-----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, Ck4HN+azRZbaj0rjM/ITtYGj26BaI1iySFWSNCy8WuGOfGOVwPl5PqryxNbYp//H FyG/JXALRix+YrCgJC/31Q== 0000097745-98-000025.txt : 19980519 0000097745-98-000025.hdr.sgml : 19980519 ACCESSION NUMBER: 0000097745-98-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980518 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: 98627137 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 April 4, 1998. [ ] 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: (781) 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 May 1, 1998 ----------------------------- -------------------------- Common Stock, $1.00 par value 159,328,044 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements ----------------------------- THERMO ELECTRON CORPORATION Consolidated Balance Sheet (Unaudited) Assets April 4, January 3, (In thousands) 1998 1998 ---------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 595,664 $ 593,580 Short-term available-for-sale investments at quoted market value (amortized cost of $1,175,416 and $925,855) 1,194,587 929,118 Accounts receivable, less allowances of $53,477 and $55,698 777,636 797,399 Unbilled contract costs and fees 70,072 69,375 Inventories: Raw materials and supplies 270,348 260,458 Work in process 115,054 108,327 Finished goods 176,237 174,804 Prepaid income taxes 118,384 118,182 Prepaid expenses 47,499 42,955 ---------- ---------- 3,365,481 3,094,198 ---------- ---------- Property, Plant, and Equipment, at Cost 1,189,485 1,159,913 Less: Accumulated depreciation and amortization 392,802 370,867 ---------- ---------- 796,683 789,046 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $69,201 and $49,581) 82,343 63,306 ---------- ---------- Other Assets 158,557 157,108 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies 1,707,840 1,692,211 ---------- ---------- $6,110,904 $5,795,869 ========== ========== 2PAGE THERMO ELECTRON CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment April 4, January 3, (In thousands except share amounts) 1998 1998 ---------------------------------------------------------------------- Current Liabilities: Notes payable and current maturities of long-term obligations $ 136,346 $ 176,912 Accounts payable 249,103 251,677 Accrued payroll and employee benefits 124,434 140,698 Accrued income taxes 85,733 57,923 Accrued installation and warranty costs 71,330 72,710 Deferred revenue 64,983 54,999 Other accrued expenses (Note 6) 322,257 337,316 ---------- ---------- 1,054,186 1,092,235 ---------- ---------- Deferred Income Taxes and Other Deferred Items 150,303 149,884 ---------- ---------- Long-term Obligations: Senior convertible obligations 187,297 187,824 Subordinated convertible obligations 1,706,941 1,473,015 Nonrecourse tax-exempt obligations 37,600 37,600 Other 48,309 44,468 ---------- ---------- 1,980,147 1,742,907 ---------- ---------- Minority Interest 802,187 719,622 ---------- ---------- Common Stock of Subsidiaries Subject to Redemption ($95,262 redemption value) 93,559 93,312 ---------- ---------- Shareholders' Investment (Note 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 159,362,236 and 159,206,337 shares issued 159,362 159,206 Capital in excess of par value 817,963 843,709 Retained earnings 1,100,133 1,034,640 Treasury stock at cost, 168,977 and 95,684 shares (6,753) (3,839) Accumulated other comprehensive items (Note 5) (40,183) (35,807) ---------- ---------- 2,030,522 1,997,909 ---------- ---------- $6,110,904 $5,795,869 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Income (Unaudited) Three Months Ended ---------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ----------------------------------------------------------------------- Revenues: Product and service revenues $900,997 $722,625 Research and development contract revenues 43,266 40,880 -------- -------- 944,263 763,505 -------- -------- Costs and Operating Expenses: Cost of product and service revenues 533,694 430,802 Expenses for research and development and new lines of business (a) 92,148 78,541 Selling, general, and administrative expenses 226,024 185,330 Restructuring and other nonrecurring costs - 7,800 -------- -------- 851,866 702,473 -------- -------- Operating Income 92,397 61,032 Gain on Issuance of Stock by Subsidiaries (Note 2) 39,605 33,666 Other Income (Expense), Net (Note 3) (384) 2,897 -------- -------- Income Before Income Taxes and Minority Interest 131,618 97,595 Provision for Income Taxes 41,574 28,397 Minority Interest Expense 24,551 17,140 -------- -------- Net Income $ 65,493 $ 52,058 ======== ======== Earnings per Share (Note 4): Basic $ .41 $ .35 ======== ======== Diluted $ .37 $ .31 ======== ======== Weighted Average Shares (Note 4): Basic 159,131 150,070 ======== ======== Diluted 176,580 175,925 ======== ======== (a) Includes costs of: Research and development contracts $ 38,727 $ 36,338 Internally funded research and development 52,591 41,604 Other expenses