UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 July 2, 2005
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 29, 2005
----------------------------- ----------------------------
Common Stock, $1.00 par value 161,613,800
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
July 2, December 31,
(In thousands) 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 159,744 $ 326,886
Short-term available-for-sale investments, at quoted market value
(amortized cost of $8,647 and $164,244) 11,061 185,369
Accounts receivable, less allowances of $22,619 and $22,844 512,648 469,553
Inventories:
Raw materials and supplies 154,898 131,810
Work in process 47,951 40,244
Finished goods 196,850 164,657
Deferred tax assets 94,753 92,929
Other current assets 59,690 58,206
---------- ----------
1,237,595 1,469,654
---------- ----------
Property, Plant and Equipment, at Cost 534,081 499,929
Less: Accumulated depreciation and amortization 239,561 238,888
---------- ----------
294,520 261,041
---------- ----------
Acquisition-related Intangible Assets (Note 2) 490,638 158,577
---------- ----------
Other Assets 164,300 174,428
---------- ----------
Goodwill (Note 2) 1,947,321 1,513,025
---------- ----------
$4,134,374 $3,576,725
========== ==========
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THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Equity
July 2, December 31,
(In thousands except share amounts) 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term obligations and current maturities of long-term obligations (Note 9) $ 228,259 $ 15,017
Accounts payable 138,029 131,175
Accrued payroll and employee benefits 94,785 94,671
Accrued income taxes 26,555 22,829
Deferred revenue 87,324 77,778
Other accrued expenses (Notes 2, 10 and 11) 175,199 194,706
Current liabilities of discontinued operations 37,394 42,552
---------- ----------
787,545 578,728
---------- ----------
Deferred Income Taxes 80,023 15,213
---------- ----------
Other Long-term Liabilities 100,815 91,164
---------- ----------
Long-term Obligations:
Senior notes (Note 9) 383,771 135,232
Subordinated convertible obligations 77,234 77,234
Other 11,932 13,604
---------- ----------
472,937 226,070
---------- ----------
Shareholders' Equity:
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 350,000,000 shares authorized; 180,671,315 and
179,818,648 shares issued 180,671 179,819
Capital in excess of par value 1,398,041 1,381,448
Retained earnings 1,490,336 1,381,257
Treasury stock at cost, 19,323,070 and 19,269,245 shares (437,357) (435,779)
Deferred compensation (4,175) (2,561)
Accumulated other comprehensive items (Note 6) 65,538 161,366
---------- ----------
2,693,054 2,665,550
---------- ----------
$4,134,374 $3,576,725
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
---------------------------
July 2, July 3,
(In thousands except per share amounts) 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $653,621 $525,309
-------- --------
Costs and Operating Expenses:
Cost of revenues (Note 11) 366,166 286,424
Selling, general and administrative expenses 192,593 146,508
Research and development expenses 39,432 32,592
Restructuring and other costs, net (Note 11) 2,216 815
-------- --------
600,407 466,339
-------- --------
Operating Income 53,214 58,970
Other Income, Net (Note 4) 25,504 10,667
-------- --------
Income from Continuing Operations Before Provision for Income Taxes 78,718 69,637
Provision for Income Taxes (21,958) (19,058)
-------- --------
Income from Continuing Operations 56,760 50,579
Income from Discontinued Operations (includes income tax benefit of $36,927) - 40,501
Gain on Disposal of Discontinued Operations (net of income tax provision of $2,034) 3,463 -
-------- --------
Net Income $ 60,223 $ 91,080
======== ========
Earnings per Share from Continuing Operations (Note 5):
Basic $ .35 $ .31
======== ========
Diluted $ .35 $ .30
======== ========
Earnings per Share (Note 5):
Basic $ .37 $ .55
======== ========
Diluted $ .37 $ .54
======== ========
Weighted Average Shares (Note 5):
Basic 161,255 165,571
======== ========
Diluted 164,658 170,521
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
-----------------------------
July 2, July 3,
(In thousands except per share amounts) 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $1,212,829 $1,050,341
---------- ----------
Costs and Operating Expenses:
Cost of revenues (Note 11) 666,140 570,596
Selling, general and administrative expenses 356,094 297,067
Research and development expenses 75,760 66,861
Restructuring and other costs, net (Note 11) 1,945 3,973
---------- ----------
1,099,939 938,497
---------- ----------
Operating Income 112,890 111,844
Other Income, Net (Note 4) 28,808 13,269
---------- ----------
