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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 3, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of January 30, 1998, was approximately $6,089,611,000.
As of January 30, 1998, the Registrant had 159,173,807 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 3, 1998, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 2, 1998, are incorporated by
reference into Part III.
PAGE
PART I
Item 1. Business
(a) General Development of Business
Thermo Electron Corporation and its subsidiaries (the Company or the
Registrant) develop, manufacture, and market analytical and monitoring
instruments; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; paper recycling and
papermaking equipment; alternative-energy systems; industrial process
equipment; and other specialized products. The Company also provides a
range of services that include industrial outsourcing, particularly in
environmental-liability management, laboratory analysis, and
metallurgical processing; and conducts advanced-technology research and
development. The Company performs its business through divisions and
wholly owned subsidiaries, as well as majority-owned subsidiaries that
are partially owned by the public or by private investors.
A key element in the Company's growth has been its ability to
commercialize innovative products and services emanating from research
and development activities conducted by the Company's various
subsidiaries. The Company's strategy has been to identify business
opportunities arising from social, economic, and regulatory issues, and
to seek a leading market share through the application of proprietary
technology. As part of this strategy, the Company continues to focus on
the acquisition of complementary businesses that can be integrated into
its existing core businesses to leverage access to new markets.
The Company believes that maintaining an entrepreneurial atmosphere
is essential to its continued growth and development. To preserve this
atmosphere, the Company has adopted a strategy of spinning out certain of
its businesses into separate subsidiaries and having these subsidiaries
sell a minority interest to outside investors. The Company believes that
this strategy provides additional motivation and incentives for the
management of the subsidiaries through the establishment of subsidiary-
level stock option incentive programs, as well as capital to support the
subsidiaries' growth. The Company's wholly and majority-owned
subsidiaries are provided with centralized corporate development,
administrative, financial, and other services that would not be available
to many independent companies of similar size. As of March 11, 1998, the
Company had 28 subsidiaries that have sold minority equity interests, 22
of which are publicly traded and 6 of which are privately held.
The Company is a Delaware corporation and was incorporated in 1956.
The Company completed its initial public offering in 1967 and was listed
on the New York Stock Exchange in 1980.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. 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,"
2PAGE
"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 the Registrant's 1997 Annual Report to Shareholders, which
statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company's products and services are divided into six segments:
Instruments, Alternative-energy Systems, Paper Recycling, Biomedical
Products, Industrial Outsourcing, and Advanced Technologies. Products or
services within a particular segment are provided by more than one
subsidiary, and certain subsidiaries' products or services are included
in more than one segment. The principal products and services offered by
the Company in the six industry segments are described below. Financial
information concerning the Company's industry segments is summarized in
Note 14 to Consolidated Financial Statements in the Registrant's 1997*
Annual Report to Shareholders, which information is incorporated herein
by reference.
(c) Description of Business
(i) Principal Products and Services
Instruments
The Company, through its Thermo Instrument Systems Inc. subsidiary,
is a worldwide leader in the development, manufacture, and marketing of
instruments used to identify complex chemical compounds, toxic metals,
and other elements in a broad range of liquids, solids, and gases, as
well as to analyze air pollution and radioactivity. Thermo Instrument
also provides instruments that control, monitor, image, inspect, and
measure various industrial processes and life sciences phenomena.
Thermo Instrument historically has expanded both through the
acquisition of companies and product lines and through the internal
development of new products and technologies. During the past several
years, Thermo Instrument has completed a number of complementary
acquisitions that have provided additional technologies, specialized
manufacturing or product-development expertise, and broader capabilities
in marketing and distribution.
For example, in March 1997, Thermo Instrument acquired 95% of Life
Sciences International PLC, a London Stock Exchange-listed company.
Subsequently, Thermo Instrument acquired the remaining shares of Life
Sciences' capital stock. Life Sciences manufactures laboratory science
equipment, appliances, instruments, consumables, and reagents for the
research, clinical, and industrial markets.
* References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
3PAGE
In March 1996, Thermo Instrument completed the acquisition of a
substantial portion of the businesses constituting the Scientific
Instruments Division of Fisons plc, a wholly owned subsidiary of
Rhone-Poulenc Rorer Inc. These businesses substantially added to Thermo
Instrument's research, development, manufacture, and sale of analytical
instruments to industrial and research laboratories worldwide. Certain of
the Fisons businesses were since sold by Thermo Instrument to a number of
its public subsidiaries that have complementary technologies and markets.
Thermo Instrument adopted the Company's spinout strategy in an effort
to more clearly focus its many instrumentation technologies on specific
niche markets. To date, Thermo Instrument has completed initial public
offerings of ThermoSpectra Corporation, ThermoQuest Corporation, Thermo
Optek Corporation, Thermo BioAnalysis Corporation, Metrika Systems
Corporation, and Thermo Vision Corporation. Thermo Instrument has
completed a private placement of common stock of its ONIX Systems Inc.
subsidiary and has filed a registration statement with the Securities and
Exchange Commission for a public offering of ONIX Systems common stock.
Thermo Instrument's subsidiaries are outlined below:
ThermoSpectra develops, manufactures, and markets precision imaging
and inspection, temperature-control, and test and measurement
instruments. These instruments are generally combined with proprietary
operations and analysis software to provide industrial and research
customers with integrated systems that address their specific needs.
ThermoQuest is a leading provider of mass spectrometers, liquid
chromatographs, and gas chromatographs for the pharmaceutical,
environmental, and industrial marketplaces. These analytical instruments
are used in the quantitative and qualitative chemical analysis of organic
and inorganic compounds at ultratrace levels of detection. ThermoQuest
also supplies scientific equipment for the preparation and preservation
of chemical samples, and consumables for the chromatography industry.
Thermo Optek is a worldwide leader in the development, manufacture,
and marketing of analytical instruments that use a range of light- and
energy-based techniques. Thermo Optek's instruments are used in the
quantitative and qualitative chemical analysis of elements and molecular
compounds in a variety of solids, liquids, and gases.
Thermo BioAnalysis develops, manufactures, and markets instruments,
consumables, and information-management systems used in biochemical
research and production, as well as in clinical diagnostics. Thermo
BioAnalysis focuses on three principal product areas: life sciences
instrumentation and consumables, information-management systems, and
health physics instrumentation.
Metrika Systems manufactures process optimization systems that
provide on-line, real-time analysis of the elemental composition of bulk
raw materials in basic-materials production processes, including coal,
cement, and minerals. In addition, Metrika Systems manufactures
industrial gauging and process-control instruments and systems used
principally by manufacturers of finished web materials, such as sheet
4PAGE
metal, rubber, and plastic foils, to measure and control parameters such
as thickness and coating weight of such materials.
Thermo Vision, which became a public subsidiary of Thermo Instrument
in December 1997, designs, manufactures, and markets a diverse array of
photonics (light-based) products, including optical components, imaging
sensors and systems, lasers, optically based instruments, opto-
electronics, and fiber optics. These products are used in applications
including medical diagnostics, semiconductor production, X-ray imaging,
physics research, and telecommunications.
