-----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, QPsabCmn1nJhklvHrg9f+apyIdEpCVahIYVcmUxPTreDSgY+Ym+jDwKSs5uLkYHg fSMk06hXm3htl1zKuHV+7A== 0000097745-97-000097.txt : 19970507 0000097745-97-000097.hdr.sgml : 19970507 ACCESSION NUMBER: 0000097745-97-000097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970506 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08002 FILM NUMBER: 97596826 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 March 29, 1997. [ ] 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 April 25, 1997 ----------------------------- ----------------------------- Common Stock, $1.00 par value 150,154,290 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO ELECTRON CORPORATION Consolidated Balance Sheet (Unaudited) Assets March 29, December 28, (In thousands) 1997 1996 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 341,753 $ 414,404 Short-term available-for-sale investments at quoted market value (amortized cost of $1,174,262 and $1,428,564) 1,174,930 1,431,881 Accounts receivable, less allowances of $38,784 and $34,321 668,728 616,545 Unbilled contract costs and fees 82,949 77,155 Inventories: Raw materials and supplies 248,317 236,297 Work in process 100,580 80,614 Finished goods 162,203 116,049 Prepaid income taxes 144,860 129,802 Prepaid expenses 43,552 29,082 ---------- ---------- 2,967,872 3,131,829 ---------- ---------- Property, Plant, and Equipment, at Cost 1,073,921 1,010,189 Less: Accumulated depreciation and amortization 319,935 305,742 ---------- ---------- 753,986 704,447 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $47,043 and $58,500) 56,040 68,807 ---------- ---------- Long-term Held-to-maturity Investments (quoted market value of $13,142 and $26,083) 13,086 25,594 ---------- ---------- Other Assets 132,227 127,632 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Note 5) 1,420,377 1,082,935 ---------- ---------- $5,343,588 $5,141,244 ========== ========== 2PAGE THERMO ELECTRON CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment March 29, December 28, (In thousands except share amounts) 1997 1996 ----------------------------------------------------------------------- Current Liabilities: Notes payable and current maturities of long-term obligations $ 284,225 $ 153,787 Accounts payable 206,639 203,643 Accrued payroll and employee benefits 122,637 122,079 Accrued income taxes 83,713 61,534 Accrued installation and warranty costs 70,533 69,006 Deferred revenue 56,444 45,715 Other accrued expenses 306,066 257,448 ---------- ---------- 1,130,257 913,212 ---------- ---------- Deferred Income Taxes and Other Deferred Items 162,192 162,746 ---------- ---------- Long-term Obligations: Senior convertible obligations 366,000 369,997 Subordinated convertible obligations 999,010 1,009,470 Nonrecourse tax-exempt obligations 59,500 77,900 Other 77,320 92,975 ---------- ---------- 1,501,830 1,550,342 ---------- ---------- Minority Interest 714,985 684,050 ---------- ---------- Common Stock of Subsidiaries Subject to Redemption ($81,179 redemption value) 76,876 76,525 ---------- ---------- Shareholders' Investment: Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 150,166,843 and 149,996,979 shares issued 150,167 149,997 Capital in excess of par value 775,697 801,793 Retained earnings 847,370 795,312 Treasury stock at cost, 28,684 and 15,520 shares (1,032) (570) Cumulative translation adjustment (20,613) (504) Deferred compensation (48) (58) Net unrealized gain on available-for-sale investments 5,907 8,399 ---------- ---------- 1,757,448 1,754,369 ---------- ---------- $5,343,588 $5,141,244 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Income (Unaudited) Three Months Ended ---------------------- March 29, March 30, (In thousands except per share amounts) 1997 1996 ----------------------------------------------------------------------- Revenues: Product and service revenues $722,625 $609,892 Research and development contract revenues 40,880 42,493 -------- -------- 763,505 652,385 -------- -------- Costs and Operating Expenses: Cost of product and service revenues 430,802 372,145 Expenses for research and development and new lines of business (a) 78,541 68,322 Selling, general, and administrative expenses 185,330 155,135 Restructuring and other nonrecurring costs (Note 4) 7,800 3,500 -------- -------- 702,473 599,102 -------- -------- Operating Income 61,032 53,283 Gain on Issuance of Stock by Subsidiaries (Note 2) 33,666 28,892 Other Income (Expense), Net (Note 3) 2,897 (5,915) -------- -------- Income Before Income Taxes and Minority Interest 97,595 76,260 Provision for Income Taxes 28,397 22,676 Minority Interest Expense 17,140 12,561 -------- -------- Net Income $ 52,058 $ 41,023 ======== ======== Earnings per Share: Primary $ .35 $ .31 ======== ======== Fully diluted $ .32 $ .27 ======== ======== Weighted Average Shares: Primary 150,070 133,635 ======== ======== Fully diluted 175,925 175,464 ======== ======== (a) Includes costs of: Research and development contracts $ 36,338 $ 35,859 Internally funded research and development 41,604 31,936 Other expenses for new lines of business 599 527 -------- -------- $ 78,541 $ 68,322 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (Unaudited) Three Months Ended -------------------------- March 29, March 30, (In thousands) 1997 1996 ------------------------------------------------------------------------ Operating Activities: Net cash provided by operating activities $ 32,131 $ 41,984 ----------- ----------- Investing Activities: Acquisitions, net of cash acquired (Note 5) (349,038) (265,203) Purchases of available-for-sale investments (207,237) (278,094) Proceeds from sale and maturities of available-for-sale investments 485,800 199,963 Purchases of property, plant, and equipment (23,103) (24,728) Proceeds from sale of property, plant, and equipment 2,673 1,183 Issuance of notes receivable (4,765) - Other 1,942 (999) ----------- ----------- Net cash used in investing activities (93,728) (367,878) ----------- ----------- Financing Activities: Increase (decrease) in short-term notes payable 11,858 (625) Net proceeds from issuance of long-term obligations - 609,049 Repayment and repurchase of long-term obligations (28,068) (3,487) Net proceeds from issuance of Company and subsidiary common stock 62,816 44,676 Purchases of subsidiary common stock (51,870) (12,789) Other (1,894) 713 ----------- ----------- Net cash provided by (used in) financing activities (7,158) 637,537 ----------- ----------- Exchange Rate Effect on Cash (3,896) 301 ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents (72,651) 311,944 Cash and Cash Equivalents at Beginning of Period 414,404 462,861 ----------- ----------- Cash and Cash Equivalents at End of Period $ 341,753 $ 774,805 =========== =========== 5PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Three Months Ended -------------------------- March 29, March 30, (In thousands) 1997 1996 ------------------------------------------------------------------------ Noncash activities: Conversions of Company and subsidiaries' convertible obligations $ 9,612 $ 95,933 =========== =========== Fair value of assets of acquired companies $ 619,372 $ 523,392 Cash paid for acquired companies (395,709) (278,789) Issuance of Company and subsidiaries' common stock and stock options for acquired companies (2,080) - ----------- ----------- Liabilities assumed of acquired companies $ 221,583 $ 244,603 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6PAGE 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 March 29, 1997, and the results of operations and cash flows for the three-month periods ended March 29, 1997, and March 30, 1996. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 28, 1996, 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 for the fiscal year ended December 28, 1996, 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-month period ended March 29, 1997, resulted primarily from the following: Initial public offering of 2,671,292 shares of Thermedics Detection Inc. common stock in March 1997 at $11.50 per share for net proceeds of $28.1 million resulted in a gain of $17.1 million that was recorded by the Company's Thermedics Inc. subsidiary. Private placement of 1,768,500 shares of ThermoQuest Corporation common stock in March 1997 at $15.00 per share for net proceeds of $24.8 million resulted in a gain of $12.0 million that was recorded by the Company's Thermo Instrument Systems Inc. subsidiary. Private placement of 850,000 shares of Thermo Information Solutions Inc. common stock in March 1997 at $9.00 per share for net proceeds of $7.0 million resulted in a gain of $4.6 million. 7PAGE THERMO ELECTRON CORPORATION 3. Other Income (Expense), Net The components of other income (expense), net, in the accompanying statement of income are as follows: Three Months Ended ---------------------- March 29, March 30, (In thousands) 1997 1996 ------------------------------------------------------------------------ Interest income $ 24,952 $ 21,988 Interest expense (21,412) (27,636) Equity in income (loss) of unconsolidated subsidiaries 290 (341) Gain on sale of investments 550 270 Other expense, net (1,483) (196) -------- -------- $ 2,897 $ (5,915) ======== ======== 4. Restructuring and Other Nonrecurring Costs During the first quarter of 1997, the Company's Thermo Remediation Inc. subsidiary recorded $7.8 million of nonrecurring costs to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a recent severe downturn in Thermo Remediation's soil-recycling business which will result in the closure of two soil-remediation sites. In addition, the Company's analysis indicates that the future cash flows from certain other soil-remediation sites that will remain open will be insufficient to recover Thermo Remediation's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7.8 million charge. 