Income from Continuing Operations Before Provision for Income Taxes 141,698 125,113
Provision for Income Taxes (39,355) (34,869)
---------- ----------
Income from Continuing Operations 102,343 90,244
Income from Discontinued Operations (includes income tax benefit of $35,780) - 43,958
Gain on Disposal of Discontinued Operations (net of income tax provision of $4,272) 6,736 -
---------- ----------
Net Income $ 109,079 $ 134,202
========== ==========
Earnings per Share from Continuing Operations (Note 5):
Basic $ .64 $ .55
========== ==========
Diluted $ .63 $ .53
========== ==========
Earnings per Share (Note 5):
Basic $ .68 $ .81
========== ==========
Diluted $ .67 $ .79
========== ==========
Weighted Average Shares (Note 5):
Basic 161,106 165,389
========== ==========
Diluted 164,694 170,258
========== ==========
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
----------------------------
July 2, July 3,
(In thousands) 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 109,079 $ 134,202
Income from discontinued operations - (43,958)
Gain on disposal of discontinued operations (6,736) -
--------- ---------
Income from continuing operations 102,343 90,244
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 47,435 31,110
Noncash restructuring and other costs, net (Note 11) 57 507
Provision for losses on accounts receivable 1,238 1,098
Change in deferred income taxes (1,438) 1,039
Gain on sale of businesses (119) -
Gain on investments, net (Note 4) (32,066) (13,478)
Other noncash expenses, net 13,557 6,279
Changes in current accounts, excluding the effects of acquisitions
and dispositions:
Accounts receivable 6,154 7,265
Inventories (15,200) (25,677)
Other current assets 2,303 (12,977)
Accounts payable (11,521) 8,592
Other current liabilities (22,187) 1,235
--------- ---------
Net cash provided by continuing operations 90,556 95,237
Net cash provided by (used in) discontinued operations (1,577) 9,878
--------- ---------
Net cash provided by operating activities 88,979 105,115
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (914,923) (75,706)
Proceeds from sale of available-for-sale investments 349,558 331,038
Purchases of available-for-sale investments (148,450) (259,645)
Proceeds from maturities of available-for-sale investments 305 18,542
Purchases of property, plant and equipment (16,441) (22,071)
Proceeds from sale of property, plant and equipment 9,534 3,359
Proceeds from sale of product line 5,661 -
Increase in other assets (1,255) (1,524)
Other (64) (383)
--------- ---------
Net cash used in continuing operations (716,075) (6,390)
Net cash provided by discontinued operations 5,327 1,935
--------- ---------
Net cash used in investing activities $(710,748) $ (4,455)
--------- ---------
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THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
-----------------------------
July 2, July 3,
(In thousands) 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of long-term debt $ 247,450 $ -
Repayment of long-term obligations (143) (817)
Purchases of company common stock - (81,975)
Net proceeds from issuance of company common stock 8,721 40,915
Borrowings under short-term bridge financing agreement 570,000 -
Repayment of bridge financing agreement (570,000) -
Increase (decrease) in short-term notes payable 219,150 (8,111)
Other (2,018) (124)
---------- ----------
Net cash provided by (used in) continuing operations 473,160 (50,112)
Net cash provided by discontinued operations - 427
---------- ----------
Net cash provided by (used in) financing activities 473,160 (49,685)
---------- ----------
Exchange Rate Effect on Cash of Continuing Operations (18,533) (153)
Exchange Rate Effect on Cash of Discontinued Operations - 191
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (167,142) 51,013
Cash and Cash Equivalents at Beginning of Period 326,886 195,773
---------- ----------
Cash and Cash Equivalents at End of Period $ 159,744 $ 246,786
========== ==========
Noncash Investing Activities:
Fair value of assets of acquired businesses $1,076,315 $ 108,515
Cash paid for acquired businesses (920,135) (78,050)
---------- ----------
Liabilities assumed of acquired businesses $ 156,180 $ 30,465
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The interim consolidated financial statements presented herein have been
prepared by Thermo Electron Corporation (the company or the Registrant), are
unaudited and, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair statement of the financial position at
July 2, 2005, and the results of operations and cash flows for the three- and
six-month periods ended July 2, 2005, and July 3, 2004. 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.