ONIX Systems, a privately held subsidiary of Thermo Instrument,
designs, develops, markets, and services sophisticated field measurement
instruments and on-line sensors for process-control industries,
particularly oil and gas. Systems provide real-time data collection,
analysis, and local control functions regarding the flow, level, density,
or composition of a particular material.
Thermo Instrument also has wholly owned businesses, including the
Life Sciences Clinical Instrument Division, which provides an array of
clinical laboratory equipment and consumables, and Thermo Monitoring
Instruments, which produces instruments and complete systems for
detecting and monitoring environmental pollutants from industrial and
mobile sources, and for detecting radioactive contamination.
Alternative-energy Systems
The Company's Alternative-energy Systems segment includes the
operation of independent (non-utility) power plants that operate using
environmentally sound fuels and technologies, the development of
engineered clean fuels, and the manufacture and sale of biopesticides.
This segment also includes the manufacture, sale, and servicing of
intelligent traffic-control systems, industrial refrigeration equipment;
natural gas engines; packaged cooling and cogeneration systems; and steam
turbines and compressors.
Through its Thermo Ecotek Corporation subsidiary, the Company
designs, develops, owns, and operates independent (non-utility) electric
power-generation facilities that use environmentally responsible fuels,
including agricultural and wood wastes, referred to as "biomass." Thermo
Ecotek currently operates seven biomass facilities. Its facilities are
developed and operated through joint ventures or limited partnerships in
which it has a majority interest, or through wholly owned subsidiaries.
Thermo Ecotek intends to pursue development of biomass and other
power-generation projects both in the U.S. and overseas. In 1996, Thermo
Ecotek formed a joint venture in Italy to develop, own, and operate
biomass-fueled electric power facilities, and in January 1997, announced
a joint agreement to expand two district energy centers in the Czech
Republic. In the U.S., where the Company believes that utility
deregulation may present opportunities for updating aging plants, Thermo
Ecotek signed a $9.5 million agreement in November 1997 to purchase two
deregulated plants in southern California for possible refurbishing and
repowering.
5PAGE
Thermo Ecotek is expanding beyond power generation into other
products and processes that protect the environment. In August 1995,
Thermo Ecotek, through two wholly owned subsidiaries, entered into a
Limited Partnership Agreement with KFx Wyoming, Inc., a subsidiary of KFx
Inc., to develop, construct, and operate a coal-beneficiation plant in
Gillette, Wyoming. The facility employs patented "clean coal" technology
to remove excess moisture and increase energy from subbituminous coal
extracted from Wyoming's Powder River Basin.
In May 1996, Thermo Ecotek entered the biopesticide business by
acquiring the assets, subject to certain liabilities, of the biopesticide
division of W.R. Grace & Co. (renamed Thermo Trilogy), which develops,
manufactures, and markets environmentally friendly products for
agricultural pest control. In January 1997, Thermo Trilogy acquired the
assets of biosys, inc., a producer of pheromone, neem/azadiractin,
nematodes, and virus-based biopesticide products, as well as
disease-resistant sugar cane, and in November 1997, purchased the Bt
biopesticide product line of Novartis AG.
The Company, through its Thermo Power Corporation subsidiary,
manufactures, markets, and services intelligent traffic-control systems,
industrial refrigeration equipment, engines for vehicular and stationary
applications, natural gas-fueled commercial cooling and cogeneration
systems, and, through its privately held ThermoLyte Corporation
subsidiary, is developing a line of gas-powered lighting products for
commercialization.
In November 1997, Thermo Power completed a cash tender offer for Peek
plc, based in the U.K. Through Peek, the Company offers a range of
intelligent traffic-control systems for urban traffic control, motorway
management, and public transportation management in cities worldwide.
Systems include traffic-signal synchronization systems to minimize
congestion, variable message systems to advise drivers of accidents or
construction, video systems to provide real-time analysis of traffic
flows at intersections and on highways, as well as automatic
toll-collection systems. Peek also has developed high-resolution video
equipment to aid police officers in monitoring traffic violations.
Through its industrial refrigeration business, Thermo Power supplies
standard and custom-designed industrial refrigeration systems used
primarily by the food-processing, petrochemical, and pharmaceutical
industries. Thermo Power is also a supplier of both remanufactured and
new commercial cooling equipment for sale or rental. The commercial
cooling equipment is used primarily in institutions and commercial
buildings, as well as by service contractors.
Thermo Power also develops, manufactures, markets, and services
gasoline engines for recreational boats, propane and gasoline engines for
lift trucks, and natural gas engines for vehicles and stationary
industrial applications; and designs, develops, markets, and services
packaged cooling and cogeneration systems fueled principally by natural
gas.
6PAGE
The Company's Alternative-energy Systems segment also includes a
U.K.-based manufacturer of steam turbines and compressors.
Paper Recycling
The Company designs, manufactures, and sells paper recycling and
papermaking equipment and accessory products, and electroplating and
aqueous cleaning systems.
Through its Thermo Fibertek Inc. subsidiary, the Company is a leading
designer and manufacturer of processing machinery, accessories, and
water-management systems for the paper and paper recycling industries.
Thermo Fibertek's custom-engineered systems remove debris, impurities,
and ink from wastepaper, and process it into a fiber mix used to produce
recycled paper. Thermo Fibertek's principal products include
custom-engineered systems and equipment for the preparation of wastepaper
for conversion into recycled paper, accessory equipment and related
consumables important to the efficient operation of papermaking machines,
and water-management systems essential for draining, purifying, and
recycling process water.
In May 1997, Thermo Fibertek acquired the majority of the assets,
subject to certain liabilities, of the stock-preparation business of
Black Clawson Company and certain of its affiliates. In August 1997, the
Company acquired the remaining assets of the stock-preparation business
of Black Clawson Company and such affiliates. This business, renamed
Thermo Black Clawson, is a leading supplier of recycling equipment used
in processing fiber for the manufacture of "brown paper," such as that
used for corrugated boxes.
In September 1996, Thermo Fibergen Inc. became a majority-owned,
public subsidiary of Thermo Fibertek. Thermo Fibergen is developing and
commercializing equipment and systems to recover materials from
papermaking sludge generated by plants that produce virgin and recycled
pulp and paper. Thermo Fibergen's GranTek Inc. subsidiary uses a patented
process to convert papermaking sludge into granules that are used for
applications including carriers for agricultural chemicals, oil and
grease absorption, and catbox filler.
Through a wholly owned subsidiary, the Company also manufactures
electroplating systems and related waste-treatment equipment and
accessories, as well as aqueous systems for cleaning metal parts without
using ozone-damaging solvents.
Biomedical Products
The Company's Biomedical Products segment comprises a number of
diverse medical products businesses, both wholly and publicly owned, that
supply a wide range of medical systems and devices for diagnostic
imaging, cardiovascular support, respiratory care, neurodiagnostics,
sleep analysis, wireless patient monitoring, and blood management. The
Company's biomedical products are provided to hospitals, clinics,
universities, private-practice medical offices, and medical research
facilities.
7PAGE
Its wholly owned Thermo Biomedical group includes Bear Medical
Systems, the business of which was acquired from Allied Healthcare
Products, Inc. in October 1997. Bear Medical designs, manufactures, and
markets respiratory products, primarily ventilators.