for new lines of business 830 599 -------- -------- $ 92,148 $ 78,541 ======== ======== 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 ---------------------- April 4, March 29, (In thousands) 1998 1997 ----------------------------------------------------------------------- Operating Activities: Net income $ 65,493 $ 52,058 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 38,059 29,917 Restructuring and other nonrecurring costs - 7,800 Provision for losses on accounts receivable 1,856 2,558 Change in deferred income taxes (699) 957 Minority interest expense 24,551 17,140 Gain on issuance of stock by subsidiaries (Note 2) (39,605) (33,666) (Gain) loss on sale of investments, net 160 (550) Other noncash items, net 2,624 4,647 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 15,998 (3,476) Inventories (19,696) (20,785) Other current assets (4,822) (16,878) Accounts payable (2,561) (11,107) Other current liabilities (11,636) 3,516 --------- --------- Net cash provided by operating activities 69,722 32,131 --------- --------- Investing Activities: Acquisitions, net of cash acquired (5,625) (349,038) Purchases of available-for-sale investments (610,285) (207,237) Proceeds from sale and maturities of available-for-sale investments 327,205 485,800 Purchases of property, plant, and equipment (37,766) (23,103) Proceeds from sale of property, plant, and equipment 5,702 2,673 Increase in other assets (509) (4,765) Other 3,652 1,942 --------- --------- Net cash used in investing activities $(317,626) $ (93,728) --------- --------- 5PAGE THERMO ELECTRON CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Three Months Ended ---------------------- April 4, March 29, (In thousands) 1998 1997 ----------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of long-term obligations $ 249,963 $ - Repayment of long-term obligations (1,902) (28,068) Net proceeds from issuance of Company and subsidiary common stock 124,791 62,816 Purchases of subsidiary common stock and debentures (79,697) (51,870) Increase (decrease) in short-term notes payable (42,217) 11,858 Other (1,632) (1,894) --------- --------- Net cash provided by (used in) financing activities 249,306 (7,158) --------- --------- Exchange Rate Effect on Cash 682 (3,896) --------- --------- Increase (Decrease) in Cash and Cash Equivalents 2,084 (72,651) Cash and Cash Equivalents at Beginning of Period 593,580 414,404 --------- --------- Cash and Cash Equivalents at End of Period $ 595,664 $ 341,753 ========= ========= Noncash activities: Conversions of subsidiary convertible obligations $ 5,090 $ 9,612 ========= ========= Fair value of assets of acquired companies $ 9,191 $ 619,372 Cash paid for acquired companies (5,700) (395,709) Issuance of subsidiary common stock and stock options for acquired companies (275) (2,080) --------- --------- Liabilities assumed of acquired companies $ 3,216 $ 221,583 ========= ========= 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 April 4, 1998, and the results of operations and cash flows for the three-month periods ended April 4, 1998, and March 29, 1997. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of January 3, 1998, 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, as amended, for the fiscal year ended January 3, 1998, 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 April 4, 1998, resulted primarily from the following: Sale of 5,175,000 shares of Trex Medical Corporation common stock at $13.75 per share for net proceeds of $66.9 million resulted in a gain of $23.8 million that was recorded by ThermoTrex Corporation. Private placement of 781,921 shares of Thermo Trilogy Corporation common stock at $8.25 per share for net proceeds of $6.0 million resulted in a gain of $2.2 million that was recorded by Thermo Ecotek Corporation. Initial public offering of 3,300,000 shares of ONIX Systems Inc. common stock at $14.50 per share for net proceeds of $43.2 million resulted in a gain of $10.0 million that was recorded by Thermo Instrument Systems Inc. Private placement of 746,250 shares of Thermo Coleman Corporation common stock at $10.00 per share for net proceeds of $6.8 million resulted in a gain of $3.6 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 -------------------- April 4, March 29, (In thousands) 1998 1997 ------------------------------------------------------------------------ Interest income $ 23,765 $ 24,952 Interest expense (25,607) (21,412) Equity in income (loss) of unconsolidated subsidiaries (288) 290 Gain (loss) on sale of investments, net (160) 550 Other 1,906 (1,483) -------- -------- $ (384) $ 2,897 ======== ======== 4. Earnings per Share Basic and diluted earnings per share were calculated as follows: Three Months Ended -------------------- April 4, March 29, (In thousands except per share amounts) 1998 1997 ------------------------------------------------------------------------ Basic Net income $ 65,493 $ 52,058 -------- -------- Weighted average shares 