UNITED STATES
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 June 30, 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
(State or other jurisdiction of 04-2209186
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 July 27, 2001
----------------------------- ----------------------------
Common Stock, $1.00 par value 181,676,323
PART I - Financial Information
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 30, December 30,
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 506,351 $ 505,524
Short-term available-for-sale investments, at quoted market
value (amortized cost of $754,886 and $510,312) 776,198 521,329
Accounts receivable, less allowances of $27,008 and $30,593 405,530 431,476
Unbilled contract costs and fees 22,075 18,520
Inventories:
Raw materials and supplies 164,927 169,885
Work in process 69,854 65,625
Finished goods (includes $16,626 and $33,605 at customer locations) 155,171 158,642
Deferred tax asset 149,917 148,051
Advance receivable from affiliates 16,178 -
Other current assets 54,504 75,007
Net assets of discontinued operations (Notes 8 and 11) 107,903 371,470
---------- ----------
2,428,608 2,465,529
---------- ----------
Property, Plant, and Equipment, at Cost 494,574 484,555
Less: Accumulated depreciation and amortization 207,426 198,677
---------- ----------
287,148 285,878
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value
(amortized cost of $6,585 and $9,883) 11,472 17,110
---------- ----------
Other Assets 220,627 183,974
---------- ----------
Goodwill 1,346,931 1,378,663
---------- ----------
Long-term Net Assets of Discontinued Operations (Notes 8 and 11) 402,137 531,823
---------- ----------
$4,696,923 $4,862,977
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 30, December 30,
(In thousands except share amounts) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term obligations and current maturities of long-term obligations $ 84,569 $ 103,356
Advance payable to affiliates - 16,088
Accounts payable 117,834 139,662
Accrued payroll and employee benefits 70,825 78,483
Accrued income taxes 95,279 95,344
Deferred revenue 51,402 50,341
Accrued installation and warranty costs 34,952 37,058
Other accrued expenses (Notes 6 and 7) 207,751 208,219
---------- ----------
662,612 728,551
---------- ----------
Deferred Income Taxes and Other Deferred Items 63,082 47,230
---------- ----------
Long-term Obligations:
Senior convertible obligations 171,021 172,500
Senior notes 147,000 150,000
Subordinated convertible obligations 1,161,998 1,177,565
Other 14,045 28,418
---------- ----------
1,494,064 1,528,483
---------- ----------
Minority Interest 22,414 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;
198,653,715 and 195,877,421 shares issued 198,654 195,877
Capital in excess of par value 1,722,964 1,681,452
Retained earnings 985,665 1,005,857
Treasury stock at cost, 17,024,931 and 13,708,863 shares (321,727) (246,228)
Deferred compensation (4,623) (6,640)
Accumulated other comprehensive items (Notes 2 and 9) (126,182) (96,342)
---------- ----------
2,454,751 2,533,976
---------- ----------
$4,696,923 $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
-----------------------
June 30, July 1,
(In thousands except per share amounts) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Revenues $542,472 $579,950
-------- --------
Costs and Operating Expenses:
Cost of revenues 304,410 313,701
Selling, general, and administrative expenses 155,498 166,971
Research and development expenses 44,706 46,102
Restructuring and other unusual costs (income), net (Note 7) 23,693 (1,594)
-------- --------
528,307 525,180
-------- --------
Operating Income 14,165 54,770
Other Expense, Net (Note 3) (148) (10,750)
-------- --------
Income from Continuing Operations Before Provision for Income Taxes and
Minority Interest 14,017 44,020
Provision for Income Taxes (5,411) (17,840)
Minority Interest (Expense) Income 817 (4,482)
-------- --------
Income from Continuing Operations 9,423 21,698
Income from Discontinued Operations (net of income taxes and minority
interest of $2,751; Note 8) - 2,557
Gain on Disposal of Discontinued Operations (net of income
taxes of $17,259; Note 8) 15,560 -
-------- --------
Net Income $ 24,983 $ 24,255
======== ========
Earnings per Share from Continuing Operations (Note 4):
Basic $ .05 $ .14
======== ========
Diluted $ .05 $ .13
======== ========
Earnings per Share (Note 4):
Basic $ .14 $ .16
======== ========
Diluted $ .14 $ .15
======== ========
Weighted Average Shares (Note 4):
Basic 181,628 156,018
======== ========
Diluted 185,056 157,767
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
-------------------------
June 30, July 1,
(In thousands except per share amounts) 2001 2000
- --------------------------------------------------------------------------------------------------------
Revenues $1,115,561 $1,156,554
---------- ----------
Costs and Operating Expenses:
Cost of revenues 622,245 621,710
Selling, general, and administrative expenses 315,665 336,654
Research and development expenses 89,071 94,546
Restructuring and other unusual costs (income), net (Note 7) 34,575 (8,982)
---------- ----------
1,061,556 1,043,928
---------- ----------
Operating Income 54,005 112,626
Other Expense, Net (Note 3) (3,894) (32,303)
---------- ----------
Income from Continuing Operations Before Provision for Income Taxes,
Minority Interest, Extraordinary Item, and Cumulative Effect of Change
in Accounting Principle 50,111 80,323
Provision for Income Taxes (19,668) (33,925)
Minority Interest (Expense) Income 799 (10,221)
---------- ----------
Income from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle 31,242 36,177
Income from Discontinued Operations (net of income taxes and minority
interest of $4,197; Note 8) - 4,018
Provision for Loss on Disposal of Discontinued Operations, Net (net of
income tax benefit of $22,741; Note 8) (50,440) -
---------- ----------
Income (Loss) Before Extraordinary Item and Cumulative Effect of
Change in Accounting Principle (19,198) 40,195
Extraordinary Item (net of income taxes of $333) - 532
---------- ----------
Income (Loss) Before Cumulative Effect of Change in Accounting Principle (19,198) 40,727
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) $ (20,192) $ 27,809
========== ==========
Earnings per Share from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle (Note 4):
Basic $ .17 $ .23
========== ==========
Diluted $ .17 $ .22
========== ==========
Earnings (Loss) per Share (Note 4):
Basic $ (.11) $ .18
========== ==========
Diluted $ (.11) $ .17
========== ==========
Weighted Average Shares (Note 4):
Basic 182,242 156,416
========== ==========
Diluted 186,117 157,616
========== ==========
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)
Six Months Ended
------------------------
June 30, July 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ (20,192) $ 27,809
Income from discontinued operations (Note 8) - (4,018)
Provision for loss on disposal of discontinued operations, net (Note 8) 50,440 -
--------- ---------
Income from continuing operations 30,248 23,791
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 48,536 47,955
Noncash restructuring and other unusual costs, net (Note 7) 15,106 1,242
Provision for losses on accounts receivable 1,591 2,510
Minority interest (income) expense (799) 10,221
Equity in (earnings) losses of unconsolidated subsidiaries (Note 7) (1,260) 15,062
Cumulative effect of change in accounting principle, net of
income taxes and minority interest (Note 9) 994 12,918
Change in deferred income taxes (82) (3,897)
(Gain) loss on sale of businesses 19 (12,480)
(Gain) loss on investments, net 807 (6,372)
Extraordinary item, net of income taxes - (532)
Other noncash items, net 17,343 3,705
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable (1,869) 13,997
Inventories (25,986) (56,492)
Other current assets (17,186) (2,546)
Accounts payable (14,206) (967)
Other current liabilities 9,532 (74,163)
--------- ---------
Net cash provided by (used in) continuing operations 62,788 (26,048)
Net cash provided by discontinued operations 38,136 78,534
--------- ---------