Also part of the Company's Thermo Biomedical group are SensorMedics
Corporation, a leading provider of systems for pulmonary function
diagnosis and a producer of respiratory gas analyzers, physiological
testing equipment, and automated sleep-analysis systems; and Medical Data
Electronics, a manufacturer of patient-monitoring systems. Both companies
were acquired in 1996.
Nicolet Biomedical Inc., another wholly owned subsidiary of the
Company, is a leading manufacturer of biomedical instruments for
assessing muscle, nerve, sleep, hearing, and brain blood-flow disorders,
various neurologic disorders, and for related work in clinical
neurophysiology. In September 1997, Nicolet acquired IMEX Medical
Systems, Inc., a leading manufacturer of products used to evaluate
peripheral vascular disease, as well as products to detect fetal
heartbeat. This subsidiary is now called Nicolet Vascular Inc.
Another wholly owned subsidiary, Bird Medical Technologies, Inc.,
develops, manufactures, and sells respiratory-care equipment and
accessories and infection-control products to hospitals, subacute-care
facilities, outpatient surgical centers, doctors, dentists, the military,
and to other manufacturers.
Thermo Cardiosystems Inc., a public subsidiary of Thermedics Inc.,
has developed an implantable left ventricular-assist system (LVAS) called
HeartMate(TM) that, when implanted alongside the natural heart, is
designed to take over the pumping function of the left ventricle for
patients whose hearts are too damaged or diseased to produce adequate
blood flow. Thermo Cardiosystems has two versions of the LVAS: a
pneumatic (or air-driven) system that can be controlled by either a
bedside console or portable unit, and an electric system that features an
internal electric motor powered by an external battery-pack worn by the
patient.
The air-driven HeartMate system has received both the European
Conformity Mark and U.S. Food and Drug Administration (FDA) approval for
commercial sale. The electric version of the LVAS, which also holds the
CE Mark, is currently awaiting commercial approval by the FDA for use as
a bridge to transplant. In Europe, the device is used both as a bridge to
transplant and as an alternative to medical therapy.
In December 1996, Thermo Cardiosystems acquired the business of
Nimbus Medical, Inc., a research and development organization involved
for more than 20 years in technology for ventricular-assist devices and
total artificial hearts, including high-speed rotary blood pumps, which
are relatively small and could potentially provide cardiac support in
small adults and children.
Also part of Thermo Cardiosystems is International Technidyne
Corporation, a leading manufacturer of hemostasis-management products,
8PAGE
including blood coagulation-monitoring instruments, and a supplier of
skin-incision devices used to draw small blood samples precisely and with
minimal discomfort.
Trex Medical Corporation, a public subsidiary of ThermoTrex
Corporation, designs, manufactures, and markets a range of medical
imaging systems. It is the world's leading manufacturer of mammography
equipment and minimally invasive digital breast-biopsy systems. Trex
Medical also provides general-purpose and specialty radiographic systems,
such as those used in the diagnosis and treatment of coronary artery
disease and other vascular conditions.
In early December, Trex Medical submitted a 510(k) application to the
FDA seeking clearance to market its digital imaging system for
mammography. The Company believes that an advantage of digital imaging is
that radiologists can manipulate and enhance image quality to scrutinize
subtle differences that may otherwise go undetected on film-based X-rays.
If the FDA approves the digital imaging system for mammography
applications, Trex Medical plans to develop its digital technology for
use in certain of its other products.
ThermoLase Corporation, also a public subsidiary of ThermoTrex,
operates a network of spas that offer its patented SoftLight(R)
hair-removal system, for which it received FDA clearance in April 1995.
The SoftLight system uses a low-energy dermatology laser in combination
with a lotion to remove hair. ThermoLase submitted a 510(k) application
for its laser-based skin-retexturing system, based on data from clinical
trials.
ThermoLase currently has 14 Spa Thira locations in the U.S., with 3
spas outside the U.S.: in Paris, France; Lugano, Switzerland; and Dubai,
U.A.E. To complement its Spa Thira salons, ThermoLase has commenced a
program to license the SoftLight hair-removal process to physicians for
use in their practices. ThermoLase has established a number of joint
ventures and other physician-licensing arrangements to market its
SoftLight processes internationally.
ThermoLase also manufactures and markets personal care products sold
through department stores, salons, and spas, including the lotion that is
used in the SoftLight hair-removal process.
Trex Communications Corporation, a majority-owned, privately held
subsidiary of ThermoTrex, is developing laser communications technology
designed to transmit very large amounts of data quickly, and also designs
and markets interactive information and voice-response systems, as well
as automated calling equipment.
Industrial Outsourcing
Through its Thermo TerraTech Inc. subsidiary, the Company provides
outsourcing services, primarily in environmental-liability management and
infrastructure planning and design, with specialization in the areas of
municipal and industrial water quality management, bridge and highway
construction and reconstruction, and natural resource management. Thermo
9PAGE
TerraTech also offers comprehensive environmental testing and analysis
through a national network of laboratories serving the pharmaceutical,
food, and environmental industries.
Thermo Remediation Inc., a public subsidiary of Thermo TerraTech, is
a national provider of outsourcing services for environmental management,
including industrial, nuclear, and soil remediation, as well as
waste-fluids recycling, primarily helping clients manage problems
associated with environmental compliance, waste management, and the
cleanup of sites contaminated with organic or toxic wastes.
The Randers Group Incorporated, also a public subsidiary of Thermo
TerraTech, provides comprehensive engineering and outsourcing services in
such areas as water and wastewater treatment, highway and bridge
projects, process engineering, construction management, and operational
services.
A privately held subsidiary of Thermo TerraTech, Thermo EuroTech
N.V., provides remediation and recycling services in Europe. The Company
treats oil-based contaminated soils and recycles waste oil and oily waste
streams. In February 1998, Thermo EuroTech acquired a controlling
interest in an Irish environmental services company that provides
comprehensive in-plant waste management and recycling services to
high-tech manufacturing firms in that country.
In addition, metallurgical heat-treating services are provided by a
wholly owned subsidiary of the Company for customers in the automotive,
aerospace, defense, and other industries. The Company also provides,
through another wholly owned business, metallurgical fabrication
services, principally on high-temperature materials, for customers in the
aerospace, medical, electronics, and nuclear industries.
Advanced Technologies
The Company's Advanced Technologies segment includes basic and
applied research and development, often sponsored by the U.S. government,
that is conducted with a goal of identifying viable commercial
opportunities for new ventures. A number of its subsidiaries also provide
various instrument systems, developed primarily for product
quality-assurance applications in industrial, food and beverage,
pharmaceutical, and electronics markets.
The Company's ThermoTrex subsidiary conducts sponsored research and
development with the goal of commercializing new products based on
advanced technologies developed in its laboratories. Sponsored research
and development, conducted principally for the U.S. government, includes
basic and applied research in communications, avionics, X-ray detection,
signal processing, advanced-materials technology, and lasers.
ThermoTrex is currently developing a number of additional
technologies that it believes may have future commercial potential. These
include a passive microwave camera intended to "see" through clouds and
fog to enhance safety in aerial navigation, a space surveillance system
designed to produce high-resolution images of low-earth-orbit satellites,
10PAGE
a rapid optical beam steering laser radar system, and direct digital
imaging systems for medical equipment to improve image quality for
earlier and more accurate clinical diagnoses.
