SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended March 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 27, 2001
----------------------------- -----------------------------
Common Stock, $1.00 par value 181,273,874
PART I - Financial Information
Item 1 - Financial Statements
- -----------------------------
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 31, December 30,
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 324,402 $ 505,524
Short-term available-for-sale investments, at quoted market
value (amortized cost of $748,792 and $510,312) 763,364 521,329
Accounts receivable, less allowances of $30,370 and $30,593 428,461 431,476
Unbilled contract costs and fees 21,594 18,520
Inventories:
Raw materials and supplies 173,312 169,885
Work in process 77,204 65,625
Finished goods (includes $21,132 and $33,605 at customer
locations) 154,634 158,642
Deferred tax asset 148,133 148,051
Advance receivable from affiliates 15,263 -
Other current assets 41,907 75,007
Net assets of discontinued operations (Note 8) 166,346 371,470
---------- ----------
2,314,620 2,465,529
---------- ----------
Property, Plant, and Equipment, at Cost 493,944 484,555
Less: Accumulated depreciation and amortization 205,788 198,677
---------- ----------
288,156 285,878
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value
(amortized cost of $7,308 and $9,883) 16,018 17,110
---------- ----------
Other Assets 224,299 183,974
---------- ----------
Goodwill 1,360,409 1,378,663
---------- ----------
Long-term Net Assets of Discontinued Operations (Note 8) 580,304 531,823
---------- ----------
$4,783,806 $4,862,977
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 31, December 30,
(In thousands except share amounts) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term obligations and current maturities of long-term obligations $ 93,675 $ 103,356
Advance payable to affiliates - 16,088
Accounts payable 135,430 139,662
Accrued payroll and employee benefits 68,523 78,483
Accrued income taxes 113,195 95,344
Deferred revenue 56,822 50,341
Accrued installation and warranty costs 37,760 37,058
Other accrued expenses (Notes 6 and 7) 216,144 208,219
---------- ----------
721,549 728,551
---------- ----------
Deferred Income Taxes and Other Deferred Items 45,594 47,230
---------- ----------
Long-term Obligations:
Senior convertible obligations 172,500 172,500
Senior notes 150,000 150,000
Subordinated convertible obligations 1,175,015 1,177,565
Other 23,867 28,418
---------- ----------
1,521,382 1,528,483
---------- ----------
Minority Interest 25,723 24,737
---------- ----------
Shareholders' Investment:
Preferred stock, $100 par value, 50,000 shares authorized; none
issued
Common stock, $1 par value, 350,000,000 shares authorized;
197,397,706 and 195,877,421 shares issued 197,398 195,877
Capital in excess of par value 1,703,394 1,681,452
Retained earnings 960,682 1,005,857
Treasury stock at cost, 14,795,913 and 13,708,863 shares (270,699) (246,228)
Deferred compensation (5,502) (6,640)
Accumulated other comprehensive items (Notes 2 and 9) (115,715) (96,342)
---------- ----------
2,469,558 2,533,976
---------- ----------
$4,783,806 $4,862,977
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- --------------------------------------------------------------------------------------------------------
Revenues $573,089 $576,604
-------- --------
Costs and Operating Expenses:
Cost of revenues 317,835 308,009
Selling, general, and administrative expenses 160,167 169,683
Research and development expenses 44,365 48,444
Restructuring and other unusual costs (income), net (Note 7) 10,882 (7,388)
-------- --------
533,249 518,748
-------- --------
Operating Income 39,840 57,856
Other Expense, Net (Note 3) (3,746) (21,553)
-------- --------
Income from Continuing Operations Before Provision for Income Taxes,
Minority Interest, Extraordinary Item, and Cumulative Effect of Change
in Accounting Principle 36,094 36,303
Provision for Income Taxes 14,257 16,085
Minority Interest Expense 18 5,739
-------- --------
Income from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle 21,819 14,479
Income from Discontinued Operations (net of income taxes and minority
interest of $1,446; Note 8) - 1,461
Provision for Loss on Disposal of Discontinued Operations (net of
income tax benefit of $40,000; Note 8) (66,000) -
-------- --------
Income (Loss) Before Extraordinary Item and Cumulative Effect of Change
in Accounting Principle (44,181) 15,940
Extraordinary Item (net of income taxes of $333) - 532
-------- --------
Income (Loss) Before Cumulative Effect of Change in Accounting Principle (44,181) 16,472
Cumulative Effect of Change in Accounting Principle (net of
income tax benefit and minority interest of $663 and $8,986; Note 9) (994) (12,918)
-------- --------
Net Income (Loss) $(45,175) $ 3,554
======== ========
Earnings per Share from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle (Note 4):
Basic $ .12 $ .09
======== ========
Diluted $ .12 $ .09
======== ========
Earnings (Loss) per Share (Note 4):
Basic $ (.25) $ .02
======== ========
Diluted $ (.24) $ .02
======== ========
Weighted Average Shares (Note 4):
Basic 182,856 156,813
======== ========
Diluted 187,177 157,464
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
------------------------