Net cash provided by operating activities 100,924 52,486
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (14,129) (10,117)
Acquisition of minority interests of subsidiaries - (295,714)
Proceeds from sale of businesses, net of cash divested 16,789 44,917
Purchases of available-for-sale investments (688,522) (171,035)
Proceeds from sale of available-for-sale investments 270,152 95,892
Proceeds from maturities of available-for-sale investments 176,358 332,084
Purchases of property, plant, and equipment (46,657) (28,973)
Proceeds from sale of property, plant, and equipment 10,284 6,959
Advance (to) from affiliates (32,266) 38,407
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
------------------------
June 30, July 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Investing Activities (continued):
Increase in other assets $ (2,668) $ (1,732)
Other 1,804 9,141
--------- ---------
Net cash provided by (used in) continuing operations (308,855) 19,829
Net cash provided by discontinued operations 379,528 81,283
--------- ---------
Net cash provided by investing activities 70,673 101,112
--------- ---------
Financing Activities:
Repayment of long-term obligations (23,397) (139,675)
Net proceeds from issuance of long-term obligations 153 6,975
Net proceeds from issuance of Company and subsidiary common stock 34,225 12,205
Purchases and redemption of Company and subsidiary common stock
and subordinated convertible debentures (97,810) (43,787)
Increase (decrease) in short-term notes payable (5,284) 7,733
Other 258 1,545
--------- ---------
Net cash used in continuing operations (91,855) (155,004)
Net cash provided by (used in) discontinued operations (39,297) 6,088
--------- ---------
Net cash used in financing activities (131,152) (148,916)
--------- ---------
Exchange Rate Effect on Cash of Continuing Operations (4,067) (15,013)
Exchange Rate Effect on Cash of Discontinued Operations (363) 2,009
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 36,015 (8,322)
Cash and Cash Equivalents at Beginning of Period 636,252 357,215
--------- ---------
672,267 348,893
Cash and Cash Equivalents of Discontinued Operations at End of period (165,916) (93,710)
--------- ---------
Cash and Cash Equivalents at End of Period $ 506,351 $ 255,183
========= =========
Noncash Activities:
Fair value of assets of acquired companies $ 18,161 $ 13,512
Cash paid for acquired companies (14,834) (10,381)
--------- ---------
Liabilities assumed of acquired companies $ 3,327 $ 3,131
========= =========
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 June 30, 2001, the results of
operations for the three- and six-month periods ended June 30, 2001, and July 1,
2000, and the cash flows for the six-month periods ended June 30, 2001, and July
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 the Company's
power generation business as discontinued operations (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 second quarter of 2001 and
2000, the Company had comprehensive income of $14.6 million and $6.5 million,
respectively. During the first six months of 2001 and 2000, the Company had a
comprehensive loss of $50.3 million and comprehensive income of $8.2 million,
respectively.
3. Other Expense, Net
The components of other expense, net, in the accompanying statement of
operations are as follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, July 1, June 30, July 1,
(In thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
Interest Income $ 16,397 $ 7,926 $ 34,858 $ 17,604
Interest Expense (19,154) (21,728) (39,384) (44,652)
Equity in Earnings (Losses) of Unconsolidated
Subsidiaries 1,051 (1,726) 1,260 (15,062)
Gain (Loss) on Investments, Net (Note 7) 1,345 2,907 (807) 6,372
Other Items, Net 213 1,871 179 3,435
-------- -------- -------- --------
$ (148) $(10,750) $ (3,894) $(32,303)
======== ======== ======== ========
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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 Six Months Ended
------------------------ ----------------------
June 30, July 1, June 30, July 1,
(In thousands except per share amounts) 2001 2000 2001 2000
- ---------------------------------------------- -------------- -------------- -------------- -------------
Basic
Income from Continuing Operations Before
Extraordinary Item and Cumulative Effect
of Change in Accounting Principle $ 9,423 $ 21,698 $ 31,242 $ 36,177
Income from Discontinued Operations - 2,557 - 4,018
Gain (Loss) on Disposal of Discontinued
Operations, Net 15,560 - (50,440) -
Extraordinary Item - - - 532
Cumulative Effect of Change in Accounting
Principle - - (994) (12,918)
-------- -------- -------- --------
Net Income (Loss) $ 24,983 $ 24,255 $(20,192) $ 27,809
-------- -------- -------- --------
Weighted Average Shares 181,628 156,018 182,242 156,416
-------- -------- -------- --------
Basic Earnings (Loss) per Share:
Continuing operations before extraordinary
item and cumulative effect of change in
accounting principle $ .05 $ .14 $ .17 $ .23
Discontinued operations .09 .02 (.28) .03
Extraordinary item - - - -
Cumulative effect of change in accounting
principle - - (.01) (.08)
-------- -------- -------- --------
$ .14 $ .16 $ (.11) $ .18
======== ======== ======== ========
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THERMO ELECTRON CORPORATION
4. Earnings (Loss) per Share (continued)
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, July 1, June 30, July 1,
(In thousands except per share amounts) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------
Diluted
Income from Continuing Operations Before
Extraordinary Item and Cumulative Effect
of Change in Accounting Principle $ 9,423 $ 21,698 $ 31,242 $ 36,177
Income from Discontinued Operations - 2,557 - 4,018
Gain (Loss) on Disposal of Discontinued
Operations, Net 15,560 - (50,440) -
Extraordinary Item - - - 532
Cumulative Effect of Change in Accounting
Principle - - (994) (12,918)
-------- -------- -------- --------
Net Income (Loss) 24,983 24,255 (20,192) 27,809
Effect of:
Majority-owned subsidiaries' dilutive
securities - continuing operations - (460) - (1,331)
Majority-owned subsidiaries' dilutive
securities - discontinued operations - (20) - (27)
-------- -------- -------- --------
Income (Loss) Available to Common
Shareholders, as Adjusted $ 24,983 $ 23,775 $(20,192) $ 26,451
-------- -------- -------- --------
Weighted Average Shares 181,628 156,018 182,242 156,416
Effect of:
Stock options 2,996 1,749 3,415 1,200
Convertible debentures 432 - 460 -
-------- -------- -------- --------
Weighted Average Shares, as Adjusted 185,056 157,767 186,117 157,616
-------- -------- -------- --------
Diluted Earnings (Loss) per Share:
Continuing operations before
extraordinary item and cumulative
effect of change in accounting
principle $ .05 $ .13 $ .17 $ .22
Discontinued operations .08 .02 (.27) .03
Extraordinary item - - - -
Cumulative effect of change in accounting
principle - - (.01) (.08)
-------- -------- -------- --------
$ .14 $ .15 $ (.11) $ .17
======== ======== ======== ========
Options to purchase 4,890,000 and 5,642,000 shares of common stock for the
second quarter of 2001 and 2000, respectively, and 3,855,000 and 6,024,000
shares of common stock for the first six months of 2001 and 2000, respectively,
were not included in the computation of diluted earnings per share 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 2000 periods
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 2001
periods excludes the effect of assuming the conversion of the following of the
Company's subordinated convertible debentures because the effect would be
antidilutive:
Conversion
Price per
Share at
Principal Interest June 30,
Amount Rate 2001
-----------------------------------------
(In thousands)
$560,063 4 1/4% $ 37.80
247,000 4% 41.94
171,021 4 1/2% 40.54
100,715 4 5/8% 40.30
93,945 4 3/8% 131.71
78,048 3 1/4% 49.06
35,029 4 7/8% 38.28
15,778 2 7/8% 33.17
As a result of the spinoff to shareholders discussed in Note 11, in July
2001 the conversion price of each of the Company's convertible debentures was
reduced to 95.3% of the conversion price at June 30, 2001.
