-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, U9ItpBcEGRPvq2kQ80ByCGZdRH9mwwLFiQY+4K0rSPk6/AgFBz9+gwm8qnqe6o8b DmpU/IvlPotNRW5jmwHNbQ== 0000097745-95-000037.txt : 19950803 0000097745-95-000037.hdr.sgml : 19950803 ACCESSION NUMBER: 0000097745-95-000037 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950802 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08002 FILM NUMBER: 95558168 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 AMENDMENT NO. 2 ON FORM 10-K/A (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1994 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8002 THERMO ELECTRON CORPORATION (Exact name of Registrant as specified in its charter) Delaware 04-2209186 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $1.00 par value New York Stock Exchange Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 27, 1995, was approximately $2,200,490,000. As of January 27, 1995, the Registrant had 51,000,776 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 1994, 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 23, 1995, are incorporated by reference into Part III. PAGE FORM 10-K/A THERMO ELECTRON CORPORATION Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (c) Exhibits 13 Annual Report to Shareholders for the year ended December 31, 1994 (only those portions incorporated herein by reference) 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule Attached is Exhibit 13 of the Registrant's Form 10-K for the year ended December 31, 1994. The Registrant's financial statements have been restated to reflect the March 15, 1995 acquisition of Coleman Research Corporation which has been accounted for under the pooling-of-interests method and to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in May 1995. This amended information replaces the corresponding information filed originally in the Form 10-K. 2PAGE FORM 10-K/A THERMO ELECTRON CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the udnersigned thereunto duly authorized, on this 1st day of August 1995. THERMO ELECTRON CORPORATION Paul F. Kelleher --------------------------- Paul F. Kelleher Vice President, Finance and Administration 3PAGE EX-13 2 Exhibit 13 THERMO ELECTRON CORPORATION 1994 Financial Statements PAGE Thermo Electron Corporation Consolidated Statement of Income (In thousands except per share amounts) 1994 1993 1992 -------------------------------------------------------------------------- Revenues: Product revenues $1,418,306 $1,103,558 $ 808,928 Service revenues 141,438 121,987 114,268 Research and development contract revenues 169,447 128,963 76,032 ---------- ---------- ---------- 1,729,191 1,354,508 999,228 ---------- ---------- ---------- Costs and Expenses: Cost of products 824,845 664,201 521,668 Cost of services 103,800 91,292 87,307 Expenses for research and development and new lines of business (a) 233,099 183,965 106,466 Selling, general and administrative expenses 384,715 289,282 213,266 Costs associated with divisional and product restructuring (Note 12) 650 6,616 - ---------- ---------- ---------- 1,547,109 1,235,356 928,707 ---------- ---------- ---------- Operating Income 182,082 119,152 70,521 Gain on Issuance of Stock by Subsidiaries (Note 10) 25,283 39,863 30,212 Other Income (Expense), Net (Note 11) (989) (27,548) 1,842 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle 206,376 131,467 102,575 Provision for Income Taxes (Note 9) 70,703 33,513 27,750 Minority Interest Expense 30,962 21,086 13,902 ---------- ---------- ---------- Income Before Cumulative Effect of Change in Accounting Principle 104,711 76,868 60,923 Cumulative Effect of Change in Accounting Principle, Net of Tax (Note 8) - - 1,438 ---------- ---------- ---------- Net Income $ 104,711 $ 76,868 $ 59,485 ========== ========== ========== Before Cumulative Effect of Change in Accounting Principle: Primary earnings per share $ 1.35 $ 1.11 $ .95 ========== ========== ========== Fully diluted earnings per share $ 1.20 $ 1.00 $ .90 ========== ========== ========== Primary Earnings per Share $ 1.35 $ 1.11 $ .93 ========== ========== ========== Fully Diluted Earnings per Share $ 1.20 $ 1.00 $ .88 ========== ========== ========== Primary Weighted Average Shares 77,667 69,468 63,874 ========== ========== ========== Fully Diluted Weighted Average Shares 100,819 87,079 74,545 ========== ========== ========== 2PAGE Thermo Electron Corporation Consolidated Statement of Income (continued) (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- (a) Includes costs of: Research and development contracts $ 149,645 $ 116,733 $ 63,336 Internally funded research and development 79,555 59,583 38,888 Other expenses for new lines of business 3,899 7,649 4,242 ---------- ---------- ---------- $ 233,099 $ 183,965 $ 106,466 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Thermo Electron Corporation Consolidated Balance Sheet (In thousands) 1994 1993 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 383,005 $ 325,989 Short-term available-for-sale investments, at quoted market value (amortized cost of $617,837) (Note 2) 614,915 - Short-term investments, at cost (quoted market value of $377,183) - 374,450 Accounts receivable, less allowances of $21,664 and $14,174 347,444 281,223 Unbilled contract costs and fees 59,906 45,108 Inventories: Raw materials and supplies 128,876 110,437 Work in process 44,711 38,055 Finished goods 59,795 44,330 Prepaid income taxes (Note 9) 57,824 35,996 Prepaid expenses 15,148 12,705 ---------- ---------- 1,711,624 1,268,293 ---------- ---------- Assets Related to Projects Under Construction: Restricted funds, at quoted market value - 34,100 Facilities under construction - 128,040 ---------- ---------- - 162,140 ---------- ---------- Property, Plant and Equipment, at Cost: Land 43,990 40,570 Buildings 143,727 116,895 Alternative-energy and waste-recycling facilities 335,064 199,800 Machinery, equipment and leasehold improvements 288,544 237,558 ---------- ---------- 811,325 594,823 Less: Accumulated depreciation and amortization 186,437 139,203 ---------- ---------- 624,888 455,620 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $65,218) (Note 2) 62,451 - ---------- ---------- Long-term Marketable Securities, at Cost (quoted market value of $45,125) - 43,630 ---------- ---------- Other Assets 85,338 102,347 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Note 3) 577,634 475,567 ---------- ---------- $3,061,935 $2,507,597 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Electron Corporation Consolidated Balance Sheet (continued) (In thousands except share amounts) 1994 1993 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (Note 6) $ 94,003 $ 70,113 Accounts payable 116,768 90,152 Accrued payroll and employee benefits 79,849 56,557 Accrued income taxes 35,845 7,713 Accrued installation and warranty costs 33,442 26,049 Other accrued expenses (Note 3) 200,985 183,870 ---------- ---------- 560,892 434,454 ---------- ---------- Deferred Income Taxes (Note 9) 58,250 48,738 ---------- ---------- Other Deferred Items 57,723 58,152 ---------- ---------- Liabilities Related to Projects Under Construction (Note 6): Payables and accrued expenses - 10,680 Tax-exempt obligations - 142,069 ---------- ---------- - 152,749 ---------- ---------- Long-term Obligations (Note 6): Senior convertible obligations 620,000 275,000 Subordinated convertible obligations 186,661 238,386 Tax-exempt obligations 130,985 - Nonrecourse tax-exempt obligations 95,300 108,800 Other 16,904 25,406 ---------- ---------- 1,049,850 647,592 ---------- ---------- Minority Interest 327,734 277,681 ---------- ---------- Commitments and Contingencies (Note 7) Common Stock of Subsidiary Subject to Redemption ($15,390 redemption value) - 14,511 ---------- ---------- Shareholders' Investment (Notes 4 and 5): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 175,000,000 shares authorized; 53,558,248 and 50,483,488 shares issued 53,558 50,484 Capital in excess of par value 493,058 474,193 Retained earnings 472,396 367,685 Treasury stock at cost, 38,318 and 31,898 shares (1,631) (1,212) Cumulative translation adjustment (3,557) (13,591) Deferred compensation (Note 8) (2,657) (3,839) 5PAGE Thermo Electron Corporation Consolidated Balance Sheet (continued) (In thousands except share amounts) 1994 1993 ------------------------------------------------------------------------ Net unrealized loss on available-for-sale investments (Note 2) (3,681) - ---------- ---------- 1,007,486 873,720 ---------- ---------- $3,061,935 $2,507,597 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Electron Corporation Consolidated Statement of Cash Flows (In thousands) 1994 1993 1992 ------------------------------------------------------------------------- Operating Activities: Net income $ 104,711 $ 76,868 $ 59,485 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle (Note 8) - - 1,438 Depreciation and amortization 65,028 44,192 30,463 Costs associated with divisional and product restructuring (Note 12) 650 6,616 - Equity in losses of unconsolidated subsidiaries 4,019 22,721 3,948 Provision for losses on accounts receivable 4,255 2,675 2,021 Increase in deferred income taxes 9,403 14,134 12,374 Gain on sale of property, plant and equipment (15,025) (198) (175) Gain on sale of investments (4,851) (2,469) (4,968) Gain on issuance of stock by subsidiaries (Note 10) (25,283) (39,863) (30,212) Minority interest expense 30,962 21,086 13,902 Other noncash expenses 9,809 7,850 11,549 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (8,556) (44,989) (11,030) Inventories 10,017 (6,525) (4,753) Other current assets (9,713) (8,319) (14,099) Accounts payable 804 13,865 (1,676) Other current liabilities 16,295 (6,319) (3,323) --------- --------- --------- Net cash provided by operating activities 192,525 101,325 64,944 --------- --------- --------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (173,764) (142,962) (251,738) Purchases of available-for-sale investments (748,879) - - Proceeds from sale and maturities of available-for-sale investments 495,361 - - Purchases of property, plant and equipment (65,525) (62,704) (63,320) Proceeds from sale of property, plant and equipment 21,391 5,224 1,609 Purchases of long-term investments - (20,573) (70,340) Proceeds from sale of long-term investments - 16,651 35,899 (Increase) decrease in short-term investments - (193,894) 68,260 Increase in assets related to construction projects - (3,781) (132,971) 7PAGE Thermo Electron Corporation Consolidated Statement of Cash Flows (continued) (In thousands) 1994 1993 1992 ------------------------------------------------------------------------- Decrease in net restricted funds 23,420 - - Other (7,662) (3,516) (1,137) --------- --------- --------- Net cash used in investing activities (455,658) (405,555) (413,738) --------- --------- --------- Financing Activities: Proceeds from issuance of long-term obligations 368,620 102,282 389,230 Repayment and repurchase of long-term obligations (27,176) (11,732) (27,539) Increase (decrease) in short-term notes payable 16,683 27,343 (8,459) Proceeds from issuance of Company and subsidiary common stock 60,601 378,790 100,749 Purchases of Company and subsidiary common stock (101,481) (57,198) (45,334) Other 987 3,096 2,485 --------- --------- --------- Net cash provided by financing activities 318,234 442,581 411,132 --------- --------- --------- Exchange Rate Effect on Cash 1,915 (3,374) (2,424) --------- --------- --------- Increase in Cash and Cash Equivalents 57,016 134,977 59,914 Cash and Cash Equivalents at Beginning of Year 325,989 191,012 131,098 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 383,005 $ 325,989 $ 191,012 ========= ========= ========= See Note 13 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo Electron Corporation Consolidated Statement of Shareholders' Investment Common Capital Stock, in Excess $1 Par of Par Retained (In thousands) Value Value Earnings ------------------------------------------------------------------------- Balance December 28, 1991, as previously reported $ 25,858 $230,251 $226,349 Acquisition through pooling-of-interests 2,533 1,080 4,983 -------- -------- -------- Balance December 28, 1991, as restated 28,391 231,331 231,332 Net income - - 59,485 Purchases of Company common stock - - - Private placement of Company common stock 800 33,455 - Issuance of stock under employees' and directors' stock plans 358 4,241 - Tax benefit related to employees' and directors' stock plans - 4,773 - Conversion of convertible obligations 84 2,894 - Effect of majority-owned subsidiaries' equity transactions - (16,509) - Cumulative translation adjustment - - - Amortization of deferred compensation - - - --------- --------- -------- Balance January 2, 1993 29,633 260,185 290,817 Net income - - 76,868 Public offering of Company common stock (Note 4) 4,500 241,505 - Issuance of stock under employees' and directors' stock plans 216 763 - Conversion of convertible obligations 285 6,619 - Effect of majority-owned subsidiaries' equity transactions - (19,029) - Effect of three-for-two stock split 15,850 (15,850) - Cumulative translation adjustment - - - Amortization of deferred compensation - - - -------- -------- -------- 9PAGE Thermo Electron Corporation Consolidated Statement of Shareholders' Investment (continued) Common Capital Stock, in Excess $1 Par of Par Retained (In thousands) Value Value Earnings ------------------------------------------------------------------------- Balance January 1, 1994 50,484 474,193 367,685 Net income - - 104,711 Issuance of stock under employees' and directors' stock plans 153 2,429 - Conversion of convertible obligations 2,921 63,013 - Effect of majority-owned subsidiaries' equity transactions - (46,577) - Cumulative translation adjustment - - - Amortization of deferred compensation - - - Effect of change in accounting principle (Note 2) - - - Change in net unrealized loss on available-for-sale investments (Note 2) - - - -------- -------- -------- Balance December 31, 1994 $ 53,558 $493,058 $472,396 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 10PAGE Thermo Electron Corporation Consolidated Statement of Shareholders' Investment (continued) Net Un- Cumulative realized Transla- Loss on tion Deferred Available- Treasury Adjust- Compensa- for-sale (In thousands) Stock ment tion Investments --------------------------------------------------------------------------- Balance December 28, 1991, as previously reported $ (1,038) $ 5,532 $ (6,010) $ - Acquisition through pooling-of-interests - - - - -------- -------- -------- -------- Balance December 28, 1991, as restated (1,038) 5,532 (6,010) - Net income - - - - Purchases of Company common stock (6,214) - - - Private placement of Company common stock - - - - Issuance of stock under employees' and directors' stock plans 3,442 - - - Tax benefit related to employees' and directors' stock plans - - - - Conversion of convertible obligations - - - - Effect of majority-owned subsidiaries' equity transactions - - - - Cumulative translation adjustment - (13,481) - - Amortization of deferred compensation - - 960 - -------- -------- -------- -------- Balance January 2, 1993 (3,810) (7,949) (5,050) - Net income - - - - Public offering of Company common stock (Note 4) - - - - Issuance of stock under employees' and directors' stock plans 2,598 - - - Conversion of convertible obligations - - - - Effect of majority-owned subsidiaries' equity transactions - - - - Effect of three-for-two stock split - - - - Cumulative translation adjustment - (5,642) - - Amortization of deferred compensation - - 1,211 - -------- -------- -------- -------- 11PAGE Thermo Electron Corporation Consolidated Statement of Shareholders' Investment (continued) Net Un- Cumulative realized Transla- Loss on tion Deferred Available- Treasury Adjust- Compensa- for-sale (In thousands) Stock ment tion Investments --------------------------------------------------------------------------- Balance January 1, 1994 (1,212) (13,591) (3,839) - Net income - - - - Issuance of stock under employees' and directors' stock plans (419) - - - Conversion of convertible obligations - - - - Effect of majority-owned subsidiaries' equity transactions - - - - Cumulative translation adjustment - 10,034 - - Amortization of deferred compensation - - 1,182 - Effect of change in accounting principle (Note 2) - - - 2,868 Change in net unrealized loss on available-for-sale investments (Note 2) - - - (6,549) -------- -------- -------- -------- Balance December 31, 1994 $ (1,631) $ (3,557) $ (2,657) $ (3,681) ======== ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 12PAGE Thermo Electron Corporation Notes to Consolidated Financial Statements 1. Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Thermo Electron Corporation and its majority- and wholly owned subsidiaries (the Company). All material intercompany accounts and transactions have been eliminated. Majority-owned public subsidiaries include Thermedics Inc., Thermo Instrument Systems Inc., Thermo Process Systems Inc., Thermo Power Corporation, ThermoTrex Corporation, Thermo Fibertek Inc., and Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) (Note 15). Thermo Cardiosystems Inc. and Thermo Voltek Corp. are majority-owned public subsidiaries of Thermedics. Thermo Remediation Inc. is a majority-owned public subsidiary of Thermo Process. ThermoLase Corporation is a majority-owned public subsidiary of ThermoTrex. ThermoSpectra Corporation is a majority-owned, privately held subsidiary of Thermo Instrument. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1994, 1993, and 1992 are for the fiscal years ended December 31, 1994, January 1, 1994, and January 2, 1993, respectively. Fiscal years 1994 and 1993 each included 52 weeks; 1992 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. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $319,769,000 in 1994, $281,417,000 in 1993, and $236,663,000 in 1992. 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. In August 1993, the Company agreed, in exchange for a cash settlement, to terminate a power sales agreement between a subsidiary of the Company and a utility. The power sales agreement required the utility to purchase output of a cogeneration facility that had been under development. Under the termination agreement, the Company received $12.6 million through 1994, with subsequent payments of $5.4 million to be made through 1997. The Company will be obligated to return $8.2 million of this settlement if the Company elects to proceed with the facility and it achieves commercial operation before January 1, 2000. Accordingly, the Company has deferred recognition of $8.2 million of revenues, pending final determination of the project's status. During 1993, the Company recorded revenues of $9.8 13PAGE Thermo Electron Corporation million and segment income of $5.4 million from the termination of the power sales agreement. 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 or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as "Effect of majority-owned subsidiaries' equity transactions." Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share Primary earnings per share have been computed based on the weighted average number of common shares outstanding during the year. Because the effect of common stock equivalents was not material, they have been excluded from the primary earnings per share calculation. Fully diluted earnings per share assumes the exercise of stock options and the conversion of the Company's dilutive convertible obligations and elimination of the related interest expense. Stock Split All share and per share information was restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in October 1993 (Note 15). Cash and Cash Equivalents Cash equivalents consist principally of U.S. government agency securities, bank time deposits, and commercial paper purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value. Available-for-sale Investments Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's short- and long-term debt and marketable equity securities are accounted for at market value (Note 2). Prior to 1994, these investments were carried at the lower of cost or market value. The fair market value of short- and long-term investments is determined based on quoted market prices for those investments. 14PAGE Thermo Electron Corporation 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. Property, Plant and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements -- 5 to 40 years, alternative-energy and waste-recycling facilities -- 24 to 25 years, machinery and equipment -- 3 to 20 years, and leasehold improvements -- the shorter of the term of the lease or the life of the asset. Assets Related to Projects Under Construction "Facilities under construction" in the accompanying 1993 balance sheet included a waste-recycling facility that was under construction in San Diego County, California. Construction costs for this facility were capitalized as incurred. Construction was completed in early 1994. This facility is included in "Alternative-energy and waste-recycling facilities" in the accompanying 1994 balance sheet. "Restricted funds" in the accompanying 1993 balance sheet represented unexpended proceeds from the issuance of tax-exempt obligations (Note 6), which were invested principally in U.S. government agency securities and municipal tax-exempt obligations. These investments were carried at cost, which equaled market value at year-end 1993. Other Assets "Other assets" in the accompanying balance sheet includes the cost of acquired trademarks, patents, and other specifically identifiable intangible assets, as well as capitalized costs associated with the Company's operation of certain alternative-energy facilities. These assets are being amortized using the straight-line method over their estimated useful lives, which range from 5 to 20 years. These assets were $39,731,000 and $41,252,000, net of accumulated amortization of $21,741,000 and $16,699,000, at year-end 1994 and 1993, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired businesses is amortized using the straight-line method principally over 40 years. Accumulated amortization was $47,273,000 and $32,902,000 at year-end 1994 and 1993, 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 businesses in assessing the recoverability of this asset. Common Stock of Subsidiary Subject to Redemption In March 1993, ThermoLase sold 6,156,000 units at $2.50 per unit, each unit consisting of one share of ThermoLase common stock and one redemption right. In accordance with their terms, the redemption rights expired in November 1994 and, as a result, the Company transferred $14,765,000 of "Common stock of subsidiary subject to redemption" to "Minority interest" and "Capital in excess of par value." 15PAGE Thermo Electron Corporation Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Presentation The historical financial information presented has been restated to reflect the March 15, 1995 acquisition of Coleman Research Corporation (Coleman Research), which has been accounted for under the pooling-of-interests method (Note 15). Certain amounts in 1993 and 1992 have been reclassified to conform to the 1994 financial statement presentation. 2. Available-for-sale Investments Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, the Company's debt and marketable equity securities are considered "Available-for-sale investments" in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized loss on available-for- sale investments." "Effect of change in accounting principle" in the accompanying statement of shareholders' investment represents the unrealized gain, net of related tax effects, pertaining to available-for- sale investments held by the Company on January 2, 1994. The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type, as of December 31, 1994, are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses --------------------------------------------------------------------------- Government agency securities $287,418 $291,342 $ - $ 3,924 Corporate bonds 298,799 301,103 74 2,378 Tax-exempt securities 33,588 33,882 - 294 Other 57,561 56,728 2,783 1,950 -------- -------- -------- -------- $677,366 $683,055 $ 2,857 $ 8,546 ======== ======== ======== ======== Short- and long-term available-for-sale investments in the accompanying 1994 balance sheet include $348,613,000 with contractual maturities of one year or less, $289,293,000 with contractual maturities of more than one year through five years, and $39,460,000 with contractual maturities of more than five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable either the Company and/or the issuer to redeem these securities at an earlier date. 16PAGE Thermo Electron Corporation The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of income. Gain on sale of investments in 1994 resulted from gross realized gains of $6,666,000 and gross realized losses of $1,815,000 relating to the sale of available-for-sale investments. 3. Acquisitions In 1994 and 1993, the Company's majority-owned subsidiaries made several acquisitions for $174.3 million and $143.8 million in cash, respectively. These acquisitions have been accounted for using the purchase method of accounting, and the acquired companies' results of operations 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 $232 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 fiscal 1994, is subject to adjustment. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. "Other accrued expenses" in the accompanying balance sheet includes approximately $26 million and $41 million at year-end 1994 and 1993, respectively, for estimated severance, relocation, and other reserves associated with acquisitions. 4. Common Stock In 1993, the Company sold 10,125,000 shares of its common stock in a public offering for net proceeds of $246.0 million. At December 31, 1994, the Company had reserved 35,181,249 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 subsidiaries' convertible obligations into common stock of the Company. The subsidiaries' obligations are convertible 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 Company's Board of Directors (Note 6). The conversion price would be equal to 50% of the price of the Company's common stock prior to the change in control. 