5. Acquisitions In March 1997, Thermo Instrument acquired 166,557,897 shares (or approximately 95%) of Life Sciences International PLC (Life Sciences), a London Stock Exchange-listed company, for 135 pence per share (approximately $2.15 per share or an aggregate of approximately $362.7 million, including related expenses) in completion of Thermo Instrument's offer to acquire all of the outstanding shares of Life Sciences. Thermo Instrument expects to acquire the Life Sciences shares that remain outstanding for 135 pence per share pursuant to the compulsory acquisition rules applicable to United Kingdom companies. The accompanying balance sheet as of March 29, 1997, includes $21.1 million accrued for the purchase of the remaining Life Sciences shares outstanding plus shares issuable upon exercise of outstanding stock options. Subsequent to the end of the quarter, Thermo Instrument repaid approximately $75 million of Life Sciences' debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In addition, the Company and its majority-owned subsidiaries made several other acquisitions during the first quarter of 1997 for $33.0 million in cash and subsidiary stock options valued at $2.1 million, subject to post-closing adjustments. 8PAGE THERMO ELECTRON CORPORATION 5. Acquisitions (continued) These acquisitions have been accounted for using the purchase method of accounting and their results have been included in the accompanying financial statements from their respective dates of acquisition. The cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $352.5 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. During 1996, Thermo Instrument had undertaken a restructuring of a substantial portion of the businesses comprising the Scientific Instruments division of Fisons plc, acquired in March 1996. During the first quarter of 1997, Thermo Instrument expended $5.1 million for restructuring costs, primarily for severance and abandoned facility payments. In connection with finalizing its restructuring plans for the businesses acquired from Fisons, Thermo Instrument recorded an additional $8.1 million of acquisition reserves in the first quarter of 1997, primarily for the abandonment of excess facilities, as well as severance. This amount was recorded as an increase in cost in excess of net assets of acquired companies. The remaining reserve for restructuring these businesses was $20.6 million at March 29, 1997, which primarily represents ongoing severance and abandoned facility payments. 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. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the caption "Forward-looking Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed with the Securities and Exchange Commission. Results of Operations First Quarter 1997 Compared With First Quarter 1996 Sales in the first quarter of 1997 were $763.5 million, an increase of $111.1 million, or 17%, over the first quarter of 1996. Segment income, excluding restructuring and other nonrecurring costs of $7.8 million in 1997 and $3.5 million in 1996, described below, increased 21% to $77.2 million from $63.9 million in 1996. (Segment income is income 9PAGE THERMO ELECTRON CORPORATION First Quarter 1997 Compared With First Quarter 1996 (continued) 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 $61.0 million in 1997, compared with $53.3 million in 1996. Instruments Sales from the Instruments segment were $329.1 million in 1997, an increase of $103.5 million, or 46%, over 1996. Sales increased due to acquisitions made by Thermo Instrument Systems Inc., which added $110.9 million of sales in 1997. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which Thermo Instrument operates decreased revenues by $8.0 million in 1997. An increase in revenues from ThermoQuest Corporation's existing mass spectrometry business as a result of the continued success of a new product introduced in the first quarter of 1996 was offset by a decrease in revenues at certain of the Company's other existing businesses, principally Thermo Optek Corporation. Revenues from Thermo Optek's existing businesses decreased due to the inclusion in 1996 of several large nonrecurring sales to the Chinese and Japanese governments and the elimination of certain unprofitable acquired product lines. Segment income margin (segment income