5. Business Segment Information
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, July 1, June 30, July 1,
(In thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues:
Life Sciences $ 202,583 $ 190,490 $ 411,730 $ 381,329
Optical Technologies 129,133 108,696 269,097 214,874
Measurement and Control 215,293 285,091 443,553 569,266
Intersegment (a) (4,537) (4,327) (8,819) (8,915)
---------- ---------- ---------- ----------
$ 542,472 $ 579,950 $1,115,561 $1,156,554
========== ========== ========== ==========
Income from Continuing Operations Before
Provision for Income Taxes, Minority Interest,
Extraordinary Item, and Cumulative Effect of
Change in Accounting Principle:
Life Sciences (b) $ 17,176 $ 24,292 $ 41,883 $ 52,498
Optical Technologies (c) (153) 7,534 11,174 16,127
Measurement and Control (d) 9,911 29,549 25,976 63,926
---------- ---------- ---------- ----------
Total segment income (e) 26,934 61,375 79,033 132,551
Corporate and Other (f) (12,917) (17,355) (28,922) (52,228)
---------- ---------- ---------- ----------
$ 14,017 $ 44,020 $ 50,111 $ 80,323
========== ========== ========== ==========
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THERMO ELECTRON CORPORATION
5. Business Segment Information (continued)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, July 1, June 30, July 1,
(In thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
Depreciation:
Life Sciences $ 4,110 $ 3,945 $ 8,116 $ 7,889
Optical Technologies 4,535 3,528 8,854 7,089
Measurement and Control 3,522 6,264 7,048 11,492
Corporate 551 307 895 623
---------- ---------- ---------- ----------
$ 12,718 $ 14,044 $ 24,913 $ 27,093
========== ========== ========== ==========
Amortization:
Life Sciences $ 5,764 $ 4,332 $ 11,460 $ 8,445
Optical Technologies 1,902 1,345 3,801 2,665
Measurement and Control 4,210 4,723 8,362 9,251
Corporate - 251 - 501
---------- ---------- ---------- ----------
$ 11,876 $ 10,651 $ 23,623 $ 20,862
========== ========== ========== ==========
(a) Intersegment sales are accounted for at prices that are representative of transactions with
unaffiliated parties.
(b) Includes restructuring and other unusual costs of $7.8 million and $11.1 million in the second
quarter and first six months of 2001, respectively.
(c) Includes restructuring and other unusual costs, net, of $10.9 million, $0.1 million, $11.4 million,
and $0.1 million in the second quarter of 2001 and 2000 and first six months of 2001 and 2000,
respectively.
(d) Includes restructuring and other unusual costs of $14.9 million and $20.5 million in the second
quarter and first six months of 2001, respectively, and restructuring and other unusual income, net,
of $0.6 million and $12.8 million in the second quarter and first six months of 2000, respectively.
(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 and other income and expense. Includes
corporate restructuring and other unusual costs, net, of $3.3 million, $4.9 million, and $3.8 million
in the second quarter of 2001 and the first six months of 2001 and 2000, respectively, and
restructuring and other unusual income, net, of $1.1 million in the second quarter of 2000. Other
expense, net, in the first six months of 2001 includes a charge of $2.0 million for impairment of an
available-for-sale investment. Other expense, net, in the second quarter and first six months of 2000
includes a charge of $1.8 million and $15.2 million, respectively, related to the Company's
investment in FLIR Systems, Inc., which is accounted for under the equity method, and other unusual
income of $1.8 million and $3.5 million, respectively, 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 (227) (136) (108) (530) (1,001)
Currency translation (44) (19) (33) (362) (458)
------- ------- ------- ------- -------
Balance at June 30, 2001 $ 1,575 $ 355 $ 372 $ 6,275 $ 8,577
======= ======= ======= ======= =======
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.
The Company has not established material reserves for restructuring
businesses acquired in 2000 or the first six months of 2001.
7. Restructuring and Other Unusual Costs (Income), Net
In response to a downturn in telecommunications, semiconductor, and other
markets served by the Company's businesses, the Company initiated restructuring
actions in the second quarter of 2001 in a number of business units to reduce
costs and shed unproductive assets. The restructuring and related actions
primarily consist of headcount reductions, discontinuing certain mature or
unprofitable product lines, providing a reserve for excess telecommunication
inventories at Spectra-Physics, Inc. (formerly Spectra-Physics Lasers, Inc.),
and consolidation of facilities to streamline operations and reduce costs. The
Company expects to incur an additional $3.4 million of restructuring costs in
the remainder of 2001 for charges that can not be recorded until incurred. The
Company expects that the restructuring actions undertaken in 2001 will be
substantially completed by the end of 2001.
The Company recorded restructuring and other unusual charges, net, of
$37.0 million during the second quarter of 2001, as detailed by segment below:
Measurement
Optical and
(In thousands) Life Sciences Technologies Control Corporate Total
- ----------------------------------------------------------------------------------------------------------
Cost of Revenues $ 1,838 $ 6,963 $ 4,476 $ - $13,277
Restructuring and Other Unusual
Costs, Net 5,992 3,948 10,405 3,348 23,693
------- ------- ------- ------- -------
$ 7,830 $10,911 $14,881 $ 3,348 $36,970
======= ======= ======= ======= =======
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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
$49.8 million during the first six months of 2001, as detailed by segment below:
Measurement
Optical and
(In thousands) Life Sciences Technologies Control Corporate Total
- ----------------------------------------------------------------------------------------------------------
Cost of Revenues $ 1,838 $ 6,963 $ 4,476 $ - $13,277
Restructuring and Other Unusual
Costs, Net 9,301 4,399 16,000 4,875 34,575
Loss on Investments - - 1,983 - 1,983
------- ------- ------- ------- -------
$11,139 $11,362 $22,459 $ 4,875 $49,835
======= ======= ======= ======= =======
The components of restructuring and unusual costs by segment are as
follows:
Life Sciences
The Life Sciences segment recorded $7.8 million of restructuring and other
unusual costs in the second quarter of 2001. The segment recorded $1.8 million
of charges to cost of revenues, primarily for discontinued product lines, and
$6.0 million of other costs. The other restructuring and unusual costs include
$3.8 million of cash costs including $3.1 million for severance for 90 employees
across all functions, $0.6 million of ongoing lease costs through 2007 for
facilities described below, and $0.1 million of other costs. The charge also
includes $2.2 million of asset writedowns. The asset writedowns principally
include $1.8 million of goodwill and other intangibles for a small business unit
that was closed and $0.4 million of assets at facilities being closed. The
facility consolidations include closure of sales and service offices in Florida
and the United Kingdom and the transfer of their activities to other offices,
consolidation of two German factories into one facility, and relocation of a
factory to other facilities within Finland. Of the employees to be terminated,
66 had been severed as of June 30, 2001.
