Exhibit 13
Thermo Electron Corporation
Consolidated Financial Statements
2000
Thermo Electron Corporation 2000 Financial Statements
Consolidated Statement of Operations
(In thousands except per share amounts) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Revenues (Notes 14 and 15) $2,280,522 $2,294,620 $1,880,906
---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues (Note 11) 1,258,686 1,245,773 1,008,115
Selling, general, and administrative expenses 646,920 658,297 530,406
Research and development expenses 176,756 171,100 127,461
Restructuring and other unusual costs (income), net (Note 11) (67,855) 37,346 23,583
---------- ---------- ----------
2,014,507 2,112,516 1,689,565
---------- ---------- ----------
Operating Income 266,015 182,104 191,341
Gain on Issuance of Stock by Subsidiaries (Note 9) - - 18,583
Other Income (Expense), Net (Notes 10 and 11) (81,184) (57,345) 6,558
---------- ---------- ----------
Income from Continuing Operations Before Provision for Income
Taxes, Minority Interest, Extraordinary Item, and Cumulative
Effect of Change in Accounting Principle 184,831 124,759 216,482
Provision for Income Taxes (Note 8) 112,217 64,428 90,491
Minority Interest Expense 10,567 23,048 32,231
---------- ---------- ----------
Income from Continuing Operations Before Extraordinary Item and 62,047 37,283 93,760
Cumulative Effect of Change in Accounting Principle
Income (Loss) from Discontinued Operations (net of income tax
provision (benefit) and minority interest of $12,249, $(107,089), and
$91,981; Note 18) 14,228 (163,325) 87,701
Provision for Loss on Disposal of Discontinued Operations (net of
income tax provision (benefit) of $(104,000) and $174,000; Note 18) (100,000) (50,000) -
---------- ---------- ----------
Income (Loss) Before Extraordinary Item and Cumulative Effect of
Change in Accounting Principle (23,725) (176,042) 181,461
Extraordinary Item (net of income tax provision and minority interest
of $333, $900, and $470; Note 5) 532 1,469 440
---------- ---------- ----------
Income (Loss) Before Cumulative Effect of Change in Accounting Principle (23,193) (174,573) 181,901
Cumulative Effect of Change in Accounting Principle (net of income
tax benefit and minority interest of $8,986; Note 14) (12,918) - -
Net Income (Loss) $ (36,111) $ (174,573) $ 181,901
========== ========== ==========
Earnings per Share from Continuing Operations Before Extraordinary
Item and Cumulative Effect of Change in Accounting Principle (Note 16)
Basic $ .37 $ .24 $ .58
========== ========== ==========
Diluted $ .36 $ .22 $ .55
========== ========== ==========
Earnings (Loss) per Share (Note 16)
Basic $ (.22) $ (1.10) $ 1.12
========== ========== ==========
Diluted $ (.22) $ (1.12) $ 1.08
========== ========== ==========
Weighted Average Shares (Note 16)
Basic 167,462 157,987 161,866
========== ========== ==========
Diluted 170,519 158,223 162,973
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
2
Thermo Electron Corporation 2000 Financial Statements
Consolidated Balance Sheet
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 505,524 $ 237,844
Short-term available-for-sale investments, at quoted market value
(amortized cost of $510,312 and $545,640; Notes 2 and 11) 521,329 555,501
Accounts receivable, less allowances of $30,593 and $33,650 431,476 534,241
Unbilled contract costs and fees 18,520 18,575
Inventories (Note 11) 394,152 365,876
Deferred tax asset (Note 8) 148,051 119,671
Other current assets 75,007 34,705
Net assets of discontinued operations (Note 18) 371,470 497,728
---------- ----------
2,465,529 2,364,141
---------- ----------
Property, Plant, and Equipment, at Cost, Net (Note 11) 285,878 315,647
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value
(amortized cost of $9,883 and $4,838; Notes 2 and 11) 17,110 6,145
---------- ----------
Other Assets (Notes 3 and 11) 183,974 199,713
---------- ----------
Goodwill (Notes 3, 8, and 11) 1,378,663 1,224,827
---------- ----------
Long-term Net Assets of Discontinued Operations (Note 18) 531,823 961,284
---------- ----------
$4,862,977 $5,071,757
========== ==========
3
Thermo Electron Corporation 2000 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term obligations and current maturities of long-term obligations
(Note 5) $ 103,356 $ 275,308
Advance payable to affiliates (Note 5) 16,088 112,523
Accounts payable 139,662 135,442
Accrued payroll and employee benefits 78,483 87,705
Accrued income taxes 95,344 112,993
Deferred revenue 50,341 47,440
Accrued installation and warranty costs 37,058 44,198
Other accrued expenses (Notes 1, 3, and 11) 208,219 256,981
---------- ----------
728,551 1,072,590
---------- ----------
Deferred Income Taxes (Note 8) 10,691 23,735
---------- ----------
Other Deferred Items 36,539 39,892
---------- ----------
Long-term Obligations (Note 5):
Senior convertible obligations 172,500 172,500
Senior notes 150,000 150,000
Subordinated convertible obligations 1,177,565 1,209,305
Other 28,418 34,169
---------- ----------
1,528,483 1,565,974
---------- ----------
Minority Interest (Note 18) 24,737 348,356
---------- ----------
Commitments and Contingencies (Note 6)
Common Stock Subject to Redemption (at redemption value; Note 1) - 7,692
---------- ----------
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; 195,877,421
and 167,432,776 shares issued 195,877 167,433
Capital in excess of par value 1,681,452 1,052,837
Retained earnings 1,005,857 1,041,968
Treasury stock at cost, 13,708,863 and 10,955,798 shares (246,228) (189,646)
Deferred compensation (6,640) (3,149)
Accumulated other comprehensive items (Note 17) (96,342) (55,925)
---------- ----------
2,533,976 2,013,518
---------- ----------
$4,862,977 $5,071,757
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
4
Thermo Electron Corporation 2000 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ (36,111) $(174,573) $ 181,901
Adjustments to reconcile net income (loss) to income
from continuing operations:
(Income) loss from discontinued operations (Note 18) (14,228) 163,325 (87,701)
Provision for loss on disposal of discontinued
operations (Note 18) 100,000 50,000 -
--------- --------- ---------
Income from continuing operations 49,661 38,752 94,200
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 97,486 91,429 75,169
Noncash restructuring and other unusual costs, net (Note 11) 22,865 30,214 3,226
Provision for losses on accounts receivable 9,264 8,614 5,002
Minority interest expense 10,567 23,048 32,231
Equity in (earnings) loss of unconsolidated
subsidiaries (Note 11) 47,315 7,274 (150)
Cumulative effect of change in accounting principle, net
of income taxes and minority interest (Note 14) 12,918 - -
Change in deferred income taxes (39,700) (28,378) (493)
Gain on issuance of stock by subsidiaries (Note 9) - - (18,583)
Gain on sale of businesses (Notes 3 and 11) (126,330) - -
Gain on investments, net (6,849) (3,662) (12,812)
Extraordinary item, net of income taxes and minority
interest (Note 5) (532) (1,469) (440)
Other noncash items, net 29,213 17,675 19,686
Other unusual income (4,372) - -
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable (27,395) (19,737) (485)
Inventories (77,356) 14,260 11,733
Other current assets (4,710) (8,800) 10,973
Accounts payable 17,742 2,012 (14,971)
Other current liabilities 47,982 17,499 31,166
--------- --------- ---------
Net cash provided by continuing operations 57,769 188,731 235,452
Net cash provided by discontinued operations 142,152 148,390 93,010
--------- --------- ---------
Net cash provided by operating activities 199,921 337,121 328,462
--------- --------- ---------
Investing Activities
Acquisitions, net of cash acquired (Note 3) (15,808) (344,615) (173,685)
Acquisition of minority interests of subsidiaries (Note 18) (307,166) (43,176) -
Payment to affiliated company for prior year acquisition - - (19,117)
Refund of acquisition purchase price (Note 3) - 8,969 -
Proceeds from sale of businesses (Note 3) 253,583 61 750
Purchases of available-for-sale investments (473,576) (554,870) (1,896,051)
5
Thermo Electron Corporation 2000 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Investing Activities (continued)
Proceeds from sale of available-for-sale investments $ 113,220 $ 281,451 $ 134,472
Proceeds from maturities of available-for-sale
investments 403,134 794,288 1,505,494
Purchases of property, plant, and equipment (74,039) (61,238) (38,331)
Proceeds from sale of property, plant, and equipment 21,828 9,604 12,098
Advance (to) from affiliates (96,434) 8,633 (49,646)
Increase in other assets (3,954) (4,797) (3,287)
Other 14,193 5,956 (786)
--------- --------- ---------
Net cash provided by (used in) continuing operations (165,019) 100,266 (528,089)
Net cash provided by (used in) discontinued operations 394,596 (173,834) (104,227)
--------- --------- ---------
Net cash provided by (used in) investing activities 229,577 (73,568) (632,316)
--------- --------- ---------
Financing Activities
Net proceeds from issuance of long-term obligations 14,577 16,813 393,196
Repayment of long-term obligations (161,191) (40,283) (25,961)
Net proceeds from issuance of Company and subsidiary
common stock (Notes 7 and 9) 58,466 14,896 384,686
Purchases of Company and subsidiary common stock and
subordinated convertible debentures (Note 5) (43,787) (190,412) (440,492)
Increase (decrease) in short-term notes payable (19,183) 25,373 (8,948)
Other (4,377) (6,669) (35,582)
--------- --------- ---------
Net cash provided by (used in) continuing operations (155,495) (180,282) 266,899
Net cash provided by (used in) discontinued operations 17,914 (106,601) (164,721)
--------- --------- ---------
Net cash provided by (used in) financing activities (137,581) (286,883) 102,178
--------- --------- ---------
Exchange Rate Effect on Cash in Continuing Operations (2,883) (12,242) 1,886
Exchange Rate Effect on Cash in Discontinued Operations (9,997) (3,883) 2,880
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 279,037 (39,455) (196,910)
Cash and Cash Equivalents at Beginning of Year 357,215 396,670 593,580
--------- --------- ---------
636,252 357,215 396,670
Cash and Cash Equivalents of Discontinued Operations at
End of Year (130,728) (119,371) (162,887)
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 505,524 $ 237,844 $ 233,783
========= ========= =========
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial statements.
6
Thermo Electron Corporation 2000 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Comprehensive Income
Net Income (Loss) $ (36,111) $ (174,573) $ 181,901
---------- ---------- ----------
Other Comprehensive Items (Note 17):
Foreign currency translation adjustment (44,975) (50,979) 24,089
Unrealized gains (losses) on available-for-sale
investments, net of reclassification adjustment 4,558 4,651 (3,943)
---------- ---------- ----------
(40,417) (46,328) 20,146
Minority interest 5,188 9,439 (6,194)
---------- ---------- ----------
(35,229) (36,889) 13,952
---------- ---------- ----------
$ (71,340) $ (211,462) $ 195,853
========== ========== ==========
Shareholders' Investment
Common Stock, $1 Par Value:
Balance at beginning of year $ 167,433 $ 166,971 $ 159,206
Acquisition of minority interests of subsidiaries (Note 18) 22,553 - -
Public offering of Company common stock (Note 7) - - 7,475
Issuance of stock under employees' and directors' stock 5,891 462 290
---------- ---------- ----------
plans
Balance at end of year 195,877 167,433 166,971
---------- ---------- ----------
Capital in Excess of Par Value:
Balance at beginning of year 1,052,837 1,033,799 843,709
Acquisition of minority interests of subsidiaries (Note 18) 541,434 - -
Public offering of Company common stock (Note 7) - - 282,655
Activity under employees' and directors' stock plans 84,840 4,093 (3,285)
Tax benefit related to employees' and directors' stock
plans 18,000 1,645 10,938
Effect of majority-owned subsidiaries' equity transactions (15,659) 13,300 (100,218)
---------- ---------- ----------
Balance at end of year 1,681,452 1,052,837 1,033,799
---------- ---------- ----------
Retained Earnings:
Balance at beginning of year 1,041,968 1,216,541 1,034,640
Net income (loss) (36,111) (174,573) 181,901
---------- ---------- ----------
Balance at end of year $1,005,857 $1,041,968 $1,216,541
---------- ---------- ----------
7
Thermo Electron Corporation 2000 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Treasury Stock:
Balance at beginning of year $ (189,646) $ (151,643) $ (3,839)
Purchases of Company common stock (22,826) (44,758) (148,132)
Activity under employees' and directors' stock plans (26,590) 6,755 328
Receipt of Company common stock as repayment of notes
receivable (6,155) - -
Receipt of Company common stock in connection with sale of
business (1,011) - -
---------- ---------- ----------
Balance at end of year (246,228) (189,646) (151,643)
---------- ---------- ----------
Deferred Compensation (Note 4):
Balance at beginning of year (3,149) - -
Awards under employees' stock plans (7,818) (4,061) -
Amortization of deferred compensation 3,725 912 -
Forfeitures under employees' stock plans 602 - -
---------- ---------- ----------
Balance at end of year (6,640) (3,149) -
---------- ---------- ----------
Accumulated Other Comprehensive Items (Note 17):
Balance at beginning of year (55,925) (9,597) (29,743)
Other comprehensive items (40,417) (46,328) 20,146
---------- ---------- ----------
Balance at end of year (96,342) (55,925) (9,597)
---------- ---------- ----------
$2,533,976 $2,013,518 $2,256,071
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
8
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Nature of Operations
Thermo Electron Corporation (the Company) is a global leader in the
development, manufacture, and sale of technology-based instrument systems,
components, and solutions used in virtually every industry to monitor, collect,
and analyze data to provide knowledge for the user. For example, the Company's
powerful analysis technologies help biotech researchers sift through data to
make the discoveries that will fight disease or prolong life; allow
telecommunications equipment manufacturers to fabricate components required to
increase the speed and quality of communications; and monitor and control
industrial processes on-line to ensure that critical quality standards are met
efficiently and safely.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its majority- and wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The Company accounts for
investments in businesses in which it owns between 20% and 50% using the equity
method.
Presentation
In January 2000, the Company modified its proposed reorganization
involving the Company and certain of its subsidiaries. As part of this
reorganization, the Company announced plans to spin off or sell several of its
businesses and has taken private all of its other remaining majority-owned
subsidiaries in its continuing operations except for Spectra-Physics Lasers,
Inc. (SPLI). In February 2001, the Company entered into a definitive agreement
to sell its power generation business. The results of operations of certain
major lines of business that have been or will be sold or spun-off have been
classified as discontinued operations in the accompanying financial statements
(Note 18).
In addition, certain amounts in 1999 and 1998 have been reclassified to
conform to the presentation in the 2000 financial statements.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 2000, 1999, and 1998 are for the fiscal years ended December
30, 2000, January 1, 2000, and January 2, 1999, respectively.
Revenue Recognition
Prior to 2000, the Company generally recognized revenues upon shipment of
its products. During the fourth quarter of 2000, effective as of January 2,
2000, the Company adopted Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Under SAB No. 101, when the terms of sale include customer
acceptance provisions, and compliance with those provisions can not be
demonstrated until customer use, revenues are recognized upon acceptance.
Revenues for products that require installation for which the installation is
essential to functionality or is not deemed inconsequential or perfunctory are
recognized upon completion of installation. Revenues for products sold where
installation is not essential to functionality and is deemed inconsequential or
perfunctory are recognized upon shipment with estimated installation costs
accrued (Note 14).
In restating quarterly results for 2000 to comply with SAB No. 101, the
Company included adjustments to record amounts billed to customers for shipping
and handling costs as revenues with the associated costs reported as cost of
revenues. Previously, amounts billed to customers for shipping and handling had
generally been reported as an offset to the related cost. Periods prior to 2000
were not restated for shipping and handling costs due to immateriality.
The Company provides a reserve for its estimate of warranty costs at the
time revenue is recognized. Deferred revenue in the accompanying balance sheet
consists primarily of unearned revenue on service contracts. Substantially all
of the deferred revenue in the accompanying 2000 balance sheet will be
recognized within one year.
9
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 comprehensive income
and shareholders' investment as "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 shareholders' investment.
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 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 (Loss) per Share
Basic earnings (loss) per share has been computed by dividing net income
(loss) by the weighted average number of shares outstanding during the year.
Except where the result would be antidilutive to income from continuing
operations, diluted earnings (loss) per share has 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 (Note 16).
Cash and Cash Equivalents
Cash equivalents consists principally of corporate bonds and notes, U.S.
government-agency securities, money market funds, commercial paper, 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 net realizable value and include materials, labor,
and manufacturing overhead. The components of inventories are as follows:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Raw Materials and Supplies $169,885 $169,887
Work in Progress 65,625 66,746
Finished Goods (includes $33,605 at customer locations in 2000) 158,642 129,243
-------- --------
$394,152 $365,876
======== ========
10
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
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, 3 to 40
years; machinery and equipment, 1 to 20 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Land $ 40,292 $ 46,492
Buildings and Improvements 143,012 168,487
Machinery, Equipment, and Leasehold Improvements 301,251 278,097
-------- --------
484,555 493,076
Less: Accumulated Depreciation and Amortization 198,677 177,429
-------- --------
$285,878 $315,647
======== ========
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 2 to 20 years. Intangible assets were $46.8 million and
$48.2 million, net of accumulated amortization of $36.1 million and $29.4
million, at year-end 2000 and 1999, respectively.
Goodwill
Goodwill is amortized using the straight-line method over periods ranging
from 5 to 40 years. Accumulated amortization was $192.8 million and $154.9
million at year-end 2000 and 1999, respectively. The Company assesses the future
useful life of this and other noncurrent assets whenever events or changes in
circumstances indicate that the current useful life has diminished. Such events
or circumstances generally include the occurrence of operating losses or a
significant decline in earnings associated with the acquired business or asset.
The Company considers the future undiscounted cash flows of the acquired
companies in assessing the recoverability of this asset. The Company assesses
cash flows before interest charges, and when impairment is indicated, writes the
asset down to fair value. If quoted market values are not available, the Company
estimates fair value by calculating the present value of future cash flows. If
impairment has occurred, any excess of carrying value over fair value is
recorded as a loss (Note 11).
11
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Common Stock Subject to Redemption
In April 1997, ThermoLase Corporation, a formerly majority-owned
subsidiary of the Company, 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
entitled 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. In
connection with this offer, in April 1997, ThermoLase issued 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
in 1997 from "Shareholders' investment" and "Minority interest" to "Common stock
subject to redemption," based on the issuance of the 2,000,000 redemption
rights, each carrying a maximum liability of $20.25. During 1999, the Company
purchased 1,620,127 of ThermoLase's redemption rights. The remaining 379,873
redemption rights outstanding have a redemption value of $7.7 million and are
included in other accrued expenses in the accompanying 2000 balance sheet. As a
result of the Company's merger with ThermoLase (Note 18), the ThermoLase units
were modified to consist of a fractional share of Company common stock, which is
redeemable at the option of the holder in April 2001 for $20.25.