March 31, April 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ (45,175) $ 3,554
Income from discontinued operations (Note 8) - (1,461)
Provision for loss on disposal of discontinued operations (Note 8) 66,000 -
--------- ---------
Income from continuing operations 20,825 2,093
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 23,942 23,260
Noncash restructuring and other unusual costs, net (Note 7) 9,556 1,242
Provision for losses on accounts receivable 1,345 1,430
Minority interest expense 18 5,739
Equity in (earnings) losses of unconsolidated subsidiaries (Note 7) (209) 13,336
Cumulative effect of change in accounting principle, net of
income taxes and minority interest (Note 9) 994 12,918
Change in deferred income taxes (1,587) (2,246)
Gain on sale of businesses (491) (12,394)
(Gain) loss on investments, net 2,152 (3,465)
Extraordinary item, net of income taxes - (532)
Other noncash items, net 2,157 2,185
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable (10,206) 12,115
Inventories (19,973) (31,478)
Other current assets (12,441) (3,885)
Accounts payable (2,371) 3,955
Other current liabilities 20,807 (22,104)
--------- ---------
Net cash provided by continuing operations 34,518 2,169
Net cash provided by discontinued operations (3,275) 30,368
--------- ---------
Net cash provided by operating activities 31,243 32,537
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (12,652) (4,744)
Acquisition of minority interests of subsidiaries - (29,252)
Proceeds from sale of businesses, net of cash divested 390 41,813
Purchases of available-for-sale investments (359,556) (108,519)
Proceeds from sale of available-for-sale investments 29,566 13,762
Proceeds from maturities of available-for-sale investments 91,933 223,457
Purchases of property, plant, and equipment (21,490) (13,513)
Proceeds from sale of property, plant, and equipment 4,647 1,329
Advance (to) from affiliates (31,351) 13,302
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
------------------------
March 31, April 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Investing Activities (continued):
Increase in other assets $ (3,153) $ (473)
Other 870 7,613
--------- ---------
Net cash provided by (used in) continuing operations (300,796) 144,775
Net cash provided by discontinued operations 131,042 63,121
--------- ---------
Net cash provided by (used in) investing activities (169,754) 207,896
--------- ---------
Financing Activities:
Repayment of long-term obligations (12,467) (9,206)
Net proceeds from issuance of long-term obligations - 2,925
Net proceeds from issuance of Company and subsidiary common stock 21,314 11,634
Purchases of Company and subsidiary common stock and subordinated
convertible debentures (14,668) (21,070)
Increase in short-term notes payable 2,158 2,392
Other (102) 6,795
--------- ---------
Net cash used in continuing operations (3,765) (6,530)
Net cash provided by (used in) discontinued operations (13,529) 3,554
--------- ---------
Net cash used in financing activities (17,294) (2,976)
--------- ---------
Exchange Rate Effect on Cash of Continuing Operations (1,719) (3,646)
Exchange Rate Effect on Cash of Discontinued Operations 8,899 468
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (148,625) 234,279
Cash and Cash Equivalents at Beginning of Period 636,252 357,215
--------- ---------
487,627 591,494
Cash and Cash Equivalents of Discontinued Operations at
End of Period (163,225) (58,023)
--------- ---------
Cash and Cash Equivalents at End of Period $ 324,402 $ 533,471
========= =========
Noncash Activities:
Fair value of assets of acquired companies $ 16,144 $ 7,479
Cash paid for acquired companies (13,357) (5,000)
--------- ---------
Liabilities assumed of acquired companies $ 2,787 $ 2,479
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Electron Corporation (the Company) without audit and, in the opinion
of management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of the financial position at March 31, 2001, and the
results of operations and cash flows for the three-month periods ended March 31,
2001, and April 1, 2000. Certain prior-period amounts have been reclassified to
conform to the presentation in the current financial statements. Interim results
are not necessarily indicative of results for a full year.
Historical financial results have been restated to reflect an agreement to
sell the Company's power generation business (Note 8). Historical results have
also been restated to reflect the Company's adoption of Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." The consolidated balance sheet presented as of December
30, 2000, has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q and do
not contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes included
herein should be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 2000, filed with the SEC.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items"
that represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments, unrealized net of tax gains and losses on
available-for-sale investments, and, in 2001, unrealized net of tax gains and
losses on derivative instruments (Note 9). During the first quarter of 2001 and
2000, the Company had a comprehensive loss of $64.9 million and comprehensive
income of $1.7 million, respectively.