The Company's wholly owned Thermo Coleman Corporation subsidiary
provides systems engineering, technology support and information-
technology services and products. Thermo Coleman also provides defense-
and environmental-systems engineering, integration and analysis services,
and advanced technology research and development, primarily to the U.S.
government. Using expertise gained from its government contract work,
Thermo Coleman designs, develops, and commercializes services and
products in areas such as information technology and sensor and
measurement systems for customers in industries including healthcare,
education, aircraft production, government, utilities, and entertainment.
Thermo Sentron Inc., a public subsidiary of Thermedics, designs and
manufactures high-speed precision-weighing and inspection equipment for
packaging lines and industrial production. Thermo Sentron serves two
principal markets, packaged goods and bulk materials, both of which use
its products to meet quality and productivity objectives. Customers for
Thermo Sentron's checkweighers are in the food-processing,
pharmaceutical, mail-order, and other packaged-goods businesses. Thermo
Sentron also sells metal detectors with a patented self-test feature that
are used to inspect packaged products for metal contamination to
food-processing and pharmaceutical companies. Its bulk-materials product
line includes conveyor-belt scales, solid level-measurement and
conveyor-monitoring systems, and sampling systems, all sold to customers
in the mining and material-processing industries, as well as to electric
utilities, chemical, and other manufacturing companies.
Thermedics Detection Inc., another public subsidiary of Thermedics,
develops and manufactures high-speed on-line analysis systems used for
product quality assurance in a variety of industrial processes, as well
as for security. Thermedics Detection provides X-ray imaging systems that
monitor a wide range of containers for fill volume, net volume, and
package integrity, as well as systems that detect trace amounts of
contaminants in refillable bottles, specifically for the beverage
industry. For the beverage, food, cosmetic, and other industries,
Thermedics Detection also makes instruments that use near-infrared
spectroscopy to measure moisture and other product components, including
fat, protein, solvents, and other substances in numerous consumer and
industrial products. Thermedics Detection recently introduced an
ultrahigh-speed gas chromatograph that permits manufacturers to conduct
laboratory-quality analysis for near-on-line process-control
applications.
Thermo Voltek Corp., also a public subsidiary of Thermedics, designs,
manufactures, and markets test instruments and a range of products
related to power amplification, conversion, and quality. Thermo Voltek's
power products are used in communications, broadcast, research, and
medical imaging applications. It's test instruments allow manufacturers
of electronic systems and integrated circuits to test for electromagnetic
compatibility.
11PAGE
Through a wholly owned subsidiary, Thermedics manufactures
electrode-based chemical-measurement products used in the agricultural,
biomedical research, food processing, pharmaceutical, sewage treatment,
and many other industries. In laboratories, manufacturing plants, and in
the field, Thermedics' products permit these industries to determine the
presence and amount of relevant chemicals. Thermedics also manufactures
on-line process monitors used by power plants and semiconductor
manufacturers to detect contaminants in high-purity water.
(ii) New Products
The Company's business includes the development and introduction of
new products and may include entry into new business segments. The
Company has made no commitments to new products that require the
investment of a material amount of the Company's assets, nor does it have
any definitive plans to enter new business segments that would require
such an investment (see Section (xi) "Research and Development").
(iii) Raw Materials
Certain raw materials used in the manufacture of Thermo
Cardiosystem's LVAS are available from only one or two suppliers. Thermo
Cardiosystems is making efforts to minimize the risks associated with
sole sources and ensure long-term availability, including qualifying
alternative materials or developing alternative sources for materials and
components supplied by a single source. Although the Company believes
that it has adequate supplies of materials and components to meet demand
for the LVAS for the foreseeable future, no assurance can be given that
the Company will not experience shortages of certain materials or
components in the future that could cause delays in Thermo Cardiosystems'
LVAS development program or adversely affect Thermo Cardiosystems'
ability to manufacture and ship LVAS units to meet demand.
Except as described above, in the opinion of management, the Company
has a readily available supply of raw materials for all of its
significant products from various sources and does not anticipate any
difficulties in obtaining the raw materials essential to its business.
(iv) Patents, Licenses, and Trademarks
The Company considers patents to be important in the present
operation of its business; however, the Company does not consider any
patent, or related group of patents, to be of such importance that its
expiration or termination would materially affect the Company's business
taken as a whole. The Company seeks patent protection for inventions and
developments made by its personnel and incorporated into its products or
otherwise falling within its fields of interest. Patent rights resulting
from work sponsored by outside parties do not always accrue exclusively
to the Company and may be limited by agreements or contracts.
The Company protects some of its technology as trade secrets and,
where appropriate, uses trademarks or registers its products. It also
enters into license agreements with others to grant and/or receive rights
to patents and know-how.
12PAGE
(v) Seasonal Influences
Thermo Ecotek earns a disproportionately high share of its income
from May through October due to the rate structures under the power sales
agreements relating to its California power plants, which provide strong
incentives to operate during this period of high demand. Conversely,
Thermo Ecotek historically has operated at a loss or at a marginal profit
during the first quarter due to the rate structure under these
agreements.
Funding patterns of government entities, as well as seasonality, are
expected to result in fluctuations in quarterly revenues and income at
Thermo Power's Peek subsidiary. Peek has historically experienced
relatively higher sales and net income in the second and fourth calendar
quarters and relatively lower sales and net income in the first and third
calendar quarters.
While Thermo TerraTech conducts significant operations year-round,
the majority of its businesses experience seasonal fluctuations due to
adverse weather during winter months.
There are no other material seasonal influences on the Company's
sales of products and services.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years. The Advanced Technologies
segment derived approximately 34%, 38%, and 52% of its revenues in 1997,
1996, and 1995, respectively, from contracts with various agencies of the
U.S. government. In connection with the development of power plants,
Thermo Ecotek typically enters into long-term power supply contracts with
a single customer for the sale of power generated by each plant. The
Alternative-energy Systems segment derived 15%, 16%, and 16% of its
revenues in 1997, 1996, and 1995, respectively, from Pacific Gas &
Electric and 15%, 16%, and 15% of its revenues in 1997, 1996, and 1995,
respectively, from Southern California Edison.
13PAGE
(viii) Backlog
The Company's backlog of firm orders at year-end 1997 and 1996 was as
follows:
(In thousands) 1997 1996
-------------------------------------------------------------------------
Instruments $298,900 $266,600
Alternative-energy Systems 186,800 118,500
Paper Recycling 62,300 52,300
Biomedical Products 109,800 107,700
Industrial Outsourcing 117,100 118,200
Advanced Technologies 120,600 148,600
-------- --------
$895,500 $811,900
======== ========
Backlog includes the uncompleted portion of research and development
contracts and the uncompleted portion of certain contracts that are
accounted for using the percentage-of-completion method. Certain of such
firm orders are cancellable by the customer upon the payment of a
cancellation charge. The Company believes substantially all of the
year-end 1997 backlog will be filled during 1998.