margin is segment income as a percentage of sales), excluding restructuring and other nonrecurring costs of $3.5 million in 1996, improved to 14.0% in 1997 from 12.2% in 1996, primarily due to increased sales of higher-margin mass spectrometry products, efforts to reduce selling and administrative costs at certain acquired businesses, and the integration of products from businesses acquired into existing distribution channels. This improvement was offset in part by lower gross profit margins at certain acquired businesses, including Life Sciences International PLC, which recorded an adjustment to expense of $2.7 million relating to the revaluation of the finished goods inventories acquired by Thermo Instrument. Restructuring and other nonrecurring costs of $3.5 million in 1996 represents the write-off of acquired technology relating to the acquisition of a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc. Alternative-energy Systems Sales from the Alternative-energy Systems segment were $78.7 million in 1997, compared with $81.5 million in 1996. Within this segment, revenues from Thermo Ecotek Corporation were $38.7 million in 1997, compared with $33.5 million in 1996. This increase resulted primarily from the inclusion of $3.7 million in sales from two businesses acquired in 1996 and 1997 by Thermo Ecotek, as well as higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire. Pursuant to Thermo Ecotek's utility contracts for its four plants in California, there will be no further contractual energy rate increases beginning in 1998. In 1996, the Company recorded sales from its waste-recycling facility in southern California of $4.9 million. This facility was sold in July 1996. Sales at Peter Brotherhood Ltd. declined to $11.2 million from $13.4 million in 1996 as a result of decreased demand for steam turbines. Sales from Thermo Power Corporation were $28.8 10PAGE THERMO ELECTRON CORPORATION First Quarter 1997 Compared With First Quarter 1996 (continued) million in 1997, compared with $29.8 million in 1996. This decline primarily resulted from lower demand for commercial cooling rental equipment, decreased shipments of remanufactured commercial cooling equipment, and lower sales at Thermo Power's engine business. Segment income from the Alternative-energy Systems segment was $4.8 million in 1997, compared with $6.3 million in 1996. Thermo Ecotek had segment income of $4.4 million in 1997, compared with $4.5 million in 1996. Increased income resulting from the higher energy rates was more than offset by higher business development costs and a small loss from operations at Thermo Ecotek's biopesticides business. Segment income in 1996 from the Company's waste-recycling facility in southern California, which was sold in July 1996, was $2.3 million. Results from this facility, net of related interest expense (not included in segment income), were approximately breakeven in 1996. Segment income at Thermo Power improved to $0.7 million from a slight loss in 1996, primarily due to improved margins at the industrial refrigeration and engines businesses. Peter Brotherhood incurred a nominal segment loss in both periods. Certain of Thermo Ecotek's plants have power-sales agreements under which the rates paid for power will convert from fixed rates to "avoided-cost" rates at specified dates. Avoided-cost rates are currently substantially less than the fixed rates. The Woodland, California, plant, which converts to avoided-cost rates in March 2000, has conditions in its nonrecourse lease agreement that require the funding of a "power reserve" in years prior to 2000, based on projections of operating cash flow shortfalls in 2000 and thereafter. The power reserve represents funds available to make lease payments in the event that revenues are not sufficient after the plant converts to avoided-cost rates. Without sufficient increases in avoided-cost rates or reductions in fuel costs and other operating expenses by the year 2000, Thermo Ecotek expects to either renegotiate its nonrecourse lease agreement or forfeit its interest in the Woodland plant. Beginning in the fourth quarter of 1996, Thermo Ecotek began to expense the funding of reserves required under the nonrecourse lease agreement. As a result, the Company expects that the plant will be reduced to approximately breakeven in 1997 and thereafter. In the full year of 1996, Thermo Ecotek recorded $4.6 million of segment income from operation of the Woodland plant. The resolution of Thermo Ecotek's rate order renegotiations with Public Service Company of New Hampshire (PSNH) is still pending. In January 1997, PSNH's parent company, Northeast Utilities, disclosed in a filing with the Securities and Exchange Commission that if