3. Other Expense, Net
The components of other expense, net, in the accompanying statement of
operations are as follows:
Three Months Ended
------------------------
March 31, April 1,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Interest Income $ 18,461 $ 9,678
Interest Expense (20,230) (22,924)
Equity in Earnings (Losses) of Unconsolidated Subsidiaries 209 (13,336)
Gain (Loss) on Investments, Net (Note 7) (2,152) 3,465
Other Items, Net (34) 1,564
-------- --------
$ (3,746) $(21,553)
======== ========
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THERMO ELECTRON CORPORATION
4. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended
------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Basic
Income from Continuing Operations Before Extraordinary Item
and Cumulative Effect of Change in Accounting Principle $ 21,819 $ 14,479
Income from Discontinued Operations - 1,461
Provision for Loss on Disposal of Discontinued Operations (66,000) -
Extraordinary Item - 532
Cumulative Effect of Change in Accounting Principle (994) (12,918)
-------- --------
Net Income (Loss) $(45,175) $ 3,554
-------- --------
Weighted Average Shares 182,856 156,813
-------- --------
Basic Earnings (Loss) per Share:
Continuing operations before extraordinary item and cumulative
effect of change in accounting principle $ .12 $ .09
Discontinued operations (.36) .01
Extraordinary item - -
Cumulative effect of change in accounting principle (.01) (.08)
-------- --------
$ (.25) $ .02
======== ========
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THERMO ELECTRON CORPORATION
4. Earnings (Loss) per Share (continued)
Three Months Ended
------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Diluted
Income from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle $ 21,819 $ 14,479
Income from Discontinued Operations - 1,461
Provision for Loss on Disposal of Discontinued Operations (66,000) -
Extraordinary Item - 532
Cumulative Effect of Change in Accounting Principle (994) (12,918)
-------- --------
Net Income (Loss) (45,175) 3,554
Effect of:
Majority-owned subsidiaries' dilutive securities - continuing operations - (861)
Majority-owned subsidiaries' dilutive securities - discontinued
operations - (7)
-------- --------
Income (Loss) Available to Common Shareholders, as Adjusted $(45,175) $ 2,686
-------- --------
Weighted Average Shares 182,856 156,813
Effect of:
Stock options 3,833 651
Convertible debentures 488 -
-------- --------
Weighted Average Shares, as Adjusted 187,177 157,464
-------- --------
Diluted Earnings (Loss) per Share:
Continuing operations before extraordinary item and
cumulative effect of change in accounting principle $ .12 $ .09
Discontinued operations (.35) .01
Extraordinary item - -
Cumulative effect of change in accounting principle (.01) (.08)
-------- --------
$ (.24) $ .02
======== ========
Options to purchase 2,819,000 and 6,406,000 shares of common stock were
not included in the computation of diluted earnings per share for the first
quarter of 2001 and 2000, respectively, because the options' exercise prices
were greater than the average market price for the common stock and their effect
would have been antidilutive.
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THERMO ELECTRON CORPORATION
4. Earnings (Loss) per Share (continued)
The computation of diluted earnings per share for the first quarter of
2000 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. During 2000, convertible obligations of
certain of the Company's formerly public subsidiaries became convertible into
Company common stock. The computation of diluted earnings per share for the
first quarter of 2001 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
109,641 4 5/8% 40.30
96,310 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
5. Business Segment Information
Three Months Ended
-------------------------
March 31, April 1,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues:
Life Sciences $209,147 $190,839
Optical Technologies 139,964 106,178
Measurement and Control 228,260 284,175
Intersegment (a) (4,282) (4,588)
-------- --------
$573,089 $576,604
======== ========
Income from Continuing Operations Before Provision for Income Taxes, Minority
Interest, Extraordinary Item, and Cumulative Effect of Change in Accounting
Principle:
Life Sciences (b) $ 24,707 $ 28,206
Optical Technologies (c) 11,327 8,593
Measurement and Control (d) 16,065 34,377
-------- --------
Total segment income (e) 52,099 71,176
Corporate and Other (f) (16,005) (34,873)
-------- --------
$ 36,094 $ 36,303
======== ========
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THERMO ELECTRON CORPORATION
5. Business Segment Information (continued)
Three Months Ended
------------------------
March 31, April 1,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Depreciation:
Life Sciences $ 4,006 $ 3,944
Optical Technologies 4,319 3,561
Measurement and Control 3,526 5,228
Corporate 344 316
-------- --------
$ 12,195 $ 13,049
======== ========
Amortization:
Life Sciences $ 5,696 $ 4,113
Optical Technologies 1,899 1,320
Measurement and Control 4,152 4,528
Corporate - 250
-------- --------
$ 11,747 $ 10,211
======== ========
(a) Intersegment sales are accounted for at prices that are representative of transactions with
unaffiliated parties.
(b) Includes restructuring and other unusual costs of $3.3 million in the first quarter of 2001.
(c) Includes restructuring and other unusual costs of $0.5 million in the first quarter of 2001.
(d) Includes restructuring and other unusual costs of $5.6 million in the first quarter of 2001 and
restructuring and other unusual income, net, of $12.3 million in the first quarter of 2000.
(e) Segment income is operating 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 and other income and expense. Includes
corporate restructuring and other unusual costs, net, of $1.5 million and $4.9 million in the
first quarter of 2001 and 2000, respectively. Other expense, net, in the first quarter of 2001
includes a charge of $2.0 million for impairment of an available-for-sale investment. Other
expense, net, in the first quarter of 2000 includes a charge of $13.4 million related to the
Company's investment in FLIR Systems, Inc., which is accounted for under the equity method,
and other unusual income of $1.7 million related to a subsidiary's early adoption of SFAS No. 133.
6. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain 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 acquisitions, the Company established reserves, 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.
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THERMO ELECTRON CORPORATION
6. Accrued Acquisition Expenses (continued)
A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1999 is as follows:
1999 Acquisitions
---------------------------------------
Abandonment
of Excess Pre-1999
(In thousands) Severance Facilities Other Acquisitions Total
- ----------------------------------------------------------------------------------------------------------
Balance at December 30, 2000 $ 1,846 $ 510 $ 513 $ 7,167 $10,036
Payments (187) (101) (38) (65) (391)
Currency translation (25) (13) (19) (260) (317)
------- ------- ------- ------- -------
Balance at March 31, 2001 $ 1,634 $ 396 $ 456 $ 6,842 $ 9,328
======= ======= ======= ======= =======
The remaining accrued acquisition expenses for pre-1999 acquisitions
primarily represent lease obligations for four operating facilities in England
with leases expiring through 2014.
The principal accrued acquisition expenses for 1999 acquisitions were for
severance for approximately 175 employees across all functions and for abandoned
facilities, primarily at Spectra-Physics AB. 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 relocation, contract termination, and other exit costs. The Company
expects to pay amounts accrued for acquisition expenses primarily through 2001.
