equity prices would result in changes in the fair value of common stock of subsidiaries subject to redemption due to the difference between the current market price and the price at the date of issuance of the underlying financial instruments, subsidiary common stock and redemption rights. Since the market price of redemption rights generally fluctuates in the opposite direction of fluctuations in the market price of the redeemable common stock, the effect of a 10% increase in the market price of the redeemable common stock on the fair value of common stock of subsidiaries subject to redemption would be negated in part by a decrease in the market price of redemption rights. 53 Year 2000 The following constitutes a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act. The Company continues to assess the potential impact of the year 2000 on the Company's internal business systems, products, and operations. The Company's year 2000 initiatives include (i) testing and upgrading significant information technology systems and facilities; (ii) testing and developing upgrades, if necessary, for the Company's current products and certain discontinued products; (iii) contacting key suppliers and vendors to determine their year 2000 compliance status; and (iv) developing contingency plans. The Company's State of Readiness The Company has implemented a compliance program to ensure that its critical information technology systems and facilities will be ready for the year 2000. The first phase of the program, testing and evaluating the Company's critical information technology systems and facilities for year 2000 compliance, has largely been completed. During phase one, the Company tested and evaluated its significant computer systems, software applications, and related equipment for year 2000 compliance. The Company also evaluated the potential year 2000 impact on its critical facilities. The Company is currently in phase two of its program, during which any noncompliant systems or facilities that were identified during phase one are prioritized and remediated. The Company is currently upgrading or replacing such noncompliant information technology systems, and the majority of this process was complete as of January 2, 1999. The Company expects that all of its material information technology systems and critical facilities will be year 2000 compliant by the end of October 1999. The Company has also implemented a compliance program to test and evaluate the year 2000 readiness of the material products that it currently manufactures and sells. The Company believes that all of such material products are year 2000 compliant. However, as many of the Company's products are complex, interact with or incorporate third-party products, and operate on computer systems that are not under the Company's control, there can be no assurance that the Company has identified all of the year 2000 problems with its current products. The Company believes that certain of its older products, which it no longer manufactures or sells, may not be year 2000 compliant. The Company is continuing to test and/or evaluate such products. The Company is focusing its efforts on products that are still under warranty, early in their expected life, subject to FDA considerations related to the year 2000, and/or pose a safety risk. The Company is offering upgrades and/or identifying potential solutions where reasonably practicable. The Company is in the process of identifying and assessing the year 2000 readiness of key suppliers and vendors that are believed to be significant to the Company's business operations. As part of this effort, the Company has developed and is distributing questionnaires relating to year 2000 compliance to its significant suppliers and vendors. The Company has begun to follow-up and monitor the year 2000 compliance progress of significant suppliers and vendors that indicate that they are not year 2000 compliant or that do not respond to the Company's questionnaires. The Company has not completed the majority of its assessment of third-party risk, but expects to be substantially completed by October 1999. Contingency Plans The Company is developing contingency plans that will allow its primary business operations to continue despite disruptions due to year 2000 problems. These plans may include identifying and securing other suppliers, increasing inventories, and modifying production facilities and schedules. As the Company continues to evaluate the year 2000 readiness of its business systems, facilities, products, and significant suppliers and vendors, it will modify and adjust its contingency plans as may be required. Estimated Costs to Address the Company's Year 2000 Issues The Company had incurred expenses to third parties (external costs) related to year 2000 issues of approximately $6 million as of January 2, 1999, and the total external costs of year 2000 remediation are expected to be approximately $13 million. Year 2000 costs are funded from working capital. All internal costs and related external 54 Year 2000 (continued) costs other than capital additions related to Year 2000 remediation have been and will continue to be expensed as incurred. The Company does not track the internal costs incurred for its year 2000 compliance project. Such costs are principally the related payroll costs for its information systems group. Risks of the Company's Year 2000 Issues While the Company is attempting to minimize any negative consequences arising from the year 2000 issue, there can be no assurance that year 2000 problems will not have a material adverse