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 in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of operations and are not material for the three years presented.
Forward Contracts
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 U.S. dollars, British pounds
sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish
krona, and Netherlands guilders. 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.
The Company does not generally enter into speculative foreign currency
agreements. See Note 11 for the effect of a majority-owned subsidiary's early
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
Recent Accounting Pronouncement
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133. SFAS No. 133, as amended, requires that all derivatives, including
foreign currency exchange contracts, be recognized on the balance sheet at fair
value. Changes in the fair value of derivatives that are not hedges must be
recorded through earnings. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative are either offset
against the change in fair value of the hedged item through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Company is required to adopt SFAS No. 133 in 2001. The adoption of
SFAS No. 133 will not materially affect the Company's financial statements.
12
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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. In addition, significant estimates were made in determining
the loss on disposition of the Company's discontinued operations (Note 18).
Actual results could differ from those estimates.
2. Available-for-sale Investments
- --------------------------------------------------------------------------------
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 in the "Accumulated other comprehensive items"
component of shareholders' investment.
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
- ---------------------------------------------------------------------------------------------------------
2000
Corporate Bonds and Notes $ 434,140 $ 431,553 $ 2,749 $ (162)
U.S. Government-agency Securities 42,475 42,318 222 (65)
Other 61,824 46,324 17,633 (2,133)
---------- ---------- ---------- ----------
$ 538,439 $ 520,195 $ 20,604 $ (2,360)
========== ========== ========== ==========
1999
Corporate Bonds and Notes $ 319,065 $ 320,058 $ 183 $ (1,176)
U.S. Government-agency Securities 187,722 188,162 21 (461)
Other 54,859 42,258 13,955 (1,354)
---------- ---------- ---------- ----------
$ 561,646 $ 550,478 $ 14,159 $ (2,991)
========== ========== ========== ==========
Short- and long-term available-for-sale investments in the accompanying
2000 balance sheet include equity securities of $45.3 million and debt
securities of $254.9 million with contractual maturities of one year or less and
$238.2 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 features of the securities 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 operations. The net gain on the sale of
available-for-sale investments resulted from gross realized gains of $9.3
million, $7.6 million, and $13.6 million and gross realized losses of $2.5
million, $3.9 million, and $0.8 million in 2000, 1999, and 1998, respectively.
13
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions
- --------------------------------------------------------------------------------
Acquisitions
In 2000, the Company made several acquisitions for $15.8 million in cash,
net of cash acquired. In February 1999, the Company acquired 17,494,684 shares
(or approximately 99%) of Spectra-Physics AB, a Stockholm Stock Exchange-listed
company, for approximately 160 Swedish krona per share (approximately $20 per
share) in completion of the Company's cash tender offer to acquire all of the
outstanding shares of Spectra-Physics. In March 2000, the Company completed the
acquisition of the remaining Spectra-Physics shares outstanding pursuant to the
compulsory acquisition rules applicable to Swedish companies. As part of the
acquisition of Spectra-Physics, the Company acquired Spectra-Physics' majority-
owned public subsidiary, SPLI. The aggregate purchase price was approximately
$351.5 million, including related expenses. On the date of acquisition, Spectra-
Physics had $39.1 million of cash, which included $30.5 million held by SPLI.
Spectra-Physics manufactures a wide range of laser-based instrumentation
systems, primarily for the process-control, industrial measurement, research,
commercial, and government markets.
In connection with the acquisition of Spectra-Physics, the Company
acquired 4,162,000 shares of FLIR Systems, Inc. common stock. FLIR designs,
manufactures, and markets thermal imaging and broadcast camera systems that
detect infrared radiation or heat emitted directly by all objects and materials.
The Company accounts for its investment in FLIR using the equity method with a
one quarter lag to ensure the availability of FLIR's operating results in time
to enable the Company to include its pro rata share of FLIR's results with its
own. During 1999, FLIR consummated a pooling-of-interests transaction that
decreased the Company's pro rata share of FLIR's equity from 34.6% to 29.4%.
During 2000, the Company recorded a charge to reflect an impairment of its
investment in FLIR that was deemed to be other than temporary (Note 11). The
investment in FLIR is included in other assets in the accompanying balance
sheet.
Summary unaudited financial information for FLIR as of September 30, 2000,
and for the 12 months then ended is as follows:
(In thousands) 2000
- ----------------------------------------------------------------------------------------------------------
Current Assets $ 114,494
Noncurrent Assets 51,439
---------
Total Assets $ 165,933
=========
Current Liabilities $ 132,917
Noncurrent Liabilities 4,251
Shareholders' Equity 28,765
---------
Total Liabilities and Shareholders' Equity $ 165,933
=========
(In thousands) Twelve Months Ended
September 30,
2000
- ----------------------------------------------------------------------------------------------------------
Revenues $181,562
Cost of Revenues 114,211
Gross Profit $ 67,351
========
Net Loss $(59,992)
========
14
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
- --------------------------------------------------------------------------------
In 1999, in addition to the acquisition of Spectra-Physics, the Company
and its formerly majority-owned subsidiaries made several other acquisitions for
$32.2 million in cash, net of cash acquired.
In 1998, the Company's formerly majority-owned subsidiaries made several
acquisitions for $173.7 million in cash, net of cash acquired.
These acquisitions 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 $289.2 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 2000, 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 its acquisitions, the Company has undertaken
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1998 is as follows:
1998 Acquisitions
--------------------------------------
Abandonment
of Excess Pre-1998
(In thousands) Severance Facilities Other Acquisitions Total
- ----------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 $ - $ - $ - $ 20,683 $ 20,683
Reserves established 3,937 2,083 468 - 6,488
Increases in reserves
related to 1997
acquisitions - - - 1,899 1,899
Payments (1,588) (418) (247) (7,783) (10,036)
Decrease recorded as a
reduction in goodwill - - - (3,021) (3,021)
Currency translation 9 (33) 23 272 271
-------- -------- -------- -------- --------
Balance at January 2, 1999 2,358 1,632 244 12,050 16,284
Reserves established 989 1,464 616 - 3,069
Payments (1,939) (1,479) (752) (2,442) (6,612)
Decrease recorded as a
reduction in goodwill (1,055) (466) - - (1,521)
Currency translation (72) 34 (25) (480) (543)
-------- -------- -------- -------- --------
Balance at January 1, 2000 281 1,185 83 9,128 10,677
Payments (189) (354) (44) (1,796) (2,383)
Decrease recorded as a
reduction in goodwill (66) (94) (39) (99) (298)
Currency translation (26) (85) - (718) (829)
-------- -------- -------- -------- --------
Balance at December 30, 2000 $ - $ 652 $ - $ 6,515 $ 7,167
======== ======== ======== ======== ========
15
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
- --------------------------------------------------------------------------------
The principal acquisition expenses for pre-1998 acquisitions were for
severance for 385 employees across all functions and for abandoned facilities,
primarily from the 1997 acquisition of Life Sciences International PLC. The
facilities primarily include an operating location in Runcorn, England, with an
obligation through 2014. The Company finalized its restructuring plans for the
1997 acquisitions in 1998.
The principal acquisition expenses for 1998 acquisitions were for
severance for 216 employees across all functions and for abandoned facilities,
primarily related to the Company's acquisition of the product-monitoring
businesses of Graseby Limited. The abandoned facilities related to the
product-monitoring businesses include two operating facilities in North America
with leases expiring in 2001. The amounts captioned as "other" in 1998 primarily
represent employee relocation costs. The Company finalized its restructuring
plans for the 1998 acquisitions in 1999.
A summary of accrued acquisition expenses for acquisitions completed
during 1999 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------------------------------------------------------------------
Reserves established $ 9,464 $ 1,355 $ 3,364 $14,183
Payments (3,899) (71) (957) (4,927)
Currency translation (303) (111) (74) (488)
------- ------- ------- -------
Balance at January 1, 2000 5,262 1,173 2,333 8,768
Reserves established 90 111 - 201
Payments (2,767) (420) (761) (3,948)
Decrease recorded as a reduction in
goodwill (213) - - (213)
Reserves of businesses sold (715) (154) (999) (1,868)
Currency translation 189 (200) (60) (71)
------- ------- ------- -------
Balance at December 30, 2000 $ 1,846 $ 510 $ 513 $ 2,869
======= ======= ======= =======
The principal acquisition expenses for 1999 acquisitions were for
severance for approximately 175 employees across all functions and for abandoned
facilities, primarily at Spectra-Physics. The abandoned facilities at
Spectra-Physics include operating facilities in Sweden, Germany, and France with
obligations primarily through 2001. The amounts captioned as "other" primarily
represent employee relocation, contract termination, and other exit costs. The
Company expects to pay amounts accrued for severance, abandoned facilities, and
other primarily through 2001. The Company finalized its restructuring plans for
Spectra-Physics and other 1999 acquisitions in 1999 and 2000.
A summary of accrued acquisition expenses for acquisitions completed
during 2000 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Total
- ----------------------------------------------------------------------------------------------------------
Reserves established $ 99 $ 52 $ 151
Payments (94) (20) (114)
Currency translation (3) - (3)
----- ----- -----
Balance at December 30, 2000 $ 2 $ 32 $ 34
===== ===== =====
16
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
- --------------------------------------------------------------------------------
Unresolved matters at year-end 2000 include completion of planned
severances and abandonment of excess facilities for acquisitions completed in
2000. Such matters will be resolved no later than one year from the respective
acquisition dates.
Dispositions
On July 14, 2000, the Company completed the sale of its wholly owned
Spectra Precision businesses to Trimble Navigation Limited for $208.1 million in
net cash proceeds and $80.0 million in seller debt financing, subject to a
post-closing adjustment. The note from the buyer calls for repayment in two
equal, annual installments beginning in July 2001 and carries interest at 10%
per annum. The note has provisions that require earlier repayment under certain
conditions. Spectra Precision, formerly part of the Measurement and Control
segment, was acquired as part of Spectra-Physics and provides the construction,
surveying, and heavy machine industries with precision positioning equipment. In
2000, the Company's continuing operations sold several other noncore businesses
for net cash proceeds of $45.5 million. The Company realized aggregate pretax
gains of $126.3 million in 2000 from the sale of businesses, which are included
in restructuring and other unusual costs (income), net, in the accompanying
statement of operations. These businesses were sold as part of an effort to
focus on potentially higher-growth opportunities in the Life Sciences and
Optical Technologies segments.
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. These plans permit 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 zero to ten years,
depending on the term of the option, which may range from three to twelve years.
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 that provides for the annual
grant of stock options of the Company to outside directors pursuant to a formula
approved by the Company's shareholders. Options awarded under this plan are
immediately exercisable and expire three to seven years after the date of grant.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 1,513,000 shares at a weighted average exercise price of $36.15 per
share elected to participate in this exchange and, as a result, received options
to purchase 756,000 shares of Company common stock at $18.08 per share, which
are included in the 1998 grants in the table below. The other terms of the new
options were the same as the exchanged options except that the holders could not
sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
17
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
- --------------------------------------------------------------------------------
In 2000 and 1999, the Company awarded 372,800 and 193,000 shares,
respectively, of restricted Company common stock with an aggregate value of $7.8
million and $3.5 million, respectively, to certain key employees. The shares
generally vest over three years, assuming continued employment, with certain
exceptions. Also in 1999, certain of the Company's formerly majority-owned
subsidiaries awarded shares of restricted common stock of their respective
companies. The shares of subsidiary common stock had the same terms as the
Company's restricted common stock and had an aggregate value of $0.6 million.
During 2000, the restricted common stock of the Company's formerly
majority-owned subsidiaries was converted into 100,715 shares of restricted
Company common stock with the same terms. The Company has recorded the fair
value of the restricted stock as deferred compensation in the accompanying
balance sheet and is amortizing such amount over the vesting periods.
A summary of the Company's stock option activity is as follows:
2000 1999 1998
----------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Exercise
of Exercise of Exercise of Average
(Shares in thousands) Shares Price Shares Price Shares Price
- ---------------------------------------------- -------- ---------- -------- ---------- --------- ---------
Options Outstanding, Beginning of Year 13,628 $19.61 9,913 $22.38 8,831 $24.19
Granted 2,231 21.50 3,406 16.83 3,554 23.64
Assumed in mergers with subsidiaries
(Note 18) 13,948 17.00 1,612 11.61 - -
Exercised (5,086) 15.74 (382) 12.57 (625) 15.96
Forfeited (3,586) 17.73 (921) 27.99 (334) 33.38
Canceled due to exchange - - - - (1,513) 36.15
------ ------ ------
Options Outstanding, End of Year 21,135 $19.32 13,628 $19.61 9,913 $22.38
====== ====== ====== ====== ====== ======
Options Exercisable 21,135 $19.32 13,628 $19.61 9,909 $22.38
====== ====== ====== ====== ====== ======
Options Available for Grant 3,290 4,756 3,417
====== ====== ======
A summary of the status of the Company's stock options at December 30,
2000, is as follows:
Options Outstanding and Exercisable
------------------------------------------------------
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
- ---------------------------------------------------------------------------------------------------------
$ 2.15 - $ 14.63 7,467 7.1 years $ 11.85
14.64 - 27.12 10,520 6.0 years 18.90
27.13 - 39.61 2,534 6.6 years 34.11
39.62 - 226.87 614 8.0 years 56.99
------
$ 2.15 - $226.87 21,135 6.5 years $ 19.32
======
18
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
- --------------------------------------------------------------------------------
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 program, shares of the Company's common stock may be purchased at 85%
of the lower of the fair market value at the beginning or end of the purchase
period, and the shares purchased are subject to a one-year resale restriction.
Shares are purchased through payroll deductions of up to 10% of each
participating employee's gross wages. Prior to the 2000 plan year, participants
of employee stock purchase programs sponsored by the Company's formerly
majority-owned public subsidiaries could also elect to purchase shares of the
common stock of the subsidiary at which they are employed under the same general
terms described above. During 2000 and 1999, the Company issued 693,000 shares
and 415,000 shares, respectively, of its common stock under this plan. No shares
of Company common stock were issued under this plan during 1998.
Pro Forma Stock-based Compensation Expense
In October 1995, the FASB 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 granted after 1994 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 certain financial information of the Company would have been
as follows:
(In thousands except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle:
As reported $ 62,047 $ 37,283 $ 93,760
Pro forma 45,965 25,281 84,901
Basic Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in Accounting
Principle:
As reported .37 .24 .58
Pro forma .27 .16 .52
Diluted Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in Accounting
Principle:
As reported .36 .22 .55
Pro forma .26 .14 .49
Net Income (Loss):
As reported $ (36,111) $(174,573) $ 181,901
Pro forma (52,131) (201,186) 158,602
Basic Earnings (Loss) per Share:
As reported (.22) (1.10) 1.12
Pro forma (.31) (1.27) .98
Diluted Earnings (Loss) per Share:
As reported (.22) (1.12) 1.08
Pro forma (.31) (1.29) .94
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.
19
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
- --------------------------------------------------------------------------------
The weighted average fair value per share of options granted was $7.65,
$5.61, and $8.13 in 2000, 1999, and 1998, 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:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Volatility 35% 32% 29%
Risk-free Interest Rate 4.9% 5.6% 4.8%
Expected Life of Options 3.9 years 3.9 years 4.7 years
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 and Other Defined Contribution Plans
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.
Certain of the Company's subsidiaries offer retirement plans in lieu of
participation in the Company's principal 401(k) savings plan. Company
contributions to these plans are based on formulas determined by the Company.
For these plans, the Company contributed and charged to expense $18.3
million, $15.8 million, and $13.4 million in 2000, 1999, and 1998, respectively.
Defined Benefit Pension Plans
Two of the Company's German subsidiaries and one of its U.K. subsidiaries
have defined benefit pension plans covering substantially all full-time
employees at the respective subsidiaries. One of the German subsidiaries' plans
is unfunded, as permitted under the plan and applicable laws. Net periodic
benefit costs for the plans in aggregate included the following components:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Service Cost $ 2,238 $ 2,639 $ 2,859
Interest Cost on Benefit Obligation 3,834 3,899 4,414
Expected Return on Plan Assets (5,793) (5,264) (6,616)
Recognized Net Actuarial Gain (180) (34) (39)
Amortization of Unrecognized Gain (2) (23) (50)
Amortization of Unrecognized Initial Obligation 36 41 43
------- ------- -------
$ 133 $ 1,258 $ 611
======= ======= =======
20
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
- --------------------------------------------------------------------------------
The activity under the Company's defined benefit plans is as follows:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 71,762 $ 77,013
Service cost 2,238 2,639
Interest cost 3,834 3,899
Benefits paid (1,878) (1,876)
Actuarial (gain) loss 3,525 (5,288)
Currency translation (5,709) (4,625)
-------- --------
Benefit obligation, end of year 73,772 71,762
-------- --------
Change in Plan Assets:
Fair value of plan assets, beginning of year 89,393 79,893
Company contributions 114 186
Benefits paid (1,474) (1,482)
Actual return (loss) on plan assets (4,505) 13,981
Currency translation (6,949) (3,185)
------- -------
Fair value of plan assets, end of year 76,579 89,393
------- -------
Funded Status 2,807 17,631
Unrecognized Net Actuarial (Gain) Loss 252 (14,595)
Unrecognized Initial Obligation 107 155
-------- --------
Prepaid Pension Costs $ 3,166 $ 3,191
======== ========
The aggregate projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $18.0 million, $14.2 million,
and $5.7 million, respectively, at year-end 2000 and $17.7 million, $14.6
million, and $5.2 million, respectively, at year-end 1999.
The weighted average rates used to determine the net periodic pension
costs were as follows:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Discount Rate 5.3% 5.1% 7.0%
Rate of Increase in Salary Levels 4.4% 4.4% 6.3%
Expected Long-term Rate of Return on Assets 6.9% 6.9% 9.7%
21
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Long-term Obligations and Other Financing Arrangements
- --------------------------------------------------------------------------------
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------
4 1/2% Senior Convertible Debentures, Due 2003, Convertible at $40.54 per Share $ 172,500 $ 172,500
7 5/8% Senior Notes, Due 2008 150,000 150,000
4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $37.80 per
Share 561,563 568,837
4% Subordinated Convertible Debentures, Due 2005, Convertible at $41.94 per
Share 247,000 247,000
4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible at $40.30 per
Share 110,191 111,335
4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible at $131.71
per Share 98,310 106,775
3 1/4% Subordinated Convertible Debentures, Due 2007, Convertible at $49.06 per
Share 78,048 78,948
4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible at $38.28 per
Share 35,029 42,124
Noninterest-bearing Subordinated Convertible Debentures, Due 2003, Convertible
at $72.62 per Share 31,565 31,565
2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible at $33.17 per
Share 15,859 15,859
2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible into Shares
of Subsidiary Common Stock 4,787 5,042
Noninterest-bearing Subordinated Convertible Debentures, Due 2001, Convertible
at $31.46 per Share 1,680 1,820
5% Subordinated Convertible Debentures, Due 2000, Convertible into Shares of
Subsidiary Common Stock - 60,731
5% Subordinated Convertible Debentures, Due 2000, Convertible into Shares of
Subsidiary Common Stock - 60,530
4 7/8% Subordinated Convertible Debentures, Due 2000, Convertible into Shares
of Subsidiary Common Stock - 33,650
Other 44,361 42,593
---------- ----------
1,550,893 1,729,309
Less: Current Maturities 22,410 163,335
---------- ----------
$1,528,483 $1,565,974
========== ==========
Outstanding debentures issued by subsidiaries that were taken private in
transactions in which the consideration paid to stockholders of the subsidiary
was Company common stock have become convertible into the Company's common
stock. Outstanding debentures issued by subsidiaries that have been taken
private in transactions in which the consideration paid to stockholders of the
subsidiary was cash became convertible into the same cash consideration payable
in the merger transaction. Holders of such debentures had the right to cause the
debentures to be redeemed 90 days following the effective date of the merger
(Note 18). The interest cost of this debt has been included as interest expense
of continuing operations in the accompanying statement of operations. No
allocation of interest expense for debt of the Company's continuing operations
has been made to discontinued operations.
