-----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, V0gj+DpJJegL4+9y9iisWBaJU1H9dzrDRZgHd5C95POuyWU4NmdlINT5a2Sbxu+5 8zi9JZGOs+npzMRz7GXc1A== 0000097745-98-000005.txt : 19980313 0000097745-98-000005.hdr.sgml : 19980313 ACCESSION NUMBER: 0000097745-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980312 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-K SEC ACT: SEC FILE NUMBER: 001-08002 FILM NUMBER: 98564002 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 10-K 1 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). EX-10.8 2 Exhibit 10.8 The Directors Thermo Electron Corporation 81 Wyman Street Waltham M.A. 02254 U.S.A. July 1995 Dear Sirs We are pleased to advise you that Barclays Bank PLC (the "Bank") has agreed to provide in aggregate short term facilities of up to US$100,000,000 (one hundred million United States ("US") Dollars) or its currency equivalent (referred to as the "Facility") to Thermo Electron Corporation (the "Parent") and certain Subsidiaries as may be nominated from time to time in accordance with clause 3 (such companies being individually referred to as a "Borrower", collectively the "Borrowers") as detailed below. This Facility Letter cancels and replaces the existing US$55,000,000 facility provided by the Bank to the Parent and its Subsidiaries. The Schedules attached hereto form part of the terms and conditions of this letter. The Facility will be available for utilisation by the Borrowers, subject to the following terms and conditions:- 1. Options Available Within and Utilisation of the Facility -------------------------------------------------------- The Facility may be utilised by way of the following options and in accordance with the provisions of the Schedules related thereto.- Sterling Money Market Loan (see Schedule A) and/or Sterling Overdraft (see Schedule B) and/or Currency Money Market Loan (the "Currency MML") (see Schedule C) and/or Foreign Currency Overdraft (see Schedule D) and/or Revolving Acceptance Credit (the "Credit") (see Schedule E) and/or Bonds Guarantees and Indemnities (see Schedule F) and/or Letters of Credit (see Schedule G) and/or Ancillary Facilities (see Schedule H). PAGE Within the Facility the aggregate of the liabilities due, owing or incurred thereunder shall not at any time exceed US$100,000,000 (or its currency equivalent). The US dollar equivalent of the currency or currencies utilised or available to be utilised under the Facility may be calculated by the Bank at any time by reference to the Bank's spot rate of exchange in the London Foreign Exchange Market for the sale of the relevant currency or currencies for US dollars. Allocations under the Facility that are made available to Borrowers or the Parent by branches or affiliates of the Bank in countries outside of the United Kingdom will be governed by the terms of the Facility as detailed herein, except where specifically superceded by local arrangements. 2. Availability ------------ 2.1 This offer is available to the Parent for acceptance until one Month from the date of this letter after which date the offer will lapse unless extended in writing by the Bank. Acceptance is to be signified as stated in clause 18 below. 2.2 All monies owing under the Facility are repayable upon written demand by the Bank and any undrawn portion may be cancelled by the Bank at any time. Following demand and/or cancellation, no further utilisation may be made under the Facility. If demand for repayment is made the Bank shall have in addition the right to call for full cash cover for the amount of contingent liabilities outstanding to the Bank hereunder. The Parent shall indemnify the Bank on demand against any loss or expense which the Bank may reasonably sustain or incur as a direct consequence of making such demand. In the absence of demand or cancellation by the Bank, the Facility is available for utilisation until 12 April 1996 and no liability or liabilities incurred may extend more than three months beyond the above mentioned expiry date. However, the Bank will be pleased to discuss the Borrower's requirements shortly before that date. 3. Subsidiaries as Borrowers ------------------------- 3.1 The Parent may designate any of its Subsidiaries as a Borrower under this Facility Letter by giving not less than 10 days notice thereof to the Bank. No such designation shall take effect until such Subsidiary and the Parent have executed a deed of accession in the form set out in Schedule PAGE 1, and the Bank has received and found to he reasonably satisfactory to it such other documents, (including constitutional documents, board minutes, necessary licences or consents, and legal opinions) and information as the Bank may reasonably require. In addition, no Subsidiary which has acceded as a Borrower pursuant to this clause may utilise the Facility, or any option within the Facility until the Parent has made a request pursuant to clause 3.2 below and the Bank has agreed to such request. 3.2 Following a request from the Parent in the form contained in Schedule 2, the Bank may from time to time by notice in writing to the Parent allocate to any Subsidiary of the Parent (which has acceded as a Borrower pursuant to Clause 3.1 above) a tranche of the Facility and/or one or more of the options (detailed in clause 1) contained within the Facility. If the Bank does so, that tranche will not then be available to the Parent or other Borrowers, and the Facility available to them will reduce accordingly. 3.3 Each Borrower, by its execution of the deed of accession, irrevocably appoints the Parent as its agent for all purposes of or connected with this Agreement. The Bank may rely upon any document signed by or on behalf of the Parent as if it had been signed by each and every other Borrower. The Parent may give a good receipt for any sum payable to each and every other Borrower hereunder. 4. Interest/Fees/Charges --------------------- The interest and/or fees, and/or charges payable on each option within the Facility will be calculated and be payable in accordance with the relevant schedule to this Agreement. 5 . Interest on an Overdue Amount ----------------------------- 5.1If any moneys payable under this Facility are not paid when due by the Borrowers or the Parent: (i) interest will be charged on the overdue amounts, on a daily basis, from the due date to the date of actual payment; (ii) the amount of such interest shall be calculated by reference to successive interest periods, (the duration of such interest periods shall be selected by the Bank at its discretion). 5.2Interest shall be charged at the rate per annum determined by the Bank to be equal to 1% above the rate which would otherwise have been applicable to such overdue amount under the provisions of the relevant Schedule if such amount had been non-overdue principal (except that in the case of any PAGE amount that does not have an applicable interest rate hereunder the rate charged shall be 2% per annum over the Bank's Base Rate rate current from time to time). Interest so accrued shall be due on demand or (in the absence of demand) on the last day of the default interest period in which it accrued and, if unpaid, shall be compounded on the last day of that and each successive interest period. Interest on overdue amounts shall be charged and compounded on this basis after as well as before any judgement obtained hereunder. 6. Guarantees ---------- The repayment of each Borrower's obligations hereunder will be guaranteed by the Parent by the execution of a guarantee acceptable to the Bank in the principal sum of US$100,000,000 plus interest and other liabilities as detailed therein. 7. Fees ---- The Parent shall pay to the Bank the following fees: (i) an arrangement fee of #65,000 upon acceptance by the Parent of the Facility; and (ii) a facility fee of #35,000 per annum annually in advance during the continuation of the Facility. 8. Cancellation ------------ Any undrawn part of the amount of the Facility may be cancelled by the Parent in minimum amounts of US$1,000,000 and multiples of US$500,000 subject to the Parent giving the Bank not less than seven days' notice in writing (such notice, once given, shall be irrevocable). Amounts which are cancelled will no longer be available for drawing. 9. Change of Circumstances ----------------------- In the event of any change in applicable law or regulation or the existing requirements of, or any new requirements being imposed by, the Bank of England or other regulatory authority the result of which, in the sole opinion of the Bank, is to increase the cost to it of funding, maintaining or making available the Facility (or any undrawn amount thereof) or to reduce the effective return to the Bank then the Borrowers and/or, as appropriate, the Parent shall pay to the Bank, upon receipt of documentation evidencing such increased cost or reduction, as the case may be, such sum as may be certified by the Bank to the Borrowers and/or the Parent as shall compensate the Bank for such increased cost or such reduction. PAGE 10. Set-off ------- Any sum of money at any time standing to the credit of a Borrower or the Parent with the Bank in any currency upon any account or otherwise (whether or not any such account is held in such Borrower's or the Parent's name) or provided to the Bank as cash cover for any bills and/or any outstanding liabilities under the Facility, may be applied by the Bank at any time (upon 5 Business Days written notice to such Borrower and the Parent) in or towards the discharge of any money or liabilities now or hereafter due, owing or incurred to the Bank by such Borrower or the Parent hereunder (whether as principal or surety). 11. Indemnity --------- 11.1 The Parent shall indemnify the Bank on demand (without prejudice to the Bank's other rights) for any expense, loss or liability reasonably incurred by the Bank in consequence of (i) any default or delay by the Borrowers or the Parent in the payment of any amount when due under this letter, or (ii) all or part of the Facility being prepaid or becoming repayable otherwise than on the maturity of the then current interest period including, without limitation any loss (including loss of margin), expense or liability sustained or incurred by the Bank in any such event in liquidating or re-deploying funds acquired or committed to fund, make available or maintain the Facility (or any part of it). 11.2 If, for any reason, any amount payable under this letter is received or recovered in a currency (the "other currency") other than that in which it is required to be paid hereunder (the "contractual currency"), then to the extent that the payment to the Bank (when converted to the contractual currency at the then applicable rate of exchange) falls short of the amount so payable under this letter, the Parent shall, as a separate and independent obligation, fully indemnify the Bank against the amount of the shortfall. For the purpose of this sub-clause the expression "rate of exchange" means the rate at which the Bank is able as soon as practicable after receipt to purchase the contractual currency in London with the other currency. 12. Illegality ---------- If, at any time, the Bank determines that it is, or will become unlawful or contrary to any directives of any agency or any country or state for it to make, fund or allow to remain outstanding all or part of the Facility, and/or carry out all or any of its other obligations towards the Borrowers and the Parent under this letter, then upon the Bank notifying the Parent of such event, within 30 days of that notification or such earlier date (if any) as the Bank PAGE shall certify to be necessary to comply with the relevant law or directive, the Borrowers and/or the Parent (as appropriate) shall prepay any principal amounts outstanding together with any accrued interest thereon. 13. Representations and Warranties ------------------------------ 13.1 By accepting this letter the Parent and each Borrower represents and warrants that: (a) Statutes: The Parent and each of its Material --------- Subsidiaries are duly organised, existing and (where relevant) in good standing under the laws of the jurisdictions of their respective incorporation and have the corporate power and authority to own their respective property and assets and to transact the businesses in which they respectively are engaged or presently propose to engage and are duly qualified and (where relevant) in good standing as foreign corporations. (b) Corporate Power and Authority: Borrowers: Each of the ----------------------------------------- Borrowers has the corporate power, and has taken all necessary corporate action (including, without limitation, any consent of stockholders required by law or by its constitutional documents) to authorise it to execute, deliver and perform the terms and provisions of and to incur its obligations under this Agreement and to borrow hereunder or otherwise utilise the Facility. This Agreement has been or, when executed, will be duly authorised, executed and delivered by each Borrower and constitutes the legal, valid and binding obligation of that Borrower enforceable in accordance with its terms (except as the enforceability thereof may be limited by insolvency or similar laws of general application affecting creditors' rights and by general principles of equity). (c) Corporate Power and Authority: Guarantor: The Parent as ----------------------------------------- Guarantor has the corporate power and has taken all necessary corporate action (including, without limitation, any consent of stockholders required by law or by its constitutional documents) to authorise it to execute deliver and perform the terms and provisions of and to incur its obligations under the Guarantee. The Guarantee has been duly authorised executed and delivered by the Parent thereto and will when executed constitute the legal valid and binding obligation of the Parent enforceable in accordance with its terms (except as the enforceability thereof may be limited by insolvency or similar laws of general application affecting creditors' rights and by general principles of equity). PAGE (d) Compliance with other Instruments: Neither the Parent ---------------------------------- nor any Material Subsidiary is in default under any material agreement to which it is a party, and the execution, delivery and performance by each Borrower and the Parent, as the case may be, of this Agreement and the Guarantee (a) will not contravene any provision of Applicable Law, (b) will not conflict with or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any Encumbrance on any of the property or assets of the Parent or any Material Subsidiary pursuant to the terms of any indenture, mortgage, deed to secure debt, deed of trust, or other material agreement or instrument to which the Parent or any Material Subsidiary is a signatory or by which it is bound or to which it may be subject, (c) will not violate any provision of the constitutional documents of the Parent or any corporate Material Subsidiary and (d) will not require any Governmental Approval. (e) Financial Statements of Group: The consolidated ----------------------------------- financial statements of the Parent and its Subsidiaries dated 1st January 1994 and the related consolidated statements of income (including the notes thereto), are all true and correct in all material respects and present fairly the consolidated financial condition of the Parent and its Subsidiaries at that date and the results of their operations for the year then ending. To the Parent's knowledge neither the Parent nor any Material Subsidiary had as at such date any significant liabilities, material to the Parent and its subsidiaries on a consolidated basis, contingent or otherwise (including liabilities for Taxes or any unusual forward or long-term commitments) which were not disclosed by or reserved against in the financial statements referred to above or in the notes thereto, and there are no material unrealised or anticipated losses from any unfavourable commitments of the Parent. All such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved. Since 1st January 1994 there has been no material adverse change in the operations, business, property or assets of, or in the condition (financial or otherwise) or prospects of, the Parent and its Material Subsidiaries, taken as a whole. (f) Governmental Approvals: No Governmental Approval is ------------------------ required to authorise, or is required in connection with the execution, delivery and performance of this Agreement or the Guarantee. (g) Title to Properties: Each of the Parent and its Material -------------------- PAGE Subsidiaries has good and marketable title to its owned properties, including the properties and assets reflected in the financial statements referred to in paragraph (f) above. None of those properties is subject to any Encumbrance except as referred to in those financial statements and possible title defects and Encumbrances which do not materially interfere with the use or materially detract from the value of such properties or the operations of the Parent or the relevant Material Subsidiary. (h) Taxes : Each of the Parent and its Material Subsidiaries ----- has filed or caused to be filed all declarations, reports and tax returns including, in the case of the Parent and each Material Subsidiary located in the United States, all federal and state income tax returns which it is required by law to file, and has paid all Taxes which are shown as being due and payable on such returns or on any assessments made against it or any of its properties. The accruals and reserves on the books of the Parent and its Material Subsidiaries in respect of Taxes are adequate for all periods. Neither the Parent nor any Material Subsidiary has any knowledge of any unpaid adjustment, assessment or any penalties or interest of significance, or any basis therefor, by any taxing authority for any period, except those being contested in good faith and by appropriate proceedings which effectively stay the enforcement of any Encumbrance and the attachment of a penalty. (i) Solvency: The Parent (i) acknowledges that it will have --------- received, before the execution of its Guarantee, fair consideration and reasonably equivalent value for the obligations incurred or to be incurred by it thereunder, (ii) represents and warrants that after giving effect to such obligations (1) the present fair saleable value of the assets of it exceeds its liabilities in that it retains sufficient capital reasonably to anticipate the needs and risks of its ongoing business, and (2) it has not incurred (actually or contingently) debts beyond its ability to pay such debts as they mature, and that the present fair saleable value of its assets is greater than that needed to pay its probable existing debts as they become due. (j) Disclosure: Neither this Agreement, nor any other ---------- document, certificate or statement furnished to the Bank by or on behalf of either Borrower or the Parent in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Parent or any of its Material Subsidiaries which materially adversely affects or may PAGE (as far as the Parent can now foresee) materially adversely affect the business, property or assets, or financial condition of the Parent and its Material Subsidiaries taken as a whole which has not been set out in this Agreement, or in the other documents, certificates and statements furnished to the Bank by or on behalf of the Parent, prior to the date hereof in connection with the transactions contemplated by this letter. 13.2Each party providing the same shall be deemed to repeat the representations and warranties contained in the preceding sub-clause on each occasion on which there is any utilisation of the Facility by reference to the circumstances then existing. 14. Positive Covenants ------------------ 14.1 Use of Proceeds --------------- Each Borrower undertakes that the proceeds of the Facility will be used for the general working capital purposes of the Borrowers. None of such proceeds shall be used to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulations U and X) or to extend credit to others for the purpose of purchasing or carrying any such margin stock. If requested by the Bank, the Parent will deliver statements in conformity with the requirements of Federal Reserve Form U-l referred to in Regulation U. 14.2 Financial Information for Group ------------------------------- The Parent will deliver to the Bank: (a) within 90 days after the end of each year of the Parent and its Subsidiaries an audited consolidated balance sheet of the Parent as at the end of such year, and audited consolidated statements of income and cash flow of the Parent and its Subsidiaries for such year, all in reasonable detail and with the unqualified opinion of Arthur Andersen (or other independent certified public accountants of recognised standing selected by the Parent and reasonably satisfactory to the Bank) together with the management letter prepared in connection with such audited financial statements, provided that the Parent may make a change in its accounting principles in any year, so long as (w) such change or changes are clearly reflected in the annual audit report, and (x) any principle has been concurred in by the Parent and the Parent's independent certified public accountants and is in accordance with generally accepted accounting principles; PAGE (b) copies of its quarterly results on Form 10-Q and its audited Consolidated Profit and Loss Account and Balance Sheet (in the form of an Annual Report and/or form 10-K, as appropriate) not later than 45 days from the end of each quarter and 90 days from the end of each accounting reference period respectively; and (c) with reasonable promptness, such further information regarding the business affairs and financial condition of the Parent or any Material Subsidiary as the Bank may reasonably request. 14.3 Maintenance of Books: Inspection of Property and Records -------------------------------------------------------- The Parent shall and shall procure that each of its Material Subsidiaries shall prepare or cause to be prepared (a) its annual statements and reports in accordance with generally accepted accounting principles and permit any person designated by the Bank to visit and inspect any of its properties, corporate books and financial records, and to discuss its accounts, affairs and finance with the principal officers of the Parent and such Material Subsidiary during reasonable business hours, and upon reasonable prior notice, from time to time, as the Bank may reasonably request and (b) its interim statements and reports in accordance with methods historically used by such Material Subsidiary, as the case may be, as such methods have yielded financial information which has historically not required material annual adjustments to bring such information into compliance with generally accepted accounting principles. 14.4 Maintenance of Properties ------------------------- The Parent shall and shall procure that each of its Material Subsidiaries shall maintain, preserve, protect and keep, or cause to be maintained, preserved, protected and kept, its properties and every part thereof in good repair, working order and condition, and from time to time will make or cause to be made all needful and proper repairs, renewals, replacements, extensions, additions, betterments, and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times Provided that the Parent and its Material Subsidiaries shall not be obliged to repair or replace any such properties which have become obsolete or unsuitable or inadequate for the purpose for which they are used. 14.5 Maintenance of Insurance ------------------------ The Parent shall and shall procure that each of its Material Subsidiaries shall maintain liability and worker's compensation insurance (or maintain a legally sufficient, fully funded, programme of self-insurance against worker's PAGE compensation liabilities), adequate insurance on its properties against such hazards and in at least such amounts as is customary in the business and, at the request of the Bank, the Parent will forthwith deliver an officer's certificate specifying the details of the insurance then in effect. 14.6 Taxes ----- The Parent shall and shall procure that each of its Material Subsidiaries shall pay and discharge all Taxes prior to the date on which penalties attach thereto, and will pay all Taxes which, if unpaid, might become an Encumbrance upon any of its property Provided that the Parent and its Material Subsidiaries shall not be required to pay and discharge any such Tax so long as the legality or amount thereof shall be promptly contested in good faith and by appropriate proceedings which effectively stay the enforcement of any Encumbrance and the attachment of a penalty and the Parent or such Material Subsidiary, as the case may be, shall have set aside appropriate reserves therefor in accordance with generally accepted accounting principles. 14.7 Existence and Status -------------------- The Parent and each of its Material Subsidiaries which is a corporation shall maintain its corporate existence and (where relevant) good standing in its state of incorporation and its qualification and (where relevant) good standing as a foreign corporation in all jurisdictions where its ownership of property or its business activities cause such qualification to be required. 14.8 Litigation ---------- The Parent shall give prompt notice to the Bank of any material pending legal proceedings. For the purposes of this Clause 14.8, only pending legal proceedings which would be required to be reported by the Parent for Securities and Exchange Commission Filings need be reported to the Bank. 14.9 Stockholder Reports, etc ------------------------ Promptly after the same are available, the Parent will provide to the Bank copies of all publicly available current reports on Form 8-K, proxy statements and prospectuses filed with the Securities and Exchange Commission under the Securities Act 1933, as amended or the Securities Exchange Act 1934 as amended, as the case may be, (excluding prospectuses relating to employee stock option or benefit plans). 15. Payments and Gross-Up --------------------- PAGE 15. I All payments by a Borrower, whether of principal, interest or otherwise, shall be made to the Bank not later than 12 noon (London time) on the due date in same day funds (or as otherwise expressly agreed by the Bank), without set-off or counterclaim and free of any deduction or withholding whatsoever, including without prejudice to the generality of the foregoing, for or on account of Taxes unless that Borrower is required by law to make any such payments subject to deduction or withholding on account of Taxes, in which case the sum payable by that Borrower in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Bank receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 15.2 Without prejudice to the provisions of Clause I5.1, if the Bank is required by law to make any payment on account of Taxes (other than Taxes on its overall net income) or otherwise on or in relation to any sum received or receivable by the Bank hereunder, or any liability in respect of any such payment is imposed, levied or assessed against the Bank, the relevant Borrower shall, on demand by the Bank, indemnify the Bank against such payment or liability together with any interest penalties and expenses payable or incurred in connection therewith (except to the extent that such interest penalties and expenses results from the late settlement of such payment or liability by the Bank). 15.3 If the Bank intends to make a claim pursuant to clause 15.2, it shall notify the relevant Borrower of the event by reason of which it is entitled to do so and provide to that Borrower in reasonable detail a calculation of the amount claimed Provided that nothing herein shall require the Bank to disclose any information relating to the organisation of its affairs which the Bank shall, in its sole opinion, consider to be confidential. 