impact on the Company's business, operations, or financial condition. While the Company expects that upgrades to its internal business systems will be completed in a timely fashion, there can be no assurance that the Company will not encounter unexpected costs or delays. Despite its efforts to ensure that its material current products are year 2000 compliant, the Company may see an increase in warranty and other claims, especially those related to Company products that incorporate, or operate using, third-party software or hardware. In addition, certain of the Company's older products, which it no longer manufactures or sells, may not be year 2000 compliant, which may expose the Company to claims. If any of the Company's significant suppliers or vendors experience business disruptions due to year 2000 issues, there may also be a material adverse effect on the Company. There is expected to be a significant amount of litigation relating to the year 2000 issue and there can be no assurance that the Company will not incur material costs in defending or bringing lawsuits. In addition, if any year 2000 issues are identified, there can be no assurance that the Company will be able to retain qualified personnel to remedy such issues. Any unexpected costs or delays arising from the year 2000 issue could have a significant adverse impact on the Company's business, operations, and financial condition in amounts that cannot be reasonably estimated at this time. 55 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 1999 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 principal 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 recently acquired by the Company have had low levels of profitability. In addition, businesses that the Company may seek to acquire in the future may also be marginally profitable or unprofitable. In order for any acquired businesses to achieve the level of profitability desired by the Company, the Company must successfully change operations and improve market penetration. No assurance can be given that the Company will be successful in this regard. In addition, promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices in many countries. Acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete pending or future acquisitions or that the Company will be able to successfully integrate any acquired businesses into its existing business or make such businesses profitable. In order to finance any such acquisitions, it may be necessary for the Company to raise additional funds either through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and may result in dilution to the Company's shareholders. Risks Associated With Spinout of Subsidiaries. The Company adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures." In February 1999, the FASB issued a revision of the earlier document entitled "Consolidated Financial Statements: Purpose and Policy." The October 1995 exposure draft proposed new rules for how consolidated financial statements should be prepared. Under that proposed statement, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for in equity of the consolidated entity with no gain or loss being recorded. The 1995 exposure draft addressed rule changes concerning consolidation procedures which would affect the Company's ability to record gains on issuance of subsidiary stock and consolidation policy which does not affect the accounting for such gains. The February 1999 revised exposure draft addresses only consolidation policy. The FASB has indicated that it will consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and contents of any final statement on consolidation procedures are uncertain. 56 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 revenues 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. A portion of the Company's revenues is derived from exports to Asia. Certain countries in Asia are experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency-exchange and interest rates, and unstable stock markets. The Company's export sales to Asia may continue to be adversely affected by the unstable economic conditions there, which may continue to adversely affect the Company's results of operations, financial condition, or business. 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. 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. 57 Government Regulation; No Assurance of Regulatory Approvals. Certain of the Company's products are subject to pre-marketing clearance or approval by the U.S. Food and Drug Administration (FDA) and similar agencies in foreign countries. The use or sale of certain of the Company's products under development may require approvals by other government agencies. The process of obtaining clearance and approval from the FDA and other government agencies is time-consuming and expensive. Furthermore, there can be no assurance that the necessary clearances or approvals for the Company's products, services, and products and services under development will be obtained on a timely basis, if at all. FDA regulations also require continuing compliance with specific standards in conjunction with the maintenance and marketing of products and services that have been approved or cleared. Failure to comply with applicable regulatory requirements can result in, among other things, civil and criminal penalties, suspension of approvals, recalls, or seizures of products, injunctions, and criminal prosecutions. Risks Associated With Dependence on Capital Spending Policies and Government Funding. The Company's customers include manufacturers of semiconductors and products incorporating semiconductors, 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, including fluctuating demand in the semiconductor industry. 