-----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, BYbZvagoXaV2LdH6yKzWRZdUklfOQjILIVf1YYefC64DiJM4y16BEb6SxU8eraCK tWx0OaogP2uX99YWtWZPQg== 0000097745-97-000140.txt : 19971106 0000097745-97-000140.hdr.sgml : 19971106 ACCESSION NUMBER: 0000097745-97-000140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971105 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: SEC FILE NUMBER: 001-08002 FILM NUMBER: 97708495 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 27, 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 September 27, 1997 ----------------------------- --------------------------------- Common Stock, $1.00 par value 151,328,000 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO ELECTRON CORPORATION Consolidated Balance Sheet (Unaudited) Assets Sept. 27, Dec. 28, (In thousands) 1997 1996 ----------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 493,287 $ 414,404 Short-term available-for-sale investments at quoted market value (amortized cost of $1,031,087 and $1,428,564) 1,036,917 1,431,881 Accounts receivable, less allowances of $43,235 and $34,321 746,840 616,545 Unbilled contract costs and fees 92,612 77,155 Inventories: Raw materials and supplies 248,070 236,297 Work in process 108,205 80,614 Finished goods 165,330 116,049 Prepaid income taxes 138,367 129,802 Prepaid expenses 40,551 29,082 ---------- ---------- 3,070,179 3,131,829 ---------- ---------- Property, Plant, and Equipment, at Cost 1,119,306 1,010,189 Less: Accumulated depreciation and amortization 359,902 305,742 ---------- ---------- 759,404 704,447 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $63,742 and $58,500) 75,563 68,807 ---------- ---------- Long-term Held-to-maturity Investments (quoted market value of $26,083) - 25,594 ---------- ---------- Other Assets 153,129 127,632 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Note 5) 1,529,856 1,082,935 ---------- ---------- $5,588,131 $5,141,244 ========== ========== 2PAGE THERMO ELECTRON CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment Sept. 27, Dec. 28, (In thousands except share amounts) 1997 1996 ----------------------------------------------------------------------- Current Liabilities: Notes payable and current maturities of long-term obligations $ 173,523 $ 153,787 Accounts payable 212,033 203,643 Accrued payroll and employee benefits 142,567 122,079 Accrued income taxes 81,713 61,534 Accrued installation and warranty costs 73,413 69,006 Deferred revenue 51,785 45,715 Other accrued expenses 273,788 257,448 ---------- ---------- 1,008,822 913,212 ---------- ---------- Deferred Income Taxes and Other Deferred Items 164,366 162,746 ---------- ---------- Long-term Obligations: Senior convertible obligations (Note 6) 344,705 369,997 Subordinated convertible obligations 1,373,198 1,009,470 Nonrecourse tax-exempt obligations 51,800 77,900 Other 49,742 92,975 ---------- ---------- 1,819,445 1,550,342 ---------- ---------- Minority Interest 695,638 684,050 ---------- ---------- Common Stock of Subsidiaries Subject to Redemption ($113,712 and $81,179 redemption value) 111,124 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; 151,359,405 and 149,996,979 shares issued 151,359 149,997 Capital in excess of par value 705,780 801,793 Retained earnings 965,387 795,312 Treasury stock at cost, 31,405 and 15,520 shares (1,181) (570) Cumulative translation adjustment (43,588) (504) Deferred compensation (29) (58) Net unrealized gain on available-for-sale investments 11,008 8,399 ---------- ---------- 1,788,736 1,754,369 ---------- ---------- $5,588,131 $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 ---------------------- Sept. 27, Sept. 28, (In thousands except per share amounts) 1997 1996 ---------------------------------------------------------------------- Revenues: Product and service revenues $869,424 $700,342 Research and development contract revenues 40,426 39,639 -------- -------- 909,850 739,981 -------- -------- Costs and Operating Expenses: Cost of product and service revenues 500,739 409,185 Expenses for research and development and new lines of business (a) 84,097 77,034 Selling, general, and administrative expenses 205,761 175,691 Restructuring and other nonrecurring costs (Note 4) 2,517 6,284 -------- -------- 793,114 668,194 -------- -------- Operating Income 116,736 71,787 Gain on Issuance of Stock by Subsidiaries (Note 2) 18,587 38,470 Other Income (Expense), Net (Note 3) (4,763) 1,082 -------- -------- Income Before Income Taxes and Minority Interest 130,560 111,339 Provision for Income Taxes 47,950 31,939 Minority Interest Expense 20,751 28,158 -------- -------- Net Income $ 61,859 $ 51,242 ======== ======== Earnings per Share: Primary $ .41 $ .36 ======== ======== Fully diluted $ .38 $ .32 ======== ======== Weighted Average Shares: Primary 150,345 142,791 ======== ======== Fully diluted 176,255 175,815 ======== ======== (a) Includes costs of: Research and development contracts $ 35,070 $ 34,169 Internally funded research and development 48,904 42,362 Other expenses for new lines of business 123 503 -------- -------- $ 84,097 $ 77,034 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Income (Unaudited) Nine Months Ended ------------------------- Sept. 27, Sept. 28, (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Revenues: Product and service revenues $2,426,797 $2,013,840 Research and development contract revenues 121,574 124,285 ---------- ---------- 2,548,371 2,138,125 ---------- ---------- Costs and Operating Expenses: Cost of product and service revenues 1,413,400 1,209,280 Expenses for research and development and new lines of business (a) 244,118 221,675 Selling, general, and administrative expenses 604,258 510,238 Restructuring and other nonrecurring costs (Note 4) 7,468 32,264 ---------- ---------- 2,269,244 1,973,457 ---------- ---------- Operating Income 279,127 164,668 Gain on Issuance of Stock by Subsidiaries (Note 2) 67,467 110,857 Other Expense, Net (Note 3) (5,489) (6,339) ---------- ---------- Income Before Income Taxes and Minority Interest 341,105 269,186 Provision for Income Taxes 118,373 74,589 Minority Interest Expense 52,657 57,413 ---------- ---------- Net Income $ 170,075 $ 137,184 ========== ========== Earnings per Share: Primary $ 1.13 $ .99 ========== ========== Fully diluted $ 1.05 $ .89 ========== ========== Weighted Average