a proposed deregulation plan for the New Hampshire electric utility industry were adopted, PSNH could default on certain financial obligations and seek bankruptcy protection. In February 1997, the New Hampshire Public Utilities Commission (PUC) voted to adopt a deregulation plan, and in March 1997, PSNH filed suit to block the plan. In March 1997, the federal district court issued a temporary restraining order, which temporarily prohibits the PUC from implementing the deregulation plan as it affects PSNH, pending a determination by the court whether PSNH's claim is ripe to be heard by the court. In April 1997, the court ruled that the case was ripe for adjudication and ordered that this restraining order would 11PAGE THERMO ELECTRON CORPORATION First Quarter 1997 Compared With First Quarter 1996 (continued) continue indefinitely pending the outcome of the suit. In addition, in March 1997, Thermo Ecotek, along with a group of other biomass power producers, filed a motion with the PUC seeking clarification of the PUC's proposed deregulation plan regarding several issues, including purchase requirements and payment of current rate order prices with respect to the Company's energy output. The effect of a PSNH bankruptcy or deregulation of the electric utility industry in New Hampshire on Thermo Ecotek's rate orders for its two New Hampshire plants is uncertain. Thermo Ecotek experienced a fire in December 1996 at its coal- beneficiation facility under construction in Gillette, Wyoming. Damage was limited to an oil heater and auxiliary oil storage tank and did not affect the plant's four coal processors. Substantially all repair costs are expected to be covered by insurance proceeds. The fire has caused certain delays with respect to commencement of commercial operations of the facility. In addition, Thermo Ecotek is currently experiencing certain start-up problems, including issues relating to the flow of materials within the facility, which may further delay commercial operations. Thermo Ecotek expects to complete repairs caused by the fire and resolve these start-up problems by the end of the third quarter of 1997, however, because the technology being developed at the facility is new and untested, no assurance can be given that these start-up problems will be corrected and that the plant will be able to achieve commercial operations at that time. Process Equipment Sales in the Process Equipment segment were $56.0 million in 1997, compared with $93.3 million in 1996. A wholly owned subsidiary of the Company recorded revenues from an office wastepaper de-inking contract of $35.0 million in the first quarter of 1996. This contract was substantially completed at that time. Sales from Thermo Fibertek Inc. declined 9% to $44.7 million. Revenues from Thermo Fibertek's recycling business declined $3.9 million due to lower demand resulting from a severe drop in de-inked pulp prices. The timing of the recovery of the financial condition of the paper industry cannot be predicted. This decline was offset in part by $1.5 million of revenues from a business acquired in July 1996. Sales of Thermo TerraTech Inc.'s thermal- processing equipment increased $1.6 million due to increased demand, and sales of automated electroplating equipment by the Company's wholly owned Napco subsidiary increased 11% to $3.4 million. Segment income was $6.4 million in 1997, compared with $9.6 million in 1996. This decline results primarily from lower sales at Thermo Fibertek, as well as increased costs at Thermo Fibertek's Thermo Fibergen subsidiary, which is developing and commercializing equipment and systems to recover materials from papermaking sludge. Biomedical Products Sales from the Biomedical Products segment were $136.9 million in 1997, an increase of $33.3 million, or 32%, over 1996. Sales increased due to the inclusion of $24.2 million in sales from acquired businesses, increased demand for certain products at Trex Medical Corporation, and 12PAGE THERMO ELECTRON CORPORATION First Quarter 1997 Compared With First Quarter 1996 (continued) the opening of new spas and, to a lesser extent, an increase in licensing revenues at ThermoLase Corporation's hair-removal business. Segment income declined to $8.8 million in 1997 from $11.6 million in 1996. This decline results primarily from an increased loss at ThermoLase and, to a lesser extent, lower margins at Thermo Cardiosystems Inc. ThermoLase, as expected, was impacted by the early operations of its Spa Thira hair-removal business, which has been operating below maximum capacity as it develops a client base and continues refining its operating procedures, and due to pre-opening and advertising costs incurred in connection with new spa openings. Thermo