159,131 150,070 -------- -------- Basic earnings per share $ .41 $ .35 ======== ======== Diluted Net income $ 65,493 $ 52,058 Effect of: Convertible debentures 3,667 4,959 Majority-owned subsidiaries' dilutive securities (4,192) (1,864) -------- -------- Income available to common shareholders, as adjusted $ 64,968 $ 55,153 -------- -------- Weighted average shares 159,131 150,070 Effect of: Convertible debentures 15,476 23,820 Stock options 1,973 2,035 -------- -------- Weighted average shares, as adjusted 176,580 175,925 -------- -------- Diluted earnings per share $ .37 $ .31 ======== ======== 8PAGE THERMO ELECTRON CORPORATION 4. Earnings per Share (continued) The computation of diluted earnings per share for each period excludes the effect of assuming the exercise of certain outstanding stock options because the effect would be antidilutive. As of April 4, 1998, there were 715,000 of such options outstanding, with exercise prices ranging from $39.84 to $43.46 per share. 5. Comprehensive Income During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This pronouncement sets forth requirements for disclosure of the Company's comprehensive income and accumulated other comprehensive items. In general, comprehensive income combines net income and "other comprehensive items," which represent certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses on available-for-sale investments. During the first quarter of 1998 and 1997, the Company's comprehensive income totaled $62.2 million and $34.7 million, respectively. 6. Accrued Acquisition Expenses 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. In March 1997, Thermo Instrument finalized its plan for restructuring the acquired businesses. At January 3, 1998, the remaining reserve for these restructuring activities totaled $11.1 million. During the first quarter of 1998, Thermo Instrument expended $0.6 million for restructuring costs, primarily for ongoing severance and abandoned-facility payments. At April 4, 1998, the remaining reserve for restructuring these businesses was $10.5 million, which primarily represents ongoing severance and abandoned-facility payments. 7. Subsequent Event In April 1998, the Company sold 7,475,000 shares of its common stock at $40.625 per share for net proceeds of approximately $290 million. 9PAGE THERMO ELECTRON CORPORATION 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 heading "Forward-looking Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended January 3, 1998, filed with the Securities and Exchange Commission. Results of Operations First Quarter 1998 Compared With First Quarter 1997 --------------------------------------------------- Sales in the first quarter of 1998 were $944.3 million, an increase of $180.8 million, or 24%, over the first quarter of 1997. Segment income, excluding restructuring and other nonrecurring costs of $7.8 million in 1997, described below, increased 31% to $100.8 million in 1998 from $76.7 million in 1997. (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 51% to $92.4 million in 1998 from $61.0 million in 1997. Instruments ----------- Sales from the Instruments segment increased $78.8 million, or 24%, to $407.9 million in 1998. Sales increased primarily due to acquisitions made by Thermo Instrument Systems Inc., which added $81.6 million of sales in 1998. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which Thermo Instrument operates decreased revenues by $8.5 million in 1998. In addition, revenues increased in 1998 due to higher sales at Metrika Systems Corporation as a result of greater demand at its finished-materials business and, to a lesser extent, at its raw-materials business. Revenues also increased at ONIX Systems Inc., due to increased sales of industry-specific instruments to the production segment of the oil and gas industry. An increase in revenues at ThermoQuest Corporation from Europe and North America was offset by a decrease in its revenues from Japan of $7.0 million due to economic uncertainty in that country. Increased revenues at the majority of ThermoSpectra Corporation's existing operations were slightly more than offset by a decline for test and measurement systems at one of its subsidiaries and the inclusion in 1997 of a large shipment at another subsidiary. 