-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NjuLIUeDrJR2+lIAyWg2VTvGEvgDV64Y/mM6BG3TWXIi9eHqz/byWlEz0RCYB3Mp 1Janb593CwD8KKfdlnkeNQ== 0000097745-96-000050.txt : 19961107 0000097745-96-000050.hdr.sgml : 19961107 ACCESSION NUMBER: 0000097745-96-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961106 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08002 FILM NUMBER: 96655475 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------------------------- FORM 10-Q (mark one) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended September 28, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number 1-8002 THERMO ELECTRON CORPORATION (Exact name of Registrant as specified in its charter) Delaware 04-2209186 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at October 25, 1996 ----------------------------- ------------------------------- Common Stock, $1.00 par value 149,277,658 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO ELECTRON CORPORATION Consolidated Balance Sheet (Unaudited) Assets September 28, December 30, (In thousands) 1996 1995 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 506,528 $ 462,861 Short-term available-for-sale investments, at quoted market value (amortized cost of $1,202,022 and $588,471) 1,204,981 593,802 Accounts receivable, less allowances of $35,345 and $29,318 595,427 493,313 Unbilled contract costs and fees 73,652 74,941 Inventories: Raw materials and supplies 228,223 175,346 Work in process 96,557 72,768 Finished goods 116,381 84,672 Prepaid income taxes 94,796 75,685 Prepaid expenses 33,829 23,204 ---------- ---------- 2,950,374 2,056,592 ---------- ---------- Property, Plant and Equipment, at Cost 985,866 977,816 Less: Accumulated depreciation and amortization 291,108 262,228 ---------- ---------- 694,758 715,588 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $52,750 and $60,780) 66,556 61,845 ---------- ---------- Long-term Held-to-maturity Investments (quoted market value of $25,632 and $24,942) 25,138 23,819 ---------- ---------- Other Assets 128,820 101,138 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Note 6) 1,083,854 827,357 ---------- ---------- $4,949,500 $3,786,339 ========== ========== 2PAGE THERMO ELECTRON CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment September 28, December 30, (In thousands except share amounts) 1996 1995 ------------------------------------------------------------------------ Current Liabilities: Notes payable and current maturities of long-term obligations $ 156,909 $ 112,280 Accounts payable 188,287 172,823 Accrued payroll and employee benefits 123,972 93,930 Accrued income taxes 69,164 52,055 Accrued installation and warranty costs 67,055 41,548 Accrued acquisition expenses (Note 6) 49,030 32,557 Other accrued expenses 274,710 234,253 ---------- ---------- 929,127 739,446 ---------- ---------- Deferred Income Taxes and Other Deferred Items 163,167 129,926 ---------- ---------- Long-term Obligations: Senior convertible obligations 210,835 458,925 Subordinated convertible obligations (Note 5) 1,028,906 343,076 Tax-exempt obligations - 128,567 Nonrecourse tax-exempt obligations 77,900 94,700 Other 90,745 92,809 ---------- ---------- 1,408,386 1,118,077 ---------- ---------- Minority Interest 677,807 471,648 ---------- ---------- Common Stock of Subsidiaries Subject to Redemption ($78,566 redemption value) 73,533 17,513 ---------- ---------- Shareholders' Investment (Note 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 149,109,766 and 89,006,032 shares issued 149,110 89,006 Capital in excess of par value 805,754 614,363 Retained earnings 741,680 604,496 Treasury stock at cost, 53,441 and 11,574 shares (2,171) (536) Cumulative translation adjustment (5,256) 608 Deferred compensation (2,013) (2,271) Net unrealized gain on available-for-sale investments 10,376 4,063 ---------- ---------- 1,697,480 1,309,729 ---------- ---------- $4,949,500 $3,786,339 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Income (Unaudited) Three Months Ended ---------------------------- September 28, September 30, (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Revenues: Product and service revenues $700,342 $537,850 Research and development contract revenues 39,639 48,138 -------- -------- 739,981 585,988 -------- -------- Costs and Expenses: Cost of product and service revenues 409,185 321,960 Expenses for research and development and new lines of business (a) 77,034 68,288 Selling, general and administrative expenses 175,691 126,656 Restructuring and other nonrecurring costs (Note 4) 6,284 19,845 -------- -------- 668,194 536,749 -------- -------- Operating Income 71,787 49,239 Gain on Issuance of Stock by Subsidiaries (Note 2) 38,470 43,059 Other Income (Expense), Net (Note 3) 1,082 (4,482) -------- -------- Income Before Income Taxes and Minority Interest 111,339 87,816 Provision for Income Taxes 31,939 23,371 Minority Interest Expense 28,158 25,901 -------- -------- Net Income $ 51,242 $ 38,544 ======== ======== Earnings per Share: Primary $ .36 $ .30 ======== ======== Fully diluted $ .32 $ .27 ======== ======== Weighted Average Shares: Primary 142,791 127,733 ======== ======== Fully diluted 175,815 159,326 ======== ======== (a) Includes costs of: Research and development contracts $ 34,169 $ 40,942 Internally funded research and development 42,362 26,493 Other expenses for new lines of business 503 853 -------- -------- $ 77,034 $ 68,288 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Income (Unaudited) Nine Months Ended ----------------------------- September 28, September 30, (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Revenues: Product and service revenues $2,013,840 $1,477,898 Research and development contract revenues 124,285 145,435 ---------- ---------- 2,138,125 1,623,333 ---------- ---------- Costs and Expenses: Cost of product and service revenues 1,209,280 881,247 Expenses for research and development and new lines of business (a) 221,675 201,855 Selling, general and administrative expenses 510,238 365,162 Restructuring and other nonrecurring costs (Note 4) 32,264 21,938 ---------- ---------- 1,973,457 1,470,202 ---------- ---------- Operating Income 164,668 153,131 Gain on Issuance of Stock by Subsidiaries (Note 2) 110,857 65,632 Other Expense, Net (Note 3) (6,339) (7,772) ---------- ---------- Income Before Income Taxes and Minority Interest 269,186 210,991 Provision for Income Taxes 74,589 66,155 Minority Interest Expense 57,413 43,558 ---------- ---------- Net Income $ 137,184 $ 101,278 ========== ========== Earnings per Share: Primary $ .99 $ .81 ========== ========== Fully diluted $ .89 $ .71 ========== ========== Weighted Average Shares: Primary 138,853 125,058 ========== ========== Fully diluted 175,660 159,057 ========== ========== (a) Includes costs of: Research and development contracts $ 106,140 $ 125,203 Internally funded research and development 113,894 74,110 Other expenses for new lines of business 1,641 2,542 ---------- ---------- $ 221,675 $ 201,855 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended ---------------------------- September 