The consolidated balance sheet presented as of December 31, 2004, has
been derived from the audited consolidated financial statements as of that date.
The consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain all of the information that is included in the
annual financial statements and notes of the company. The consolidated financial
statements and notes included in this report 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 31, 2004, filed with the Securities
and Exchange Commission (SEC).
In connection with the preparation of its 2004 Form 10-K, the company
determined that it was appropriate to revise the classification of its
investments in auction rate securities as short-term available-for-sale
investments. Previously, such investments were classified as cash and cash
equivalents. As a result of this revision, the company's investing activities in
the first six months of 2004 used cash of $4.5 million instead of $51.9 million
as previously reported. This change in classification does not affect previously
reported cash flows from operations or from financing activities. Auction rate
securities are debt instruments with interest rates that generally reset every 7
to 28 days. Despite the long-term nature of their stated contractual maturities,
the company has the ability to quickly liquidate investments in auction rate
securities.
2. Acquisitions
On May 9, 2005, the company's Life and Laboratory Sciences segment
acquired the Kendro Laboratory Products division of SPX Corporation for $833.5
million, net of cash acquired and subject to a post-closing adjustment. The cash
disbursed ($846.0 million) exceeded this amount as it included transaction costs
and an estimate of Kendro's cash at the closing date. The estimate of cash will
be adjusted to the actual cash amount through the post-closing adjustment.
Kendro designs, manufactures, markets and services, on a global basis, a wide
range of laboratory equipment for sample preparation, processing and storage,
used primarily in life sciences and drug discovery laboratories as well as
clinical laboratories. The acquisition of Kendro broadened the segment's product
offerings and access to customers. Kendro's revenues were $371 million in 2004.
The purchase price exceeded the fair value of the acquired assets and,
accordingly, $444.4 million was allocated to goodwill, approximately $185
million of which is expected to be tax deductible.
The company obtained short-term bridge financing, which permitted it to
borrow $570 million to partially fund the purchase price of Kendro. The company
used existing cash balances to fund the remainder of the purchase price.
Subsequently, the company used a combination of short- and long-term debt
instruments to refinance the bridge loan (Note 9).
On April 26, 2005, the company's Measurement and Control segment
completed the acquisition of Rupprecht and Patashnick Co., Inc. (R&P), a New
York-based provider of continuous particulate monitoring instrumentation for the
ambient air, emissions monitoring and industrial hygiene markets for $32.5
million in cash, subject to a post-closing adjustment. The acquisition of R&P
enabled the segment to broaden its air monitoring product offerings. R&P's
revenues totaled $17 million in 2004. The agreement calls for additional
consideration of up to $3 million through 2007 based on achieving targeted sales
levels and payment of 7% of specified product sales thereafter through 2009. The
purchase price exceeded the fair value of the acquired net assets and,
accordingly, $15.5 million was allocated to goodwill, none of which is tax
deductible.
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THERMO ELECTRON CORPORATION
2. Acquisitions (continued)
On March 29, 2005, the Life and Laboratory Sciences segment acquired
Niton LLC, a Massachusetts-based provider of portable X-ray analyzers to the
metals, petrochemical and environmental markets for $41.7 million in cash. Of
the total purchase price, $40.0 million was paid on the closing date and the
balance was paid in June 2005, following determination of the post-closing
adjustment. The agreement under which the company acquired Niton calls for
additional contingent consideration of up to $2.0 million through 2006 based on
post-acquisition results. The acquisition of Niton enabled the segment to expand
its X-ray products to include a portable line. Niton's revenues in 2004 totaled
$36 million. The purchase price exceeded the fair value of the acquired net
assets and, accordingly, $15.2 million was allocated to goodwill, all of which
is tax deductible.
The company's acquisitions have historically been made at prices above
the fair value of the acquired assets, resulting in goodwill, due to
expectations of synergies of combining the businesses. These synergies include
use of the company's existing infrastructure such as sales force, distribution
channels and customer relations to expand sales of the acquired businesses'
products; use of the infrastructure of the acquired businesses to cost
effectively expand sales of the company's products; and elimination of
duplicative facilities, functions and staffing.
These acquisitions have been accounted for using the purchase method of
accounting, and the acquired companies' results have been included in the
accompanying financial statements from the respective dates of acquisition.