Shares: Primary 150,196 138,853 ========== ========== Fully diluted 176,163 175,660 ========== ========== (a) Includes costs of: Research and development contracts $ 106,027 $ 106,140 Internally funded research and development 136,738 113,894 Other expenses for new lines of business 1,353 1,641 ---------- ---------- $ 244,118 $ 221,675 ========== ========== 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 ----------------------- Sept. 27, Sept. 28, (In thousands) 1997 1996 ------------------------------------------------------------------------ Operating Activities: Net income $ 170,075 $ 137,184 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 99,223 86,720 Restructuring and other nonrecurring costs (Note 4) 7,468 32,264 Provision for losses on accounts receivable 6,974 4,343 Gain on issuance of stock by subsidiaries (Note 2) (67,467) (110,857) Gain on sale of investments (1,310) (6,657) Minority interest expense 52,657 57,413 Equity in losses of unconsolidated subsidiaries 722 162 Other noncash expenses 6,314 12,402 Increase in deferred income taxes 2,296 10,655 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (76,165) 7,975 Inventories (20,543) (13,058) Other current assets (9,838) (4,945) Accounts payable (13,896) (27,372) Other current liabilities (14,043) (18,912) ----------- --------- Net cash provided by operating activities 142,467 167,317 ----------- --------- Investing Activities: Acquisitions, net of cash acquired (Note 5) (636,858) (371,825) Purchases of available-for-sale investments (717,850) (1,045,868) Proceeds from sale and maturities of available-for-sale investments 1,147,287 462,611 Purchases of property, plant, and equipment (78,319) (93,280) Proceeds from sale of property, plant, and equipment 11,276 5,417 Increase in other assets (6,329) (22,970) Other 13,455 6,610 ----------- ----------- Net cash used in investing activities $ (267,338) $(1,059,305) ----------- ----------- 6PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended --------------------------- Sept. 27, Sept. 28, (In thousands) 1997 1996 ------------------------------------------------------------------------ Financing Activities: Decrease in short-term notes payable $ (4,385) $ (13,915) Net proceeds from issuance of long-term obligations 378,331 799,900 Repayment and repurchase of long-term obligations (45,858) (51,792) Net proceeds from issuance of Company and subsidiary common stock 134,614 265,114 Purchases of subsidiary common stock (246,185) (54,844) Other (3,876) (10,078) ----------- ----------- Net cash provided by financing activities 212,641 934,385 ----------- ----------- Exchange Rate Effect on Cash (8,887) 1,270 ----------- ----------- Increase in Cash and Cash Equivalents 78,883 43,667 Cash and Cash Equivalents at Beginning of Period 414,404 462,861 ----------- ----------- Cash and Cash Equivalents at End of Period $ 493,287 $ 506,528 =========== =========== Noncash activities: Conversions of Company and subsidiary convertible obligations $ 65,239 $ 363,475 =========== =========== Fair value of assets of acquired companies $ 828,425 $ 648,233 Cash paid for acquired companies (691,288) (389,913) Issuance of Company and subsidiary common stock and stock options for acquired companies (4,093) (2,351) ----------- ----------- Liabilities assumed of acquired companies $ 133,044 $ 255,969 =========== =========== 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 27, 1997, the results of operations for the three- and nine-month periods ended September 27, 1997, and September 28, 1996, and the cash flows for the nine-month periods ended September 27, 1997, and September 28, 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 nine-month period ended September 27, 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. Sale 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 and conversion of $12.0 million of ThermoQuest 5% subordinated convertible debentures in August and September 1997, convertible at $16.50 per share into 727,272 shares of ThermoQuest common stock, resulted in a gain of $12.0 million and $6.1 million, respectively, that was recorded by the Company's Thermo Instrument Systems Inc. subsidiary. Private placements of 1,212,260 shares in March and April 1997 and 94,000 shares in June 1997 of Thermo Information Solutions Inc. common stock at $9.00 and $10.00 per share, respectively, for aggregate net proceeds of $11.0 million resulted in a gain of $6.6 million. 8PAGE THERMO ELECTRON CORPORATION 2. Issuance of Stock by Subsidiaries (continued) Initial public offering of 2,300,000 shares of Metrika Systems Corporation common stock in June 1997 at $15.50 per share for net proceeds of $32.5 million resulted in a gain of $13.2 million that was recorded by the Company's Thermo Instrument subsidiary. Private placement of 1,133,000 shares of Trex Communications Corporation common stock in September 1997 at $10.00 per share for net proceeds of $10.6 million resulted in a gain of $5.9 million that was recorded by the Company's ThermoTrex Corporation subsidiary. Private placement of 2,210,521 shares of ONIX Systems Inc. common stock in September 1997 at $9.50 per share for net proceeds of $19.6 million resulted in a gain of $6.6 million that was recorded by the Company's Thermo Instrument subsidiary. 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. 27, Sept. 28, Sept. 27, Sept. 28, (In thousands) 1997 1996 1997 1996 ------------------------------------------------------------------------ Interest income $ 20,332 $ 24,336 $ 63,451 $ 68,076 Interest expense (24,896) (21,820) (67,794) (75,056) Equity in income (loss) of unconsolidated subsidiaries (475) 104 (722) (162) Gain on sale of investments 714 3,932 1,310 6,657 Other expense, net (438) (5,470) (1,734) (5,854) -------- -------- -------- -------- $ (4,763) $ 1,082 $ (5,489) $ (6,339) ======== ======== ======== ======== 4. Restructuring and Other Nonrecurring Costs During the third quarter of 1997, the Company's ThermoTrex subsidiary recorded $1.4 million of nonrecurring costs to write off acquired technology in connection with an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business, based upon estimated replacement costs. In addition, the Company's Thermo Fibertek Inc. subsidiary recorded $1.1 million of restructuring costs relating to the consolidation of the operations of two subsidiaries into the operations of its Thermo Black Clawson subsidiary, acquired in May 1997. The restructuring costs related primarily to severance for employees terminated during the third quarter and abandoned-facility payments. 