The Company finalized its restructuring plans for Spectra-Physics and other 1999
acquisitions in 1999 and 2000.
A summary of the changes in accrued acquisition expenses for acquisitions
completed during 2000 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Total
- ----------------------------------------------------------------------------------------------------------
Balance at December 30, 2000 $ 2 $ 32 $ 34
Payments - (18) (18)
Currency translation - (1) (1)
---- --- ----
Balance at March 31, 2001 $ 2 $ 13 $ 15
==== ==== ====
7. Restructuring and Other Unusual Costs (Income), Net
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. The
Company expects to incur an additional $0.2 million of restructuring costs in
the second quarter of 2001 and thereafter 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 second quarter of 2001.
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THERMO ELECTRON CORPORATION
7. Restructuring and Other Unusual Costs (Income), Net (continued)
The Company recorded restructuring and other unusual charges, net, of
$12.9 million during the first quarter of 2001, as detailed by segment below:
Measurement
Life Optical and
(In thousands) Sciences Technologies Control Corporate Total
- ----------------------------------------------------------------------------------------------------------
Restructuring and Other Unusual
Costs, Net $ 3,309 $ 451 $ 5,595 $ 1,527 $10,882
Loss on Investments - - 1,983 - 1,983
------- ------- ------- ------- -------
$ 3,309 $ 451 $ 7,578 $ 1,527 $12,865
======= ======= ======= ======= =======
The components of restructuring and unusual costs by segment are as
follows:
Life Sciences
- -------------
The Life Sciences segment recorded $3.3 million of restructuring and
unusual costs, net, in the first quarter of 2001. The restructuring and unusual
costs consist of a charge of $3.4 million to write off in-process research and
development costs at an acquired business. This amount was determined through
established valuation techniques and was charged to expense upon acquisition
because technological feasibility had not been established and no future
alternative uses existed. This segment also recorded the reversal of $0.1
million of previously established reserves due to the settlement of certain
severance matters for less than had been accrued.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $0.5 million of restructuring
and unusual costs in the first quarter of 2001. The costs are primarily
associated with a postponed financing at Spectra-Physics Lasers, Inc. (SPLI).
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $5.6 million of restructuring
and unusual costs in the first quarter of 2001. The segment recorded charges of
$4.8 million for a writedown of goodwill to reduce the carrying value of a
business unit that is held for sale to estimated disposal value; $1.0 million
for impairment of a note receivable that was a pre-acquisition asset of a
business acquired in 1999; and $0.3 million of cash costs, primarily
representing severance for 16 employees across all functions at the segment's
business that manufactures and sells quality control systems. The segment also
recorded a gain of $0.5 million on the sale of a product line. The business unit
that is held for sale manufactures scanning probe microscopes and is a noncore
business that the Company expects to sell in the second quarter of 2001. The
Company expects to invest the proceeds from divested businesses in opportunities
with potential for higher growth.
The Measurement and Control segment also recorded $2.0 million of other
nonoperating charges in the first quarter of 2001 to write down an
available-for-sale investment that was a pre-acquisition asset of a business
acquired in 1999, due to an impairment that the Company deemed other than
temporary based upon recent market prices.
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THERMO ELECTRON CORPORATION
7. Restructuring and Other Unusual Costs (Income), Net (continued)
Corporate
- ---------
The Company recorded $1.5 million of restructuring and unusual costs at
its corporate office in the first quarter of 2001. This amount includes $0.7
million of investment banking, consulting, and legal fees associated with the
Company's reorganization plan and $0.8 million of employee retention costs that
are being accrued ratably over the period through which the employees must work
to qualify for a payment.
General
- -------
The following table summarizes the severance actions of the Company in
2000 and 2001.
Number of
Employees
- ---------------------------------------------------------------------------------------------------------
Terminations Announced in 2000 249
Terminations Occurring in 2000 (168)
Adjustment to Plan (1)
----
Remaining Terminations at December 30, 2000 80
Additional Terminations Announced in 2001 16
Terminations Occurring in 2001 (34)
Adjustment to Plan (1)
----
Remaining Terminations at March 31, 2001 61
====
The following tables summarize the cash components of the Company's
restructuring plans. The noncash components and other amounts reported as
restructuring and other unusual costs (income), net, in the accompanying 2001
statement of operations have been summarized in the notes to the tables. Accrued
restructuring costs are included in other accrued expenses in the accompanying
balance sheet.
Abandonment
Employee of Excess
(In thousands) Severance Retention (a) Facilities Other Total
- ---------------------------------------------------------------------------------------------------------
1998 Restructuring Plans
Balance at December 30, 2000 $ 97 $ - $ - $ 520 $ 617
Payments (90) - - - (90)
Currency translation (7) - - (19) (26)
------- ------- ------- ------- -------
Balance at March 31, 2001 $ - $ - $ - $ 501 $ 501
======= ======= ======= ======= =======
1999 Restructuring Plans
Balance at December 30, 2000 $ 886 $ - $ - $ - $ 886
Payments (94) - - - (94)
------- ------- ------- ------- -------
Balance at March 31, 2001 $ 792 $ - $ - $ - $ 792
======= ======= ======= ======= =======
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THERMO ELECTRON CORPORATION
7. Restructuring and Other Unusual Costs (Income), Net (continued)
Abandonment
Employee of Excess
(In thousands) Severance Retention (a) Facilities Other Total
- ---------------------------------------------------------------------------------------------------------
2000 Restructuring Plans
Balance at December 30, 2000 $ 3,824 $ 3,283 $ 2,820 $ 9,594 $19,521
Costs incurred in 2001 (b) 238 792 21 754 1,805
Reserves reversed (105) - - - (105)
Payments (722) (32) (218) (933) (1,905)
Currency translation (49) - (51) (54) (154)
------- ------- ------- ------- -------
Balance at March 31, 2001 $ 3,186 $ 4,043 $ 2,572 $ 9,361 $19,162
======= ======= ======= ======= =======
(a) Employee retention costs are accrued ratably over the period through which 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.