10 THERMO ELECTRON CORPORATION First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Segment income margin (segment income margin is segment income as a percentage of sales) improved to 14.9% in 1998 from 14.0% in 1997. The improvement was primarily due to the effect in the 1997 period of an adjustment to expense of $2.7 million relating to the sale of inventories revalued at the time of the acquisition of Life Sciences International PLC. Biomedical Products ------------------- Sales from the Biomedical Products segment were $166.0 million in 1998, an increase of $29.1 million, or 21%, over the 1997 period. Sales increased primarily due to increased demand at Trex Medical Corporation, Bird Medical Technologies, Inc., and, to a lesser extent, Thermo Cardiosystems Inc. In addition, sales increased due to the inclusion of $11.9 million of sales from acquired businesses. These increases were offset in part by a decrease in revenues of $3.6 million at ThermoLase Corporation, primarily due to lower demand at its hair-removal business and the inclusion in 1997 of $1.3 million of fees from international- licensing arrangements. Rather than continuing to open additional spas, ThermoLase intends to concentrate its resources on attempting both to increase the capacity utilization of its existing spas and to expand its physician-licensing program and international licensing arrangements. In response to the decrease in revenues, ThermoLase significantly reduced its prices in April 1998 in an attempt to establish an optimum price point that will result in increased demand and higher revenues. There can be no assurance such strategy will be successful. Segment income increased to $16.6 million in 1998 from $8.4 million in 1997. This increase resulted substantially from improvements at existing businesses, primarily at Bird Medical and Trex Medical as a result of higher revenues and, to a lesser extent, the inclusion of segment income from acquired businesses. These increases were offset in part by an increase in segment loss at ThermoLase to $7.9 million in 1998 from $5.3 million in 1997, primarily due to the decrease in revenues described above, as well as increased fixed costs associated with operating more spas and supporting more physician-licensees. The effect of operating each spa below maximum capacity, as ThermoLase develops its client base and expands its product lines, will continue to have a negative effect on ThermoLase's segment income. ThermoLase believes that improvements in the efficacy and duration of its SoftLight(R) hair-removal process, as well as increased spa utilization through broadening the array of spa-related services and products offered, are critical elements in its ability to improve the profitability of its spas. The degree to which ThermoLase's recent pricing structure changes are successful will also affect its segment income. 11PAGE THERMO ELECTRON CORPORATION First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Advanced Technology ------------------- Sales from the Advanced Technology segment increased to $100.9 million in 1998 from $96.5 million in 1997. Revenues from Thermo Sentron Inc. increased to $18.9 million in 1998 from $18.0 million in 1997, primarily due to increased demand and the inclusion of $0.9 million of sales from acquired businesses, offset in part by the unfavorable effects of currency translation. Sales at Thermo Voltek Corp. increased to $11.4 million in 1998 from $9.7 million in 1997, due to the inclusion of $1.0 million of sales from an acquired business and an increase in sales of electromagnetic compatibility test instruments. Sales from ThermoTrex Corporation's business units increased $4.7 million in 1998, primarily as a result of the inclusion of $3.2 million in sales from an acquired business at its Trex Communications Corporation subsidiary. Sales at Thermo Coleman Corporation were $36.9 million in 1998, compared with $37.8 million in 1997. This decrease resulted from a decline of $3.2 million in sales of kiosk units by its Thermo Information Solutions Inc. subsidiary, which intends to exit this business due to inherently low margins, lower than expected orders from its sole customer, and the absence of other orders. This decrease was offset in part by higher revenues from government contracts. Sales at Thermedics Detection Inc. decreased 7% to $23.7 million in 1998, primarily due to lower sales of its Alexus systems in connection with the fulfillment in 1997 of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base, offset in part by increased shipments of security systems and related services under a contract with the U.S. Federal Aviation Administration, which was completed during the quarter. Segment income decreased to $6.2 million in 1998 from $6.8 million in 1997. This decrease resulted from lower segment income at Thermedics Detection and Thermo Coleman, primarily due to lower sales, offset in part by an increase in profitability at Thermo Voltek principally due to an increase in sales. Alternative Energy ------------------ Sales from the Alternative Energy segment increased to $123.7 million in 1998 from $78.7 million in 1997. Within this segment, revenues from Thermo Ecotek Corporation increased to $47.2 million in 1998 from $38.7 million in 1997. Revenues from Thermo Ecotek's Thermo Trilogy Corporation biopesticide subsidiary increased by $4.4 million to $8.0 million, primarily due to the inclusion of revenues from two acquired businesses. The remainder of Thermo Ecotek's increase in revenues was a result of the inclusion of $2.4 million of revenues from newly acquired power operations in the Czech Republic and, to a lesser extent, higher contractual energy rates at several facilities. No further rate increases will occur in Thermo Ecotek's four California energy facilities beginning in 1998. Sales at Peter Brotherhood Ltd. declined to $7.9 million in 1998 from $11.2 million in 1997, due to the disposal of several business units in 1997. Sales at Thermo Power Corporation increased to $68.6 million in 1998 from $28.8 million in 1997, primarily due to the inclusion of $39.0 million of sales from Peek plc, acquired in November 1997. 