9PAGE THERMO ELECTRON CORPORATION 4. Restructuring and Other Nonrecurring Costs (continued) During the second quarter of 1997, the Company settled litigation with third-party developers of an alternative-energy facility constructed by the Company and its subcontractors in 1988 and 1989 and leased and operated by a partnership including the Company's Thermo Ecotek Corporation subsidiary. The third-party developers had sought $25 million in damages for alleged misrepresentation, breach of contract, and other causes of action. The settlement resulted in a payment by the Company of $1.1 million and relinquishment to the Company by the third-party developers of their partnership interest in the alternative-energy facility. In connection with the settlement, the Company reversed $5.0 million of reserves previously established for this and related matters. In addition, the Company's Peter Brotherhood Ltd. and ThermoSpectra Corporation subsidiaries recorded nonrecurring costs of $1.3 million and $0.8 million, respectively, during the second quarter of 1997, primarily for severance for employees terminated during the second quarter. 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 severe downturn in Thermo Remediation's soil-recycling business that resulted in the closure of two sites. In addition, Thermo Remediation's analysis indicated that the future cash flows from certain other soil-remediation sites that will remain open will be insufficient to recover its 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 95% of Life Sciences International PLC (Life Sciences), a London Stock Exchange-listed company. Subsequently, Thermo Instrument acquired the remaining shares of Life Sciences' capital stock. The aggregate purchase price for Life Sciences was $448.3 million, net of $50.7 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In addition, the Company and its majority-owned subsidiaries made several other acquisitions during the first nine months of 1997 for $188.6 million in cash, net of cash acquired, and the issuance of subsidiary common stock and stock options valued at $4.1 million, subject to post-closing adjustments. 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 $487.9 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 10PAGE THERMO ELECTRON CORPORATION 5. Acquisitions (continued) 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 constituting the Scientific Instruments Division of Fisons plc, acquired in March 1996. During the first nine months of 1997, Thermo Instrument expended $13.4 million for restructuring costs, primarily for severance and abandoned-facility payments. During the first quarter of 1997, in connection with finalizing its restructuring plans for the businesses acquired from Fisons, Thermo Instrument recorded an additional $8.1 million of acquisition reserves, primarily for the abandonment of excess facilities, as well as for severance pay. 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 $12.1 million at September 27, 1997, which primarily represents ongoing severance and abandoned-facility payments. 6. Redemption of Convertible Debentures In September 1997, the Company called for redemption on October 15, 1997, all of the outstanding $175.0 million principal amount of its 5% senior convertible debentures due 2001. The value of the securities into which the debentures are convertible exceeded the redemption amount as of the notice date of the redemption. As of September 27, 1997, approximately $3.0 million principal amount had been converted, and as of October 15, 1997, substantially all of the outstanding principal amount was converted into common stock of the Company. 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. 11PAGE THERMO ELECTRON CORPORATION Results of Operations Third Quarter 1997 Compared With Third Quarter 1996 Sales in the third quarter of 1997 were $909.9 million, an increase of $169.9 million, or 23%, over the third quarter of 1996. Segment income, excluding restructuring and other nonrecurring costs of $2.5 million in 1997 and $6.3 million in 1996, described below, increased 48% to $127.3 million from $85.9 million in 1996. (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, increased 63% to $116.7 million in 1997. Instruments Sales from the Instruments segment were $403.9 million in 1997, an increase of $88.6 million, or 28%, over 1996. Sales increased due to acquisitions made by Thermo Instrument Systems Inc., which added $94.5 million of sales in 1997. In addition, revenues from existing businesses at Thermo Optek Corporation and, to a lesser extent, ThermoSpectra Corporation, increased primarily due to greater product demand. 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 $13.7 million in 1997. Segment income margin (segment income margin is segment income as a percentage of sales), improved to 15.0% in 1997 from 12.3% in 1996, primarily due to operating margin improvement at certain of the businesses acquired from Fisons in 1996. This improvement was offset in part by lower operating margins at ThermoSpectra resulting primarily from a one-time inventory write-off and a change in sales mix. Alternative-energy Systems Sales from the Alternative-energy Systems segment were $97.7 million in 1997, compared with $91.9 million in 1996. Within this segment, revenues from Thermo Ecotek Corporation were $59.5 million in 1997, compared with $47.0 million in 1996. Revenues in 1997 include $8.2 million for a contractual settlement with a utility, pursuant to which Thermo Ecotek surrendered its rights to a power sales agreement relating to a cogeneration facility it had planned to develop and construct on Staten Island, New York. The settlement, reached in 1993, called for Thermo Ecotek to refund $8.2 million to the utility should Thermo Ecotek construct and commence operations at a plant on Staten Island prior to 2000. Thermo Ecotek had deferred recognition of the refundable portion of the settlement pending a decision concerning development of the plant. During the third quarter of 1997, Thermo Ecotek determined that, due to economic conditions in the domestic energy