(ix) Government Contracts
Approximately 5% of the Company's total revenues in 1997 were derived
from contracts or subcontracts with the federal government, which are
subject to renegotiation of profits or termination. The Company does not
have any knowledge of threatened or pending renegotiation or termination
of any material contract or subcontract.
(x) Competition
The Company is engaged in many highly competitive industries. The
nature of the competition in each of the Company's segments is described
below:
Instruments
The Company is among the principal manufacturers of analytical
instrumentation. Within the markets for the Company's analytical
instrument products, the Company competes with several large corporations
that have broad product offerings, such as Hewlett-Packard Company;
Perkin-Elmer Corp.; Varian Associates, Inc.; and Hitachi, Ltd., as well
as numerous smaller companies that address particular segments of the
industry or specific geographic areas. The Company's instruments business
generally competes on the basis of technical advances that result in new
products and improved price/performance ratios, reputation among
customers as a quality leader for products and services, and active
research and application-development programs. To a lesser extent, the
Company competes on the basis of price.
14PAGE
Alternative-energy Systems
The worldwide independent power market consists of numerous
companies, ranging from small startups to multinational industrial
companies. In addition, a number of regulated utilities have created
subsidiaries that compete as non-utility generators. Non-utility
generators often specialize in market "niches," such as a specific
technology or fuel (i.e., gas-fired cogeneration, refuse-to-energy,
hydropower, geothermal, wind, solar, wood, or coal) or a specific region
of the country where they believe they have a market advantage. However,
many non-utility generators, including the Company, seek to develop
projects on a best-available-fuel basis. The Company competes primarily
on the basis of project experience, technical expertise, capital
resources, and power pricing.
The market in which the Company's biopesticide business competes is
highly competitive and subject to rapid technological change. Many
competitors are large chemical and pharmaceutical companies with greater
financial, marketing, and technological resources than the Company. The
Company's biopesticide business competes primarily based on effective-
ness, and also on price, ease of use, and environmental impact of use.
The market for traffic products and services is extremely
competitive, and the Company expects that competition will continue to
increase, with the principal factors being price, functionality,
reliability, service and support, and vendor and product reputation,
along with industry and general economic trends. The Company believes
that it is a leading manufacturer and supplier of traffic products, and
considers its major competitor to be Siemens AG. However, the traffic
market is highly fragmented and competition varies significantly
depending on the individual product.
The Company's sale of industrial refrigeration systems is subject to
intense competition. The industrial refrigeration market is mature,
highly fragmented, and extremely dependent on close customer contacts.
Major industrial refrigeration companies, of which the Company is one,
account for approximately one-half of worldwide sales, with the balance
generated by many smaller companies. The Company competes principally on
the basis of its advanced control systems and overall quality,
reliability, service, and price. The Company believes it is a leader in
remanufactured refrigeration equipment. The Company competes in this
market primarily based on price, delivery time, and customized equipment.
Paper Recycling
The Company faces significant competition in the markets for paper
recycling and water-handling equipment and papermaking accessories, and
competes in these markets primarily on the basis of quality, service,
technical expertise, and product innovation. The Company is a leading
supplier of de-inking systems for paper recycling and accessory equipment
for papermaking machines, and competes in these markets primarily on the
basis of service, technical expertise, and performance.
15PAGE
Biomedical Products
Competition in the markets for most of the Company's biomedical
products, including those manufactured by Thermo Cardiosystems,
ThermoTrex, Nicolet Biomedical, Bird Medical Technologies, SensorMedics,
Medical Data Electronics, Bear Medical Systems, and Nicolet Vascular, is
based to a large extent upon technical performance.
The Company is aware of one other company that has submitted a PMA
application with the FDA for an implantable LVAS that would compete with
Thermo Cardiosystems' LVAS. The Company is unaware whether this PMA
application has been accepted for filing by the FDA. Also, the Company is
aware of one other company that has received approval by the FDA Advisory
Panel on Circulatory System Devices and subsequent commercial approval
for its cardiac-assist device. This is an external device that is
positioned on the outside of the patient's chest and is intended for
short-term use in the hospital environment. The Company is also aware
that a total artificial heart is currently undergoing clinical trials.
The requirement of obtaining FDA approval for commercial sale of an LVAS
is a significant barrier to entry into the U.S. market for these devices.
There can be no assurance, however, that FDA regulations will not change
in the future, reducing the time and testing required for others to
obtain FDA approval. In addition, other research groups and companies are
developing cardiac-assist systems using alternative technologies or
concepts, one or more of which might prove functionally equivalent to, or
more suitable than, the Company's systems. Among products that have been
approved for commercial sale, the Company competes primarily on the basis
of performance, service capability, reimbursement status, and price.
The Company is one of a number of competitors in the markets for
mammography and general radiographic systems and is one of two
competitors in the market for stereotactic breast-biopsy systems. The
Company competes in these markets primarily on the basis of product
features, product performance, and reputation, as well as price and
service. The markets in which the Company competes with these products
are characterized by rapid technological change. The Company believes
that in order to be competitive in these markets it will be important to
continue to be technologically innovative.
The Company's SoftLight laser hair-removal system competes with other
laser-based systems, electrolysis, and other traditional hair-removal
methods, such as shaving and waxing. In 1997, five other laser
manufacturers received clearance from the FDA to market their laser-based
systems for the removal of unwanted facial and body hair. The laser-based
hair-removal market is characterized by rapid technological change, and
the Company believes that it must continue to be technologically
innovative in order to compete in this market. In addition, the SoftLight
system competes with electrolysis providers, many of whom are small
practitioners with well-established networks of client relationships. The
Company believes that competition for its hair-removal services is based
primarily on efficacy, price, comfort, and safety.
16PAGE
Industrial Outsourcing
The Company seeks to compete in the market for soil-remediation
services based on its ability to offer customers superior protection from
environmental liabilities. However, with relaxed regulatory standards in
many states, the Company faces intense competition in local markets from
landfills, other treatment technologies, and from companies competing
with similar technologies, limiting the volume of soil to be treated and
the prices that can be charged by the Company. Pricing is therefore a
major competitive factor for the Company.
The Company's metallurgical services business competes in specialty
machining services. Competition is based principally on services
provided, turnaround time, and price.
Hundreds of independent analytical testing laboratories and
consulting firms compete for environmental services business nationwide.
Many of these firms use equipment and processes similar to those of the
Company. Competition is based not only on price, but also on reputation
for accuracy, quality, and the ability to respond rapidly to customer
requirements. In addition, many industrial companies have their own
in-house analytical testing capabilities. The Company believes that its
competitive strength lies in certain niche markets within which the
Company is recognized for its expertise.
Advanced Technologies
In its contract research and development business, the Company not
only competes with other companies and institutions that perform similar
services, but must also rely on the ability of government agencies and
other clients to obtain allocations of research and development monies to
fund contracts with the Company. The Company competes for research and
development programs principally on the basis of technical innovations.
As government funding becomes more scarce, particularly for defense
projects, the competition for such funding will become more intense. In
addition, as the Company's programs move from the development stage to
commercialization, competition is expected to intensify.
Thermo Sentron competes with several international and regional
companies in the market for its products. Thermo Sentron's competitors in
the packaged goods market differ from those in the bulk materials market.