5. Stock-based Compensation Plans The Company has several stock-based compensation plans for its key employees, directors, and others, which permit the award of stock-based incentives in the stock of the Company and its majority-owned subsidiaries. The Company has a nonqualified stock option plan, adopted in 1974, and an incentive stock option plan, adopted in 1981, which permit the award of stock options to key employees. The incentive stock option plan expired in 1991 and no grants were made after that date. An equity incentive plan, adopted in 1989, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares or performance-based shares. To date, only nonqualified stock options have been awarded under this plan. The option 17PAGE Thermo Electron Corporation recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options presently outstanding under these plans are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over periods ranging from three to ten years after the first anniversary of the grant date, depending on the term of the option, which may range from five to twelve years. In addition, under certain options, shares acquired upon exercise are restricted from resale until retirement or other events. Nonqualified options may be granted at any price determined by the Board Committee, while incentive stock options must be granted at not less than fair market value of the Company's stock on the date of grant. Generally, stock options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in 1993, that provides for the annual grant of stock options of the Company and its majority-owned subsidiaries to nonemployee 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 or seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in stock-based compensation plans of the Company's majority-owned subsidiaries. No accounting recognition is given to options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. A summary of the Company's stock option information is as follows: 1994 1993 1992 ---------------- ---------------- --------------- Range Range Range of of of Option Option Option Number Prices Number Prices Number Prices (In thousands except of per of per of per per share amounts) Shares Share Shares Share Shares Share -------------------------------------------------------------------------- Options outstanding, $ 4.85- $ 4.85- $ 4.85- beginning of year 4,442 $28.21 3,111 $20.87 2,948 $19.35 25.79- 26.15- Granted 1,094 30.07 1,838 28.21 951 20.87 6.15- 4.85- 4.85- Exercised (210) 20.87 (476) 19.35 (720) 17.17 7.69- 7.15- 7.15- Lapsed or canceled (74) 27.59 (31) 24.71 (68) 20.87 ----- ----- ----- Options outstanding, $ 4.85- $ 4.85- $ 4.85- end of year 5,252 $30.07 4,442 $28.21 3,111 $20.87 ===== ===== ===== $ 4.85- $ 4.85- $ 4.85- Options exercisable 5,252 $30.07 4,442 $28.21 3,101 $20.87 ===== ===== ===== Options available for grant 2,418 438 1,793 ===== ===== ===== 18PAGE Thermo Electron Corporation 6. Long-term Obligations and Other Financing Arrangements Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1994 1993 ------------------------------------------------------------------------- 5% Senior convertible debentures, due 2001, convertible at $31.50 per share $ 345,000 $ - 4 5/8% Senior convertible debentures, due 1997, convertible at $21.50 per share 205,000 205,000 4 7/8% Subordinated convertible debentures, due 1997, convertible at $21.50 per share 55,000 55,000 6 3/4% Subordinated convertible debentures, due 2001, convertible at $15.33 per share - 67,173 3 3/4% Senior convertible debentures, due 2000, convertible into shares of Thermo Instrument at $21.17 per share 70,000 70,000 6 5/8% Subordinated convertible debentures, due 2001, convertible into shares of Thermo Instrument at $11.72 per share 36,862 49,569 6 1/2% Subordinated convertible debentures, due 1998, convertible into shares of Thermedics at $10.42 per share 10,252 12,997 6 1/2% Subordinated convertible debentures, due 1997, convertible into shares of Thermo Process at $10.33 per share 16,597 18,547 Noninterest-bearing subordinated convertible debentures, due 1997, convertible into shares of Thermo Cardiosystems at $21.74 per share 33,000 - 5 1/2% Subordinated convertible notes, due 2002, convertible into shares of Thermo Cardiosystems at $9.88 per share 450 600 3 3/4% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Voltek at $11.75 per share 34,500 34,500 8.1% Nonrecourse tax-exempt obligation, payable in semi-annual installments commencing 1995, with final payment in 2000 62,500 62,500 6.0% Nonrecourse tax-exempt obligation, payable in semi-annual installments, with final payment in 2000 49,700 57,500 Tax-exempt obligations, payable in semi-annual installments commencing 1995, with final payment in 2017 133,670 - 10.23% Mortgage loan secured by property with a net book value of $16,564, payable in monthly installments, with a final payment in 2004 10,855 11,535 Other 8,498 21,558 ---------- ---------- 1,071,884 666,479 Less: Current maturities of long-term obligations 22,034 18,887 ---------- ---------- $1,049,850 $ 647,592 ========== ========== 19PAGE Thermo Electron Corporation The debentures that are convertible into subsidiary common stock have been issued by the respective subsidiaries and are guaranteed by the Company. 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 Company's Board of Directors, each holder of the 5%, 4 5/8%, and 4 7/8% convertible debentures issued by the Company will have the right to require the Company to buy all or part of the holders' debentures, at par value plus accrued interest, within 50 calendar days after the date of expiration of a specified approval period. In addition, the obligations convertible into subsidiary common stock become convertible into common stock of the Company at a conversion price equal to 50% of the price of the Company's common stock prior to the change in control. "Nonrecourse tax-exempt obligations" represent obligations issued by the California Pollution Control Financing Authority (CPCFA), the proceeds of which were used to finance two alternative-energy facilities (Delano I and Delano II) located in Delano, California. Delano I was previously leased to a subsidiary of Thermo Ecotek by a third-party owner/lessor and was purchased by Thermo Ecotek in 1993. Construction of Delano II was completed in 1993. 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. The interest rate swap agreements are with a different counterparty than the holders of the underlying debt. The Company believes, however, that the credit risks associated with these swaps are minimal since the agreements are with a large, reputable bank. The notional amount of debt subject to the swap agreements is $110.0 million at December 31, 1994. "Tax-exempt obligations" represent obligations issued by the CPCFA in January 1992, the proceeds of which were loaned to the Company to finance the construction of a waste-recycling facility in San Diego County, California. Construction of this facility was completed in 1994 and the debt was reclassified from "Liabilities related to projects under construction" to "Long-term obligations" in the accompanying balance sheet. Of these tax-exempt obligations, $95 million carry fixed rates of interest ranging from 6.75% to 8.2%, and $39 million carry a floating rate of interest, which varies weekly based on short-term, tax-exempt markets. The interest rate ranged from 3.1% to 7.2% in 1994 and 4.25% to 6.85% in 1993. "Tax-exempt obligations" in the accompanying 1993 balance sheet also includes $8.5 million of tax-exempt obligations issued by the CPCFA in October 1991, the proceeds of which were loaned to the Company to finance the construction of the Delano II alternative-energy facility. These tax-exempt obligations were repaid in February 1994. Prior to the repayment, these obligations carried a floating rate of interest, which varied daily based on short-term, tax-exempt markets. The interest rate ranged from 2.45% to 5.55% in 1994 and 2.5% to 6.1% in 1993. The Company capitalized interest expense, net of interest income, incurred in connection with the construction of the Delano II and San Diego County facilities discussed above. These amounts were $2.1 million and $8.4 million in 1994 and 1993, respectively. 20PAGE Thermo Electron Corporation The annual requirements for long-term obligations are as follows: (In thousands) -------------------------------------------------------- 1995 $ 22,034 1996 21,773 1997 333,190 1998 36,611 1999 26,597 2000 and thereafter 631,679 ---------- $1,071,884 ========== Certain of the Company's obligations include requirements to maintain predetermined financial ratios. At December 31, 1994, the Company was in compliance with these requirements. Based on quoted market prices and on borrowing rates currently available to the Company for debt of the same remaining maturities, the fair market value of the Company's long-term obligations, excluding interest rate swap agreements, was approximately $1.24 billion and $1.03 billion at December 31, 1994 and January 1, 1994, respectively. The fair market value of interest rate swap agreements entered into in connection with the nonrecourse tax-exempt obligations was a net receivable of approximately $2.1 million and a net payable of approximately $6.1 million at December 31, 1994 and January 1, 1994, respectively. During 1994, the average variable rate received under the interest rate swap agreements was 4.9%. "Notes payable and current maturities of long-term obligations" in the accompanying balance sheet include $71.9 million and $51.3 million in 1994 and 1993, respectively, of short-term bank borrowings at several of the Company's subsidiaries. The weighted average interest rates for these borrowings were 6.2% at both year-end 1994 and 1993. 7. Commitments and Contingencies Litigation The Company participates in the operation of the Dade County Downtown Government Center cogeneration facility in Miami, Florida, through a 50/50 joint venture of subsidiaries of the Company and Rolls-Royce, Inc. Because the demand for power and chilled water at the Dade County Downtown Government Center complex has been substantially less than anticipated since the plant's startup in 1987, and because the plant has had difficulty disposing of the rest of its output, the joint venture has experienced continuing losses. The joint venture sells electricity to Dade County pursuant to an energy purchase contract signed in 1983. The joint venture historically has sold more than half of its actual output to Dade County and the balance to Florida Power and Light (FPL), the local utility. In 1992, the joint venture sued Dade County in Florida state court, alleging that Dade County was in breach of the energy purchase contract and had misrepresented its demand for electrical power. Dade County asserted counterclaims against the joint venture, the Company, and Rolls-Royce, alleging, among other things, failure to properly maintain and operate the facility and to use its best efforts to maximize use of the facility's output. In May 1993, Dade County filed a petition with the Florida Public Service Commission (FPSC), 21PAGE Thermo Electron Corporation asserting that the joint venture was engaged in the retail sale of electricity without complying with rules governing public utilities. If FPSC determines that the joint venture was engaged in illegal retail sales of electricity, it could impose refund or other liabilities on the joint venture and/or enjoin future sales. In May 1993, Dade County also brought a parallel proceeding before the Federal Energy Regulatory Commission (FERC) seeking to terminate the project's qualifying facility status under the Public Utility Regulatory Policies Act of 1978 (PURPA) for failure to meet certain required efficiency standards at various times from 1987 to the present. (PURPA generally obligates utilities, such as FPL, to purchase electricity from qualifying facilities at the utilities' avoided cost and exempts qualifying facilities from various federal and state regulations, such as the Federal Power Act (FPA).) The Company believes the project currently meets the efficiency standards and therefore currently has qualifying facility status. However, on October 21, 1993, FERC issued an order finding that, although the project met the efficiency standards for 1992, the project did not meet such standards from 1987 through 1991. FERC denied the joint venture's request for a waiver of the efficiency standards for that period and also directed the joint venture to show cause why FERC should not find that the joint venture was a public utility for FPA purposes during that period. If the joint venture is retroactively deemed a public utility under FPA, FERC could impose refund liabilities and other penalties to the extent FERC does not find either that the joint venture complied with relevant FERC regulations or that the regulations should be waived. The joint venture has been granted a rehearing of the FERC decision and has asserted various grounds for reversal. The joint venture is also entitled to appeal FERC's final decision, if necessary. In the rehearing, the County and FPL have argued before FERC that the project did not meet the efficiency standards for 1992. In 1994, the joint venture's lawsuit against Dade County, including counterclaims by Dade County, was dismissed with prejudice by agreement of the parties. The terms of the dismissal included: (a) payment by Dade County, net of amounts paid by the joint venture, of $1,500,000, (b) a joint request that FERC terminate its proceedings and vacate its previous order, and (c) a joint request that FPSC dismiss the petition brought before it by Dade County. FERC has not acted upon the request made to it by the joint venture. FPSC granted the request for dismissal. Since the settlement with the County, FPL has filed (a) a