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%
subordinated 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.
22
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Long-term Obligations and Other Financing Arrangements (continued)
- --------------------------------------------------------------------------------
The annual requirements for long-term obligations are as follows:
(In thousands)
- ----------------------------------------------------------------------------------------------------------
2001 $ 22,410
2002 14,905
2003 898,760
2004 134,275
2005 247,603
2006 and thereafter 232,940
----------
$1,550,893
==========
See Note 13 for fair value information pertaining to the Company's long-
term obligations. Short-term obligations and current maturities of long-term
obligations in the accompanying balance sheet includes $80.9 million and $112.0
million in 2000 and 1999, 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 4.7% and 3.4% at year-
end 2000 and 1999, respectively. Unused lines of credit were $240 million as of
year-end 2000.
During 2000, the Company repurchased $7.3 million principal amount of its
4 1/4% subordinated convertible debentures for $6.5 million in cash, resulting
in an extraordinary gain of $0.5 million, net of taxes of $0.3 million. During
1999, the Company repurchased $16.2 million principal amount of its 4 1/4%
subordinated convertible debentures for $13.6 million in cash, resulting in an
extraordinary gain of $1.5 million, net of taxes of $0.9 million. During 1998,
certain formerly majority-owned subsidiaries repurchased $14.3 million principal
amount of their subordinated convertible debentures for $13.3 million in cash,
resulting in an extraordinary gain of $0.4 million, net of taxes and minority
interest of $0.5 million.
The Company has a cash management arrangement in which certain of its
subsidiaries participate, including certain operating units of discontinued
operations. Amounts invested by the subsidiaries in this arrangement that will
be retained by the discontinued operations at disposal have been classified as
"advance payable to affiliates" in the accompanying balance sheet.
Long-term net assets of discontinued operations in 2000 and 1999 includes
$153.0 million principal amount of 4 1/2% subordinated debentures due 2004 and
convertible into shares of Thermo Fibertek Inc. common stock at $12.10 per
share. The net assets of discontinued operations at year-end 2000 and 1999 also
reflects $17.0 million and $49.2 million, respectively, of redeemable stock
obligations of Thermo Fibergen Inc., redeemable in September 2000 or 2001. The
Company will remain a guarantor of these obligations following the spin off of
Thermo Fibertek and its Thermo Fibergen subsidiary (Note 18).
Long-term net assets of discontinued operations also includes $54.8
million and $58.0 million principal amount of 4 3/4% subordinated convertible
debentures of Thermo Cardiosystems Inc. at year-end 2000 and 1999, respectively.
In February 2001, the Company sold Thermo Cardiosystems to Thoratec Corporation.
Under the terms of the sale, Thermo Cardiosystems' 4 3/4% subordinated
convertible debentures have been assumed by Thoratec and will remain outstanding
and are convertible into shares of Thoratec common stock. The Company will
remain a guarantor of these obligations. In connection with the sale and this
continuing guaranty, the Company has received a security interest in certain
cash and marketable securities of Thoratec with an initial value of $45 million.
23
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
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 operations
includes expenses from operating leases of $42.2 million, $43.4 million, and
$36.1 million in 2000, 1999, and 1998, respectively. Future minimum payments due
under noncancelable operating leases at December 30, 2000, are $32.4 million in
2001, $28.1 million in 2002, $23.0 million in 2003, $18.7 million in 2004, $13.2
million in 2005, and $32.4 million in 2006 and thereafter. Total future minimum
lease payments are $147.8 million.
Letters of Credit
Outstanding letters of credit, principally relating to performance bonds,
totaled $43 million at December 30, 2000.
Litigation and Related Contingencies
Continuing Operations
The Company's Thermo Finnigan Corporation subsidiary (now Thermo Finnigan
LLC) has filed complaints against Bruker-Franzen Analytik GmbH and its U.S.
affiliate, and Hewlett-Packard Company (now Agilent, Inc.), for alleged
violation of two U.S. patents owned by Finnigan. The patents pertain to methods
used in ion-trap mass spectrometers. The complaint was filed in the U.S.
District Court for the District of Massachusetts. Finnigan has asked for damages
to compensate for the infringement, and for injunctions against further
infringement.
The District Court action was stayed pending completion of a parallel
investigation by the United States International Trade Commission (ITC). In
April 1998, the ITC determined that the defendants did not engage in unfair
practices in U.S. import trade with respect to the Finnigan patents, and that
the Finnigan patents are invalid and/or not infringed. Finnigan appealed the
ITC's determination with respect to one of its patents to the United States
Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in
June 1999 affirming the ITC's determination of noninfringement but reversing the
ITC's determination of invalidity.
Bruker presented counterclaims in the ITC investigation. The counterclaims
were removed to the District Court in Massachusetts and also stayed. These
claims allege that the Finnigan patents are invalid and unenforceable and are
not infringed by the mass spectrometers manufactured by Bruker. They also allege
that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in
unfair competition 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 attorneys' fees) it has sustained.
The stays on both cases in the District Court in Massachusetts have been
lifted, and the cases are proceeding in the District Court.
In February 1999, Finnigan filed complaints against Bruker-Daltonik GmbH
and Hewlett-Packard GmbH in District Court in Dusseldorf, Germany, for violation
of four German patents owned by Finnigan and related actions in other European
jurisdictions. The patents pertain to methods used in ion-trap mass
spectrometers. Bruker and Hewlett-Packard have challenged the validity of these
patents in Federal Patent Court in Munich. Bruker has filed a complaint against
Finnigan in District Court in Dusseldorf for alleged violation of two German
patents owned by Bruker relating to ion-trap mass spectrometry and in response
Finnigan filed suit in Munich seeking patent nullification.
In the German actions, Finnigan has secured a judgment of patent
infringement against Bruker and Agilent from the Dusseldorf District Court,
which judgment enjoins these entities from offering for sale or providing
infringing ion-trap mass spectrometers for intended use by customers in Germany.
The judgment has been appealed by the defendants, and the defendants have also
collaterally attacked the validity of the patent in the German Federal Patent
Court in Munich. However, the injunction remains in force.
In January 2001, the suit by Finnigan in Munich seeking patent
nullification was decided substantially against Finnigan, although the decision
will be appealed.
24
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
6. Commitments and Contingencies (continued)
- --------------------------------------------------------------------------------
The Company has been named a defendant, along with many other companies,
in a patent infringement lawsuit brought by the Lemelson Medical, Education &
Research Foundation, L.P. The suit asserts that products manufactured, used, or
sold by the defendants infringe one or more patents related to methods of
machine vision or computer image analysis. Also, SPLI and its Opto Power
subsidiary have been sued for patent infringement by Rockwell International
Corp. The suit claims that SPLI and Opto Power infringe a patent for the
manufacture of a film used in semiconductor applications. Both the Lemelson and
Rockwell actions seek damages, including enhanced damages for alleged willful
infringement and attorney's fees, and Lemelson seeks injunctive relief.
Discontinued Operations
The Company's Trex Medical Corporation subsidiary is a defendant in a
lawsuit brought by Fischer Imaging Corporation, which alleges that the prone
breast-biopsy systems of the Lorad division of Trex Medical infringe Fischer's
patents on a precision mammographic needle-biopsy system and a motorized
mammographic biopsy apparatus. Lorad's cumulative revenues from these products
totaled approximately $167 million through September 30, 2000. Trex Medical sold
this business in 2000 but retained this litigation as a term of the sale.
The Company's Thermo Coleman Corporation subsidiary 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. The U.S.
government has decided not to intervene in the lawsuit. Thermo Coleman sold its
core business in 2000 but retained this litigation as a term of the sale.
The Company intends to vigorously defend the matters in continuing and
discontinued operations described above. 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
- --------------------------------------------------------------------------------
In 2000, the Company issued 22.6 million shares of its common stock valued
at $448.7 million to complete mergers with several of its formerly
majority-owned subsidiaries (Note 18).
In April 1998, the Company sold 7,475,000 shares of its common stock at
$40.625 per share for net proceeds of $290.1 million.
During 1998 and 1999, in a series of transactions with an institutional
counterparty, the Company sold put options and purchased call options. No cash
was exchanged as a result of these transactions. The Company had the right to
settle the put options by physical settlement of the options or by net share
settlement using shares of the Company's common stock. During 2000, the Company
purchased 1,183,500 shares of its common stock under the call options for $17.5
million. During 1999, the Company purchased 1,536,000 shares of its common stock
under the put options for $24.6 million. During 1999 and 2000, put options for
4,165,000 shares expired. No remaining obligation under the put options exists
at December 30, 2000.
At December 30, 2000, the Company had reserved 58,273,413 unissued shares
of its common stock for possible issuance under stock-based compensation plans
and for possible conversion of the Company's convertible debentures. The Company
has distributed rights under a 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
(a Unit) of Series B Junior Participating Preferred Stock, $100 par value, at a
purchase price of $250 per Unit, subject to adjustment. The rights will not be
exercisable until the earlier of (i) 10 days
25
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
7. Common Stock (continued)
- --------------------------------------------------------------------------------
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 at least a majority of the
members of the Board of 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 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
Board of 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 from continuing operations before provision for
income taxes, minority interest, extraordinary item, and cumulative effect of
change in accounting principle are as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Domestic $ 91,342 $ 39,761 $130,753
Foreign 93,489 84,998 85,729
--------- -------- --------
$ 184,831 $124,759 $216,482
========= ======== ========
The components of the provision for income taxes of continuing operations
are as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Currently Payable:
Federal $ 55,819 $ 25,102 $ 44,330
Foreign 53,586 40,417 34,309
State 8,311 6,364 9,282
--------- -------- --------
117,716 71,883 87,921
--------- -------- --------
Net Deferred (Prepaid):
Federal (635) (6,197) 2,903
Foreign (4,535) 520 (770)
State (329) (1,778) 437
--------- -------- --------
(5,499) (7,455) 2,570
--------- -------- --------
$ 112,217 $ 64,428 $ 90,491
========= ======== ========
26
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
- --------------------------------------------------------------------------------
The total provision for income taxes included in the accompanying
statement of operations is as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Continuing Operations $ 112,217 $ 64,428 $ 90,491
Discontinued Operations 10,427 (54,807) 80,189
Loss on Disposal of Discontinued Operations (104,000) 174,000 -
Extraordinary Item 333 900 337
Cumulative Effect of Change in Accounting Principle (8,543) - -
--------- --------- ---------
$ 10,434 $ 184,521 $ 171,017
========= ========= =========
The Company and its majority-owned subsidiaries receive a tax deduction
upon the 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 $18.0 million, $2.7 million, and $12.9 million of such
benefits of the Company and its formerly 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 2000, 1999, and 1998,
respectively. In addition, the provision for income taxes that is currently
payable does not reflect $19.0 million, $3.5 million, and $4.4 million of tax
benefits used to reduce goodwill in 2000, 1999, and 1998, respectively.
The provision for income taxes in the accompanying statement of operations
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income from continuing operations before provision for income
taxes, minority interest, extraordinary item, and cumulative effect of change in
accounting principle due to the following:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Provision for Income Taxes at Statutory Rate $ 64,691 $ 43,666 $ 75,769
Increases (Decreases) Resulting From:
Goodwill of businesses sold 30,190 - -
Amortization and write off of goodwill 11,330 16,648 8,694
Writedown and equity in loss of unconsolidated subsidiary 12,062 - -
Foreign sales corporation (7,325) (3,558) (2,981)
Federal tax credits (4,113) (3,697) -
Gain on issuance of stock by subsidiaries - - (6,504)
State income taxes, net of federal tax 5,188 2,979 6,349
Foreign tax rate and tax law differential 301 6,771 1,017
Nondeductible expenses 1,347 2,246 4,895
Losses not benefited 1,005 1,235 -
Other, net (2,459) (1,862) 3,252
-------- -------- --------
$112,217 $ 64,428 $ 90,491
======== ======== ========
27
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
- --------------------------------------------------------------------------------
Net deferred tax asset in the accompanying balance sheet consists of the
following:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Deferred Tax Asset (Liability):
Net operating loss and credit carryforwards $ 94,874 $ 80,196
Reserves and accruals 55,460 36,405
Inventory basis difference 34,322 28,613
Accrued compensation 12,097 13,544
Depreciation and amortization (5,621) (6,508)
Other, net 1,102 (17,094)
-------- --------
192,234 135,156
Less: Valuation allowance 54,874 39,220
-------- --------
$137,360 $ 95,936
======== ========
The valuation allowance primarily relates to the uncertainty surrounding
the realization of tax loss and credit carryforwards. Any tax benefit resulting
from the use of acquired loss carryforwards is used to reduce goodwill.
At year-end 2000, the Company had federal, state, and foreign net
operating loss carryforwards of $1.5 million, $223 million, and $165 million,
respectively. Use of the carryforwards is limited based on the future income of
certain subsidiaries. The federal and state net operating loss carryforwards
expire in the years 2001 through 2014. Of the foreign net operating loss
carryforwards, $77 million expire in the years 2001 through 2009, 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.
A provision has not been made for U.S. or additional foreign taxes on $500
million of undistributed earnings of foreign subsidiaries that could be subject
to taxation if remitted to the U.S. because the Company plans to keep these
amounts permanently reinvested overseas.
9. Transactions in Stock of Subsidiaries
- --------------------------------------------------------------------------------
Gain on issuance of stock by subsidiaries in the accompanying 1998
statement of operations resulted from the following transactions:
Initial public offering of 3,300,000 shares of ONIX Systems Inc. common
stock at $14.50 per share for net proceeds of $43.7 million resulted in a gain
of $10.0 million.
Public offering of 2,450,000 shares of Thermo BioAnalysis Corporation
common stock at $18.125 per share for net proceeds of $41.5 million resulted in
a gain of $5.9 million.
Conversion of $1.8 million of Thermo Optek Corporation 5% subordinated
convertible debentures, convertible at $13.94 per share, into 127,646 shares of
Thermo Optek common stock resulted in a gain of $0.9 million.
Conversion of $4.0 million of ThermoQuest Corporation 5% subordinated
convertible debentures, convertible at $16.50 per share, into 239,393 shares of
ThermoQuest common stock resulted in a gain of $1.8 million.
28
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
10. Other Income (Expense), Net
- --------------------------------------------------------------------------------
The components of other income (expense), net, in the accompanying
statement of operations are as follows (Note 11):
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
Interest Income $ 43,066 $ 41,977 $ 76,565
Interest Expense (86,057) (93,001) (84,211)
Equity in Earnings (Loss) of Unconsolidated Subsidiaries (47,315) (7,274) 150
Gain on Investments, Net 6,849 3,662 12,812
Other Items, Net 2,273 (2,709) 1,242
-------- -------- --------
$(81,184) $(57,345) $ 6,558
======== ======== ========
11. Restructuring and Other Unusual Costs (Income), Net
- --------------------------------------------------------------------------------
2000
As a result of a review of existing businesses following the appointment
of a new president and chief operating officer in July 2000, the Company
commenced a restructuring of a number of business units to reduce costs and shed
unproductive assets. The restructuring primarily consists of headcount
reductions, discontinuing certain mature or unprofitable product lines, and
consolidation of facilities to streamline operations and reduce costs. During
2000, the Company recorded $81.4 million of restructuring and unusual charges
primarily associated with these actions, including $19.3 million of charges to
cost of revenues. These charges are detailed by segment below. The Company
expects to incur an additional $0.5 million of costs in 2001 for charges that
can not be recorded until incurred. The Company expects that the restructuring
actions undertaken in 2000 will be substantially completed by the end of the
second quarter of 2001. In addition, the Company recorded other unusual income,
net, of $130.0 million and nonoperating charges of $45.1 million during 2000, as
detailed by segment below.
The Company recorded charges (income) by segment for 2000 as follows:
Optical Measurement
(In thousands) Life Sciences Technologies and Control (a) Corporate Total
- ----------------------------------------------------------------------------------------------------------
Cost of Revenues $ 8,369 $ 2,916 $ 8,000 $ - $ 19,285
Restructuring and Other
Unusual Costs (Income),
Net 7,939 3,600 (99,890) 20,496 (67,855)
Equity in Loss of
Unconsolidated
Subsidiaries - 47,421 - - 47,421
Other Income, Net - (2,281) - - (2,281)
-------- -------- -------- -------- --------
$ 16,308 $ 51,656 $(91,890) $ 20,496 $ (3,430)
======== ======== ======== ======== ========
(a) Excludes an operating loss of $1.7 million at the Spectra Precision businesses in the third quarter of
2000 prior to their sale (Note 3).
29
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
The components of restructuring and other unusual costs (income) by
segment are as follows:
Life Sciences
- -------------
The Life Sciences segment recorded $16.3 million of restructuring and
unusual costs in 2000. The segment recorded charges to cost of revenues of $8.4
million, primarily for discontinued product lines, and $7.9 million of other
costs. The other restructuring and unusual costs consist of $6.5 million of cash
costs, including $4.0 million of severance for 78 employees across all
functions; $1.1 million for ongoing lease costs through 2003 for facilities
described below; $0.8 million of provisions for two lawsuits; and $0.6 million
for other exit costs. A total of 31 employees were terminated as of December 30,
2000. The segment also recorded $1.4 million of asset writedowns in connection
with the closure of a small business and the consolidation and abandonment of
facilities. The asset writedowns include $0.7 million of goodwill and $0.7
million of fixed assets. The facility consolidations include closure of sales
offices in Spain, Belgium, and Japan and the transfer of their activities to
other offices, consolidation of two German units into one facility, and
relocation of a unit to other facilities within Colorado.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $6.5 million of restructuring
and unusual costs in 2000. The segment recorded charges to cost of revenues of
$2.9 million, primarily for discontinued product lines, and $3.6 million of
other costs. The other restructuring and unusual costs consist of a charge of
$1.5 million for in-process research and development in connection with an
acquisition; $0.9 million of asset writedowns; and $1.2 million of cash costs,
including $0.3 million of severance for 22 employees across all functions, $0.4
million for ongoing lease costs, and $0.5 million of other exit costs. All of
the severed employees had been terminated as of December 30, 2000. The asset
writedowns primarily consist of charges to reduce the carrying value of a small
business unit that is held for sale to estimated disposal value and include $0.7
million of goodwill and $0.2 million of fixed assets. The lease costs are for
closure of a facility in California with lease payments that ceased in 2000.