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. Proceedings initiated by the Company to protect its proprietary rights could result in substantial cost to the Company. 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 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. 58 Potential Impact of Year 2000 on Processing of Date-sensitive Information. While the Company is attempting to minimize any negative consequences arising from the year 2000 issue, there can be no assurance that year 2000 problems will not have a material adverse impact on the Company's business, operations, or financial condition. While the Company expects that upgrades to its internal business systems will be completed in a timely fashion, there can be no assurance that the Company will not encounter unexpected costs or delays. Despite its efforts to ensure that its material current products are year 2000 compliant, the Company may see an increase in warranty and other claims, especially those related to Company products that incorporate, or operate using, third-party software or hardware. In addition, certain of the Company's older products, which it no longer manufactures or sells, may not be year 2000 compliant, which may expose the Company to claims. If any of the Company's significant suppliers or vendors experience business disruptions due to year 2000 issues, there may also be a material adverse effect on the Company. There is expected to be a significant amount of litigation relating to the year 2000 issue and there can be no assurance that the Company will not incur material costs in defending or bringing lawsuits. In addition, if any year 2000 issues are identified, there can be no assurance that the Company will be able to retain qualified personnel to remedy such issues. Any unexpected costs or delays arising from the year 2000 issue could have a significant adverse impact on the Company's business, operations, and financial condition in amounts that cannot be reasonably estimated at this time. 59 Common Stock Market Information The Company's common stock is traded on the New York Stock Exchange under the symbol TMO. The following table sets forth the high and low sale prices of the Company's common stock for 1998 and 1997, as reported in the consolidated transaction reporting system. 1998 1997 -------------------- ---------------------- Quarter High Low High Low - --------------------------------------------------------------- ---------- ---------- ---------- ----------- First $44 1/4 $36 5/8 $40 1/2 $30 7/8 Second 41 15/16 30 3/4 38 3/4 28 3/8 Third 35 3/16 14 3/16 41 1/2 32 1/8 Fourth 20 1/16 13 9/16 44 1/2 33 1/2 As of January 29, 1999, the Company had 8,277 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 29, 1999, was $16 5/8 per share. Common stock of the Company's majority-owned public subsidiaries is traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermedics Detection Inc. (TDX), Thermo Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), Thermo Sentron Inc. (TSR), Thermo Ecotek Corporation (TCK), Thermo Fibertek Inc. (TFT), Thermo Fibergen Inc. (TFG), Thermo Instrument Systems Inc. (THI), Metrika Systems Corporation (MKA), ONIX Systems Inc. (ONX), Thermo BioAnalysis Corporation (TBA), Thermo Optek Corporation (TOC), ThermoQuest Corporation (TMQ), ThermoSpectra Corporation (THS), Thermo Vision Corporation (VIZ), Thermo Power Corporation (THP), Thermo TerraTech Inc. (TTT), The Randers Killam Group Inc. (RGI), ThermoRetec Corporation (THN), ThermoTrex Corporation (TKN), ThermoLase Corporation (TLZ), and Trex Medical Corporation (TXM). Shareholder Services Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Distribution of printed quarterly reports is limited to the second quarter only. All material is available from Thermo Electron's Internet site (http://www.thermo.com). Stock Transfer Agent BankBoston N.A. 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: BankBoston N.A., c/o Boston EquiServe Limited Partnership, P.O. Box 8040, Boston, Massachusetts 02266-8040, (781) 575-3120. Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 2, 1999, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046. Annual Meeting The annual meeting of shareholders will be held on Thursday, May 27, 1999, at 3 p.m. at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts.
60
Ten Year Financial Summary (In millions except 1998 (a) 1997 1996 (b) 1995 1994 (c) 1993 (d) 1992 (e) 1991 (f) 1990 1989 per share amounts) - ------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- Statement of Income Data Revenues $3,867.6 $3,558.3 $2,932.6 $2,270.3 $1,729.2 $1,354.5 $ 999.2 $ 842.5 $ 744.5 $ 640.3 Gross Profit 1,526.5 1,441.3 1,130.0 863.4 650.9 482.3 326.7 256.5 233.8 176.0 Operating Income 331.3 405.8 246.5 225.2 182.1 119.2 70.5 43.6 40.9 23.6 Net Income 181.9 239.3 190.8 139.6 104.7 76.9 59.5 48.5 35.5 27.3 Earnings per Share: Basic 1.12 1.57 1.35 1.10 .90 .74 .62 .56 .46 .37 Diluted 1.07 1.41 1.17 .95 .78 .65 .58 .53 .43 .35 Balance Sheet Data Working Capital $2,163.0 $2,002.0 $2,218.6 $1,317.1 $1,150.7 $ 833.8 $ 508.7 $ 468.4 $ 244.1 $ 277.6 Total Assets 6,331.6 5,795.9 5,141.2 3,786.3 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 Long-term Obligations 2,025.5 1,742.9 1,550.3 1,118.1 1,049.9 647.6 494.2 255.1 210.5 177.0 Minority Interest 649.4 719.6 684.1 471.6 327.7 277.7 164.3 122.5 83.9 51.8 Common Stock of 94.3 93.3 76.5 17.5 - 14.5 5.5 5.5 8.7 13.1 Subsidiaries Subject to Redemption Shareholders' Investment 2,248.1 1,997.9 1,754.4 1,309.7 1,007.5 873.7 563.8 489.5 314.1 229.2 (a) Reflects the issuance of $150.0 million principal amount of the Company's notes and the Company's public offering of common stock for net proceeds of $290.1 million. (b) Reflects the issuance of $585.0 million principal amount of the Company's convertible debentures. (c) Reflects the issuance of $345.0 million principal amount of the Company's convertible debentures. (d) Reflects the Company's public offering of common stock for net proceeds of $246.0 million. (e) Reflectsthe issuance of $260.0 million principal amount of the Company's convertible debentures. (f) Reflects the issuance of $164.0 million principal amount of the Company's convertible debentures.