market, it would not proceed with development of a facility on Staten Island. In addition, revenues from Thermo Ecotek's Thermo Trilogy biopesticides subsidiary increased $4.4 million, primarily due to the inclusion of revenues from an acquired 12PAGE THERMO ELECTRON CORPORATION Third Quarter 1997 Compared With Third Quarter 1996 (continued) business. Sales at Peter Brotherhood Ltd. declined to $8.7 million in 1997 from $13.9 million in 1996 as a result of decreased demand for its steam turbines. Sales from Thermo Power Corporation decreased to $29.6 million in 1997 from $31.1 million in 1996, primarily due to lower demand for industrial refrigeration packages and continuing declines in sales of gas-fueled cooling systems and sponsored research and development contracts. The decrease in revenues at Thermo Power was offset in part by increased sales of gas-fueled engines due to a large shipment of engines to one customer and, to a lesser extent, increased lift-truck engine sales. Segment income from the Alternative-energy Systems segment, excluding restructuring and other nonrecurring costs of $4.4 million in 1996, was $27.6 million in 1997, compared with $16.0 million in 1996. Thermo Ecotek's segment income was $25.5 million in 1997, compared with $16.8 million in 1996. The contractual settlement with a utility concerning the cancellation of a power sales agreement for a proposed cogeneration facility on Staten Island resulted in $8.2 million of segment income. Excluding the effect of the settlement, segment income at Thermo Ecotek increased by $0.5 million, as a result of segment income in 1997 at Thermo Trilogy compared with a segment loss in the 1996 period. Segment income at Thermo Power improved to $1.8 million from $0.4 million in 1996, primarily due to a cost decrease in a major component of Thermo Power's refrigeration packages and the effect of higher revenues and lower warranty costs at Thermo Power's engines business. Peter Brotherhood was marginally profitable in 1997, compared with a segment loss, excluding restructuring and other nonrecurring costs, in the 1996 period. Peter Brotherhood recorded restructuring and other nonrecurring costs of $4.4 million in the 1996 period, primarily for the write-off of a non-trade receivable and severance costs. 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 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 Thermo Ecotek'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. 13PAGE THERMO ELECTRON CORPORATION Third Quarter 1997 Compared With Third Quarter 1996 (continued) 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 construction problems, including issues relating to the flow of materials within the facility, and design and operation of certain pressure-release equipment, which has further delayed commercial operations. Thermo Ecotek expects to complete repairs and resolve these construction problems in time to begin commercial operation of the facility by the end of 1997. However, because the technology being developed at the facility is new and untested, no assurance can be given that other difficulties will not arise or that Thermo Ecotek will be able to correct these construction problems and commence commercial operations prior to the end of 1997, or at all. In a lawsuit relating to the Company's waste-recycling facility in Southern California, which was sold in July 1996, the party from which the Company acquired certain development rights alleges it is owed $7.9 million in fees plus interest from 1992, legal costs, approximately $50 million in other damages, plus punitive damages. The trial is expected to commence in November 1997. Process Equipment Sales in the Process Equipment segment were $81.4 million in 1997, compared with $56.2 million in 1996. Sales from Thermo Fibertek Inc. increased 47% to $67.6 million. Thermo Fibertek's revenues increased $20.2 million due to the acquisition of Black Clawson's recycled paper equipment business in May 1997, and $2.2 million due to higher demand at its water-management business. These increases were offset in part by a decrease in revenues at Thermo Fibertek's recycling business, which has been affected by a severe drop in de-inked pulp prices. In addition, the unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $2.0 million. Sales of Thermo TerraTech Inc.'s thermal-processing equipment increased $3.8 million to $9.9 million due to increased demand. This business was no longer part of Thermo TerraTech's core businesses and was sold in October 1997. A nominal gain on the sale is expected to be realized in the fourth quarter of 1997. Segment income, excluding restructuring and other nonrecurring costs of $1.1 million in 1997, was $7.7 million in 1997, compared with $8.5 million in 1996. This decrease was primarily due to a reserve established for disputed contractual items arising from the construction of an office wastepaper de-inking facility completed in 1996, offset in part by segment income from Thermo Fibertek's Black Clawson acquisition. The $1.1 million of restructuring and other nonrecurring costs in 1997 was recorded by Thermo Fibertek for severance for employees terminated during the third quarter and abandoned-facility payments relating to the consolidation of the operations of two of its subsidiaries into the operations of its Thermo Black Clawson subsidiary. 14PAGE THERMO ELECTRON CORPORATION Third Quarter 1997 Compared With Third Quarter 1996 (continued) Biomedical Products Sales from the Biomedical Products segment were $142.9 million in 1997, an increase of $25.7 million, or 22%, over 1996. Sales increased due to the inclusion of $9.9 million in sales from acquired businesses, increased demand at Bird Medical Technologies, Inc., Trex Medical Corporation, and SensorMedics Corporation, as well as higher revenues at ThermoLase Corporation's hair-removal business due to the opening of new spas and increased licensing revenues. Segment income, excluding restructuring and other nonrecurring costs of $1.9 million in 1996, increased to $13.9 million in 1997 from $13.2 million in 1996. This increase resulted primarily from higher income at Bird Medical, Trex Medical, and SensorMedics, offset in part by an increased segment loss at ThermoLase to $5.2 million in 1997 from $2.4 million in 1996, and a $1.9 million decrease in segment