motion at FERC opposing the request made to FERC by the joint venture, and (b) a motion at FPSC, similar to one previously filed at FPSC by Dade County, seeking a declaration that the joint venture was engaged in the retail sale of electricity without complying with the rules governing public utilities. The joint venture also is pursuing an antitrust lawsuit against FPL. The joint venture leases its generating equipment from Florida Energy Partners Limited Partnership (FEP). If the energy purchase contract were to be held illegal, FEP could declare a default by the joint venture under the lease with FEP, and Dade County could be released from its obligation to buy electricity from the joint venture. In the lease, the joint venture also covenanted that the project would maintain PURPA qualifying facility status. If the joint venture is deemed to have breached this covenant, FEP could declare a default under the lease. In the event of a default, among other things, FEP could seek to sell or re-lease the equipment and the Company generally would be liable for one-half of any deficiency between (a) in the event of a sale, approximately $45 million and the amount realized from the sale or (b) in the case of re-lease, the present value of future rentals and prepayment penalty under the lease (approximately $31 22PAGE Thermo Electron Corporation million) and the present value of a fair rental value to be collected from a new tenant. The joint venture's revenues for the year ended December 31, 1994 and the cumulative period from 1987 through 1991 were $3.4 million and $26.3 million, respectively. The Company reports its interest in the joint venture's results of operations using the equity method of accounting. Under this method, the Company records 50% of the joint venture's loss, but does not report as revenues any of the joint venture's revenues. The Company is contingently liable with respect to other lawsuits and matters. In the opinion of management, these contingencies will not have a material adverse effect on the financial condition of the Company. Operating Leases The Company leases portions of its office and operating facilities under various noncancelable operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $24,268,000 in 1994, $17,233,000 in 1993, and $13,031,000 in 1992. Minimum rental commitments under noncancelable operating leases at December 31, 1994, are as follows: (In thousands) ----------------------------------------------------- 1995 $22,779 1996 19,233 1997 14,404 1998 10,614 1999 6,416 2000 and thereafter 23,203 ------- $96,649 ======= 8. Employee Benefit Plans 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 $6,450,000, $4,517,000, and $3,460,000 in 1994, 1993, and 1992, respectively. Employee Stock Ownership Plan The Company's Employee Stock Ownership Plan (ESOP) covers eligible full-time U.S. employees. The Company borrowed funds from a financial institution and then loaned these funds to the ESOP to purchase shares of common stock of the Company and its majority-owned subsidiaries. The loan balance between the Company and the financial institution was paid off in 1992. The loan between the Company and the ESOP is still outstanding. The shares purchased are reported as "Deferred compensation" in the accompanying balance sheet. The Company makes annual contributions to the ESOP and shares are allocated to plan participants based on employee compensation. For this plan, the Company charged to expense $1,123,000, $1,125,000, and $1,103,000 in 1994, 1993, and 1992, respectively. The 1992 amount includes interest expense of $228,000. 23PAGE Thermo Electron Corporation Employee Stock Purchase Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in employee stock purchase plans sponsored by the Company or by the Company's majority-owned public subsidiaries. Under these plans, shares of the Company's common stock may be purchased at the end of a 12-month plan year at 85% of the fair market value at the beginning of the plan year, 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 plans sponsored by the Company's majority-owned public subsidiaries may also elect to purchase shares of the common stock of the subsidiary by which they are employed. During 1994, 1993, and 1992, the Company issued 145,836 shares, 187,902 shares, and 127,950 shares of its common stock, respectively, under these plans. Coleman Research Plans Coleman Research has defined contribution pension and 401(k) employee stock ownership plans covering eligible employees. For these plans, Coleman Research charged to expense $3,601,000, $3,184,000, and $2,224,000 in 1994, 1993, and 1992, respectively. Postretirement Benefits Two of the Company's subsidiaries provide postretirement medical benefits for employees who meet certain age and length-of-service requirements. As of the beginning of fiscal 1992, the Company adopted SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions," which required the Company to change to the accrual method of accounting for postretirement medical benefits. The Company elected to recognize the cumulative effect of its accumulated postretirement benefit obligation in 1992, which resulted in a charge of $1,438,000, net of tax benefits of $844,000. The annual expense incurred under SFAS No. 106 and the related obligations required under this statement are not material to the Company's financial statements. Postemployment Benefits The Company provides certain postemployment benefits to former and inactive employees. Effective January 2, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires the recognition of the cost of postemployment benefits if certain criteria are met and the amount of benefits can be reasonably estimated. The adoption of this statement did not have a material impact on the Company's financial statements. 9. Income Taxes The components of income before income taxes, minority interest, and cumulative effect of change in accounting principle are as follows: (In thousands) 1994 1993 1992 ------------------------------------------------------------------------- Domestic $165,761 $113,500 $ 84,548 Foreign 40,615 17,967 18,027 -------- -------- -------- $206,376 $131,467 $102,575 ======== ======== ======== 24PAGE Thermo Electron Corporation The components of the provision for income taxes are as follows: (In thousands) 1994 1993 1992 ------------------------------------------------------------------------- Currently payable: Federal $ 30,089 $ 10,270 $ 12,280 Foreign 16,343 8,643 7,058 State 9,672 5,320 3,923 -------- -------- -------- 56,104 24,233 23,261 -------- -------- -------- Deferred (prepaid), net: Federal 11,355 6,922 4,248 Foreign (243) 931 1,010 State 3,487 1,427 (769) -------- -------- -------- 14,599 9,280 4,489 -------- -------- -------- $ 70,703 $ 33,513 $ 27,750 ======== ======== ======== The provision for income taxes that is currently payable does not reflect $3,531,000, $3,354,000, and $7,579,000 of tax benefits of the Company and its public subsidiaries allocated to "Capital in excess of par value" or $112,000, $2,280,000, and $3,137,000 of tax benefits used to reduce "Cost in excess of net assets of acquired companies" in 1994, 1993, and 1992, respectively. The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 to income before income taxes, minority interest, and cumulative effect of change in accounting principle due to the following: (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- Provision for income taxes at statutory rate $ 72,232 $ 46,013 $ 34,876 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (8,849) (13,770) (10,272) State income taxes, net of federal tax 8,317 4,307 2,081 Tax-exempt and tax-preferred investment income (465) (1,207) (251) Investment and research and development tax credits (2,786) (6,625) - Foreign tax rate and tax law differential 1,422 3,969 1,916 Tax benefit of foreign sales corporation (2,411) (1,366) (989) Minority interest in partnership losses (1,454) (1,057) (1,157) Amortization of cost in excess of net assets of acquired companies 3,450 3,400 1,674 Nondeductible expenses 1,121 1,055 238 Other, net 126 (1,206) (366) -------- -------- -------- $ 70,703 $ 33,513 $ 27,750 ======== ======== ======== 25PAGE Thermo Electron Corporation Deferred and short- and long-term prepaid income taxes in the accompanying balance sheet consist of the following: (In thousands) 1994 1993 ---------------------------------------------------------------- Deferred income taxes: Depreciation $ 49,313 $ 38,459 Intangible assets 7,373 8,214 Other 1,564 2,065 -------- -------- $ 58,250 $ 48,738 ======== ======== Prepaid income taxes: Other reserves and accruals $ 31,369 $ 26,593 Inventory basis difference 16,756 10,801 Capitalized costs and joint venture equity 3,727 7,071 Accrued compensation 8,599 7,653 Allowance for doubtful accounts 5,470 4,108 Net operating loss carryforwards 6,182 5,200 Federal tax credit carryforwards 7,869 3,193 Available-for-sale investments 1,025 - Other, net 6,185 7,270 -------- -------- 87,182 71,889 Less: Valuation allowance 29,358 20,402 -------- -------- $ 57,824 $ 51,487 ======== ======== The valuation allowance relates to the uncertainty surrounding the realization of tax loss and credit carryforwards and the realization of tax benefits attributable to purchase accounting reserves and certain other tax assets of the Company and certain subsidiaries. Of the year-end 1994 valuation allowance, $8.6 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 and $7.5 million will increase "Capital in excess of par value" when previously unrealized stock option benefits are recognized. The increase in the valuation allowance is primarily attributable to the establishment of valuation allowances for tax loss and credit carryforwards, net of utilization of previously unbenefited tax attributes. The Company has not recognized a deferred tax liability for the undistributed earnings of its domestic subsidiaries because the Company does not expect these earnings to be remitted and become subject to tax. The Company believes it can implement certain tax strategies to recover its share of all undistributed earnings of its domestic subsidiaries tax-free. A provision has not been made for U.S. or additional foreign taxes on $109 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. The Company believes that any additional U.S. tax liability due upon remittance of such earnings would be immaterial due to available U.S. foreign tax credits. 26PAGE Thermo Electron Corporation 10. Transactions in Stock of Subsidiaries "Gain on issuance of stock by subsidiaries" in the accompanying statement of income results primarily from the following transactions: 1994 ---- Public offering of 1,610,000 shares of ThermoTrex common stock at $15.375 per share for net proceeds of $23,034,000 resulted in a gain of $7,906,000. Initial public offering of 5,349,572 shares of ThermoLase common stock at $3.00 per share for net proceeds of $14,784,000 resulted in a gain of $8,609,000. Private placements of 1,505,000 shares of ThermoSpectra common stock at $10.00 per share for net proceeds of $13,993,000 resulted in a gain of $6,469,000. Conversion of $3,725,000 of Thermedics 6 1/2% subordinated convertible debentures convertible at $10.42 per share into 357,597 shares of Thermedics common stock resulted in a gain of $992,000. 1993 ---- Public offering of 3,225,000 shares of Thermedics common stock at $10.00 per share for net proceeds of $29,980,000 resulted in a gain of $10,707,000. Public offering of 4,312,500 shares of Thermo Power common stock at $9.00 per share for net proceeds of $35,998,000 resulted in a gain of $10,578,000. Private placements of 2,062,500 shares of ThermoTrex common stock at $11.17 and $14.50 per share for net proceeds of $27,463,000 resulted in a gain of $11,400,000. Private placement of 300,000 shares and initial public offering of 1,650,000 shares of Thermo Remediation common stock at $6.59 and $8.33 per share, respectively, for net proceeds of $14,554,000 resulted in a gain of $4,239,000. Conversion of $7,270,000 of Thermedics 6 1/2% subordinated convertible debentures convertible at $10.42 per share into 697,919 shares of Thermedics common stock resulted in a gain of $2,506,000. 1992 ---- Private placement of 2,709,356 shares and initial public offering of 3,000,000 shares of Thermo Fibertek common stock at $6.70 to $8.00 per share for net proceeds of $39,748,000 resulted in a gain of $23,303,000. Issuance of 1,566,480 restricted shares of ThermoTrex common stock valued at $6.17 per share, or $9,673,000, to acquire Lorad Corporation resulted in a gain of $3,081,000. Private placement of 375,000 shares of ThermoTrex common stock at $10.67 per share for net proceeds of $3,556,000 resulted in a gain of $1,745,000. The Company's ownership percentage in these subsidiaries changed primarily as a result of the transactions listed above, as well as the Company's purchases of shares of its majority-owned subsidiaries' stock, the subsidiaries' purchases of their own stock, the issuance of subsidiaries' stock by the Company or by the subsidiaries under stock-based compensation plans or in other transactions, and the conversion of 27PAGE Thermo Electron Corporation convertible obligations held by the Company, its subsidiaries, or by third parties. The Company's ownership percentages at year-end were as follows: 1994 1993 1992 ---- ---- ---- Thermedics 51% 52% 59% Thermo Instrument 83% 81% 81% Thermo Process 80% 72% 71% Thermo Power 60% 52% 81% ThermoTrex 50% 55% 62% Thermo Fibertek 81% 80% 80% Thermo Ecotek (Note 15) 97% 88% 87% Thermo Cardiosystems (a) 58% 57% 58% Thermo Voltek (a) 71% 67% 57% Thermo Remediation (b) 65% 67% 85% ThermoLase (c) 69% 81% 100% ThermoSpectra (d) 86% 100% 100% (a) Reflects combined ownership by Thermo Electron and Thermedics. (b) Reflects ownership by Thermo Process. (c) Reflects ownership by ThermoTrex. (d) Reflects ownership by Thermo Instrument. 