Allocation of the purchase price for acquisitions was based on estimates of the
fair value of the net assets acquired and is subject to adjustment upon
finalization of the purchase price allocation.
Had the acquisition of Kendro been completed as of the beginning of 2004,
the company's pro forma results for 2004 and 2005 would have been as follows:
Three Months Ended Six Months Ended
----------------------------- -----------------------------
July 2, July 3, July 2, July 3,
(In thousands except per share amounts) 2005 (a) 2004 2005 (a) 2004
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $ 688,080 $ 611,273 $1,341,148 $1,218,613
Net Income $ 54,880 $ 85,706 $ 99,173 $ 123,019
Earnings per Share from Continuing Operations:
Basic $ .32 $ .27 $ .57 $ .48
Diluted $ .31 $ .27 $ .57 $ .47
Earnings Per Share:
Basic $ .34 $ .52 $ .62 $ .74
Diluted $ .34 $ .50 $ .61 $ .73
(a) Includes an $11.2 million pre-tax charge to cost of revenues for the sale
of Kendro inventories revalued at the date of acquisition (Note 11).
The company's results for 2004 and 2005 would not have been materially
different from its reported results had the acquisitions of Niton and R&P
occurred at the beginning of 2004.
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THERMO ELECTRON CORPORATION
2. Acquisitions (continued)
The components of the preliminary purchase price allocation for the 2005
acquisitions are as follows:
(In thousands) Niton R&P Kendro Total
- --------------------------------------------------------------------------------------------------------------------------------
Purchase Price (including transaction costs):
Cash paid $ 41,656 $ 32,529 $ 845,950 $ 920,135
Cash acquired (764) (1,817) (2,631) (5,212)
--------- --------- --------- ---------
$ 40,892 $ 30,712 $ 843,319 $ 914,923
========= ========= ========= =========
Allocation:
Current assets 13,240 6,622 139,488 159,350
Property, plant and equipment 2,316 449 67,305 70,070
Acquired intangible assets 17,741 15,698 330,432 363,871
Goodwill 15,167 15,509 444,364 475,040
Other assets 181 - 2,591 2,772
Other liabilities (7,753) (7,566) (140,861) (156,180)
--------- --------- --------- ---------
$ 40,892 $ 30,712 $ 843,319 $ 914,923
========= ========= ========= =========
Acquired intangible assets for the 2005 acquisitions are as follows:
(In thousands) Niton R&P Kendro Total
- --------------------------------------------------------------------------------------------------------------------------------
Customer Relationships $ 11,468 $ 12,808 $ 287,355 $ 311,631
Product Technology 6,273 2,890 43,077 52,240
--------- --------- --------- ---------
$ 17,741 $ 15,698 $ 330,432 $ 363,871
========= ========= ========= =========
The weighted-average amortization periods for intangible assets acquired
in 2005 are 5 years for customer relationships and 5 years for product
technology. The weighted-average amortization period for all intangible assets
acquired in 2005 is approximately 5 years. Annual amortization expense has
increased by $72.8 million as a result of the 2005 acquisitions.
The company has undertaken restructuring activities at acquired
businesses. These activities, which were accounted for in accordance with
Emerging Issues Task Force (EITF) Issue No. 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination," have primarily 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 Issue No. 95-3, the company finalizes
its restructuring plans no later than one year from the respective dates of the
acquisitions. Upon finalization of restructuring plans or settlement of
obligations for less than the expected amount, any excess reserves are reversed
with a corresponding decrease in goodwill or other intangible assets when no
goodwill exists. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
No accrued acquisition expenses for acquisitions completed during 2005
have been established as of July 2, 2005. The company is evaluating potential
restructuring actions that may be undertaken at Kendro or within existing
businesses with which Kendro is being integrated. Such actions may include
rationalizing product lines, consolidation of facilities and reductions in
staffing levels. The company will record the cost of restructuring actions at
Kendro as an increase to goodwill when decisions are made as to the extent of
such actions. Costs of restructuring actions at existing businesses will be
recorded to expense. The company expects to finalize its restructuring plan no
later than one year following completion of the Kendro acquisition.