income at Thermo Cardiosystems Inc. ThermoLase was affected 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 the hair-removal process and its operating procedures, and by pre-opening costs incurred in connection with new spa openings. ThermoLase believes that improvements in the efficacy and duration of its hair-removal process (SoftLight(SM)), including the implementation of a modified procedure (SoftLight 2.0), are critical elements in its ability to improve the profitability of its spas. Thermo Cardiosystems' profitability declined due to the effect on segment income of an 8% decrease in revenues, which Thermo Cardiosystems believes resulted from delayed customer orders for its current air-driven left ventricular- assist systems (LVAS) as customers await approval from the U.S. Food and Drug Administration of Thermo Cardiosystems' advanced electric LVAS, and higher marketing expenses as a result of an increase in its sales force. Restructuring and other nonrecurring costs of $1.9 million in 1996 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 Inc. to close and relocate a foreign business to the U.S. Environmental Services Sales in the Environmental Services segment were $79.8 million in 1997, an increase of $11.4 million over 1996. Revenues from Thermo TerraTech's remediation and recycling services increased to $37.0 million in 1997 from $30.8 million in 1996, due to the inclusion of $7.2 million in sales from acquired businesses, offset in part by a 31% decline in revenues from Thermo Remediation Inc.'s soil-remediation services to $4.0 million, due to lower volumes of soil processed as a result of overcapacity in the industry. Revenues from consulting and design services increased $2.7 million to $21.4 million as a result of the inclusion of $4.5 million of revenues from acquired businesses, offset in part by a decrease in revenues due to the completion of two large contracts. Sales of metallurgical services increased to $13.2 million in 1997 from $11.4 million in 1996, due to the inclusion of $1.1 million of sales from an acquired business and increased demand for existing services. 15PAGE THERMO ELECTRON CORPORATION Third Quarter 1997 Compared With Third Quarter 1996 (continued) Segment income margin was 8.1% in 1997, compared with 4.5% in 1996. Segment income margin improved primarily due to lower margins in the 1996 period as a result of costs incurred by Thermo TerraTech to reduce redundancies at regional laboratories. Advanced Technologies Sales from the Advanced Technologies segment were $106.5 million in 1997, compared with $92.7 million in 1996. Sales at Coleman Research Corporation increased 19% to $41.5 million in 1997. This increase resulted primarily from its Thermo Information Solutions Inc. subsidiary's contract to supply kiosk units and, to a lesser extent, sales of $1.0 million from an acquired business. These increases were offset in part by a decrease in revenues from government contracts. Sales at Thermo Sentron Inc. increased to $19.5 million in 1997 from $17.5 million in 1996, primarily due to higher demand and, to a lesser extent, $1.2 million of sales from acquired businesses, offset in part by the unfavorable effects of currency translation. Sales at Thermedics Detection Inc. increased 14% to $12.6 million in 1997, primarily due to sales from the continued fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base, which is expected to continue through the fourth quarter of 1997 and, to a lesser extent, increased shipments of fill-height detectors. In addition, higher domestic revenues from Thermedics Detection's explosives-detection systems as a result of $1.5 million of sales to the U.S. Federal Aviation Administration (FAA) under a $5.8 million order were offset in part by a decrease in international demand. Sales at Thermo Voltek Corp. were $11.1 million in 1997, compared with $12.8 million in 1996, reflecting lower demand for electromagnetic compatibility (EMC) testing instruments, offset in part by $0.7 million of sales from acquired businesses. Sales from Trex Communications Corporation, a subsidiary of ThermoTrex Corporation, increased primarily as a result of $2.8 million of revenues from an acquired business. Segment income margin, excluding restructuring and other nonrecurring costs of $1.4 million in 1997, increased to 10.2% in 1997 from 6.9% in 1996. This improvement resulted primarily from a loss in the 1996 period at ThermoTrex's advanced technology research center due to cost overruns and higher expenses for new lines of business. Segment income margin improvements at several businesses were offset in part by lower profitability at Thermo Voltek. Restructuring and other nonrecurring costs of $1.4 million in 1997 were recorded by ThermoTrex for the write-off of acquired technology in connection with an acquisition (Note 4). 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 programs, as well as capital to support the subsidiary's growth. 16PAGE THERMO ELECTRON CORPORATION Third Quarter 1997 Compared With Third Quarter 1996 (continued) As a result of the sale of stock by subsidiaries and issuance of stock by a subsidiary upon conversion of convertible debentures, the Company recorded gains of $18.6 million in 1997 and $38.5 million in 1996 (Note 2). Minority interest expense decreased to $20.8 million in 1997 from $28.2 million in 1996. Minority interest expense includes $5.1 million in 1997 and $15.1 million in 1996, related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. First Nine Months 1997 Compared With First Nine Months 1996 Sales in the first nine months of 1997 were $2,548.4 million, an increase of $410.2 million, or 19%, over the first nine months of 1996. Segment income, excluding restructuring and other nonrecurring costs of $7.5 million in 1997 and $32.3 million in 1996, described below, increased 41% to $310.6 million from $220.0 million in 1996. Operating income, which includes restructuring and other nonrecurring costs, increased 70% to $279.1 million in 1997. Instruments Sales from the Instruments segment were $1,138.3 million in 1997, an increase of $275.8 million, or 32%, over 1996. Sales increased due to acquisitions made by Thermo Instrument, which added $293.0 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 $29.2 million in 1997. An increase in revenues from ThermoQuest Corporation's existing mass spectrometry business, partly as a result of the continued success of a new product introduced in the first quarter of 1996, was offset in part by a decrease in revenues at certain of Thermo Instrument's other existing businesses, principally at Thermo Optek. 