In the first quarter of 2001, this segment recorded $3.3 million of
restructuring and other unusual costs, net. The restructuring and unusual costs
consisted 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 $10.9 million of restructuring
and other unusual costs, net, in the second quarter of 2001. The segment
recorded $7.0 million of charges to cost of revenues, primarily for excess
telecommunication inventories at Spectra-Physics and discontinued product lines,
and $3.9 million of other costs, net. The excess telecommunication inventories
resulted from a severe slowdown in this market and the writedown reduced the
carrying value of the inventories to net realizable value. The other
restructuring and unusual costs include $3.6 million of cash costs, including
$1.5 million for severance for 311 employees, primarily in manufacturing
positions; $0.3 million of ongoing lease costs through 2004 for facilities
described below; and $1.8 million of other exit costs. The other exit costs
primarily represent cancellation fees for fixed asset purchases and termination
of distributor agreements. The segment also recorded $0.6 million of asset
writedowns, principally at facilities being closed, and a gain on the sale of a
facility of $0.3 million. The facility consolidations include closure of sales
offices in New Jersey, France, and Germany and the transfer of their activities
to other offices, and the consolidation of distribution facilities within
Europe. Of the employees to be terminated, 167 had been severed as of June 30,
2001.
In the first quarter of 2001, this segment recorded $0.5 million of
restructuring and unusual costs. The costs are primarily associated with a
postponed financing at Spectra-Physics.
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THERMO ELECTRON CORPORATION
7. Restructuring and Other Unusual Costs (Income), Net (continued)
Measurement and Control
The Measurement and Control segment recorded $14.9 million of
restructuring and other unusual costs in the second quarter of 2001. The segment
recorded $4.5 million of charges to cost of revenues, primarily for discontinued
product lines, and $10.4 million of other costs. The other restructuring and
unusual costs include $7.4 million of cash costs, including $5.3 million for
severance for 166 employees across all functions; $1.7 million of ongoing lease
costs through 2004 for facilities described below; and $0.4 million of other
costs. The charge also includes $2.5 million of asset writedowns and $0.5
million related to a post-closing adjustment on two businesses sold in 2000. The
asset writedowns principally include $1.6 million of goodwill for an adjustment
to a writedown recorded in the first quarter of 2001 for the planned disposal of
ThermoMicroscopes and $0.9 million of assets at facilities being closed.
ThermoMicroscopes manufactures scanning probe microscopes and is a noncore
business that was sold in July 2001. The facility consolidations include closure
of a sales office in Sweden and the transfer of its activities to another
office, consolidation of two sales offices in the United Kingdom into one
office, and consolidation of manufacturing facilities within the United States
and the United Kingdom. Of the employees to be terminated, 39 had been severed
as of June 30, 2001.
In the first quarter of 2001, the Measurement and Control segment recorded
$5.6 million of restructuring and unusual costs, net. The segment recorded
charges of $4.8 million for a writedown of goodwill to reduce the carrying value
of ThermoMicroscopes 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 terminated in the first quarter of 2001 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.
This 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.
Corporate
The Company recorded $3.3 million of restructuring and unusual costs at
its corporate office in the second quarter of 2001. This amount includes $3.1
million of cash costs, including $1.4 million for severance for 5 employees, all
of whom were terminated as of June 30, 2001; $0.9 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. The
charge also includes $0.2 million of noncash severance costs.
In the first quarter of 2001, the Company recorded $1.5 million of
restructuring and unusual costs at its corporate office. This amount included
$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.
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THERMO ELECTRON CORPORATION
7. Restructuring and Other Unusual Costs (Income), Net (continued)
General
The following table summarizes the severance actions of the Company in
2000 and 2001.
Number of
2000 Restructuring Plans 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 (63)
Adjustment to Plan (1)
----
Remaining Terminations at June 30, 2001 32
====
2001 Restructuring Plans
- ---------------------------------------------------------------------------------------------------------
Terminations Announced in 2001 572
Terminations Occurring in 2001 (277)
----
Remaining Terminations at June 30, 2001 295
====
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) - - (26) (33)
-------- -------- -------- -------- --------
Balance at June 30, 2001 $ - $ - $ - $ 494 $ 494
======== ======== ======== ======== ========
1999 Restructuring Plans
Balance at December 30, 2000 $ 886 $ - $ - $ - $ 886
Payments (168) - - - (168)
-------- -------- -------- -------- --------
Balance at June 30, 2001 $ 718 $ - $ - $ - $ 718
======== ======== ======== ======== ========
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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) 241 1,576 21 1,689 3,527
Reserves reversed (105) - (21) - (126)
Payments (1,152) (104) (453) (8,637) (10,346)
Currency translation (77) - (70) (81) (228)
-------- -------- -------- -------- --------
Balance at June 30, 2001 $ 2,731 $ 4,755 $ 2,297 $ 2,565 $ 12,348
======== ======== ======== ======== ========
2001 Restructuring Plans
Costs incurred in 2001 (c) $ 11,301 $ 144 $ 2,633 $ 2,124 $ 16,202
Payments (2,075) - (53) (163) (2,291)
Currency translation 26 - 4 6 36
-------- -------- -------- -------- --------
Balance at June 30, 2001 $ 9,252 $ 144 $ 2,584 $ 1,967 $ 13,947
======== ======== ======== ======== ========
(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.
(c) Excludes noncash charges, net, of $2.2 million, $0.3 million, $3.1 million, and $0.2 million in the
Life Sciences, Optical Technologies, and Measurement and Control segments, and at the corporate
office, 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
2007; and other costs in 2001.
8. Discontinued Operations
In February 2001, the Company entered into a definitive agreement to sell
its power generation business. In June 2001, the Company sold a substantial
portion of this business for $238 million in cash. The Company realized a gain
on disposition of $15.6 million, net of tax. 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 Kadant Inc. (formerly
Thermo Fibertek Inc.; Note 11).