28, September 30, (In thousands) 1996 1995 ------------------------------------------------------------------------- Operating Activities: Net cash provided by operating activities $ 167,317 $ 105,382 ----------- ----------- Investing Activities: Acquisitions, net of cash acquired (Note 6) (371,825) (213,359) Purchases of available-for-sale investments (1,045,868) (351,906) Purchases of long-term held-to-maturity investments - (22,300) Proceeds from sale and maturities of available-for-sale investments 462,611 420,147 Purchases of property, plant and equipment (93,280) (42,580) Proceeds from sale of property, plant and equipment 5,417 5,655 Issuance of notes receivable (16,684) - Other 324 (12,885) ----------- ----------- Net cash used in investing activities (1,059,305) (217,228) ----------- ----------- Financing Activities: Decrease in short-term notes payable (13,915) (5,022) Net proceeds from issuance of long-term obligations (Note 5) 799,900 132,426 Repayment and repurchase of long-term obligations (51,792) (30,060) Net proceeds from issuance of Company and subsidiary common stock (Note 2) 265,114 145,844 Purchases of subsidiary common stock (54,844) (75,351) Other (10,078) 593 ----------- ----------- Net cash provided by financing activities 934,385 168,430 ----------- ----------- Exchange Rate Effect on Cash 1,270 2,045 ----------- ----------- Increase in Cash and Cash Equivalents 43,667 58,629 Cash and Cash Equivalents at Beginning of Period 462,861 383,005 ----------- ----------- Cash and Cash Equivalents at End of Period $ 506,528 $ 441,634 =========== =========== 6PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended ---------------------------- September 28, September 30, (In thousands) 1996 1995 ------------------------------------------------------------------------- Noncash activities: Conversions of Company and subsidiaries' convertible obligations $ 363,475 $ 88,210 =========== =========== Fair value of assets of acquired companies $ 648,233 $ 179,661 Cash paid for acquired companies (389,913) (102,722) Issuance of Company and subsidiaries' common stock and stock options for acquired companies (2,351) (7,780) Issuance of long-term obligations for acquired company - (22,300) ----------- ----------- Liabilities assumed of acquired companies $ 255,969 $ 46,859 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 7PAGE THERMO ELECTRON CORPORATION Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements presented have been prepared by Thermo Electron Corporation (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at September 28, 1996, the results of operations for the three- and nine-month periods ended September 28, 1996 and September 30, 1995, and the cash flows for the nine-month periods ended September 28, 1996 and September 30, 1995. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 30, 1995, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 30, 1995, filed with the Securities and Exchange Commission. 2. Issuance of Stock by Subsidiaries Gain on issuance of stock by subsidiaries in the accompanying statement of income for the three- and nine-month periods ended September 28, 1996, resulted primarily from the following: Initial public offering of 3,450,000 shares of ThermoQuest Corporation common stock in March and April 1996 at $15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2 million that was recorded by the Company's Thermo Instrument Systems Inc. subsidiary. Private placement of 300,000 shares of Thermedics Detection Inc. common stock in March 1996 at $10.00 per share for net proceeds of $3.0 million resulted in a gain of $2.5 million that was recorded by the Company's Thermedics Inc. subsidiary. Initial public offering of 2,875,000 shares of Thermo Sentron Inc. common stock in April 1996 at $16.00 per share for net proceeds of $42.3 million resulted in a gain of $18.0 million that was recorded by Thermedics. Initial public offering of 3,450,000 shares of Thermo Optek Corporation common stock in June and July 1996 at $13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1 million that was recorded by Thermo Instrument. 8PAGE THERMO ELECTRON CORPORATION 2. Issuance of Stock by Subsidiaries (continued) Initial public offering of 2,875,000 shares of Trex Medical Corporation common stock and 871,832 shares of Trex Medical common stock in a concurrent rights offering in July 1996 at $14.00 per share for net proceeds of $49.1 million resulted in a gain of $25.6 million recorded by the Company's ThermoTrex Corporation subsidiary. Initial public offering of 1,500,000 shares of Thermo BioAnalysis Corporation common stock in September 1996 at $14.00 per share for net proceeds of $18.6 million resulted in a gain of $8.8 million that was recorded by Thermo Instrument. 3. Other Income (Expense), Net The components of other income (expense), net, in the accompanying statement of income are as follows: Three Months Ended Nine Months Ended --------------------- --------------------- Sept. 28, Sept. 30, Sept. 28, Sept. 30, (In thousands) 1996 1995 1996 1995 -------------------------------------------------------------------------- Interest income $ 24,336 $ 16,066 $ 68,076 $ 45,657 Interest expense (21,820) (20,154) (75,056) (57,024) Equity in income (loss) of unconsolidated subsidiaries 104 (956) (162) (315) Gain on sale of investments 3,932 - 6,657 - Other income (expense), net (5,470) 562 (5,854) 3,910 -------- -------- -------- -------- $ 1,082 $ (4,482) $ (6,339) $ (7,772) ======== ======== ======== ======== 4. Restructuring and Other Nonrecurring Costs During the third quarter of 1996, the Company recorded $6.3 million of nonrecurring costs, which included $4.4 million primarily for the write-off of a non-trade receivable and severance costs at the Company's wholly owned Peter Brotherhood Ltd. subsidiary; $1.3 million for the settlement of a pre-acquisition legal dispute and severance costs for terminated employees at the Company's wholly owned SensorMedics subsidiary; and $0.6 million for costs to close and relocate a foreign business to the U.S. at the Company's wholly owned Nicolet Biomedical subsidiary. During the second quarter of 1996, the Company recorded $22.5 million of nonrecurring costs, which included a write-off of $12.7 million of cost in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak Inc. subsidiary and $9.8 million of costs incurred by SensorMedics as a result of its merger with the Company 9PAGE THERMO ELECTRON CORPORATION 4. Restructuring and Other Nonrecurring Costs (continued) (Note 6). The write-off at Corpak was a result of Thermedics no longer intending to further invest in this business and analysis that indicates that the expected future undiscounted cash flows from this business will be insufficient to recover Thermedics' investment. The SensorMedics costs include employee compensation that became payable as a result of the merger with the Company, as well as certain investment banking fees and related transaction costs. During the first quarter of 1996, the Company wrote off $3.5 million of acquired technology in connection with the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc (Fisons) (Note 6). 