11. Other Income (Expense), Net The components of "Other income (expense), net" in the accompanying statement of income are as follows: (In thousands) 1994 1993 1992 ------------------------------------------------------------------------- Interest income $ 43,280 $ 23,905 $ 24,728 Interest expense (59,844) (31,736) (24,322) Equity in losses of unconsolidated subsidiaries (4,019) (22,721) (3,948) Gain on sale of investments 4,851 2,469 4,968 Other income, net 14,743 535 416 -------- -------- -------- $ (989) $(27,548) $ 1,842 ======== ======== ======== 12. Costs Associated with Divisional and Product Restructuring "Costs associated with divisional and product restructuring" in the accompanying 1994 statement of income represents severance costs and, to a lesser extent, the costs to write-off leasehold improvements at ThermoTrex's East Coast division. The 1993 amount primarily represents a $1,900,000 reserve for the write-off of machinery and equipment and costs to phase out a product line in the Company's metal-fabrication services business, a $1,200,000 reserve for restructuring at the Company's steam turbines and compressors business, and $2,660,000 for the write-off of mobile soil-remediation assets and other related expenses. 28PAGE Thermo Electron Corporation 13. Supplemental Cash Flow Information Supplemental cash flow information is as follows: (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- Cash Paid For: Interest $ 47,745 $ 29,529 $ 18,313 Income taxes $ 27,456 $ 9,909 $ 16,751 Noncash Activities: Conversions of convertible obligations $ 89,625 $ 50,403 $ 13,863 Purchase of alternative-energy facility through assumption of debt $ - $ 66,900 $ - Fair value of assets of acquired companies $ 250,404 $ 208,193 $ 429,113 Cash paid for acquired companies (174,330) (143,790) (255,340) Issuance of subsidiary common stock for acquired business - - (9,673) --------- --------- --------- Liabilities assumed of acquired companies $ 76,074 $ 64,403 $ 164,100 ========= ========= ========= 14. Business Segment and Geographical Information The Company's business segments include the following: Instruments: environmental-monitoring, analytical, and process-control instruments Alternative-energy Systems: alternative-energy power plants, waste-recycling facility, industrial refrigeration systems, natural gas engines, cooling and cogeneration units, turbines and compressors Process Equipment: paper-recycling equipment, papermaking systems and accessories, metallurgical processing systems, electroplating equipment Biomedical Products: biomedical materials, mammography and needle-biopsy systems, skin-incision devices, blood coagulation-monitoring equipment, left ventricular-assist systems, neurophysiology monitoring instruments, personal-care products Environmental Services: thermal soil-remediation, industrial-fluids recycling, metallurgical heat treating and fabrication, laboratory analysis, environmental sciences Advanced Technologies: process detection systems, security instruments, electronic test equipment, power-conversion instruments, long-term hair removal system, development of avionics products and medical systems 29PAGE Thermo Electron Corporation (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- Revenues: Instruments $ 650,114 $ 516,712 $ 349,261 Alternative-energy Systems 285,410 242,662 221,877 Process Equipment 189,862 167,524 160,459 Biomedical Products 180,318 127,533 58,167 Environmental Services 141,793 121,987 114,268 Advanced Technologies 286,523 181,094 96,331 Intersegment Sales Elimination (a) (4,829) (3,004) (1,135) ---------- ---------- ---------- $1,729,191 $1,354,508 $ 999,228 ========== ========== ========== Segment Income (b): Instruments $ 105,440 $ 91,412 $ 59,758 Alternative-energy Systems 34,451 14,434 1,767 Process Equipment 20,730 13,924 13,891 Biomedical Products 17,601 5,758 1,252 Environmental Services 14,853 9,263 8,411 Advanced Technologies 13,213 8,260 2,516 ---------- ---------- ---------- Total Segment Income 206,288 143,051 87,595 Equity in Losses of Unconsolidated Subsidiaries (4,019) (22,721) (3,948) Corporate (c) 4,107 11,137 18,928 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle $ 206,376 $ 131,467 $ 102,575 ========== ========== ========== Identifiable Assets: Instruments $1,011,916 $ 850,688 $ 531,320 Alternative-energy Systems 577,781 593,247 406,515 Process Equipment 191,846 179,251 172,984 Biomedical Products 348,199 285,715 228,781 Environmental Services 192,523 146,658 129,656 Advanced Technologies 236,543 203,375 101,127 Corporate (d) 503,127 248,663 267,600 ---------- ---------- ---------- $3,061,935 $2,507,597 $1,837,983 ========== ========== ========== 30PAGE Thermo Electron Corporation (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- Depreciation and Amortization: Instruments $ 22,070 $ 18,059 $ 10,786 Alternative-energy Systems 16,078 4,982 3,511 Process Equipment 4,780 4,277 3,792 Biomedical Products 6,292 5,328 2,922 Environmental Services 8,382 6,641 5,845 Advanced Technologies 6,193 3,679 2,512 Corporate 1,233 1,226 1,095 ---------- ---------- ---------- $ 65,028 $ 44,192 $ 30,463 ========== ========== ========== Capital Expenditures: Instruments $ 7,574 $ 6,347 $ 4,650 Alternative-energy Systems (e) 31,717 92,862 38,097 Process Equipment 3,231 2,631 3,721 Biomedical Products 7,284 9,042 2,245 Environmental Services 7,559 7,583 8,550 Advanced Technologies 8,019 8,898 4,994 Corporate 141 2,241 1,063 ---------- ---------- ---------- $ 65,525 $ 129,604 $ 63,320 ========== ========== ========== Export Sales Included Above (f) $ 265,298 $ 219,914 $ 131,755 ========== ========== ========== Foreign Operations Included Above: Revenues: Europe $ 295,203 $ 223,707 $ 198,066 Other 61,586 32,835 22,941 ---------- ---------- ---------- $ 356,789 $ 256,542 $ 221,007 ========== ========== ========== Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle: Europe $ 30,490 $ 11,305 $ 17,627 Other 10,125 6,662 400 ---------- ---------- ---------- $ 40,615 $ 17,967 $ 18,027 ========== ========== ========== Identifiable Assets: Europe $ 386,645 $ 299,091 $ 239,431 Other 60,697 41,068 36,877 ---------- ---------- ---------- $ 447,342 $ 340,159 $ 276,308 ========== ========== ========== (a) Intersegment sales are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Segment income is income before corporate general and administrative expenses, costs associated with divisional and product restructuring, other income and expense, minority interest expense, and income taxes. (c) Includes corporate general and administrative expenses, costs associated with divisional and product restructuring, other income and expense, and gain on issuance of stock by subsidiaries. 31PAGE Thermo Electron Corporation (d) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's Waltham, Massachusetts, headquarters. (e) Includes $88.4 million in 1993 for the purchase of an alternative- energy facility in Delano, California, and $30.5 million in 1992 for the purchase of an alternative-energy facility in Whitefield, New Hampshire. (f) In general, export revenues are denominated in U.S. dollars. 15. Subsequent Event Acquisitions On March 15, 1995, the Company acquired Coleman Research Corporation (Coleman Research) in exchange for 4,002,224 shares of Company common stock, including 202,861 shares reserved for issuance upon exercise of stock options. Coleman Research provides systems integration, systems engineering, and analytical services to government customers in the fields of information technology, energy and the environment, software engineering, launch systems, advance radar and imaging, and healthcare systems. The acquisition has been accounted for under the pooling-of-interests method. Accordingly, all historical financial information presented has been restated to include the acquisition of Coleman Research. Revenues and net income for 1994 and 1993, as previously reported by the separate entities prior to the acquisition and as restated for the combined Company, are as follows: (In thousands) 1994 1993 1992 -------------------------------------------------------------------------- Revenues: Previously reported $1,585,348 $1,249,718 $ 948,972 Coleman Research 143,843 104,790 50,256 ---------- ---------- ---------- $1,729,191 $1,354,508 $ 999,228 ========== ========== ========== Net Income: Previously reported $ 103,410 $ 76,633 $ 59,156 Coleman Research 1,301 235 329 ---------- ---------- ---------- $ 104,711 $ 76,868 $ 59,485 ========== ========== ========== On March 1, 1995, the Company's Thermo Instrument subsidiary entered into an agreement to acquire the Scientific Instruments Division (the Division) of Fisons plc for approximately 202 million British pounds sterling, subject to a post-closing adjustment based on the net asset value of the Division as of the closing date. The Division is principally composed of operations that are involved in the research, development, manufacture, and sale of analytical instruments to industrial and research laboratories worldwide. For the fiscal year ended December 31, 1994, the Division had unaudited revenues of approximately 262 million British pounds sterling and an unaudited net loss of approximately 19 million British pounds sterling. On April 13, 1995, Thermo Instrument announced that it had received a "second request" for information regarding the transaction from the U.S. Federal Trade Commission (FTC). The FTC and other national regulatory competition authorities have expressed concern that completion of the transaction in its original form would affect competition in markets for 32PAGE Thermo Electron Corporation certain product lines to be acquired by Thermo Instrument. On June 30, 1995, Thermo Instrument and Fisons plc agreed to extend the termination date under the agreement from June 30, 1995 to August 15, 1995 to allow for the negotiation of potential modifications to the transaction. In addition to receipt of required antitrust regulatory approvals, completion of the transaction is subject to consent of certain third parties, and the satisfaction of other customary closing conditions. Stock Split All weighted average share and per share amounts have been restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in May 1995. 33PAGE Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited the accompanying consolidated balance sheet of Thermo Electron Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and January 1, 1994, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Electron Corporation and subsidiaries as of December 31, 1994 and January 1, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 8 to the consolidated financial statements, effective December 29, 1991, the Company changed its method of accounting for postretirement benefits other than pensions. Also, as discussed in Note 2 to the consolidated financial statements, effective January 2, 1994, the Company changed its method of accounting for investments in debt and marketable equity securities. Arthur Andersen LLP Boston, Massachusetts February 10, 1995 (Except with respect to the matters discussed in Note 15 as to which the date is July 20, 1995) 34PAGE Thermo Electron Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company develops and manufactures a broad range of products that are sold worldwide. The Company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. The majority of the Company's businesses fall into four broad markets: environmental, energy, process control, and selected health and safety instrumentation. An important component of the Company's strategy is to establish leading positions in its markets through the application of proprietary technology, whether developed internally or acquired. A key contribution to the growth of the Company's segment income (as defined in the results of operations below), particularly over the last three 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. The Company seeks to minimize its dependence on any specific product or market by maintaining and diversifying its portfolio of businesses and technologies. Similarly, the Company's goal is to maintain a balance in its businesses between those affected by various regulatory cycles and those more dependent on the general level of economic activity. Although the Company is diversified in terms of technology, product offerings, and geographic markets served, the future financial performance of the Company as a whole is largely affected by the strength of worldwide economies and the continued adoption and diligent enforcement of environmental regulations, among other factors. The Company believes that maintaining an entrepreneurial atmosphere is essential to its continued growth and development. In order to preserve this atmosphere, the Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary- level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of income. These gains have represented a substantial portion of the net income reported by the Company in recent years. Although the Company expects to continue this strategy in the future, its goal is to continue increasing segment income over the next few years so that gains generated by the sale of stock by its subsidiaries will represent a decreasing portion of total net income. 