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THERMO ELECTRON CORPORATION
8. Discontinued Operations (continued)
Summary operating results of the power generation business were as
follows:
Three Six
Months Months
Ended Ended
July 1, July 1,
(In thousands) 2000 2000
- --------------------------------------------------------------------------------------------------------
Revenues $26,366 $52,316
Costs and Expenses 21,058 44,101
------- -------
Income from Discontinued Operations Before Provision for Income Taxes
and Minority Interest 5,308 8,215
Provision for Income Taxes 2,128 3,186
Minority Interest 623 1,011
------- -------
Income from Discontinued Operations $ 2,557 $ 4,018
======= =======
During the second quarter and first six months of 2001, the Company's
discontinued operations had revenues of $216.3 million and $438.1 million,
respectively, and operating income of $24.6 million and $34.8 million,
respectively. During the second quarter and first six months of 2000, the
Company's discontinued operations other than the power generation business,
detailed above, had revenues of $403.9 million and $801.7 million, respectively,
and operating income of $21.2 million and $37.0 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 may 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 ultimate loss on disposal of discontinued
operations. In July 2001, the Company completed the sale of 3.4 million shares
of Thoratec for proceeds of $50.5 million.
A substantial majority of the businesses announced for sale have been sold
as of June 30, 2001. Three small operating units remained for sale at June 30,
2001, in addition to a component of the power generation business that was sold
in July 2001. The Company completed the spinoff of Kadant on August 8, 2001
(Note 11) and expects to complete the previously announced spinoff of Viasys
Healthcare Inc., the medical products business, during the fourth quarter 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,
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THERMO ELECTRON CORPORATION
9. Derivative Instruments and Hedging (continued)
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 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
June 30, 2001, the Company had deferred gains relating to foreign currency
contracts of approximately $2.2 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.
10. Recent Accounting Pronouncement
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, "Goodwill and Other Intangible Assets." The Company will adopt the
requirements of SFAS No. 142 effective December 30, 2001, unless earlier
required. SFAS No. 142 requires companies to test all goodwill for impairment
and to cease amortization of this asset. The provisions of SFAS No. 142 apply to
all goodwill regardless of when it was acquired. The Company is evaluating the
impact of adoption of this standard and has not yet determined the effect of
adoption on its financial statements. Amortization of goodwill for the three-
and six-month periods ended June 30, 2001, was $10.1 million and $20.1 million,
respectively.
11. Subsequent Event
On July 9, 2001, the Company's Board of Directors approved the spinoff of
the Company's 91%-owned Kadant subsidiary as a dividend to the Company's
shareholders. On August 8, 2001, the Company distributed all of its shares of
Kadant to the Company's shareholders of record as of July 30, 2001. Immediately
after the distribution, the Company no longer owned shares of Kadant. The
Company had received a ruling from the Internal Revenue Service that the
dividend of Kadant shares qualifies in large part as a tax-free distribution for
U.S. federal income tax purposes, subject to limited exceptions. Approximately
8% of the shares distributed to each shareholder are taxable because the Company
purchased them during the past five years. Cash distributed in lieu of
fractional shares is also taxable.
The stock dividend will result in a reduction of net assets of
discontinued operations and retained earnings of approximately $200 million. The
intrinsic value of the options issued under the Company's employee stock plans
was maintained in accordance with the methodology set forth in FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation."
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THERMO ELECTRON CORPORATION
11. Subsequent Event (continued)
In connection with the spinoff, the Company and Kadant entered into a plan
and agreement of distribution. The agreement provides for, among other things,
the Company to continue to guarantee Kadant's subordinated convertible
debentures due 2004 and Thermo Fibergen's obligations to redeem its outstanding
shares that are not held by Kadant. These obligations totaled $170 million at
June 30, 2001. The agreement also provides for restrictions relating to Kadant's
ability to use cash or incur debt during the time that the Company guarantees
these obligations.
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 (SEC).
Results of Operations
Second Quarter 2001 Compared With Second Quarter 2000
Continuing Operations
Sales in the second quarter of 2001 were $542.5 million, a decrease of
$37.5 million from the second quarter of 2000. Excluding the effect of
acquisitions, divestitures, and foreign currency translation, revenues increased
$48.3 million, or 10%. 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.
Operating income was $14.2 million in 2001, compared with $54.8 million in
2000. Segment income decreased to $26.9 million in 2001 from $61.3 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 second quarter of 2001 were affected
by charges associated with a restructuring plan initiated during the quarter and
certain other unusual charges (Note 7). Operating and segment income in the
second quarter of 2000 were affected by a gain from termination of a lease,
offset in part by restructuring and other unusual costs. Excluding these unusual
items, which totaled $33.6 million of expense in 2001 and $0.5 million of income
in 2000, segment income was $60.6 million in 2001 and $60.8 million in 2000.
Segment income excluding unusual items was flat due to revenue and profitability
growth at certain businesses discussed below, offset in part by a reduction in
segment income of $12.1 million from businesses divested. The Company also
recorded $1.2 million of incremental amortization expense in the second quarter
of 2001, which resulted primarily from the purchase of the minority interests of
formerly public subsidiaries, offset in part by lower amortization expense
following certain divestitures.
The Company undertook restructuring actions in the second quarter of 2001
to reduce costs in businesses affected by a severe slowdown in the
telecommunications and semiconductor industries as well as other market sectors
hurt by a slowing economy, including the U.S. steel industry. In addition to the
actions to reduce costs, the Company recorded a provision for inventories to
discontinue certain mature or unprofitable product lines and inventories made
redundant by combining businesses and for excess telecommunication inventories
at Spectra-Physics, Inc. The unusual items in both periods are discussed below
and in more detail in Note 7. The Company expects that the restructuring actions
will result in annual cost reductions of $25 million generally beginning in the
fourth quarter of 2001 and in 2002, including $4 million in the Life Sciences
segment, $12 million in the Optical Technologies segment, $7 million in the
Measurement and Control segment, and $2 million at the Company's corporate
office.
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THERMO ELECTRON CORPORATION
Second Quarter 2001 Compared With Second Quarter 2000 (continued)
- -----------------------------------------------------
Life Sciences
Sales in the Life Sciences segment increased $12.1 million to $202.6
million in the second quarter of 2001. Sales increased $4.0 million due to
acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $7.9 million in 2001. Excluding the effect of
acquisitions and currency translation, revenues increased $16.0 million, or 8%.
Approximately half of the increase in revenues was due to higher sales of mass
spectrometers, primarily due to strong sales of ion trap instruments used in
proteomics and drug discovery research. Sales of sample-preparation equipment
and microplate and liquid handling products increased $5.6 million due to strong
demand from pharmaceutical customers and, to a lesser extent, sales initiatives
in China. In addition, revenues increased due to higher demand for clinical
diagnostic products.
Segment income margin decreased to 8.5% in the second quarter of 2001 from
12.8% in the second quarter of 2000. The segment's margin decreased primarily
due to restructuring and unusual charges recorded in 2001, discussed below.
Excluding restructuring and unusual costs of $7.8 million in 2001, segment
income margin was 12.3% in 2001 and 12.8% in 2000. The decrease in segment
income margin was primarily due to an increase in goodwill amortization as a
result of the purchase in 2000 of the minority interests of formerly public
subsidiaries. Excluding the additional amortization expense and the
restructuring and unusual charges, segment income margin was 13.1% in 2001.
Higher profitability from an increase in revenues was offset in part by research
and development expenditures on proteomics initiatives. In the second quarter of
2001, the segment recorded charges of $7.8 million, including cash costs of $3.8
million for severance and abandoned facilities, $2.2 million of asset
writedowns, and $1.8 million of provisions for inventories (Note 7).