(b) Excludes noncash charges, net, of $3.4 million, $0.5 million, and $5.3 million in the Life Sciences,
Optical Technologies, and Measurement and Control segments, respectively.
The Company expects 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.
8. Discontinued Operations
In February 2001, the Company entered a definitive agreement to sell its
power generation business. In accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 30 concerning reporting the effects of
disposal of a segment of a business, the Company has classified the results of
this business as discontinued in the accompanying 2000 statement of operations.
In addition, the net assets of this business together with businesses previously
announced as discontinued in early 2000 were classified as net assets of
discontinued operations in the accompanying balance sheet. Current net assets of
discontinued operations primarily consist of cash, inventories, and accounts
receivable, net of certain liabilities, primarily accrued expenses and accounts
payable. Long-term net assets of discontinued operations primarily consist of
shares of common stock of Thoratec Corporation (see below), machinery and
equipment, and goodwill. In addition, long-term net assets of discontinued
operations reflect subordinated convertible debentures of Thermo Fibertek Inc.
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THERMO ELECTRON CORPORATION
8. Discontinued Operations (continued)
Summary operating results of the power generation business were as
follows:
Three
Months
Ended
April 1,
(In thousands) 2000
- --------------------------------------------------------------------------------------------------------
Revenues $25,950
Costs and Expenses 23,043
-------
Income from Discontinued Operations Before Provision for Income Taxes
and Minority Interest 2,907
Provision for Income Taxes 1,058
Minority Interest 388
-------
Income from Discontinued Operations $ 1,461
=======
During the first quarter of 2001, the Company's discontinued operations
had revenues and operating income of $221.2 million and $10.5 million,
respectively. During the first quarter of 2000, the Company's discontinued
operations, excluding the power generation business, had revenues and an
operating loss of $397.8 million and $15.1 million, respectively.
In February 2001, the Company sold Thermo Cardiosystems Inc. to Thoratec
in exchange for 19.3 million shares of Thoratec common stock. Certain
restrictions limit the Company's ability to sell these shares, although the
restrictions fully lapse in August 2002. Subsequent to receipt of the Thoratec
common stock, the market value of the shares declined significantly at the same
time as a downturn in major equity markets. The Company recorded an after-tax
charge of $66.0 million in the first quarter of 2001 for the decline in market
value of Thoratec common stock as a loss on disposal of discontinued operations.
Further 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 market 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 to date. 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 its remaining discontinued
businesses by the middle of 2001. The Company expects to complete the previously
announced spinoff of Thermo Fibertek in the summer of 2001 and the spinoff of
Viasys Healthcare Inc., the medical products business, during the second half of
2001.
9. Derivative Instruments and Hedging
Effective in the first quarter of 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, requires that all
derivatives, including forward currency exchange contracts, be recognized on the
balance sheet at fair value. Derivatives that are not hedges must be recorded at
fair value 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
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THERMO ELECTRON CORPORATION
9. Derivative Instruments and Hedging (continued)
recognized in earnings. The Company immediately records in earnings the extent
to which a hedge is not effective in achieving offsetting changes in fair value.
Adoption of SFAS No. 133 in the first quarter of 2001 resulted in a charge
representing the cumulative effect of the change in accounting principle on
periods prior to 2001 that increased net loss by $1.0 million.
Forward currency exchange contracts are used by the Company primarily to
hedge certain operational (cash-flow hedges) and balance sheet (fair value
hedges) exposures resulting from changes in currency exchange rates. Such
exposures result from sales that are denominated in currencies other than the
functional currencies of the respective operations. The Company enters into
these currency exchange contracts to hedge anticipated product sales and
recorded accounts receivable made in the normal course of business, and
accordingly, the hedges are not speculative in nature. As part of the Company's
overall strategy to manage the level of exposure to the risk of currency
exchange fluctuations, certain operating units hedge a portion of their currency
exposures anticipated over the ensuing twelve month period, using exchange
contracts that have maturities of twelve months or less. The Company does not
hold or engage in transactions involving derivative instruments for purposes
other than risk management.
The Company records its forward currency exchange contracts at fair value
in its consolidated balance sheet as other current assets or other accrued
expenses and, for cash flow hedges, the related gains or losses on these
contracts are deferred as a component of other comprehensive items in the
accompanying balance sheet. These deferred gains and losses are recognized in
income in the period in which the underlying anticipated transaction occurs. At
March 31, 2001, the Company had deferred gains relating to foreign currency
contracts of approximately $2.3 million (net of income taxes), substantially all
of which is expected to be recognized as income over the next twelve months.
Unrealized gains and losses resulting from the impact of currency exchange rate
movements on fair value hedges are recognized in earnings in the period in which
the exchange rates change and offset the currency gains and losses on the
underlying exposure being hedged.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 2000, filed with the Securities and Exchange
Commission.