The Optical Technologies segment also recorded a charge of $23.7 million
in 2000 to write down the carrying value of its 29% equity method investment in
FLIR (Note 3) based on a decline in the market value of FLIR shares that the
Company deemed other than temporary. The segment also recorded other noncash
charges of $23.7 million in 2000, representing the Company's pro rata share of
FLIR's losses. Both of these charges were recorded to equity in earnings (loss)
of unconsolidated subsidiaries, a component of other income (expense), net, in
the accompanying statement of operations.
Prior to its acquisition by the Company, SPLI elected early adoption of
SFAS No. 133. Under SFAS No. 133, SPLI is permitted under certain conditions to
enter into foreign exchange contracts to hedge probable anticipated transactions
without recording gains and losses on such contracts in income. The Company has
not elected early adoption of SFAS No. 133, although it must adopt the statement
in 2001. The Company accounts for hedging transactions under SFAS No. 52. Under
SFAS No. 52, such contracts are deemed to be speculative hedges and must be
marked to market with the resulting gain or loss reported as a component of the
Company's results of operations. During 2000, the Company recorded income on
foreign exchange contracts entered into by SPLI of $2.3 million, which is
included in other income (expense), net, in the accompanying statement of
operations.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $91.9 million of
restructuring and unusual income, net, in 2000. The segment had a net gain of
$126.3 million on the sale of several businesses, primarily Spectra Precision
(Note 3), Nicolet Imaging Systems (NIS), and Sierra Research and Technology Inc.
(SRT). NIS and SRT manufacture products that include imaging systems used in
assembling complex printed circuit boards and in airbag manufacturing. Spectra
Precision, NIS, and SRT had aggregate revenues and operating income of $125.7
million and $11.0 million, respectively, in 2000 through their respective
disposal dates. The segment also recorded charges of $20.6 million for
30
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
asset writedowns to reduce the carrying value of businesses held for sale to
estimated disposal value and for fixed assets unique to certain discontinued
products; $8.0 million of charges to cost of revenues, primarily for
discontinued product lines; and $6.8 million of cash costs, including $3.0
million of severance for 128 employees across all functions, $2.4 million of
lease costs through 2001, and $1.4 million of other exit costs, primarily
employee retention and relocation costs incurred in 2000. A total of 101
employees were terminated as of December 30, 2000. The lease costs include
amounts for the closure of sales offices in Norway, New Zealand, and Germany and
a manufacturing operation in the U.K. The asset writedowns included $17.6
million of goodwill, $2.8 million of fixed assets, and $0.2 million of other
assets. The businesses held for sale primarily include CAC Inc. and the Mid
South Companies, which provide the oil and gas industry with wellhead safety and
control products; the Test and Measurement business, which manufactures and
sells data acquisition systems, digital oscilloscopes, and recorders; and the
Pharos Marine businesses, which manufacture and sell marine navigation equipment
and systems. In addition, in February 2001, the Company decided to hold for sale
a unit that manufactures scanning probe microscopes. The businesses held for
sale had aggregate revenues and operating income before restructuring and
unusual items in 2000 of $102.3 million and $0.9 million, respectively. These
businesses are generally cyclical, noncore units that are being sold to generate
funds to invest in potentially higher-growth opportunities. The segment also had
unusual income of $0.6 million in 2000, primarily representing a gain on the
termination of a lease.
Corporate
- ---------
The Company recorded $20.5 million of restructuring and unusual costs,
net, at its corporate office in 2000. This amount includes $3.0 million of
severance for 21 employees, 14 of which were terminated as of December 30, 2000;
$16.1 million of investment banking, consulting, and legal fees associated with
the Company's reorganization plan; $3.6 million of employee retention costs that
are being accrued ratably over the period through which the employees must work
to qualify for a payment; and $1.6 million of noncash costs. The Company also
recorded unusual income of $3.8 million, representing a gain from the sale of an
office building adjacent to the Company's corporate headquarters.
During 2000, in connection with the Company's reorganization, the Company
entered into an incentive bonus agreement with its investment bankers under
which the bankers will receive a cash payment in June 2001. The payment will be
between 0.75% and 2.5% of the Company's diluted market capitalization in excess
of $24 per share using the highest average market value of Company common stock
for 20 consecutive days between December 1, 1999, and May 31, 2001. As of
December 30, 2000, the Company had accrued $8.5 million of costs under this
agreement, which are included in the restructuring and unusual costs discussed
above.
1999
During 1999, the Company recorded restructuring and unusual costs of $46.8
million and other nonoperating charges of $18.4 million in connection with broad
scale restructuring actions affecting a number of business units. Restructuring
and other unusual costs, net, include $37.7 million of restructuring costs, $0.3
million of other unusual income, net, and $9.4 million of inventory provisions.
The inventory provisions are included in cost of revenues. The Company also
recorded $17.0 million of other nonoperating charges and $1.4 million of income
tax expense. These charges are detailed by segment below.
31
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
The Company recorded charges (income) by segment for 1999 as follows:
(In thousands) Life Optical Measurement
Sciences Technologies and Control Corporate Total
- ----------------------------------------------------------------------------------------------------------
Cost of Revenues $ - $ 3,156 $ 6,270 $ - $ 9,426
Restructuring and Other Unusual
Costs (Income), Net (326) 971 30,956 5,745 37,346
Equity in Loss of Unconsolidated - 11,066 - - 11,066
Subsidiaries
Other Expense, Net - 2,316 - 3,609 5,925
Income Tax Expense - - 1,409 - 1,409
-------- -------- -------- -------- --------
$ (326) $ 17,509 $ 38,635 $ 9,354 $ 65,172
======== ======== ======== ======== ========
The components of restructuring and unusual costs (income) by segment are as follows:
Life Sciences
- -------------
During 1999, the Life Sciences segment settled certain severance matters
for less than had been previously accrued and, as a result, reversed $0.3
million of previously established reserves.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $4.1 million of restructuring
and unusual costs in 1999. The Optical Technologies segment recorded an
adjustment to cost of revenues of $3.2 million relating to the sale of
inventories that were revalued at the date of the acquisition of SPLI and
restructuring costs of $1.0 million, primarily abandoned lease costs for
manufacturing facilities in the United Kingdom with lease obligations through
2000, and other facility costs.
The Optical Technologies segment also recorded $13.4 million of
nonoperating charges in 1999. During the first calendar quarter of 1999, FLIR
recorded a loss in connection with a pooling-of-interests transaction and
certain restructuring actions. The Company has recorded its pro rata share of
this loss, $5.1 million, in equity in earnings (loss) of unconsolidated
subsidiaries, a component of other income (expense), net, in the accompanying
statement of operations. In addition, as a result of the pooling consummated by
FLIR and related issuance of FLIR shares in March 1999, the Company's pro rata
share of FLIR's equity decreased to 29.4% from 34.6% prior to the transaction.
This decrease totaled $6.0 million and has been recorded as a loss in equity in
earnings (loss) of unconsolidated subsidiaries in the accompanying statement of
operations, pursuant to SAB No. 51, "Accounting for Sales of Stock by a
Subsidiary." In addition, during 1999, the Optical Technologies segment recorded
a loss of $2.3 million on foreign exchange contracts accounted for under SFAS
No. 133 by SPLI.
Measurement and Control
- -----------------------
During 1999, the Measurement and Control segment recorded restructuring
and unusual costs of $37.2 million and other nonoperating charges of $1.4
million as a result of the actions detailed below. The Company recorded
restructuring costs of $30.1 million, a tax asset writeoff of $1.4 million, and
inventory provisions of $0.9 million, related to a decision to sell its power
electronics and test equipment business. The planned sale of the power
electronics and test equipment businesses followed a period of declining sales
and profitability in these units. These businesses are dependent on the cyclical
nature of the semiconductor industry and have lower growth prospects than other
businesses held by the Company. As a result, the Company decided to sell these
units. Restructuring costs include $28.5 million to write off related goodwill
to reduce the carrying value of the business to the estimated proceeds from its
sale. In addition, restructuring costs include a charge of $1.6 million recorded
to write off the
32
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
Company's remaining net investment in a subsidiary of the power electronics and
test equipment business, which the Company transferred to a buyer in
consideration for a release from certain contractual obligations, primarily
ongoing lease obligations. The tax writeoff represents a deferred tax asset that
will not be realized as a result of exiting this business. The inventory
provisions result from exiting and reengineering certain product lines. Revenues
and operating losses, excluding restructuring and related costs, of the power
electronics and test equipment business were $28.2 million and $0.5 million,
respectively, for 1999, and net assets totaled $17.5 million at year-end 1999.
The Company also recorded other unusual costs of $0.9 million in 1999 at the
power electronics and test equipment business. As of December 30, 2000, all but
one of the principal operating units of this business had been sold. The segment
has decided to hold this last unit and abandon its plans to dispose of it.
The Measurement and Control segment's unusual charges also include a
charge to cost of revenues of $3.5 million relating to the sale of inventories
at certain Spectra-Physics units that were revalued at the date of their
acquisition, and $1.9 million for inventories deemed excessive based on low
demand at the segment's quality assurance and security products business.
Corporate
- ---------
During 1999, the Company recorded $5.7 million of restructuring and
unusual costs and $3.6 million of other nonoperating charges. Restructuring
costs consist of $4.9 million for severance costs for seven senior-level
employees and $0.8 million of legal and advisory costs related to the Company's
reorganization. The Company also recorded $3.6 million of other nonoperating
charges to write down available-for-sale investments due to impairment that the
Company deemed other than temporary based upon market prices. These charges are
included in gain on investments, net, a component of other income (expense),
net, in the accompanying statement of operations.
General
- -------
As of January 2, 1999, the Company had terminated 495 employees of the 729
announced in 1998. The restructuring actions in 1999 included plans for the
termination of an additional 38 employees. During 2000 and 1999, 233 employees
were terminated in connection with the restructuring plans announced in 1998 and
1999 and the remainder were not terminated as a result of factors including
attrition and sale of businesses.
1998
During 1998, the Company recorded restructuring and unusual costs of $32.5
million as described below, including restructuring and other unusual costs of
$23.6 million, inventory write downs of $8.6 million, and other costs of $0.3
million. The inventory write downs are included in cost of revenues in the
accompanying statement of operations. The charges occurred as a result of an
economic crisis in Asia; a related downturn in the semiconductor industry; and
depressed prices in the oil, petrochemical, and natural resources industries.
The Company recorded charges by segment for 1998 as follows:
Life Optical Measurement
(In thousands) Sciences Technologies and Control Corporate Total
- ----------------------------------------------------------------------------------------------------------
Cost of Revenues $ 2,772 $ 2,946 $ 2,869 $ - $ 8,587
Restructuring and Other Unusual
Costs, Net 5,900 3,609 13,699 375 23,583
Other Expense, Net 335 - - - 335
------- ------- ------- ------- -------
$ 9,007 $ 6,555 $16,568 $ 375 $32,505
======= ======= ======= ======= =======
33
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
The components of restructuring and unusual costs by segment are as
follows:
Life Sciences
- -------------
The Life Sciences segment recorded restructuring and unusual costs of $8.7
million and nonoperating charges of $0.3 million in 1998. Restructuring costs
consist of $4.6 million related to severance costs for 190 employees across all
functions and $1.3 million of facility-closing costs, including $1.2 million of
asset writedowns and $0.1 million of lease costs for facilities in the United
Kingdom with obligations through 1999. In addition, the Company recorded
inventory writedowns totaling $2.8 million related to discontinuing several
low-margin product lines and the disposal of inventories at a manufacturing
facility being closed. The Company also recorded a charge of $0.3 million
related to its share of restructuring costs at a joint venture as a reduction in
the Company's equity in earnings (loss) of unconsolidated subsidiaries, which is
included in other income (expense), net, in the accompanying statement of
operations.
Optical Technologies
- --------------------
The Optical Technologies segment recorded restructuring and unusual costs
of $6.6 million in 1998. Restructuring costs of $3.6 million consist of $2.0
million related to severance costs for 200 employees across all functions, $0.6
million for facility closing costs for facilities in the United Kingdom, a loss
of $0.4 million related to the sale of a division, and $0.6 million of other
costs. The $0.6 million of facility-closing costs include $0.2 million for lease
payments on abandoned facilities with lease obligations through 2000 and $0.4
million to write down related fixed assets. The Company also recorded inventory
writedowns of $2.9 million related to discontinuing certain product lines and
increased excess and obsolescence reserves associated with lower product demand.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded restructuring and unusual
costs of $16.6 million in 1998. Restructuring costs of $13.7 million consist of
$9.4 million related to severance costs for 390 employees across all functions;
$1.9 million of facility-closing costs, primarily writedowns of fixed assets at
abandoned facilities; $0.8 million for the write off of goodwill for an
operating unit that was closed; and $1.6 million of other charges discussed
below. The Company also recorded $2.9 million of inventory writedowns, primarily
for products deemed excess based on recent demand.
Five former employees of the Company's Epsilon Industrial, Inc. subsidiary
had sought damages in an arbitration proceeding for alleged breaches of
agreements entered into with such employees prior to Epsilon's acquisition by
the Company. The arbitrators rendered a decision with respect to such claims
during 1998, and the Company recorded $1.6 million of unusual costs related to
the resolution of this matter in 1998.
Corporate
- ---------
During 1998 the Company recorded $0.4 million of other restructuring and
unusual costs.
34
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
The following table summarizes the cash components of the Company's
restructuring plans. The noncash components and other amounts reported as
restructuring and unusual costs (income), net, in the accompanying statement of
operations have been summarized in the notes to the tables.
Abandonment
Employee of Excess
(In thousands) Severance Retention (a) Facilities Other Total
- ---------------------------------------------------------------------------------------------------------
1998 Restructuring Plans
Costs incurred in 1998 (b) $ 15,700 $ - $ 1,656 $ 1,420 $ 18,776
1998 usage (6,630) - (418) (670) (7,718)
Currency translation 211 - 25 26 262
-------- -------- -------- -------- --------
Balance at January 2, 1999 9,281 - 1,263 776 11,320
Costs incurred in 1999 (c) 1,486 - 1,280 652 3,418
1999 usage (7,205) - (2,046) (838) (10,089)
Reserves reversed (d) (2,101) - (217) - (2,318)
Currency translation (568) - (55) (26) (649)
-------- -------- -------- -------- --------
Balance at January 1, 2000 893 - 225 564 1,682
Cost incurred in 2000 - - 144 - 144
2000 usage (774) - (284) - (1,058)
Reserves reversed - - (84) - (84)
Currency translation (22) - (1) (44) (67)
-------- -------- -------- -------- --------
Balance at December 30, 2000 $ 97 $ - $ - $ 520 $ 617
======== ======== ======== ======== ========
1999 Restructuring Plans
Costs incurred in 1999 (e) $ 3,938 $ - $ - $ 893 $ 4,831
1999 usage (195) - - (893) (1,088)
-------- -------- -------- -------- --------
Balance at January 1, 2000 3,743 - - - 3,743
2000 usage (2,851) - - - (2,851)
Reserves reversed (6) - - - (6)
-------- -------- -------- -------- --------
Balance at December 30, 2000 $ 886 $ - $ - $ - $ 886
======== ======== ======== ======== ========
2000 Restructuring Plans
Costs incurred in 2000 (f) $ 10,469 $ 4,116 $ 3,818 $ 17,533 $ 35,936
2000 usage (6,488) (830) (1,031) (7,958) (16,307)
Reserves reversed (205) - - - (205)
Currency translation 48 (3) 33 19 97
-------- -------- -------- -------- --------
Balance at December 30, 2000 $ 3,824 $ 3,283 $ 2,820 $ 9,594 $ 19,521
======== ======== ======== ======== ========
(a) Employee retention costs are accrued ratably over the period through which the employees must work to
qualify for a payment. The awards were based on specified percentages of employees' salaries and were
generally awarded to help ensure continued employment at least through completion of the Company's
reorganization plan.
35
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring and Other Unusual Costs (Income), Net (continued)
- --------------------------------------------------------------------------------
(b) Excludes noncash charges of $1.2 million, $0.8 million, and $0.8 million in
the Life Sciences, Optical Technologies, and Measurement and Control
segments, respectively, and $1.6 million of cash costs in the Measurement
and Control segment related to an arbitration matter, which was paid in
1998.
(c) Excludes a noncash charge of $0.1 million in the Measurement and Control
segment. (d) Reflects reversals of previously recorded restructuring costs
of $0.3 million and $2.0 million in
the Life Sciences and Measurement and Control segments, respectively.
(e) Excludes noncash charges, net, of $30.2 million and $0.9 million in the
Measurement and Control segment and the Corporate headquarters,
respectively. Also excludes unusual costs of $0.3 million in the Measurement
and Control segment.
(f) Excludes noncash charges, net, of $1.4 million and $2.5 million in the Life
Sciences and Optical Technologies segments, respectively, and noncash
income, net, of $106.3 million and $2.2 million in the Measurement and
Control segment and the Corporate headquarters, respectively. Also, excludes
$0.8 million of cash costs in the Life Sciences segment related to two
lawsuits.
The Company's continuing operations expect to pay accrued restructuring
costs as follows: severance, primarily in 2001; employee retention obligations,
primarily in 2001 and January 2002; abandoned-facility payments, over lease
terms expiring through 2003; and other costs, which primarily represent
investment banking fees associated with the Company's reorganization, in 2001.
12. Supplemental Cash Flow Information
- --------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Cash Paid For
Interest $ 87,295 $ 94,210 $ 78,253
========== ========== ===========
Income taxes $ 93,136 $ 71,637 $ 88,688
========== ========== ===========
Noncash Activities
Receipt of note in connection with sale of business $ 80,000 $ - $ -
========== ========== ===========
Conversions of Company and subsidiary convertible
obligations $ - $ 9,277 $ 11,911
========== ========== ===========
Issuance of subsidiary subordinated convertible
debentures in connection with exchange offer $ - $ - $ 15,859
========== ========== ===========
Exchange of subsidiary common stock for common stock of
subsidiary subject to redemption $ - $ - $ 40,500
========== ========== ===========
Issuance of Company common stock in exchange for
minority interests of subsidiaries (Note 18) $ 448,747 $ - $ -
========== ========== ===========
Fair value of assets of acquired companies $ 25,114 $ 604,114 $ 235,902
Cash paid for acquired companies (17,311) (385,260) (182,406)
Issuance of short- and long-term obligations for
acquired company - (14,852) -
---------- ---------- -----------
Liabilities assumed of acquired companies $ 7,803 $ 204,002 $ 53,496
========== ========== ===========
36
Thermo Electron Corporation 2000 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, short-term
obligations and current maturities of long-term obligations, advance payable to
affiliates, accounts payable, long-term obligations, common stock subject to
redemption, and forward foreign exchange contracts. The carrying amounts of cash
and cash equivalents, accounts receivable, short-term obligations and current
maturities of long-term obligations (excluding convertible obligations), advance
payable to affiliates, and accounts payable approximate 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 (Note 2).