Optical Technologies
Sales in the Optical Technologies segment increased $20.4 million to
$129.1 million in the second quarter of 2001. Sales increased $1.2 million due
to acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $2.6 million in 2001. Excluding the effect of
acquisitions and currency translation, revenues increased $21.9 million, or 20%.
The increase in revenues was due in part to $11.6 million of increased demand
for semiconductor-based lasers used in industrial, research and development, and
life sciences applications. The balance of the increase in revenues resulted
primarily from higher shipments of molecular beam epitaxy systems and components
to the semiconductor industry. The growth and profitability of this segment is,
in part, dependent on the semiconductor and telecommunication industries, which
tend to be cyclical. These industries were in a period of strong growth in 2000
but have experienced severe slowdowns in 2001. These slowdowns will unfavorably
affect the segment's comparative results in the third quarter of 2001 when the
Company expects the segment's internal revenue growth will be nominal. Since
year-end 2000, the segment's backlog has decreased 12% to $223.0 million.
Segment income margin was approximately breakeven in the second quarter of
2001, compared with 6.9% in the second quarter of 2000. Excluding restructuring
and unusual costs, net, of $10.9 million in 2001 and $0.1 million in 2000,
segment income margin was 8.3% in 2001 and 7.0% in 2000. The increase in segment
income margin was primarily due to increased sales, offset by the unfavorable
effect of growth in revenues at Spectra-Physics, which had breakeven operating
margins excluding restructuring and unusual charges. In addition, the segment
recorded $0.6 million of higher goodwill amortization following the purchase of
the minority interests of formerly public subsidiaries. In the second quarter of
2001, the segment recorded charges of $10.9 million, including $7.0 million of
provisions for inventories; cash costs of $3.6 million for severance, abandoned
facilities, and other exit costs; $0.6 million of asset writedowns; and income
of $0.3 million from the sale of a facility (Note 7). Restructuring costs in
2000 represent abandoned-facility costs.
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THERMO ELECTRON CORPORATION
Second Quarter 2001 Compared With Second Quarter 2000 (continued)
- -----------------------------------------------------
Measurement and Control
Sales in the Measurement and Control segment decreased $69.8 million to
$215.3 million in the second quarter of 2001. Sales decreased $73.4 million due
to divestitures, net of an acquisition. The segment's divestitures that affected
the comparison primarily included the Spectra Precision businesses in July 2000,
and the CAC and the Mid South businesses in April 2001. The unfavorable effects
of currency translation resulted in a decrease in revenues of $7.1 million in
2001. Excluding the effect of divestitures, an acquisition, and currency
translation, revenues increased $10.7 million, or 5%. Revenues from the sale of
spectroscopy instruments increased $5.2 million due to higher shipments
following the release of new products. Revenues from the sale of
environmental-monitoring equipment increased $3.0 million due in part to demand
from the construction industry and upgrades of power plants in response to
regional energy shortages. Sales of process optimization equipment increased
$1.8 million due to sales growth in Europe and Australia, offset in part by
lower demand from U.S. steel manufacturers due to slowdowns in that market. A
downturn in certain markets served by the segment will unfavorably affect the
segment's comparative results in the third quarter of 2001 when the Company
expects the segment's internal revenue growth will be nominal. Excluding
divestitures, the segment's backlog has decreased 17% since year-end 2000 to
$146.8 million.
In July 2001, the segment sold its ThermoMicroscopes unit, a manufacturer
of scanning probe microscopes. In April 2001, the segment sold its CAC and the
Mid South businesses, which provide the oil and gas industry with wellhead
safety and control products. The businesses were sold for net proceeds of $38
million and were cyclical and/or noncore units. The businesses had aggregate
revenues and segment income before restructuring and unusual costs of $21.0
million and $3.2 million, respectively, in the first six months of 2001, and
aggregate revenues and segment loss before restructuring and unusual costs of
$54.8 million and $2.8 million, respectively, in the full year 2000.
Segment income margin decreased to 4.6% in the second quarter of 2001 from
10.4% in the second quarter of 2000, primarily due to restructuring and unusual
costs, in 2001. Segment income margin, excluding restructuring and unusual costs
of $14.9 million in 2001 and restructuring and unusual income, net, of $0.6
million in 2000, increased to 11.5% in 2001 from 10.2% 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. In the second quarter of 2001, the segment recorded charges of
$14.9 million, including cash costs of $7.4 million for severance, abandoned
facilities, and other exit costs; $4.5 million of provisions for inventories;
$1.6 million as a revision to the estimated loss recorded in the first quarter
of 2001 for the disposal of ThermoMicroscopes; $0.9 million of asset writedowns;
and $0.5 million for a post-closing adjustment on two businesses sold in 2000
(Note 7). Restructuring and unusual income, net, of $0.6 million in 2000
primarily represents a gain on the termination of a lease agreement.
Other Expense, Net
The Company reported other expense, net, of $0.1 million and $10.8 million
in the second 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 $16.4 million in 2001 from $7.9 million in
2000, primarily due to proceeds from the sale of businesses, including
discontinued operations, offset in part by cash used in 2000 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 continue to adversely affect
the yield it earns from investments. Interest expense decreased to $19.2 million
in 2001 from $21.7 million in 2000, as a result of the maturity and repurchase
of debentures.
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THERMO ELECTRON CORPORATION
Second Quarter 2001 Compared With Second Quarter 2000 (continued)
- -----------------------------------------------------
The Company had income from equity in earnings of unconsolidated
subsidiaries of $1.1 million in 2001, compared with a loss of $1.7 million in
2000. Equity in earnings of unconsolidated subsidiaries primarily relates to an
investment in FLIR Systems, Inc. FLIR undertook significant restructuring
actions in 2000. During 2001, the Company had a gain on investments, net, of
$1.3 million, compared with gains of $2.9 million in 2000. In 2000, other
expense, net, also includes $1.9 million of net currency gains, including $1.7
million resulting from hedging activities at Spectra-Physics, 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 38.6% and 40.5% in the second quarter
of 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. The effective
tax rate decreased due to an ongoing reorganization of the Company's operations
in several tax jurisdictions to achieve a more efficient tax structure.
Minority Interest (Expense) Income
The Company recorded minority interest income of $0.8 million in the
second quarter of 2001, representing minority shareholders' allocable share of a
loss at Spectra-Physics. The Company recorded minority interest expense of $4.5
million in the second quarter of 2000, representing minority shareholders'
allocable share of subsidiary earnings. Minority interest expense decreased due
to the purchase in 2000 of the minority interest in all of the Company's
formerly public subsidiaries in continuing operations except Spectra-Physics.
Income from Continuing Operations
Income from continuing operations was $9.4 million in the second quarter
of 2001, compared with $21.7 million in the second quarter of 2000. Results were
affected by unusual items, discussed above. Excluding unusual items in both
periods, income from continuing operations increased to $31.4 million in 2001
from $21.1 million in 2000 due to the improvements discussed above.