Results of Operations
First Quarter 2001 Compared With First Quarter 2000
- ---------------------------------------------------
Continuing Operations
Sales in the first quarter of 2001 were $573.1 million, a decrease of $3.5
million from the first quarter of 2000. Excluding the effect of acquisitions,
divestitures, and foreign currency translation, revenues increased $73.6
million, or 14%. Foreign currency translation had an unfavorable effect on
revenues as discussed below by segment, due to the strengthening of the U.S.
dollar relative to other currencies of countries in which the Company operates.
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THERMO ELECTRON CORPORATION
First Quarter 2001 Compared With First Quarter 2000 (continued)
- ---------------------------------------------------
Operating income was $39.8 million in 2001, compared with $57.9 million in
2000. Segment income decreased to $52.1 million in 2001 from $71.2 million in
2000. (Segment income is operating income excluding corporate general and
administrative expenses and corporate restructuring and other unusual items,
net.) Operating and segment income in the first quarter of 2001 were affected by
charges associated with the planned disposition of a business, the write off of
in-process research and development costs at an acquired business, and certain
other restructuring and unusual costs, net (Note 7). Operating and segment
income in the first quarter of 2000 were affected by gains on the sale of
businesses, net, and restructuring and other unusual costs. Excluding these
unusual items, which totaled $9.4 million of expense in 2001 and $12.3 million
of income in 2000, segment income increased to $61.5 million in 2001 from $58.9
million in 2000. The unusual items in both periods are discussed below.
Segment income excluding unusual items increased due to revenue growth at
certain businesses discussed below, offset in part by a reduction in segment
income of $3.0 million from businesses divested. The increase was also offset by
$1.5 million of incremental amortization expense, which resulted primarily from
the purchase of the minority interests of formerly public subsidiaries, offset
in part by lower amortization expense following certain divestitures.
Life Sciences
- -------------
Sales in the Life Sciences segment increased $18.3 million to $209.1
million in the first quarter of 2001. Sales increased $4.0 million due to
acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $8.1 million in 2001. Excluding the effect of
acquisitions and currency translation, revenues increased $22.5 million, or 12%.
Sales of mass spectrometers increased $8.6 million, primarily due to strong
sales of ion trap instruments used in proteomics research. Sales of microplate
and liquid handling products increased $6.5 million due to strong demand from
pharmaceutical customers and expanded distribution channels. Sales of
sample-preparation equipment increased $6.1 million due to the introduction of
new products for the drug discovery market and for bovine testing due to
heightened concern of disease, as well as improved distribution channels in
Asia. In addition, revenues from clinical diagnostic products increased,
primarily due to higher sales of rapid diagnostic tests.
Segment income margin decreased to 11.8% in the first quarter of 2001 from
14.8% in the first quarter of 2000. The segment's margin decreased primarily due
to an unusual charge recorded in 2001, discussed below. Excluding unusual costs,
net, of $3.3 million in 2001, segment income margin was 13.4% in 2001 and 14.8%
in 2000. The decrease in segment income margin was primarily due to an increase
in amortization of goodwill as a result of the purchase of the minority
interests of formerly public subsidiaries. Excluding the additional amortization
expense and the unusual charge, segment income margin was 14.0% in 2001. Lower
profitability due to research and development expenditures on proteomics
initiatives was offset in part by the effect of higher revenues at the
businesses discussed above. In the first quarter of 2001, the segment recorded a
charge of $3.4 million for the writeoff of in-process research and development
at an acquired business. The Company does not expect that the effort required to
complete the products in development at the acquired business will materially
affect the segment's future results of operations. In addition, the segment
reversed $0.1 million of previously established restructuring reserves that were
no longer required (Note 7).
Optical Technologies
- --------------------
Sales in the Optical Technologies segment increased $33.8 million to
$140.0 million in the first quarter of 2001. The unfavorable effects of currency
translation resulted in a decrease in revenues of $4.4 million in 2001.
Excluding the effect of currency translation, revenues increased $38.2 million,
or 36%. The increase in revenues was due in part to $17.1 million of increased
demand for semiconductor-based lasers used in industrial, research and
development, and life sciences applications. Demand from the semiconductor
industry contributed to sales increases of $8.8 million of
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THERMO ELECTRON CORPORATION
First Quarter 2001 Compared With First Quarter 2000 (continued)
- ---------------------------------------------------
molecular beam epitaxy systems and components. Demand from this industry also
contributed to sales increases of $6.6 million of temperature-control systems
and material science instrumentation. In addition, higher revenues from
photonics products resulted from strong demand for gratings and other optical
components used in systems for lithography and telecommunication devices. The
growth and profitability of this segment is, in part, dependent on the cyclical
nature of the semiconductor and telecommunication industries, which have been in
a period of strong growth but which have experienced slowing trends in late 2000
and early 2001. The Company expects this segment's growth rate in the remainder
of 2001 will be lower than that achieved in 2000 and the first quarter of 2001.
Segment income margin was 8.1% in the first quarter of 2001 and 2000.
Excluding unusual costs of $0.5 million in 2001, segment income margin was 8.4%
in 2001. The increase in segment income margin excluding unusual costs was
primarily due to increased sales, offset by the unfavorable effect of growth in
revenues at Spectra-Physics Lasers, Inc. (SPLI), which has lower margins due to
heavy investment in new products. In addition, the segment recorded $0.5 million
of higher goodwill amortization following the purchase of the minority interests
of formerly public subsidiaries. The unusual costs in 2001 primarily represent
the writeoff of costs associated with a postponed financing at SPLI (Note 7).