The principal competitive factors in both markets are customer service
and support, quality, reliability, and price.
Thermedics Detection's product quality-assurance systems compete with
chemical-detection systems manufactured by several companies and with
other technologies and processes for product quality assurance.
Competition in the markets for all of the Company's detection products is
based primarily on performance, service, and price. There are a number of
competitors in the market for instruments that detect explosives,
including makers of other chemical-detection instruments as well as
enhanced X-ray detectors.
17PAGE
Thermo Voltek is a leading supplier of electromagnetic compatibility
testing equipment. The Company competes in this market primarily on the
basis of performance, technical expertise, reputation, and price. In the
market for power amplifiers, Thermo Voltek competes with several
companies worldwide primarily on the basis of technical expertise,
reputation, and price.
Thermedics' electrode-based chemical-measurement products compete
with several international companies. In the markets for these products,
Thermedics competes on the basis of performance, service, technology, and
price.
(xi) Research and Development
During 1997, 1996, and 1995, the Company expended $335,372,000,
$299,271,000, and $269,329,000, respectively, on research and
development. Of these amounts, $143,743,000, $144,823,000, and
$167,120,000, respectively, were sponsored by customers and $191,629,000,
$154,448,000, and $102,209,000, respectively, were Company-sponsored.
(xii) Environmental Protection Regulations
The Company believes that compliance with federal, state, and local
environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
At January 3, 1998, the Company employed approximately 22,400
persons.
(d) Financial Information about Exports by Domestic Operations and About
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 14 to Consolidated Financial
Statements in the Registrant's 1997 Annual Report to Shareholders, which
information is incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
---------------------------------------------------------------
George N. Hatsopoulos* 71 Chairman of the Board and Chief
Executive Officer (1956)
John N. Hatsopoulos* 63 President and Chief Financial Officer
(1968)
Arvin H. Smith 68 Executive Vice President (1983)
William A. Rainville 56 Senior Vice President (1993)
John W. Wood Jr. 54 Senior Vice President (1995)
Peter G. Pantazelos 67 Executive Vice President (1968)
Paul F. Kelleher 55 Senior Vice President, Finance and
Administration (1982)
* George N. Hatsopoulos and John N. Hatsopoulos are brothers.
18PAGE
Each executive officer serves until his successor is chosen or
appointed and qualified or until earlier resignation, death, or removal.
All executive officers, except Messrs. John Hatsopoulos, Rainville, and
Wood, have held comparable positions with the Company for at least the
last five years. Mr. John Hatsopoulos has been President of the Company
since January 1997 and Chief Financial Officer of the Company since 1988.
Mr. Rainville has been a Senior Vice President of the Company since 1993
and was a Vice President of the Company from 1986 to 1993. Mr. Wood was
President and Chief Executive Officer of Thermedics from 1984 until 1998,
when he assumed the position of Chairman of the Board, and was a Vice
President of the Company from 1994 to 1995, prior to becoming a Senior
Vice President of the Company in 1995.
Item 2. Properties
The location and general character of the Company's principal
properties by industry segment as of January 3, 1998, are as follows:
Instruments
The Company owns approximately 2,601,000 square feet of office,
engineering, laboratory, and production space, principally in California,
Florida, New Mexico, Texas, Wisconsin, Ohio, New Hampshire, New York,
Massachusetts, the United Kingdom, and Germany, and leases approximately
2,423,000 square feet of office, engineering, laboratory, and production
space principally in California, Massachusetts, Texas, Wisconsin, and the
United Kingdom, under leases expiring from 1998 to 2017.
Alternative-energy Systems
The Company owns approximately 510,000 square feet of office,
engineering, and production space, principally in Pennsylvania, the
United Kingdom, Texas, Florida, California, and Massachusetts, and leases
approximately 686,000 square feet of office, engineering, laboratory, and
production space principally in Illinois, Michigan, and the United
Kingdom, under leases expiring from 1998 to 2020.
The Company operates four independent power plants in California,
Maine, and New Hampshire, under leases expiring from 2000 to 2010. The
Company owns three independent power plants in New Hampshire and
California and a coal-beneficiation plant in Wyoming.
Paper Recycling
The Company owns approximately 1,281,000 square feet of office,
laboratory, and production space, principally in France, Connecticut,
Massachusetts, New York, and Ohio, and leases approximately 317,000
square feet of office, engineering, and production space principally in
Wisconsin, Louisianna, and Massachusetts, under leases expiring from 1998
to 2005.
19PAGE
Biomedical Products
The Company owns approximately 458,000 square feet of office and
production space in Illinois, California, Wisconsin, Connecticut, and New
Jersey, and leases approximately 1,409,000 square feet of office,
engineering, laboratory, and production space in principally Texas,
Massachusetts, California, New York, Connecticut, and Illinois, under
leases expiring from 1998 to 2013.
Industrial Outsourcing
The Company owns approximately 715,000 square feet of office,
laboratory, and production space, principally in California,
Pennsylvania, Minnesota, New Jersey, and Massachusetts, and leases
approximately 563,000 square feet of office, engineering, laboratory, and
production space principally in California, Pennsylvania, Massachusetts,
New Hampshire, New York, New Jersey, and Florida, under leases expiring
from 1998 to 2008.
The Company owns approximately 71.5 acres of land from which it
provides soil-remediation services principally in Maryland, Oregon, and
California, and leases approximately 26 acres of land from which it
provides soil-remediation and fluid-recycling services principally in New
York, Arizona, and Washington, under leases expiring from 1999 to 2006.
The Company also leases approximately 15 acres in Delfzijl, Holland,
consisting of office, production, and oil storage facilities, under a
lease expiring in 2059.
Advanced Technologies and Corporate Headquarters
The Company owns approximately 162,000 square feet of office space
principally in Massachusetts, New York, and the United Kingdom, and
leases approximately 1,047,000 square feet of office, engineering, and
laboratory space principally in Florida, Massachusetts, California,
Minnesota, Virginia, the Netherlands, Australia, and Alabama, under
leases expiring from 1998 to 2011.
The Company believes that its facilities are in good condition and
are suitable and adequate to meet its current needs, and that suitable
replacements are available on commercially reasonable terms for any
leases that expire in 1998 in the event that the Company is unable to
renew such leases on reasonable terms.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
20PAGE
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's common stock, $1.00 par value, and related matters, is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections "Ten Year Financial Summary" and "Dividend Policy" in the
Registrant's 1997 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 28,
1996, are included in the Registrant's 1997 Annual Report to Shareholders
and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not Applicable.
21PAGE
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
22PAGE
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a, d) Financial Statements and Schedules
(1) The financial statements set forth in the list below are
filed as part of this Report.
(2) The financial statement schedule set forth in the list
below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Schedule included herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
23PAGE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 11, 1998
THERMO ELECTRON CORPORATION
By: George N. Hatsopoulos
-------------------------
George N. Hatsopoulos
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated, as of March 11, 1998.