12PAGE THERMO ELECTRON CORPORATION First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Segment income was $7.7 million in 1998, compared with $4.8 million in 1997. Thermo Ecotek's segment income was $6.5 million in 1998, compared with $4.4 million in 1997. The increase resulted primarily from higher contractual energy rates as well as the inclusion of results of the newly acquired Czech Republic power operations. Segment income at Thermo Power improved to $1.2 million from $0.7 million in 1997, primarily due to contributions from Peek. Due to funding patterns of government entities, as well as seasonality, Peek has historically experienced higher sales and segment income in the second and fourth calendar quarters and lower amounts in the first and third calendar quarters. Peter Brotherhood was nominally profitable in 1998, compared with a segment loss in 1997. Industrial Outsourcing ---------------------- Sales in the Industrial Outsourcing segment were $81.7 million in 1998, an increase of $13.2 million, or 19%, over 1997. Revenues from Thermo TerraTech Inc.'s remediation and recycling services increased to $36.4 million in 1998 from $30.4 million in 1997, primarily due to higher demand at certain business units and, to a lesser extent, the inclusion of $4.8 million of sales from acquired businesses. These increases were offset in part by a $4.8 million decrease in revenues at one of Thermo Remediation Inc.'s business units resulting from a decline in the number of contracts in process. In addition, revenues from Thermo Remediation's soil-remediation services decreased 15% to $4.2 million, resulting from the closure of two sites as well as heavy rains, which unfavorably affected operations at certain west coast sites. Revenues from consulting and design services increased $4.7 million in 1998, primarily due to the inclusion of $3.9 million of revenues from an acquired business. Sales of metallurgical services increased $2.4 million in 1998, principally due to increased demand for existing services. Segment income, excluding restructuring and other nonrecurring costs of $7.8 million in 1997, was $1.9 million in 1998, compared with $4.5 million in 1997. Segment income declined in 1998 due to a loss of $4.5 million incurred at one of Thermo Remediation's business units on certain remedial-construction contracts. This decrease in segment income was offset in part by higher income from consulting and design services principally due to higher revenues. Restructuring and other nonrecurring costs of $7.8 million in the first quarter of 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 severe downturn in Thermo Remediation's soil-remediation business. This resulted in the closure of two soil-remediation sites during 1997 and reduced cash flows at certain other sites, such that analysis indicated that the investment in these assets would not be recovered. 13PAGE THERMO ELECTRON CORPORATION First Quarter 1998 Compared With First Quarter 1997 (continued) --------------------------------------------------- Paper Recycling --------------- Sales in the Paper Recycling segment increased to $65.4 million in 1998 from $56.0 million in 1997. Sales from Thermo Fibertek Inc. increased 40% to $62.3 million in 1998 from $44.7 million in 1997, primarily due to the inclusion of revenues of $17.4 million from Thermo Black Clawson, acquired in May 1997. In addition, an increase in revenues from Thermo Fibertek's accessories business resulting from higher demand was offset in part by a decrease in revenues at its recycling business of $2.3 million due to a continuing decrease in demand resulting from a severe drop in de-inked pulp prices. The unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $1.5 million in 1998. Sales from Thermo TerraTech's thermal-processing equipment business, sold in October 1997, were $7.9 million in 1997. Segment income margin was 11.9% in 1998, compared with 11.5% in 1997. This increase primarily resulted from improvements at Thermo Fibertek and the inclusion in 1997 of lower segment income margins from Thermo TerraTech's thermal-processing equipment business. 