The carrying amount and fair value of the Company's long-term obligations,
common stock subject to redemption, and off-balance-sheet financial instruments
are as follows:
2000 1999
-------------------------------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
Current Maturities of Convertible Obligations $ 6,467 $ 6,450 $ 155,081 $ 152,103
=========== =========== ========== ===========
Long-term Obligations:
Convertible obligations $ 1,350,065 $ 1,283,979 $1,381,805 $ 1,110,626
Other 178,418 180,268 184,169 183,217
----------- ----------- ---------- -----------
$ 1,528,483 $ 1,464,247 $1,565,974 $ 1,293,843
=========== =========== ========== ===========
Common Stock Subject to Redemption $ 7,692 $ 7,692 $ 7,692 $ 6,553
=========== =========== ========== ===========
Off-balance-sheet Financial Instruments:
Forward foreign exchange contracts (receivable)
payable $ (213) $ 400
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 common stock subject to redemption was determined
based upon quoted market prices.
The notional amounts of forward foreign exchange contracts outstanding,
excluding the contracts at SPLI discussed below, totaled $69.1 million and $76.2
million at year-end 2000 and 1999, respectively. The fair value of such
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. The forward foreign exchange contracts of SPLI that are not hedges of
firm commitments are recorded in the accompanying balance sheet at fair value.
The fair value of these contracts was a receivable of $1.9 million and a payable
of $2.0 million at year-end 2000 and 1999, respectively, and these amounts are
included in other assets and other deferred items, respectively, in the
accompanying balance sheet (Note 11).
14. Adoption of SAB No. 101
- --------------------------------------------------------------------------------
In December 1999, the SEC issued SAB No. 101, which establishes criteria
for recording revenue when the terms of the sale include customer acceptance
provisions or an obligation of the seller to install the product. In instances
where these terms exist and the Company is unable to demonstrate that the
customer's acceptance criteria has been met prior to customer use or when the
installation is essential to functionality or is not deemed inconsequential or
perfunctory, SAB No. 101 requires that revenue recognition occur at completion
of installation and/or upon customer acceptance. In accordance with the
requirements of SAB No. 101, the Company has adopted the pronouncement as of
37
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
14. Adoption of SAB No. 101 (continued)
- --------------------------------------------------------------------------------
January 2, 2000, and has recorded the cumulative effect of the change in
accounting principle on periods prior to 2000 in the restated results for the
first quarter of 2000. The cumulative effect on net income totaled $12.9
million, net of an income tax benefit of $8.5 million and minority interest of
$0.5 million. Revenues of $41.3 million in 2000 (as restated for the adoption of
SAB No. 101) relate to shipments that occurred in 1999 but for which
installation and/or acceptance did not occur until 2000. These revenues were
recorded in 1999 prior to the adoption of SAB No. 101 and thus were a component
in the determination of the cumulative effect of the change in accounting
principle for periods prior to 2000. The Company has not provided pro forma data
for 1999 and 1998 as the amounts are not readily determinable based on the
nature of the revenue adjustments required by SAB No. 101. The Company's
unaudited quarterly results for 2000 have been restated as shown below. Amounts
captioned "as previously reported" have been restated where applicable to
reflect the Company's continuing operations:
(In thousands except per share amounts) First Second Third
- ----------------------------------------------------------------------------------------------------------
Revenues:
As previously reported $572,980 $583,115 $546,611
As adjusted 576,604 579,950 546,949
Gross Profit:
As previously reported 268,108 268,668 228,696
As adjusted 268,595 266,249 226,348
Income from Continuing Operations Before Extraordinary Item
and Cumulative Effect of Change in Accounting Principle:
As previously reported 13,830 22,705 8,490
As adjusted 14,479 21,698 7,281
Income Before Extraordinary Item and Cumulative Effect of
Change in Accounting Principle:
As previously reported 15,291 25,261 13,488
As adjusted 15,940 24,255 12,279
Net Income:
As previously reported 15,823 25,261 13,488
As adjusted 3,554 24,255 12,279
Basic Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in
Accounting Principle:
As previously reported .09 .15 .05
As adjusted .09 .14 .04
Diluted Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in
Accounting Principle:
As previously reported .08 .14 .05
As adjusted .09 .13 .04
Basic Earnings per Share:
As previously reported .10 .16 .08
As adjusted .02 .16 .07
Diluted Earnings per Share:
As previously reported .09 .16 .07
As adjusted .02 .15 .07
38
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
15. Business Segment and Geographical Information
- --------------------------------------------------------------------------------
The Company's businesses are managed in three segments:
- Life Sciences: systems for drug discovery and medical diagnosis and for chemical analysis at
ultratrace levels;
- Optical Technologies: optical and energy-based analytical systems; high-power laser systems;
and industrial imaging, inspection, and measurement instruments; and
- Measurement and Control: on-line systems for industrial process and quality control,
field-measurement instruments, and real-time sensors.
During 2000, the Company moved its spectroscopy and certain other businesses from the Optical
Technologies segment to the Measurement and Control segment due to an organizational change. Prior
periods have been restated to conform to this presentation.
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Business Segment Information
Revenues:
Life Sciences $ 780,020 $ 764,636 $ 705,105
Optical Technologies 480,014 394,588 265,446
Measurement and Control 1,037,331 1,160,283 936,302
Intersegment (a) (16,843) (24,887) (25,947)
---------- ---------- ----------
$2,280,522 $2,294,620 $1,880,906
========== ========== ==========
Income from Continuing Operations Before Provision for Income
Taxes, Minority Interest, Extraordinary Item, and Cumulative
Effect of Change in Accounting Principle:
Life Sciences (b) $ 91,863 $ 117,199 $ 100,541
Optical Technologies (c) 34,727 31,289 29,190
Measurement and Control (d) 193,190 70,744 92,201
---------- ---------- ----------
Total Segment Income (e) 319,780 219,232 221,932
Corporate and Other (f) (134,949) (94,473) (5,450)
---------- ---------- ----------
$ 184,831 $ 124,759 $ 216,482
========== ========== ==========
Total Assets:
Life Sciences $1,217,824 $1,150,946 $1,150,086
Optical Technologies 614,520 506,406 333,394
Measurement and Control 1,351,892 1,511,307 1,220,276
Corporate (g) 775,448 444,086 963,621
Net Assets of Discontinued Operations 903,293 1,459,012 1,550,568
---------- ---------- ----------
$4,862,977 $5,071,757 $5,217,945
========== ========== ==========
Depreciation:
Life Sciences $ 16,093 $ 15,673 $ 15,685
Optical Technologies 14,742 11,899 6,505
Measurement and Control 20,892 22,551 17,111
Corporate 1,187 1,227 1,130
---------- ---------- ----------
$ 52,914 $ 51,350 $ 40,431
========== ========== ==========
39
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
15. Business Segment and Geographical Information (continued)
- --------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Amortization:
Life Sciences $ 19,418 $ 14,966 $ 13,181
Optical Technologies 6,337 4,194 4,141
Measurement and Control 18,317 20,049 16,813
Corporate 500 870 603
---------- ---------- ----------
$ 44,572 $ 40,079 $ 34,738
========== ========== ==========
Capital Expenditures:
Life Sciences $ 18,849 $ 14,498 $ 15,886
Optical Technologies 31,988 18,509 6,588
Measurement and Control 21,599 22,411 13,236
Corporate 1,603 5,820 2,621
---------- ---------- ----------
$ 74,039 $ 61,238 $ 38,331
========== ========== ==========
Geographical Information
Revenues (h):
United States $1,574,737 $1,522,610 $1,227,355
England 311,660 339,151 316,326
Other 712,154 779,396 608,188
Transfers among geographical areas (a) (318,029) (346,537) (270,963)
---------- ---------- ----------
$2,280,522 $2,294,620 $1,880,906
========== ========== ==========
Long-lived Assets (i):
United States $ 222,169 $ 206,409 $ 155,376
Sweden 262 66,339 93
Other 88,846 122,723 100,621
---------- ---------- ----------
$ 311,277 $ 395,471 $ 256,090
========== ========== ==========
Export Sales Included in United States Revenues Above (j) $ 436,378 $ 435,558 $ 402,104
========== ========== ==========
(a) Intersegment sales and transfers among geographical areas are accounted for
at prices that are representative of transactions with unaffiliated parties.
(b) Includes restructuring and other unusual costs, net, of $7.9 million and
$5.9 million in 2000 and 1998, respectively, and restructuring and other
unusual income of $0.3 million in 1999. Includes charges of $8.4 million and
$2.8 million in 2000 and 1998, respectively, primarily inventory provisions.
(c) Includes restructuring and other unusual costs of $3.6 million, $1.0
million, and $3.6 million in 2000, 1999, and 1998, respectively. Includes
charges of $2.9 million, $3.2 million, and $2.9 million in 2000, 1999, and
1998, respectively, primarily inventory provisions and charges for the sale
of inventories revalued in connection with acquisitions.
40
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
15. Business Segment and Geographical Information (continued)
- --------------------------------------------------------------------------------
(d) Includes restructuring and other unusual income, net, of $99.9 million in
2000 and restructuring and other unusual costs of $31.0 million and $13.7
million in 1999 and 1998, respectively. Includes charges of $8.0 million,
$6.3 million, and $2.9 million in 2000, 1999, and 1998, respectively,
primarily inventory provisions and charges for the sale of inventories
revalued in connection with acquisitions.
(e) Segment income is income before corporate general and administrative
expenses, other income and expense, minority interest expense, income taxes,
and extraordinary item.
(f) Includes corporate general and administrative expenses, other income and
expense, and gain on issuance of stock by subsidiaries. Includes
restructuring and unusual costs of $20.5 million, $5.7 million, and $0.4
million at the Company's headquarters in 2000, 1999, and 1998, respectively.
Other income and expense includes $45.1 million and $13.4 million of charges
in 2000 and 1999, respectively, primarily related to the Company's
investment in FLIR; other expense of $3.6 million for impairment of
investments in 1999; and other expense of $0.3 million in 1998.
(g) Primarily cash and cash equivalents, short- and long-term investments, and
property and equipment at the Company's headquarters.
(h) Revenues are attributed to countries based on selling location. (i) Includes
property, plant, and equipment, net, and other long-term tangible assets. (j) In
general, export revenues are denominated in U.S. dollars.
16. Earnings (Loss) per Share
- --------------------------------------------------------------------------------
(In thousands except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Basic
Income from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle $ 62,047 $ 37,283 $ 93,760
Income (Loss) from Discontinued Operations 14,228 (163,325) 87,701
Provision for Loss on Disposal of Discontinued Operations (100,000) (50,000) -
Extraordinary Item 532 1,469 440
Cumulative Effect of Change in Accounting Principle (12,918) - -
--------- --------- ---------
Net Income (Loss) $ (36,111) $(174,573) $ 181,901
--------- --------- ---------
Weighted Average Shares 167,462 157,987 161,866
--------- --------- ---------
Basic Earnings (Loss) per Share:
Continuing operations before extraordinary item and cumulative
effect of change in accounting principle $ .37 $ .24 $ .58
Discontinued operations (.51) (1.35) .54
Extraordinary item - .01 -
Cumulative effect of change in accounting principle (.08) - -
--------- --------- ---------
$ (.22) $ (1.10) $ 1.12
========= ========= =========
41
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
16. Earnings (Loss) per Share (continued)
- --------------------------------------------------------------------------------
(In thousands except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Diluted
Income from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle $ 62,047 $ 37,283 $ 93,760
Income (Loss) from Discontinued Operations 14,228 (163,325) 87,701
Provision for Loss on Disposal of Discontinued Operations (100,000) (50,000) -
Extraordinary Item 532 1,469 440
Cumulative Effect of Change in Accounting Principle (12,918) - -
--------- --------- ---------
Net Income (Loss) (36,111) (174,573) 181,901
Effect of:
Majority-owned subsidiaries' dilutive securities - continuing
operations (1,331) (3,071) (3,578)
Majority-owned subsidiaries' dilutive securities - discontinued
operations (113) (145) (1,528)
--------- --------- ---------
Income (Loss) Available to Common Shareholders, as Adjusted $ (37,555) $(177,789) $ 176,795
--------- --------- ---------
Weighted Average Shares 167,462 157,987 161,866
Effect of:
Stock options 2,819 236 1,107
Convertible obligations 238 - -
--------- --------- ---------
Weighted Average Shares, as Adjusted 170,519 158,223 162,973
--------- --------- ---------
Diluted Earnings (Loss) per Share:
Continuing operations before extraordinary item and cumulative
effect of change in accounting principle $ .36 $ .22 $ .55
Discontinued operations (.50) (1.35) .53
Extraordinary item - .01 -
Cumulative effect of change in accounting principle (.08) - -
--------- --------- ---------
$ (.22) $ (1.12) $ 1.08
========= ========= =========
Options to purchase 4,726,000, 12,200,000, and 3,845,000 shares of common
stock were not included in the computation of diluted earnings (loss) per share
for 2000, 1999, and 1998, respectively, because the options' exercise prices
were greater than the average market price for the common stock and their effect
would have been antidilutive.
42
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
16. Earnings (Loss) per Share (continued)
- --------------------------------------------------------------------------------
During 2000, convertible obligations of certain of the Company's formerly
public subsidiaries became convertible into Company common stock (Note 18). The
computation of diluted earnings (loss) per share for 2000 excludes the effect of
assuming the conversion of the following of the Company's subordinated
convertible debentures because the effect would be antidilutive:
Conversion
Principal Interest Price per
Amount Rate Share
----------------------------------------
(In thousands)
$561,563 4 1/4% $ 37.80
247,000 4% 41.94
172,500 4 1/2% 40.54
110,191 4 5/8% 40.30
98,310 4 3/8% 131.71
78,048 3 1/4% 49.06
35,029 4 7/8% 38.28
15,859 2 7/8% 33.17
The computation of diluted earnings (loss) per share for 1999 and 1998
excludes the effect of assuming the conversion of the Company's 4 1/4%
subordinated convertible debentures, convertible at $37.80 per share, because
the effect would be antidilutive. In addition, the computation of diluted
earnings (loss) per share for 1999 excludes the effect of assuming the
repurchase of 2,367,000 shares of Company common stock at a weighted average
exercise price of $14.06 per share in connection with put options (Note 7),
because the effect would be antidilutive.
17. Comprehensive Income
- --------------------------------------------------------------------------------
Comprehensive income combines net income (loss) and "other comprehensive
items," which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments.
Accumulated other comprehensive items in the accompanying balance sheet
consists of the following:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment $(108,103) $ (63,128)
Net Unrealized Gains on Available-for-sale Investments 11,761 7,203
--------- ---------
$ (96,342) $ (55,925)
========= =========
43
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
17. Comprehensive Income (continued)
- --------------------------------------------------------------------------------
Unrealized gains (losses) on available-for-sale investments, a component
of other comprehensive items in the accompanying statement of comprehensive
income and shareholders' investment, includes the following:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Unrealized Holding Gains Arising During the Year (net of
income tax provision of $5,257, $3,956, and $2,481) $ 8,668 $ 6,848 $ 3,744
Reclassification Adjustment for Gains Included in Net Income
(Loss) (net of income tax provision of $2,739, $1,465, and $5,125) (4,110) (2,197) (7,687)
------- ------- -------
Net Unrealized Gains (Losses) (net of income tax provision
(benefit) of $2,518, $2,491, and $(2,644)) $ 4,558 $ 4,651 $(3,943)
======= ======= =======
18. Reorganization and Discontinued Operations
- --------------------------------------------------------------------------------
Reorganization
In January 2000, the Company modified its proposed reorganization
involving the Company and certain of its subsidiaries. The reorganization would
split the Company into three independent public entities. In February 2001, the
Company entered into a definitive agreement to sell its power generation
business. The Company's continuing operations solely include its core
measurement and detection instrument businesses. The Company's plans also
include spinning off as a dividend to Company shareholders Thermo Fibertek and a
medical products company that focuses on patient monitoring and respiratory
equipment.
During 1999 and 2000, the Company acquired the minority interest in
certain of its privately held subsidiaries and all of its formerly publicly held
subsidiaries other than SPLI, Thermo Cardiosystems, Thermo Fibertek, and Thermo
Fibergen. In connection with these acquisitions, the Company expended $368.6
million and $43.2 million of cash in 2000 and 1999, respectively, and issued
22.6 million shares of its common stock valued at $448.7 million in 2000. In
addition, the stock options of the subsidiaries were converted into stock
options that are exercisable into 13.9 million shares of Company common stock.
The stock options had a fair value of $115.3 million. As a result of the
completion of the cash tender offers and other repurchases, exchange offers, and
stock option conversions, the Company has recorded an increase in goodwill of
approximately $380 million in 2000. This asset is being amortized principally
over 40 years.
As a result of the completion of the exchange offers for Thermo Instrument
Systems, Inc., Thermedics Inc., Thermo Ecotek Corporation, ThermoLase,
ThermoTrex Corporation, and Thermo TerraTech Inc., $790.2 million principal
amount of convertible obligations of these subsidiaries became obligations
convertible into Company common stock.
Details of the transactions summarized above are as follows:
Continuing Operations
2000
Thermo Instrument completed a merger with Thermo Vision Corporation
pursuant to which Thermo Instrument acquired, for $7.00 per share in cash, all
of the outstanding shares of common stock of Thermo Vision not already owned by
Thermo Instrument or the Company. The common stock of Thermo Vision ceased to be
publicly traded.
Thermo Instrument completed cash tender offers of $28.00 per share for
Thermo BioAnalysis, $9.00 per share for Metrika Systems Corporation, and $9.00
per share for ONIX in order to bring its and the Company's collective ownership
of these businesses to at least 90%. Subsequently, Thermo Instrument completed
the acquisition of the outstanding minority interest in each of these companies
through short-form mergers at the same prices as the tender
44
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
18. Reorganization and Discontinued Operations (continued)
- --------------------------------------------------------------------------------
offers and their common stock ceased to be publicly traded. Because Thermo
Instrument owned more than 90% of the outstanding shares of Thermo Optek and
ThermoQuest common stock, each of these companies were repurchased through
short-form mergers at $15.00 and $17.00 per share, respectively, and their
common stock ceased to be publicly traded.