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THERMO ELECTRON CORPORATION
2. Acquisitions (continued)
The changes in accrued acquisition expenses for acquisitions completed
prior to 2005 are as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $ 3,248 $ 5,869 $ 112 $ 9,229
Payments (1,446) (65) (1) (1,512)
Decrease recorded as a reduction in goodwill - (2,032) (30) (2,062)
Currency translation (271) (398) (27) (696)
------- ------- ------- --------
Balance at July 2, 2005 $ 1,531 $ 3,374 $ 54 $ 4,959
======= ======= ======= =======
The accrued acquisition expenses relate primarily to severance for
approximately 160 employees across all functions at Jouan, acquired in December
2003, and for abandoned facilities, primarily for four abandoned operating
facilities in England, with leases expiring through 2014, and the downsizing of
a manufacturing facility in Denmark, with a lease expiring in 2007, to a smaller
site. The company expects to pay amounts accrued for severance and other
expenses primarily through 2005 and amounts accrued for abandonment of excess
facilities through 2014.
Following a favorable resolution of certain lease obligations for a
facility in England that were assumed by a sub-tenant, the company reversed $2.1
million of accrued acquisition expenses in the first quarter of 2005 with a
corresponding decrease in goodwill.
3. Business Segment Information
The company's continuing operations fall into two principal business
segments: Life and Laboratory Sciences and Measurement and Control.
Three Months Ended Six Months Ended
----------------------------- -----------------------------
July 2, July 3, July 2, July 3,
(In thousands) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
Life and Laboratory Sciences $ 487,462 $ 369,823 $ 880,767 $ 735,289
Measurement and Control 166,159 155,486 332,062 315,052
---------- ---------- ---------- ----------
$ 653,621 $ 525,309 $1,212,829 $1,050,341
========== ========== ========== ==========
Income from Continuing Operations Before Provision for
Income Taxes:
Life and Laboratory Sciences (a) $ 49,075 $ 53,311 $ 100,905 $ 100,128
Measurement and Control (b) 12,093 12,415 30,453 26,598
Other (c) 502 (54) 573 (102)
---------- ---------- ---------- ----------
Total Operating Income - Segments 61,670 65,672 131,931 126,624
Corporate/Other (d) 17,048 3,965 9,767 (1,511)
---------- ---------- ---------- ----------
$ 78,718 $ 69,637 $ 141,698 $ 125,113
========== ========== ========== ==========
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THERMO ELECTRON CORPORATION
3. Business Segment Information (continued)
Three Months Ended Six Months Ended
----------------------------- -----------------------------
July 2, July 3, July 2, July 3,
(In thousands) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation:
Life and Laboratory Sciences $ 7,764 $ 7,446 $ 14,543 $ 14,981
Measurement and Control 2,045 2,621 4,461 5,078
Corporate 951 715 1,908 1,601
---------- ---------- ---------- ----------
$ 10,760 $ 10,782 $ 20,912 $ 21,660
========== ========== ========== ==========
Amortization:
Life and Laboratory Sciences $ 17,773 $ 4,963 $ 24,387 $ 8,106
Measurement and Control 1,335 681 2,134 1,343
Corporate 1 - 2 1
---------- ---------- ---------- ----------
$ 19,109 $ 5,644 $ 26,523 $ 9,450
========== ========== ========== ==========
(a) Includes restructuring and other costs, net, of $11.1 million, $9.3 million
and $3.3 million in the second quarter of 2005 and the first six months of
2005 and 2004, respectively. Includes restructuring and other income, net,
of $0.5 million in the second quarter of 2004.
(b) Includes restructuring and other costs, net, of $2.4 million, $1.4 million,
$3.4 million, and $2.6 million in the second quarter of 2005 and 2004 and
the first six months of 2005 and 2004, respectively.
(c) Includes restructuring and other income, net, of $0.5 million and $0.6
million in the second quarter of 2005 and first six months of 2005,
respectively. Includes restructuring and other costs, net, of $0.1 million
in both the second quarter of 2004 and the first six months of 2004,
respectively.
(d) Includes corporate general and administrative expenses and other income and
expense. Includes corporate restructuring and other costs of $0.7 million,
$0.2 million, $1.2 million, and $0.7 million in the second quarter of 2005
and 2004 and the first six months of 2005 and 2004, respectively. Other
income, net, includes net gains on the sale of shares of Thoratec and
Newport of $27.6 million in the second quarter and first six months of 2005
and gains on the sale of shares of Thoratec of $8.0 million and $9.6
million in the second quarter and first six months of 2004, respectively
(Note 4).