Measurement and Control
- -----------------------
Sales in the Measurement and Control segment decreased $55.9 million to
$228.3 million in the first quarter of 2001. Sales decreased $60.5 million due
to divestitures, net of an acquisition. The segment's 2000 divestitures that
affected comparability primarily included Spectra Precision, Nicolet Imaging
Systems, and Sierra Research and Technology, Inc. The unfavorable effects of
currency translation resulted in a decrease in revenues of $8.0 million in 2001.
Excluding the effect of divestitures, an acquisition, and currency translation,
revenues increased $12.6 million, or 6%. Revenues from the sale of instruments
for the oil and gas market increased $7.3 million, primarily due to strong
demand from the natural gas industry, which is benefiting from higher gas
prices. As discussed below, in April 2001, the segment sold businesses that
contributed $4.4 million of the revenue growth in the first quarter of 2001 from
the oil and gas industry. Revenues from the sale of environmental monitoring
equipment increased $4.1 million due in part to demand from the construction
industry and upgrades of power plants in response to regional energy shortages.
Revenues from the sale of spectroscopy instruments increased $3.8 million due to
higher demand. These increases were offset in part by lower sales of quality
control systems to U.S. steel producers due to a cyclical downturn in this
market. In addition, continuing lower sales of weighing and inspection equipment
resulted from reduced demand in 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.
This segment is holding several units for sale, including a manufacturer
of scanning probe microscopes and a unit that manufactures data acquisition
systems, digital oscilloscopes, and recorders. In April 2001, the segment sold
businesses that provide the oil and gas industry with wellhead safety and
control products. The businesses held for sale or that were sold in April 2001
are cyclical and/or noncore units, and the segment expects the divestitures to
be completed in 2001. These businesses had aggregate revenues and segment income
before restructuring and unusual costs of $28.4 million and $3.4 million,
respectively, in the first quarter of 2001, and $102.3 million and $0.9 million,
respectively, in the full year 2000.
Segment income margin decreased to 7.0% in 2001 from 12.1% in 2000,
primarily due to restructuring and unusual charges, net, in 2001 and unusual
income, net, in 2000. Segment income margin, excluding restructuring and unusual
costs, net, of $5.6 million in 2001 and unusual income, net, of $12.3 million in
2000, increased to 9.5% in 2001 from 7.8% in 2000. The increase in segment
income margin resulted primarily from higher revenues at certain of the
businesses discussed above together with cost reduction measures initiated in
the fall of 2000 and, to a lesser extent, the inclusion in 2000 of lower-margin
results from businesses subsequently divested. These improvements
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THERMO ELECTRON CORPORATION
First Quarter 2001 Compared With First Quarter 2000 (continued)
- ---------------------------------------------------
were offset in part by lower profitability at the business units discussed above
that had declining revenues. The restructuring and unusual costs, net, in 2001
include a charge of $4.8 million to reduce the carrying value of a business that
manufactures scanning probe microscopes to estimated disposal value. The segment
expects to sell this business in the second quarter of 2001. In addition, the
segment recorded charges of $1.0 million for impairment of a note receivable;
$0.3 million, primarily for severance costs; and a gain of $0.5 million on the
sale of a product line (Note 7). Unusual income, net, of $12.3 million in 2000
includes a gain of $12.2 million on the sale of two businesses.
Other Expense, Net
- ------------------
The Company reported other expense, net, of $3.7 million and $21.6 million
in the first quarter of 2001 and 2000, respectively (Note 3). Other expense,
net, includes interest income, interest expense, equity in earnings (losses) of
unconsolidated subsidiaries, gain (loss) on investments, net, and other items,
net. Interest income increased to $18.5 million in 2001 from $9.7 million in
2000, primarily due to proceeds from the sale of businesses, including
discontinued operations, offset in part by cash used for the purchase of the
minority interests of formerly public subsidiaries. The Company expects that a
trend of lower market interest rates in 2001 will adversely affect the yield it
achieves from investments. Interest expense decreased to $20.2 million in 2001
from $22.9 million in 2000, as a result of the maturity and repurchase of
Company and subsidiary debentures in 2000.
The Company had income from equity in earnings of unconsolidated
subsidiaries of $0.2 million in 2001 and incurred a net loss of $13.3 million in
2000, including $13.4 million related to its investment in FLIR Systems, Inc.
During 2001, the Company had a loss on investments, net, of $2.2 million,
compared with gains of $3.5 million in 2000. The loss in 2001 includes $2.0
million to write down an available-for-sale investment due to impairment that
the Company deemed other than temporary. In 2000, other expense, net, also
includes $1.6 million of net currency gains, including $1.7 million resulting
from hedging activities at SPLI, which elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
Provision for Income Taxes
- --------------------------
The Company's effective tax rate was 39.5% and 44.3% in the first quarter
of 2001 and 2000, respectively. Excluding the tax effect of restructuring and
unusual costs or income, the effective tax rate was 39.5% and 39.8% in 2001 and
2000, respectively. The effective tax rate exceeded the statutory federal income
tax rate in both periods due to the impact of state income taxes and
nondeductible expenses, including amortization of goodwill.
Minority Interest Expense
- -------------------------
The Company recorded minority interest expense of $5.7 million in the
first quarter of 2000, representing minority shareholders' allocable share of
subsidiary earnings. Minority interest expense decreased due to the purchase of
the minority interest in all of the Company's formerly public subsidiaries in
continuing operations except SPLI.