16. Interpretation -------------- 16.1 In this Facility Letter, unless the context otherwise requires: - "Agreement" means the agreement arising on the Borrowers' acceptance of the offer contained in this Facility Letter; " Applicable Law" means (i) all applicable common law and principles of equity and (ii) all applicable provisions of all (a) constitutions, statutes, rules, regulations and orders of governmental bodies, (b) Governmental Approvals PAGE and (c) orders, decisions, judgments and decrees of all courts and arbitrators; "Base Rate" means the Bank's base rate published from time to time; " Business Day" means a day on which the relevant London financial markets are open for dealings in eurocurrency deposits between banks and, if a payment falls due hereunder, also, a day on which banks in the relevant principal financial centre (as determined by the Bank) for the relevant currency are open for dealings in such currency. Should any requirement under this letter fall due on a date which is not a Business Day then such date shall be extended to the next Business Day; "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder; " Encumbrance" includes any mortgage, pledge, security interest, encumbrance, lien or charge of any kind or description (and shall include, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof including any lease or similar arrangement with a public authority executed in connection with the issuance of industrial development revenue bonds or pollution control revenue bonds, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction); "Governmental Approval" means any order, permission, authorization, consent, approval, licence, franchise, permit or validation of, exemption by, registration or filing with, or report or notice to, any governmental agency or unit, or any public commission, boarder authority; "Guarantor" means the Parent; " Guarantee" means the guarantee executed and delivered to the Bank pursuant to Clause 6; " Material Subsidiary" means any Subsidiary of the Parent designated as a Borrower pursuant to Clause 3 and any other Subsidiary of the Parent which alone, or together with its own subsidiaries, represents either or both of (a) not less than 5 % of the net earnings before Taxes of the Parent and its Subsidiaries taken as a whole in the fiscal year of the Parent most recently ended or (b) not less than 5% of the consolidated book value of the assets of the Parent and its subsidiaries taken as a whole as of the last day of the fiscal year of the Parent most recently ended, and "Material Subsidiaries" shall be construed accordingly; PAGE "Month" means a period starting on one day in a calendar Month and ending on the corresponding day in the next calendar Month or, if that is not a Business Day, on the next Business Day unless that falls in another calendar Month in which case it shall end on the preceding Business Day, save that where a period starts on the last Business Day in a Month or there is no corresponding day in the Month in which the period ends, that period shall end on the last Business Day in the later Month; "Outstanding Amount" means, in relation to a Bank Guarantee at any time, the maximum actual and contingent liability of the Bank under that Bank Guarantee at that time; "Regulation U or X" shall mean Regulation U or X respectively of the Board of Governors of the Federal Reserve System, as in effect from time to time, and any regulation successor thereto; "Sterling" and "#" means lawful currency of the United Kingdom; "Subsidiary" shall mean a subsidiary undertaking within the meaning of Section 736 of the Companies Act 1985; " Tax" shall mean, with respect to any person or entity, any federal, state or foreign tax, assessment, customs duties, or other governmental charge, levy or assessment (including any withholding tax) upon such person or entity or upon such person's or entity's assets, revenues, income or profits (other than United Kingdom income taxes imposed upon the Bank); "U.S. Dollar", "Dollar" and "I" shall mean lawful money of the United States of America. 16.2 Reference to any statutory provision includes any amended or re-enacted version of such provision with effect from the date on which it comes into force. 16.3 Save as otherwise expressly provided herein, references in this Agreement to this Agreement or any other document include reference to this Agreement or such other document as varied, supplemented and/or replaced as agreed between the parties hereto or as permitted hereby or to which the Bank shall have consented from time to time. 16.4 References to Clauses, sub-clauses, paragraphs, Schedules and annexures are to be construed as references to Clauses, sub-clauses, paragraphs, Schedules and annexures of this Agreement unless otherwise stated. PAGE 16.5 Clause headings are for convenience only and shall not affect the construction hereof. 17. Governing Law and Jurisdiction ------------------------------ 17.1 This Facility Letter shall be governed by and construed in accordance with English law. 17.2 The Parent and its Material Subsidiaries agree that any legal action or proceedings arising out of or in connection with this Facility Letter may be brought in the High Court of Justice in England and irrevocably submit to the jurisdiction of that Court, provided that this submission to jurisdiction shall not (and shall not be construed so as to) limit the Bank's right to take proceedings in whatever jurisdiction shall seem fit to the Bank, 18. Acceptance ---------- Prior to the Facility being utilised, the Parent shall provide the Bank with the following:- (a) the enclosed duplicate of this letter duly signed on each Borrower's and the Parent's behalf as evidence of acceptance of the terms and conditions stated herein; (b) a certified true copy of a resolution of the Parent's Board of Directors: - (i) accepting the Facility on the terms and conditions stated herein, (ii) authorising a specified person, or persons, to sign and return to the Bank the duplicate of this letter, and (iii) authorising the Bank to accept instructions and confirmation in connection with the Facility signed in accordance with the Bank's signing mandate current from time to time, and to accept instructions in connection with drawings under the Facility by telephone from any person specifically authorised to give such telephone instructions, (c) confirmed specimens of the signatures of those officers referred to in (b)(ii) above; and (d) the Guarantee referred to in clause 6 duly executed by the Parent and in the form required by the Bank; and (e) an opinion of the legal counsel to the Parent addressed to the Bank in a form reasonably satisfactory to the Bank and which opinion includes confirmation that the PAGE Parent is legally empowered to accept and enter into the terms and conditions of this letter and the related guarantee. Yours faithfully For and on behalf of Barclays Bank PLC /s/ Jonathan L Gray Jonathan L Gray Relationship Director - North America Large Corporate Banking Accepted on the terms and conditions stated herein. For and on behalf of THERMO ELECTRON CORPORATION /s/ Jonathan W. Painter by.............................................................. ........ date.................10/2/95.................................... .............. PAGE SCHEDULE 1 ---------- FORM OF DEED OF ACCESSION ------------------------- THIS DEED is made on 19 BETWEEN (1) [ ] ("the Borrower"); (2) THERMO ELECTRON CORPORATION ("the Parent") on behalf of itself and each of the other Borrowers (as defined in the Facilities Letter); and (3) BARCLAYS BANK PLC ("the Bank"). WHEREAS this Deed is supplemental to the facilities letter dated [ ], 1995 and made between the Parent and the Bank ("the Facilities Letter"). NOW THIS DEED WITNESSETH:- 1. Accession of Borrower --------------------- In consideration of the Bank agreeing to the Borrower becoming an additional Borrower pursuant to Clause 3 of the Facilities Letter and by the execution of this Deed the Borrower agrees to observe and be bound by the terms and provisions of the Facilities Letter insofar as they apply to the Borrower as if it were an original party to the Facilities Letter. 2. Interpretation -------------- This Deed shall be read as one with the Facilities Letter so that any reference therein to "this Agreement", "hereunder" and similar expressions shall include and be deemed to include this Deed. 3. Conditions precedent -------------------- The obligations of the Bank hereunder are subject to the condition that the Bank is satisfied that all appropriate conditions precedent have been fulfilled by the Borrower pursuant to Clause 3 of the Facilities Letter. PAGE IN WITNESS whereof the parties hereto have caused this Deed to be duly executed on the date first written above. EXECUTED AS A DEED by [THE BORROWER] in the presence of:- EXECUTED AS A DEED by THERMO ELECTRON CORPORATION in the presence of:- SCHEDULE 2 ---------- Form of request for allocation of the Facility ---------------------------------------------- FROM: Thermo Electron Corporation TO: Barclays Bank PLC Dear Sirs, Facility Letter dated [ ] made between Thermo Electron ----------------------- ------------------------------ Corporation (the "Parent") and ------------------------------ Barclays Bank PLC (the "Bank") (the "Facility") ----------------------------------------------- We refer to the above Facility Letter. Terms and expressions defined in the Facility Letter shall have the same meaning when used in this request. Pursuant to clause 3.2 of the Facility Letter, we hereby make the following request(s) for an allocation of [a] tranche(s) of the Facility: - Name of Subsidiary Amount of Tranche ------------------ ----------------- Option(s) --------- Requested Requested --------- --------- We confirm that:- (1) each of the representations and warranties contained in sub-clause 13.1 of the Facility Letter is true and accurate if made on the date hereof with reference to the facts and circumstances now existing; (2) on the date on which the tranche(s) requested above will be utilised there will exist no breach of the terms of the PAGE Facility Letter; (3) the above-named Subsidiary has executed and provided to the Bank a deed of accession in the form stipulated by clause 3.1 of the Facility Letter. Yours faithfully THERMO ELECTRON CORPORATION SCHEDULE A ---------- Sterling Money Market Loan -------------------------- The Sterling Money Market Loan may be drawn in one or more amounts, each drawing to be a minimum amount of #500,000 and multiples of #100,000 thereafter for periods of 30,60 or 90 days at the Borrower's option or other mutually agreed period but no drawing shall be made for an interest period with a maturity date of more than three months beyond the expiry date detailed in clause 2.2 of the letter. When wishing to draw under the Sterling Money Market Loan, the Borrower should telephone the account holding branch of the Bank on or shortly before the day on which funds are required stating the amount of the drawing, the period required and giving instructions for payment of the funds. In the event these instructions do not stipulate that the funds must be credited to the Borrower's current account with the account holding Branch such instructions must be confirmed by letter to the account holding Branch at the earliest opportunity. The rate of interest on each drawing will include the Bank's margin of 0.45% per annum added to the cost of funds to the Bank (such cost of funds to be conclusively determined by the Bank and shall include any associated costs resulting from requirements of the Bank of England or other governmental authorities or agencies, whether having the force of law or otherwise, affecting the conduct of the Bank's business) for the period of the drawing. Interest will be payable without deduction at six monthly intervals if appropriate and at the maturity of each drawing, and calculated on the basis of actual days elapsed over a 365 day year. Each drawing, together with interest thereon, will be repaid on PAGE its maturity date by debit to the Borrower's current account at the account holding branch. SCHEDULE B ---------- Sterling Overdraft ------------------ The Sterling Overdraft will be available on the Borrower's current account at the Branch with interest charged at a rate of 1% per annum over the Bank's Base Rate current from time to time. Interest, together with other charges will be debited to the Borrower's current account at the Branch quarterly in arrears in March, June, September and December each year or at such other times as may be determined by the Bank, and such interest will be calculated on the basis of actual days elapsed over a 365 day year. PAGE SCHEDULE C ---------- Currency Money Market Loan -------------------------- This option relates to a short term loan in any currency (other than sterling) which is freely transferable and convertible into sterling and is available to the Bank in the relevant amount for the relevant period in the normal course of business on the London Inter-Bank market. The Bank shall be sole arbitor of the availability of such currencies. The short term currency loans may be drawn in one or more amounts, each drawing to be a minimum amount of the currency equivalent of US$500,000. Larger drawings shall be in amounts which are mutually agreeable and drawings shall be for periods up to a maximum of six months at the Borrower's option or other mutually agreed periods but no drawing should be made for an interest period with a maturity date of more than three months beyond the expiry date detailed in clause 2.2 of the letter. When drawings are to be made, the Borrower should telephone the account holding branch of the Bank two business days before the business day on which funds are required stating the amount of the drawing, the period required and giving instructions for payment of the funds. In the event these instructions do not stipulate that the funds must be credited to the Borrower's PAGE current account with the Branch, such instructions must be confirmed by letter to the Branch at the earliest opportunity. The interest rate on each drawing will include the Bank's margin of 0.45% per annum added to the cost of funds to the Bank (such cost of funds to be conclusively determined by the Bank) which will be dependent upon the conditions prevailing in the relevant London financial markets for the period of the drawing. Interest will be payable without deduction at six monthly intervals, if appropriate, and at the maturity of each drawing, and calculated on the basis of actual days elapsed over a 360 day year. Each drawing, together with interest thereon, will be repaid on its maturity date in the currency in which such drawing is outstanding in immediately available freely convertible and transferable funds without any set-off or counterclaim and free of any deduction or withholding on any ground, to such bank or branch of the Bank as the Bank may specify. In the event of the Borrower being compelled by law to make any such deduction or withholding, the Borrower will pay to the Bank such additional amount(s) as are required to ensure that the Bank receives and retains a net amount equal to the full amount which it would have received if no such deduction or withholding had been made. For the purposes of this letter a "business day" shall mean a day ---- on which the relevant London financial markets are open for dealings in eurocurrency deposits between banks and, in addition, so far as concerns a day on which a payment falls to be made hereunder, a day on which banks in the relevant principal financial centre (as determined by the Bank) for the relevant currency are open for dealings in such currency. Should any requirements under this letter fall due on a date which is not a business day, then such date shall be extended to the next business day. SCHEDULE D ---------- Foreign Currency Overdraft -------------------------- The Foreign Currency overdraft will made available in any currency (other than sterling) as previously agreed by and arranged with the Bank, and which currency is freely transferable and available to the Bank in the normal course of business. The Foreign Currency Overdraft will be available on the Borrower's foreign currency account at the account holding branch with interest charged at 1% per annum over the bank's call loan PAGE rate current from time to time. Interest together with other charges will be debited to the Borrower's foreign currency account at the account holding branch quarterly in arrears in March, June, September and December each year or at such times as may be determined by the Bank, and such interest will be calculated on the basis of actual days elapsed over a 360 day year. SCHEDULE E ---------- Revolving Acceptance Credit --------------------------- To enable drawings to be made under the Revolving Acceptance Credit (the "Credit"), the Borrower should either: PAGE (I) forward bills to the Branch to be in the Branch's hands at least four business days before the funds are required. Bills should be drawn by the Borrower on Barclays Bank PLC, Head Office, 54 Lombard Street, London EC3P 3AH for fixed periods of 30,60 or 90 days except that no period may be selected which would mature more than 90 days after the expiry date detailed in clause 2 of this letter. If the selected maturity date is a non-business day, bills should be drawn to mature on the following business day. Individual bills should be drawn in amounts of #50,000 and should be made to the Bank's order and claused "Drawn against purchases of electronic security systems" or (ii) forward a supply of bills to the Branch drawn as in (i) above, except that the dates will be left blank. The branch will arrange for the supply of bills to be held by the Bank's Global Treasury Services Office in London ("GTS"), and for the dates to be completed in accordance with the Borrower's oral instructions when drawings are required. When wishing to draw under the Credit, the Borrower should telephone the Bank's dealers at GTS on 071 696 2496 before 12.00 noon on the day on which funds are required, stating the amount required and the period, and agreeing the discount rate quoted. The Bank will accept the bills and will, at its option, either (i) discount the bills itself in which case the rate of discount will be the then current offer rate as quoted by the Bank for such bills in the London Discount Market, or (ii) offer the bills for discount as agent on the Borrower's behalf in the London Discount Market at the discount rate prevailing in such market at the time when discount is effected. The proceeds after discount and acceptance commission will be credited to the Borrower's current account at the Branch. Acceptance commission payable at the time of acceptance will be charged at the rate of 0.5% per annum on the face value of each draft presented and will be deducted from the proceeds after discount. The Bank will debit the Borrower's current account with the face value of each draft upon its maturity date. The Credit is revolving, however, and it will be open to the Borrower within the validity and terms of the Facility to present further bills in accordance with this clause. By its acceptance of the Facility, the Borrower undertakes that during the validity of the Credit it will ensure that there are sufficient purchases to cover the amounts drawn during the period for which such bills are drawn and which are not the subject of other financing arrangements. The Borrower will provide a certificate to this effect, signed by an official authorised to draw bills, if requested by the Bank in writing. PAGE The acceptance of a bill shall give rise to a debt from the Borrower to the Bank equal to the face value of such bill, which debt shall be due for payment on the maturity of such bill. SCHEDULE F ---------- Bonds, Guarantees and Indemnities --------------------------------- The Bank is prepared to consider issuing guarantees, bonds and indemnities on behalf of the Borrower in respect of normally accepted and commercial transactions, subject to prior agreement with the Bank and receipt of the necessary counter indemnities. Pricing will be as follows: expiry less than 1 year : 0.500% per annum one to three years : 0.625% per annum three to five years : 0.750% per annum Other, including guarantees with non-standard wording or without a fixed expiry date : 1.000% per annum PAGE SCHEDULE G ---------- Letters of Credit ----------------- The Bank is prepared to open Documentary Letters of Credit on instructions from the Borrower to provide for the purchase of commodities as may be agreed by the bank from time to time. All Documentary Letters of Credit are issued subject to the terms and conditions set out in the Bank's standard form for opening Documentary Letters of Credit and are also subject to the "Uniform Customs and Practice for Documentary Credits (1983 Revision)", or any subsequent revision as issued by the International Chamber of Commerce. Pricing will be decided on a case by case basis. PAGE SCHEDULE H ---------- ANCILLARY FACILITIES -------------------- Negotiation of Sterling/Foreign Currency Cheques and Bills of ------------------------------------------------------------- Exchange Payable Abroad ----------------------- The Bank will purchase, with recourse, suitable foreign currency and sterling cheques payable abroad and/or approved foreign currency or sterling bills of exchange payable abroad. The suitability of those cheques and bills of exchange which the Bank is prepared to purchase is entirely at the discretion of the Bank, and is subject to the Uniform Rules of the Collection of Commercial Paper (1978 Revision). Pricing will be decided on a case by case basis. SFET ---- The Bank is prepared to consider marking a Spot and Forward Exchange Transaction (SFET) Facility. The SFET facility covers the maximum liability of the Borrower to the Bank outstanding at any time under contracts of not more than 12 months duration for the forward purchase or sale of foreign currency for delivery at a future date and spot purchase or sale-of foreign currencies, but excludes purchases or sales where the Bank is required irrevocably to pay away funds prior to receiving firm confirmation of incoming cover. When wishing to utilise the SFET facility the Borrower should telephone the account holding branch. All payment and delivery instructions are to be advised to and processed by the account holding branch and confirmed by letter at the earliest opportunity. Bankers Automated Clearing Services Limited (BACS) -------------------------------------------------- The Bank is prepared to make available a BACS facility to accommodate the Company's requirements for automated payments or receipts. Daylight Exposure Limit (DEL) ----------------------------- The Bank is prepared to make available a DEL to cover the aggregate of the face value of the funds which the Bank is required to pay away by CHAPS prior to receiving incoming funds to cover these payments on the same day. Branch Originated BACS Facility (BOBS) -------------------------------------- The Bank is prepared to make available a BOBS facility to accommodate the Company's requirements for automated payments or receipts when originated by the account holding branch. PAGE The Directors Thermo Electron Corporation 81 Wyman Street Waltham, M.A. 02254-9046 U.S.A. 25th July 1997 Dear Sirs We refer to the letter (the _Letter_) dated July 1995 and subsequently varied by the letters dated 10th April 1996 and 1st July 1996 from Barclays Bank PLC (the _Bank_) setting out the terms and conditions of a $100,000,000 (one hundred million United States Dollars) or currency equivalent aggregate short term facilities (the _Facility_) provided to Thermo Electron Corporation (the _Borrower_). We are pleased to vary the terms and conditions of the Facility Letter as follows:- 1. Availability : In the absence of demand or cancellation by the Bank the Facility is available for utilisation until 24th July 1998 and no liability or liabilities incurred may extend more than three months beyond the above mentioned expiry date. 2. Amount : the amount of the Facility is hereby amended to $150,000,000 (one hundred and fifty million United States Dollars). 3. Fees : The Borrower shall pay to the Bank the following fees : i) an arrangement fee of #150,000 upon acceptance of this letter ; and ii) a fee calculated at the rate of 0.10 per cent per annum payable quarterly in arrears on the total amounts utilised under the Facility, during the continuation of the Facility. 4. Set-Off : we hereby amend clause 10, line 4, by deleting the words _(upon 5 Business Days written notice to such Borrower and the Parent)_. 5. Schedule A - Sterling Money Market Loan : The Bank's margin is hereby amended to 0.40% per annum. 6. Schedule C - Currency Money Market Loan : The Bank's margin is hereby amended to 0.40% per annum. PAGE 7. Schedule F - Bonds, Guarantees and Indemnities : Commission at a rate of 0.45% per annum will be charged regardless of expiry, subject to a minimum of #100. All other terms and conditions will remain unchanged. Acceptance of the amended terms and conditions shall be signified by the Borrower returning to the Bank :- a) the enclosed duplicate of this letter duly signed on the Borrower's behalf as evidence of acceptance of the amended terms and conditions stated herein, and b) a certified true copy of a resolution of the Borrower's Board of Directors:- i) accepting the amended terms and conditions stated herein, and ii) authorising a specified person, or persons, to endorse and return to the Bank the duplicate of this letter. Yours faithfully, for and on behalf of BARCLAYS BANK PLC /s/ Jonathan L Gray Jonathan L Gray Relationship Director - North America Large Corporate Banking Accepted as of the above date on the terms and conditions stated herein, pursuant to a resolution of the Board of Directors (a certified true copy of which is attached hereto). for and on behalf of Thermo Electron Corporation /s/ Kenneth J. Apicerno Assistant Treasurer EX-10.9 3 EXHIBIT 10.9 THERMO ELECTRON CORPORATION RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Electron Corporation (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Stock Holding Policy. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo Electron Corporation, a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Electron Corporation Stock Holding Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Stock Holding Policy shall be administered by the Committee, which shall have authority to interpret the Plan and the Stock Holding Policy and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's PAGE interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable on the fifth anniversary of the date of PAGE the Loan, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO ELECTRON CORPORATION Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Electron Corporation (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay to the Company from the Employee's annual cash incentive compensation (referred to as bonus), beginning with the first such bonus payment to occur after the date of this Note and on each of the next four bonus payment dates occurring prior to the Maturity Date, such amount as may be designated by the Company. Any amount remaining unpaid under this Note shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; PAGE (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-10.46 4 EXHIBIT 10.46 THERMO ELECTRON CORPORATION THERMEDICS DETECTION INC. NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Thermedics Detection Inc. ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.47 5 EXHIBIT 10.47 THERMO ELECTRON CORPORATION METRIKA SYSTEMS CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Metrika Systems Corporation ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.48 6 EXHIBIT 10.48 THERMO ELECTRON CORPORATION THERMO VISION CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Thermo Vision Corporation ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.49 7 EXHIBIT 10.49 THERMO ELECTRON CORPORATION ONIX SYSTEMS INC. NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of ONIX Systems Inc. ("Subsidiary"), subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.50 8 EXHIBIT 10.50 THERMO ELECTRON CORPORATION THE RANDERS GROUP INCORPORATED NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of The Randers Group Incorporated ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 1,500,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.51 9 EXHIBIT 10.51 THERMO ELECTRON CORPORATION TREX COMMUNICATIONS CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Trex Communications Corporation ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.52 10 EXHIBIT 10.52 THERMO ELECTRON CORPORATION THERMO TRILOGY CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Thermo Trilogy Corporation ("Subsidiary"), a subsidiary of Thermo Electron Corporation (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 150,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-13 11 Exhibit 13 THERMO ELECTRON CORPORATION Consolidated Financial Statements 1997 PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Revenues: Product and service revenues $3,392,575 $2,766,002 $2,075,748 Research and development contract revenues 165,745 166,556 194,543 ---------- ---------- ---------- 3,558,320 2,932,558 2,270,291 ---------- ---------- ---------- Costs and Operating Expenses: Cost of product and service revenues 1,973,265 1,657,746 1,239,762 Expenses for research and development and new lines of business (a) 337,305 301,457 272,809 Selling, general, and administrative expenses 840,692 689,248 510,564 Restructuring and other nonrecurring costs, net (Note 11) 1,272 37,641 21,938 ---------- ---------- ---------- 3,152,534 2,686,092 2,045,073 ---------- ---------- ---------- Operating Income 405,786 246,466 225,218 Gain on Issuance of Stock by Subsidiaries (Note 9) 80,055 126,599 80,815 Other Income (Expense), Net (Note 10) 2,626 1,486 (7,225) ---------- ---------- ---------- Income Before Income Taxes and Minority Interest 488,467 374,551 298,808 Provision for Income Taxes (Note 8) 174,713 110,845 98,711 Minority Interest Expense 74,426 72,890 60,515 ---------- ---------- ---------- Net Income $ 239,328 $ 190,816 $ 139,582 ========== ========== ========== Earnings per Share (Note 15): Basic $ 1.57 $ 1.35 $ 1.10 ========== ========== ========== Diluted $ 1.41 $ 1.17 $ .95 ========== ========== ========== Weighted Average Shares (Note 15): Basic 152,489 141,525 126,626 ========== ========== ========== Diluted 176,082 175,605 158,562 ========== ========== ========== 2PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Income (continued) (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ (a) Includes costs of: Research and development contracts $ 143,743 $ 144,823 $ 167,120 Internally funded research and development 191,629 154,448 102,209 Other expenses for new lines of business 1,933 2,186 3,480 ---------- ---------- ---------- $ 337,305 $ 301,457 $ 272,809 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Balance Sheet (In thousands) 1997 1996 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 593,580 $ 414,404 Short-term available-for-sale investments, at quoted market value (amortized cost of $925,855 and $1,428,564; Note 2) 929,118 1,431,881 Accounts receivable, less allowances of $55,698 and $34,321 797,399 616,545 Unbilled contract costs and fees 69,375 77,155 Inventories 543,589 432,960 Prepaid income taxes (Note 8) 118,182 129,802 Prepaid expenses 42,955 29,082 ---------- ---------- 3,094,198 3,131,829 ---------- ---------- Property, Plant, and Equipment, at Cost, Net 789,046 704,447 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $49,581 and $84,094; Note 2) 63,306 94,401 ---------- ---------- Other Assets 157,108 127,632 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 3, 8, and 11) 1,692,211 1,082,935 ---------- ---------- $5,795,869 $5,141,244 ========== ========== 4PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1997 1996 ----------------------------------------------------------------------- Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (Note 5) $ 176,912 $ 153,787 Accounts payable 251,677 203,643 Accrued payroll and employee benefits 140,698 122,079 Accrued income taxes 57,923 61,534 Accrued installation and warranty costs 72,710 69,006 Deferred revenue 54,999 45,715 Other accrued expenses (Notes 1 and 3) 337,316 257,448 ---------- ---------- 1,092,235 913,212 ---------- ---------- Deferred Income Taxes (Note 8) 90,802 81,726 ---------- ---------- Other Deferred Items 59,082 81,020 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 187,824 369,997 Subordinated convertible obligations 1,473,015 1,009,470 Nonrecourse tax-exempt obligations 37,600 77,900 Other 44,468 92,975 ---------- ---------- 1,742,907 1,550,342 ---------- ---------- Minority Interest 719,622 684,050 ---------- ---------- Commitments and Contingencies (Note 6) Common Stock of Subsidiaries Subject to Redemption ($95,262 and $81,179 redemption value; Note 1) 93,312 76,525 ---------- ---------- Shareholders' Investment (Notes 4 and 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 159,206,337 and 149,996,979 shares issued 159,206 149,997 Capital in excess of par value 843,709 801,793 Retained earnings 1,034,640 795,312 Treasury stock at cost, 95,684 and 15,520 shares (3,839) (570) Cumulative translation adjustment (46,339) (504) Deferred compensation (Note 4) - (58) Net unrealized gain on available-for-sale investments (Note 2) 10,532 8,399 ---------- ---------- 1,997,909 1,754,369 ---------- ---------- $5,795,869 $5,141,244 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1997 1996 1995 ---------------------------------------------------------------------------- Operating Activities: Net income $ 239,328 $ 190,816 $ 139,582 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 135,738 115,167 85,869 Restructuring and other nonrecurring costs, net (Note 11) 1,272 37,641 21,938 Provision for losses on accounts receivable 9,078 6,002 5,534 Increase in deferred income taxes 1,111 20,869 4,277 Minority interest expense 74,426 72,890 60,515 Gain on issuance of stock by subsidiaries (Note 9) (80,055) (126,599) (80,815) Gain on sale of investments, net (5,077) (9,840) (9,305) Other noncash items, net 9,093 15,758 19,239 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (86,511) (17,078) (52,649) Inventories 9,159 (1,298) (32,267) Other current assets 31,445 (35,657) (9,447) Accounts payable (8,308) (14,307) 19,198 Other current liabilities (61,681) (29,859) 27,427 ----------- ----------- ----------- Net cash provided by operating activities 269,018 224,505 199,096 ----------- ----------- ----------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (849,118) (366,317) (330,698) Refund of acquisition purchase price (Note 3) 36,132 - - Proceeds from sale of businesses 27,102 - - Purchases of available-for-sale investments (973,687) (1,644,094) (592,364) Proceeds from sale and maturities of available-for-sale investments 1,543,025 835,935 617,145 Purchases of property, plant, and equipment (111,605) (124,541) (64,016) Proceeds from sale of property, plant, and equipment 15,633 10,500 5,702 Increase in other assets (13,425) (26,144) (19,750) Other 6,115 3,385 (147) ----------- ----------- ----------- Net cash used in investing activities $ (319,828) $(1,311,276) $ (384,128) ----------- ----------- ----------- 6PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1997 1996 1995 ---------------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of long-term obligations (Note 5) $ 490,821 $ 953,376 $ 203,387 Repayment of long-term obligations (78,287) (60,643) (14,702) Net proceeds from issuance of Company and subsidiary common stock (Note 9) 164,855 303,954 173,326 Purchases of subsidiary common stock and debentures (311,092) (144,053) (101,099) Increase (decrease) in short- term notes payable (24,256) (13,391) 1,438 Other (4,291) (1,279) (226) ----------- ----------- ----------- Net cash provided by financing activities 237,750 1,037,964 262,124 ----------- ----------- ----------- Exchange Rate Effect on Cash (7,764) 350 2,764 ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents 179,176 (48,457) 79,856 Cash and Cash Equivalents at Beginning of Year 414,404 462,861 383,005 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 593,580 $ 414,404 $ 462,861 =========== =========== =========== See Note 12 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 7PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Common Stock, $1 Par Value Balance at beginning of year $ 149,997 $ 89,006 $ 53,558 Issuance of stock under employees' and directors' stock plans 866 892 571 Conversions of convertible obligations 8,343 13,449 6,047 Effect of three-for-two stock splits - 46,650 27,687 Acquisition through pooling-of- interests (Note 3) - - 1,143 ---------- ---------- ---------- Balance at end of year 159,206 149,997 89,006 ---------- ---------- ---------- Capital in Excess of Par Value Balance at beginning of year 801,793 614,363 493,058 Issuance of stock under employees' and directors' stock plans 13,185 8,172 5,293 Tax benefit related to employees' and directors' stock plans 5,456 12,821 9,666 Conversions of convertible obligations 164,537 254,842 150,787 Effect of majority-owned subsidiaries' equity transactions (141,262) (41,755) (34,642) Effect of three-for-two stock splits - (46,650) (27,687) Acquisition through pooling-of- interests (Note 3) - - 17,888 ---------- ---------- ---------- Balance at end of year 843,709 801,793 614,363 ---------- ---------- ---------- Retained Earnings Balance at beginning of year 795,312 604,496 472,396 Net income 239,328 190,816 139,582 Acquisition through pooling-of- interests (Note 3) - - (7,482) ---------- ---------- ---------- Balance at end of year $1,034,640 $ 795,312 $ 604,496 ---------- ---------- ---------- 8PAGE Thermo Electron Corporation 1997 Financial Statements Consolidated Statement of Shareholders' Investment (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Treasury Stock Balance at beginning of year $ (570) $ (536)$ (1,631) Activity under employees' and directors' stock plans (3,269) (34) 1,095 ---------- ---------- ---------- Balance at end of year (3,839) (570) (536) ---------- ---------- ---------- Cumulative Translation Adjustment Balance at beginning of year (504) 608 (3,557) Translation adjustment (45,835) (1,112) 4,193 Acquisition through pooling-of- interests (Note 3) - - (28) ---------- ---------- ---------- Balance at end of year (46,339) (504) 608 ---------- ---------- ---------- Deferred Compensation Balance at beginning of year (58) (2,271) (2,657) Amortization of deferred compensation 58 296 386 ESOP II loan repayment (Note 4) - 1,917 - ---------- ---------- ---------- Balance at end of year - (58) (2,271) ---------- ---------- ---------- Net Unrealized Gain on Available- for-sale Investments Balance at beginning of year 8,399 4,063 (3,681) Change in net unrealized gain on available-for-sale investments (Note 2) 2,133 4,336 7,744 ---------- ---------- ---------- Balance at end of year 10,532 8,399 4,063 ---------- ---------- ---------- Total Shareholders' Investment $1,997,909 $1,754,369 $1,309,729 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 9PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies Nature of Operations Thermo Electron Corporation and its subsidiaries (the Company) 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 industrial outsourcing, laboratory, and metallurgical services, and conducts advanced-technology research and development. Principles of Consolidation The accompanying financial statements include the accounts of Thermo Electron and its majority- and wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Majority-owned public subsidiaries consist of Thermedics Inc., Thermo Instrument Systems Inc., Thermo TerraTech Inc., Thermo Power Corporation, ThermoTrex Corporation, Thermo Fibertek Inc., and Thermo Ecotek Corporation. Thermo Cardiosystems Inc., Thermo Voltek Corp., Thermo Sentron Inc., and Thermedics Detection Inc. are majority-owned, public subsidiaries of Thermedics. ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation, Thermo BioAnalysis Corporation, Metrika Systems Corporation, and Thermo Vision Corporation are majority-owned, public subsidiaries of Thermo Instrument. Thermo Remediation Inc. and The Randers Group Incorporated are majority-owned, public subsidiaries of Thermo TerraTech. ThermoLase Corporation and Trex Medical Corporation are majority-owned, public subsidiaries of ThermoTrex. Thermo Fibergen Inc. is a majority-owned, public subsidiary of Thermo Fibertek. Thermo Information Solutions Inc. is a majority-owned, privately held subsidiary. ONIX Systems Inc. is a majority-owned, privately held subsidiary of Thermo Instrument. Thermo EuroTech N.V. is a majority-owned, privately held subsidiary of Thermo TerraTech. ThermoLyte Corporation is a majority-owned, privately held subsidiary of Thermo Power. Trex Communications Corporation is a majority-owned, privately held subsidiary of ThermoTrex. Thermo Trilogy Corporation is a majority-owned, privately held subsidiary of Thermo Ecotek. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1997, 1996, and 1995 are for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each included 52 weeks. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon shipment of its products, or upon completion of services it renders. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Deferred revenue in the 10PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) accompanying balance sheet consists primarily of unearned revenue on service contracts. Substantially all of the deferred revenue in the accompanying 1997 balance sheet will be recognized within one year. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $440.4 million in 1997, $421.1 million in 1996, and $472.0 million in 1995. The percentage of completion is determined by relating either the actual costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased by the subsidiary, by the subsidiary's parent, or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions, and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as the effect of majority-owned subsidiaries' equity transactions. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences 11PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share During the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per Share" (Note 15). As a result, all previously reported earnings per share have been restated; however, basic earnings per share equals the Company's previously reported primary earnings per share for 1996 and 1995. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects. Stock Split All share and per share information was restated in 1996 to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in June 1996. Cash and Cash Equivalents Cash equivalents consists principally of corporate notes, commercial paper, U.S. government-agency securities, money market funds, and other marketable securities purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out or weighted average basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1997 1996 ---------------------------------------------------------------------- Raw materials and supplies $260,458 $236,297 Work in process 108,327 80,614 Finished goods 174,804 116,049 -------- -------- $543,589 $432,960 ======== ======== Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 5 to 40 years; alternative-energy facilities, 5 to 25 years; machinery and equipment, 2 to 20 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. 12PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) Property, plant, and equipment consists of the following: (In thousands) 1997 1996 ---------------------------------------------------------------------- Land $ 59,867 $ 55,430 Buildings 235,103 206,406 Alternative-energy facilities 247,361 247,361 Machinery, equipment, and leasehold improvements 617,582 500,992 ---------- ---------- 1,159,913 1,010,189 Less: Accumulated depreciation and amortization 370,867 305,742 ---------- ---------- $ 789,046 $ 704,447 ========== ========== Other Assets Other assets in the accompanying balance sheet includes intangible assets, notes receivable, deferred debt expense, prepaid pension costs, and other assets. Intangible assets include the costs of acquired trademarks, patents, product technology, and other specifically identifiable intangible assets and are being amortized using the straight-line method over their estimated useful lives, which range from 3 to 20 years. Intangible assets were $50.5 million and $39.9 million, net of accumulated amortization of $45.7 million and $38.0 million, at year-end 1997 and 1996, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method principally over 40 years. Accumulated amortization was $134.7 million and $96.4 million at year-end 1997 and 1996, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Common Stock of Subsidiaries Subject to Redemption In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one share of ThermoLyte common stock and one redemption right, at $10.00 per unit, for net proceeds of $17.3 million. Holders of the common stock issued in the offering will have the option to require ThermoLyte to redeem any or all of their shares at $10.00 per share in December 1998 or 1999. ThermoLyte common stock subject to redemption of $18.1 million is included in other accrued expenses in the accompanying 1997 balance sheet since it is redeemable in December 1998. The redemption value is $18.5 million. 13PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) In September 1996, Thermo Fibergen sold 4,715,000 units, each unit consisting of one share of Thermo Fibergen common stock and one redemption right, at $12.75 per unit, for net proceeds of $55.8 million. The common stock and redemption rights began trading separately on December 13, 1996. Holders of a redemption right have the option to require Thermo Fibergen to redeem one share of Thermo Fibergen common stock at $12.75 per share in September 2000 or 2001. The redemption rights carry terms that generally provide for their expiration if the closing price of Thermo Fibergen's common stock exceeds $19 1/8 for 20 of any 30 consecutive trading days prior to September 2001. In April 1997, ThermoLase completed an exchange offer whereby its shareholders had the opportunity to exchange one share of existing ThermoLase common stock and $3.00 (in cash or ThermoLase common stock) for a new unit consisting of one share of ThermoLase common stock and one redemption right. The redemption right entitles the holder to sell the related share of common stock to ThermoLase for $20.25 during the period from April 3, 2001, through April 30, 2001. The redemption right will expire if the closing price of ThermoLase common stock is at least $26.00 for 20 of any 30 consecutive trading days. In connection with this offer, ThermoLase issued in April 1997, 2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5 million in cash, net of expenses. As a result of these transactions, $40.5 million was reclassified from "Shareholders' investment" and "Minority interest" to "Common stock of subsidiaries subject to redemption," based on the issuance of the 2,000,000 redemption rights, each carrying a maximum liability of $20.25. The difference between the redemption value and the original carrying amount of ThermoLyte and Thermo Fibergen common stock subject to redemption is accreted over the period through the first redemption period. Accretion is charged to minority interest expense in the accompanying statement of income. All redemption rights are guaranteed on a subordinated basis by the Company. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Forward Contracts and Interest Rate Swap Agreements The Company uses short-term forward foreign exchange contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in 14PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Significant Accounting Policies (continued) U.S. dollars, British pounds sterling, French francs, and Japanese yen. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Gains and losses arising from forward foreign exchange contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. Thermo Ecotek has interest rate swap agreements that convert its variable rate obligations to fixed rate obligations (Note 5). Interest rate swap agreements are accounted for under the accrual method. Amounts to be received from or paid to the counterparties of the agreements are accrued during the period to which the amounts relate and are reflected as interest expense. The related amounts payable to the counterparties are included in other accrued expenses in the accompanying balance sheet. The fair value of the swap agreements is not recognized in the accompanying financial statements since the agreements are accounted for as hedges. The Company does not enter into speculative foreign currency or interest swap agreements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in 1996 and 1995 have been reclassified to conform to the presentation in the 1997 financial statements. 2. Available-for-sale Investments In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized gain on available-for-sale investments." 15PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale Investments (continued) The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses ------------------------------------------------------------------------ 1997 Government-agency securities $ 385,476 $ 385,049 $ 451 $ (24) Corporate bonds 513,956 513,427 717 (188) Other 92,992 76,960 16,628 (596) ---------- ---------- ---------- ---------- $ 992,424 $ 975,436 $ 17,796 $ (808) ========== ========== ========== ========== 1996 Government-agency securities $ 830,446 $ 829,736 $ 761 $ (51) Corporate bonds 581,804 581,424 482 (102) Other 114,032 101,498 12,855 (321) ---------- ---------- ---------- ---------- $1,526,282 $1,512,658 $ 14,098 $ (474) ========== ========== ========== ========== Short- and long-term available-for-sale investments in the accompanying 1997 balance sheet include equity securities of $50.4 million and debt securities of $803.3 million with contractual maturities of one year or less and $138.7 million with contractual maturities of more than one year through five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable either the Company, the issuer, or both to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of income. The net gain on sale of investments resulted from gross realized gains of $5.2 million, $11.2 million, and $9.8 million and gross realized losses of $0.1 million, $1.4 million, and $0.5 million in 1997, 1996, and 1995, respectively, relating to the sale of available-for-sale investments. 3. Acquisitions 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' 16PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) capital stock. The aggregate purchase price for Life Sciences was $442.8 million, net of $55.8 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In 1997, in addition to the acquisition of Life Sciences, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $406.3 million in cash, net of cash acquired, the issuance of subsidiary common stock and stock options valued at $4.5 million, and $5.1 million to be paid in the first quarter of 1998, subject to certain post-closing adjustments. The Company does not expect that aggregate post-closing adjustments, if any, will be material. In June 1996, the Company acquired SensorMedics Corporation in exchange for 1,243,518 shares of the Company's common stock, including 156,590 shares reserved for issuance upon exercise of assumed stock options and warrants. SensorMedics manufactures systems for pulmonary function diagnosis, respiratory-gas analyzers, physiological testing equipment, and automated sleep-analysis systems. The acquisition has been accounted for under the pooling-of-interests method. Historical financial information presented for 1995 has been restated to include the acquisition of SensorMedics. Revenues and net income (loss) for 1995, as previously reported by the separate entities prior to the acquisition and as restated for the combined Company, are as follows: (In thousands) 1995 ----------------------------------------------------------------------- Revenues: Previously reported $2,207,417 SensorMedics 62,874 ---------- $2,270,291 ========== Net Income (Loss): Previously reported $ 140,080 SensorMedics (498) ---------- $ 139,582 ========== In March 1996, Thermo Instrument completed the acquisition of a substantial portion of the businesses constituting the Scientific Instruments Division of Fisons plc (Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. (RPR), for approximately $181.2 million in cash, net of $7.7 million of cash acquired, and the assumption of approximately $47.2 million of indebtedness. In December 1997, Thermo Instrument and RPR negotiated a post-closing adjustment under the terms of the purchase agreement for the Fisons acquisition pertaining to determination of the net assets of the Fisons businesses at the date of 17PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) acquisition. This negotiation resulted in a refund to Thermo Instrument of $36.1 million, plus $3.8 million of interest from the date of acquisition. Thermo Instrument has recorded $33.1 million of the refund as a reduction in cost in excess of net assets of acquired companies. The remaining $3.0 million represented payment for uncollected accounts receivable acquired by the Company that were guaranteed by RPR. In 1996, in addition to the acquisitions of SensorMedics and the Fisons businesses, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $185.1 million in cash, net of cash acquired, the issuance of common stock of the Company and its majority-owned subsidiaries valued at $2.4 million, and the issuance of $26.6 million in debt. In March 1995, the Company acquired Coleman Research Corporation in exchange for 6,003,336 shares of the Company's common stock, including 304,292 shares reserved for issuance upon exercise of assumed stock options. This business was renamed Thermo Coleman Corporation. Thermo Coleman provides systems integration, systems engineering, analytical services, technology support, information technology services and products, and advanced-technology research and development to government and commercial customers. The acquisition has been accounted for under the pooling-of-interests method. In 1995, in addition to the acquisition of Thermo Coleman, the Company and its majority-owned subsidiaries made several other acquisitions for an aggregate of $330.7 million in cash, net of cash acquired, the issuance of common stock and stock options of the Company's majority-owned subsidiaries valued at $19.0 million, and the issuance of $22.3 million in debt. These acquisitions, except for SensorMedics and Thermo Coleman, have been accounted for using the purchase method of accounting, and the acquired companies' results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $1,239.8 million, which is being amortized principally over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in 1997, is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. In connection with the acquisition of the Fisons businesses, Thermo Instrument had undertaken a restructuring of the acquired businesses during 1996. In accordance with the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3, Thermo Instrument finalized its restructuring plans in the first quarter of 1997. The restructuring plans include reductions in staffing levels, abandonment of excess facilities, and other costs associated with exiting certain activities of the acquired businesses. As part of the cost of the acquisition, Thermo Instrument established reserves totaling $46.2 million for estimated 18PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) severance, excess facilities, and other exit costs associated with the acquisition, $14.3 million and $19.0 million of which was expended during 1997 and 1996, respectively, primarily for severance and abandoned-facility payments. At January 3, 1998, the remaining reserve for restructuring these businesses was $11.1 million, including the impact of currency translation, and primarily represents ongoing severance and abandoned-facility payments. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others, which permit the award of stock-based incentives in the stock of the Company and its majority-owned subsidiaries. The Company has a nonqualified stock option plan, adopted in 1974, and an incentive stock option plan, adopted in 1981, which permit the award of stock options to key employees. The incentive stock option plan expired in 1991, and no grants were made after that date. An equity incentive plan, adopted in 1989, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options outstanding under these plans are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights may lapse over periods ranging from one to ten years, depending on the term of the option, which may range from three to twelve years. In addition, under certain options, shares acquired upon exercise are restricted from resale until retirement or other events. Nonqualified options are generally granted at fair market value, although the Board Committee has discretion to grant options at a price at or above 85% of the fair market value on the date of grant. Incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, stock options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in 1993, that provides for the annual grant of stock options of the Company and its majority-owned subsidiaries to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in stock-based compensation plans of the Company's majority-owned subsidiaries. 19PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the Company's stock option activity is as follows: 1997 1996 1995 ---------------- ---------------- ---------------- Weighted Weighted Weighted Number Average Number Average Number Average (Shares in of Exercise of Exercise of Exercise thousands) Shares Price Shares Price Shares Price ------------------------------------------------------------------------ Options outstanding, beginning of year 8,421 $21.24 8,302 $17.46 7,878 $14.92 Granted 1,401 37.06 1,183 39.03 1,330 27.85 Exercised (744) 13.37 (1,125) 10.71 (1,099) 8.69 Forfeited (247) 29.45 (89) 26.97 (111) 16.67 Assumed upon acquisitions through pooling- of-interests (Note 3) - - 150 14.97 304 5.65 ------ ------ ------ Options outstanding, end of year 8,831 $24.19 8,421 $21.24 8,302 $17.46 ====== ====== ====== ====== ====== ====== Options exercisable 8,821 $24.18 8,406 $21.23 8,262 $17.51 ====== ====== ====== ====== ====== ====== Options available for grant 5,132 1,291 2,397 ====== ====== ====== 20PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at January 3, 1998, is as follows: Options Outstanding ------------------------------- Weighted Average Weighted Number Remaining Average Range of of Contractual Exercise Exercise Prices Shares Life Price ------------------------------------------------------------------------ (Shares in thousands) $ 6.33 - $15.61 1,479 2.4 years $12.30 15.62 - 24.89 4,331 7.0 years 19.44 24.90 - 34.18 798 8.2 years 32.16 34.19 - 43.46 2,223 8.7 years 38.49 ----- $ 6.33 - $43.46 8,831 6.8 years $24.19 ===== The information disclosed above for options outstanding at January 3, 1998, does not differ materially for options exercisable. Employee Stock Purchase Plan ---------------------------- Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by the Company. Under this plan, shares of the Company's common stock can be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, shares of the Company's common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Participants of employee stock purchase programs sponsored by the Company's majority-owned public subsidiaries may also elect to purchase shares of the common stock of the subsidiary by which they are employed under the same general terms described above. During 1997, 1996, and 1995, the Company issued 243,444 shares, 285,448 shares, and 330,444 shares, respectively, of its common stock under this plan. Employee Stock Ownership Plan ----------------------------- The Company's Employees Stock Ownership Plan (ESOP) was split into two plans effective December 31, 1994: ESOP I and ESOP II. The ESOP I covers eligible full-time U.S. employees of the Company's corporate office and its wholly owned subsidiaries. The ESOP II, terminated effective December 31, 1994, covered employees of certain of the Company's majority-owned subsidiaries. The Company loaned funds to the ESOP to purchase shares of common stock of the Company and its majority-owned subsidiaries. The shares purchased by the ESOP were 21PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) recorded as deferred compensation in the accompanying balance sheet. The loan to the ESOP II was repaid in full in 1996 and all expense related to the plans had been recognized. The loan repayment was recorded as a reduction in deferred compensation in the accompanying balance sheet. Shares are allocated to the plan participants based on employee compensation. For these plans, the Company charged to expense $0.2 million and $0.3 million in 1996 and 1995, respectively. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in 1997, 1996, and 1995 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows: (In thousands except per share amounts) 1997 1996 1995 ----------------------------------------------------------------------- Net income: As reported $239,328 $190,816 $139,582 Pro forma 224,337 181,880 137,587 Basic earnings per share: As reported 1.57 1.35 1.10 Pro forma 1.47 1.29 1.09 Diluted earnings per share: As reported 1.41 1.17 .95 Pro forma 1.32 1.12 .93 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The weighted average fair value per share of options granted was $15.14, $13.03, and $9.39 in 1997, 1996, and 1995, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1997 1996 1995 ----------------------------------------------------------------------- Volatility 26% 24% 24% Risk-free interest rate 6.2% 6.1% 6.0% Expected life of options 6.5 years 5.2 years 5.0 years 22PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan The Company's 401(k) savings plan covers the majority of the Company's eligible full-time U.S. employees. Contributions to the plan are made by both the employee and the Company. Company contributions are based on the level of employee contributions. For this plan, the Company contributed and charged to expense $13.9 million, $10.1 million, and $7.6 million in 1997, 1996, and 1995, respectively. Other Retirement Plans Certain of the Company's subsidiaries offer retirement plans, separate from the Company's 401(k) savings plan. These retirement plans cover approximately 20% of the Company's U.S. employees. The majority of these subsidiaries offer 401(k) savings plans; however, one subsidiary offers a money purchase plan and two subsidiaries offer profit-sharing plans. Company contributions to the 401(k) savings plans are based on the level of employee contributions. Company contributions to the money purchase plan and profit-sharing plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $9.3 million, $8.8 million, and $8.2 million in 1997, 1996, and 1995, respectively. 23PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1997 1996 ----------------------------------------------------------------------- 5% Senior convertible debentures, due 2001, convertible at $21.00 per share $ - $ 175,216 4 1/4% Subordinated convertible debentures, due 2003, convertible at $37.80 per share 585,000 585,000 4 1/2% Senior convertible debentures, due 2003, convertible into shares of Thermo Instrument at $34.46 per share 172,500 172,500 3 3/4% Senior convertible debentures, due 2000, convertible into shares of Thermo Instrument at $13.55 per share 15,324 22,281 5% Subordinated convertible debentures, due 2000, convertible into shares of ThermoQuest at $16.50 per share 80,591 86,250 5% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Optek at $13.94 per share 79,956 86,250 4 7/8% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Remediation at $17.92 per share 34,950 34,950 Noninterest-bearing subordinated convertible debentures due 2003, convertible into shares of Thermedics at $32.68 per share 62,300 65,000 4 3/4% Subordinated convertible debentures, due 2004, convertible into shares of Thermo Cardiosystems at $31.42 per share 70,000 - Noninterest-bearing subordinated convertible debentures, due 1997, convertible into shares of Thermo Cardiosystems at $14.49 per share - 3,755 3 3/4% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Voltek at $7.83 per share 7,750 9,345 4 5/8% Subordinated convertible debentures, due 2003, convertible into shares of Thermo TerraTech at $15.90 per share 111,850 111,850 6 1/2% Subordinated convertible debentures, due 1997, convertible into shares of Thermo TerraTech at $10.33 per share - 8,620 4 1/2% Subordinated convertible debentures, due 2004, convertible into shares of Thermo Fibertek at $12.10 per share 153,000 - 4 3/8% Subordinated convertible debentures, due 2004, convertible into shares of ThermoLase at $17.39 per share 115,000 - 3 1/4% Subordinated convertible debentures, due 2007, convertible into shares of ThermoTrex at $27.00 per share 114,500 - 24PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements (continued) (In thousands except per share amounts) 1997 1996 ----------------------------------------------------------------------- Noninterest-bearing subordinated convertible debentures, due 2001, convertible into shares of Thermo Ecotek at $13.56 per share $ 8,118 $ 22,205 4 7/8% Subordinated convertible debentures, due 2004, convertible into shares of Thermo Ecotek at $16.50 per share 50,000 - 8.1% Nonrecourse tax-exempt obligation, payable in semiannual installments, with final payment in 2000 35,600 51,200 6.0% Nonrecourse tax-exempt obligation, payable in semiannual installments, with final payment in 2000 23,900 43,500 Other 93,857 113,289 ---------- ---------- 1,814,196 1,591,211 Less: Current maturities 71,289 40,869 ---------- ---------- $1,742,907 $1,550,342 ========== ========== The debentures that are convertible into subsidiary common stock have been issued by the respective subsidiaries and are guaranteed by the Company, on a subordinated basis in most cases. In the event of a change in control of the Company (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors, each holder of the 4 1/4% convertible debentures issued by the Company will have the right to require the Company to buy all or part of the holder's debentures, at par value plus accrued interest, within 50 calendar days after the date of expiration of a specified approval period. In addition, certain of the obligations convertible into subsidiary common stock become exchangeable for common stock of the Company at an exchange price equal to 50% of the average price of the Company's common stock for the 30 trading days preceding the change in control. Nonrecourse tax-exempt obligations represent obligations issued by the California Pollution Control Financing Authority, the proceeds of which were used to finance two alternative-energy facilities (Delano I and Delano II) located in Delano, California. The obligations are credit-enhanced by a letter of credit issued by a bank group. The obligations are payable only by a subsidiary of Thermo Ecotek and are not guaranteed by the Company, except under limited circumstances. As required by the financing bank group, Thermo Ecotek entered into interest rate swap agreements that effectively convert these obligations from floating rates to the fixed rates described above. These swaps have terms expiring in 2000, commensurate with the final maturity of the debt. During 1997 and 1996, the average variable rate received under the interest rate swap agreements was 3.7% and 3.5%, respectively. The notional amount of the swap agreements was $61.3 million and $95.7 25PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements (continued) million at year-end 1997 and 1996, respectively. The interest rate swap agreements are with a different counterparty than the holders of the underlying debt. The Company believes, however, that the credit risks associated with these swaps are minimal because the agreements are with a large, reputable bank. The annual requirements for long-term obligations are as follows: (In thousands) ----------------------------------------- 1998 $ 71,289 1999 25,466 2000 224,244 2001 49,021 2002 2,940 2003 and thereafter 1,441,236 ---------- $1,814,196 ========== See Note 13 for fair value information pertaining to the Company's long-term obligations. Notes payable and current maturities of long-term obligations in the accompanying balance sheet includes $105.7 million and $112.9 million in 1997 and 1996, respectively, of short-term bank borrowings and borrowings under lines of credit of certain of the Company's subsidiaries. The weighted average interest rate for these borrowings was 5.7% and 5.4% at year-end 1997 and 1996. Unused lines of credit were $205 million as of year-end 1997. 6. Commitments and Contingencies Operating Leases The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $73.6 million, $62.6 million, and $48.8 million in 1997, 1996, and 1995, respectively. Future minimum payments due under noncancelable operating leases at January 3, 1998, are $71.0 million in 1998; $60.7 million in 1999; $52.2 million in 2000; $45.8 million in 2001; $42.6 million in 2002; and $165.5 million in 2003 and thereafter. Total future minimum lease payments are $437.8 million. Litigation and Related Contingencies ThermoTrex is a defendant in a lawsuit brought by Fischer Imaging Corporation, which alleges that the prone breast-biopsy systems of the Lorad division of ThermoTrex's Trex Medical subsidiary infringe a Fischer patent on a precision mammographic needle-biopsy system. Lorad's cumulative revenues from this product totaled approximately $118.6 million through January 3, 1998. 26PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 6. Commitments and Contingencies (continued) Five former employees of Thermo Instrument's Epsilon Industrial, Inc. (Epsilon) subsidiary have commenced an arbitration proceeding naming as joint defendants Epsilon, Thermo Instrument, and certain affiliates of Thermo Instrument, including the Company, alleging that these entities breached the terms of certain agreements entered into with such employees at the time that a predecessor of Epsilon acquired the assets and business of a company formerly owned by such employees. The former employees are claiming actual damages of between $27 million and $46 million, punitive damages of twice the actual damages, attorneys' fees and expenses, and pre-judgment and post-judgment interest, resulting from the alleged failure of Thermo Instrument and such affiliates, to, among other things, use their best efforts to develop and promote certain products acquired at that time. The arbitration proceeding, which is binding and nonappealable, is expected to conclude in the second quarter of 1998. Thermo Coleman has been named as a defendant in a lawsuit initiated by certain former employees. This suit was filed under the "qui tam" provisions of the Federal False Claims Act (the Act), which permit an individual to bring suit in the name of the United States and, if the United States obtains a judgment against the defendant, to share in any recovery. The suit alleges, among other things, that Thermo Coleman violated the Act as a result of its performance of certain support-service functions under a subcontract from a third party, which, in turn, contracted directly with the U.S. government. The complaint seeks an order requiring Thermo Coleman to cease and desist from such allegedly improper practices, the award of treble damages in an unspecified amount, plus other penalties. The amount of billings under the contract activities in question were approximately $7.6 million. Under the law, the U.S. government will investigate the allegations set forth in the complaint, and then will determine whether it wishes to intervene and take over the lawsuit. The Company has been advised that the U.S. government has not completed its investigation and that no decision has been made on whether the U.S. government will intervene in the lawsuit. ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents owned by Finnigan pertaining to methods used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in United States District Court and the other was filed with the United States International Trade Commission (ITC). In February 1998, an administrative law judge at the ITC issued an initial determination to the effect that, although one of Finnigan's patents was infringed, the patents were invalid for purposes of this case. The ITC's jurisdiction on this matter is limited to the issue of whether or not the defendants' products that use the patented methods can be imported into the U.S. The judge's initial determination will be considered by the full commission during the second quarter of 1998. Bruker has presented counterclaims alleging that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers co-marketed by Bruker. They also allege that Finnigan has violated 27PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 6. Commitments and Contingencies (continued) antitrust laws by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorney's fees) it has sustained. The Company intends to vigorously defend these matters. In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 7. Common Stock At January 3, 1998, the Company had reserved 31,354,154 unissued shares of its common stock for possible issuance under stock-based compensation plans, for possible conversion of the Company's convertible debentures, and for possible exchange of certain subsidiaries' convertible obligations into common stock of the Company. Certain of the subsidiaries' obligations are exchangeable into common stock of the Company in the event of a change in control (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors (Note 5). The exchange price would be equal to 50% of the average price of the Company's common stock for the 30 trading days preceding the change in control. In January 1996, the Company redeemed the share purchase rights outstanding under its previously existing shareholder rights plan for $.02 per right, or $.006 per share of the Company's common stock outstanding. Simultaneously with this redemption, the Company distributed rights under a new shareholder rights plan adopted by the Company's Board of Directors to holders of outstanding shares of the Company's common stock. Each right entitles the holder to purchase one ten-thousandth of a share of Series B Junior Participating Preferred Stock, $100 par value, at a purchase price of $250 per share, subject to adjustment. The rights will not be exercisable until the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of common stock (the Stock Acquisition Date), or (ii) 10 business days following the commencement of a tender offer or exchange offer for 15% or more of the outstanding shares of common stock. In the event that a person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, except pursuant to an offer for all outstanding shares of common stock approved by the outside Directors, each holder of a right (except for the Acquiring Person) will thereafter have the right to receive, upon exercise, that number of shares of common stock that equals the exercise price of the right divided by one half of the current market price of the common stock. In the event that, at any time after any person has become an Acquiring Person, (i) the Company is acquired in a merger or other business 28PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 7. Common Stock (continued) combination transaction in which the Company is not the surviving corporation or its common stock is changed or exchanged (other than a merger that follows an offer approved by the outside Directors), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a right (except for the Acquiring Person) shall thereafter have the right to receive, upon exercise, the number of shares of common stock of the acquiring company that equals the exercise price of the right divided by one half of the current market price of such common stock. At any time until 10 days following the Stock Acquisition Date, the Company may redeem the rights in whole, but not in part, at a price of $.01 per right (payable in cash or stock). The rights expire on January 29, 2006, unless earlier redeemed or exchanged. 8. Income Taxes The components of income before income taxes and minority interest are as follows: (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Domestic $414,146 $313,069 $256,738 Foreign 74,321 61,482 42,070 -------- -------- -------- $488,467 $374,551 $298,808 ======== ======== ======== The components of the provision for income taxes are as follows: (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Currently payable: Federal $105,889 $ 85,024 $ 72,932 Foreign 30,928 31,851 17,751 State 18,380 18,445 19,892 -------- -------- -------- 155,197 135,320 110,575 -------- -------- -------- Net deferred (prepaid): Federal 12,018 (19,994) (9,717) Foreign 3,966 (2,275) 232 State 3,532 (2,206) (2,379) -------- -------- -------- 19,516 (24,475) (11,864) -------- -------- -------- $174,713 $110,845 $ 98,711 ======== ======== ======== 29PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) The Company and its majority-owned subsidiaries receive a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $15.4 million, $24.5 million, and $20.5 million of such benefits of the Company and its majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions, in 1997, 1996, and 1995, respectively. In addition, the provision for income taxes that is currently payable does not reflect $1.9 million, $6.5 million, and $3.0 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1997, 1996, and 1995, respectively. The deferred provision for income taxes does not reflect $5.9 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1995. The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 35% to income before income taxes and minority interest due to the following: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Provision for income taxes at statutory rate $170,963 $131,093 $104,583 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (28,019) (44,310) (28,285) State income taxes, net of federal tax 14,243 10,555 11,314 Foreign tax rate and tax law differential 8,937 8,528 3,785 Amortization and write-off of cost in excess of net assets of acquired companies 9,918 8,643 7,484 Other, net (1,329) (3,664) (170) -------- -------- -------- $174,713 $110,845 $ 98,711 ======== ======== ======== 30PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1997 1996 ------------------------------------------------------------ Prepaid income taxes: Reserves and accruals $ 65,086 $ 84,253 Net operating loss and credit carryforwards 64,615 76,866 Inventory basis difference 29,829 22,906 Accrued compensation 17,775 14,435 Intangible assets 2,683 5,253 Other, net 5,504 1,192 -------- -------- 185,492 204,905 Less: Valuation allowance 53,992 75,103 -------- -------- $131,500 $129,802 ======== ======== Deferred income taxes: Depreciation $ 92,672 $ 68,587 Intangible assets 7,906 8,254 Other 3,542 4,885 -------- -------- $104,120 $ 81,726 ======== ======== The valuation allowance relates to the uncertainty surrounding the realization of tax loss carryforwards and the realization of tax benefits attributable to accrued acquisition expenses and certain other tax assets of the Company and certain subsidiaries. Of the year-end 1997 valuation allowance, $49 million will be used to reduce cost in excess of net assets of acquired companies when any portion of the related deferred tax asset is recognized. During 1997, the valuation allowance decreased primarily due to the decrease in tax loss carryforwards. At year-end 1997, the Company had foreign and federal net operating loss carryforwards of $133 million and $37 million, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal net operating loss carryforwards expire in the years 1998 through 2012. Of the foreign net operating loss carryforwards, $10 million expire in the years 1998 through 2004, and the remainder do not expire. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. 31PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) A provision has not been made for U.S. or additional foreign taxes on $216 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company currently plans to keep these amounts permanently reinvested overseas. 9. Transactions in Stock of Subsidiaries Gain on issuance of stock by subsidiaries in the accompanying statement of income results primarily from the following transactions: 1997 Initial public offering of 2,671,292 shares of Thermedics Detection common stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain of $17.1 million that was recorded by Thermedics. Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share into 949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million and $7.8 million, respectively, that were recorded by Thermo Instrument. Private placements of 1,212,260 shares and 94,000 shares of Thermo Information Solutions common stock at $9.00 and $10.00 per share, respectively, for aggregate net proceeds of $11.0 million resulted in a gain of $6.6 million. Initial public offering of 2,300,000 shares of Metrika Systems common stock at $15.50 per share for net proceeds of $32.5 million resulted in a gain of $13.2 million that was recorded by Thermo Instrument. Private placement of 2,832,500 shares of Trex Communications common stock at $4.00 per share for net proceeds of $10.6 million resulted in a gain of $5.9 million that was recorded by ThermoTrex. Private placement of 1,639,670 shares of ONIX Systems common stock at $14.25 per share for net proceeds of $22.0 million resulted in a gain of $7.9 million that was recorded by Thermo Instrument. Private placement of 1,160,900 shares of Thermo Trilogy common stock at $8.25 per share for net proceeds of $8.9 million resulted in a gain of $4.1 million that was recorded by Thermo Ecotek. Initial public offering of 1,139,491 shares of Thermo Vision common stock at $7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3 million that was recorded by Thermo Instrument. Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated convertible debentures convertible at $14.85 per share and $13.94 per share, respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a gain of $3.2 million that was recorded by Thermo Instrument. 1996 Initial public offering of 3,450,000 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2 million that was recorded by Thermo Instrument. 32PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 9. Transactions in Stock of Subsidiaries (continued) Private placements of 300,000 and 383,500 shares of Thermedics Detection common stock at $10.00 and $10.75 per share, respectively, for aggregate net proceeds of $7.0 million resulted in a gain of $5.7 million that was recorded by Thermedics. Initial public offering of 2,875,000 shares of Thermo Sentron common stock at $16.00 per share for net proceeds of $42.3 million resulted in a gain of $18.0 million that was recorded by Thermedics. Initial public offering of 3,450,000 shares of Thermo Optek common stock at $13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1 million that was recorded by Thermo Instrument. Initial public offering of 2,875,000 shares of Trex Medical common stock and sale of 871,832 shares of Trex Medical common stock in a concurrent rights offering at $14.00 per share and private placements of 100,000 and 300,000 shares of Trex Medical common stock at $10.75 and $14.50 per share, respectively, for aggregate net proceeds of $54.3 million resulted in an aggregate gain of $28.3 million that was recorded by ThermoTrex. Initial public offering of 1,670,000 shares of Thermo BioAnalysis common stock at $14.00 per share for net proceeds of $20.8 million resulted in a gain of $9.8 million that was recorded by Thermo Instrument. Private placement of 967,828 shares of Metrika Systems common stock at $15.00 per share for net proceeds of $13.5 million resulted in a gain of $9.6 million that was recorded by Thermo Instrument. 