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
The Company sold a substantial portion of its discontinued power
generation business in June 2001 for $238 million and realized a net of tax gain
of $15.6 million on the disposition. The power generation business had income of
$2.6 million in the second quarter of 2000, net of taxes and minority interest.
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THERMO ELECTRON CORPORATION
First Six Months 2001 Compared With First Six Months 2000
Continuing Operations
Sales in the first six months of 2001 were $1.116 billion, a decrease of
$41.0 million from the first six months of 2000. Excluding the effect of
acquisitions, divestitures, and foreign currency translation, revenues increased
$121.9 million, or 12%. 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.
Operating income was $54.0 million in 2001, compared with $112.6 million
in 2000. Segment income decreased to $79.0 million in 2001 from $132.6 million
in 2000. Operating and segment income in 2001 were affected by restructuring and
other unusual costs (Note 7). Operating and segment income in 2000 were affected
by gains on the sale of businesses, net, and restructuring and other unusual
costs. Excluding these unusual items, which totaled $43.0 million of expense in
2001 and $12.8 million of income in 2000, segment income increased to $122.0
million in 2001 from $119.8 million in 2000. The unusual items in both periods
are discussed below. Segment income excluding unusual items increased due to
revenue and profitability growth at certain businesses discussed below, offset
in part by a reduction in segment income of $8.9 million from businesses
divested. The Company also recorded $2.8 million of incremental amortization
expense in 2001, 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 $30.4 million to $411.7
million in the first six months of 2001. Sales increased $8.0 million due to
acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $16.0 million in 2001. Excluding the effect of
acquisitions and currency translation, revenues increased $38.5 million, or 10%.
Sales of sample-preparation equipment and microplate and liquid handling
products increased $17.5 million due to strong demand from the drug discovery
market and expanded distribution channels. Sales of mass spectrometers increased
$16.5 million, primarily due to strong sales of ion trap instruments used in
proteomics and drug discovery research. In addition, the segment had higher
revenues from clinical diagnostic products, including rapid diagnostic tests.
Segment income margin decreased to 10.2% in the first six months of 2001
from 13.8% in the first six months of 2000. The segment's margin decreased
primarily due to restructuring and unusual charges recorded in 2001, discussed
below. Excluding restructuring and unusual costs, net, of $11.1 million in 2001,
segment income margin was 12.9% in 2001 and 13.8% in 2000. The decrease in
segment income margin was primarily due to an increase in goodwill amortization
as a result of the purchase of the minority interests of formerly public
subsidiaries. Excluding the additional amortization expense and the
restructuring and unusual charges, segment income margin was 13.6% 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 six months of 2001, the segment
recorded charges of $11.1 million, including cash costs of $3.8 million for
severance and abandoned facilities, $2.2 million of asset writedowns, and $1.8
million of provisions for inventories. The segment also 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).
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THERMO ELECTRON CORPORATION
First Six Months 2001 Compared With First Six Months 2000 (continued)
- ---------------------------------------------------------
Optical Technologies
Sales in the Optical Technologies segment increased $54.2 million to
$269.1 million in the first six months of 2001. Sales increased $1.3 million
from acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $7.1 million in 2001. Excluding the effect of
acquisitions and currency translation, revenues increased $60.0 million, or 28%.
The increase in revenues was due in part to $28.7 million of increased demand
for semiconductor-based lasers used in industrial, research and development, and
life sciences applications. Higher shipments of molecular beam epitaxy systems
and components to the semiconductor industry contributed to sales increases of
$17.5 million. The balance of the increase in revenues was approximately evenly
divided among temperature-control systems and material science instrumentation
used in semiconductor applications and photonics products including gratings and
other optical components used in systems for lithography and telecommunication
devices.
Segment income margin was 4.2% in the first six months of 2001 and 7.5% in
the first six months of 2000. Excluding restructuring and unusual costs of $11.4
million in 2001 and $0.1 million in 2000, segment income margin was 8.4% in 2001
and 7.5% in 2000. 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, which had breakeven operating margins excluding
restructuring and unusual costs. In addition, the segment recorded $1.1 million
of higher goodwill amortization following the purchase of the minority interests
of formerly public subsidiaries. In the first six months of 2001, the segment
recorded net charges of $11.4 million, including $7.0 million of provisions for
inventories; cash costs of $3.6 million for severance, abandoned facilities, and
other exit costs; $1.1 million of asset writedowns; and income of $0.3 million
from the sale of a facility (Note 7). Restructuring costs in 2000 represent
abandoned-facility costs.
Measurement and Control
Sales in the Measurement and Control segment decreased $125.7 million to
$443.6 million in the first six months of 2001. Sales decreased $133.9 million
due to divestitures, net of an acquisition. The segment's 2000 divestitures that
affected the comparison primarily included Spectra Precision, Nicolet Imaging
Systems, Sierra Research and Technology, Inc., CAC, and the Mid South
businesses. The unfavorable effects of currency translation resulted in a
decrease in revenues of $15.1 million in 2001. Excluding the effect of
divestitures, an acquisition, and currency translation, revenues increased $23.3
million, or 5%. Revenues from the sale of spectroscopy instruments increased
$9.0 million due to higher shipments following the release of new products.
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
benefited from higher gas consumption. In April 2001, the segment sold
businesses that contributed $4.4 million of the revenue growth in the first six
months of 2001 from the oil and gas industry. Revenues from the sale of
environmental monitoring equipment increased $7.1 million due in part to demand
from the construction industry and upgrades of power plants in response to
regional energy shortages. In addition, sales from other industrial products
increased $2.4 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.
Segment income margin decreased to 5.9% in the first six months of 2001
from 11.2% in the first six months of 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 $20.5 million in 2001
and unusual income, net, of $12.8 million in 2000, increased to 10.5% in 2001
from 9.0% 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 were offset in part by lower profitability at the business
units
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THERMO ELECTRON CORPORATION
First Six Months 2001 Compared With First Six Months 2000 (continued)
- ---------------------------------------------------------
discussed above that had declining revenues. In the first six months of 2001,
the segment recorded charges of $20.5 million, including cash costs of $7.6
million for severance, abandoned facilities, and other exit costs; $6.4 million
to reduce the carrying value of ThermoMicroscopes to disposal value; $4.5
million of provisions for inventories; $1.9 million of asset writedowns; and
$0.1 million, net, of loss on the sale of businesses (Note 7). ThermoMicroscopes
was sold in July 2001. Unusual income, net, of $12.8 million in 2000 includes a
gain of $12.4 million on the sale of two businesses.
Other Expense, Net
The Company reported other expense, net, of $3.9 million and $32.3 million
in the first six months of 2001 and 2000, respectively (Note 3). Interest income
increased to $34.9 million in 2001 from $17.6 million in 2000, primarily due to
proceeds from the sale of businesses, including discontinued operations, offset
in part by cash used in 2000 for the purchase of the minority interests of
formerly public subsidiaries. Interest expense decreased to $39.4 million in
2001 from $44.7 million in 2000, as a result of the maturity and repurchase of
debentures.