61 EX-21 4
Exhibit 21 THERMO ELECTRON CORPORATION Subsidiaries of the Registrant At February 28, 1999, the Registrant owned the following companies: STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF NAME INCORPORATION OWNERSHIP - ---------------------------------------------------------------------------------------------------------- Thermo Coleman Corporation Delaware 87.19** Coleman Research Corporation Florida 100 Coleman Services Incorporated Delaware 100 Thermo Information Solutions Inc. Delaware 79.29** Tera Systemes s.a.r.l. France 100 Thermo Info France S.A. France 100 Thermo Info UK Limited United Kingdom 100 Traveller Information Services, Inc. Alabama 75 Nicolet Biomedical Inc. California 100 Eden Medical Electronics, Inc. Delaware 100 Grason-Stadler, Inc. Massachusetts 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 Nicolet - EME GmbH Germany 100 Nicolet Vascular Inc. Delaware 100 ILS, Inc. Delaware 100 IMEX International, Inc. Colorado 100 Peter Brotherhood Holdings Ltd. United Kingdom 100 Aircogen Ltd. United Kingdom 80 Peter Brotherhood Limited United Kingdom 100 D.S.T. Pattern & Engineering Co. Ltd. United Kingdom 100 Link Control Technology Ltd. United Kingdom 100 Peter Brotherhood Pension Fund Trustees Ltd. United Kingdom 100 Thermo Electron Realty Limited United Kingdom 100 Thermo Holdings Limited United Kingdom 100 SensorMedics Corporation Delaware 100 SensorMedics B.V. Netherlands 100 SensorMedics (Deutschland) GmbH Germany 100 SensorMedics FSC Corporation Virgin Islands 100 Thermo Electron, S.A. de C.V. Mexico 100 The Thermo Electron Companies Inc. Wisconsin 100 Bear Medical Systems Inc. Delaware 100 Bird Medical Technologies, Inc. California 100 Bird International, Inc. U.S. Virgin Islands 100 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 ITC Holdings Inc. Delaware 100 Loftus Furnace Company Pennsylvania 100 Medical Data Electronics, Inc. Delaware 100 Met-Therm, Inc. Ohio 100 NAPCO, Inc. Connecticut 100 Nicolet Biomedical of California Inc. California 100 North East Surgical Tool Corp. Massachusetts 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 73.98** Corpak Inc. Massachusetts 100 Walpak Company Illinois 100 TV Acquisition Corporation Delaware 100 TMD Holdings Inc. Delaware 100 TMO TCA Holdings, Inc. Delaware 100 Thermedics Detection Inc. Massachusetts 83.79** (additionally, 4.57%** of the shares are owned directly by The Thermo Electron Companies Inc.) Detection Securities Corporation Massachusetts 100 Orion Research, Inc. Massachusetts 100 Advanced Sensor Technology Massachusetts 100 Orion Research Limited United Kingdom 100 Orion Research Puerto Rico, Inc. Delaware 100 Russell pH Limited Scotland 100 Rutter & Co. Netherlands 100 Rutter Instrumentation S.A.R.L. France 90 Systech B.V. 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. de C.V. Mexico 100 Thermedics Detection GmbH Germany 100 Thermedics Detection Limited United Kingdom 100 Thermedics Detection Scandinavia AS Norway 100 2 Thermo Sentron Inc. Delaware 74.25** (additionally, 12.00%** of the shares are owned directly by The Thermo Electron Companies Inc.) Allen Coding Systems Limited United Kingdom 100 Allen Coding Corporation Delaware 100 Goring Kerr Limited United Kingdom 100 Best Checkweighers Limited United Kingdom 100 Intertest (UK) Limited United Kingdom 100 Goring Kerr Detection Limited United Kingdom 100 Graseby Goring Kerr (NZ) Limited New Zealand 100 Graseby Goring Kerr Canada Inc. Ontario 100 Graseby Product Monitoring GmbH Germany 100 Goring Kerr Inc. New York 100 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 Development Co., Limited China 50* Thermo Sentron Australia Pty. Ltd.. Australia 100 Thermo Sentron B.V. Netherlands 100 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 Westerland Engineering Ltd. United Kingdom 100 Thermo Sentron SEC Corporation Massachusetts l00 Thermo Sentron (South Africa) Pty. Ltd. South Africa 100 TMD Securities Corporation Massachusetts 100 Thermo Cardiosystems Inc. Massachusetts 60.05** (additionally, 0.21%** of the shares are owned directly by The Thermo Electron Companies Inc.) International Technidyne Corporation Delaware 100 International Technidyne Corporation Limited United Kingdom 100 Nimbus Inc. Massachusetts 100 TCA Securities Corporation Massachusetts 100 Thermo Voltek Corp. Delaware 66.45** (additionally, 2.74%** of the shares are owned directly by The Thermo Electron Companies Inc.) Thermo Voltek Europe B.V. Netherlands 100 Comtest Instrumentation, B.V. Netherlands 100 Comtest Italia S.R.L. Italy 100 Comtest Limited United Kingdom 100 Milmega Limited United Kingdom 100 TVL Securities Corporation Delaware 100 UVC Realty Corp. New York 100 Thermo Administrative Services Corporation Delaware 100 3 Thermo Amex Management Company Inc. Delaware 100 Thermo Amex Finance, L.P. Delaware 