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, offset in part by greater demand at two of its business units. Segment income margin, excluding restructuring and other nonrecurring costs of $0.8 million in 1997 and $3.5 million in 1996, improved to 14.6% in 1997 from 11.1% in 1996. The improvement was primarily due to operating margin improvement at certain of the businesses acquired from Fisons in 1996 and increased sales of higher-margin mass spectrometry products. This increase was offset in part by lower gross profit margins at certain acquired businesses, including Life Sciences, which recorded an adjustment to expense of $3.2 million relating to the revaluation of the finished goods inventories acquired by Thermo Instrument and, to a lesser extent, a decrease in segment income margin at ThermoSpectra as discussed in the results of operations for the third quarter. The 1996 period included a charge for the revaluation of inventory of $2.0 million relating to the acquisition 17PAGE THERMO ELECTRON CORPORATION First Nine Months 1997 Compared With First Nine Months 1996 (continued) of a substantial portion of the businesses constituting the Scientific Instruments Division of Fisons. Restructuring and other nonrecurring costs of $0.8 million in 1997 represents severance costs for employees terminated during the second quarter at one of ThermoSpectra's business units, and $3.5 million in 1996 represents the write-off of acquired technology relating to the acquisition of the Fisons businesses. Alternative-energy Systems Sales from the Alternative-energy Systems segment were $265.5 million in 1997, compared with $258.9 million in 1996. Within this segment, revenues from Thermo Ecotek were $141.7 million in 1997, compared with $115.8 million in 1996. Revenues from Thermo Ecotek's Thermo Trilogy biopesticides subsidiary increased $13.3 million primarily due to the inclusion of revenues from two acquired businesses. Revenues in 1997 included $8.2 million as a result of a contractual settlement concerning the cancellation of a power sales agreement, discussed in the results of operations for the third quarter. In addition, higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire, contributed to higher revenues in 1997. 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. Sales in the first nine months of 1996 at the Company's wholly owned waste-recycling facility in Southern California, which was sold in July 1996, were $9.2 million. Sales at Peter Brotherhood declined to $31.6 million in 1997 from $40.8 million in 1996 as a result of decreased demand for steam turbines. Sales from Thermo Power decreased to $92.3 million in 1997 from $93.3 million in 1996, primarily due to lower demand for industrial refrigeration packages and continuing declines in sales of gas-fueled cooling systems, as well as lower revenues from sponsored research and development contracts. The decrease in revenues at Thermo Power was offset in part by higher sales of gas-fueled engines due to a large shipment to one customer. Segment income from the Alternative-energy Systems segment, excluding nonrecurring income of $3.7 million in 1997 and restructuring and nonrecurring costs of $4.4 million in 1996, was $44.9 million in 1997, compared with $32.6 million in 1996. Thermo Ecotek's segment income was $39.1 million in 1997, compared with $29.5 million in 1996. The increase primarily resulted from $8.2 million of segment income from the contractual settlement with a utility concerning the cancellation of a power sales agreement and, to a lesser extent, higher contractual energy rates. Segment income in 1996 from the Company's waste-recycling facility, which was sold in July 1996, was $4.6 million. Results from this facility, net of related interest expense (not included in segment income), were approximately breakeven in 1996. During the second quarter of 1997, the Company settled litigation relating to construction of an alternative-energy facility in 1988 and 1989 (Note 4). As a result of the settlement, the Company reversed $5.0 million of previously established reserves during the second quarter, which is included as a reduction in restructuring and other nonrecurring costs in the accompanying 1997 statement of income. Segment income at Thermo Power improved to 18PAGE THERMO ELECTRON CORPORATION First Nine Months 1997 Compared With First Nine Months 1996 (continued) $3.8 million from $1.0 million in 1996, primarily due to improved margins at its industrial refrigeration and engines businesses, due to lower warranty costs, as well as increased engines revenues and lower overhead as a result of consolidating two engine manufacturing facilities. Excluding restructuring and other nonrecurring costs of $1.3 million in 1997 and $4.4 million in 1996, Peter Brotherhood was profitable in 1997, compared with a segment loss in the 1996 period. The 1997 costs related primarily to severance for employees terminated during the second quarter of 1997. The 1996 costs are discussed in the results of operations for the third quarter. Process Equipment Sales in the Process Equipment segment were $202.7 million in 1997, compared with $226.9 million in 1996. A wholly owned subsidiary of the Company recorded $57.1 million of revenues from an office wastepaper de-inking contract in the first nine months of 1996. This contract was substantially completed in the second quarter of 1996. Sales from Thermo Fibertek increased to $166.8 million from $143.7 million in 1996, primarily due to $30.0 million of revenues from acquired businesses. Increases in revenues from Thermo Fibertek's accessories and water-management businesses were more than offset by a $9.7 million decrease in revenues at its recycling business due to lower demand resulting from a severe drop in de-inked pulp prices. In addition, the unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $4.1 million. Sales of Thermo TerraTech's thermal-processing equipment increased $7.1 million to $25.3 million due to increased demand, and sales of automated electroplating equipment