Thermedics completed cash tender offers of $8.00 and $15.50 per share for
Thermedics Detection Inc. and Thermo Sentron Inc., respectively, in order to
bring its and the Company's collective ownership of these businesses to at least
90%. Subsequently, Thermedics completed the acquisition of the outstanding
minority interest in each of these companies through short-form mergers at the
same prices as the tender offers and their common stock ceased to be publicly
traded.
The Company completed an exchange offer for Thermo Instrument in which
shares of Company common stock were offered to Thermo Instrument shareholders in
exchange for their shares in order to bring the Company's ownership in Thermo
Instrument to at least 90%. The exchange ratio for Thermo Instrument was 0.85
shares of Company common stock for each share of Thermo Instrument common stock.
Subsequently, Thermo Instrument was spun into the Company through a short-form
merger at the same exchange ratio that was offered in the exchange offer and its
common stock ceased to be publicly traded. As a result of the completion of the
merger with Thermo Instrument, the Company issued 12.6 million shares of its
common stock valued at $265.9 million.
1999
Thermedics completed a merger with Thermo Voltek Corporation pursuant to
which Thermedics acquired, for $7.00 per share in cash, all of the outstanding
shares of common stock of Thermo Voltek not already owned by Thermedics or the
Company. The common stock of Thermo Voltek ceased to be publicly traded.
Thermo Instrument completed a merger with ThermoSpectra Corporation
pursuant to which Thermo Instrument acquired, for $16.00 per share in cash, all
of the outstanding shares of common stock of ThermoSpectra not already owned by
Thermo Instrument or the Company. The common stock of ThermoSpectra ceased to be
publicly traded.
Discontinued Operations
2000
The Company completed a merger with Thermedics pursuant to which the
Company acquired all of Thermedics' outstanding shares of common stock not
already owned by the Company in exchange for Company common stock at a ratio of
0.45 shares for each share of Thermedics common stock. The common stock of
Thermedics ceased to be publicly traded.
The Company completed a merger with Thermo TerraTech pursuant to which the
Company acquired all of Thermo TerraTech's outstanding shares of common stock
not already owned by the Company in exchange for Company common stock at a ratio
of 0.3945 shares for each share of Thermo TerraTech common stock. The common
stock of Thermo TerraTech ceased to be publicly traded.
The Company completed a merger with ThermoLase pursuant to which the
Company acquired all of ThermoLase's outstanding shares of common stock not
already owned by ThermoTrex or the Company in exchange for Company common stock
at a ratio of 0.132 shares for each share of ThermoLase common stock. The common
stock of ThermoLase ceased to be publicly traded. In addition, under the
agreement, units of ThermoLase were modified so that each unit consists of a
fractional share of Company common stock, which is redeemable at the option of
the holder in April 2001 for $20.25 (Note 1).
The Company completed a merger with ThermoTrex pursuant to which the
Company acquired all of ThermoTrex's outstanding shares of common stock not
already owned by the Company in exchange for Company common stock at a ratio of
0.5503 shares for each share of ThermoTrex common stock. The common stock of
ThermoTrex ceased to be publicly traded.
45
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
18. Reorganization and Discontinued Operations (continued)
- --------------------------------------------------------------------------------
The Company completed a cash tender offer of $2.15 per share for Trex
Medical to bring its ownership of this business to at least 90%. Subsequently,
the Company completed the acquisition of the outstanding minority interest in
Trex Medical through a short-form merger at the same price as the tender offer
and the common stock of Trex Medical ceased to be publicly traded.
The Company completed mergers with ThermoRetec Corporation and The Randers
Killam Group Inc. pursuant to which the Company acquired, for $7.00 and $4.50
per share in cash, respectively, all of the outstanding shares of common stock
of ThermoRetec and Randers Killam not already owned by Thermo TerraTech or the
Company. The common stock of each of ThermoRetec and Randers Killam ceased to be
publicly traded.
Because the Company owned more than 90% of the outstanding shares of
Thermo Ecotek, the Company repurchased Thermo Ecotek through a short-form
merger. Thermo Ecotek shareholders received 0.431 shares of Company common stock
for each share of Thermo Ecotek common stock. The common stock of Thermo Ecotek
ceased to be publicly traded.
As a result of the completion of the mergers with Thermedics, Thermo
TerraTech, ThermoLase, ThermoTrex, and Thermo Ecotek, the Company issued 10.0
million shares of its common stock valued at $182.8 million.
The spinoffs of Thermo Fibertek and the medical products company will
require final Company Board of Directors actions, review by the SEC of necessary
filings for the medical products company, and other customary conditions. In
February 2001, the Company received a favorable Internal Revenue Service ruling
regarding the spinoff of these businesses. The favorable ruling requires that
the spinoffs occur within one year of the ruling, and, subject to certain
conditions, that the businesses raise additional equity capital in public
offerings within one year of their spinoffs.
1999
The Company completed a merger with Thermo Power Corporation pursuant to
which the Company acquired, for $12.00 per share in cash, all of the outstanding
shares of common stock of Thermo Power not already owned by the Company. The
common stock of Thermo Power ceased to be publicly traded.
Discontinued Operations
In January 2000, the Company also announced its intention to sell several
of its businesses. These businesses, together with the businesses to be spun
off, constituted the Company's former Biomedical and Emerging Technologies and
Resource Recovery segments as well as the Company's environmental businesses,
and Thermo Power. In February 2001, the Company entered into a definitive
agreement to sell its power generation business. In accordance with the
provisions of APB No. 30 concerning reporting the effects of disposal of a
segment of a business, the Company has classified the results of these
businesses, as well as the results of the businesses being spun off as dividends
(collectively, "the discontinued businesses"), as discontinued operations in the
accompanying statement of operations. In addition, the net assets of the
discontinued businesses were classified as net assets of discontinued operations
in the accompanying balance sheet. Current net assets of discontinued operations
primarily consists of cash, inventories, and accounts receivable, net of certain
liabilities, primarily accrued expenses and accounts payable. Long-term net
assets of discontinued operations primarily consists of machinery and equipment
and goodwill. In addition, long-term net assets of discontinued operations
include subordinated convertible debentures of Thermo Cardiosystems and Thermo
Fibertek (Note 5).
46
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
18. Reorganization and Discontinued Operations (continued)
- --------------------------------------------------------------------------------
Summary operating results for 1998 and 1999 of the businesses discontinued
in January 2000 and for 1998 through 2000 for the power generation business,
were as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Revenues $ 120,256 $2,009,130 $1,986,690
Costs and Expenses 93,779 2,280,192 1,811,662
---------- ---------- ----------
Income (Loss) from Discontinued Operations Before Income
Taxes, Minority Interest, and Extraordinary Item 26,477 (271,062) 175,028
Income Tax (Provision) Benefit (10,427) 54,807 (80,189)
Minority Interest (Expense) Income (1,822) 52,282 (11,792)
---------- ---------- ----------
Income (Loss) from Discontinued Operations Before
Extraordinary Item 14,228 (163,973) 83,047
Extraordinary Item, Net of Income Taxes and Minority Interest - 648 4,654
---------- ---------- ----------
Income (Loss) from Discontinued Operations $ 14,228 $ (163,325) $ 87,701
========== ========== ==========
During 2000, the Company's discontinued operations (excluding the power
generation business) had revenues and a net loss of $1.49 billion and $38.8
million, respectively. The Company received proceeds in 2000 from the sale of
discontinued businesses of $390.1 million. In 1999, the Company recorded a
charge of $50 million, including a provision for income taxes of $174 million,
for the estimated loss on disposal of the discontinued businesses. The charge
was determined using management's best estimate of the selling prices of the
businesses and their estimated results through the dates of sale. In 2000, the
Company recorded an additional charge of $100 million, net of an income tax
benefit of $104 million, for changes in the actual and estimated proceeds of
businesses discontinued in 2000, including Thermo Cardiosystems. In February
2001, the Company sold Thermo Cardiosystems to Thoratec Corporation in exchange
for approximately 19.3 million shares of Thoratec common stock. Certain
contractual restrictions limit the Company's ability to sell these shares,
although the restrictions fully lapse in August 2002. Changes in the market
value of Thoratec common stock will materially affect the ultimate proceeds from
the disposal of discontinued operations. Excluding potential changes in the
value of Thoratec's common stock, the Company is not currently aware of any
known trends, events, or other uncertainties involving discontinued operations
that it expects will cause the ultimate loss on disposal of discontinued
operations to differ materially from the amounts recorded in the accompanying
statement of operations. Any difference from the amounts recorded would be
reported as an adjustment to the loss on disposal of discontinued operations.
The Company expects to realize a gain on the sale of the power generation
business that will be recorded at the time the transaction closes. While there
can be no assurance as to the timing of the sale of any particular business, the
Company expects to substantially complete the sale of any remaining businesses
by the middle of 2001. The Company expects to complete the spinoffs of Thermo
Fibertek and the medical products company during the second half of 2001.
47
Thermo Electron Corporation 2000 Financial Statements
Notes to Consolidated Financial Statements
19. Unaudited Quarterly Information
- --------------------------------------------------------------------------------
The following has been restated to reflect, where applicable, the
Company's continuing operations and, in 2000, the adoption of SAB No. 101.
2000 (In thousands except per share amounts) First (a) Second (b) Third (c) Fourth (d)
- ----------------------------------------------------------------------------------------------------------
Revenues $576,604 $579,950 $546,949 $577,019
Gross Profit 268,595 266,249 226,348 260,644
Income from Continuing Operations Before Extraordinary 14,479 21,698 7,281 18,589
Item and Cumulative Effect of Change in Accounting
Principle
Income (Loss) Before Extraordinary Item and Cumulative 15,940 24,255 12,279 (76,199)
Effect of Change in Accounting Principle
Net Income (Loss) (e) 3,554 24,255 12,279 (76,199)
Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in
Accounting Principle:
Basic .09 .14 .04 .10
Diluted .09 .13 .04 .10
Earnings (Loss) per Share (e):
Basic .02 .16 .07 (.42)
Diluted .02 .15 .07 (.41)
1999 (In thousands except per share amounts) First (f) Second (g) Third (h) Fourth (i)
- ----------------------------------------------------------------------------------------------------------
Revenues $514,714 $586,763 $572,768 $620,375
Gross Profit 235,679 268,451 262,180 282,537
Income (Loss) from Continuing Operations Before
Extraordinary Item 15,859 (17,138) 19,069 19,493
Income (Loss) Before Extraordinary Item 28,299 (235,188) 36,329 (5,482)
Net Income (Loss) (j) 28,299 (235,188) 36,329 (4,013)
Earnings (Loss) per Share from Continuing Operations
Before Extraordinary Item:
Basic .10 (.11) .12 .12
Diluted .10 (.11) .12 .11
Earnings (Loss) per Share (j):
Basic .18 (1.49) .23 (.03)
Diluted .17 (1.49) .22 (.04)
Amounts reflect aggregate restructuring and unusual items, net, and nonoperating
items, net, as follows:
(a) Costs of $4.3 million and a $12.9 million charge for the cumulative effect
of change in accounting principle for the adoption of SAB No. 101.
(b) Income of $1.5 million.
(c) Income of $31.9 million. In July 2000, the Company sold the Spectra-Precision
businesses. (d) Costs of $25.7 million and a net of tax charge of $100
million related to the Company's discontinued operations.
(e) Extraordinary item, net of taxes, of $0.5 million in the first quarter.
(f) Costs of $6.2 million. In February 1999, the Company acquired Spectra-Physics.
(g) Costs of $49.6 million.
(h) Costs of $4.7 million.
(i) Costs of $4.7 million.
(j) Extraordinary item, net of taxes, of $1.5 million in the fourth quarter.
48
Thermo Electron Corporation 2000 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 December
30, 2000, and January 1, 2000, and the related consolidated statements of
operations, cash flows, and comprehensive income and shareholders' investment
for each of the three years in the period ended December 30, 2000. 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 auditing standards generally
accepted in the United States. 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 December 30, 2000, and January 1,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States.
As explained in Notes 1 and 14 to the consolidated financial statements,
effective January 2, 2000, the Company changed its method of accounting for
revenue recognition on certain product shipments through the adoption of Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2001
49
Thermo Electron Corporation 2000 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. In January 2000, the Company announced
a major reorganization plan under which it planned to sell many noncore
businesses. In February 2001, the Company entered into a definitive agreement to
sell its power generation business. As a result of these actions, the Company's
continuing operations solely include its core measurement and detection
instrument businesses. As part of this reorganization, the Company plans to spin
off in the form of a dividend its Thermo Fibertek paper recycling subsidiary and
a medical products company that develops, manufactures, and markets
cardio-respiratory and neurologic monitoring and diagnostic equipment. The
results of the businesses that have been or will be sold or spun off have been
presented as discontinued operations in the accompanying financial statements.
The Company's continuing operations fall into three business segments: Life
Sciences, Optical Technologies, and Measurement and Control.
Although the Company's three segments are 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.
Results of Operations
- --------------------------------------------------------------------------------
2000 Compared With 1999
Continuing Operations
Sales in 2000 were $2.28 billion, a decrease of $14.1 million from 1999.
Excluding the effect of acquisitions, divestitures, and currency translation
effects, revenues increased $146.6 million, or 7%. Operating income was $266.0
million in 2000, compared with $182.1 million in 1999. Segment income increased
to $319.8 million in 2000 from $219.2 million in 1999. (Segment income is
operating income excluding corporate general and administrative expenses and
corporate restructuring and other unusual items, net.) The 2000 period included
significant gains on the sale of businesses, inventory provisions, and
restructuring and unusual costs and the 1999 period included significant
restructuring and unusual costs. These items are discussed below. Excluding
unusual income, net, of $67.3 million in 2000 and unusual costs of $41.0 million
in 1999, segment income decreased to $252.5 million in 2000 from $260.2 million
in 1999. Segment income excluding unusual items decreased in part due to a
reduction in segment income of $8.6 million from businesses divested. In
addition, $4.9 million of incremental amortization expense resulted primarily
from the purchase of the minority interests of formerly public subsidiaries,
offset in part by lower amortization expense following certain divestitures.
These decreases in segment income were offset in part by higher profitability at
certain units.
During 2000, the Company moved its spectroscopy and certain other
businesses from the Optical Technologies segment to the Measurement and Control
segment due to an organizational change. Prior periods have been restated to
conform to this presentation.
50
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
The restructuring actions undertaken in 2000 are expected to be
substantially completed by the end of the second quarter of 2001. These actions
are expected to result in annualized savings of approximately $5 million, $2
million, $4 million, and $2 million in the Life Sciences, Optical Technologies,
and Measurement and Control segments and corporate office, respectively,
generally beginning in the fourth quarter of 2000.
Life Sciences
- -------------
Sales in the Life Sciences segment increased $15.4 million to $780.0
million in 2000. The unfavorable effects of currency translation, due to the
strengthening of the U.S. dollar relative to other currencies in countries in
which the segment operates, resulted in a decrease in revenues of $29.6 million
in 2000. Revenues increased $13.7 million due to acquisitions, offset in part by
a decrease of $2.0 million due to the adoption of Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements." Excluding the
effect of currency translation, acquisitions, and the adoption of SAB No. 101,
revenues increased $33.3 million, or 4%. Increased demand for mass spectrometers
contributed $19.1 million of higher revenues, due in part to strong sales in
Japan. Sales of clinical diagnostic products increased $12.4 million due to
higher demand for clinical chemistry analyzers and reagents and point of care
testing products. Sales increased $9.1 million due to higher demand for
controlled-environment laboratory equipment. Growth in these businesses was
offset in part by lower revenues from laboratory information management systems
due to completion of year-2000 compliance projects in 1999.
Segment income margin decreased to 11.8% in 2000 from 15.3% in 1999. The
segment's margin decreased primarily due to restructuring and related actions in
2000. Excluding inventory provisions and restructuring and unusual costs,
segment income margin decreased to 13.9% in 2000 (or 14.3% before the impact of
SAB No. 101) from 15.3% in 1999 due to lower sales of laboratory information
management systems, which have a higher profit margin than the segment's other
products. In addition, segment income margin was negatively affected by the
purchase of the minority interests of formerly public subsidiaries, which
resulted in $4.5 million of higher amortization expense, and $1.8 million of
research and development spending on proteomics initiatives. The restructuring
and unusual costs totaled $16.3 million and included $8.4 million of charges to
cost of revenues, primarily for discontinued product lines; $6.5 million of cash
costs, primarily for severance and facilities closures; and $1.4 million of
asset writedowns at a small business unit that was closed and for abandoned
facilities. The segment recorded unusual income of $0.3 million in 1999 for the
reversal of previously recorded restructuring costs (Note 11).
Optical Technologies
- --------------------
Sales in the Optical Technologies segment increased $85.4 million to
$480.0 million in 2000. Sales increased $19.4 million due to acquisitions,
primarily the inclusion of a full year of revenues from the acquisition of a
majority interest in Spectra-Physics Lasers, Inc. (SPLI) on February 22, 1999.
The unfavorable effects of currency translation, due to the strengthening of the
U.S. dollar relative to other currencies in countries in which the segment
operates, resulted in a decrease in revenues of $13.3 million in 2000. The
adoption of SAB No. 101 reduced revenues by $13.1 million. Excluding the effect
of acquisitions, currency translation, and the adoption of SAB No. 101, revenues
increased $92.4 million, or 25%. Sales of semiconductor-based lasers increased
$41.9 million due to higher demand from computer and microelectronic
manufacturers. Sales of temperature-control systems increased $27.3 million in
2000 as a result of strong demand from the semiconductor industry. Revenues from
the sale of photonics products increased $17.3 million as a result of strong
demand for gratings and other optical components used in systems for lithography
and telecommunication devices. In addition, higher sales of molecular beam
epitaxy systems resulted from increased demand from semiconductor manufacturers.
The growth and profitability of this segment is, in part, dependent on the
cyclical nature of the semiconductor and telecommunications industries, which
experienced strong growth in 2000. These industries experienced slowing trends
in late 2000 and early 2001 and as a result the Company believes this segment's
growth rate in 2001 will be lower than that achieved in 2000.
51
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
Segment income margin was 7.2% in 2000 and 7.9% in 1999. Excluding
inventory provisions and restructuring and unusual costs, segment income margin
was 8.6% in 2000 (or 9.1% before the impact of SAB No. 101), compared with 9.0%
in 1999. Segment income margin was unfavorably affected by the growth in
revenues at SPLI, which has lower operating margins due to heavy investments in
telecommunications products. In addition, the segment had $2.1 million of higher
amortization expense, primarily resulting from the purchase of the minority
interests in formerly public subsidiaries. These factors were offset by higher
profitability resulting from increased sales of photonics products and
temperature control systems. The restructuring and unusual costs in 2000 totaled
$6.5 million and included charges to cost of revenues of $2.9 million, primarily
for discontinued product lines; a $1.5 million charge for in-process research
and development in connection with an acquisition; $1.2 million of cash costs
for severance and facility exit costs; and $0.9 million of asset writedowns
primarily to reduce the carrying value of a small business unit that is held for
sale to estimated disposal value. The restructuring and unusual costs in 1999
included $3.2 million of charges to cost of revenues for the sale of inventories
revalued at the date of acquisition and $1.0 million of facility closing costs
and severance associated with a restructuring plan undertaken in 1998 and
completed in 1999 (Note 11).