99* Thermo Amex Convertible Growth Fund I., L.P. Delaware 99* Thermo Ecotek Corporation Delaware 93.77** Central Valley Fuels Management Inc. Delaware 100 Delano Energy Company Inc. Delaware 100 Eco Fuels Inc. Wyoming 100 EuroEnergy Group, B.V. Italy 50* Independent Power Services Corporation Nevada 100 KFP Operating Company, Inc. Delaware 100 Lake Worth Generation LLC Delaware 100 Mountainview Power Company Delaware 100 Riverside Canal Power Company California 100 SFS Corporation New Hampshire 100 Star/RESC LLC Texas 75 TCK Fuels Inc. Delaware 100 KFx Fuel Partners, L.P. Delaware 95* (2% of which is owned directly by Eco Fuels Inc.) TES Securities Corporation Delaware 100 Thermendota, Inc. California 100 Mendota Biomass Power, Ltd. California 100 MBPL Agriwaste Corporation California 100 Thermo Ecotek International Holdings Inc. Cayman Islands 100 Thermo Ecotek Europe Holdings B.V. Netherlands 100 EMD Ventures B.V. Netherlands 65* ECS sro Czech Republic 50* EMD Pribram sro Czech Republic 50* EuroEnergy Group B.V. Netherlands 50* Thermo EuroVentures sro Czech Republic 100 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 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) Star Natural Gas Company Delaware 95 Thermo Fuels Company, Inc. California 100 Thermo Trilogy Corporation Delaware 80.03** Thermo Trilogy International Holdings, Inc. Cayman Islands 100 4 AgriSense-BCS, Ltd. United Kingdom 100 P J Margo Pvt. Ltd. India 50* Ulna Incorporated California 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 Finance Company B.V. Netherlands 100 Thermo Fibertek Inc. Delaware 91.34** AES Equipos y Sistemas S.A. de C.V. Mexico 100 Fibertek Construction Company, Inc. Maine 100 Thermo AES Canada Inc. Canada 100 Thermo Black Clawson Inc. Delaware 100 Thermo Black Clawson (China) China 100 Thermo Black Clawson S.A. France 100 Thermo Fibertek Holdings Limited United Kingdom 100 Thermo Black Clawson Limited United Kingdom 100 Thermo Fibertek U.K. Limited United Kingdom 100 Vickerys Holdings Limited United Kingdom 100 Vickerys Limited United Kingdom 100 Winterburn Limited United Kingdom 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 Fibergen Inc. Delaware 70.81** (additionally, 1.81%** of the shares are owned directly by The Thermo Electron Companies Inc.) Fibergen Securities Corporation Massachusetts 100 GranTek Inc. Wisconsin 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Lamort Black-Clawson Industrial Ltda. Brazil 70 Lamort GmbH Germany 100 Lamort Iberia S.A. Spain 100 Lamort Italia S.R.L. Italy 100 Lamort Paper Services Ltd. United Kingdom 100 Nordiska Lamort Lodding AB Sweden 100 Thermo Instrument Systems Inc. Delaware 85.40** Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 ESM Eberline Instruments Strahlen - und Umweltmesstechnik Germany 100 GmbH 5 Fisons Instruments Vertriebs GmbH Germany 100 Gas Tech Inc. California 100 Gas Tech Australia, Pty. Ltd. Australia 50* Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Life Sciences International Limited United Kingdom 100 Comdata Services Limited England 100 Lipshaw Limited England 100 Luckham Limited England 100 Phicom Limited England 100 Shandon Scientific Limited England 100 Southions Investments Limited England 100 Sungei Puntar Rubber Estate Limited England 100 Westions Limited England 100 Whale Scientific Limited England 100 Helmet Securities Limited England 100 Life Sciences International GmbH Germany 100 Life Sciences International Kft Hungary 100 Life Sciences International, Inc. Pennsylvania 100 LSI (US) Inc. Delaware 100 LSI North America Service Inc. Delaware 100 Life Sciences International Holdings BV Netherlands 100 Life Sciences International (Poland) SP z O.O Poland 100 Angila Scientific Instruments Limited England 100 Britlowes Limited England 100 Commendstar Limited England 100 Consumer & Video Holdings Limited England 100 Video Communications Limited England 100 Greensecure Projects Limited England 100 Labsystems Europe GA Spain 100 Labsystems Ges mbH Austria 100 Omnigene Limited England 58.50 Shandon Southern Instruments Limited England 100 Shenbridge Limited England 100 Southern Instruments Holdings Limited England 100 Metrika Systems Corporation Delaware 67.49** (additionally, 8.11%** of the shares are owned directly by The Thermo Electron Companies Inc.) Radiometrie RM GmbH Germany 100 Eberline Radiometrie S.A. France 100 Gamma-Metrics California 100 MF Physics Corporation Delaware 100 Radiometrie Corporation Delaware 100 DMC Mess & Regeltechnik GmbH Germany 100 Radiometrie U.S.A., Inc. California 100 Radiometrie Limited United Kingdom 100 National Nuclear Corporation California 100 6 Thermo Nucleonics LLC Delaware 51 (additionally, 49% of the shares are owned directly by TBA Nucleonics Holding Corporation) ONIX Systems Inc. Delaware 80.31** (additionally, 0.73%** of the shares are owned directly by The Thermo Electron Companies Inc.) Brandt Instruments, Inc. Delaware 100 CAC Inc. Delaware 100 Flow Automation Inc. Texas 100 Lots 82 and 83, Inc. Louisiana 100 Mid-South Power Systems, Inc. Louisiana 100 Mid-South Controls & Services, Inc. Louisiana 100 Thermo Instrument Controls de Mexico, S.A. de C.V. Mexico 100 (1% of which shares are owned directly by ONIX Systems Inc.) ONIX Process Analysis Inc. Texas 100 OnIX Holdings Limited England 100 CAC UK Limited England and Wales 100 ONIX Measurement Limited England and Wales 100 Peek Environmental Limited England and Wales 100 Sarasota Data Products Limited England and Wales 100 Sarasota Instrumentation Limited England and Wales 100 VG Gas Analysis Limited England and Wales 100 Polysonics, Inc. Texas 