1995 Initial public offering of 3,500,334 shares of Thermo Ecotek common stock at $8.50 per share for net proceeds of $27.5 million resulted in a gain of $7.9 million. Private placement of 1,601,500 shares of Thermo BioAnalysis common stock at $10.00 per share for net proceeds of $14.9 million resulted in a gain of $9.5 million that was recorded by Thermo Instrument. Private placement of 500,000 shares of Thermo Remediation common stock at $13.25 per share for net proceeds of $6.6 million resulted in a gain of $1.6 million that was recorded by Thermo TerraTech. Private placements of 150,000 and 50,000 shares of ThermoLase common stock at $13.75 and $12.825 per share, respectively, and a public offering of 2,250,000 shares of ThermoLase common stock at $25.25 per share, for aggregate net proceeds of $55.3 million resulted in an aggregate gain of $34.7 million that was recorded by ThermoTrex. Initial public offering of 1,725,000 shares of ThermoSpectra common stock at $14.00 per share and a private placement of 202,000 shares of ThermoSpectra common stock at $15.72 per share, for aggregate net proceeds of $24.9 million resulted in an aggregate gain of $10.6 million that was recorded by Thermo Instrument. Conversion of $9.1 million of Thermo Voltek 3 3/4% subordinated convertible debentures convertible at $7.83 per share into 1,163,098 shares of Thermo Voltek common stock resulted in a gain of $3.5 million that was recorded by Thermedics. 33PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 9. Transactions in Stock of Subsidiaries (continued) Private placement of 1,862,000 shares of Trex Medical common stock at $10.25 per share for net proceeds of $17.6 million resulted in a gain of $12.8 million that was recorded by ThermoTrex. The Company's ownership percentage in these subsidiaries changed primarily as a result of the transactions listed above, as well as the Company's purchases of shares of its majority-owned subsidiaries' stock, the subsidiaries' purchases of their own stock, the issuance of subsidiaries' stock by the Company or by the subsidiaries under stock-based compensation plans or in other transactions, and the conversion of convertible obligations held by the Company, its subsidiaries, or by third parties. 34PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 9. Transactions in Stock of Subsidiaries (continued) The Company's ownership percentages at year end were as follows: 1997 1996 1995 ---- ---- ---- Thermedics 58% 55% 51% Thermo Cardiosystems (a) 59% 54% 55% Thermo Voltek (a) 68% 51% 59% Thermo Sentron (a) 78% 73% 100% Thermedics Detection (b) 76% 94% 100% Thermo Instrument 82% 82% 86% ThermoSpectra (c) 83% 73% 72% ThermoQuest (c) 88% 93% 100% Thermo Optek (c) 92% 93% 100% Thermo BioAnalysis (c) 78% 67% 80% Metrika Systems (d) 60% 84% 100% Thermo Vision (c) 80% 100% 100% ONIX Systems (d) 87% 100% 100% Thermo TerraTech 82% 81% 81% Thermo Remediation (e) 70% 68% 69% Thermo EuroTech (f) 56% 53% 62% The Randers Group (e) 96% 100% 100% Thermo Power 69% 64% 63% ThermoLyte (g) 78% 78% 78% ThermoTrex 55% 51% 51% ThermoLase (h) 70% 64% 65% Trex Medical (i) 79% 79% 91% Trex Communications (i) 78% 100% 100% Thermo Fibertek 90% 84% 81% Thermo Fibergen (j) 71% 68% 100% Thermo Ecotek 88% 82% 83% Thermo Trilogy (k) 87% 100% 100% Thermo Information Solutions 79% 100% 100% ____________________ (a) Reflects combined ownership by Thermedics and Thermo Electron. (b) Reflects ownership by Thermedics. (c) Reflects combined ownership by Thermo Instrument and Thermo Electron. (d) Reflects ownership by Thermo Instrument. (e) Reflects combined ownership by Thermo TerraTech and Thermo Electron. (f) Reflects ownership by Thermo TerraTech. (g) Reflects ownership by Thermo Power. (h) Reflects combined ownership by ThermoTrex and Thermo Electron. (i) Reflects ownership by ThermoTrex. (j) Reflects ownership by Thermo Fibertek. (k) Reflects ownership by Thermo Ecotek. 35PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 10. Other Income (Expense), Net The components of other income (expense), net, in the accompanying statement of income are as follows: (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Interest income $ 90,559 $ 94,109 $ 62,146 Interest expense (93,125) (96,695) (77,861) Equity in losses of unconsolidated subsidiaries (1,018) (28) (203) Gain on sale of investments, net 5,077 9,840 9,305 Other income (expense), net 1,133 (5,740) (612) -------- -------- -------- $ 2,626 $ 1,486 $ (7,225) ======== ======== ======== 11. Restructuring and Other Nonrecurring Costs, Net Restructuring and other nonrecurring costs, net, in 1997 includes $7.8 million 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 that resulted in 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. During 1997, the Company settled two legal cases in which it was a defendant concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, the Company reversed $9.7 million of reserves previously established for these matters, which is included as a reduction of restructuring and other nonrecurring costs in 1997. In addition, the 1997 amount includes $3.4 million of restructuring and other nonrecurring costs, primarily severance, at two majority-owned subsidiaries and at the Company's wholly owned businesses and $1.4 million at ThermoTrex for the write-off of acquired technology relating to an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business. The 1997 amount also includes a gain of $2.2 million from the sale of a business by ThermoSpectra and $0.6 million of other nonrecurring costs. The 1996 amount includes a write-off of $12.7 million of cost in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak subsidiary, as a result of Thermedics no longer intending to further invest in this business and reduced cash flows, such that analysis indicated that the investment in these assets would not be recovered. The 1996 amount also includes $11.4 million of costs recorded by SensorMedics primarily as a result of its merger with the Company, including employee compensation that became payable as a result of the merger with the Company, certain investment banking fees and other related transaction costs, the settlement of a pre-acquisition legal dispute, and severance costs for terminated employees. In addition, 36PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Nonrecurring Costs, Net (continued) $4.4 million was recorded by the Company's wholly owned Peter Brotherhood Ltd. subsidiary primarily for the write-off of a nontrade receivable and severance costs, and $3.5 million and $4.9 million were recorded by Thermo Instrument and Thermo Cardiosystems, respectively, for the write-off of acquired technology relating to an acquisition at each subsidiary. These amounts represent the portion of the purchase price allocated to technology in development at the acquired businesses. The 1995 amount includes $11.5 million to write off the Company's net investment in a waste-recycling facility in San Diego County, California, that was subsequently sold in 1996. The 1995 amount also includes $5.0 million to write off the cost in excess of net assets of acquired companies at Thermo TerraTech's thermal-processing equipment business due to this asset no longer being recoverable based on discontinuing investment in this business and reduced cash flows, such that analysis indicated that the investment in these assets would not be recovered. In addition, $2.5 million was recorded to write off the cost in excess of net assets of acquired companies at the Company's wholly owned Napco Inc. subsidiary and $2.9 million was recorded for other nonrecurring costs at other business units. 37PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 12. Supplemental Cash Flow Information Supplemental cash flow information is as follows: (In thousands) 1997 1996 1995 -------------------------------------------------------------------------- Cash Paid For: Interest $ 100,165 $ 86,449 $ 72,714 Income taxes $ 151,685 $ 91,536 $ 51,184 Noncash Activities: Conversions of Company and subsidiary convertible obligations $ 246,088 $ 390,494 $ 212,979 Exchange of subsidiary common stock for common stock of subsidiary subject to redemption $ 40,500 $ - $ - Sale of waste-recycling facility $ - $ 112,553 $ - Assumption by buyer of waste- recycling facility debt $ - $ 109,862 $ - Acquisition of asset under capital lease $ - $ - $ 47,101 Fair value of assets of acquired companies $1,210,319 $ 673,662 $ 521,558 Cash paid for acquired companies (924,336) (383,685) (339,075) Issuance of Company and subsidiary common stock and stock options for acquired companies (4,543) (2,351) (18,990) Issuance of long-term obligations for acquired companies - (26,560) (22,300) Amount payable for acquired company (5,111) - - ---------- ----------- ----------- Liabilities assumed of acquired companies $ 276,329 $ 261,066 $ 141,193 ========== =========== =========== 38PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 13. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, long-term obligations, forward foreign exchange contracts, and interest rate swaps. The carrying amount of these financial instruments, with the exception of available-for-sale investments, long-term obligations, forward foreign exchange contracts, and interest rate swaps, approximates fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. The carrying amount and fair value of the Company's long-term obligations and off-balance-sheet financial instruments are as follows: 1997 1996 ---------------------- ----------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ----------------------------------------------------------------------- Long-term obligations: Convertible obligations $1,660,839 $1,856,570 $1,379,467 $1,616,239 Other 82,068 83,898 170,875 171,722 ---------- ---------- ---------- ---------- $1,742,907 $1,940,468 $1,550,342 $1,787,961 ========== ========== ========== ========== Off-balance-sheet financial instruments: Forward foreign exchange contracts receivable $ (1,731) $ (1,370) Interest rate swaps payable $ 1,324 $ 1,643 The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The fair value of convertible obligations exceeds the carrying amount primarily due to the market price of the Company's or subsidiaries' common stock exceeding the conversion price of the convertible obligations. The Company had forward foreign exchange contracts of $46.6 million and $19.7 million outstanding at year-end 1997 and 1996, respectively. Additionally, the notional amount of the Company's interest rate swap agreements was $61.3 million and $95.7 million at year-end 1997 and 1996, respectively (Note 5). The fair value of such contracts and swap agreements is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates on forward foreign exchange contracts, and market interest rates and the creditworthiness of the counterparties on interest rate swap agreements. 39PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information The Company's business segments include the following: Instruments: analytical, monitoring, process control and imaging, inspection, and measurement instruments Alternative-energy Systems: clean power generation, biopesticides, intelligent traffic-control systems, industrial-refrigeration systems, natural gas engines, cooling and cogeneration units, turbines and compressors Paper Recycling: paper recycling and papermaking equipment, electroplating equipment Biomedical Products: mammography and minimally invasive breast-biopsy systems, general-purpose X-ray systems, respiratory-care equipment, skin-incision devices, blood coagulation-monitoring equipment, left ventricular-assist systems, neurophysiology monitoring instruments, biomedical materials, laser-based skin-care systems, personal-care products Industrial Outsourcing: environmental-liability management, environmental cleanup, laboratory analysis, metallurgical heat treating and fabrication Advanced Technologies: process-detection systems, security instruments, precision weighing and inspection equipment, power-conversion instruments, programmable power amplifiers, electronic test equipment, development of avionics products, medical imaging equipment, and advanced materials 40PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (In thousands) 1997 1996 1995 --------------------------------------------------------------------------- Business Segment Information Revenues: Instruments $1,592,314 $1,209,362 $ 782,662 Alternative-energy Systems 384,923 339,813 325,912 Paper Recycling 278,911 286,312 317,951 Biomedical Products 590,234 455,890 316,622 Industrial Outsourcing 305,508 273,894 210,503 Advanced Technologies 415,016 375,459 323,567 Intersegment Sales Elimination (a) (8,586) (8,172) (6,926) ---------- ---------- ---------- $3,558,320 $2,932,558 $2,270,291 ========== ========== ========== Income Before Income Taxes and Minority Interest: Instruments $ 235,674 $ 138,869 $ 113,651 Alternative-energy Systems 68,501 38,112 32,952 Paper Recycling 31,101 36,115 29,071 Biomedical Products 52,634 16,444 27,167 Industrial Outsourcing 13,896 17,709 21,215 Advanced Technologies 35,197 28,040 23,842 ---------- ---------- ---------- Total Segment Income (b) 437,003 275,289 247,898 Corporate (c) 51,464 99,262 50,910 ---------- ---------- ---------- $ 488,467 $ 374,551 $ 298,808 ========== ========== ========== Identifiable Assets: Instruments $2,351,153 $1,924,400 $1,372,813 Alternative-energy Systems 873,407 617,154 695,849 Paper Recycling 431,860 296,582 238,537 Biomedical Products 992,719 691,836 596,467 Industrial Outsourcing 389,980 396,901 335,726 Advanced Technologies 466,004 389,586 301,059 Corporate (d) 290,746 824,785 245,888 ---------- ---------- ---------- $5,795,869 $5,141,244 $3,786,339 ========== ========== ========== 41PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (In thousands) 1997 1996 1995 -------------------------------------------------------------------------- Depreciation and Amortization: Instruments $ 54,993 $ 44,233 $ 25,257 Alternative-energy Systems 25,109 24,253 25,186 Paper Recycling 7,438 5,333 5,228 Biomedical Products 20,659 15,148 9,626 Industrial Outsourcing 14,336 12,918 11,197 Advanced Technologies 11,704 11,952 8,104 Corporate 1,499 1,330 1,271 ---------- ---------- ---------- $ 135,738 $ 115,167 $ 85,869 ========== ========== ========== Capital Expenditures: Instruments $ 29,198 $ 19,134 $ 10,313 Alternative-energy Systems (e) 26,588 42,537 14,024 Paper Recycling 4,097 4,265 3,686 Biomedical Products 24,898 29,731 9,768 Industrial Outsourcing 17,936 18,710 19,499 Advanced Technologies 7,550 9,412 6,266 Corporate 1,338 752 460 ---------- ---------- ---------- $ 111,605 $ 124,541 $ 64,016 ========== ========== ========== Geographical Information Revenues: United States $2,723,254 $2,171,879 $1,790,058 United Kingdom 417,072 312,522 156,863 Other Europe 558,828 536,496 353,595 Other 154,390 146,998 117,354 Transfers among geographical areas (a) (295,224) (235,337) (147,579) ---------- ---------- ---------- $3,558,320 $2,932,558 $2,270,291 ========== ========== ========== 42PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 14. Business Segment and Geographical Information (continued) (In thousands) 1997 1996 1995 -------------------------------------------------------------------------- Income Before Income Taxes and Minority Interest: United States $ 339,871 $ 212,341 $ 201,815 United Kingdom 35,265 11,359 5,609 Other Europe 47,281 32,813 26,835 Other 14,586 18,776 13,639 ---------- ---------- ---------- Total Segment Income (b) 437,003 275,289 247,898 Corporate (c) 51,464 99,262 50,910 ---------- ---------- ---------- $ 488,467 $ 374,551 $ 298,808 ========== ========== ========== Identifiable Assets: United States $4,165,197 $3,372,448 $2,939,286 United Kingdom 704,314 340,005 171,438 Other Europe 551,500 516,558 340,289 Other 104,087 87,449 89,439 Corporate (d) 270,771 824,784 245,887 ---------- ---------- ---------- $5,795,869 $5,141,244 $3,786,339 ========== ========== ========== Export Sales Included in United States Revenues Above (f) $ 593,850 $ 436,972 $ 340,736 ========== ========== ========== (a) Intersegment sales and transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, and income taxes. (c) Includes corporate general and administrative expenses, other income and expense, and gain on issuance of stock by subsidiaries. (d) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's Waltham, Massachusetts, headquarters. (e) Includes $36.9 million in 1996 for the construction of a coal- beneficiation plant in Gillette, Wyoming. (f) In general, export revenues are denominated in U.S. dollars. 43PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 15. Earnings per Share Basic and diluted earnings per share were calculated as follows: (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Basic Net income $239,328 $190,816 $139,582 -------- -------- -------- Weighted average shares 152,489 141,525 126,626 -------- -------- -------- Basic earnings per share $ 1.57 $ 1.35 $ 1.10 ======== ======== ======== Diluted Net income $239,328 $190,816 $139,582 Effect of: Convertible debentures 18,814 23,523 15,561 Majority-owned subsidiaries' dilutive securities (9,925) (8,084) (5,177) -------- -------- -------- Income available to common shareholders, as adjusted $248,217 $206,255 $149,966 -------- -------- -------- Weighted average shares 152,489 141,525 126,626 Effect of: Convertible debentures 21,596 31,735 30,023 Stock options 1,997 2,345 1,913 -------- -------- -------- Weighted average shares, as adjusted 176,082 175,605 158,562 -------- -------- -------- Diluted earnings per share $ 1.41 $ 1.17 $ .95 ======== ======== ======== 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 January 3, 1998, there were 1,058,100 of such options outstanding, with exercise prices ranging from $39.43 to $43.46 per share. 44PAGE Thermo Electron Corporation 1997 Financial Statements Notes to Consolidated Financial Statements 16. Unaudited Quarterly Information (In thousands except per share amounts) 1997(a) First Second Third Fourth ------------------------------------------------------------------------ Revenues $ 763,505 $ 875,016 $ 909,850 $1,009,949 Gross profit 296,365 358,538 374,041 412,368 Net income 52,058 56,158 61,859 69,253 Earnings per share: Basic .35 .37 .41 .44 Diluted .31 .34 .36 .40 1996(b) First Second Third Fourth ------------------------------------------------------------------------ Revenues $ 652,385 $ 745,759 $ 739,981 $ 794,433 Gross profit 244,381 281,697 296,627 307,284 Net income 41,023 44,919 51,242 53,632 Earnings per share: Basic .31 .32 .36 .36 Diluted .26 .28 .31 .32 (a) Results include nontaxable gains of $33.7 million, $15.2 million, $18.6 million, and $12.6 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (b)Results include nontaxable gains of $28.9 million, $43.5 million, $38.5 million, and $15.7 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. 45PAGE Thermo Electron Corporation 1997 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited the accompanying consolidated balance sheet of Thermo Electron Corporation (a Delaware corporation) and subsidiaries as of January 3, 1998, and December 28, 1996, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended January 3, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Electron Corporation and subsidiaries as of January 3, 1998, and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 18, 1998 46PAGE Thermo Electron Corporation 1997 Financial Statements 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 immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Forward-looking Statements." Overview The Company develops and manufactures a broad range of products that are sold worldwide. The Company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. The majority of the Company's businesses fall into six broad markets: instruments, alternative-energy, paper recycling, biomedical, industrial outsourcing, and advanced technologies. An important component of the Company's strategy is to establish leading positions in its markets through the application of proprietary technology, whether developed internally or acquired. A key contribution to the growth of the Company's segment income (as defined in the results of operations below), particularly over the last several years, has been the ability to identify attractive acquisition opportunities, complete those acquisitions, and derive a growing income contribution from the newly acquired businesses as they are integrated into the Company's business segments and their profitability improves. The Company seeks to minimize its dependence on any specific product or market by expanding and diversifying its portfolio of businesses and technologies. Similarly, the Company's goal is to maintain a balance in its businesses between those affected by various regulatory cycles and those more dependent on the general level of economic activity. Although the Company is diversified in terms of technology, product offerings, and geographic markets served, the future financial performance of the Company as a whole will be largely affected by the strength of worldwide economies and the continued adoption and diligent enforcement of health, safety, and environmental regulations and standards, among other factors. The Company believes that maintaining an entrepreneurial atmosphere is essential to its continued growth and development. In order 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 programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries, 47PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of income. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During 1997, the FASB decided to focus its efforts on the consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. Results of Operations 1997 Compared With 1996 Sales in 1997 were $3,558.3 million, an increase of $625.8 million, or 21%, over 1996. Segment income, excluding restructuring and other nonrecurring costs, net, of $1.3 million in 1997 and $37.6 million in 1996, described below, increased 40% to $438.3 million in 1997 from $312.9 million in 1996. (Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, and income taxes.) Operating income, which includes restructuring and other nonrecurring costs, net, increased 65% to $405.8 million in 1997 from $246.5 million in 1996. Instruments ----------- Sales from the Instruments segment were $1,592.3 million in 1997, an increase of $383.0 million, or 32%, over 1996. Sales increased primarily due to acquisitions made by Thermo Instrument, which added $407 million of sales in 1997. The unfavorable effects of currency translation due to the strengthening of the U.S. dollar relative to foreign currencies in 48PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) countries in which Thermo Instrument operates decreased revenues by $46.8 million in 1997. In addition, revenues increased in 1997 due to higher sales at ThermoQuest's existing mass spectrometry business, partly as a result of the continued success of a new product introduced in the first quarter of 1996, and due to increased sales from Metrika Systems, primarily as a result of increased sales in international markets at its on-line raw-materials analyzer business. Revenues also increased at ONIX Systems, primarily due to increased sales of industry-specific instruments to the production segment of the oil and gas industry. Revenues from Thermo Optek's existing businesses decreased slightly due to the inclusion in 1996 of several large nonrecurring sales to the Chinese and Japanese governments, a decrease in demand for elemental products in Japan, and the elimination of certain unprofitable acquired product lines, offset substantially by greater demand at one of its business units. Segment income margin (segment income margin is segment income as a percentage of sales), excluding nonrecurring items, net, of $1.3 million of income in 1997 and $3.5 million of costs in 1996, improved to 14.7% in 1997 from 11.8% in 1996. The improvement was primarily due to operating margin improvement at certain of the Fisons businesses acquired in 1996 and increased sales of ThermoQuest's higher-margin mass spectrometry products. This increase was offset in part by the inclusion of lower-margin revenues at certain acquired businesses, including Life Sciences, which recorded an adjustment to expense of $3.6 million relating to the sale of inventories revalued at the date of acquisition and, to a lesser extent, a decrease in segment income margin at ThermoSpectra, primarily as a result of a one-time inventory write-off and a change in sales mix at one of its business units. The 1996 period included a charge of $2.0 million relating to the sale of inventories revalued at the date of the acquisition of the Fisons businesses. Nonrecurring income of $1.3 million in 1997 represents a $2.2 million gain on the sale of a business by ThermoSpectra, offset in part by $0.9 million of severance costs for employees terminated during 1997 at one of ThermoSpectra's business units. During 1996, the Company recorded nonrecurring costs of $3.5 million, which represented the write-off of acquired technology relating to the acquisition of the Fisons businesses (Note 11). Alternative-energy Systems -------------------------- Sales from the Alternative-energy Systems segment were $384.9 million in 1997, compared with $339.8 million in 1996. Within this segment, revenues from Thermo Ecotek increased to $189.5 million in 1997 from $154.3 million in 1996. Revenues from Thermo Ecotek's Thermo Trilogy biopesticide subsidiary increased by $18.7 million to $21.4 million, primarily due to the inclusion of revenues from two acquired businesses. Thermo Ecotek's revenues in 1997 include $8.2 million for a contractual settlement with a utility, pursuant to which Thermo Ecotek surrendered its rights to a power sales agreement relating to a cogeneration facility it had planned to develop and construct on Staten Island, New York. The settlement, reached in 1993, called for Thermo Ecotek to refund $8.2 49PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) million to the utility should Thermo Ecotek construct and commence operations of a plant on Staten Island prior to 2000. Thermo Ecotek had deferred recognition of the refundable portion of the settlement pending a decision concerning development of the plant. During 1997, Thermo Ecotek determined that, due to economic conditions in the domestic energy market, it would not proceed with development of a facility on Staten Island. In addition, higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire, contributed to higher revenues in 1997. Pursuant to Thermo Ecotek's utility contracts for its four plants in California, there will be no further contractual energy rate increases beginning in 1998. Revenues in 1996 from the Company's wholly owned waste-recycling facility in southern California, which was sold in July 1996, were $9.2 million. Sales at Peter Brotherhood declined to $39.6 million in 1997 from $54.4 million in 1996, primarily due to the disposal of certain business units, which resulted in a $14.2 million decrease in revenues. The business units were sold for a nominal loss. Sales from Thermo Power increased to $155.8 million in 1997 from $122.1 million in 1996, primarily due to $38.8 million of sales from Peek plc, acquired in November 1997, as well as higher engine sales due to a $3.6 million nonrecurring order from one customer, offset in part by lower demand for Thermo Power's remaining product lines. Segment income, excluding nonrecurring items, net, of $8.3 million of income in 1997 and $4.4 million of costs in 1996, was $60.2 million in 1997, compared with $42.5 million in 1996. Thermo Ecotek's segment income was $50.4 million in 1997, compared with $39.3 million in 1996. The increase primarily resulted from $8.2 million of segment income from the contractual settlement with a utility concerning the cancellation of a power sales agreement and, to a lesser extent, higher contractual energy rates. These increases were offset in part by a decrease in Thermo Ecotek's segment income of $4.6 million in 1997 as a result of the funding of certain reserves required in connection with a nonrecourse lease agreement for its Woodland, California plant. The Woodland plant's results were approximately breakeven in 1997 and are expected to remain so for the foreseeable future. Segment income in 1996 from the Company's waste-recycling facility, which was sold in July 1996, was $4.6 million. Results from this facility, net of related interest expense (not included in segment income), were approximately breakeven in 1996. During 1997, the Company settled two legal cases in which it was a defendant, concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, in 1997, the Company reversed $9.7 million of reserves previously established for these matters, which is included in restructuring and other nonrecurring costs, net (Note 11). Segment income at Thermo Power improved to $7.5 million from $1.1 million in 1996, primarily due to contributions from Peek and, to a lesser extent, improved segment income at its engines and industrial refrigeration businesses, due to increased engine revenues, lower warranty costs in 50PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) both businesses, as well as lower overhead as a result of consolidating two engine manufacturing facilities. Excluding restructuring and other nonrecurring costs of $1.4 million in 1997 and $4.4 million in 1996, Peter Brotherhood was profitable in 1997, compared with a segment loss of $2.5 million in 1996. The restructuring and other nonrecurring costs in 1997 related primarily to severance for employees terminated in 1997 and in 1996 related primarily to the write-off of a nontrade receivable and severance costs. Two of Thermo Ecotek's plants are located in New Hampshire and sell power to Public Service Company of New Hampshire (PSNH). In January 1997, PSNH's parent company, Northeast Utilities, disclosed in a filing with the Securities and Exchange Commission that if a proposed deregulation plan for the New Hampshire electric utility industry were adopted, PSNH could default on certain financial obligations and seek bankruptcy protection. In February 1997, the New Hampshire Public Utilities Commission (NHPUC) voted to adopt a deregulation plan, and in March 1997, PSNH filed suit to block the plan. In March 1997, the federal district court issued a temporary restraining order that prohibits the NHPUC from implementing the deregulation plan as it affects PSNH, pending a determination by the court on whether PSNH's claim could be heard by the court. In April 1997, the court ruled that it could now hear the case and ordered that the restraining order would continue indefinitely pending the outcome of the suit. In addition, in March 1997, Thermo Ecotek, along with a group of other biomass power producers, filed a motion with the NHPUC seeking clarification of the NHPUC's proposed deregulation plan regarding several issues, including purchase requirements and payment of current rate order prices with respect to Thermo Ecotek's energy output. An unfavorable resolution of this matter, including the bankruptcy of PSNH, could have a material adverse effect on Thermo Ecotek's results of operations and financial position. Thermo Ecotek has continued to address issues concerning operations at its Gillette, Wyoming, coal-beneficiation facility. Thermo Ecotek has conducted extensive testing and operated the facility, producing commercially salable product. For tax purposes, the facility must be "placed in service" by June 30, 1998, to qualify for certain tax credits on its output. Although the facility has operated and produced commercially salable product, Thermo Ecotek has encountered certain difficulties in achieving optimal and sustained operation. Thermo Ecotek has addressed and resolved certain problems previously encountered, including a fire at the facility and certain construction problems relating to the flow of materials within the facility and the design and operation of certain pressure-release equipment. Currently, Thermo Ecotek is experiencing certain operational problems relating to tar residue build-up within the system during production. Thermo Ecotek is actively exploring solutions to this problem. Because the technology being developed at the facility is new and untested, no assurance can be given that other difficulties will not arise or that Thermo Ecotek will be able to correct these problems and achieve optimal and sustained performance. 51PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) Paper Recycling --------------- Sales in the Paper Recycling segment were $278.9 million in 1997, compared with $286.3 million in 1996. A wholly owned subsidiary of the Company recorded $58.0 million of revenues from a contract to design and construct an office wastepaper de-inking facility in 1996. This contract was substantially completed in the second quarter of 1996. Sales from Thermo Fibertek increased 25% to $239.6 million from $192.2 million in 1996, primarily due to revenues of $52.7 million from acquired businesses, principally Thermo Black Clawson, which was acquired in May 1997. Increases in revenues from Thermo Fibertek's accessories, water-management, and other businesses were substantially offset by a $11.3 million decrease in revenues at its recycling business due to a continuing decrease in demand resulting from a severe drop in de-inked pulp prices in 1996. In addition, the unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $6.3 million in 1997. Sales from Thermo TerraTech's thermal-processing equipment business were $25.3 million in 1997, compared with $25.5 million in 1996. In October 1997, this business was sold for a nominal loss. Sales of automated electroplating equipment by Napco increased $3.4 million to $14.0 million, primarily due to higher demand. Segment income margin, excluding restructuring and other nonrecurring costs of $1.1 million in 1997, was 11.5% in 1997, compared with 12.6% in 1996. This decline primarily resulted from lower sales at Thermo Fibertek's recycling business and lower-margin revenues from Thermo Black Clawson. In addition, the Company recorded a segment loss in 1997 on the contract to design and construct the office wastepaper de-inking facility due to a reserve established in 1997 for disputed contractual items relating to this facility. Thermo Fibertek recorded restructuring and other nonrecurring costs of $1.1 million in 1997 relating to the consolidation of the operations of two of its subsidiaries into the operations of Thermo Black Clawson (Note 11). Biomedical Products ------------------- Sales from the Biomedical Products segment were $590.2 million in 1997, an increase of $134.3 million, or 29%, over 1996. Sales increased due to the inclusion of $62.7 million in sales from acquired businesses, increased demand at Trex Medical and Bird Medical Technologies, Inc., and growth at ThermoLase's hair-removal business due to the opening of new spas and higher revenues from physician and international licensing arrangements. Rather than continuing to open additional domestic spas, ThermoLase intends to concentrate its resources on attempting both to increase the capacity utilization of its existing U.S. spas and to expand its physicians' licensing program and international licensing arrangements. These increases in revenues were offset in part by a $4.7 million decline in sales of Thermo Cardiosystems' left ventricular-assist systems (LVAS), which Thermo Cardiosystems believes resulted from delayed orders as customers await approval from the U.S. Food and Drug Administration of its advanced electric LVAS. Although Thermo Cardiosystems believes that such approval may be received during the 52PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) first six months of 1998, there can be no assurance that approval will occur within the expected time period, or at all. Segment income, excluding restructuring and other nonrecurring costs of $0.5 million in 1997 and $29.7 million in 1996, increased to $53.2 million in 1997 from $46.1 million in 1996. This increase resulted substantially from improvements at existing businesses, primarily at Bird Medical, SensorMedics Corporation, and Trex Medical's existing businesses and, to a lesser extent, the inclusion of segment income from acquired businesses. This increase in segment income was offset in part by an increase in segment loss at ThermoLase to $18.4 million in 1997 from $7.6 million in 1996, due to the early operations of its Spa Thira hair-removal business, which has been operating below maximum capacity as it seeks to develop its client base and refine its process and operating procedures, and by pre-opening costs incurred in connection with new spa openings. ThermoLase believes that improvements in the efficacy and duration of its SoftLight(SM) hair-removal process are critical elements in its ability to improve the profitability of its spas. In 1998, 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. Thermo Cardiosystems' profitability declined by $4.7 million primarily due to a decrease in LVAS revenues. Restructuring and other nonrecurring costs of $0.5 million in 1997 represent costs to close certain foreign sales offices at certain of the Company's wholly owned businesses. Restructuring and other nonrecurring costs of $29.7 million in 1996 included a write-off of $12.7 million of cost in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak subsidiary, $11.4 million of costs incurred by SensorMedics primarily as a result of its merger with the Company, $4.9 million for Thermo Cardiosystem's write-off of acquired technology relating to a 1996 acquisition, and $0.7 million of other costs (Note 11). Industrial Outsourcing ---------------------- Sales in the Industrial Outsourcing segment were $305.5 million in 1997, an increase of $31.6 million, or 12%, over 1996. Revenues from Thermo TerraTech's remediation and recycling services increased to $136.5 million in 1997 from $121.2 million in 1996, primarily due to the inclusion of $22.9 million of sales from acquired businesses, offset in part by a $6.4 million decrease in revenues at one of Thermo Remediation'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 18% to $18.5 million, resulting from lower volumes of soil processed due to overcapacity in the industry and, to a lesser extent, competitive pricing pressures early in the year. Revenues from consulting and design services increased $3.6 million due to the inclusion of $12.8 million from acquired businesses, offset in part by a decrease in revenues due to the completion of two large contracts. Sales of metallurgical services increased to $54.2 million in 1997 from $45.7 million in 1996, due to increased demand for existing services and the inclusion of $3.3 million of sales from an acquired business. 53PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) Segment income, excluding restructuring and other nonrecurring costs of $7.9 million in 1997 and $0.1 million in 1996, was $21.7 million in 1997, compared with $17.8 million in 1996. Segment income improved in 1997 due to the effect in 1996 of costs incurred at Thermo TerraTech to reduce redundancies at regional laboratories, and by costs incurred at Thermo EuroTech in 1996 relating primarily to the settlement of several contract disputes, as well as the impact of severe winter weather in early 1996, which affected all phases of Thermo EuroTech's business. The effect of these improvements was offset in part by a decline in segment income from soil-remediation services due to lower sales as discussed above and lower segment income from consulting and design services due to the completion of two large contracts. Restructuring and other nonrecurring costs in 1997 included $7.8 million 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 (Note 11). Advanced Technologies --------------------- Sales from the Advanced Technologies segment were $415.0 million in 1997, compared with $375.5 million in 1996. Sales at Thermo Coleman were $156.2 million in 1997, compared with $144.2 million in 1996. This increase resulted primarily from its Thermo Information Solutions subsidiary's contract to supply kiosk units and, to a lesser extent, higher integrated document management revenues and sales of $3.3 million from acquired businesses. These increases in revenues were offset in part by a decrease in revenues from government contracts. Sales of kiosk units increased to $16.5 million in 1997 from $1.4 million in 1996. Thermo Information Solutions intends to exit this business in 1998 due to inherently low margins, lower than expected orders from its sole customer, and the absence of other orders. Thermo Coleman experienced a decline in backlog totaling $19.4 million in 1997. Thermo Coleman's backlog at any certain date may not be indicative of future demand for its products or services. Sales at Thermo Sentron increased to $78.7 million in 1997 from $70.0 million in 1996, primarily due to higher demand and, to a lesser extent, sales of $4.2 million from acquired businesses, offset in part by the unfavorable effects of currency translation. Sales at Thermedics Detection increased 17% to $51.3 million in 1997, primarily due to sales of its Alexus systems in connection with the completion of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base, and $3.2 million of sales of explosives-detection systems to the U.S. Federal Aviation Administration. Thermedics Detection expects that sales of its Alexus systems will slow in 1998 due to the completion of the mandated upgrade for The Coca-Cola Company in 1997 and a decrease in demand for new installations. Sales at Thermo Voltek declined to $44.6 million in 1997 from $48.5 million in 1996, primarily due to lower demand for electrostatic compatibility (EMC) test products, resulting from the declining influence of IEC 801, the 54PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) European Union directive on electromagnetic compatibility that took effect January 1, 1996, and, to a lesser extent, a decline in the component-reliability market for electrostatic discharge test equipment that resulted from a slowdown in capital expenditures by the semiconductor industry. These decreases in revenues at Thermo Voltek were offset in part by sales of $5.8 million from acquired businesses. Sales from ThermoTrex's business units, including Trex Communications, increased $12.7 million in 1997 as a result of $6.9 million of sales from an acquired business at Trex Communications and, to a lesser extent, increased revenues from government contracts. Segment income margin, excluding restructuring and other nonrecurring costs of $1.4 million in 1997, was 8.8% in 1997, compared with 7.5% in 1996. This improvement resulted from increased sales and the impact in the 1996 period of charges for inventory obsolescence and other adjustments at Thermedics Detection, as well as a loss in the 1996 period at ThermoTrex's advanced-technology research center due to cost overruns and higher expenses for new lines of business. The improvement was offset in part by a decrease in profitability at Thermo Voltek and lower margins at Thermo Coleman as a result of increased sales of low-margin kiosk units and reduced revenues from government contracts. Restructuring and other nonrecurring costs of $1.4 million in 1997 were recorded by ThermoTrex for the write-off of acquired technology relating to an acquisition (Note 11). Gain on Issuance of Stock by Subsidiaries ----------------------------------------- As a result of the sale of stock by subsidiaries and issuance of stock by subsidiaries upon conversion of convertible debentures, the Company recorded gains of $80.1 million in 1997 and $126.6 million in 1996. See Notes 1 and 9 for a more complete description of these transactions. Minority interest expense increased to $74.4 million in 1997 from $72.9 million in 1996. Minority interest expense includes $19.0 million in 1997 and $38.2 million in 1996 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. Contingent Liabilities and Other Matters ---------------------------------------- At year-end 1997, the Company was contingently liable with respect to certain lawsuits (Note 6). The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. 55PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 1996 Compared With 1995 Sales in 1996 were $2,932.6 million, an increase of $662.3 million, or 29%, over 1995. Segment income, excluding restructuring and other nonrecurring costs of $37.6 million in 1996 and $21.9 million in 1995, described below, increased 16% to $312.9 million in 1996 from $269.8 million in 1995. Operating income, which includes restructuring and other nonrecurring costs, was $246.5 million in 1996, compared with $225.2 million in 1995. Instruments ----------- Sales from the Instruments segment were $1,209.4 million in 1996, an increase of $426.7 million, or 55%, over 1995. Sales increased primarily due to acquisitions made by Thermo Instrument, which added $404 million of sales in 1996. 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 $21.8 million in 1996. The remainder of the increase resulted primarily from greater demand at Thermo Instrument's mass spectrometry business as a result of recently introduced products and, to a lesser extent, greater demand at its Fourier transform infrared spectrometry business. Segment income margin, excluding restructuring and other nonrecurring costs of $3.5 million in 1996, declined to 11.8% in 1996 from 14.5% in 1995, primarily due to lower margins at acquired businesses. Restructuring and other nonrecurring costs of $3.5 million represents the write-off of acquired technology relating to the acquisition of the Fisons businesses (Note 11). Alternative-energy Systems -------------------------- Sales from the Alternative-energy Systems segment were $339.8 million in 1996, compared with $325.9 million in 1995. Within this segment, revenues from Thermo Ecotek were $154.3 million in 1996, compared with $141.4 million in 1995. This increase resulted primarily from higher contractual energy rates at all of Thermo Ecotek's facilities, except the Hemphill plant in New Hampshire; increased revenues at the Delano plants in California resulting from fewer days of scheduled and unscheduled outages; and an acquisition that added $2.6 million in revenues. Revenues from the Company's waste-recycling facility in southern California were $9.2 million in 1996, compared with $20.8 million in 1995. This facility was sold in July 1996. Sales at Peter Brotherhood declined 3% to $54.4 million as a result of lower demand for steam turbines. Sales from Thermo Power were $122.1 million in 1996, compared with $108.4 million in 1995. 56PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) This increase resulted primarily from increased demand for custom-designed industrial refrigeration packages, remanufactured commercial cooling equipment, and the inclusion of revenues from lift-truck engines, offset in part by declines in revenues from marine-engine products and rental equipment. Segment income, excluding restructuring and other nonrecurring costs of $4.4 million in 1996 and $11.5 million in 1995, was $42.5 million in 1996, compared with $44.5 million in 1995. Thermo Ecotek had segment income of $39.3 million in 1996, compared with $34.6 million in 1995. This improvement results from increased revenues and, to a lesser extent, lower fuel costs. Segment income from the Company's waste-recycling facility, which was sold in July 1996, excluding restructuring and other nonrecurring costs of $11.5 million in 1995, was $4.6 million in 1996 and $5.9 million in 1995. Results from this facility, net of related interest expense (not included in segment income), were approximately at the breakeven level for both periods. Segment income at Thermo Power declined by $3.9 million to $1.1 million in 1996 due to a change in sales mix, a cost increase in one of the major components of its industrial refrigeration packages, higher depreciation expense at NuTemp, and higher warranty expenses for marine-engine products and at NuTemp. Peter Brotherhood incurred a segment loss of $2.5 million in 1996, excluding restructuring and other nonrecurring costs of $4.4 million, compared with a loss of $1.1 million in 1995. The decline resulted from increased costs to complete jobs in process as well as competitive pricing pressures. Peter Brotherhood recorded restructuring and other nonrecurring costs of $4.4 million in 1996 primarily for the write-off of a nontrade receivable and severance costs. Restructuring and other nonrecurring costs of $11.5 million in 1995 represents the Company's net investment in a waste-recycling facility in southern California that contracted to process waste for San Diego County (the County) under a long-term service agreement. During the third quarter of 1995, the County paid the Company less than the amount due under the long-term service agreement, and in October 1995, the Company notified the County that the County was in default of the service agreement. The County was a party to the financing arrangements for the facility and was also in default of certain terms of such arrangements. As a result of the County's default under the service agreement and financing arrangements, the Company concluded that it would be unable to recover its investment in the facility. In 1996, in settlement of these matters, the facility was sold to the County for a nominal amount plus the County's assumption of the facility debt. Paper Recycling --------------- Sales in the Paper Recycling segment were $286.3 million in 1996, compared with $318.0 million in 1995. A wholly owned subsidiary of the Company recorded revenues from a contract to design and construct an office wastepaper de-inking facility of $58.0 million in 1996 and $77.0 million in 1995. This contract was substantially completed in the second quarter of 1996. Sales from Thermo Fibertek declined 7%, to $192.2 million in 1996. Thermo Fibertek's revenues under a subcontract from 57PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) Thermo Electron to supply equipment and services for the office wastepaper de-inking facility described above decreased $12.9 million. Revenues from Thermo Fibertek's recycling business declined an additional $7.5 million due to lower demand resulting from a severe drop in de-inked pulp prices, offset in part by $2.2 million of revenues from a business acquired during 1996. Revenues from Thermo Fibertek's accessories business increased $8.8 million primarily due to increased demand. The unfavorable effects of currency translation reduced Thermo Fibertek's revenues by $1.7 million in 1996. Sales of Thermo TerraTech's thermal-processing equipment increased $8.3 million in 1996 due to increased demand, while sales of automated electroplating equipment by the Company's wholly owned Napco subsidiary declined $6.4 million in 1996. Segment income margin, excluding restructuring and other nonrecurring costs of $7.5 million in 1995, was 12.6% in 1996, compared with 11.5% in 1995. This improvement resulted primarily from a nonrecurring payment received under the office wastepaper de-inking facility contract in 1996, which represented certain cost savings on the contract, and increased revenues from Thermo TerraTech's thermal-processing equipment business from depressed levels in 1995. Restructuring and other nonrecurring costs of $7.5 million in 1995 represent the write-off of cost in excess of net assets of acquired companies, of which $5.0 million was recorded by Thermo TerraTech, and $2.5 million was recorded by Napco (Note 11). Biomedical Products ------------------- Sales in the Biomedical Products segment were $455.9 million in 1996, an increase of $139.3 million, or 44%, over 1995. Sales increased due to the inclusion of $111.7 million in sales from acquired businesses, as well as increased demand for certain products at Trex Medical, Thermo Cardiosystems' LVAS, and ThermoLase's hair-removal business. Segment income, excluding restructuring and other nonrecurring costs of $29.7 million in 1996, increased to $46.1 million in 1996 from $27.2 million in 1995. This improvement resulted primarily from the inclusion of segment income from acquired businesses and increased sales at existing businesses. Restructuring and other nonrecurring costs of $29.7 million in 1996 included a write-off of $12.7 million of cost in excess of net assets of acquired company and certain other intangible assets at Thermedics' Corpak subsidiary, $11.4 million of costs incurred by SensorMedics primarily as a result of its merger with the Company, $4.9 million for Thermo Cardiosystem's write-off of acquired technology relating to a 1996 acquisition, and $0.7 million of other costs (Note 11). Industrial Outsourcing ---------------------- Sales in the Industrial Outsourcing segment were $273.9 million in 1996, an increase of $63.4 million, or 30%, over 1995. Revenues from Thermo TerraTech's remediation and recycling services increased to $121.2 million in 1996 from $67.5 million in 1995, primarily due to the inclusion of $53.9 million in revenues from acquired businesses. This increase was offset in part by a decline in revenues from soil- 58PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) remediation services of $4.9 million in 1996 due to declines in the volume of soil processed as a result of more relaxed regulatory standards in several states and competitive pricing pressures; and by a decline in revenues at Thermo TerraTech's radiochemistry laboratory businesses reflecting a reduction in spending at the U.S. Department of Energy and reduced federal government budget appropriations. Sales of metallurgical services were $45.7 million in 1996, compared with $42.8 million in 1995. Sales increased due to increased demand for existing services, offset in part by a decline of $2.9 million resulting from the closing of a small metallurgical services division in 1995. Segment income, excluding restructuring and other nonrecurring costs of $0.1 million in 1996 and $2.0 million in 1995, was $17.8 million in 1996, compared with $23.2 million in 1995. Additional segment income from acquisitions was more than offset by costs incurred at Thermo TerraTech to reduce redundancies at regional laboratories and by costs incurred at Thermo EuroTech relating primarily to the settlement of several contract disputes, as well as the impact of severe winter weather in early 1996, which affected all phases of Thermo EuroTech's business, and by the effect of lower sales and income from the traditionally higher-margin soil-remediation services. Restructuring and other nonrecurring costs of $2.0 million in 1995 were recorded in connection with closing a metallurgical services division. Advanced Technologies --------------------- Sales from the Advanced Technologies segment were $375.5 million in 1996, compared with $323.6 million in 1995. Sales increased $73.5 million due to the inclusion of sales from acquired businesses. These increases were offset in part by declines in revenues due to lower U.S. government contract funding at Thermo Coleman and ThermoTrex due to increased competition for government research and development funding. Segment income, excluding restructuring and other nonrecurring costs of $1.0 million in 1995, was $28.0 million in 1996, compared with $24.8 million in 1995. Segment income provided by acquired companies and additional income from certain businesses were offset in part by lower segment income at Thermo Coleman, as a result of lower revenues, and by a loss incurred at ThermoTrex's advanced-technology research center due to cost overruns and higher expenses for new lines of business. Restructuring and other nonrecurring costs in 1995 primarily represent the write-off of intangible assets at ThermoTrex's East Coast division which was closed. Gain on Issuance of Stock by Subsidiaries ----------------------------------------- As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company recorded gains of $126.6 million in 1996 and $80.8 million in 1995. See Notes 1 and 9 for a more complete description of these transactions. Minority interest expense increased to $72.9 million in 1996 from $60.5 million in 1995. Minority interest expense includes $38.2 million in 1996 and $28.6 million in 1995 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. 59PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Consolidated working capital was $2,002.0 million at January 3, 1998, compared with $2,218.6 million at December 28, 1996. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1,522.7 million at January 3, 1998, compared with $1,846.3 million at December 28, 1996. In addition, the Company had long-term available-for-sale investments of $63.3 million at January 3, 1998, compared with $94.4 million at December 28, 1996. Of the total $1,586.0 million of cash, cash equivalents, and short- and long-term available-for-sale investments at January 3, 1998, $1,333.1 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. During 1997, $269.0 million of cash was provided by operating activities. Cash of $86.5 million was used to fund an increase in accounts receivable, principally at Trex Medical, Thermo Instrument, and Thermo TerraTech. The increase in receivables at Trex Medical resulted primarily from increased sales and, to a lesser extent, longer customer payment patterns due to higher international sales and a shift to direct sales at a subsidiary. The increase in receivables at Thermo Instrument resulted from increased shipments in the fourth quarter at ThermoQuest and a competitive trend to commercial terms of 30 days from ThermoQuest's past practice of obtaining deposits on certain systems. The increase in receivables at Thermo TerraTech resulted from higher revenues at one business unit and a delay in the pursuit of collections at a second, which Thermo TerraTech expects to address in 1998 by expanding collection efforts. In addition, cash of $61.7 million was used to reduce other current liabilities, primarily for taxes and certain exit costs relating to acquisitions (Note 3). The Company's primary investing activities, excluding available-for-sale investments activity, included acquisitions, capital expenditures, and the sale of certain businesses and property, plant, and equipment. During 1997, the Company expended $849.1 million, net of cash acquired, for acquisitions and received a $36.1 million refund relating to a 1996 acquisition (Note 3). In addition, the Company sold certain businesses for net proceeds of $27.1 million. The Company expended $111.6 million for purchases of property, plant, and equipment and received proceeds of $15.6 million from the sale of property, plant, and equipment. The Company's financing activities provided $237.8 million of cash in 1997. Net proceeds from the issuance of Company and subsidiary common stock totaled $164.9 million, and net proceeds from the issuance of long-term obligations totaled $490.8 million. In addition, the Company repaid long-term obligations of $78.3 million. During 1997, an aggregate principal amount of $246.1 million of Company and subsidiary convertible obligations were converted into shares of Company and subsidiary common stock. In January 1998, Thermo Instrument issued and sold $250.0 million principal amount of 4% subordinated convertible debentures due 2005 for net proceeds of $243.8 million. 60PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) The Company intends, for the foreseeable future, to maintain at least 80% ownership of its Thermo Instrument and Thermo Ecotek subsidiaries, which is required in order to continue to file a consolidated federal income tax return with these subsidiaries. In addition, the Company intends to maintain greater than 50% ownership of its other majority-owned subsidiaries so that it may continue to consolidate these subsidiaries for financial reporting purposes. This may require the purchase by the Company of additional shares or convertible debentures of these companies from time to time as the number of outstanding shares issued by these companies increases, either in the open market or directly from the subsidiaries. See Note 5 for a description of outstanding convertible debentures issued by Thermo Instrument and Thermo Ecotek. In addition, at January 3, 1998, Thermo Instrument and Thermo Ecotek had outstanding stock options for 4,365,000 shares and 1,267,000 shares, respectively, exercisable at various prices and subject to certain vesting schedules. The Company's other majority-owned subsidiaries also have outstanding stock options, convertible debentures, or both. During 1997, the Company and its majority-owned subsidiaries expended $311.1 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 January 3, 1998, $13.1 million and $35.0 million remained under the Company's and its majority-owned subsidiaries' authorizations, respectively. Subsequent to January 3, 1998, the Company and a majority-owned subsidiary received additional authorizations of $50.0 million and $10.0 million, respectively. The amount of purchases in a given reporting period may vary significantly. The Company has no material commitments for purchases of property, plant, and equipment and expects that, for 1998, expenditures on such items will approximate the 1997 level. Since January 3, 1998, a majority-owned subsidiary expended $4.5 million on the acquisition of a business and as of March 10, 1998, the Company's majority-owned subsidiaries had agreements or nonbinding letters of intent to acquire businesses for a total cost of approximately $67.5 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. As discussed above, a substantial percentage of the Company's consolidated cash and investments is held by subsidiaries that are not wholly owned by the Company. This percentage may vary significantly over time. Pursuant to the Thermo Electron Corporate Charter (the Charter), to which each of the majority-owned subsidiaries of the Company is a party, the combined financial resources of Thermo Electron and its subsidiaries allow the Company to provide banking, credit, and other financial services to its subsidiaries so that each member of the Thermo Electron group of companies may benefit from the financial strength of the entire organization. Toward that end, the Charter states that each member of the group may be required to provide certain credit support to the 61PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) consolidated entity. This credit may rank junior, pari passu with, or senior in priority to payment of the other indebtedness of these members. Nonetheless, the Company's ability to access assets held by its majority-owned subsidiaries through dividends, loans, or other transactions is subject in each instance to a fiduciary duty owed to the minority shareholders of the relevant subsidiary. In addition, dividends received by Thermo Electron from a subsidiary that does not consolidate with Thermo Electron for tax purposes are subject to tax. Therefore, under certain circumstances, a portion of the Company's consolidated cash and short-term investments may not be readily available to Thermo Electron or certain of its subsidiaries. Market Risk The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Additionally, the Company uses short-term forward contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The Company does not engage in extensive foreign currency hedging activities; however, the purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The Company's forward foreign exchange contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, French francs, and Japanese yen. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company does not enter into speculative foreign currency agreements. Foreign Currency Exchange Rates The fair value of forward foreign exchange contracts is sensitive to changes in foreign currency exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates. A 10% depreciation in year-end 1997 foreign currency exchange rates related to the Company's contracts would result in a decrease in the unrealized gain on forward foreign exchange contracts of $3 million. Since the Company uses forward foreign exchange contracts as hedges of firm purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts resulting from changes in foreign currency exchange rates would be offset by a corresponding change in the fair value of the hedged item. The Company generally views its investment in foreign subsidiaries with a functional currency other than the Company's reporting currency as long-term. The Company's investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional 62PAGE Thermo Electron Corporation 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk (continued) currencies of the Company's foreign subsidiaries are principally denominated in British pounds sterling, French francs, and German deutsche marks. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is recorded as a separate component of shareholders' investment. A 10% depreciation in year-end 1997 functional currencies, relative to the U.S. dollar, would result in a $27 million reduction of shareholders' investment. Interest Rates Certain of the Company's short- and long-term available-for-sale investments, long-term obligations, and interest rate swap agreements are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase or issuance of the financial instrument. A 10% decrease in year-end 1997 market interest rates would result in a negative impact of $18 million on the net fair value of the Company's interest-sensitive financial instruments. Equity Prices The Company's available-for-sale investment portfolio includes equity securities that are sensitive to fluctuations in price. In addition, the Company's and its subsidiaries' convertible obligations are sensitive to fluctuations in the price of Company or subsidiary common stock into which the obligations are convertible. Changes in equity prices would result in changes in the fair value of the Company's available-for-sale investments and convertible obligations due to the difference between the current market price and the market price at the date of purchase or issuance of the financial instrument. A 10% increase in the year-end 1997 market equity prices would result in a negative impact of $96 million on the net fair value of the Company's price-sensitive equity financial instruments. 63PAGE Thermo Electron Corporation 1997 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Risks Associated with Acquisition Strategy. One of the Company's principal growth strategies is to supplement its internal growth with the acquisition of businesses and technologies that complement or augment the Company's existing product lines. Certain businesses recently acquired by the Company have had low levels of profitability. In addition, businesses that the Company may seek to acquire in the future may also be marginally profitable or unprofitable. In order for any acquired businesses to achieve the level of profitability desired by the Company, the Company must successfully change operations and improve market penetration. No assurance can be given that the Company will be successful in this regard. In addition, promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices in many countries. Acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete pending or future acquisitions or that the Company will be able to successfully integrate any acquired businesses into its existing business or make such businesses profitable. In order to finance any such acquisitions, it may be necessary for the Company to raise additional funds either through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and may result in dilution to the Company's shareholders. Risks Associated with Spinout of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be 64PAGE Thermo Electron Corporation 1997 Financial Statements Forward-looking Statements prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in the equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During 1997, the FASB decided to focus its efforts on the consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. Competition. The Company encounters and expects to continue to encounter significant competition in the sale of its products and services. The Company's competitors include a number of large multinational corporations, some of which may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than the Company. Competition could increase if new companies enter the market or if existing competitors expand their product lines or intensify efforts within existing product lines. There can be no assurance that the Company's current products, products under development, or ability to develop new technologies will be sufficient to enable it to compete effectively. Risks Associated with International Operations. International revenues account for a substantial portion of the Company's revenues, and the Company intends to continue to expand its presence in international markets. International revenues are subject to a number of risks, including the following: fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax the Company's foreign income, impose tariffs, or adopt other restrictions on foreign trade; U.S. export licenses may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that any of these factors will not have a material adverse impact on the Company's business and results of operations. Rapid and Significant Technological Change and New Products. The markets for the Company's products are characterized by rapid and significant technological change, evolving industry standards and frequent new product introductions and enhancements. Many of the Company's products and products under development are technologically 65PAGE Thermo Electron Corporation 1997 Financial Statements Forward-looking Statements innovative and require significant planning, design, development, and testing at the technological, product, and manufacturing-process levels. These activities require significant capital commitments and investment by the Company. In addition, products that are competitive in the Company's markets are characterized by rapid and significant technological change due to industry standards that may change on short notice and by the introduction of new products and technologies that render existing products and technologies uncompetitive or obsolete. There can be no assurance that any of the products currently being developed by the Company, or those to be developed in the future, will be technologically feasible or accepted by the marketplace, that any such development will be completed in any particular time frame, or that the Company's products or proprietary technologies will not become uncompetitive or obsolete. Possible Adverse Effect from Changes in Governmental Regulations. The Company competes in several markets which involve compliance by its customers with federal, state, local, and foreign regulations, such as environmental, health and safety, and food and drug regulations. The Company develops, configures, and markets its products to meet customer needs created by such regulations. These regulations may be amended or eliminated in response to new scientific evidence or political or economic considerations. Any significant change in regulations could adversely affect demand for the Company's products in regulated markets. Government Regulation; No Assurance of Regulatory Approvals. Certain of the Company's products are subject to pre-marketing clearance or approval by the U.S. Food and Drug Administration (FDA) and similar agencies in foreign countries. The use or sale of certain of the Company's products under development may require approvals by other government agencies. The process of obtaining clearance and approval from the FDA and other government agencies is time-consuming and expensive. Furthermore, there can be no assurance that the necessary clearances or approvals for the Company's products, services, and products and services under development will be obtained on a timely basis, if at all. FDA regulations also require continuing compliance with specific standards in conjunction with the maintenance and marketing of products and services that have been approved or cleared. Failure to comply with applicable regulatory requirements can result in, among other things, civil and criminal penalties, suspension of approvals, recalls, or seizures of products, injunctions, and criminal prosecutions. Risks Associated with Dependence on Capital Spending Policies and Government Funding. The Company's customers include pharmaceutical and chemical companies, laboratories, universities, healthcare providers, paper manufacturers, consumer product companies, government agencies, and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for the Company's products. Such spending is based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of equipment, public policy, and the effects of different economic cycles. Any decrease in capital spending by any of the customer groups that account for a significant portion of the Company's sales could have a material adverse effect on the Company's business and results of operations. 66PAGE Thermo Electron Corporation 1997 Financial Statements Forward-looking Statements Dependence on Patents and Proprietary Rights. The Company places considerable importance on obtaining patent and trade secret protection for significant new technologies, products, and processes because of the length of time and expense associated with bringing new products through the development process and to the marketplace. The Company's success depends in part on its ability to develop patentable products and obtain and enforce patent protection for its products both in the United States and in other countries. The Company owns numerous United States and foreign patents, and intends to file additional applications for patents as appropriate to cover its products. No assurance can be given that patents will issue from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology. In addition, no assurance can be given that any issued patents owned by or licensed to the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. There can be no assurance that third parties will not assert claims against the Company that the Company infringes the intellectual property rights of such parties. The Company could incur substantial costs and diversion of management resources with respect to the defense of any such claims, which could have a material adverse effect on the Company's business, financial condition, and results of operations. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block the Company's ability to make, use, sell, distribute, or market its products and services in the United States or abroad. In the event that a claim relating to intellectual property is asserted against the Company, the Company may seek licenses to such intellectual property. There can be no assurance, however, that such licenses could be obtained on commercially reasonable terms, if at all. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture, or distribution of the Company's products and, therefore, could have a material adverse effect on the Company's business, financial condition, and results of operations. The Company relies on trade secrets and proprietary know-how, which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents owned by Finnigan pertaining to methods used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in United States District Court and the other was filed with the United States International Trade Commission (ITC). In February 1998, an administrative law judge at the ITC issued an initial determination to the effect that, although one of Finnigan's patents was infringed, the patents were invalid for purposes of this case. The ITC's jurisdiction on this matter is limited to the issue of 67PAGE Thermo Electron Corporation 1997 Financial Statements Forward-looking Statements whether or not the defendants' products that use the patented methods can be imported into the U.S. The judge's initial determination will be considered by the full commission during the second quarter of 1998. Bruker has presented counterclaims alleging that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers co-marketed by Bruker. They also allege that Finnigan has violated antitrust laws by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorney's fees) it has sustained. There can be no assurance as to the outcome of this matter. While the Company believes that any resolution of this matter will not materially affect its financial position, an unfavorable resolution could have a material adverse effect on the Company's future results of operations. Potential Impact of Year 2000 on Processing of Date-sensitive Information. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 68PAGE Thermo Electron Corporation 1997 Financial Statements Common Stock Market Information The Company's common stock is traded on the New York Stock Exchange under the symbol TMO. The following table sets forth the high and low sale prices of the Company's common stock for 1997 and 1996, as reported in the consolidated transaction reporting system. Prices have been restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in June 1996. 1997 1996 ------------------- ------------------- Quarter High Low High Low --------------------------------------------------------------------- First $40 1/2 $30 7/8 $42 1/12 $30 2/5 Second 38 3/4 28 3/8 44 3/8 38 4/5 Third 41 1/2 32 1/8 41 7/8 31 3/4 Fourth 44 1/2 33 1/2 41 1/8 29 3/4 As of January 30, 1998, the Company had 9,288 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the New York Stock Exchange for the Company's common stock on January 30, 1998, was $39 per share. Common stock of the Company's majority-owned public subsidiaries is traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), Thermo Sentron Inc. (TSR), Thermedics Detection Inc. (TDX), Thermo Instrument Systems Inc. (THI), ThermoSpectra Corporation (THS), ThermoQuest Corporation (TMQ), Thermo Optek Corporation (TOC), Thermo BioAnalysis Corporation (TBA), Metrika Systems Corporation (MKA), Thermo Vision Corporation (VIZ), Thermo TerraTech Inc. (TTT), Thermo Remediation Inc. (THN), The Randers Group Incorporated (RGI.EC), ThermoTrex Corporation (TKN), ThermoLase Corporation (TLZ), Trex Medical Corporation (TXM), Thermo Power Corporation (THP), Thermo Fibertek Inc. (TFT), Thermo Fibergen Inc. (TFG), and Thermo Ecotek Corporation (TCK). Shareholder Services Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact John N. Hatsopoulos, President and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Distribution of printed quarterly reports is limited to the second quarter only. All material will be available from Thermo Electron's Internet site (http://www.thermo.com). 69PAGE Thermo Electron Corporation 1997 Financial Statements Stock Transfer Agent BankBoston N.A. is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: BankBoston N.A. c/o Boston EquiServe Limited Partnership P.O. Box 8040 Boston, Massachusetts 02266-8040 (617) 575-3120 Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 3, 1998, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, President and Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Tuesday, June 2, 1998, at 4:15 p.m. at the Hyatt Regency Hotel, Scottsdale, Arizona. 70PAGE Thermo Electron Corporation 1997 Financial Statements
Ten Year Financial Summary (In millions except per share amounts) 1997 1996(a) 1995 1994(b) 1993(c) 1992(d) 1991(e) 1990 1989 1988 -------------------------------------------------------------------------------------------------------- Statement of Income Data: Revenues $3,558.3 $2,932.6 $2,270.3 $1,729.2 $1,354.5 $999.2 $ 842.5 $744.5 $640.3 $553.7 Gross Profit 1,441.3 1,130.0 863.4 650.9 482.3 326.7 256.5 233.8 176.0 157.4 Operating Income 405.8 246.5 225.2 182.1 119.2 70.5 43.6 40.9 23.6 25.8 Net Income 239.3 190.8 139.6 104.7 76.9 59.5 48.5 35.5 27.3 23.3 Earnings per Share: Basic 1.57 1.35 1.10 .90 .74 .62 .56 .46 .37 .33 Diluted 1.41 1.17 .95 .78 .65 .58 .53 .43 .35 .31 Balance Sheet Data: Working Capital $2,002.0 $2,218.6 $1,317.1 $1,150.7 $ 833.8 $ 508.7 $ 468.4 $244.1 $277.6 $220.1 Total Assets 5,795.9 5,141.2 3,786.3 3,061.9 2,507.6 1,838.0 1,212.5 912.0 669.9 528.5 Long-term Obligations 1,742.9 1,550.3 1,118.1 1,049.9 647.6 494.2 255.1 210.5 177.0 152.9 Minority Interest 719.6 684.1 471.6 327.7 277.7 164.3 122.5 83.9 51.8 22.6 Common Stock of Subsidiaries Subject to Redemption 93.3 76.5 17.5 - 14.5 5.5 5.5 8.7 13.1 - Shareholders' Investment 1,997.9 1,754.4 1,309.7 1,007.5 873.7 563.8 489.5 314.1 229.2 196.4 (a)Reflects the issuance of $585.0 million principal amount of convertible debentures. (b)Reflects the issuance of $345.0 million principal amount of convertible debentures. (c)Reflects the Company's 1993 public offering of common stock for net proceeds of$246.0 million. (d)Reflects the issuance of $260.0 million principal amount of convertible debentures. (e)Reflects the issuance of $164.0 million principal amount of convertible debentures. 71
EX-21 12 Exhibit 21 THERMO ELECTRON CORPORATION SUBSIDIARIES As of February 20, 1998, the Registrant owned the following subsidiaries: STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Coleman Research Corporation Florida 100 Coleman Services Incorporated Delaware 100 Thermo Information Solutions Inc. Delaware 79** Thermo Info France S.A. France 100 Thermo Info UK Limited United Kingdom 100 Traveller Information Services, Inc. Alabama 75 Nicolet Biomedical Inc. California 100 Eden Medical Electronics, Inc. Delaware 100 Neuroscience Limited United Kingdom 100 Nicolet Biomedical Japan Inc. Japan 100 Nicolet Biomedical Ltd. United Kingdom 100 Nicolet Biomedical S.A.R.L. France 100 Nicolet - EME GmbH Germany 100 Nicolet Vascular Inc. Delaware 100 ILS, Inc. Delaware 100 IMEX International, Inc. Colorado 100 Peter Brotherhood Holdings Ltd. United Kingdom 100 Aircogen Ltd. United Kingdom 80 Peter Brotherhood Limited United Kingdom 100 D.S.T. Pattern & Engineering Co. Ltd. United Kingdom 100 Link Control Technology Ltd. United Kingdom 100 Machtech Ltd. United Kingdom 100 Peter Brotherhood Pension Fund Trustees Ltd. United Kingdom 100 S. Gregsons & Sons Ltd. United Kingdom 100 Thermo Electron Realty Limited United Kingdom 100 Thermo Holdings Limited United Kingdom 100 SensorMedics Corporation Delaware 100 SensorMedics B.V. Netherlands 100 SensorMedics (Deutschland) GmbH Germany 100 SensorMedics FSC Corporation Virgin Islands 100 Termo Electron, S.A. de C.V. Mexico 100 The Thermo Electron Companies Inc. Wisconsin 100 Bear Medical Systems Inc. Delaware 100 Bird Medical Technologies, Inc. California 100 Bird International, Inc. U.S. Virgin 100 Islands Bird Products Corporation California 100 Bird Life Design Corporation California 100 Stackhouse, Inc. California 100 Gulf Precision, Inc. Arizona 100 Seeley Enterprises, Inc. New Mexico 100 ITC Holdings Inc. Delaware 100 Loftus Furnace Company Pennsylvania 100 Medical Data Electronics, Inc. Delaware 100 Page 1PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Met-Therm, Inc. Ohio 100 NAPCO, Inc. Connecticut 100 Nicolet Biomedical of California Inc. California 100 North East Surgical Tool Corp. Massachusetts 100 North Carbondale Minerals, Inc. California 100 Overly, Inc. Wisconsin 100 Perfection Heat Treating Company Michigan 100 San Marcos Resource Recovery, Inc. California 100 Southern Ocean County Resource Recovery, Inc. New Jersey 100 Staten Island Cogeneration Corporation New York 100 TE Great Lakes Inc. Michigan 100 TEC Cogeneration Inc. Florida 100 South Florida Cogeneration Associates Florida 50* TEC Energy Corporation California 100 North County Resource Recovery Associates California 100* (50% of which is owned directly by San Marcos Resource Recovery, Inc.) Tecomet Inc. Massachusetts 100 Thermedics Inc. Massachusetts 58** Corpak Inc. Massachusetts 100 Walpak Company Illinois 100 Orion Research, Inc. Massachusetts 100 Advanced Sensor Technology Massachusetts 100 Orion Research Limited United Kingdom 100 Orion Research Puerto Rico, Inc. Delaware 100 Russell pH Limited Scotland 100 Thermedics Detection Inc. Massachusetts 76** Detection Securities Corporation Massachusetts 100 Moisture Systems Corporation Ltd. United Kingdom 100 Rutter & Co. Netherlands 100 Rutter Instrumentation S.A.R.L. France 90 Systech B.V. Netherlands 50 ThermedeTec Corporation Delaware 100 Thermedics Detection de Argentina S.A. Argentina 100 (1% of which shares are owned directly by Thermedics Detection Inc.) Thermedics Detection de Mexico, S.A. Mexico 100 de C.V. Thermedics Detection GmbH Germany 100 Thermedics Detection Limited United Kingdom 100 Thermedics Detection Scandinavia AS Norway 100 Thermo Sentron Inc. Delaware 71** (additionally, 6.86% of the shares are owned directly by The Thermo Electron Companies Inc.) Ramsey France S.A.R.L. France 100 Page 2PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Ramsey Ingenieros S.A. Spain 100 Ramsey Italia S.R.L. Italy 100 Tecno Europa Elettromeccanica S.R.L. Italy 100 Ramsey Technology Inc. Massachusetts 100 Xuzhou Ramsey Technology Co., Limited China 50* Thermo Sentron Australia Pty. Ltd.. Australia 100 Thermo Sentron B.V. Netherlands 100 Thermo Sentron Canada Inc. Canada 100 Thermo Sentron GmbH Germany 100 Thermo Sentron Limited United Kingdom 100 Hitech Electrocontrols Limited United Kingdom 100 Hitech Licenses Ltd. United Kingdom 