Measurement and Control
- -----------------------
Sales in the Measurement and Control segment decreased $123.0 million to
$1.037 billion in 2000. Sales decreased $101.7 million due to divestitures, net
of acquisitions. The unfavorable effects of currency translation, due to the
strengthening of the U.S. dollar relative to other currencies in countries in
which the segment operates, resulted in a decrease in revenues of $37.1 million
in 2000. Revenues increased $2.9 million due to the adoption of SAB No. 101.
Excluding the effect of divestitures, acquisitions, currency translation, and
the adoption of SAB No. 101, revenues increased $12.9 million, or 1%. Revenues
from the sale of process instruments increased $8.1 million, primarily due to
strong demand from the natural gas industry, which is benefiting from higher gas
prices. In addition, sales of environmental monitoring equipment increased $7.2
million. Revenues from the sale of spectroscopy instruments increased $4.6
million due to higher demand. These increases were offset in part by lower sales
of weighing and inspection equipment resulting from reduced demand from the
global packaged food industry. This industry is in a period of consolidation and
the Company believes that a decrease in customers' capital spending has resulted
from uncertainty in the marketplace.
The segment's divestitures primarily included Spectra Precision, Nicolet
Imaging Systems (NIS), and Sierra Research and Technology, Inc. (SRT) (Note 3).
These units were sold as part of an effort to focus on potentially higher-growth
opportunities in the Life Sciences and Optical Technologies segments. In 2000,
through the dates of sale, these businesses had aggregate revenues of $125.7
million and segment income of $11.0 million. In addition, this segment is
holding several units for sale, including businesses that provide the oil and
gas industry with wellhead safety and control products and a manufacturer of
data acquisition systems, digital oscilloscopes, and recorders. In the first
quarter of 2001, the segment decided to hold for sale a business unit that
manufactures scanning probe microscopes. The segment expects to record a pretax
charge of $4 - $5 million in the first quarter of 2001 to reduce the unit's
carrying value to estimated disposal value. The businesses held for sale are
cyclical, noncore units, and the segment expects the divestitures to be
primarily completed in the first half of 2001. In 2000, the businesses held for
sale had aggregate revenues of $102.3 million and segment income before
restructuring and unusual charges of $0.9 million.
Segment income margin increased to 18.6% in 2000 from 6.1% in 1999,
primarily due to gains on the sale of businesses. Segment income margin,
excluding inventory provisions and restructuring and unusual items, increased to
9.9% in 2000 (or 10.0% before the impact of SAB No. 101) from 9.3% in 1999.
Higher profitability from increased sales of process instruments and
environmental monitoring equipment was offset in part by lower margins from
spectroscopy instruments due to price competition at certain of the segment's
elemental analysis businesses. Restructuring and unusual income, net, in 2000
totaled $90.1 million and included gains on the sale of businesses, net, of
$126.3 million, and the related operating loss of $1.7 million of one of the
divested businesses in the third quarter of
52
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
2000 prior to its sale; $20.6 million of asset writedowns to reduce the carrying
value of businesses held for sale to estimated disposal value; charges to cost
of revenues of $8.0 million, primarily for discontinued product lines; $6.8
million of cash costs for severance and facility costs; and a gain of $0.6
million from the termination of a lease. The 1999 restructuring and unusual
costs totaled $37.2 million, including $31.0 million of restructuring charges,
primarily to reduce the carrying value of the power electronics and test
equipment business to estimated disposal value; $3.5 million of charges for the
sale of inventories revalued at the date of acquisition; and $2.8 million of
inventory provisions (Note 11).
Other Expense, Net
- ------------------
The Company reported other expense, net, of $81.2 million and $57.3
million in 2000 and 1999, respectively (Note 10). Other expense, net, includes
interest income, interest expense, equity in earnings (loss) of unconsolidated
subsidiaries, gain on investments, net, and other items, net. Interest income
increased to $43.1 million in 2000 from $42.0 million in 1999 due to investment
of cash proceeds from the divestiture of noncore businesses, offset in part by
lower cash balances from the purchase of the minority interests in certain
formerly public subsidiaries. Interest expense decreased to $86.1 million in
2000 from $93.0 million in 1999 as a result of the maturity and repurchase of
Company and subsidiary debentures in 1999 and 2000.
The Company incurred a loss of $47.3 million in 2000 from its equity in
the results of unconsolidated subsidiaries, primarily $47.4 million at FLIR,
including a writedown of the carrying value of the investment in FLIR to market
value. In 1999, the Company's equity in the results of unconsolidated subsidiary
totaled a loss of $7.3 million, including $11.1 million of unusual charges
related to FLIR (Notes 3 and 11). The Company reports its pro rata share of
FLIR's results on a one-quarter lag. During 2000, gain on investments, net, was
$6.8 million, compared with $3.7 million in 1999. The 1999 gain on investments,
net, includes $3.6 million of charges for impairment that was deemed other than
temporary. In 2000, other income, net, also includes $2.3 million of currency
gains, primarily resulting from hedging activities at SPLI, which elected early
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In 1999, the Company had $2.3 million of losses from SPLI's hedging
activities (Note 11).
Provision for Income Taxes
- --------------------------
The Company's effective tax rate was 61% and 52% in 2000 and 1999,
respectively. The effective tax rate in 2000 includes the effect of the sale of
Spectra Precision, which had a lower tax basis than book basis, resulting in a
significant tax gain on the sale. Excluding unusual items, the effective tax
rate in 2000 and 1999 was 39% and 40%, respectively. The effective tax rate in
each period exceeds the statutory federal income tax rate primarily due to state
income taxes and nondeductible expenses, including amortization of goodwill.
Minority Interest Expense
- -------------------------
The Company recorded minority interest expense of $10.6 million and $23.0
million in 2000 and 1999, respectively. Minority interest expense decreased due
to the purchase of the minority interests in certain formerly public
subsidiaries.
Contingent Liabilities
- ----------------------
At year-end 2000, the Company was contingently liable with respect to
certain lawsuits (Note 6). 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 discussed in Note 6 of
Notes to Consolidated Financial Statements could materially affect the results
of operations or cash flows for a particular quarter or annual period.
53
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
Income from Continuing Operations
- ---------------------------------
Income from continuing operations before extraordinary item and cumulative
effect of change in accounting principle was $62.0 million in 2000, compared
with $37.3 million in 1999. Results were affected by restructuring costs and
unusual items, net, in both periods as well as the significant tax provision in
2000 on a gain on the sale of a business as discussed above. Excluding these
items, income from continuing operations before extraordinary item and
cumulative effect of change in accounting principle was $104.4 million in 2000
and $79.8 million in 1999.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
In accordance with the requirements of SAB No. 101, the Company adopted
the pronouncement as of January 2, 2000, and recorded a cumulative effect of
change in accounting principle of $12.9 million, net of an income tax benefit of
$8.5 million and minority interest of $0.5 million (Note 14).
Discontinued Operations
The Company recorded a net of tax provision of $100 million in 2000 as a
revision to the estimate of $50 million recorded in 1999 for loss on disposal of
discontinued operations. The increase in the loss resulted from lower after-tax
proceeds from the sale of noncore businesses than had been anticipated at the
time the businesses were discontinued. The Company believes that deterioration
in the financial markets in the latter part of 2000, including tighter financing
terms and lower equity values, adversely affected the selling prices of the
discontinued businesses. Following the sale of Thermo Cardiosystems in February
2001, the Company's discontinued operations hold 19.3 million shares of Thoratec
Corporation. Certain contractual restrictions limit the Company's ability to
sell these shares, although the restrictions fully lapse in August 2002. Changes
in the market value of Thoratec's common stock will materially affect the
ultimate proceeds from the disposal of discontinued operations. Excluding
potential changes in the value of Thoratec common stock, the Company is not
currently aware of any known trends, events, or other uncertainties involving
discontinued operations that it expects will cause the ultimate loss on disposal
of discontinued operations to differ materially from the amounts recorded in the
accompanying statement of operations. Any difference from the amounts recorded
would be reported as an adjustment to the loss on disposal of discontinued
operations (Note 18).
In February 2001, the Company entered into a definitive agreement to sell
its power generation business and, as a result, has treated this business as a
discontinued operation in the accompanying financial statements. The Company
expects to realize a gain on the sale of this business, which will be recorded
at the time the transaction closes. The power generation business had income of
$14.2 million in 2000, net of taxes and minority interest. The Company's
discontinued operations had an aggregate loss of $163.3 million in 1999, net of
taxes and minority interest, primarily as a result of asset impairment charges.
1999 Compared With 1998
Continuing Operations
Sales in 1999 were $2.29 billion, an increase of $413.7 million, or 22%,
over 1998. Excluding the effects of acquisitions, divestitures, and currency
translation, revenues decreased $68.7 million, or 4%. Operating income decreased
to $182.1 million in 1999 from $191.3 million in 1998. Segment income decreased
to $219.2 million in 1999 from $221.9 million in 1998. Excluding unusual costs
totaling $41.0 million in 1999 and $31.8 million in 1998, segment income
increased to $260.2 million in 1999 from $253.7 million in 1998. The unusual
costs in both periods include restructuring costs and inventory provisions and
are discussed below. Segment income excluding unusual items increased due to the
benefit in the latter half of 1999 of restructuring actions taken in 1998,
offset in part by lower sales and profitability at certain businesses. The
Company's restructuring actions in 1999 occurred principally
54
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 Compared With 1998 (continued)
as a result of exiting certain operations with low current or expected
profitability and did not include significant cost reduction measures.
Restructuring actions undertaken in 1998 were substantially completed in 1999
and resulted in annualized cost savings of approximately $29 million, including
$8 million in the Life Sciences segment, $7 million in the Optical Technologies
segment, and $14 million in the Measurement and Control segment, beginning
primarily in the second half of 1999.
Life Sciences
- -------------
Sales in the Life Sciences segment increased 8% to $764.6 million in 1999.
Sales increased by $59.6 million due to acquisitions. The unfavorable effects of
currency translation, due to the strengthening of the U.S. dollar relative to
other currencies in countries in which the segment operates, decreased revenues
by $4.9 million in 1999. Excluding the effect of acquisitions and currency
translation, revenues increased $4.8 million, or 1%. Revenues from laboratory
information management systems increased by $8.5 million due to year-2000
compliance demand and expansion of sales and distribution channels. Revenues
from the sale of immunoassay testing and multiblock deoxyribonucleic acid (DNA)
amplification products increased $5.4 million due to higher demand in Asia. This
increase was offset in part by lower revenues from the sale of analytical
instruments, primarily due to a $5.8 million decline in revenues in Asia as a
result of lower shipments to Japan, and $3.2 million of lower demand for its
Fourier-transform mass spectrometers, offset in part by increased demand for
other mass spectrometers.
Segment income margin increased to 15.3% in 1999 from 14.3% in 1998. The
segment's margin increased primarily due to restructuring and related actions in
1998. Excluding inventory provisions and restructuring and unusual items,
segment income margin decreased to 15.3% in 1999 from 15.5% in 1998. The
decrease in segment income margin in 1999 resulted from higher selling costs,
including the expansion of selling efforts in China and India. The segment
recorded unusual income of $0.3 million in 1999 for the reversal of previously
recorded restructuring costs. In 1998, the segment recorded restructuring costs
of $5.9 million and inventory provisions of $2.8 million. The restructuring
costs recorded in 1998 were primarily for severance and abandoned-facility
payments and the inventory provisions were for discontinuing several low-margin
product lines and disposal of inventories at a closed facility.
Optical Technologies
- --------------------
Sales in the Optical Technologies segment increased 49% to $394.6 million
in 1999. Sales increased by $136.3 million due to acquisitions, net of
divestitures, primarily that of SPLI, in which the segment acquired a majority
interest in February 1999. The unfavorable effects of currency translation, due
to the strengthening of the U.S. dollar relative to other currencies in
countries in which the segment operates, decreased revenues by $2.2 million in
1999. Excluding the effect of acquisitions and currency translation, revenues
decreased $4.9 million, or 2%. Revenues decreased due to a continued downturn in
the semiconductor industry in the first half of 1999. Sales to this industry
grew modestly in the last half of 1999.
Segment income margin decreased to 7.9% in 1999 from 11.0% in 1998,
primarily due to the inclusion of SPLI in 1999. Excluding inventory provisions
and restructuring and unusual items, segment income margin decreased to 9.0% in
1999 from 13.5% in 1998. The segment income margin for SPLI was 4.9% in 1999,
excluding a charge for the sale of inventories revalued at the date of
acquisition. SPLI experienced a decline in sales from its prior-year
preacquisition results and undertook restructuring actions in 1999. In addition,
segment income margin decreased due to higher research and development expenses
for new products, including the V150 Molecular Beam Epitaxy system. The
restructuring and unusual costs in 1999 included $3.2 million of charges to cost
of revenues for the sale of inventories revalued at the date of acquisition and
$1.0 million of facility closing costs and severance associated with a
restructuring plan undertaken in 1998 and completed in 1999. The restructuring
and unusual costs in 1998 included $3.6 million of severance,
abandoned-facility, and employee relocation costs and $2.9 million of inventory
provisions.
55
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 Compared With 1998 (continued)
Measurement and Control
- -----------------------
Sales increased 24% to $1.160 billion in the Measurement and Control
segment in 1999. Sales increased $303.3 million due to acquisitions, net of
divestitures, primarily that of Spectra-Physics AB's wholly owned businesses,
acquired in February 1999. The unfavorable effects of currency translation, due
to the strengthening of the U.S. dollar relative to other currencies in
countries in which the segment operates, decreased revenues by $9.6 million in
1999. Excluding the effect of acquisitions and currency translation, revenues
decreased $69.7 million, or 8%. Revenues from quality control systems decreased
$19.4 million due to a reduction in spending by raw-material producers,
particularly in the cement sector due to depressed pricing and lower demand for
near-infrared analyzers and ultratrace chemical detectors. The demand for
ultratrace chemical detectors was adversely affected by recycling practices in
Europe, which now involve melting and reforming plastic returnables instead of
sanitizing and reusing containers. Revenues in this division decreased to a
lesser extent due to lower demand for explosives detection devices following
completion in early 1998 of a contract with the Federal Aviation Administration.
Revenues from the sale of equipment to the oil and gas industry decreased $19.2
million, primarily as a result of reduced discretionary capital spending by
companies in the process control industry and by the oil and gas production
sector. Energy prices declined precipitously in 1998 and, while prices rebounded
in 1999, capital equipment spending did not return to prior levels. In addition,
lower prices for natural resources in the first half of 1999 reduced spending in
that industry. Revenues at the segment's weighing and inspection division
decreased by $16.6 million due to consolidation in the packaged food industry,
which has reduced demand. In addition, the segment's power electronics and test
and measurement equipment businesses experienced lower demand resulting from
softness in the semiconductor industry in the first half of 1999.
Segment income margin decreased to 6.1% in 1999 from 9.8% in 1998.
Excluding inventory provisions and restructuring and unusual items, segment
income margin decreased to 9.3% in 1999 from 11.6% in 1998. Segment income
margin decreased primarily due to the decline in revenues at certain businesses
described above. In addition, the businesses of Spectra-Physics that are
reported in this segment had an operating income margin of 8.5%, excluding a
charge for the sale of inventories revalued at the date of acquisition. In 1999,
this segment incurred restructuring and unusual costs of $37.2 million,
including $31.0 million of restructuring charges, primarily to reduce the
carrying value of the power electronics and test equipment business to estimated
disposal value. The segment also recorded $3.5 million of charges for the sale
of inventories revalued at the date of acquisition and $2.8 million of inventory
provisions. In 1998, the segment recorded $16.6 million of restructuring and
unusual charges, including $11.3 million for severance and abandoned-facility
payments, $2.9 million of inventory provisions, $1.6 million related to the
resolution of an arbitration proceeding, and $0.8 million of a write off of
goodwill for an operating unit that was closed.
Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense
- -----------------------------------------------------------------------
As a result of the sale of stock by subsidiaries and the issuance of stock
upon conversion of convertible debentures, the Company recorded gains of $18.6
million in 1998. See Notes 1 and 9 of Notes to Consolidated Financial Statements
for a more complete description of these transactions. The Company recorded
minority interest expense of $23.0 million and $32.2 million in 1999 and 1998,
respectively. Minority interest expense decreased in 1999 primarily as a result
of restructuring and other unusual costs at the Company's formerly
majority-owned subsidiaries. Minority interest expense in 1998 included $3.3
million related to gains recorded by a formerly majority-owned subsidiary of the
Company as a result of the sale of stock by its subsidiaries and the issuance of
stock by its subsidiaries upon conversion of convertible debentures.
Other Income (Expense), Net
- ---------------------------
The Company reported other expense, net, of $57.3 million in 1999, and
other income, net, of $6.6 million in 1998. Interest income decreased to $42.0
million in 1999 from $76.6 million in 1998. The decrease resulted primarily from
the use of cash for acquisitions, principally Spectra-Physics, and the purchase
of securities of the Company and
56
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 Compared With 1998 (continued)
its formerly majority-owned subsidiaries. Interest expense increased to $93.0
million in 1999 from $84.2 million in 1998, as a result of the October 1998
issuance of $150.0 million principal amount of senior notes, offset in part by
the repayment of $69.3 million of long-term obligations in 1999.
The Company incurred a loss of $7.3 million in 1999 from its equity in the
results of unconsolidated subsidiaries, including $11.1 million of unusual
charges related to FLIR. Excluding the unusual charges, equity in earnings of
unconsolidated subsidiaries increased to $3.8 million in 1999 from $0.2 million
in 1998, principally as a result of earnings from FLIR. During 1999, gain on
investments, net, decreased to $3.7 million from $12.8 million in 1998, due to
the sale in 1998 of certain equity securities that resulted in a gain. In 1999,
other expense, net, also includes $2.7 million of losses on foreign exchange
contracts, including $2.3 million from SPLI's early adoption of SFAS No. 133.
Provision for Income Taxes
- --------------------------
The Company's effective tax rate was 52% and 42% in 1999 and 1998,
respectively. Excluding unusual items, the effective tax rate was 40% in 1999
and 41% in 1998. The effective tax rates vary from the statutory federal income
tax rate primarily due to state income taxes and nondeductible expenses.