5. Debenture Offering In January 1996, the Company issued and sold $585 million principal amount of 4 1/4% subordinated convertible debentures due 2003. The debentures are convertible into shares of the Company's common stock at a price of $37.80 per share. 6. Acquisitions On March 29, 1996, Thermo Instrument completed the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons, a wholly owned subsidiary of Rhone-Poulenc Rorer Inc., for approximately 123.7 million British pounds sterling in cash (approximately $189.2 million) and the assumption of approximately 30.8 million British pounds sterling of indebtedness (approximately $47.1 million). The purchase price is subject to post-closing adjustments equal to the amounts by which the net tangible assets and net debt of the acquired businesses on the closing date are greater or less than certain target amounts agreed to by the parties. Thermo Instrument and Fisons are attempting to agree on the required adjustment to the purchase price. Thermo Instrument is seeking a reduction in the purchase price based on its calculation of the net tangible assets of the acquired businesses. If the parties are unable to reach agreement, a firm of independent public accountants will be appointed to determine the adjustment. Although there can be no assurance that Thermo Instrument will receive a reduction in the purchase price from Fisons, any such adjustment would affect the purchase price allocation, including the amount allocated to cost in excess of net assets of acquired companies. In the first quarter of 1996, Thermo Instrument wrote off $3.5 million of acquired technology in connection with this acquisition. The businesses acquired are involved in the research, development, manufacture, and sale of analytical instruments to industrial and research laboratories worldwide. During the first nine months of 1996, the Company and its majority-owned subsidiaries made several other acquisitions for $200.7 million in cash and Company and subsidiary common stock valued at $2.4 million, subject to post-closing adjustments. 10PAGE THERMO ELECTRON CORPORATION 6. Acquisitions (continued) These acquisitions have been accounted for using the purchase method of accounting and the results of their operations have been included in the accompanying financial statements from their respective dates of acquisition. The cost of the acquisitions exceeded the estimated fair value of the acquired net assets by $302.3 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 is subject to adjustment upon finalization of the purchase price allocation. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. In connection with the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons, Thermo Instrument has undertaken a restructuring of the acquired businesses. In accordance with the requirements of Emerging Issues Task Force Pronouncement 95-3 (EITF 95-3), Thermo Instrument is in the process of developing a plan that is expected to include reductions in staffing levels, abandonment of excess facilities, and possible other costs associated with exiting certain activities of the acquired businesses. As part of the cost of the acquisition, Thermo Instrument established reserves totaling $35 million for estimated severance, excess facilities, and other exit costs associated with the acquisition, $10 million of which was expended during the first nine months of 1996, primarily for severance costs. Unresolved issues existing at September 28, 1996 included further identifying specific employees for termination and locations to be abandoned or consolidated, among other decisions concerning the integration of the acquired businesses into Thermo Instrument. In accordance with EITF 95-3, finalization of Thermo Instrument's plan for restructuring the acquired businesses will not occur beyond one year from the date of the acquisition. Any changes in estimates of these costs prior to such finalization will be recorded as adjustments to cost in excess of net assets of acquired companies. In June 1996, the Company acquired SensorMedics in exchange for 1,133,191 shares of Company common stock, in addition to 156,590 shares reserved for issuance upon exercise of stock options and warrants. SensorMedics provides systems for pulmonary function and sleep disorder diagnosis, as well as high-frequency ventilation for pediatric and neonatal care. SensorMedics also manufactures and markets respiratory gas analyzers, physiological testing equipment and recorders, and pulse oximeters. The acquisition has been accounted for under the pooling-of-interests method. Accordingly, historical information for 1995 and 1996 has been restated to include the results of SensorMedics. 11PAGE THERMO ELECTRON CORPORATION 6. Acquisitions (continued) Revenues and net income as previously reported by the separate entities prior to the acquisition and as restated for the combined Company, are as follows: Three Nine Months Ended Months Ended ------------------ ------------------ (In thousands) September 30, 1995 September 30, 1995 ------------------------------------------------------------------------ Revenues: Previously reported $ 570,373 $1,577,639 SensorMedics 15,615 45,694 ---------- ---------- $ 585,988 $1,623,333 ========== ========== Net Income: Previously reported $ 38,133 $ 100,265 SensorMedics 411 1,013 ---------- ---------- $ 38,544 $ 101,278 ========== ========== 7. Stock Split All share and per share information, except for share information in the accompanying 1995 balance sheet, has been restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, which was distributed in June 1996. 8. Litigation Cogeneration Joint Venture The previously disclosed settlement agreement between Florida Power and Light (FPL) and the joint venture of the Company and Rolls-Royce, Inc., pertaining to the Dade County cogeneration plant, was approved by the Florida Public Service Commission and became effective during the third quarter of 1996. The settlement includes (i) the continued closure of the plant but the availability of its capacity for potential dispatch by FPL, (ii) ongoing payments by FPL of the plant's lease payments and operation and maintenance costs, and a one-time cash payment of which the Company's share was $1,480,000, and (iii) termination of all related litigation and regulatory proceedings. The Company has evaluated its reserves established for this and other legal contingencies and has concluded that no adjustment to such reserves is necessary. 12PAGE THERMO ELECTRON CORPORATION 9. Subsequent Event In October 1996, Thermo Instrument issued and sold $172.5 million principal amount of 4 1/2% senior convertible debentures due 2003. The debentures are convertible into shares of Thermo Instrument's common stock at a price of $43.07 per share and are guaranteed by the Company. In lieu of issuing all or a portion of Thermo Instrument's common stock upon conversion, Thermo Instrument has the option to deliver shares of the Company's common stock with an aggregate value equal to the market value of Thermo Instrument's common stock otherwise issuable upon such conversion. The Company has agreed to sell, at market prices, such number of shares of its common stock to Thermo Instrument as Thermo Instrument may require to exercise such option. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. These statements involve a number of risks and uncertainties, including those detailed in Item 5 of this Quarterly Report on Form 10-Q. Results of Operations Third Quarter 1996 Compared With Third Quarter 1995 Sales for the third quarter of 1996 were $740.0 million, an increase of $154.0 million, or 26%, over the third quarter of 1995. Segment income, excluding restructuring and other nonrecurring costs of $6.3 million in 1996 and $19.8 million in 1995 described below, increased 15% to $85.9 million from $74.4 million in 1995. (Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, and income taxes.) Operating income, which includes restructuring and other nonrecurring costs, was $71.8 million in 1996, compared with $49.2 million in 1995. Financial results for 1995 have been restated to include SensorMedics Corporation, which was acquired in a pooling-of-interests transaction in June 1996 (Note 6). Sales from the Instruments segment were $315.3 million in 1996, an increase of $121.4 million, or 63%, over 1995. Sales increased primarily due to acquisitions made by Thermo Instrument Systems Inc., which added $116.4 million of sales in 1996. The remainder of the increase resulted primarily from greater demand experienced by Thermo Instrument's mass spectrometry business as a result of a product introduced in the first quarter of 1996 and, to a lesser extent, greater demand for Fourier transform infrared and atomic absorption and atomic emission spectrometry products. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the Company operates decreased segment revenues by $4.3 million in 1996. Segment income margin (segment income margin is 13PAGE THERMO ELECTRON CORPORATION Third Quarter 1996 Compared With Third Quarter 1995 (continued) segment income as a percentage of sales) was 12.3% in 1996, compared with 13.3% in 1995. Segment income margin declined primarily due to lower margins at acquired businesses, including the businesses formerly included within the Scientific Instruments Division of Fisons plc. Sales from the Alternative-energy Systems segment were $91.9 million in 1996, an increase of $2.7 million, or 3%, over 1995. Within this segment, revenues from Thermo Ecotek Corporation, which consist primarily of revenues from biomass power plant operations, were $47.0 million in 1996, compared with $42.1 million in 1995. This increase resulted from higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire, an increase in revenues at the Delano plants in California resulting from full operation for the quarter compared with a paid curtailment program negotiated with the power purchaser in 1995, and an acquisition that added $1.2 million in revenues. In July 1996, the Company sold its waste-recycling facility in southern California, which had revenues of $4.9 million in 1995. Sales from Thermo Power Corporation were $31.1 million in 1996, compared with $28.5 million in 1995. This increase resulted primarily from greater demand for custom-designed industrial refrigeration packages and, to a lesser extent, increased demand for remanufactured commercial cooling equipment, offset in part by lower demand for rental equipment resulting from generally lower temperatures in 1996 compared with 1995. Sales at Peter Brotherhood Ltd. declined 3% to $13.9 million due to lower demand. Segment income from the Alternative-energy Systems segment was $16.0 million in 1996, compared with $19.4 million in 1995, excluding restructuring and other nonrecurring costs of $4.4 million in 1996 and $11.5 million in 1995. Thermo Ecotek had segment income of $16.8 million in 1996, compared with $16.0 million in 1995. This improvement resulted primarily from increased revenues. Segment income from the Company's waste-recycling facility in Southern California was $1.7 million in 1995. Results for this facility, net of related interest expense (not included in segment income), were approximately at a breakeven level for the third quarter of 1996. Segment income at Thermo Power declined to $0.4 million from $2.3 million due to changes in sales mix, higher depreciation expense incurred at its NuTemp subsidiary as a result of an increase in NuTemp's rental assets, and higher warranty expenses for marine-engine products. Thermo Power has experienced a cost increase in one of the major components of its industrial refrigeration packages, which is expected to adversely affect the gross profit margin contributed by these products. Peter Brotherhood incurred a segment loss of $1.1 million in 1996, compared with a loss of $0.6 million in 1995. This decline results from lower sales, increased costs to complete jobs in process, and competitive pricing pressures. Restructuring and other nonrecurring costs of $4.4 million in 1996 primarily represent the write-off of a non-trade receivable and severance costs incurred at Peter Brotherhood. The 1995 costs of $11.5 million represents the write-off of the Company's net investment in its waste-recycling facility in southern California. This facility was sold in July 1996, with no material additional gain or loss resulting from the sale. 14PAGE THERMO ELECTRON CORPORATION Third Quarter 1996 Compared With Third Quarter 1995 (continued) Sales in the Process Equipment segment were $56.2 million in 1996, compared with $92.6 million in 1995. A wholly owned subsidiary of the Company recorded revenues from an office wastepaper de-inking contract of $1.6 million in 1996 and $28.1 million in 1995. This contract was substantially completed in the first quarter of 1996. Sales from Thermo Fibertek Inc. decreased to $46.1 million in 1995 from $56.2 million in 1995, primarily due to a decrease of $4.7 million in revenues earned under a subcontract with the Company to supply equipment and services for the office wastepaper de-inking facility described above, and a $4.5 million decrease in recycling revenues primarily due to a decrease in demand resulting from depressed de-inked pulp prices. Revenues from Thermo Fibertek's accessories business decreased $0.4 million due to a $1.5 million decrease from the North American business, which primarily reflects a large order shipped in the third quarter of 1995, offset in part by a $1.1 million increase from Thermo Fibertek's Lamort subsidiary, primarily as a result of increased demand. Sales of Thermo TerraTech Inc.'s thermal-processing equipment increased $1.1 million primarily due to an increase in demand, while sales from the Company's wholly owned Napco Inc. subsidiary's automated electroplating equipment business declined $1.0 million. Segment income margin, excluding restructuring and other nonrecurring costs of $7.5 million in 1995, was 15.1% in 1996, compared with 11.7% in 1995. This improvement resulted primarily from a nonrecurring payment received under the office wastepaper de-inking