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. 35PAGE Thermo Electron Corporation Results of Operations 1994 Compared With 1993 ----------------------- Sales in 1994 were $1,729.2 million, an increase of $374.7 million, or 28%, over 1993. Segment income was $206.3 million, compared with $143.1 million in 1993, an increase of 44%. (Segment income is income before corporate general and administrative expenses, costs associated with divisional and product restructuring, other income and expense, minority interest expense, and income taxes.) Operating income was $182.1 million, compared with $119.2 million in 1993, an increase of 53%. Sales from the Instruments segment were $650.1 million in 1994, an increase of $133.4 million, or 26%, over 1993. Sales increased due to acquisitions made by Thermo Instrument during 1993 and its acquisition of several businesses within the EnviroTech Measurements & Controls group of Baker Hughes Incorporated in March 1994. Segment income margin (segment income margin is segment income as a percentage of sales) was 16.2%, compared with 17.7% in 1993. Segment income margin declined principally due to lower margins at the acquired businesses within the EnviroTech Measurements & Controls group. Sales from the Alternative-energy Systems segment were $285.4 million, an increase of $42.7 million, or 18%, over 1993. Within this segment, revenues from Thermo Ecotek (formerly Thermo Energy Systems), which consist of revenues from alternative-energy power plant operations, were $134.3 million, compared with $117.7 million in 1993. This increase results from an additional plant in operation in 1994 and, to a lesser extent, the absence of utility-imposed curtailments of power output as well as improved performance at two California plants and annual contractual energy rate increases under certain power sales contracts. The 1993 period included $9.8 million of revenues recorded as a result of the termination of a power sales contract, and $3.1 million from the one-time sale of gas pipeline rights. Sales from the Company's wholly owned Energy Systems division increased $10.7 million as a result of a waste-recycling facility in San Diego County that commenced operations in the first quarter of 1994. Sales from Thermo Power increased 19%, to $91.9 million, as a result of the inclusion of $8.4 million in sales from its NuTemp, Inc. subsidiary, which was acquired in May 1994, and due to increased demand for refrigeration packages at its FES division. Segment income from the Alternative-energy Systems segment was $34.5 million, compared with $14.4 million in 1993. Thermo Ecotek had segment income of $26.9 million, compared with $13.2 million in 1993. This improvement results from an additional power plant in operation during 1994, the absence of utility-imposed curtailments of power output and improved performance at two California plants, and annual contractual energy rate increases under certain power sales contracts. The utility that purchases the output of two of the Company's California plants has the right to curtail the plants' power output up to 1,000 hours per year during periods of low demand. The utility commonly experiences low demand following periods of heavy rain or snow, when hydroelectric power is available. Due to abnormally heavy rainfall during January 1995, utility curtailment of two of the Company's California plants is likely to reach the contractually allowable maximum of 1000 hours at each of the plants in 1995. Thermo Ecotek's segment income also improved as a result of lower lease expense, offset in part by depreciation expense, resulting from the December 1993 purchase of the Delano I facility in California. The 1993 period included $8.6 million of income from the termination of a power sales contract and the one-time sale of gas pipeline rights. Segment income from the Company's Energy Systems division increased $3.4 million as a 36PAGE Thermo Electron Corporation result of the waste-recycling facility that commenced operation in the first quarter of 1994. Segment income increased at Thermo Power by $2.6 million as a result of increased sales, as well as lower expenses at its Crusader Engines division. Certain of Thermo Ecotek's plants have power sales agreements with utilities under which the rates paid for power will convert from fixed rates to "avoided cost" rates in the year 2000. Avoided cost rates are currently substantially less than the fixed rates. Two of these plants have conditions in their nonrecourse lease agreements that require funding of "power reserves" in years prior to 2000, based on projections of operating cash flow shortfalls in the year 2000 and thereafter. The power reserves represent funds available to make lease payments in the event that revenues are not sufficient after the plants convert to avoided cost rates. Without sufficient increases in avoided cost rates or reductions in fuel costs and other operating expenses by the year 2000, Thermo Ecotek expects to either renegotiate its nonrecourse lease agreements or forfeit its interests in the plants. Beginning in 1996, if projected avoided cost rates remain at current levels, Thermo Ecotek will expense the funding of reserves required under the nonrecourse lease agreements. As a result, the income from the two plants is expected to be reduced to approximately break-even beginning in 1996. The plants contributed $9.6 million of segment income in 1994. Sales in the Process Equipment segment were $189.9 million, compared with $167.5 million in 1993. Within this segment, sales from Thermo Fibertek increased to $162.6 million from $137.1 million in 1993 due to an increase of $17.6 million in sales as a result of the acquisition of AES Engineered Systems in June 1993, an increase of $7.9 million in sales from the Company's paper-recycling equipment business as a result of three large contracts received earlier in the year, and an increase of $4.1 million in sales from the Company's U.S. accessories business due to greater demand. These increases were offset in part by a decline of $4.4 million in sales of environmental process systems sold by the Company's U.K. subsidiary, to $1.3 million in 1994, as a result of changes in U.K. environmental regulations that required modifications to that subsidiary's equipment. Thermo Fibertek intends to exit this business during 1995. In December 1994, a wholly owned subsidiary of the Company entered into a $145 million contract for engineering, procurement, and construction services for an office wastepaper de-inking facility to be located in Menominee, Michigan. Construction is expected to take place over approximately two years. Thermo Fibertek will supply approximately $15 million of equipment and services for this project over the next two years. Sales of Holcroft heat-treating systems, which remain depressed, declined $1.5 million in 1994, and sales of automated electroplating equipment from the Company's wholly owned Napco, Inc. subsidiary declined $1.5 million due to weak demand. The Process Equipment segment income margin was 10.9%, compared with 8.3% in 1993. Thermo Fibertek's segment income margin improved to 12.9% from 11.6% in 1993, primarily due to increased sales and an improved sales mix. Holcroft operations were just above the break-even level while Napco operations resulted in a segment loss of $0.3 million due to lower sales levels. Sales in the Biomedical Products segment were $180.3 million, an increase of $52.8 million, or 41%, over 1993. Sales increased $18.1 million due to the inclusion for a full year of sales from CBI Laboratories, Inc., which was acquired by the Company's ThermoLase subsidiary in December 1993. Sales of a number of the Company's biomedical products also contributed to the increase, including ThermoTrex's mammography and needle-biopsy systems, which increased 45% to $54.4 million; Thermo Cardiosystems' implantable left ventricular-assist systems, which increased $6.9 million; blood coagulation-monitoring products and skin incision devices sold by the 37PAGE Thermo Electron Corporation Company's wholly owned International Technidyne Corporation subsidiary, which increased 18% to $28.6 million; and Thermedics' Scent Seal fragrance samplers, which increased $3.0 million, due primarily to increased demand. Segment income margin improved to 9.8% from 4.5% in 1993 as a result of increased sales and efforts to reduce costs. Sales in the Environmental Services segment were $141.8 million, compared with $122.0 million in 1993. Within this segment, sales from Thermo Remediation increased $8.6 million, to $29.7 million, primarily due to an increase in the volume of soil processed at its soil-remediation centers and, to a lesser extent, the inclusion of revenues from businesses acquired during 1994 and late 1993. Sales of analytical laboratory and environmental consulting services increased 10.9% to $61.2 million, due to the inclusion of sales from businesses acquired during 1994 and, to a lesser extent, the addition of a long-term environmental restoration contract for the U.S. Department of Energy's Hanford, Washington site. Sales of metallurgical services increased 9.1%, to $44.8 million, due to increased demand. Segment income margin improved to 10.5% from 7.6% in 1993, due to increased sales and efforts to reduce costs. Sales from the Advanced Technologies segment were $286.5 million, compared with $181.1 million in 1993. Sales increased $54.7 million due to the inclusion of sales from Ramsey Technology Inc., which was acquired by Thermedics in March 1994, and Comtest, which was acquired by Thermo Voltek in August 1993. Revenues from Coleman Research's government-sponsored research and development contracts increased $39.1 million, while revenues from ThermoTrex's government-sponsored research and development contracts increased $1.8 million. Sales of Thermedics' EGIS explosives-detection systems increased $4.1 million, and sales of Thermedics' process detection instruments, principally to one customer, increased $3.6 million. Segment income margin was 4.6% in both 1994 and 1993. Improved segment income margin at Coleman Research as a result of increased revenues was offset by lower margins at ThermoTrex as a result of increased research and development expenses to develop and commercialize new products and, to a lesser extent, lower margins at newly acquired businesses. The Company's wholly owned Napco subsidiary is challenging a jury verdict rendered against it during the third quarter of 1994 for $12.2 million plus prejudgement interest in a contract dispute arising out of an allegedly defective waste-treatment system installed by Napco in 1984. The Company believes the verdict is in error and is vigorously pursuing all available post-trial remedies. These remedies include seeking to have the verdict set aside or substantially reduced and, if necessary, taking an appeal. In the third quarter of 1994, the Company increased its reserve for potential losses from pending litigation by approximately $4.0 million, which is reflected in Corporate general and administrative expenses. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of indebtedness, and similar transactions, the Company recorded gains of $25.3 million in 1994 and $39.9 million in 1993. Such gains represent the increase in the Company's proportionate share of the subsidiaries' equity and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of income. See Notes 1 and 10 to Consolidated Financial Statements for a more complete description of these transactions. Minority interest expense increased to $31.0 million in 1994 from $21.1 million in 1993. Minority interest expense includes $5.6 million in 1994 and $1.3 million in 1993 relating to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock by their subsidiaries. "Other income (expense), net" in the accompanying statement of income includes a gain of $14.7 million resulting from the sale of the Peter Brotherhood Ltd. facility in the United Kingdom. Peter Brotherhood was 38PAGE Thermo Electron Corporation relocated to a new and more efficient facility. Also included is equity in losses of unconsolidated subsidiaries, which represents the Company's portion of results from entities in which the Company's ownership is 50% or less, primarily the operation of the Dade County cogeneration facility, and, beginning in 1994, the Company's share of the profit from a 50%-owned joint venture that is responsible for the operation and maintenance of the Company's waste-recycling facility in San Diego. The loss associated with the Dade County facility was $5.2 million in 1994, compared with a loss of $5.7 million in 1993, excluding the $15.0 million provision recorded in 1993. Because the demand for power and chilled water at the Dade County Downtown Government Center complex has been substantially less than anticipated since the plant's startup in 1987, and because the plant has had difficulty disposing of the remainder of its output, the joint venture continues to experience losses. Although the joint venture pursues alternatives to improve the profitability of this plant, such actions to date have not been effective, and there is no assurance that this situation will improve. In September 1994, the joint venture temporarily suspended operation of this plant for an indefinite period of time although it will continue to be responsible for lease and other fixed costs. The $15.0 million reserve established in 1993 represents management's estimate, discounted to present value, of the Company's share of estimated future negative cash flows of the joint venture. The Company is involved in regulatory proceedings that could require additional reserves, if the outcome of one or more of these matters is adverse to the Company (see Note 7 to Consolidated Financial Statements). A wholly owned subsidiary of the Company owns a waste-recycling facility in southern California that processes waste for San Diego County (the County). The subsidiary has contracted the operation and maintenance of the facility to a 50%-owned joint venture. In February 1995, the subsidiary was notified by the lead financing bank that the County was not in compliance with a covenant contained in the financing arrangements for the tax-exempt obligations issued in connection with construction of the facility. The financing arrangements are nonrecourse to the Company for issues relating to County defaults. Were the County to remain out of compliance, the bank group could declare a default on the tax-exempt obligations and foreclose on the facility. Such a default would result in the bank group and the subsidiary having claims against the County for damages, however, the County's responsibility to pay these damages could be limited to the funds it has available from the day-to-day operation of the County's solid waste-disposal system. Accordingly, the ultimate outcome of this matter could result in an impairment of the subsidiary's investment in the facility. The subsidiary's investment in the facility, including unfunded equity commitments of $5.5 million, was approximately $16.5 million at December 31, 1994. In a lawsuit relating to the waste-recycling facility discussed above, a third party from whom the Company's subsidiary acquired certain development rights alleges that fees totaling $7.9 million plus interest and legal costs are due and payable from the subsidiary in connection with construction of the facility. The Company contends that no additional fees are payable because the facility actually built was substantially different from the one contemplated in the agreement with the third party developer. A jury trial is expected to commence in 1995. There can be no assurance as to the outcome of this matter. 39PAGE Thermo Electron Corporation 1993 Compared With 1992 ----------------------- Sales in 1993 were $1,354.5 million, an increase of $355.3 million, or 36%, over 1992. Segment income was $143.1 million, compared with $87.6 million in 1992, an increase of 63%. Operating income was $119.2 million, compared with $70.5 million in 1993, an increase of 69%. Sales from the Instruments segment were $516.7 million, an increase of $167.5 million, or 48%, over 1992. Sales increased approximately $153 million due to additional revenues from acquired businesses, including Nicolet Instrument Corporation in August 1992, Gamma-Metrics in January 1993, Spectra-Physics Analytical in February 1993, and divisions of FAG Kugelfischer Georg Shafer AG in October 1993. The remainder of the increase was due to increased demand for products from existing businesses. Segment income margin was 17.7%, compared with 17.1% in 1992. Segment income margin improved principally due to changes in product mix and continuing efforts to reduce costs. Sales from the Alternative-energy Systems segment were $242.7 million, an increase of $20.8 million, or 9%, over 1992. Sales from Thermo Ecotek were $117.7 million, compared with $104.8 million in 1992. Included in Thermo Ecotek's 1993 sales was $9.8 million recorded as a result of the termination of a power sales contract, and $3.1 million from the one-time sale of gas pipeline rights. The 1992 period included $2.0 million received in settlement of a dispute over lost development fees. Excluding the nonrecurring items from both years, revenues from plant operations increased 2% as a result of annual contractual energy rate increases under certain power sales contracts, offset in part by increased utility-imposed curtailments of power output at two California plants. Construction revenues from an alternative-energy facility, which was completed in 1993, were $10.9 million, compared with $35.8 million in 1992. Sales from Thermo Power were $77.4 million, compared with $43.9 million in 1992. This increase results principally from the acquisition of FES by Thermo Power in October 1992, offset in part by slight declines in revenues from its Crusader Engines and Tecogen divisions. Sales of Peter Brotherhood steam turbines and compressors were slightly below 1992 levels. Segment income from the Alternative-energy Systems segment was $14.4 million, compared with $1.8 million in 1992. Thermo Ecotek segment income was $13.2 million, compared with $5.7 million in 1992. The 1993 period included $8.6 million of income from the termination of a power sales contract and the one-time sale of gas pipeline rights. The 1992 period included $2.0 million received in settlement of a dispute over lost development fees. Excluding the nonrecurring items in both years, segment income from Thermo Ecotek was $4.6 million in 1993 and $3.7 million in 1992. This improvement resulted from lower lease expense, offset in part by depreciation expense, resulting from the September 1992 purchase of the Whitefield, New Hampshire plant and the December 1993 purchase of the Delano I facility. In addition, segment income from Thermo Ecotek was favorably affected by contractual energy rate increases. These improvements were partially offset by utility-imposed curtailments of power output at two California plants, and higher maintenance costs in 1993 to implement equipment modifications at one California plant. Total curtailments of power output in 1993 were approximately 90% of the maximum allowable curtailments under the Company's agreements with the utility, compared with less than 10% in 1992. In 1992, Alternative-energy Systems segment income reflected the establishment of a reserve of $5.0 million for probable cost overruns on projects under construction. Segment income at Thermo Power improved principally as a result of increased revenues at FES and efforts to reduce costs, offset by a decline at Peter Brotherhood due to lower sales and increased price competition. 40PAGE Thermo Electron Corporation Sales in the Process Equipment segment were $167.5 million, compared with $160.5 million in 1992. Within this segment, sales from Thermo Fibertek were $137.1 million, compared with $125.6 million in 1992. Sales at Thermo Fibertek increased by $18.6 million as a result of the acquisition of AES in June 1993, by $9.7 million due to the inclusion for a full year of Vickerys Holdings Limited, which was acquired in September 1992, and by $4.5 million from the North American accessories, flotation-dryer, and pollution-control equipment businesses. These increases were partially offset by a decline in sales of $14.6 million in Thermo Fibertek's paper-recycling equipment business, which was affected by the poor financial condition of the paper industry, particularly in Europe, and by the unfavorable effects of a stronger U.S. dollar upon currency translation, which decreased sales by approximately $3.7 million. Sales of Holcroft heat-treating systems, which remain depressed, were $16.1 million, compared with $15.4 million in 1992. Sales of automated electroplating equipment from Napco declined to $14.3 million from $19.5 million in 1993, due to continuing weak demand. The Process Equipment segment income margin was 8.3%, compared with 8.7% in 1992. Thermo Fibertek's segment income margin was 11.6%, compared with 12.5% in 1992. This decline was primarily due to lower sales of paper-recycling equipment and, to a lesser extent, competitive pricing pressure experienced by foreign paper-recycling operations. Segment income improved at Holcroft, resulting from reduced costs, offset by a decline at Napco. Napco incurred a segment loss of $1.5 million, compared with income of $0.6 million in 1992, as a result of lower sales, pricing pressure, and increased costs to complete jobs. Sales in the Biomedical Products segment were $127.5 million, compared with $58.2 million in 1992. Sales increased $59.1 million due to the inclusion of sales for a full year from Lorad Corporation, a manufacturer of mammography and needle-biopsy systems acquired by the Company's ThermoTrex subsidiary in November 1992, and from the acquisition of Nicolet's biomedical products business as part of the acquisition of Nicolet in August 1992. Sales also increased $4.2 million from the introduction of Thermedics' Scent Seal fragrance samplers, which were developed from the Company's polymer technology, with the balance of the increase primarily from higher demand for blood coagulation-monitoring products at International Technidyne. Segment income improved to $5.8 million from $1.3 million in 1992, principally as a result of increased sales. Sales in the Environmental Services segment were $122.0 million, compared with $114.3 million in 1992. Within this segment, sales from Thermo Remediation increased by $8.9 million, primarily as a result of higher production at soil-remediation centers. Sales of metallurgical services declined by $1.3 million due to continuing weakness in aerospace and defense-related businesses. Sales from analytical laboratory and environmental consulting services were about the same level as in 1992. Segment income margin improved to 7.6%, compared with 7.4% in 1992, due to an improved sales mix and efforts to reduce costs. Sales from the Advanced Technologies segment were $181.1 million, compared with $96.3 million in 1992. Revenues from Coleman Research's government-sponsored research and development contracts increased $54.5 million. Sales increased $24.4 million due to increased demand, principally from one customer, for Thermedics' process detection instruments. Sales also increased $7.2 million at Thermo Voltek, due to the inclusion, for a full year, of revenues from KeyTek Instrument, which was acquired in June 1992, and the inclusion of revenues from Comtest, which was acquired in August 1993. These increases were offset in part by a decline in sales from a specific contract at Thermo Voltek's Universal Voltronics division, which 41PAGE Thermo Electron Corporation was essentially complete in 1993. Segment income was $8.3 million, compared with $2.5 million in 1992, resulting primarily from increased sales. In 1993, the Company recorded $6.6 million of "Costs associated with divisional and product restructuring," which is described in Note 12 to Consolidated Financial Statements. Of the $6.6 million, the Alternative- energy Systems segment recorded $1.5 million, the Process Equipment segment recorded $0.5 million, and the Environmental Services segment recorded $4.6 million. There were no such costs recorded in 1992. Such amounts were not included in segment income discussed above. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of indebtedness, and similar transactions, the Company recorded gains of $39.9 million in 1993 and $30.2 million in 1992. See Notes 1 and 10 to Consolidated Financial Statements for a more complete description of these transactions. "Other income (expense), net" in the accompanying statement of income includes equity in losses of unconsolidated subsidiaries, which represents the Company's portion of results from entities in which the Company's ownership is 50% or less, primarily the operation of the Dade County cogeneration facility. The loss in 1993 was $22.7 million, compared with a loss of $3.9 million in 1992, with the Dade County cogeneration facility accounting for $20.7 million and $3.4 million of these losses, respectively. The Dade County loss for 1993 includes a provision of $15.0 million which is discussed above in the 1994 results of operations. The remaining increase resulted from higher fuel costs and legal expenses pertaining to the legal actions described in Note 7 to Consolidated Financial Statements. Financial Condition Liquidity and Capital Resources ------------------------------- Consolidated working capital was $1,150.7 million at December 31, 1994, compared with $833.8 million at January 1, 1994. Included in working capital were cash and short-term investments of $997.9 million at December 31, 1994, compared with $700.4 million at January 1, 1994. In addition, at December 31, 1994, the Company had $62.5 million of long-term marketable securities, compared with $43.6 million at January 1, 1994. In April 1994, the Company issued $345.0 million principal amount of 5% senior convertible debentures due 2001. In 1994, the Company expended $174.3 million for acquisitions and $65.5 million for purchases of property, plant and equipment. The Company has no material commitments for purchases of property, plant and equipment and expects that, for 1995, such expenditures will approximate the 1994 level. On March 1, 1995, the Company's Thermo Instrument subsidiary entered into an agreement to acquire the Scientific Instruments Division of Fisons plc for 202 million British pounds sterling, subject to the satisfaction of certain conditions to closing (see Note 15 to Consolidated Financial Statements). A substantial percentage of the Company's consolidated cash and short-term 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 Corporation 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 42PAGE Thermo Electron Corporation 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. 