100 TN Spectrace Europe B.V. Netherlands 100 TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 Westronics Inc. Texas 100 Optek-Nicolet Holdings Inc. Wisconsin 100 Thermo Optek Corporation Delaware 92.70** (additionally, 2.01%** of the shares are owned directly by The Thermo Electron Companies Inc.) Diametrix Detectors, Inc. Delaware 100 FI Instruments Inc. Delaware 100 Gebrueder Haake GmbH Germany 100 RHEO S.A. France 100 SWO Polymertechnik GmbH Germany 100 HB Instruments Inc. Delaware 100 Scintag, Inc. California 100 Spectronic Instruments, Inc. Delaware 100 SLM International Inc. Illinois 100 Thermo Jarrell Ash Corporation Massachusetts 100 A.R.L. Applied Research Laboratories S.A. Switzerland 100 Fisons Instruments (Proprietary) Limited South Africa 100 Thermo Optek Wissenschaftliche Gerate GesmbH Austria 100 Baird De Brazil Representacoes Ltda. Brazil 100 7 Beijing Baird Analytical Instrument Technology China 100 Co. Limited Cahn Instrument Corporation Wisconsin 100 Mattson Instruments Limited United Kingdom 100 Thermo Optek Limited United Kingdom 100 Norlab Instrument of Aberdeen (UK) United Kingdom 100 Thermo Elemental Limited United Kingdom 100 Unicam Limited United Kingdom 100 Unicam Export Limited United Kingdom 100 Unicam Analytical Technology Netherlands B.V. Netherlands 100 Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Thermo Optek Nordic AB Sweden 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Inc. Wisconsin 100 Spectra-Tech, Europe Limited United Kingdom 100 Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited United Kingdom 100 Nicolet Instrument Limited United Kingdom 100 Hilger Analytical Limited United Kingdom 100 Thermo Electron Limited United Kingdom 100 Thermo Instrument Systems Japan Holdings, Inc. Delaware 100 Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Instruments (Canada) Inc. Canada 100 Fisons Instruments Inc. Canada 100 Unicam Analytical Inc. Canada 100 Thermo Optek France S.A. France 100 Thermo Optek Holding B.V. Netherlands 100 Baird Europe B.V. Netherlands 100 Baird France S.A.R.L. France 100 VG Systems Limited United Kingdom 100 VG Elemental Limited United Kingdom 100 Thermo Group B.V. Netherlands 100 Thermo Optek Materials Analysis (S.E.A.) Pte Limited Singapore 100 ThermoSpectra Corporation Delaware 82.45** (additionally, 9.73%** of the shares are owned directly by The Thermo Electron Companies Inc.) Gould Instrument Systems, Inc. Ohio 100 Kevex Instruments Inc. Delaware 100 Kevex X-Ray Inc. Delaware 100 Neslab Instruments Europa BV Netherlands 100 Neslab Instruments, Inc. New Hampshire 100 Neslab Instruments Limited England 100 Nicolet Instrument Technologies Inc. Wisconsin 100 NORAN Instruments Inc. Wisconsin 100 ThermoMicroscopes Corp. California 100 ThermoMicroscopes S.A. Switzerland 100 8 PSI Virgin Islands Incorporated U.S. Virgin Islands 100 Sierra Research and Technology, Inc. Delaware 100 ThermoSpectra B.V. Netherlands 100 Nicolet Technologies B.V. Netherlands 100 Bakker Electronics Limited United Kingdom 100 NORAN Instruments B.V. Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoMicroscopes GmbH Germany 100 ThermoSpectra Limited United Kingdom 100 Nicolet Technologies Ltd. United Kingdom 100 ThermoSpectra S.A. France 100 Nicolet Technologies S.A.R.L. France 100 Spectrace Instruments Inc. California 100 TMO THI Acquisition Corp. Delaware 100 Thermo Electron Sweden Forvaltning AB Sweden 100 Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 ThermoQuest Corporation Delaware 89.31** (43.9%** of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, 0.31% of the shares are owned directly by The Thermo Electron Companies Inc.) Denley Instruments Limited England 100 E-C Apparatus Limited England 100 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 GmbH Germany 100 ThermoQuest Analytische Systeme GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products S.R.L. Italy 100 Masslab Limited United Kingdom 100 Thermo Instruments Australia Pty. Limited Australia 100 ThermoQuest Ltd. United Kingdom 100 Finnigan MAT Ltd. United Kingdom 100 ThermoQuest AB Sweden 100 Thermo Separation Products Ltd. United Kingdom 100 Finnigan Properties, Inc. California 100 Forma Scientific, Inc. Delaware 100 Forma Ohio Inc. Ohio 100 International Equipment Company Delaware 100 9 International Equipment Company Limited England 100 Savant Instruments, Inc. New York 100 Forma Scientific Limited England 100 Hypersil Inc. Delaware 100 Hypersil Limited England 100 Life Sciences International (Hong Kong) Limited Hong Kong 100 Life Sciences International, Inc. Pennsylvania 100 Life Sciences (Europe) Limited England 100 Life Sciences International (UK) Limited England 100 Kenbury Limited England 100 Savant Instruments Limited England 100 ThermoQuest B.V. Netherlands 100 Thermo Separation Products B.V. 