4. Other Income, Net
The components of other income, net, in the accompanying statement of
income are as follows:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
July 2, July 3, July 2, July 3,
(In thousands) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
Interest Income $ 2,591 $ 1,666 $ 5,927 $ 3,586
Interest Expense (Note 9) (7,287) (2,694) (10,442) (5,423)
Gain on Investments, Net 29,802 10,847 32,066 13,478
Other Items, Net 398 848 1,257 1,628
-------- -------- -------- --------
$ 25,504 $ 10,667 $ 28,808 $ 13,269
======== ======== ======== ========
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THERMO ELECTRON CORPORATION
4. Other Income, Net (continued)
The company sold 4,436,000 shares of Thoratec Corporation common stock
during the second quarter and first six months of 2005 and realized a gain of
$28.9 million. The company sold 1,000,000 and 1,250,000 shares of Thoratec
common stock during the second quarter and first six months of 2004 and realized
gains of $8.0 million and $9.6 million, respectively. The company obtained
common shares of Thoratec as part of the sale of Thermo Cardiosystems Inc. in
2001. At July 2, 2005, the company no longer owned shares of Thoratec.
In July 2004, the company received 3,220,000 shares of Newport
Corporation common stock upon the sale of Spectra-Physics to Newport. In June
2005, the company reached an agreement with Newport under which Newport
purchased all of the 3,220,000 shares of Newport common stock. Newport purchased
the shares for $13.56 per share, which resulted in aggregate proceeds of $43.7
million. The company recorded a loss on the sale of $1.3 million. The Newport
shares had been subject to resale restrictions that would have fully lapsed by
January 2006.
5. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
July 2, July 3, July 2, July 3,
(In thousands except per share amounts) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 56,760 $ 50,579 $102,343 $ 90,244
Income from Discontinued Operations - 40,501 - 43,958
Gain on Disposal of Discontinued Operations 3,463 - 6,736 -
-------- -------- -------- --------
Net Income for Basic Earnings per Share 60,223 91,080 109,079 134,202
Effect of Convertible Debentures 402 398 803 811
-------- -------- -------- --------
Income Available to Common Shareholders, as
Adjusted for Diluted Earnings per Share $ 60,625 $ 91,478 $109,882 $135,013
-------- -------- -------- --------
Basic Weighted Average Shares 161,255 165,571 161,106 165,389
Effect of:
Stock options 1,515 3,007 1,704 2,926
Convertible debentures 1,846 1,846 1,846 1,846
Contingently issuable shares 42 97 38 97
-------- -------- -------- --------
Diluted Weighted Average Shares 164,658 170,521 164,694 170,258
-------- -------- -------- --------
Basic Earnings per Share:
Continuing operations $ .35 $ .31 $ .64 $ .55
Discontinued operations .02 .24 .04 .27
-------- -------- -------- --------
$ .37 $ .55 $ .68 $ .81
======== ======== ======== ========
Diluted Earnings per Share:
Continuing operations $ .35 $ .30 $ .63 $ .53
Discontinued operations .02 .24 .04 .26
-------- -------- -------- --------
$ .37 $ .54 $ .67 $ .79
======== ======== ======== ========
Options to purchase 4,508,000, 966,000, 2,515,000 and 1,177,000 shares of
common stock were not included in the computation of diluted earnings per share
for the second quarter of 2005 and 2004 and the first six months of 2005 and
2004, 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
6. Comprehensive Income
Comprehensive income combines net income and other comprehensive items.
Other comprehensive items represents certain amounts that are reported as
components of shareholders' equity in the accompanying balance sheet, including
currency translation adjustments, unrealized gains and losses, net of tax, on
available-for-sale investments and hedging instruments and minimum pension
liability adjustment. During the second quarter of 2005 and 2004, the company
had comprehensive income of $38.2 million and $74.1 million, respectively.
During the first six months of 2005 and 2004, the company had comprehensive
income of $42.3 million and $129.0 million, respectively. The decrease in other
comprehensive items resulted primarily from a reduction in the cumulative
translation adjustment due to movements in currency exchange rates during the
first half of 2005, the effects of which are recorded in shareholders' equity.