Discontinued Operations
The Company's discontinued operations incurred a loss of $163.3 million in
1999 and had income of $87.7 million in 1998. The amounts in both periods are
net of taxes and minority interest. Excluding restructuring and unusual charges,
the discontinued operations had income of $70.6 million and $102.7 million in
1999 and 1998, respectively, net of income taxes and minority interest. The
decrease resulted primarily from a decrease in gain on issuance of stock by
subsidiaries in 1999. In addition, the Company's Trex Medical Corporation and
Thermo Coleman Corporation subsidiaries incurred losses in 1999, compared with
profitable operations in 1998. Trex Medical lost a significant customer in the
fourth quarter of 1998 and had lower demand for general purpose X-ray and
radiographic/fluoroscopic systems. Thermo Coleman had losses at two business
units in its Thermo Information Solutions subsidiary that were sold prior to
year end. These decreases in income were offset in part by higher income at the
Company's biomedical units other than Trex Medical.
The Company recorded a provision in 1999 of $50 million for the estimated
loss on the disposal of discontinued operations. This amount includes a tax
provision of $174 million. The charge was determined using management's best
estimate of the selling prices of the businesses and their estimated results
through the dates of disposal.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Consolidated working capital was $1.74 billion at December 30, 2000,
compared with $1.29 billion at January 1, 2000. Included in working capital were
cash, cash equivalents, and short-term available-for-sale investments of $1.03
billion at December 30, 2000, compared with $793.3 million at January 1, 2000.
In addition, the Company had $17.1 million of long-term available-for-sale
investments at December 30, 2000, compared with $6.1 million at January 1, 2000.
Cash provided by operating activities was $199.9 million during 2000,
including $57.8 million from continuing operations. Cash of $77.4 million was
used to fund an increase in inventories in response to growth in the Optical
Technologies segment and, to a lesser extent, at the Life Sciences segment's
mass spectrometry unit. Of the total increase in inventories, $14.5 million
resulted from the adoption of SAB No. 101. An increase in accounts receivable
used cash of $27.4 million due to increased revenues. The increase in
receivables was reduced by $21.6 million due to the adoption of SAB No. 101. An
increase in other current liabilities provided $48.0 million of cash, including
$15.5 million of restructuring costs and $29.1 million of accrued income taxes.
In connection with certain restructuring actions undertaken by the Company's
continuing operations, the Company had accrued $21.0 million for restructuring
and unusual costs at December 30, 2000. The Company expects to pay $18.2 million
of this amount for severance,
57
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
- --------------------------------------------------------------------------------
employee retention, and other costs through January 2002. The remaining balance
of $2.8 million will be paid through the expiration of lease obligations in
2003. In addition, at December 30, 2000, the Company had accrued $10.1 million
for acquisition expenses. Accrued acquisition expenses includes $1.8 million of
severance obligations, which the Company expects to pay during 2001. The
balance, which primarily represents abandoned-facility payments, will be paid
over the remaining terms of the leases through 2014.
During 2000, the primary investing activities of the Company's continuing
operations, excluding available-for-sale investment activities, included the
acquisition of minority interests of subsidiaries, the sale of businesses, and
the purchase of property, plant, and equipment. The Company's continuing
operations expended an aggregate of $307.2 million to acquire the minority
interest of certain majority-owned subsidiaries (Note 18). In 2000, the
Company's continuing operations sold businesses for aggregate proceeds, net of
cash divested, of $253.6 million (Note 18). The Company's continuing operations
expended $74.0 million for purchases of property, plant, and equipment and $15.8
million, net of cash acquired, for acquisitions during 2000. During 2000,
investing activities of the Company's discontinued operations provided $394.6
million of cash, primarily representing proceeds, net of cash divested, of
$390.1 million from the sale of businesses, including the FES and Peek divisions
of Thermo Power Corporation, Coleman Research Corporation, Trex Communications
Corporation, the Medical Imaging business of Trex Medical, and the Lancaster
Laboratories business of Thermo TerraTech Inc. In addition, Thermo Ecotek
Corporation entered into an agreement with a bank group to factor a portion of
the payments to be received from the termination of the power-sales agreement at
its Delano facilities on a nonrecourse basis. Proceeds from this arrangement,
together with termination payments received prior to the factoring agreement,
totaled $83.8 million. The Company's discontinued operations also used $61.4
million to acquire the minority interest of certain majority-owned subsidiaries
and $77.7 million for the purchase of property, plant, and equipment.
The Company's financing activities used $137.6 million of cash during
2000, including $155.5 million for continuing operations. During 2000, the
Company expended $161.2 million for the repayment of long-term obligations,
$29.2 million to purchase shares of its common stock and debentures, and $14.6
million to purchase debentures of certain of the Company's majority-owned
subsidiaries.
The Company has no material commitments for purchases of property, plant,
and equipment and expects that for 2001, such expenditures will approximate $100
million.
The Company believes that its existing resources are sufficient to meet
the working capital requirements of its existing businesses for the foreseeable
future, including at least the next 24 months.
Market Risk
- --------------------------------------------------------------------------------
The Company is exposed to market risk from changes in interest rates,
foreign currency exchange 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, Japanese yen, French francs, Swiss francs, German marks, Swedish
krona, and Netherlands guilders. Gains and losses arising from forward contracts
are recognized as offsets to gains and losses resulting from the transactions
being hedged. The Company generally does not enter into speculative foreign
currency agreements. See Note 11 for the effect of a majority-owned subsidiary's
early adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities."
58
Thermo Electron Corporation 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market Risk (continued)
- --------------------------------------------------------------------------------
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 2000 and 1999
market interest rates would result in a negative impact to the Company of $16
million and $35 million, respectively, on the net fair value of its
interest-sensitive financial instruments.
Foreign Currency Exchange Rates
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 currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling,
Netherlands guilders, Swedish krona, French francs, and German marks. The effect
of a change in foreign exchange rates on the Company's net investment in foreign
subsidiaries is reflected in the "Accumulated other comprehensive items"
component of shareholders' investment. A 10% depreciation in year-end 2000 and
1999 functional currencies, relative to the U.S. dollar, would result in a
reduction of shareholders' investment of $62 million and $41 million,
respectively.
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
currency exchange rates. A 10% depreciation in year-end 2000 and 1999 foreign
currency exchange rates related to the Company's contracts would result in an
increase in the unrealized loss on forward foreign exchange contracts of $7.0
million and $10.5 million, respectively. 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.
Certain of the Company's cash and cash equivalents are denominated in
currencies other than the functional currency of the depositor and are sensitive
to changes in foreign currency exchange rates. A 10% depreciation in the related
year-end 2000 and 1999 foreign currency exchange rates would result in a
negative impact of $0.3 million and $1.1 million, respectively, on the Company's
net income.
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 2000 and 1999 market equity prices would result in
a negative impact to the Company of $26 million and $20 million, respectively,
on the net fair value of its price-sensitive equity financial instruments,
principally its convertible obligations.
59
Thermo Electron Corporation 2000 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Thermo Electron wishes to caution readers that
the following important factors, among others, in some cases have affected, and
in the future could affect, Thermo Electron's actual results and could cause its
actual results in 2001 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, Thermo Electron.
Thermo Electron faces a number of challenges in integrating its instrument
businesses. Thermo Electron has historically operated its instrument businesses
largely as autonomous, unaffiliated operations. As part of its reorganization,
Thermo Electron has begun to manage these operations in a more coordinated
manner. The following factors may make it difficult to successfully integrate
and consolidate Thermo Electron's instrument operations:
-Thermo Electron's success in integrating these businesses will depend
on its ability to coordinate geographically separate organizations and integrate
personnel with different business backgrounds and corporate cultures.
-Thermo Electron's ability to combine these businesses will require
coordination of previously autonomous administrative, sales and marketing,
distribution, and accounting and finance functions and expansion and integration
of information and management systems.
-The integration process could become disruptive to Thermo Electron's
instrument businesses.
Moreover, Thermo Electron may not be able to realize all of the cost
savings and other benefits that it expects to result from the integration
process, even if the process is completed.
It may be difficult for Thermo Electron to expand because some of the
markets for its products are not growing. Some of the markets in which Thermo
Electron competes have been flat or declining over the past several years. To
address this issue, Thermo Electron is pursuing a number of strategies to
improve its internal growth, including:
- finding new markets for its products, including, most significantly, in the areas of proteomics
and photonics;
- developing new applications for its technologies;
- combining sales and marketing operations in appropriate markets to compete
more effectively;
- actively funding research and development; and
- strengthening its presence in selected geographic markets.
Thermo Electron may not be able to successfully implement these
strategies, and these strategies may not result in growth of Thermo Electron's
business.
The proposed spinoffs of Thermo Fibertek and the business that serves the
healthcare industry may not result in companies with strong liquidity or
financial performance. The completion of the spinoffs of Thermo Fibertek and the
business that serves the healthcare industry with a range of medical products
for diagnostics and monitoring is subject to final action by the board of
directors of Thermo Electron. In addition, Thermo Electron has chosen to delay
the spinoffs until the second half of 2001, as a result of the current weakness
in the financial markets, in order to maximize shareholder value.
60
Thermo Electron Corporation 2000 Financial Statements
Forward-looking Statements
Thermo Electron is unable to predict the liquidity or market performance
of the shares of the businesses it plans to spin off. Although Thermo Fibertek
has publicly traded shares, the historic prices of these shares may not be
representative of the trading price of Thermo Fibertek's common stock after the
number of shares held by its stockholders other than Thermo Electron increases
as a result of the spinoff. There is currently no public trading market for the
shares of the company that conducts the business that serves the healthcare
industry. The businesses that Thermo Electron is spinning off may not have the
financial resources and management skills necessary to succeed as independent
entities.
As a result of the spin-off of Thermo Fibertek, Thermo Electron will
remain as the guarantor of indebtedness issued by Thermo Fibertek even though
Thermo Electron will no longer control Thermo Fibertek's business or operations.
Thermo Electron has guaranteed the payment of principal and interest on $153
million principal amount of debentures issued by Thermo Fibertek Inc. These
debentures mature in July 2004. Thermo Electron will remain liable as a
guarantor for this obligation following the spinoff, although it will no longer
control the business or operations of Thermo Fibertek.
Thermo Electron has significant international operations, which entail the
risk that exchange rate fluctuations may negatively affect demand for its
products and its profitability. International revenues account for a substantial
portion of Thermo Electron's revenues, and Thermo Electron intends to continue
expanding its presence in international markets. In 2000, Thermo Electron's
international revenues from continuing operations, including export revenues
from the United States, accounted for approximately 50% of its total revenues.
International revenues are subject to the risk that changes in exchange rates
may adversely affect product demand and the profitability in U.S. dollars of
products and services provided by Thermo Electron in foreign markets, where
payment for Thermo Electron's products and services is made in the local
currency. For example, in fiscal 2000, the unfavorable effects of currency
translation decreased revenues of Thermo Electron's continuing operations by
$80.0 million.
Thermo Electron has acquired several companies and businesses; as a result
it has recorded significant goodwill on its balance sheet, which it must
continually evaluate for potential impairment. Thermo Electron has acquired
significant intangible assets, including approximately $1.4 billion of goodwill
that it has recorded on its balance sheet as of December 30, 2000. Thermo
Electron amortizes this goodwill principally over 40 year periods. Thermo
Electron assesses the future useful life of the goodwill it has on its books
whenever events or changes in circumstances indicate that the current useful
life has diminished. These events or circumstances generally include operating
losses or a significant decline in earnings associated with the acquired
business or asset. Goodwill amortization from Thermo Electron's continuing
operations was $38 million in fiscal 2000. Thermo Electron's ability to realize
the value of the goodwill that it has recorded as a result of its acquisition of
the minority interests in its formerly publicly-traded subsidiaries will depend
on the future cash flows of these businesses. These cash flows in turn depend in
part on how well Thermo Electron has integrated these businesses.
Thermo Electron must develop new products, adapt to rapid and significant
technological change, and respond to introductions of new products in order to
remain competitive. Thermo Electron's growth strategy includes significant
investment in and expenditures for product development, including most
significantly in the areas of proteomics and photonics. Thermo Electron intends
to increase spending in the area of research and development. Thermo Electron
sells its products in several industries that are characterized by rapid and
significant technological changes, frequent new product and service
introductions and enhancements and evolving industry standards. Without the
timely introduction of new products, services and enhancements, Thermo
Electron's products and services will likely become technologically obsolete
over time, in which case its revenue and operating results would suffer.
Thermo Electron's customers use many of its products to develop, test and
manufacture their own products. As a result, Thermo Electron must anticipate
industry trends and develop products in advance of the commercialization of its
customers' products. If it fails to adequately predict its customers' needs and
future activities, Thermo Electron may invest heavily in research and
development of products and services that do not lead to significant revenue.
61
Thermo Electron Corporation 2000 Financial Statements
Forward-looking Statements
Many of its products and products under development are technologically
innovative and require significant planning, design, development, and testing at
the technological, product, and manufacturing-process levels. These activities
require Thermo Electron to make significant investments.
Products in Thermo Electron's markets undergo rapid and significant
technological change because of quickly changing industry standards and the
introduction of new products and technologies that make existing products and
technologies uncompetitive or obsolete. Thermo Electron's competitors may adapt
more quickly to new technologies and changes in customers' requirements than
Thermo Electron can. The products Thermo Electron is currently developing, or
those it will develop in the future, may not be technologically feasible or
accepted by the marketplace, and its products or technologies could become
uncompetitive or obsolete.
Thermo Electron sells its products and services to a number of companies
that operate in cyclical industries, which could adversely affect its results of
operations when those industries experience a downturn. The growth and
profitability of Thermo Electron's Optical Technologies segment depends in part
on sales to the semiconductor and telecommunications industries, which are
subject to cyclical downturns. These industries have begun to experience slowing
trends in late 2000 and early 2001. A prolonged slowdown in these industries
would adversely affect sales by the Optical Technologies segment, which in turn
could adversely affect Thermo Electron's revenues and results of operations.
Changes in governmental regulations may reduce demand for Thermo
Electron's products or increase its expenses. Thermo Electron competes in many
markets in which it and its customers must comply with federal, state, local,
and foreign regulations, such as environmental, health and safety, and food and
drug regulations. Thermo Electron develops, configures, and markets its products
to meet customer needs created by those regulations. Any significant change in
regulations could reduce demand for Thermo Electron's products. For example,
many of Thermo Electron's instruments are marketed to the pharmaceutical
industry for use in discovering and developing drugs. Changes in the Food and
Drug Administration's regulation of the drug discovery and development process
could have an adverse effect on the demand for these products.
Demand for some of Thermo Electron's products depends on capital spending
policies of its customers and on government funding policies. Thermo Electron's
customers include manufacturers of semiconductors and products incorporating
semiconductors, pharmaceutical and chemical companies, laboratories,
universities, healthcare providers, government agencies, and public and private
research institutions. Many factors, including public policy spending
priorities, available resources, and economic cycles, have a significant effect
on the capital spending policies of these entities. These policies in turn can
have a significant effect on the demand for our products. For example, sales of
weighing and inspection equipment have decreased as a result of lower demand
from the global packaged food industry, which is undergoing a period of
consolidation.
62
Thermo Electron Corporation 2000 Financial Statements
Selected Financial Information
(In millions except per share amounts) 2000 (a) 1999 (b) 1998 (c) 1997 (d) 1996
- ----------------------------------------------------------------------------------------------------------
Statement of Operations Data
Revenues $2,280.5 $2,294.6 $1,880.9 $1,811.5 $1,412.2
Gross Profit 1,021.8 1,048.8 872.8 859.2 656.9
Operating Income 266.0 182.1 191.3 235.5 139.0
Income from Continuing Operations Before
Extraordinary Item and Cumulative Effect of
Change in Accounting Principle 62.0 37.3 93.8 142.4 148.4
Income (Loss) Before Extraordinary Item and
Cumulative Effect of Change in Accounting
Principle (23.7) (176.0) 181.5 239.3 190.8
Net Income (Loss) (36.1) (174.6) 181.9 239.3 190.8
Earnings per Share from Continuing Operations
Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle:
Basic .37 .24 .58 .93 1.05
Diluted .36 .22 .55 .87 .95
Earnings (Loss) per Share:
Basic (.22) (1.10) 1.12 1.57 1.35
Diluted (.22) (1.12) 1.08 1.45 1.17
Balance Sheet Data
Working Capital $1,737.0 $1,291.6 $2,130.1 $1,983.8 $2,221.6
Total Assets 4,863.0 5,071.8 5,217.9 4,731.6 4,243.7
Long-term Obligations 1,528.5 1,566.0 1,786.4 1,463.9 1,422.6
Minority Interest 24.7 348.4 378.9 442.1 335.5
Common Stock Subject to Redemption - 7.7 40.5 40.5 2.6
Shareholders' Investment 2,534.0 2,013.5 2,256.1 2,004.0 1,749.2
(a) Reflects $3.4 million of pretax restructuring and related income, net, the
issuance of Company common stock valued at $448.7 million to acquire the
minority interest of certain subsidiaries, and a $12.9 million charge
reflecting the cumulative effect of change in accounting principle for the
adoption of SAB No. 101.
(b) Reflects a $65.2 million pretax charge for restructuring and related costs
and the February 1999 acquisition of Spectra-Physics AB.
(c) Reflects a $32.5 million pretax charge for restructuring and related costs,
the issuance of $150.0 million principal amount of the Company's notes, and
the Company's public offering of common stock for net proceeds of $290.1
million.
(d) Reflects the March 1997 acquisition of Life Sciences International PLC.
63
Thermo Electron Corporation 2000 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 2000 and 1999, as reported in the consolidated
transaction reporting system.
2000 1999
---------------------------------------
Quarter High Low High Low
- ------------------------------------------------------------------------------------------------------
First $26.25 $14.25 $18.19 $13.38
Second 21.77 17.94 20.06 12.69
Third 26.94 20.06 19.69 15.75
Fourth 31.10 24.25 15.88 13.00
As of January 26, 2001, the Company had 13,470 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 26, 2001, was $27.68 per share.
Common stock of the Company's majority-owned Thermo Fibertek Inc. (TFT)
and Thermo Fibergen Inc. (TFG) subsidiaries are traded on the American Stock
Exchange. Common stock of the Company's majority-owned Spectra-Physics Lasers,
Inc. (SPLI) subsidiary is traded on the NASDAQ National Market System.
Shareholder Services
Shareholders of Thermo Electron Corporation who desire information about
the Company are invited to contact the Investor Relations Department, Thermo
Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046, (781) 622-1111. A mailing list is maintained to enable shareholders
whose stock is held in street name, and other interested individuals, to receive
Company information as quickly as possible. All material is also available from
Thermo Electron's Internet site at www.thermo.com, under Investors.
Stock Transfer Agent
Fleet National Bank 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: Fleet
National Bank, c/o EquiServe, P.O. Box 43010, Providence, Rhode Island
02940-3010, (781) 575-3120. You may also send an e-mail to shareholder-equiserve
@equiserve.com, or visit the transfer agent's Internet site at
www.equiserve.com.
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 Company's 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
December 30, 2000, as filed with the Securities and Exchange Commission, may be
obtained at no charge by contacting the Investor Relations Department, Thermo
Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046, (781) 622-1111, or is available from the Company's Internet site at
www.thermo.com, under Investors.
64