Signature Title
--------- -----
By:George N. Hatsopoulos Chief Executive Officer, Chairman
-------------------------- of the Board, and Director
George N. Hatsopoulos
By:John N. Hatsopoulos President, Chief Financial Officer,
-------------------------- and Director
John N. Hatsopoulos
By:Paul F. Kelleher Senior Vice President, Finance and
-------------------------- Administration (Chief Accounting
Paul F. Kelleher Officer)
By:John M. Albertine Director
--------------------------
John M. Albertine
By:Peter O. Crisp Director
--------------------------
Peter O. Crisp
By:Elias P. Gyftopoulos Director
--------------------------
Elias P. Gyftopoulos
By:Frank Jungers Director
--------------------------
Frank Jungers
By:Robert A. McCabe Director
--------------------------
Robert A. McCabe
By:Frank E. Morris Director
--------------------------
Frank E. Morris
By:Donald E. Noble Director
--------------------------
Donald E. Noble
By:Hutham S. Olayan Director
--------------------------
Hutham S. Olayan
By:Richard F. Syron Director
--------------------------
Richard F. Syron
By:Roger D. Wellington Director
--------------------------
Roger D. Wellington
24PAGE
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of
Thermo Electron Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo
Electron Corporation's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
February 18, 1998. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14 on page 23 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 1998
25PAGE
SCHEDULE II
THERMO ELECTRON CORPORATION
Valuation and Qualifying Accounts
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Accounts Written at End
Description of Year Expense Recovered Off Other(a) of Year
-----------------------------------------------------------------------------
Allowance for
Doubtful Accounts
Year Ended
Jan. 3, 1998 $34,321 $ 9,078 $ 527 $(8,594) $20,366 $55,698
Year Ended
Dec. 28, 1996 $29,318 $ 6,002 $ 760 $(8,994) $ 7,235 $34,321
Year Ended
Dec. 30, 1995 $21,664 $ 5,534 $ 5 $(6,422) $ 8,537 $29,318
(a) Allowances of businesses acquired during the year as described in Note 3
to Consolidated Financial Statements in the Registrant's 1997 Annual
Report to Shareholders and the effect of foreign currency translation.
26PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Amended and Restated Asset and Stock Purchase Agreement
dated March 29, 1996, among the Registrant, Thermo
Instrument, and Fisons plc (filed as Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1996 [File No. 1-8002] and incorporated
herein by reference). Pursuant to Item 601(b)(2) of
Regulation S-K, schedules to this Agreement have been
omitted. The Registrant hereby undertakes to furnish
supplementally a copy of such schedules to the Commission
upon request.
3.1 Restated Certificate of Incorporation of the Registrant, as
amended (filed as Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June
29, 1996 [File No. 1-8002] and incorporated herein by
reference).
3.2 By-laws of the Registrant, as amended (filed as Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for the year
ended December 28, 1996 [File No. 1-8002] and incorporated
herein by reference).
4.1 Fiscal Agency Agreement dated as of January 3, 1996,
between the Registrant and Chemical Bank pertaining to the
Registrant's 4 1/4% Subordinated Convertible Debentures due
2003 (filed as Exhibit 4.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30,
1995 [File No. 1-8002] and incorporated herein by
reference).
The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A)
of Regulation S-K, to furnish to the Commission upon
request, a copy of each instrument with respect to other
long-term debt of the Registrant or its consolidated
subsidiaries.
4.2 Rights Agreement dated as of January 19, 1996, between the
Registrant and The First National Bank of Boston, which
includes as Exhibit A the Form of Certificate of
Designations, as Exhibit B the Form of Rights Certificate,
and as Exhibit C the Summary of Rights to Purchase
Preferred Stock (filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A, declared effective by
the Commission on January 31, 1996 [File No. 1-8002] and
incorporated herein by reference).
27PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.1 Thermo Electron Corporate Charter as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
10.2 Form of Severance Benefit Agreement with officers (filed as
Exhibit 10.15 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 29, 1990 [File No.
1-8002] and incorporated herein by reference).
10.3 Form of Indemnification Agreement with directors and
officers (filed as Exhibit 10.16 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29,
1990 [File No. 1-8002] and incorporated herein by
reference).
10.4 Reserved.
10.5 Amended and Restated Reimbursement Agreement dated as of
December 31, 1993, among Chemical Trust Company of
California as Owner Trustee; Delano Energy Company Inc.;
ABN AMRO Bank N.V., Boston Branch, for itself and as Agent;
The First National Bank of Boston, as Co-agent; Barclays
Bank PLC, as Co-agent; Societe Generale, as Co-agent; and
BayBank, as Lead Manager (filed as Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 [File No. 1-8002] and incorporated
herein by reference).
10.6 Amended and Restated Participation Agreement dated as of
December 31, 1991, among Delano Energy Company Inc.; Thermo
Ecotek Corporation (formerly Thermo Energy Systems
Corporation); Chemical Trust Company of California, as
Owner Trustee; ABN AMRO Bank N.V., Boston Branch, as
Co-agent; Bank of Montreal, as Co-agent; Barclays Bank PLC,
as Co-agent; Society Generale, as Co-agent; BayBank, as
Lead Manager; and ABN AMRO Bank N.V., Cayman Island Branch,
and joined in by the Registrant (filed as Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-8002] and
incorporated herein by reference).
28PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.7 Turnkey Engineering, Procurement, Construction, and
Initial Operation Agreement for a de-inking pulp facility
dated as of November 1, 1994, between the Registrant, as
contractor, and Great Lakes Pulp Partners I, L.P., as
owner (filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994 [File No. 1-8002] and incorporated herein by
reference). Pursuant to Item 601(b)(2) of Regulation S-K,
schedules to this Agreement have been omitted. The
Company hereby undertakes to furnish supplementally a
copy of such schedules to the Commission upon request.
10.8 Revolving Credit Facility Letters from Barclays Bank PLC
in favor of the Registrant and its subsidiaries.
10.9 Stock Holdings Assistance Plan and Form of Promissory
Note.
10.10 - 10.20 Reserved.
10.21 Deferred Compensation for Directors of the Registrant
(filed as Exhibit 10.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1987
[File No. 1-8002] and incorporated herein by reference).
(Maximum number of shares issuable is 679,218 shares,
after adjustment to reflect share increases approved in
1986 and 1992 and 3-for-2 stock splits effected in
October 1986, October 1993, May 1995, and June 1996.)
10.22 Amended and Restated Directors' Stock Option Plan of the
Registrant (filed as Exhibit 10.25 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 [File No. 1-8002] and incorporated
herein by reference).
10.23 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 4(d) to the Registrant's Registration Statement
on Form S-8 [Reg. No. 33-8993] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's
Nonqualified Stock Option Plan is 13,552,734 shares,
after adjustment to reflect share increases approved in
1984 and 1986, share decrease approved in 1989, and
3-for-2 stock splits effected in October 1986, October
1993, May 1995, and June 1996.)
29PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.24 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 4(e) to the Registrant's Registration Statement on
Form S-8 [Reg. No. 33-8993] and incorporated herein by
reference). (Plan amended in 1984 to extend expiration date
to December 14, 1994; maximum number of shares issuable in
the aggregate under this plan and the Registrant's
Incentive Stock Option Plan is 13,552,734 shares, after
adjustment to reflect share increases approved in 1984 and
1986, share decrease approved in 1989, and 3-for-2 stock
splits effected in October 1986, October 1993, May 1995,
and June 1996.)