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 K.K. Japan 100 RealFlex Systems Inc. Texas 100 SID Instruments Inc. Delaware 100 FI S.A. France 100 Fisons Instruments BV Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 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 Instrumentos Cientificos S.A. Spain 100 Tera Systemes Thermo BioAnalysis Corporation Delaware 61.98** (4.1%** of which shares are owned directly by Quest-TSP Holdings Inc. and 1.8% of which shares are owned directly by Quest-Finnigan Holdings Inc. Additionally, 21.75%** of the shares are owned directly by The Thermo Electron Companies Inc.) BioStar, Inc. Delaware 100 Data Medical Associates, Inc. Texas 100 DMA Latinoamerica S.A. de C.V. Mexico 50 Denley Instruments Inc. North Carolina 100 Fastighets AB Skrubba Sweden 100 Dynex Technologies spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 10 DYNEX Technologies Inc. Virginia 100 DYNEX Technologies GmbH Germany 100 Hybaid Limited England 100 Hybaid BV Netherlands 100 Thermo Labsystems B.V. Netherlands 100 Labsystems Inc. Delaware 100 Thermo BioAnalysis Japan K.K. Japan 100 Labsystems OY Finland 100 Biosystems OY Finland 100 Labsystems (Hong Kong) Limited Hong Kong 99 Life Sciences International (Hong Kong) Limited Hong Kong 99 Labsystems BTD China 32.50 Labsystems LHD China 100 Labsystems Lenpipette Russia 95 Labsystems Pakistan (Private) Ltd Pakistan 33.50 Labsystems Sweden AB Sweden 100 Labsystems (UK) Limited England 100 Life Sciences International SNC France 100 Shandon SA France 100 Shandon (France) SA France 100 Shandon Scientific Limited United Kingdom 100 Anglia Scientific Instruments Limited United Kingdom 100 Shandon Southern Instruments Limited United Kingdom 100 Life Sciences International (Benelux) B.V. Netherlands 100 Shandon Inc. Pennsylvania 100 E-C Apparatus Corporation Florida 100 Whale Scientific Corporation Colorado 100 ALKO Diagnostic Corporation Massachusetts 100 TBA Nucleonics Holding Corporation Delaware 100 Thermo Nucleonics LLC Delaware 49 TBA Securities Corporation Massachusetts 100 Shandon GmbH Germany 100 Thermo BioAnalysis GmbH Germany 100 Hybaid GmbH Germany 100 Angewandte Gentechnologie Systems GmbH Germany 100 Labsystems GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100 Thermo BioAnalysis Holdings, Limited United Kingdom 100 Thermo Fast U.K. Limited United Kingdom 100 Dynex Technologies Limited United Kingdom 100 Thermo BioAnalysis Limited United Kingdom 100 Thermo LabSystems Limited United Kingdom 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Labsystems S.A.R.L. France 100 Thermo LabSystems (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 BioAnalysis LabSystems, S.A. Spain 100 Trace Scientific Limited Australia 100 11 Trace BioSciences Ltd. Australia 100 Trace BioSciences NZ Limited New Zealand 99 Trace America, Inc. Florida 100 Herbos Dijaganosticka Croatia 50 Shanghai Long March Chiron Trace Medical Science Co. China 22 Ltd. Thermo Environmental Instruments Inc. California 100 Andersen Instruments Inc. Delaware 100 Andersen Instruments Limited United Kingdom 100 MIE Corporation Massachusetts 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) Van Hengel Holding B.V. Netherlands 100 Thermo Instrument Systems B.V. Netherlands 100 Euroglas B.V. Netherlands 100 Mesure de Traces Netherlands 100 ThIS Automation B.V. Netherlands 100 This Analytical B.V. Netherlands 100 This Gas Analysis B.V. Netherlands This Lab Systems B.V. Netherlands 100 This Scientific B.V. Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 Thermo Vision Corporation Delaware 78.27** (additionally, 1.27%** of the shares are owned directly by The Thermo Electron Companies Inc.) CID Technologies Inc. New York 100 Centro Vision Inc. Delaware 100 Hilger Crystals Limited United Kingdom 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Thermo Vision Opticon Corporation Delaware 100 Thermo Power Corporation Massachusetts 78.62** NuTemp, Inc. Illinois 100 Peek Limited Scotland 100 Peek Data Limited England 100 Peek Group Services Limited England 100 Dubilier Warminster Limited England 100 International Resistance Co Limited England 100 Minicircuits Limited England 100 Peek International Limited England 100 Peek Corporation Delaware 100 Peek Traffic Inc. Delaware 100 Peek Traffic Systems Inc. Florida 100 Saratec Measurement Inc. Florida 100 Signal Control Company Delaware 100 Signal Maintenance, Inc. Delaware 100 StreeterAmet Inc. Delaware 100 Peek Traffic USA Inc. Florida 100 Peek Traffic GmbH Germany 100 12 Peek International B.V. Netherlands 100 Peek Projects BV Netherlands 100 Peek Promet doo Croatia 100 Peek Traffic A.B. Sweden 100 Peek Trafikk AS Norway 100 Peek Parking Systems AB Sweden 100 Peek Trafik a-s Denmark 100 Peek Traffic B.V. Netherlands 100 Peek Limited Hong Kong 100 Peek Trafikk Sendirian Bermad Malaysia 100 Peek Traffic (Thailand) Limited Thailand 100 Sichuan Modern Control System Engineering Company Limited China 41* Peek Traffic OY Finland 100 Peek Investments, Limited England 100 Dubilier America, Inc. Delaware 100 Automatic Connector Inc. New York 100 Peek Systems Limited England 100 Sotwell Limited England 100 Peek Technology Limited England 100 Peek Traffic Limited England 100 GK Instruments Limited England 100 Sarasota Traffic Limited England 100 Streeteramet Limited England 100 Weighwrite Limited England 100 Radley Services Limited England 100 Atest Electronics Limited England 100 Bartsign Limited England 100 Greenpar Holdings Limited England 100 Helvetia Automatic Products Limited England 100 Peek Field Services Limited England 100 Peek Traffic Systems B.V. Netherlands 100 Radley (1) Limited England 100 Smartways Limited England 100 Tollstar Limited England 100 Takepine Limited United Kingdom 100 Tecogen Securities Corporation Massachusetts 100 ThermoLyte Corporation Delaware 98** Optronics, Inc. Oklahoma 100 Thermo TerraTech Inc. Delaware 85.95** 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 TMA/Hanford, Inc. Washington 100 13 The Randers Killam Group Inc. Delaware 94.81** (additionally, 0.99%** of the shares are owned directly by Thermo Electron Corporation) Clark-Trombley Consulting Engineers, Inc. Michigan 100 Randers Engineering, Inc. Michigan 100 Randers Engineering of Massachusetts, Inc. Michigan 100 Randers Group Property Corporation Michigan 100 Redeco Incorporated Michigan 100 Viridian Technology Incorporated Michigan 100 The Killam Group, Inc. Delaware 100 CarlanKillam Consulting Group, Inc. Florida 100 CarlanKillam Consulting Group of Alabama, Inc. Alabama 100 Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Knowledge Corporation Delaware 100 Elson T. Killam Associates, Inc. New Jersey 100 BAC Killam Inc. New York 100 N.H. Bettigole Co., Inc. Delaware 100 N.H. Bettigole P.A. New Jersey 100 N.H. Bettigole P.C. New York 100 CarlanKillam Construction Services, Inc. Florida 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. 