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. The Company intends for the foreseeable future to maintain at least 80% ownership of its Thermo Instrument, Thermo Fibertek, and Thermo Ecotek subsidiaries, which is required in order to continue to file a consolidated federal income tax return with these subsidiaries. In addition, the Company intends to maintain greater than 50% ownership of its other majority-owned subsidiaries so that the Company may continue to consolidate these subsidiaries for financial reporting purposes. This may require the purchase by the Company of additional shares or convertible debentures of these companies from time to time as the number of outstanding shares issued by these companies increases, either in the open market or directly from the subsidiaries. See Note 6 to Consolidated Financial Statements for a description of outstanding convertible debentures issued by Thermo Instrument. In addition, at December 31, 1994, Thermo Instrument, Thermo Fibertek, and Thermo Ecotek had outstanding stock options of 2,026,000 shares, 1,681,000 shares, and 1,026,000 shares, respectively, exercisable at various prices and subject to certain vesting schedules. The Company's other majority-owned subsidiaries also have outstanding stock options and/or convertible debentures. If the Company were to lose its ability to consolidate for tax purposes with Thermo Instrument, the Company would incur an additional tax liability, which could be substantial. During 1994, the Company and its majority-owned subsidiaries expended $101.5 million to purchase common stock of the Company's subsidiaries. The Company expects that these purchases will continue in 1995. 43PAGE Thermo Electron Corporation Information as to Publicly Owned Businesses (Unaudited) (In thousands) 1994 1993 1992 ---------------------------------------------------------------------- Revenues: Thermo Instrument Systems Inc. $ 662,187 $ 584,176 $ 423,199 Thermo Fibertek Inc. 162,625 137,088 125,577 Thermedics Inc. (a) 155,111 80,220 45,778 Thermo Ecotek Corporation 134,261 117,691 104,785 Thermo Process Systems Inc. (b) 111,268 53,839 47,082 Thermo Power Corporation 91,873 77,360 43,904 ThermoTrex Corporation (c) 91,052 54,329 19,843 ---------- ---------- ---------- 1,408,377 1,104,703 810,168 Wholly owned nonpublic companies 320,814 249,805 189,060 ---------- ---------- ---------- $1,729,191 $1,354,508 $ 999,228 ========== ========== ========== Segment Income (d): Thermo Instrument Systems Inc. $ 106,241 $ 96,786 $ 63,373 Thermo Fibertek Inc. 20,948 15,902 15,716 Thermedics Inc. (a) 16,909 8,292 841 Thermo Ecotek Corporation 26,928 13,184 5,735 Thermo Process Systems Inc. (b) 9,219 1,338 371 Thermo Power Corporation 5,263 2,707 715 ThermoTrex Corporation (c) 1,467 485 (1,185) ---------- ---------- ---------- 186,975 138,694 85,566 Wholly owned nonpublic companies 19,313 4,357 2,029 ---------- ---------- ---------- 206,288 143,051 87,595 Equity in Losses of Unconsolidated Subsidiaries (4,019) (22,721) (3,948) Corporate 4,107 11,137 18,928 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle $ 206,376 $ 131,467 $ 102,575 ========== ========== ========== (a) Includes Thermo Cardiosystems Inc. and Thermo Voltek Corp. (b) Includes Thermo Remediation Inc. (c) Includes ThermoLase Corporation. (d) Segment income is income before corporate general and administrative expenses, costs associated with divisional and product restructuring, other income and expense, minority interest expense, and income taxes. 44PAGE Thermo Electron Corporation Quarterly Information (Unaudited) (In thousands except per share amounts) 1994(a) First Second Third Fourth ------------------------------------------------------------------------- Revenues $383,724 $428,547 $445,516 $471,404 Gross profit 140,020 159,736 171,114 180,031 Net income 22,925 24,418 27,827 29,541 Earnings per share: Primary .30 .32 .35 .37 Fully diluted .27 .28 .31 .33 1993(b) First Second Third Fourth ------------------------------------------------------------------------- Revenues $310,294 $324,805 $350,360 $369,049 Gross profit 106,904 112,233 126,966 136,179 Net income 15,515 17,682 20,977 22,694 Earnings per share: Primary .24 .27 .29 .30 Fully diluted .22 .25 .26 .27 (a) Results include nontaxable gains of $8,494,000, $229,000, $12,561,000, and $3,999,000 in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (b) Results include nontaxable gains of $11,101,000, $10,617,000, $3,461,000, and $14,684,000 in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. Common Stock Market Information -------------------------------------------------------------------------- The following table shows the market range for the Company's common stock based on reported sales prices on the New York Stock Exchange (symbol TMO) for 1994 and 1993. Prices were restated in 1993 to reflect a three-for-two stock split distributed in October 1993. 1994 1993 ---------------- ---------------- Quarter High Low High Low ----------------------------------------------------------------------- First $29 3/5 $25 1/3 $25 1/3 $20 8/9 Second 27 3/5 24 27 4/9 24 2/9 Third 30 3/5 25 1/4 28 5/6 24 5/6 Fourth 31 11/12 27 1/6 28 2/3 25 2/5 The closing market price on the New York Stock Exchange for the Company's common stock on January 27, 1995 was $29 3/5 per share. As of January 27, 1995, the Company had 6,666 holders of record of its common stock. This does not include holdings in street or nominee names. 45PAGE Thermo Electron Corporation Common stock of the following majority-owned public subsidiaries is traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo Instrument Systems Inc. (THI), Thermo Process Systems Inc. (TPI), Thermo Power Corporation (THP), ThermoTrex Corporation (TKN), Thermo Fibertek Inc. (TFT), Thermo Ecotek Corporation (TCK), Thermo Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), Thermo Remediation Inc. (THN), and ThermoLase Corporation (TLZ). Transfer Agent and Common Stock Registrar -------------------------------------------------------------------------- The Bank of Boston is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuances of stock certificates, changes of ownership, lost stock certificates, and changes of address. For these and similar matters, please direct inquiries to: The Bank of Boston Post Office Box 644 Mail Stop: 45-02-09 Boston, Massachusetts 02102-0644 (617) 575-3120 Shareholder Services -------------------------------------------------------------------------- Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, by letter or telephone at (617) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly and annual reports as quickly as possible. If you would like your name added to the list, please notify this office. 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. Annual Meeting -------------------------------------------------------------------------- The annual meeting of shareholders will be held on Tuesday, May 23, 1995 at 5:00 p.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina. 46PAGE Thermo Electron Corporation Form 10-K Report -------------------------------------------------------------------------- A copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Corporate Office -------------------------------------------------------------------------- Thermo Electron Corporation 81 Wyman Street Post Office Box 9046 Waltham, Massachusetts 02254-9046 47PAGE Thermo Electron Corporation Ten Year Financial Summary (In millions except per share amounts)
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985 ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- Revenues $1,729.2 $1,354.5 $ 999.2 $ 842.5 $ 744.5 $ 640.3 $ 553.7 $ 430.8 $ 368.0 $ 291.1 -------- -------- ------- ------- ------- ------- ------- ------- ------- ------- Costs and Expenses: Cost of revenues 928.6 755.5 609.0 532.9 465.1 424.2 359.6 280.3 244.8 194.9 Expenses for R&D and new lines of business 233.1 183.9 106.5 84.6 74.5 60.7 54.3 40.9 33.9 25.3 Selling, general and administra- tive expenses 384.7 289.3 213.2 177.7 163.0 129.6 113.1 90.4 71.7 56.3 Costs associated with divisional and product restructuring .7 6.6 - 3.7 1.0 2.2 0.9 3.4 7.1 4.3 ------- -------- ------- ------- ------- ------- ------- ------- ------- ------- 1,547.1 1,235.3 928.7 798.9 703.6 616.7 527.9 415.0 357.5 280.8 ------- -------- ------- ------- ------- ------- ------- ------- ------- ------- Operating Income 182.1 119.2 70.5 43.6 40.9 23.6 25.8 15.8 10.5 10.3 Gain on Issuance of Stock by Subsidiaries 25.3 39.8 30.2 27.4 20.3 16.8 6.0 16.1 15.9 9.1 Other Income (Expense), Net (1.0) (27.5) 1.8 10.6 (0.5) 1.1 2.8 (2.5) (5.1) (5.9) ------- -------- ------- ------- ------- ------- ------- ------- ------- ------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle 206.4 131.5 102.5 81.6 60.7 41.5 34.6 29.4 21.3 13.5 Provision for Income Taxes 70.7 33.5 27.7 25.8 18.1 10.9 9.2 6.3 4.4 2.7 Minority Interest Expense 31.0 21.1 13.9 7.3 7.1 3.3 2.1 1.9 0.5 (0.1) ------- -------- ------- ------- ------- ------- ------- ------- ------- ------- 48PAGE Thermo Electron Corporation Ten Year Financial Summary (continued) (In millions except per share amounts) 1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985 ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- Income Before Cumulative Effect of Change in Accounting Principle 104.7 76.9 60.9 48.5 35.5 27.3 23.3 21.2 16.4 10.9 Cumulative Effect of Change in Accounting Prin- ciple, Net of Tax (f) - - 1.4 - - - - - - - -------- -------- ------- ------- ------- ------- ------- ------- ------- ------- Net Income $ 104.7 $ 76.9 $ 59.5 $ 48.5 $ 35.5 $ 27.3 $ 23.3 $ 21.2 $ 16.4 $ 10.9 ======== ======== ======= ======= ======= ======= ======= ======= ======= ======= Earnings per Share Before Cumulative Effect of Change in Accounting Principle: Primary $ 1.35 $ 1.11 $ .95 $ .84 $ .68 $ .55 $ .48 $ .43 $ .34 $ .27 Fully diluted $ 1.20 $ 1.00 $ .90 $ .79 $ .65 $ .53 $ .48 $ .43 $ .34 $ .26 Earnings per Share: Primary $ 1.35 $ 1.11 $ .93 $ .84 $ .68 $ .55 $ .48 $ .43 $ .34 $ .27 Fully diluted $ 1.20 $ 1.00 $ .88 $ .79 $ .65 $ .53 $ .48 $ .43 $ .34 $ .26 49PAGE Thermo Electron Corporation Ten Year Financial Summary (continued) (In millions except per share amounts) 1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985 ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- Balance Sheet Data: Working capital $1,150.7 $ 833.8 $ 508.7 $ 468.4 $ 244.1 $ 277.6 $ 220.1 $ 211.8 $ 124.5 $ 79.6 Total assets 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 528.5 465.0 336.0 243.1 Net assets related to construc- tion projects - 9.4 23.8 29.4 - - - - - - Long-term obligations 1,049.9 647.6 494.2 255.1 210.5 177.0 152.9 136.1 61.4 49.5 Minority interest 327.7 277.7 164.3 122.5 83.9 51.8 22.6 25.8 20.1 6.6 Common stock of subsid- iaries subject to redemption - 14.5 5.5 5.5 8.7 13.1 - - - - Shareholders' investment 1,007.5 873.7 563.8 489.5 314.1 229.2 196.4 175.3 154.5 107.7 (a) Reflects the issuance of $345.0 million principal amount of convertible debentures. (b) Reflects the Company's 1993 public offering of common stock for net proceeds of $246.0 million. (c) Reflects the August 1992 acquisition of Nicolet Instrument Corporation and the issuance of $260.0 million principal amount of convertible debentures. (d) Reflects the issuance of $164.0 million principal amount of convertible debentures. (e) Reflects the May 1990 acquisition of Finnigan Corporation. (f) Reflects the adoption in fiscal 1992 of Statement of Financial Accounting Standards No. 106, "Accounting for Post-retirement Benefits Other Than Pensions".
50 EX-23 3 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 10, 1995 (except with respect to the matters discussed in Note 15 as to which the date is July 20, 1995) included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Amendment No. 2 on Form 10-K/A for the year ended December 31, 1994 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. 33-57129 on Form S-4, Registration Statement No. 33-59544 on Form S-3, and Registration Statement No. 33-58487 on Form S-8. Arthur Andersen LLP Boston, Massachusetts August 1, 1995 EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1994 DEC-31-1994 383,005 614,915 347,444 21,664 233,382 1,711,624 811,325 186,437 3,061,935 560,892 1,049,850 53,558 0 0 953,928 3,061,935 1,418,306 1,729,191 824,845 1,078,290 84,104 4,255 59,844 206,376 70,703 104,711 0 0 0 104,711 1.35 1.20 THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF PRODUCTS", "COST OF SERVICES", AND "RESEARCH AND DEVELOPMENT CONTRACTS". THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COSTS ASSOCIATED WITH DIVISIONAL AND PRODUCT RESTRUCTURING", "INTERNALLY FUNDED RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
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