100 Hitech Metal Detectors Ltd. United Kingdom 100 Westerland Engineering Ltd. United Kingdom 100 Thermo Sentron SEC Corporation Massachusetts l00 Thermo Sentron (South Africa) Pty. Ltd. South Africa 100 TMD Securities Corporation Massachusetts 100 Thermo Cardiosystems Inc. Massachusetts 51** (additionally, 8.84% of the shares are owned directly by The Thermo Electron Companies Inc.) International Technidyne Corporation Delaware 100 International Technidyne Corporation United Kingdom 100 Limited Nimbus Inc. Massachusetts 100 TCA Securities Corporation Massachusetts 100 Thermo Voltek Corp. Delaware 65** (additionally, 2.69% of the shares are owned directly by The Thermo Electron Companies Inc.) Thermo Voltek Europe B.V. Netherlands 100 Comtest Instrumentation, B.V. Netherlands 100 Comtest Italia S.R.L. Italy 100 Comtest Limited United Kingdom 100 Milmega Limited United Kingdom 100 TVL Securities Corporation Delaware 100 UVC Realty Corp. New York 100 Thermo Administrative Services Corporation Delaware 100 Thermo Amex Management Company Inc. Delaware 100 Thermo Amex Finance, L.P. Delaware 99* Thermo Amex Convertible Growth Delaware 99* Fund I., L.P. Thermo Ecotek Corporation Delaware 88** Delano Energy Company Inc. Delaware 100 Eco Fuels Inc. Wyoming 100 EuroEnergy Group, B.V. Italy 50* Page 3PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Gage Canal Power Company Delaware 100 Independent Power Services Corporation Nevada 100 KFP Operating Company, Inc. Delaware 100 Riverside Canal Power Company California 100 SFS Corporation New Hampshire 100 TCK Fuels Inc. Delaware 100 KFx Fuel Partners, L.P. Delaware 95* (2% of which is owned directly by Eco Fuels Inc.) TES Securities Corporation Delaware 100 Thermendota, Inc. California 100 Mendota Biomass Power, Ltd. California 100 MBPL Agriwaste Corporation California 100 Thermo Ecotek International Holdings Inc. Cayman Islands 100 Thermo Ecotek Europe Holdings B.V. Netherlands 100 ECS Sro Czech Republic 50* EMD Ventures B.V. Netherlands 65* ECS sro Czech Republic 50* EMD Pribram sro Czech Republic 50* EuroEnergy Group B.V. Netherlands 50* Thermo EuroVentures sro Czech Republic 100 Thermo Ecotek International Inc. Cayman Islands 100 TCK Cogeneration Dominicana Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) TCK Dominicana Holdings Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) Thermo Electron of Maine, Inc. Maine 100 Gorbell/Thermo Electron Power Company Maine 80* Thermo Electron of New Hampshire, Inc. New Hampshire 100 Hemphill Power and Light Company New Hampshire 66* Thermo Electron of Whitefield, Inc. New Hampshire 100 Whitefield Power and Light Company New Hampshire 100* (39% of which is owned directly by SFS Corporation) Thermo Fuels Company, Inc. California 100 Thermo Natural Gas Company Delaware 100 Thermo Trilogy Corporation Delaware 87** Thermo Trilogy International Cayman Islands 100 Holdings, Inc. AgriSense-BCS, Ltd. United Kingdom 100 P J Margo Pvt. Ltd. India 50* Ulna Incorporated California 100 Woodland Biomass Power, Inc. California 100 Page 4PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Woodland Biomass Power, Ltd. California 100* (.1% of which is owned directly by Thermo Ecotek Corporation) Thermo Electron Foundation, Inc. Massachusetts 100 Thermo Electron Metallurgical Services, Inc. Texas 100 Thermo Fibertek Inc. Delaware 90** AES Equipos y Sistemas S.A. de C.V. Mexico 100 Enviroprint Inc. Delaware 100 Fibertek Construction Company, Inc. Maine 100 Thermo AES Canada Inc. Canada 100 Thermo Black Clawson Inc. Delaware 100 Thermo Black Clawson (China) China 100 Thermo Black Clawson S.A. France 100 Thermo Fibertek Holdings Limited United Kingdom 100 Thermo Black Clawson Limited United Kingdom 100 Thermo Fibertek U.K. Limited United Kingdom 100 Vickerys Holdings Limited United Kingdom 100 Vickerys Limited United Kingdom 100 Paperlines Limited New Zealand 100 Winterburn Limited United Kingdom 100 Thermo Web Systems, Inc. Massachusetts 100 Fiberprep Inc. Delaware 95 (31.05% of which shares are owned directly by E. & M. Lamort, S.A.) Fiberprep Securities Corporation Delaware 100 Thermo Wisconsin, Inc. Wisconsin 100 Thermo Fibergen Inc. Delaware 71** Fibergen Securities Corporation Massachusetts 100 GranTek Inc. Wisconsin 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Lamort Equipementos Industrials Ltda. Brazil 60* Lamort GmbH Germany 100 Lamort Iberia S.A. Spain 100 Lamort Italia S.R.L. Italy 100 Lamort Paper Services Ltd. United Kingdom 100 Nordiska Lamort Lodding A.B. Sweden 100 Thermo Instrument Systems Inc. Delaware 82** Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 ESM Eberline Instruments Strahlen Germany 100 - und Umweltmesstechnik GmbH Fisons Instruments Vertriebs GmbH Germany 100 Gebruder Haake GmbH Germany 100 Page 5PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Gas Tech Inc. California 100 Gas Tech Australia, Pty. Ltd. Australia 50* Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Life Sciences International Limited United Kingdom 100 Comdate Services Limited England 100 Lipshaw Limited England 100 Luckham Limited England 100 Phicom Limited England 100 Shandon Scientific Limited England 100 Southions Investments Limited England 100 Sungel Puntar Rubber Estate Limited England 100 Westions Limited England 100 Whale Scientific Limited England 100 Helmet Securities Limited England 100 Life Sciences International GmbH Germany 100 Life Sciences International Kft Hungary 100 Life Sciences International SNC France 100 Life Sciences International France 100 (France) SA Shandon SA France 100 Life Sciences International, Inc. Pennsylvania 100 LSI North America Service Inc. Delaware 100 Shandon, Inc. Pennsylvania 100 Alko Diagnostic Corporation Massachusetts 100 E-C Apparatus Corporation Florida 100 Whale Scientific, Inc. Colorado 100 Life Sciences International Holdings BV Netherlands 100 Biosystems Oy Finland 100 Life Sciences International Poland 100 (Poland) SP z O.O Angela Scientific Instruments Limited England 100 Britlowes Limited England 100 Commendstar Limited England 100 Consumer & Video Holdings Limited England 100 Video Communications Limited England 100 Greensecure Projects Limited England 100 Labsystems Europe GA Spain 100 Labsystems Ges mbH Austria 100 LSI (US) Inc. Delaware 100 Omnigene Limited England 59 Shandon Southern Instruments Limited England 100 Shenbridge Limited England 100 Southern Instruments Holdings Limited England 100 Metrika Systems Corporation Delaware 60** Eberline Radiometrie GmbH Germany 100 Page 6PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Eberline Radiometrie S.A. France 100 Gamma-Metrics California 100 Gamma-Metrics International F.S.C. Inc. Guam 100 Radiometrie U.S.A., Inc. California 100 Thermo Instrument Systems Limited United Kingdom 100 National Nuclear Corporation California 100 ONIX Systems Inc. Delaware 87** Brandt Instruments, Inc. Delaware 100 CAC Inc. Delaware 100 Flow Automation Inc. Texas 100 Thermo Instrument Controls de Mexico, Mexico 100 S.A. de C.V. (1% of which shares are owned directly by ONIX Systems Inc.) VG Gas Analysis Systems Inc. Massachusetts 100 Houston Atlas Inc. Texas 100 OnIX Holdings Limited England 100 CAC Limited United Kingdom 100 Flow Automation (UK) Limited United Kingdom 100 VG Gas Analysis Limited United Kingdom 100 Peek Measurement, Inc. Texas 100 Peek Measurement Limited England 100 Peek Environmental Limited England 100 Sarasota Data Products Limited England 100 Sarasota Instrumentation Limited England 100 TN Spectrace Europe B.V. Netherlands 100 TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 Westronics Inc. Texas 100 Optek-Nicolet Holdings Inc. Wisconsin 100 Thermo Optek Corporation Delaware 91** (additionally, 1.47% of the shares are owned directly by The Thermo Electron Companies Inc.) Spectronic Instruments, Inc. Delaware 100 SLM International Inc. Illinois 100 Thermo Jarrell Ash Corporation Massachusetts 100 ARL Applied Research Laboratories Switzerland 100 S.A. Fisons Instruments (Proprietary) South Africa 100 Limited Thermo Optek Wissenschaftliche Austria 100 Gerate GesmbH Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument China 100 Technology Co. Limited Page 7PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Cahn Instrument Corporation Wisconsin 100 Mattson Instruments Limited United Kingdom 100 Thermo Elemental Limited United Kingdom 100 Thermo Optek Limited United Kingdom 100 Unicam Limited United Kingdom 100 Unicam Export Limited United Kingdom 100 Unicam Analytical Technology Netherlands 100 Netherlands B.V. Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Fisons Instruments Nordic AB Sweden 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Inc. Wisconsin 100 Spectra-Tech, Europe Limited United Kingdom 100 Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited United Kingdom 100 Nicolet Instrument Limited United Kingdom 100 Planweld Limited United Kingdom 100 Hilger Analytical Limited United Kingdom 100 Thermo Electron Limited United Kingdom 100 Thermo Instrument Systems Japan Delaware 100 Holdings, Inc. Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Instruments (Canada) Inc. Canada 100 Eberline Instruments (Canada) Ltd. Canada 100 Fisons Instruments Inc. Canada 100 Unicam Analytical Inc. Canada 100 Thermo Optek France S.A. France 100 Thermo Optek Holding B.V. Netherlands 100 Baird Europe B.V. Netherlands 100 Baird France S.A.R.L. France 100 Thermo Group B.V. Netherlands 100 Thermo Optek Materials Analysis (S.E.A.) Singapore 100 Pte Limited VG Systems Limited United Kingdom 100 ThermoSpectra Corporation Delaware 77** (additionally, 6.23% of the shares are owned directly by The Thermo Electron Companies Inc.) Diametrix Detectors, Inc. Delaware 50 Gould Instrument Systems, Inc. Ohio 100 Kevex Instruments Inc. Delaware 100 Kevex X-Ray Inc. Delaware 100 Neslab Instruments Europa BV Netherlands 100 Page 8PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Neslab Instruments, Inc. New Hampshire 100 Neslab Instruments Limited England 100 Nicolet Instrument Technologies Inc. Wisconsin 100 NORAN Instruments Inc. Wisconsin 100 Park Scientific Instruments Corporation California 100 Park Scientific S.A. Switzerland 100 PSI Virgin Islands Incorporated U.S. Virgin 100 Islands Sierra Research and Technology, Inc. Delaware 100 ThermoSpectra B.V. Netherlands 100 Nicolet Technologies B.V. Netherlands 100 Bakker Electronics Limited United Kingdom 100 NORAN Instruments B.V. Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoSpectra Limited United Kingdom 100 Nicolet Technologies Ltd. United Kingdom 100 Thermo Spectra S.A. France 100 Nicolet Technologies S.A.R.L. France 100 Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 ThermoQuest Corporation Delaware 88** (43.9% of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, .12% of the shares are owned directly by The Thermo Electron Companies Inc.) Denley Instruments Limited England 100 E-C Apparatus Limited England 100 Finnigan FT/MS Inc. Delaware 100 Finnigan Corporation Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, California 100 Inc. Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT Canada, Ltd. Canada 100 Finnigan MAT GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products Italy 100 S.R.L. Masslab Limited United Kingdom 100 Page 9PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo Instruments Australia Pty. Australia 100 Limited ThermoQuest Ltd. United Kingdom 100 Finnigan MAT Ltd. United Kingdom 100 Finnigan MAT AB Sweden 100 Thermo Separation Products Ltd. United Kingdom 100 Finnigan Properties, Inc. California 100 Forma Scientific, Inc. Delaware 100 Forma Ohio Inc. Ohio 100 International Equipment Company Delaware 100 International Equipment Company England 100 Limited Savant Instruments, Inc. New York 100 Forma Scientific Limited England 100 Hypersil Inc. Delaware 100 Hypersil Limited England 100 Life Sciences International Hong Kong 100 (Hong Kong) Limited Life Sciences International, Inc. Pennsylvania 100 Life Sciences International England 100 (Europe) Limited Life Sciences International England 100 (UK) Limited Kenbury Limited England 100 Savant Instruments Limited England 100 ThermoQuest B.V. Netherlands 100 Thermo Separation Products B.V. Netherlands 100 Thermo Separation Products Belgium 100 B.V. B.A. ThermoQuest France S.A. France 100 Finnigan Automass S.A. France 100 Finnigan MAT S.A.R.L. France 100 Thermo Separation Products S.A. France 100 ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Austria 100 Gerate GmbH Thermo Separation Products AG Switzerland 100 Thermo Separation Products Inc. Delaware 100 ThermoQuest GmbH Germany 100 Thermo Separation Products GmbH Germany 100 ThermoQuest K.K. Japan 100 RealFlex Systems Inc. Texas 100 SID Instruments Inc. Delaware 100 FI Instruments Inc. Delaware 100 FI S.A. France 100 Page 10PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Fisons Instruments BV Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 100 HB Instruments Inc. Delaware 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. United Kingdom 100 Thermo Haake (U.K.) Limited United Kingdom 100 Thermo Instrumentos Cientificos S.A. Spain 100 Spectrace Instruments Inc. California 100 Thermo BioAnalysis Corporation Delaware 70** (4.1% of which shares are owned directly by Quest-TSP Holdings Inc. and 1.8% of which shares are owned directly by Quest-Finnigan Holdings Inc. (Additionally, 7.12% of the shares are owned directly by The Thermo Electron Companies Inc.) Denley Instruments Inc. North Carolina 100 Fastighets AB Skrubba Sweden 100 Dynatech Laboratories spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 DYNEX Technologies Inc. Virginia 100 Hybaid BV Netherlands 100 Hybaid Limited England 100 Labsystems Espana SA Spain 100 Labsystems Inc. Delaware 100 Labysystems Japan K.K. Japan 100 Labsystems OY Finland 100 Labsystems (Hong Kong) Limited Hong Kong 99 Labsystems BTD China 33 Labsystems LHD China 33 Labsystems Lenpipette Russia 95 Labsystems Pakistan (Private) Ltd Pakistan 34 Labsystems Sweden AB Sweden 100 Labsystems (UK) Limited England 100 Life Sciences International(Benelux) B.V. Netherlands 100 Thermo BioAnalysis GmbH Germany 100 DYNEX Technologies GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel 100 Islands Thermo BioAnalysis Holding, Limited United Kingdom 100 Affinity Sensors Limited United Kingdom 100 Dynex Technologies Limited United Kingdom 100 Thermo BioAnalysis Limited United Kingdom 100 Page 11PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo LabSystems Limited United Kingdom 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Thermo LabSystem (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 Thermo Environmental Instruments Inc. California 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) Van Hengel Holding B.V. Netherlands 100 ESM Eberline Instruments Strahlen Germany 100 - und Umweltmesstechnik GmbH Fisons Instruments Vertriebs GmbH Germany 100 Gebruder Haake GmbH Germany 100 Thermo Instrument Systems B.V. Netherlands 100 Euroglas B.V. Netherlands 100 Thermo Automation Services (ThAS) B.V. Netherlands 100 This Analytical B.V. Netherlands 100 This Gas Analysis B.V. Netherlands This Lab Systems B.V. Netherlands 100 This Scientific B.V. Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 Thermo Vision Corporation Delaware 78** (additionally, 1.27 % of the shares are owned directly by The Thermo Electron Companies Inc.) CID Technologies Inc. New York 100 Centro Vision Inc. Delaware 100 Hilger Crystals Limited United Kingdom 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Oriel Foreign Sales Corp. U.S. Virgin 100 Islands Thermo Leasing Corporation Delaware 100 Thermo Capital Company LLC Delaware 50* Thermo Power Corporation Massachusetts 69** NuTemp, Inc. Illinois 100 Peek plc Scotland 92 Peek Data Limited England 100 Peek Group Services Limited England 100 Dubilier Warminster Limited England 100 International Resistance Co Limited England 100 Minicircuits Limited England 100 Peek International Limited England 100 Peek Corporation Delaware 100 Page 12PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Peek Traffic, Inc. Delaware 100 Polysonics International, Inc. U.S. Virgin 100 Islands Saratec Measurement Inc. Florida 100 Signal Control Company Delaware 100 Signal Maintenance, Inc. Delaware 100 Streeter Amet Inc. Delaware 100 Transyt Corporation Florida 100 Peek Traffic USA, Inc. Florida 100 Peek Traffic GmbH Germany 100 Peek International B.V. Netherlands 100 Peek Traffic A.B. Sweden 100 Peek Traffic A/S Denmark 100 Peek Traffic A/S Norway 100 Peek Traffic B.V. Netherlands 100 Peek Fleetlogic B.V. Netherlands 100 Peek Traffic Projects B.V. Netherlands 100 Peek Limited Hong Kong 85 Peek Trafikk Sendirian Bermad Malaysia 100 Peek Traffic (Thailand) Limited Thailand 100 Sichuan Modern Control System China 41* Engineering Company Limited Peek Traffic OY Finland 100 Peek Investments, Limited England 100 Dubilier America, Inc. Delaware 100 ACI Holdings, Inc. New York 100 Peek Systems Limited England 100 Softwell Limited England 100 Peek Technology Limited England 100 Peek Traffic Limited England 100 GK Instruments Limited England 100 Sarasota Traffic Limited England 100 Streeteramet Limited England 100 Weighwrite Limited England 100 Radley Services Limited England 100 Atest Electronics Limited England 100 Bartsign Limited England 100 Greenpar Holdings Limited England 100 Helvetia Automatic Products Limited England 100 Peek Field Services Limited England 100 Peek Traffic Systems B.V. Netherlands 100 Radley (1) Limited England 100 Smartways Limited England 100 Tollstar Limited England 100 Takepine Limited United Kingdom 100 Tecogen Securities Corporation Massachusetts 100 Page 13PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP ThermoLyte Corporation Delaware 78** Thermo TerraTech Inc. Delaware 82** Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Metallurgical, Inc. Minnesota 100 Cal-Doran Metallurgical Services, Inc. California 100 Metal Treating Inc. Wisconsin 100 Normandeau Associates, Inc. New Hampshire 100 TMA/Hanford, Inc. Washington 100 The Randers Group Incorporated Delaware 95** (additionally, 1.03% of the shares are owned directly by Thermo Electron Corporation) Clark-Trombley Consulting Engineers, Inc. Michigan 100 Randers Engineering, Inc. Michigan 100 Randers Engineering of Massachusetts,Inc. Michigan 100 Randers Group Property Corporation Michigan 100 Redeco Incorporated Michigan 100 Viridian Technology Incorporated Michigan 100 The Killam Group, Inc. Delaware 100 CarlanKillam Consulting Group, Inc. Florida 100 Carlan Consulting Group of Alabama 100 Alabama, Inc. Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Delaware 100 Knowledge Corporation Elson T. Killam Associates, Inc. New Jersey 100 BAC Killam Inc. New York 100 N.H. Bettigole Co., Inc. Delaware 100 N.H. Bettigole P.A. New Jersey 100 N.H. Bettigole P.C. New York 100 CarlanKillam Construction Florida 100 Services, Inc. Duncan, Lagnese and Associates, Pennsylvania 100 Incorporated E3-Killam, Inc. New York 100 Killam Associates, Inc. Ohio 100 Killam Management and New Jersey 100 Operational Services, Inc. Fellows, Read & Associates, Inc. New Jersey 100 Killam Associates, New England Inc. Delaware 100 George A. Schock & Associates, New Jersey 100 Inc. Jennison Engineering, Inc. Vermont 100 Thermo Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Page 14PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo EuroTech N.V. Netherlands 56** Thermo EuroTech Ireland Ltd. Ireland 100 Green Sunrise Holdings Ltd. Ireland 70 AutoRod Ltd. Ireland 100 Green Sunrise Industries Ltd. Ireland 100 GreenStar Recycling Ltd. Ireland 100 Pipe & Drain Services Ltd. Ireland 100 GreenStar Products Ltd. Ireland 70 Grond- & Watersaneringstechniek Netherlands 100 Nederland B.V. Refining & Trading Holland B.V. Netherlands 100 Thermo Remediation Inc. Delaware 69** (additionally, 1.52% of the shares are owned directly by The Thermo Electron Companies Inc.) Benchmark Environmental Corporation New Mexico 100 Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 IEM Sealand Corporation Virginia 100 RPM Systems, Inc. Connecticut 100 Remediation Technologies, Inc. Delaware 100 GeoWest Golden Inc. Colorado 100 GeoWest TriTechnics of Ohio, LLC Colorado 100 RETEC Thermal, Inc. Delaware 100 ReTec/Tetra L.C. Texas 50* Thermo Fluids Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of South Delaware 100 Carolina Inc. TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 TRUtech L.L.C. Delaware 48* Thermo Securities Corporation Delaware 100 Thermo Soil Recyclers Inc. Massachusetts 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Partnership Delaware 60* Page 15PAGE THERMO ELECTRON CORPORATION SUBSIDIARIES STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP ThermoTrex Corporation Delaware 55** ThermoLase Corporation Delaware 68** (additionally, 2.13% of the shares are owned directly by The Thermo Electron Companies Inc.) CBI Laboratories, Inc. Texas 100 ThermoLase England L.L.C. Delaware 50* ThermoLase UK Limited United Kingdom 100 ThermoLase France L.L.C. Delaware 50* ThermoDess S.A.S. France 50* ThermoLase International L.L.C. Delaware 35* ThermoLase Japan L.L.C. Wyoming 50* Thira Japan, Inc. Japan 100 ThermoTrex East Inc. Massachusetts 100 Trex Medical Corporation Delaware 79** Bennett X-Ray Corporation New York 100 Bennett International Corporation U.S. Virgin 100 Islands Eagle X-Ray, Inc. New York 100 Island X-Ray Incorporated New York 100 Continental X-Ray Corporation Delaware 100 Thermo Lorad F.S.C. Inc. U.S. Virgin 100 Islands XRE Corporation Delaware 100 Trex Communications Corporation Delaware 78** Computer Communications Specialists, Inc. Georgia 100 Computer Communication Specialists United Kingdom 100 UK Ltd TMO, Inc. Massachusetts 100 TMOI Inc. Delaware 100 Thermo Biomedical Inc. Delaware 100 Thermo Digital Technologies L.L.C. Delaware 51* Thermo Electron Export Inc. Barbados 100 (equally owned among TMO, TMD, TCA, TCK, TFT, THI, THP, TTT, TVL, TLZ, THS, TBA, TOC, TMQ and TXM ) Thermo Electron (London) Ltd. United Kingdom 50* Thermo Finance (UK) Limited United Kingdom 100 Thermo Foundation, Inc. Massachusetts 100 TMO TCA Holdings, Inc. Delaware 100 * Joint Venture/Partnership ** As of 1/3/98 EX-23 13 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 18, 1998, included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended January 3, 1998, into the Company's previously filed Registration Statement No. 33-00182 on Form S-8, Registration Statement No. 33-8993 on Form S-8, Registration Statement No. 33-8973 on Form S-8, Registration Statement No. 33-16460 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 33-25052 on Form S-8, Registration Statement No. 33-37865 on Form S-8, Registration Statement No. 33-37867 on Form S-8, Registration Statement No. 33-36223 on Form S-8, Registration Statement No. 33-52826 on Form S-8, Registration Statement No. 33-52804 on Form S-8, Registration Statement No. 33-52806 on Form S-8, Registration Statement No. 33-52800 on Form S-8, Registration Statement No. 33-37868 on Form S-3, Registration Statement No. 33-35657 on Form S-3, Registration Statement No. 33-34752 on Form S-3, Registration Statement No. 33-39434 on Form S-3, Registration Statement No. 33-12748 on Form S-3, Registration Statement No. 33-39773 on Form S-3, Registration Statement No. 33-40669 on Form S-3, Registration Statement No. 33-41256 on Form S-3, Registration Statement No. 33-42694 on Form S-3, Registration Statement No. 33-43706 on Form S-3, Registration Statement No. 33-45401 on Form S-3, Registration Statement No. 33-45603 on Form S-3, Registration Statement No. 33-50924 on Form S-3, Registration Statement No. 33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8, Registration Statement No. 33-54185 on Form S-3, Registration Statement No. 33-54347 on Form S-8, Registration Statement No. 33-54453 on Form S-8, Registration Statement No. 33-59544 on Form S-3, Registration Statement No. 333-00197 on Form S-3, Registration Statement No. 033-65237 on Form S-8, Registration Statement No. 033-61561 on Form S-8, Registration Statement No. 033-58487 on Form S-8, Registration Statement No. 333-01277 on Form S-3, Registration Statement No. 333-01809 on Form S-3, Registration Statement No. 333-01893 on Form S-3, Registration Statement No. 333-19549 on Form S-3, Registration Statement No. 333-19535 on Form S-8, Registration Statement No. 333-19633-01 on Form S-3, Registration Statement No. 333-32035-01 on Form S-3, Registration Statement No. 333-34909-01 on Form S-3, Registration Statement No. 333-32111 on Form S-3, and Registration Statement No. 333-14265 on Form S-8. Arthur Andersen LLP Boston, Massachusetts March 10, 1998 EX-27.1 14
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-03-1998 JAN-03-1998 593,580 929,118 853,097 55,698 543,589 3,094,198 1,159,913 370,867 5,795,869 1,092,235 1,742,907 0 0 159,206 1,838,703 5,795,869 3,392,575 3,558,320 1,973,265 2,117,008 193,562 9,078 93,125 488,467 174,713 239,328 0 0 0 239,328 1.57 1.41 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".
EX-27.2 15
5 THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-30-1995 DEC-30-1995 462,861 593,802 522,631 29,318 332,786 2,056,592 977,816 262,228 3,786,339 739,446 1,118,077 0 0 89,006 1,220,723 3,786,339 2,075,748 2,270,291 1,239,762 1,406,882 156,634 5,534 77,861 298,808 98,711 190,816 0 0 0 190,816 1.10 .95 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".
EX-27.3 16
5 THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE QUARTER ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-28-1996 MAR-30-1996 774,805 675,752 632,477 29,769 437,369 2,697,893 1,062,938 276,666 4,675,047 977,965 1,617,647 0 0 91,859 1,323,966 4,675,047 550,678 652,385 329,340 408,003 32,464 318 27,636 76,260 22,676 41,023 0 0 0 41,023 .31 .26 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".
EX-27.4 17
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-28-1996 JUN-29-1996 541,195 1,127,877 604,792 37,649 449,124 2,878,454 1,077,605 283,117 4,900,554 925,997 1,657,235 0 0 141,410 1,409,268 4,900,554 1,269,793 1,398,144 702,491 872,066 98,650 2,150 53,236 157,847 42,650 85,942 0 0 0 85,942 .63 .54 THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COST OF PRODUCTS", "COST OF SERVICES", AND "RESEARCH AND DEVELOPMENT CONTRACTS". THIS LINE IS MADE UP OF THE FOLLOWING INCOME STATEMENT ACCOUNTS: "COSTS ASSOCIATED WITH DIVISIONAL AND PRODUCT RESTRUCTURING", "INTERNALLY FUNDED RESEARCH AND DEVELOPMENT" AND "OTHER EXPENSES FOR NEW LINES OF BUSINESS".
EX-27.5 18
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-28-1996 SEP-28-1996 506,528 1,204,981 630,772 35,345 441,161 2,950,374 985,866 291,108 4,949,500 929,127 1,408,386 0 0 149,110 1,548,370 4,949,500 2,013,840 2,138,125 1,209,280 1,315,419 147,800 4,343 75,056 269,186 74,589 137,184 0 0 0 137,184 .99 .85 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".
EX-27.6 19
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 414,404 1,431,881 650,866 34,321 432,960 3,131,829 1,010,189 305,742 5,141,244 913,212 1,550,342 0 0 149,997 1,604,372 5,141,244 2,766,002 2,932,558 1,657,746 1,802,569 194,275 6,002 96,695 301,661 110,845 190,816 0 0 0 190,816 1.35 1.17 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".
EX-27.7 20
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-03-1998 MAR-27-1997 341,753 1,174,930 707,512 38,784 511,100 2,967,872 1,073,921 319,935 5,343,588 1,130,257 1,501,830 0 0 150,167 1,607,281 5,343,588 722,625 763,505 430,802 467,140 50,003 2,558 21,412 97,595 28,397 52,058 0 0 0 52,058 .35 .31 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".
EX-27.8 21
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-03-1998 JUN-28-1997 288,738 1,004,232 756,341 43,647 535,307 2,808,149 1,105,121 340,654 5,304,637 1,012,214 1,601,299 0 0 150,235 1,591,655 5,304,637 1,557,373 1,638,521 912,661 983,618 94,015 5,221 42,898 210,545 70,423 108,216 0 0 0 108,216 .72 .65 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".
EX-27.9 22
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-03-1998 SEP-27-1997 493,287 1,036,917 790,075 43,235 521,605 3,070,179 1,119,306 359,902 5,588,131 1,008,822 1,819,445 0 0 151,359 1,637,377 5,588,131 2,426,797 2,426,797 1,413,400 1,519,427 145,559 6,974 67,794 341,105 118,373 170,075 0 0 0 170,075 1.13 1.01 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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