Income from Continuing Operations
- ---------------------------------
Income from continuing operations was $21.8 million in 2001, compared with
$14.5 million in 2000. Results were affected by unusual items, discussed above.
Excluding unusual items in both periods, income from continuing operations
increased to $29.5 million in the first quarter of 2001 from $18.5 million in
the first quarter of 2000 due to the improvements discussed above.
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THERMO ELECTRON CORPORATION
First Quarter 2001 Compared With First Quarter 2000 (continued)
- ---------------------------------------------------
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
The Company adopted SFAS No. 133, as amended, in the first quarter of 2001
and recorded a charge representing the cumulative effect of the change in
accounting principle of $1.0 million, net of an income tax benefit of $0.7
million. In addition, in accordance with the requirements of Securities and
Exchange Commission Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements," the Company adopted the pronouncement as of January 2,
2000, and recorded a charge in the first quarter of 2000 representing the
cumulative effect of the 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.
Litigation and Related Contingency
- ----------------------------------
The Company's Thermo Finnigan subsidiary is involved in an ongoing patent
dispute with Bruker Daltonics, Inc. and Agilent, Inc. In the first quarter of
2001, a court in Germany ruled that Thermo Finnigan's GCQ and LCQ series of ion
trap mass spectrometers infringe a Bruker German patent. The Company is
appealing this decision and is continuing to assert its own claims against
Bruker and Agilent.
Discontinued Operations
In February 2001, the Company sold Thermo Cardiosystems to Thoratec
Corporation in exchange for 19.3 million shares of Thoratec common stock.
Certain restrictions limit the Company's ability to sell these shares, although
the restrictions fully lapse in August 2002. The Company recorded an after-tax
charge of $66.0 million in the first quarter of 2001 for the decline in market
value of Thoratec common stock as a loss on disposal of discontinued operations.
Further 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 market 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 to date. Any difference from the amounts recorded would be
reported as an adjustment to the loss on disposal of discontinued operations.
The Company's discontinued power generation business had income of $1.5 million
in the first quarter of 2000, net of taxes and minority interest.
Liquidity and Capital Resources
Consolidated working capital was $1.59 billion at March 31, 2001, compared
with $1.74 billion at December 30, 2000. Included in working capital were cash,
cash equivalents, and short-term available-for-sale investments of $1.09 billion
at March 31, 2001, compared with $1.03 billion at December 30, 2000. In
addition, the Company had $16.0 million of long-term available-for-sale
investments at March 31, 2001, compared with $17.1 million at December 30, 2000.
Cash provided by operating activities was $31.2 million during the first
quarter of 2001, including $34.5 million from continuing operations. Cash of
$20.0 million was used to fund an increase in inventories, which was
approximately evenly distributed among the Company's three segments. Cash of
$12.4 million was used to fund an increase in other current assets, primarily
due to the timing of prepaid expenses. In connection with certain restructuring
actions undertaken by the Company's continuing operations, the Company had
accrued $20.5 million for restructuring and unusual costs at March 31, 2001. The
Company expects to pay $17.9 million of this amount for severance, employee
retention, and other costs primarily through January 2002. The remaining balance
of $2.6 million will be paid through the expiration of lease obligations in
2003. In addition, at March 31, 2001, the Company had accrued $9.3 million for
acquisition expenses. Accrued acquisition expenses includes $1.6 million of
severance obligations, which the Company expects to pay primarily through 2001.
The balance, which primarily represents abandoned-facility payments, will be
paid over the remaining terms of the leases through 2014.
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THERMO ELECTRON CORPORATION
Liquidity and Capital Resources (continued)
During the first quarter of 2001, the primary investing activities of the
Company's continuing operations, excluding available-for-sale investment
activities, included the purchase of property, plant, and equipment and
acquisitions. The Company's continuing operations expended $21.5 million for
purchases of property, plant, and equipment and $12.7 million, net of cash
acquired, for acquisitions during the first quarter of 2001. During the first
quarter of 2001, investing activities of the Company's discontinued operations
provided $131.0 million of cash, primarily representing proceeds, net of cash
divested, of $62.0 million from the sale of businesses and $63.9 million of
proceeds from the maturity of available-for-sale investments.
The Company's financing activities used $17.3 million of cash during the
first quarter of 2001, including $3.8 million for continuing operations. During
the first quarter of 2001, the Company's continuing operations expended $12.5
million for the repayment of long-term obligations and received net proceeds of
$21.3 million from the exercise of employee stock options. In March 2001, the
Company's Board of Directors authorized the repurchase through March 20, 2002,
of up to $100 million of its own securities in the open market, or in negotiated
transactions. As of March 31, 2001, the Company had expended $14.7 million to
repurchase its own common stock and debentures. The financing activities of the
Company's discontinued operations primarily were repayment of debt.
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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's exposure to market risk from changes in interest rates,
foreign currency exchange rates, and equity prices has not changed materially
from its exposure at year-end 2000, except that as of February 2001, the Company
owns 19.3 million shares of Thoratec Corporation common stock (Note 8). A 10%
decline in the market value of Thoratec common stock would result in an increase
in the loss on disposal of discontinued operations of $9 million.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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THERMO ELECTRON CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 11th day of May 2001.
THERMO ELECTRON CORPORATION
/s/ Theo Melas-Kyriazi
-------------------------------------------------
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
/s/ Peter E. Hornstra
-------------------------------------------------
Peter E. Hornstra
Corporate Controller and Chief Accounting Officer