contract in 1996, which represents certain cost savings on the contract, and increased revenues from Thermo TerraTech's thermal-processing equipment business. Restructuring and other nonrecurring costs of $7.5 million in 1995 represents the write-off of costs in excess of net assets of acquired companies, of which $5.0 million was recorded by Thermo TerraTech and $2.5 million was recorded by Napco. Sales in the Biomedical Products segment were $115.2 million in 1996, an increase of $38.1 million, or 49%, over 1995. This increase is primarily due to the inclusion of $33.6 million in revenues from acquired businesses. Segment income margin, excluding restructuring and other nonrecurring costs of $1.9 million in 1996, improved to 13.5% in 1996 from 10.6% in 1995, primarily as a result of increased sales, offset in part by lower margins at certain acquired businesses. Restructuring and other nonrecurring costs of $1.9 million include $1.3 million recorded by SensorMedics for settlement of a pre-acquisition legal dispute and severance costs for terminated employees, and $0.6 million recorded by Nicolet Biomedical to close and relocate a foreign business to the U.S. The Company's Thermo Cardiosystems Inc. subsidiary has signed a letter of intent to acquire a company principally engaged in research and development, for a purchase price of $5.0 million. Should Thermo Cardiosystems complete the acquisition, it expects that a substantial portion of the purchase price would represent acquired technology under development and, accordingly, would be recorded as an expense in the period in which the acquisition occurs. Sales in the Environmental Services segment were $68.4 million in 1996, an increase of $12.9 million, or 23%, over 1995. Revenues from Thermo TerraTech's remediation and recycling services were $30.8 million in 1996, compared with $17.1 million in 1995, primarily due to the 15PAGE THERMO ELECTRON CORPORATION Third Quarter 1996 Compared With Third Quarter 1995 (continued) inclusion of $13.7 million in revenues from acquired businesses and, to a lesser extent, higher revenues from health physics services. Revenues from soil-remediation services decreased 21% resulting from declines in the volume of soil processed due to reduced compliance requirements and/or enforcement activities in several states and competitive pricing pressures. Revenues from laboratory-testing services, excluding the radiochemistry laboratory services included in remediation and recycling services, decreased to $8.3 million in 1996 from $10.2 million in 1995, largely due to reduced federal spending. Sales of metallurgical services increased to $11.4 million in 1996, compared with $9.9 million in 1995 primarily due to increased demand. Segment income declined to $3.1 million in 1996, compared with $6.8 million in 1995, primarily due to a decline in traditionally higher-margin soil-remediation revenues due to lower volumes of soil processed and to lower margins resulting from competitive pricing pressures for this business, and costs incurred within laboratory testing services to eliminate redundant capabilities at regional laboratories. Sales from the Advanced Technologies segment were $94.7 million in 1996, compared with $78.9 million in 1995. Sales increased $19.3 million due to the inclusion of revenues from acquired businesses. Sales from ThermoLase Corporation's hair-removal business were $2.0 million, which includes $0.7 million in SoftLight(SM) licensing fees from a Japanese joint venture established in January 1996. Lower U.S. government contract funding resulted in a 14% decline in sales at Coleman Research Corporation to $34.3 million. Segment income, excluding restructuring and other nonrecurring costs of $0.9 million in 1995, was $4.1 million in 1996, compared with $3.3 million in 1995. Segment income provided by acquired companies and additional income from certain businesses were offset in part by a loss at ThermoTrex Corporation's advanced technology research center, resulting from cost overruns and higher expenses to develop new lines of business and, to a lesser extent, the decline in contract revenues at Coleman Research. Restructuring and other nonrecurring costs of $0.9 million in 1995 were recorded by ThermoTrex and represent primarily the write-off of intangible assets of a small operation. 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 subsidiary through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiary's 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 recorded gains of $38.5 million in 1996 and $43.1 million in 1995 (Note 2). Minority interest expense increased to $28.2 million in 1996 from $25.9 million in 1995. Minority interest expense includes $15.1 million in 1996 and $18.5 million in 1995 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock by their subsidiaries. 16PAGE THERMO ELECTRON CORPORATION First Nine Months 1996 Compared With First Nine Months 1995 Sales for the first nine months of 1996 were $2,138.1 million, an increase of $514.8 million, or 32%, over the 1995 period. Segment income, excluding restructuring and other nonrecurring costs of $32.3 million in 1996 and $21.9 million in 1995, was $219.9 million in the 1996 period and $192.3 million in the 1995 period. Operating income, which includes restructuring and other nonrecurring costs, was $164.7 million in 1996 and $153.1 million in 1995. Sales from the Instruments segment were $862.4 million, an increase of $309.8 million, or 56%, over 1995. Sales increased primarily due to acquisitions made by Thermo Instrument, which added $287.0 million of sales in 1996. The remainder of the increase resulted from greater demand at Thermo Instrument's mass spectrometry and Fourier transform infrared businesses as a result of recently introduced products. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the Company operates decreased revenues by $14.3 million in 1996. Segment income margin declined to 11.1% in 1996 from 14.2% in 1995, excluding the effect of a $3.5 million write-off of acquired technology resulting from an acquisition, primarily due to lower margins at acquired businesses. Sales from the Alternative-energy Systems segment were $258.9 million in 1996, compared with $244.6 million in 1995. Within this segment, revenues from Thermo Ecotek were $115.8 million in 1996, compared with $107.1 million in 1995. This increase resulted from higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire, increased revenues at the Delano plants in California resulting from fewer days of scheduled and unscheduled outages, and an acquisition, which added $1.7 million in revenues. Revenues from the Company's waste-recycling facility in southern California were $9.2 million in 1996, compared with $17.4 million in 1995. This facility was sold in July 1996. Sales at Peter Brotherhood increased 2% to $40.8 million as a result of increased demand for steam turbines. Sales from Thermo Power were $93.3 million in 1996, compared with $80.9 million in 1995. This increase resulted from increased demand for custom-designed industrial refrigeration