by the Company's Napco Inc. subsidiary increased $2.8 million to $10.6 million. Thermo TerraTech sold its thermal-processing equipment business in October 1997. A nominal gain on the sale is expected to be realized in the fourth quarter of 1997. Segment income, excluding restructuring costs of $1.1 million in 1997, was $21.7 million in 1997, compared with $26.9 million in 1996. This decline primarily resulted from lower sales at Thermo Fibertek's recycling business. In addition, the Company recorded a segment loss in 1997 compared with segment income in 1996, on construction of the office wastepaper de-inking facility due to a reserve established in 1997 for disputed contractual items relating to this facility. Thermo Fibertek recorded restructuring and other nonrecurring costs of $1.1 million in 1997 as discussed in the results of operations for the third quarter. Biomedical Products Sales from the Biomedical Products segment were $424.4 million in 1997, an increase of $101.2 million, or 31%, over 1996. Sales increased due to the inclusion of $57.0 million in sales from acquired businesses, increased demand at Trex Medical and Bird Medical, and growth at ThermoLase's hair-removal business due to the opening of new spas and higher revenues from physician and international licensing arrangements. Segment income, excluding restructuring and other nonrecurring costs of $24.4 million in 1996, declined to $34.0 million in 1997 from 19PAGE THERMO ELECTRON CORPORATION First Nine Months 1997 Compared With First Nine Months 1996 (continued) $34.8 million in 1996. This decline resulted primarily from an increased segment loss at ThermoLase to $15.9 million in 1997 from $4.4 million in 1996 and, to a lesser extent, a decrease in segment income of $5.7 million at Thermo Cardiosystems. The reasons for these changes are discussed in the results of operations for the third quarter. These decreases in segment income were substantially offset by improvements from existing businesses and the inclusion of segment income from acquired businesses. In addition to the $1.9 million of restructuring and other nonrecurring costs in 1996, 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 $12.7 million recorded by Thermedics' Corpak Inc. subsidiary for the write-off of cost in excess of net assets of acquired companies, and $9.8 million incurred by SensorMedics in connection with its merger with the Company. Environmental Services Sales in the Environmental Services segment were $221.5 million in 1997, an increase of $24.8 million, or 13%, over 1996. Revenues from Thermo TerraTech's remediation and recycling services increased to $98.2 million in 1997 from $83.5 million in 1996, primarily due to the inclusion of $20.4 million of sales from acquired businesses, offset in part by a 27% decline in revenues from Thermo Remediation's soil- remediation services to $13.0 million, resulting from lower volumes of soil processed due to overcapacity in the industry and competitive pricing pressures. Sales of metallurgical services increased to $39.2 million in 1997 from $32.7 million in 1996, due to increased demand for existing services and the inclusion of $2.9 million of sales from an acquired business. Segment income margin, excluding restructuring and other nonrecurring costs of $7.8 million in 1997, was 7.5% in 1997, compared with 6.4% in 1996. Segment income margin improved due to lower margins in the 1996 period as a result of costs incurred by Thermo TerraTech to reduce redundancies at regional laboratories, offset in part by a decline in margins from soil-remediation services due to lower sales as discussed above. Restructuring and other nonrecurring costs of $7.8 million in 1997 were recorded in the first quarter to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in Thermo Remediation's soil-recycling business that resulted in the closure of two soil-remediation sites. In addition, the Company's analysis indicated 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 $302.9 million in 1997, compared with $275.7 million in 1996. Sales at Coleman Research were $119.2 million in 1997, compared with $109.6 million in 1996. This increase resulted primarily from its Thermo Information Solutions subsidiary's contract to supply kiosk units and, to a lesser extent, sales of $2.1 million from an acquired business. Sales at Thermedics 20PAGE THERMO ELECTRON CORPORATION First Nine Months 1997 Compared With First Nine Months 1996 (continued) Detection increased 23% to $37.5 million in 1997, primarily due to sales from the continued fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base, and $1.5 million of sales to the FAA under a $5.8 million order. Sales at Thermo Sentron increased to $56.0 million in 1997 from $51.5 million in 1996, primarily due to higher demand and, to a lesser extent, $2.6 million of sales at acquired businesses, offset in part by the unfavorable effects of currency translation. Sales at Thermo Voltek declined to $32.7 million in 1997 from $35.3 million in 1996, primarily due to lower demand for EMC test products, offset in part by the inclusion of $4.8 million in sales from acquired businesses. The decrease in demand for EMC test products reflects a decline in the component-reliability market for electrostatic discharge test equipment caused by a slowdown in capital spending by the semiconductor industry. Segment income margin, excluding nonrecurring costs of $1.4 million in 1997, was 8.8% in 1997, compared with 6.3% in 1996. This improvement resulted from increased sales and the impact in the 1996 period of charges for inventory obsolescence and other adjustments at Thermedics Detection, as well as a loss in the 1996 period at ThermoTrex's advanced technology research center due to cost overruns and higher expenses for new lines of business. The improvement was offset in part by a decrease in profitability at Thermo Voltek. Nonrecurring costs of $1.4 million in 1997 were discussed in the results of operations for the third quarter. Gain on Issuance of Stock by Subsidiaries As a result of the sale of stock by subsidiaries and issuance of stock by a subsidiary upon conversion of convertible debentures, the Company recorded gains of $67.5 million in 1997 and $110.9 million in 1996 (Note 2). Minority interest expense decreased to $52.7 million in 1997 from $57.4 million in 1996. Minority interest expense includes $17.0 million in 1997 and $33.9 million in 1996, related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. Liquidity and Capital Resources Consolidated working capital was $2,061.4 million at September 27, 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 $1,530.2 million at September 27, 1997, compared with $1,846.3 million at December 28, 1996. In addition, at September 27, 1997, the Company had $75.6 million of long-term available-for-sale 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 $1,605.8 million of cash, cash equivalents, and short- and long-term available- for-sale investments at September 27, 1997, $1,138.5 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. 