Cardiosystems' margins declined due to increased warranty costs resulting from a modification, initiated by Thermo Cardiosystems, of certain LVAS systems in the field, as well as higher marketing expenses as a result of an increase in its sales force. Environmental Services Sales in the Environmental Services segment were $68.5 million in 1997, an increase of $9.3 million, or 16%, over 1996. Revenues from Thermo TerraTech's remediation and recycling services increased to $30.5 million in 1997 from $24.8 million in 1996, primarily due to the inclusion of sales from acquired businesses, offset in part by a decline in revenues from Thermo Remediation Inc.'s soil-remediation services of 20% to $4.9 million, due to declines in the volume of soil processed as a result of more relaxed regulatory standards in several states and competitive pricing pressures. Sales of metallurgical services increased to $13.3 million in 1997 from $10.0 million in 1996, due to increased demand for existing services and the inclusion of $0.9 million of sales from an acquired business. Segment income margin, excluding restructuring and other nonrecurring costs of $7.8 million in 1997, was 6.5% in 1997, compared with 5.5% in 1996. Segment income margin improved due to increased sales, including higher-margin sales from acquired businesses, offset in part by a decline in margins from soil-remediation services due to lower sales and price competition as discussed above. Restructuring and other nonrecurring costs of $7.8 million in 1997 were recorded to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a recent severe downturn in Thermo Remediation's soil-recycling business which will result in the closure of two soil-remediation sites. In addition, the Company's analysis indicates that the future cash flows from certain other soil-remediation sites that will remain open will be insufficient to recover Thermo Remediation's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7.8 million charge. Advanced Technologies Sales from the Advanced Technologies segment were $96.5 million in 1997, compared with $90.7 million in 1996. Sales at Thermedics Detection Inc. increased 33% to 12.4 million in 1997 primarily due to sales from the continued fulfillment of a mandated product-line upgrade from The Coca-Cola Company, which is expected to continue through the third quarter of 1997 and, to a lesser extent, increased shipments of InScan systems, which were introduced in 1996. These increases were offset in 13PAGE THERMO ELECTRON CORPORATION First Quarter 1997 Compared With First Quarter 1996 (continued) part by a decline in sales of EGIS explosives-detection systems and related services of $1.9 million. In May 1997, Thermedics Detection was awarded a $6.2 million contract for its EGIS systems from the Federal Aviation Administration. Sales at Thermo Sentron Inc. increased to $18.0 million in 1997 from $16.7 million in 1996, primarily due to sales at acquired businesses. Sales at Thermo Voltek Corp. declined to $9.7 million in 1997 from $10.6 million in 1996, primarily due to a decline in sales at its Comtest and Keytek businesses, offset in part by the inclusion of $1.7 million in sales from a business acquired in July 1996. The decline in sales resulted primarily from a decrease in demand for EMC test products as many companies have come into compliance with European directives concerning electromagnetic compatibility and, to a lesser extent, a decline in the component reliability market for electrostatic discharge test equipment caused by a slowdown in spending for capital equipment by the semiconductor industry. Sales at Coleman Research Corporation were $38.9 million in 1997, compared with $37.2 million in 1996. This increase resulted primarily from a contract to supply kiosk units to a customer and, to a lesser extent, sales of $0.5 million from an acquired business. Segment income margin was 7.0% in 1997, compared with 6.3% in 1996. This improvement resulted from increased sales, a change in sales mix, and the impact on the 1996 period of nonrecurring costs related to a reduction in personnel and other adjustments. Gain on Issuance of Stock by 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. 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 $33.7 million in 1997 and $28.9 million in 1996 (Note 2). Minority interest expense increased to $17.1 million in 1997 from $12.6 million in 1996. Minority interest expense includes $9.5 million in 1997 and $5.6 million in 1996 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of indebtedness by their subsidiaries. Liquidity and Capital Resources Consolidated working capital was $1,837.6 million at March 29, 1997, compared with $2,218.6 million at December 28, 1996. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,516.7 million at March 29, 1997, compared with $1,846.3 million at December 28, 1996. In addition, at March 29, 1997, the Company had $56.0 million of long-term available-for-sale investments and $13.1 million of long-term held-to-maturity investments, compared with $68.8 million of long-term available-for-sale investments and $25.6 million of long-term held-to-maturity investments at December 28, 1996. Of the total $1,585.8 million of cash, cash equivalents, and short- and long-term 14PAGE THERMO ELECTRON CORPORATION Liquidity and Capital Resources (continued) available-for-sale and held-to-maturity investments at March 29, 1997, $1,076.2 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. During the first quarter of 1997, $32.1 million of cash was provided by the Company's operating activities. During the first quarter of 1997, the Company's primary investing activities, excluding purchases, sales, and maturities of available-for-sale investments, included acquisitions and capital expenditures. During the first quarter of 1997, the Company expended $349.0 million, net of cash acquired, for acquisitions and $23.1 million for purchases of property, plant, and equipment. The Company's financing activities used $7.2 million of cash in the first quarter of 1997. Net proceeds from the issuance of Company and subsidiary common stock totaled $62.8 million. In addition, the Company repaid long-term obligations of $28.1 million. During the first quarter of 1997, an aggregate principal amount of $9.6 million of subsidiaries' convertible obligations was converted into shares of subsidiaries' common stock. During the first quarter of 1997, the Company and its majority-owned subsidiaries expended $51.9 million to purchase common stock of certain of the Company's majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company's and certain of its majority-owned subsidiaries' Boards of Directors. As of March 29, 1997, $20 million and $26 million remained under the Company's and the majority-owned subsidiaries' authorizations, respectively. In April 1997, an additional $25.0 million was authorized by the Boards of Directors of certain of the Company's majority-owned subsidiaries. The amount of purchases in a given reporting period may vary significantly. In the remainder of 1997, the Company plans to make capital expenditures of approximately $117 million. In addition, as of May 6, 1997, the Company had agreements or nonbinding letters of intent to acquire new businesses totaling approximately $122 million. Proposed acquisitions of new businesses are subject to various conditions to closing, and there can be no assurance that all proposed transactions will be consummated. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page immediately preceding exhibits. (b) Reports on Form 8-K On January 22, 1997, the Company filed a Current Report on Form 8-K pertaining to Thermo Instrument Systems Inc.'s tender offer for all of the outstanding shares of Life Sciences International PLC. 15PAGE 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 May 1997. 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 16PAGE THERMO ELECTRON CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit Page ------------------------------------------------------------------------ 11 Statement re: Computation of Earnings per Share. 27 Financial Data Schedule. EX-11 2 Exhibit 11 THERMO ELECTRON CORPORATION Computation of Earnings per Share Three Months Ended ---------------------------- March 29, March 30, 1997 1996 ------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share: Income: Net income $ 52,058,000 $ 41,023,000 Add: Convertible debenture interest, net of tax 4,959,000 6,836,000 ------------ ------------ Income applicable to common stock assuming full dilution (a) $ 57,017,000 $ 47,859,000 ------------ ------------ Shares: Weighted average shares outstanding 150,069,864 133,635,211 Add: Shares issuable from assumed conversion of convertible debentures 23,819,810 39,251,282 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,035,030 2,577,058 ------------ ------------ Weighted average shares outstanding, as adjusted (b) 175,924,704 175,463,551 ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ .32 $ .27 ============ ============ EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-03-1998 MAR-27-1997 341,753 1,174,930 707,512 38,784 511,100 2,967,872 1,073,921 319,935 5,343,588 1,130,257 1,501,830 0 0 150,167 1,607,281 5,343,588 722,625 763,505 430,802 467,140 50,003 2,558 21,412 97,595 28,397 52,058 0 0 0 52,058 .35 .32 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".
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