packages, remanufactured commercial cooling equipment, natural gas TecoDrive(R) engines, and the inclusion of revenues from lift-truck engines, offset in part by declines in revenues from rental equipment and marine-engine products. Segment income from the Alternative-energy Systems segment was $32.6 million in 1996, compared with $33.9 million in 1995, excluding restructuring and other nonrecurring costs of $4.4 million in 1996 and $11.5 million in 1995, discussed in the results of operations for the third quarter. Thermo Ecotek had segment income of $29.5 million in 1996, compared with $26.5 million in 1995. This improvement results from increased revenues and also lower fuel costs at Thermo Ecotek's California plants. Segment income from the Company's waste-recycling facility was $4.6 million in 1996 and $3.9 million in 1995. Results from this facility, net of related interest expense (not included in segment income), were approximately at the breakeven level for both periods. Segment income at Thermo Power declined by $3.4 million due to a change 17PAGE THERMO ELECTRON CORPORATION First Nine Months 1996 Compared With First Nine Months 1995 (continued) in sales mix, lost production time at FES during severe winter storms, higher depreciation expense at NuTemp, and higher marine-engine warranty expenses. Peter Brotherhood incurred a segment loss of $2.4 million in 1996, compared with a loss of $0.9 million in 1995. The decline resulted from increased costs to complete jobs in process as well as competitive pricing pressures. Sales in the Process Equipment segment were $226.9 million in 1996, compared with $222.5 million in 1995. Sales from Thermo Fibertek declined 4%, to $143.7 million. Revenues under a subcontract from Thermo Electron decreased $11.6 million as discussed in the results of operations for the third quarter. Revenues from Thermo Fibertek's recycling business declined an additional $3.6 million due to lower demand resulting from depressed de-inked pulp prices. Revenues from Thermo Fibertek's North American and Lamort subsidiaries' accessories business increased $8.6 million principally due to increased demand. The effects of currency translation reduced Thermo Fibertek's revenue by $1.3 million in 1996. A wholly owned subsidiary of the Company recorded revenues from an office wastepaper de-inking contract of $57.1 million in 1996 and $47.6 million in 1995. This contract was substantially completed in the first quarter of 1996. Sales of Thermo TerraTech's thermal-processing equipment increased $5.8 million due to increased demand, while sales of automated electroplating equipment from Napco declined $5.1 million. Segment income margin, excluding restructuring and other nonrecurring costs of $7.5 million in 1995, was 11.9% in 1996, compared with 11.4% in 1995. The restructuring and other nonrecurring costs were discussed in the results of operations for the third quarter. Sales in the Biomedical Products segment were $318.7 million in 1996, an increase of $102.7 million, or 48%, over 1995. Sales were primarily affected by the factors discussed in the results of operations for the third quarter, including an increase of $86.4 million due to acquisitions. Segment income margin improved to 12.3% in 1996 from 10.9% in 1995, excluding restructuring and other nonrecurring costs of $24.4 million in 1996. This improvement in margin resulted from increased sales. In addition to the $1.9 million of restructuring and other nonrecurring costs discussed in the results of operations for the third quarter, the Company recorded $22.5 million of such costs in the second quarter of 1996, which consisted of a write-off of $12.7 million of costs in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak Inc. subsidiary and $9.8 million of costs incurred by SensorMedics as a result of its merger with the Company. The write-off at Corpak was a result of Thermedics no longer intending to further invest in this business and analysis that indicates that the expected future undiscounted cash flows from this business will be insufficient to recover its investment. Sales in the Environmental Services segment were $196.8 million, an increase of $42.9 million, or 28%, over 1995. Revenues from Thermo TerraTech's remediation and recycling services were $83.5 million in 18PAGE THERMO ELECTRON CORPORATION First Nine Months 1996 Compared With First Nine Months 1995 (continued) 1996, compared with $47.8 million in 1995, primarily due to the inclusion of $35.3 million in revenues from acquired businesses. This increase was offset in part by declines at Thermo EuroTech and Thermo TerraTech's radiochemistry laboratory businesses, reflecting a reduction in spending at the Department of Energy and reduced federal government budget appropriations. Revenues from soil-remediation services declined $2.6 million in 1996 due to the reasons discussed in the results of operations for the third quarter. Sales of metallurgical services were $32.7 million in 1996, compared with $33.4 million in 1995. Sales declined $2.9 million as a result of closing a small plant in 1995, mostly offset by increased demand for existing products. Segment income, before restructuring and other nonrecurring costs of $1.5 million in 1995, was $12.6 million in 1996, compared with $16.9 million in 1995. Segment income from acquisitions was more than offset by a loss of $2.9 million incurred at Thermo EuroTech, resulting primarily from the settlement of several contract disputes, as well as severe winter weather, which affected all phases of Thermo EuroTech's business, and due to lower income from soil-remediation services, which was affected by the factors discussed in the results of operations for the third quarter. In 1995, a wholly owned subsidiary of the Company recorded restructuring and other nonrecurring costs of $1.5 million as a result of the decision to close a metallurgical services division located in Albuquerque, New Mexico. Sales from the Advanced Technologies segment were $280.3 million in 1996, compared with $237.7 million in 1995. Sales increased $53.1 million due to the inclusion of sales from acquired businesses and increased $4.6 million due to sales from ThermoLase's hair-removal business. These increases were offset in part by a decline of $10.7 million in sales of Thermedics' process-detection instruments to the beverage industry, resulting from a major customer substantially completing its deployment of product quality assurance systems, and declines due to lower U.S. government contract funding at Coleman Research and ThermoTrex. Segment income declined $1.3 million in 1996 to $13.1 million due to the reasons discussed in the results of operations for the third quarter. The Company recorded gains as a result of the sale of stock by subsidiaries of $110.9 million in 1996 and $65.6 million in 1995. (Note 2). Minority interest expense increased to $57.4 million in 1996 from $43.6 million in 1995. Minority interest expense includes $33.9 million in 1996 and $21.6 million in 1995 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock by their subsidiaries. Liquidity and Capital Resources Consolidated working capital was $2,021.2 million at September 28, 1996, compared with $1,317.1 million at December 30, 1995. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,711.5 million at September 28, 1996, compared with $1,056.7 million at December 30, 1995. In addition, at September 28, 1996, the Company had $66.6 million of long-term available-for-sale investments and $25.1 million of long-term held-to-maturity investments, compared with $61.8 million of long-term 19PAGE THERMO ELECTRON CORPORATION Liquidity and Capital Resources (continued) available-for-sale investments and $23.8 million of long-term held-to-maturity investments at December 30, 1995. Of the $1,803.2 million of cash, cash equivalents, short- and long-term available- for-sale investments, and long-term held-to-maturity investments at September 28, 1996, $1,031.0 million was held by the Company's majority-owned subsidiaries, and the remainder by the Company and its wholly owned subsidiaries. Net proceeds from the issuance of Company and subsidiary common stock totaled $265.1 million in the first nine months of 1996. Net proceeds from the issuance of long-term obligations by the Company and its majority owned subsidiaries totaled $799.9 million during the first nine months of 1996 (Note 5). The Company and its majority-owned subsidiaries expended $51.8 million for the repayment and repurchase of long-term obligations. During the first nine months of 1996, the Company expended $389.9 million for acquisitions and $93.3 million for purchases of property, plant and equipment. In July 1996, the Company sold its waste-recycling facility in southern California to the facility's customer, the County of San Diego. In connection with the sale, the County assumed the outstanding debt on this facility, classified as "tax-exempt obligations" in the accompanying 1995 balance sheet. The Company has agreements or letters of intent to expend approximately $12 million on the acquisition of new businesses. These transactions are subject to various conditions to closing, and there can be no assurance that all of the transactions will be consummated. In the remainder of 1996, the Company plans to make capital expenditures of approximately $57 million. During the first nine months of 1996, the Company and its majority- owned subsidiaries expended $54.8 million to purchase the common stock of certain of the Company's subsidiaries. The Company expects that these purchases will continue, although the amount of purchases in a given reporting period may vary significantly. PART II - OTHER INFORMATION Item 5 - Other Information In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in 1996 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Risks Associated with Acquisition Strategy. The Company's strategy includes the acquisition of businesses that complement or augment the Company's existing products and services. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals, including antitrust approvals. Any acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that 20PAGE THERMO ELECTRON CORPORATION Item 5 - Other Information (continued) the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired businesses. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's stockholders. Risks Associated with Spinout of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the "Proposed Statement"). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in 1997. Competition. The Company encounters and expects to continue to encounter significant competition in the sale of its products and services. The Company's competitors include a number of large multinational corporations, some of which may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than the Company. Competition could increase if new companies enter the market or if existing competitors expand their product lines or intensify efforts within existing product lines. There can be no assurance that the Company's current products, products under development, or ability to develop new technologies will be sufficient to enable it to compete effectively. Risks Associated With International Operations. International sales account for a substantial portion of Company's revenues, and the Company intends to continue to expand its presence in international markets. International revenues are subject to a number of risks, including the following: agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign 21PAGE THERMO ELECTRON CORPORATION Item 5 - Other Information (continued) customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax the Company's foreign income, impose tariffs, or adopt other restrictions on foreign trade; fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; U.S. export licenses may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that any of these factors will not have a material adverse impact on the Company's business and results of operations. Rapid and Significant Technological Change and New Products. The markets for the Company's products are characterized by rapid and significant technological change, evolving industry standards and frequent new product introductions and enhancements. Many of the Company's products and products under development are technologically innovative, and require significant planning, design, development and testing, at the technological, product and manufacturing process levels. These activities require significant capital commitments and investment by the Company. In addition, products that are competitive in the Company's markets are characterized by rapid and significant technological change due to industry standards that may change on short notice and by the introduction of new products and technologies that render existing products and technologies uncompetitive or obsolete. There can be no assurance that any of the products currently being developed by the Company, or those to be developed in the future, will be technologically feasible or accepted by the marketplace, that any such development will be completed in any particular time frame, or that the Company's products or proprietary technologies will not become uncompetitive or obsolete. Possible Adverse Effect from Changes in Governmental Regulations. The Company competes in several markets which involve compliance by its customers with Federal, state, local, and foreign regulations, such as environmental, health and safety, and food and drug regulations. The Company develops, configures, and markets its products to meet customer needs created by such regulations. These regulations may be amended or eliminated in response to new scientific evidence or political or economic considerations. Any significant change in regulations could adversely affect demand for the Company's products in regulated markets. Risks Associated with Dependence on Capital Spending Policies and Government Funding. The Company's customers include pharmaceutical and chemical companies, laboratories, universities, health care providers, paper manufacturers, consumer product companies, government