The Company had income from equity in earnings of unconsolidated
subsidiaries of $1.3 million in 2001 and incurred a net loss of $15.1 million in
2000, including $15.2 million related to its investment in FLIR. FLIR undertook
significant restructuring actions in 2000. During 2001, the Company had a loss
on investments, net, of $0.8 million, compared with gains of $6.4 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 $3.4 million of net currency gains,
including $3.5 million resulting from hedging activities at Spectra-Physics,
which elected early adoption of SFAS No. 133.
Provision for Income Taxes
The Company's effective tax rate was 39.2% and 42.2% in the first six
months of 2001 and 2000, respectively. Excluding the tax effect of restructuring
and unusual costs or income, the effective tax rate was 39.0% and 39.9% 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) Income
The Company recorded minority interest income of $0.8 million in the first
six months of 2001 and minority interest expense of $10.2 million in the first
six months of 2000, representing minority shareholders' allocable share of
subsidiary losses or earnings. Minority interest expense decreased due to the
purchase in 2000 of the minority interest in all of the Company's formerly
public subsidiaries in continuing operations except Spectra-Physics.
Income from Continuing Operations
Income from continuing operations was $31.2 million in the first six
months of 2001, compared with $36.2 million in the first six months of 2000.
Results were affected by unusual items, discussed above. Excluding unusual items
in both periods, income from continuing operations increased to $60.9 million in
2001 from $39.5 million in 2000 due to the improvements discussed above.
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THERMO ELECTRON CORPORATION
First Six Months 2001 Compared With First Six Months 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 SEC 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.
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 may 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 ultimate loss on disposal of discontinued
operations. In July 2001, the Company completed the sale of 3.4 million shares
of Thoratec for proceeds of $50.5 million. The Company sold a substantial
portion of its discontinued power generation business in June 2001 for $238
million and realized a net of tax gain of $15.6 million on the disposition. The
power generation business had income of $4.0 million in the first six months of
2000, net of taxes and minority interest.
Liquidity and Capital Resources
Consolidated working capital was $1.77 billion at June 30, 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 $1.28 billion
at June 30, 2001, compared with $1.03 billion at December 30, 2000. In addition,
the Company had $11.5 million of long-term available-for-sale investments at
June 30, 2001, compared with $17.1 million at December 30, 2000.
Cash provided by operating activities was $100.9 million during the first
six months of 2001, including $62.8 million from continuing operations. Cash of
$26.0 million was used to fund an increase in inventories. Approximately half of
the increase in inventories was at the Measurement and Control segment due to
new product introductions in certain units and lower than anticipated shipments
in other units. In connection with certain restructuring actions undertaken by
the Company's continuing operations, the Company had accrued $27.5 million for
restructuring and unusual costs at June 30, 2001. The Company expects to pay
$22.6 million of this amount for severance, employee retention, and other costs
primarily through January 2002. The remaining balance of $4.9 million will be
paid through the expiration of lease obligations in 2007. In addition, at June
30, 2001, the Company had accrued $8.7 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 six months 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 $36.4 million, net of
dispositions, for purchases of property, plant, and equipment and $14.1 million,
net of cash acquired, for acquisitions during the first six months of 2001.
During the first six months of 2001, investing activities of the Company's
discontinued operations provided $379.5 million of cash, primarily representing
proceeds, net of cash divested, of $331.8 million from the sale of businesses.
The Company's financing activities used $131.2 million of cash during the
first six months of 2001, including $91.9 million for continuing operations.
During the first six months of 2001, the Company's continuing operations
expended $23.4 million for the repayment of long-term obligations and received
net proceeds of $34.2 million from the exercise of employee stock options.
During the first six months of 2001, the Company expended $97.8 million to
repurchase its securities and securities of its subsidiaries. As of June 30,
2001, the Company had $15 million remaining under Board of Directors'
authorizations to repurchase its own securities. In July 2001, the Company's
Board of Directors authorized the repurchase of an additional $100 million of
its own securities through July 25, 2002. Such purchases may be made in the open
market, or in negotiated transactions. The financing activities of the Company's
discontinued operations were primarily the 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 the Company owns 15.9 million
shares of Thoratec Corporation common stock from the sale of Thermo
Cardiosystems (Note 8). During the first quarter of 2001, the Company recorded a
writedown of its carrying value of the Thoratec shares due to a decline in
Thoratec's market value. Thoratec's market value per share increased
significantly in the second quarter. As a result of the increase in market value
of Thoratec shares, a 10% decline in the market value of Thoratec shares at June
30, 2001, will not result in an additional loss from discontinued operations.
The ultimate proceeds from the disposition of discontinued operations, however,
may be materially affected by changes in the market value of Thoratec common
stock. A 10% decline in the market value of Thoratec common stock at June 30,
2001, would result in a reduction in the after-tax proceeds from the disposal of
discontinued operations of $15 million.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 16, 2001, at the Annual Meeting of Shareholders, the shareholders
elected three incumbent directors to a three-year term expiring in 2003. The
directors elected at the meeting were: Marijn E. Dekkers, Robert A. McCabe, and
Robert W. O'Leary. Mr. Dekkers received 164,796,805 shares voted in favor of
his election and 2,554,145 shares voted against. Mr. McCabe received
164,763,249 shares voted in favor of his election and 2,587,701 shares voted
against. Mr. O'Leary received 152,872,248 shares voted in favor of his election
and 14,478,702 shares voted against. No abstentions or broker nonvotes were
recorded on the election of directors.
At the Annual Meeting, the shareholders also approved the Company's 2001
equity incentive plan and the reservation of 5,000,000 shares for issuance under
the plan, as follows: 156,059,026 shares were voted in favor of the proposal,
10,398,848 shares were voted against, 893,076 shares abstained, and no broker
nonvotes were recorded on the proposal. The shareholders also approved the
Company's 2000 employees' stock purchase plan, as follows: 161,896,861 shares
were voted in favor of the proposal, 4,751,032 shares were voted against,
703,057 shares abstained, and no broker nonvotes were recorded on the proposal.
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THERMO ELECTRON CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page immediately preceding exhibits.
(b) Reports on Form 8-K
On May 15, 2001, the Company filed a Current Report on Form 8-K with
respect to the Company's financial results for the quarter ended March 31, 2001.
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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 9th day of August 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
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THERMO ELECTRON CORPORATION
Exhibit Index
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
10.1 Thermo Electron Corporation 2001 Equity Incentive Plan.
10.2 Plan and Agreement of Distribution dated August 3, 2001, between
Thermo Electron Corporation and Kadant Inc. (filed as Exhibit 99.3
to the Registrant's Current Report on Form 8-K dated August 6,
2001 [File No. 1-8002] and incorporated in this document by
reference).
10.3 Tax Matters Agreement effective as of August 8, 2001, by and
among Thermo Electron Corporation and Kadant Inc. (filed as
Exhibit 99.4 to the Registrant's Current Report on Form 8-K dated
August 6, 2001 [File No. 1-8002] and incorporated in this
document by reference).
10.4 Transition Services Agreement dated August 3, 2001, between Thermo
Electron Corporation and Kadant Inc. (filed as Exhibit 99.5 to the
Registrant's Current Report on Form 8-K dated August 6, 2001 [File
No. 1-8002] and incorporated in this document by reference).