10.25 Equity Incentive Plan of the Registrant (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended July 2, 1994 [File No. 1-8002] and
incorporated herein by reference). (Plan amended in 1989 to
restrict exercise price for SEC reporting persons to not
less than 50% of fair market value or par value; maximum
number of shares issuable is 15,575,000 shares, after
adjustment to reflect 3-for-2 stock splits effected in
October 1993, May 1995, and June 1996, and share increases
approved in 1994 and 1997.)
10.26 Thermo Electron Corporation - Thermedics Inc. Nonqualified
Stock Option Plan (filed as Exhibit 4 to a Registration
Statement on Form S-8 of Thermedics [Reg. No. 2-93747] and
incorporated herein by reference). (Maximum number of
shares issuable is 450,000 shares, after adjustment to
reflect share increase approved in 1988, 5-for-4 stock
split effected in January 1985, 4-for-3 stock split
effected in September 1985, and 3-for-2 stock splits
effected in October 1986 and November 1993.)
10.27 Thermo Electron Corporation - Thermo Instrument Systems
Inc. (formerly Thermo Environmental Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 4(c) to a
Registration Statement on Form S-8 of Thermo Instrument
[Reg. No. 33-8034] and incorporated herein by reference).
(Maximum number of shares issuable is 527,343 shares, after
adjustment to reflect 3-for-2 stock splits effected in July
1993 and April 1995, 5-for-4 stock splits effected in
December 1995 and October 1997.)
30PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.28 Thermo Electron Corporation - Thermo Instrument Systems
Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1987 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of
shares issuable is 750,356 shares, after adjustment to
reflect share increase approved in 1988, 3-for-2 stock
splits effected in January 1988, July 1993 and April 1995,
and 5-for-4 stock splits effected in December 1995 and
October 1997.)
10.29 Thermo Electron Corporation - Thermo TerraTech Inc.
(formerly Thermo Process Systems Inc.) Nonqualified Stock
Option Plan (filed as Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 3, 1987 [File No. 1-8002] and incorporated herein
by reference). (Maximum number of shares issuable is
108,000 shares, after adjustment to reflect 6-for-5 stock
splits effected in July 1988 and March 1989, and 3-for-2
stock split effected in September 1989.)
10.30 Thermo Electron Corporation - Thermo Power Corporation
(formerly Tecogen Inc.) Nonqualified Stock Option Plan
(filed as Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1987
[File No. 1-8002] and incorporated herein by reference).
(Amended in September 1995 to extend the plan expiration
date to December 31, 2005.)
10.31 Thermo Electron Corporation - Thermo Cardiosystems Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of
shares issuable is 250,000 shares, after adjustment to
reflect share increases approved in 1990, 1992, and 1997,
3-for-2 stock split effected in January 1990, 5-for-4 stock
split effected in May 1990, 2-for-1 stock split effected in
November 1993, and 3-for-2 stock split effected in May
1996.)
10.32 Thermo Electron Corporation - Thermo Ecotek Corporation
(formerly Thermo Energy Systems Corporation) Nonqualified
Stock Option Plan (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990 [File No. 1-8002] and incorporated
herein by reference). (Maximum number of shares issuable is
487,500 shares, after adjustment to reflect 3-for-2 stock
split effected in October 1996.)
31PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.33 Thermo Electron Corporation - ThermoTrex Corporation
(formerly Thermo Electron Technologies Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of
shares issuable is 225,000 shares, after adjustment to
reflect 3-for-2 stock split effected in October 1993 and
share increase approved in March 1997.)
10.34 Thermo Electron Corporation - Thermo Fibertek Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.14 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of
shares issuable is 900,000 shares, after adjustment to
reflect 2-for-1 stock split effected in September 1992 and
3-for-2 stock split effected in September 1995 and June
1996.)
10.35 Thermo Electron Corporation - Thermo Voltek Corp. (formerly
Universal Voltronics Corp.) Nonqualified Stock Option Plan
(filed as Exhibit 10.17 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993
[File No. 1-8002] and incorporated herein by reference).
(Maximum number of shares issuable is 86,250 shares, after
adjustment to reflect 3-for-2 stock split effected in
November 1993, share increase approved in September 1995,
and 3-for-2 stock split effected in August 1996.)
10.36 Thermo Electron Corporation - Thermo BioAnalysis
Corporation Nonqualified Stock Option Plan (filed as
Exhibit 10.31 to Thermo Power's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 [File No.
1-10573] and incorporated herein by reference). (Maximum
number of shares issuable is 150,000 shares, after share
increase approved in March 1997.)
10.37 Thermo Electron Corporation - ThermoLyte Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.32 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference). (Maximum number of
shares issuable is 150,000 shares, after share increase
approved in March 1997.)
10.38 Thermo Electron Corporation - Thermo Remediation Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.33 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
32PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.39 Thermo Electron Corporation - ThermoSpectra Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.34 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.40 Thermo Electron Corporation - ThermoLase Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.35 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.41 Thermo Electron Corporation - ThermoQuest Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.41 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.42 Thermo Electron Corporation - Thermo Optek Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.42 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.43 Thermo Electron Corporation - Thermo Sentron Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.43 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.44 Thermo Electron Corporation - Trex Medical Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.44 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.45 Thermo Electron Corporation - Thermo Fibergen Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.19 to
Trex Medical's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996 [File No. 1-11827] and
incorporated herein by reference).
10.46 Thermo Electron Corporation - Thermedics Detection Inc.
Nonqualified Stock Option Plan.
10.47 Thermo Electron Corporation - Metrika Systems Corporation
Nonqualified Stock Option Plan.
10.48 Thermo Electron Corporation - Thermo Vision Corporation
Nonqualified Stock Option Plan.
33PAGE
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.49 Thermo Electron Corporation - ONIX Systems Inc.
Nonqualified Stock Option Plan.
10.50 Thermo Electron Corporation - The Randers Group
Incorporated Nonqualified Stock Option Plan.
10.51 Thermo Electron Corporation - Trex Communications
Corporation Nonqualified Stock Option Plan.
10.52 Thermo Electron Corporation - Thermo Trilogy Corporation
Nonqualified Stock Option Plan.
13 Annual Report to Shareholders for the year ended January 3,
1998 (only those portions incorporated herein by
reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended January 3, 1998.
27.2 Financial Data Schedule for the year ended December 30,
1995 (restated for the adoption of SFAS No. 128).
27.3 Financial Data Schedule for the quarter ended March 30,
1996 (restated for the adoption of SFAS No. 128).
27.4 Financial Data Schedule for the quarter ended June 29, 1996
(restated for the adoption of SFAS No. 128).
27.5 Financial Data Schedule for the quarter ended September 28,
1996 (restated for the adoption of SFAS No. 128).
27.6 Financial Data Schedule for the year ended December 28,
1996 (restated for the adoption of SFAS No. 128).
27.7 Financial Data Schedule for the quarter ended March 29,
1997 (restated for the adoption of SFAS No. 128).
27.8 Financial Data Schedule for the quarter ended June 28, 1997
(restated for the adoption of SFAS No. 128).
27.9 Financial Data Schedule for the quarter ended September 27,
1997 (restated for the adoption of SFAS No. 128).