agencies, and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for the Company's products. Such spending is based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of equipment, public policy, and the effects of different economic cycles. Any decrease in capital spending by any of the customer 22PAGE THERMO ELECTRON CORPORATION Item 5 - Other Information (continued) groups that account for a significant portion of the Company's sales could have a material adverse effect on the Company's business and results of operations. Dependence on Patents and Proprietary Rights. The Company places considerable importance on obtaining patent and trade secret protection for significant new technologies, products and processes because of the length of time and expense associated with bringing new products through the development process and to the marketplace. The Company's success depends in part on its ability to develop patentable products and obtain and enforce patent protection for its products both in the United States and in other countries. The Company owns numerous U.S. and foreign patents, and intends to file additional applications for patents as appropriate to cover its products. No assurance can be given that patents will issue from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology. In addition, no assurance can be given that any issued patents owned by or licensed to the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. The Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. Item 6 - Exhibits See Exhibit Index on page immediately preceding exhibits. 23PAGE 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 undersigned thereunto duly authorized as of the 6th day of November 1996. THERMO ELECTRON CORPORATION Paul F. Kelleher ------------------------- Paul F. Kelleher Vice President, Finance and Administration John N. Hatsopoulos ------------------------- John N. Hatsopoulos President and Chief Financial Officer 24PAGE THERMO ELECTRON CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit Page ------------------------------------------------------------------------ 10.1 Stock Holdings Assistance Plan and Form of Promissory Note. 11 Statement re: Computation of earnings per share. 27 Financial Data Schedule. EX-10.1 2 THERMO ELECTRON CORPORATION STOCK HOLDINGS ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Electron Corporation (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Guidelines. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo Electron Corporation, a Delaware corporation. Guidelines: The Stock Holdings Guidelines for Key Employees of the Company, as established by the Committee from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Instrument Systems Inc. Stock Holdings Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Guidelines shall be administered by the Committee, which shall have authority to interpret the Plan and the Guidelines and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's interpretations and decisions with regard to the Plan and the Guidelines and such rules and PAGE regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Guidelines, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Guidelines that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Guidelines is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Guidelines. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Guidelines, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable in five equal annual installments commencing on the first anniversary date of the making of such Loan. Each Loan shall also become immediately due and payable in 2PAGE full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. 3PAGE SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Guidelines in any respect, or terminate the Plan or the Guidelines at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Guidelines by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Guidelines shall become effective upon approval and adoption by the Committee. 4PAGE EXHIBIT A THERMO ELECTRON CORPORATION Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Electron Corporation (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay the Company, on each of the first four anniversary dates of the date hereof, an amount equal to 20% of the initial principal amount of the Note. Payment of the final 20% of the initial principal amount, if no demand has been made by the Company, shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holdings Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, 5PAGE the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holdings Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-11 3 Exhibit 11 THERMO ELECTRON CORPORATION Computation of Earnings per Share Three Months Ended ---------------------------- September 28, September 30, 1996 1995 ------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share: Income: Net income $ 51,242,000 $ 38,544,000 Add: Convertible debenture interest, net of tax 5,688,000 3,798,000 ------------ ------------ Income applicable to common stock assuming full dilution (a) $ 56,930,000 $ 42,342,000 ------------ ------------ Shares: Weighted average shares outstanding 142,791,369 127,732,874 Add: Shares issuable from assumed conversion of convertible debentures 30,555,401 29,041,494 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,468,459 2,552,078 ------------ ------------ Weighted average shares outstanding, as adjusted (b) 175,815,229 159,326,446 ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ .32 $ .27 ============ ============ PAGE THERMO ELECTRON CORPORATION Computation of Earnings per Share (continued) Nine Months Ended ----------------------------- September 28, September 30, 1996 1995 ------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share: Income: Net income $137,184,000 $101,278,000 Add: Convertible debenture interest, net of tax 18,522,000 12,099,000 ------------ ------------ Income applicable to common stock assuming full dilution (a) $155,706,000 $113,377,000 ------------ ------------ Shares: Weighted average shares outstanding 138,853,385 125,058,179 Add: Shares issuable from assumed conversion of convertible debentures 34,286,379 31,446,397 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,520,701 2,552,078 ------------ ------------ Weighted average shares outstanding, as adjusted (b) 175,660,465 159,056,654 ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ .89 $ .71 ============ ============ EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-28-1996 SEP-28-1996 506,528 1,204,981 630,772 35,345 441,161 2,950,374 985,866 291,108 4,949,500 929,127 1,408,386 0 0 149,110 1,548,370 4,949,500 2,013,840 2,138,125 1,209,280 1,315,419 147,800 4,343 75,056 269,186 74,589 137,184 0 0 0 137,184 .99 .89 THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF PRODUCT AND SERVICE REVENUES" AND "RESEARCH AND DEVELOPMENT CONTRACTS". THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "RESTRUCTURING AND OTHER NONRECURRING COSTS", "INTERNALLY FUNDED RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
-----END PRIVACY-ENHANCED MESSAGE-----