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 Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Thermo EuroTech (Delaware) Inc. Delaware 77.83** (additionally, 10.79% of the shares are owned directly by The Thermo Electron Companies Inc.) Thermo EuroTech N.V. Netherlands Thermo EuroTech Ireland Ltd. Ireland 100 Green Sunrise Holdings Ltd. Ireland 70 AutoRod Ltd. Ireland 100 Green Sunrise Industries Ltd. Ireland 100 GreenStar Recycling Ltd. Ireland 100 Pipe & Drain Services Ltd. Ireland 100 GreenStar Products Ltd. Ireland 70 Grond- & Watersaneringstechniek Nederland B.V. Netherlands 100 Refining & Trading Holland B.V. Netherlands 100 14 ThermoRetec Corporation Delaware 69.12** (additionally, 1.89%** of the shares are owned directly by The Thermo Electron Companies Inc.) Benchmark Environmental Corporation New Mexico 100 Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 ThermoRetec Construction Corporation Virginia 100 ThermoRetec Resource Planning & Management Systems Connecticut 100 Corporation ThermoRetec Consulting Corporation Delaware 100 GeoWest Golden Inc. Colorado 100 GeoWest TriTechnics of Ohio, LLC Colorado 100 Retec North Carolina, Inc. North Carolina 100 Retec Engineering P.C. New York 100 RETEC Thermal, Inc. Delaware 100 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 Inc. Delaware 100 TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 TRI Oak Ridge Inc. Delaware 100 TRI Oak Ridge LLC Delaware 50 (additionally, 50% of the shares are owned directly by Coleman Services Incorporated) TRUtech L.L.C. Delaware 47.5* Thermo Securities Corporation Delaware 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Partnership Delaware 60* ThermoTrex Corporation Delaware 63.90** ThermoLase Corporation Delaware 71.09** (additionally, 8.47%** of the shares are owned directly by The Thermo Electron Companies Inc.) Creative Beauty Innovations, Inc. Texas 100 The Greenhouse Spa, Inc. Pennsylvania 100 ThermoLase England L.L.C. Delaware 50* ThermoLase UK Limited United Kingdom 100 ThermoLase France L.L.C. Delaware 71.05* ThermoDess S.A.S. France 71.05* 15 ThermoLase International L.L.C. Delaware 35* ThermoLase Japan L.L.C. Wyoming 50* Thira Japan, Inc. Japan 100 ThermoTrex East Inc. Massachusetts 100 Trex Medical Corporation Delaware 70.20** (additionally, 6.88%** of the shares are owned directly by The Thermo Electron Companies Inc.) Bennett X-Ray Corporation New York 100 Bennett International Corporation U.S. Virgin Islands 100 Eagle X-Ray, Inc. New York 100 Island X-Ray Incorporated New York 100 Continental X-Ray Corporation Delaware 100 Trex Medical France S.A. France 100 Societe Financiere Trophy S.A. France 100 Trophy Radiologie S.A. France 100 Stephan'X S.A. France 100 Trophy Benelux S.A. Belgium 100 Trophy Radiologie Italia S.R.L. Italy 100 Trophy Radiologie Japan Kabushiki Kaisha Japan 100 Trophy Radiologie GmbH (FRG) Germany 100 P.T. Trophy Rajawali Indonesia Indonesia 100 Trophy Radiologia Espana SL Spain 100 Trophy Rontgen Sanayi Anonim Sirketi Turkey 100 Trophy Radiologie U.K. Ltd. United Kingdom 100 Trex Trophy Dental Inc. Virginia 100 Ardet Italia S.R.L. Italy 100 SCI Boucher Debard Baudry Guillot France 100 XRE Corporation Delaware 100 Trex Communications Corporation Delaware 68.89** CCS TrexCom, Inc. Georgia 100 Computer Communication Specialists UK Ltd United Kingdom 100 EMP TrexCom Inc. Delaware 100 LNR Communications, Inc. Delaware 100 TMO, Inc. Massachusetts 100 TMOI Inc. Delaware 100 Thermo Biomedical Inc. Delaware 100 Thermo Digital Technologies Corporation Delaware 100 Thermo Digital Technologies L.L.C. 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 Thermo Foundation, Inc. Massachusetts 100 TMO THI Holdings Inc. Delaware 100 Thermo Leasing Corporation Delaware 100 Thermo Capital Company LLC Delaware 50 * Joint Venture/Partnership ** As of January 2, 1999
EX-23 5 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 16, 1999, (except with respect to the matter discussed in Note 19, as to which the date is March 1, 1999) included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended January 2, 1999, 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, Registration Statement No. 333-19633-01 on Form S-3, Registration Statement No. 333-34909-01 on Form S-3, Registration Statement No. 333-14265 on Form S-8, and Registration Statement No. 333-62957 on Form S-3. Arthur Andersen LLP Boston, Massachusetts March 18, 1999 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-1999 JAN-02-1999 396,670 1,150,585 928,222 52,607 599,707 3,301,329 1,291,485 485,523 6,331,645 1,138,323 2,025,531 0 0 166,971 2,081,153 6,331,645 3,690,545 3,867,596 2,186,893 2,341,065 257,621 10,038 104,035 391,510 170,680 176,807 0 5,094 0 181,901 1.12 1.07 THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF PRODUCT AND SERVICE REVENUES" AND "COST OF RESEARCH AND DEVELOPMENT CONTRACTS". THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "RESTRUCTURING AND OTHER NONRECURRING COSTS" AND "INTERNALLY FUNDED RESEARCH AND DEVELOPMENT".
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