21PAGE THERMO ELECTRON CORPORATION Liquidity and Capital Resources (continued) Cash provided by operating activities was $142.5 million during the first nine months of 1997. Cash of $76.2 million and $20.5 million was used to fund increases in accounts receivable and inventories, respectively. The increase in accounts receivable resulted from an increase in large shipments near the end of the quarter and a competitive trend of longer payment terms at several subsidiaries, as well as a delay in billing and pursuit of collections at two subsidiaries due to an office relocation and employee turnover. The increase in inventories resulted from higher levels of inventory at several subsidiaries to support expanding operations, as well as the fulfillment of contractual obligations. During the first nine months of 1997, the Company's primary investing activities, excluding available-for-sale investments activity, included acquisitions, capital expenditures, and the sale of property, plant, and equipment. During the first nine months of 1997, the Company expended $636.9 million, net of cash acquired, for acquisitions and $78.3 million for purchases of property, plant, and equipment. The Company received proceeds of $11.3 million from the sale of property, plant, and equipment. The Company's financing activities provided $212.6 million of cash in the first nine months of 1997. Net proceeds from the issuance of Company and subsidiary common stock totaled $134.6 million and net proceeds from the issuance of long-term obligations totaled $378.3 million. In addition, the Company repaid long-term obligations of $45.9 million. During the first nine months of 1997, an aggregate principal amount of $65.2 million of Company and subsidiary convertible obligations were converted into shares of Company and subsidiary common stock. During the first nine months of 1997, the Company and its majority-owned subsidiaries used $246.2 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 September 27, 1997, $37.1 million and $25.9 million remained under the Company's and its majority-owned subsidiaries' authorizations, respectively. Additionally, the Board of Directors of ThermoLase authorized the repurchase, through September 1998, of up to 1,000,000 shares of its common stock, of which 644,016 shares were remaining as of September 27, 1997. The Company has no material commitments for purchases of property, plant, and equipment and expects that, for the fourth quarter of 1997, such expenditures will approximate the current level of expenditures. Since September 27, 1997, the Company and a majority-owned subsidiary have expended $44.7 million on acquisitions and as of November 5, 1997, the Company's majority-owned subsidiaries had agreements or nonbinding letters of intent to acquire new businesses totaling approximately $178 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. 22PAGE THERMO ELECTRON CORPORATION PART II - OTHER INFORMATION 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 5th day of November 1997. THERMO ELECTRON CORPORATION Paul F. Kelleher ----------------------------- Paul F. Kelleher Senior 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 ------------------------------------------------------------------------ 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 ----------------------------- Sept. 27, Sept. 28, 1997 1996 -------------------------------------------------------------------------- Computation of Fully Diluted Earnings per Share: Income: Net income $ 61,859,000 $ 51,242,000 Add: Convertible debenture interest, net of tax 4,946,000 5,688,000 ------------ ------------ Income applicable to common stock assuming full dilution (a) $ 66,805,000 $ 56,930,000 ------------ ------------ Shares: Weighted average shares outstanding 150,344,554 142,791,369 Add: Shares issuable from assumed conversion of convertible debentures 23,735,864 30,555,401 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,175,000 2,468,459 ------------ ------------ Weighted average shares outstanding, as adjusted (b) 176,255,418 175,815,229 ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ .38 $ .32 ============ ============ PAGE Exhibit 11 THERMO ELECTRON CORPORATION Computation of Earnings per Share Nine Months Ended ----------------------------- Sept. 27, Sept. 28, 1997 1996 ------------------------------------------------------------------------ Computation of Fully Diluted Earnings per Share: Income: Net income $170,075,000 $137,184,000 Add: Convertible debenture interest, net of tax 14,865,000 18,522,000 ------------ ------------ Income applicable to common stock assuming full dilution (a) $184,940,000 $155,706,000 ------------ ------------ Shares: Weighted average shares outstanding 150,195,892 138,853,385 Add: Shares issuable from assumed conversion of convertible debentures 23,791,791 34,286,379 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 2,175,000 2,520,701 ------------ ------------ Weighted average shares outstanding, as adjusted (b) 176,162,683 175,660,465 ------------ ------------ Fully Diluted Earnings per Share (a) / (b) $ 1.05 $ .89 ============ ============ 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 SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-03-1998 SEP-27-1997 493,287 1,036,917 790,075 43,235 521,605 3,070,179 1,119,306 359,902 5,588,131 1,008,822 1,819,445 0 0 151,359 1,637,377 5,588,131 2,426,797 2,426,797 1,413,400 1,519,427 145,559 6,974 67,794 341,105 118,373 170,075 0 0 0 170,075 1.13 1.05 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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