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. As a result of the sale of stock by subsidiaries, the Company recorded gains of $39.6 million in 1998 (Note 2) and $33.7 million in 1997. Minority interest expense increased to $24.6 million in 1998 from $17.1 million in 1997. Minority interest expense includes $12.4 million in 1998 and $9.5 million in 1997 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock by their subsidiaries. Liquidity and Capital Resources Consolidated working capital was $2,311.3 million at April 4, 1998, compared with $2,002.0 million at January 3, 1998. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,790.3 million at April 4, 1998, compared with $1,522.7 million at January 3, 1998. In addition, the Company had $82.3 million of long-term available-for-sale investments at April 4, 1998, compared with $63.3 million of long-term available-for-sale investments at January 3, 1998. Of the total $1,872.6 million of cash, cash equivalents, and short- and long-term available-for-sale investments at April 4, 1998, $1,569.2 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. Cash provided by operating activities was $69.7 million during the first quarter of 1998. Cash of $19.7 million was used to fund increases 14PAGE THERMO ELECTRON CORPORATION Liquidity and Capital Resources (continued) in inventories, principally at Thermo Instrument to replenish year-end inventory levels at ThermoQuest's European sales offices, as well as at certain other Thermo Instrument subsidiaries, and to build up inventories at ONIX Systems' industry-specific and composition analysis businesses as a result of long lead-time orders. Cash flow from operations was improved by a decrease in accounts receivable of $16.0 million, primarily at Thermo Instrument due to the timing of cash collections at Metrika Systems, management's efforts to reduce its investment in accounts receivable at Thermo Optek, and the effect of lower sales at one of ThermoSpectra's business units. During the first quarter of 1998, the Company's primary investing activity, excluding available-for-sale investments activity, was the purchase of property, plant, and equipment for $37.8 million. The Company's financing activities provided $249.3 million of cash in the first quarter of 1998. Net proceeds from the issuance of long-term obligations totaled $250.0 million and net proceeds from the issuance of Company and subsidiary common stock totaled $124.8 million. In addition, the Company used $42.2 million of cash to fund a decrease in short-term notes payable. In April 1998, the Company sold 7,475,000 shares of its common stock at $40.625 per share for net proceeds of approximately $290 million. During the first quarter of 1998, an aggregate principal amount of $5.1 million subsidiary convertible obligations were converted into shares of subsidiary common stock. During the first quarter of 1998, the Company and its majority-owned subsidiaries expended $80.0 million to purchase common stock and debentures of certain of the Company's majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company's and certain majority-owned subsidiaries' Boards of Directors. As of April 4, 1998, $50.9 million and $25.7 million remained under the Company's and its majority-owned subsidiaries' authorizations, respectively. In addition to these authorizations, Thermedics Inc. has presented a proposal to its Thermo Voltek subsidiary to acquire, through a merger, all of the outstanding shares of Thermo Voltek's common stock that Thermedics does not own for a total transaction cost estimated to be approximately $27 million. The Company has no material commitments for purchases of property, plant, and equipment and expects that, for the remainder of 1998, such expenditures will approximate the current level of expenditures. Since April 4, 1998, a majority-owned subsidiary of the Company has expended $35 million on an acquisition and as of May 18, 1998, the Company's majority-owned subsidiaries had agreements or nonbinding letters of intent to acquire new businesses totaling approximately $168 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. 15PAGE THERMO ELECTRON CORPORATION Market Risk The Company's exposure to market risk from changes in foreign currency exchange rates, interest rates, and equity prices has not changed materially from its exposure at year-end 1997. PART II - OTHER INFORMATION Item 6 - Exhibits ----------------- See Exhibit Index on page immediately preceding exhibits. 16PAGE 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 18th day of May 1998. 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 17PAGE THERMO ELECTRON CORPORATION EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 27 Financial Data Schedule. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORTION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JAN-02-1999 APR-04-1998 595,664 1,194,587 831,113 53,477 561,639 3,365,481 1,189,485 392,802 6,110,904 1,054,186 1,980,147 0 0 159,362 1,871,160 6,110,904 900,997 944,263 533,694 572,421 53,421 1,856 25,607 131,618 41,574 65,493 0 0 0 65,493 .41 .37 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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