7. Stock-based Compensation Plans and Pro Forma Stock-based Compensation
Expense
The company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no accounting
recognition is given to stock options granted at fair market value until they
are exercised. Upon exercise, net proceeds, including tax benefits realized, are
credited to shareholders' equity.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which sets forth a fair-value-based method of
recognizing stock-based compensation expense. As permitted by SFAS No. 123, the
company has elected to continue to apply APB No. 25 to account for its
stock-based compensation plans. Had compensation cost for awards granted after
1994 under the company's stock-based compensation plans been determined based on
the fair value at the grant dates consistent with the method set forth under
SFAS No. 123, and had the fair value of awards been amortized on a straight-line
basis over the vesting period, the effect on certain financial information of
the company would have been as follows:
Three Months Ended Six Months Ended
---------------------- ----------------------
July 2, July 3, July 2, July 3,
(In thousands except per share amounts) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations:
As reported $ 56,760 $ 50,579 $102,343 $ 90,244
Add: Stock-based employee compensation expense included in reported
results, net of tax 454 315 870 480
Deduct: Total stock-based employee compensation expense determined under
the fair-value-based method for all awards, net of tax (3,796) (3,415) (7,678) (6,643)
-------- -------- -------- --------
Pro forma $ 53,418 $ 47,479 $ 95,535 $ 84,081
======== ======== ======== ========
Basic Earnings per Share from Continuing Operations:
As reported $ .35 $ .31 $ .64 $ .55
Pro forma $ .33 $ .29 $ .59 $ .51
Diluted Earnings per Share from Continuing Operations:
As reported $ .35 $ .30 $ .63 $ .53
Pro forma $ .33 $ .28 $ .59 $ .50
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THERMO ELECTRON CORPORATION
7. Stock-based Compensation Plans and Pro Forma Stock-based Compensation
Expense (continued)
Three Months Ended Six Months Ended
---------------------- ----------------------
July 2, July 3, July 2, July 3,
(In thousands except per share amounts) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income:
As reported $ 60,223 $ 91,080 $109,079 $134,202
Add: Stock-based employee compensation expense included in reported net
income, net of tax 454 315 870 480
Deduct: Total stock-based employee compensation expense determined under
the fair-value-based method for all awards, net of tax (3,796) (3,932) (7,678) (7,873)
-------- -------- -------- --------
Pro forma $ 56,881 $ 87,463 $102,271 $126,809
======== ======== ======== ========
Basic Earnings per Share:
As reported $ .37 $ .55 $ .68 $ .81
Pro forma $ .35 $ .53 $ .63 $ .77
Diluted Earnings per Share:
As reported $ .37 $ .54 $ .67 $ .79
Pro forma $ .35 $ .52 $ .63 $ .75
In December 2004, the FASB issued SFAS No. 123(R) "Share-Based Payment."
SFAS No. 123(R) amends SFAS No. 123 to require that companies record as expense
the effect of equity-based compensation, including stock options, over the
applicable vesting period. The company currently discloses the effect on income
that stock options would have were they recorded as expense. SFAS No. 123(R)
also requires more extensive disclosures concerning stock options than required
under current standards. The new rule applies to option grants made after
adoption as well as options that are not vested at the date of adoption. SFAS
No. 123(R) becomes effective no later than fiscal years beginning after June 15,
2005. The company does not currently expect to elect early adoption and has not
determined whether it will apply the new standard prospectively in 2006 or
restate all periods on a comparable basis.
8. Defined Benefit Pension Plans
Several of the company's non-U.S. subsidiaries, principally in Germany
and England, and one U.S. subsidiary have defined benefit pension plans covering
substantially all full-time employees at those subsidiaries. In addition,
Kendro's operations in Germany have defined benefit pension plans. Some of the
company's plans are unfunded, as permitted under the plans and applicable laws.
Net periodic benefit costs for the plans in aggregate included the following
components:
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 2, July 3, July 2, July 3,
(In thousands) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Service Cost $ 1,764 $ 1,503 $ 3,460 $ 3,038
Interest Cost on Benefit Obligation 3,349 2,960 6,570 5,985
Expected Return on Plan Assets (2,752) (2,554) (5,554) (5,155)
Recognized Net Actuarial Loss 636 632 1,281 1,273
------- ------- ------- -------
$ 2,997 $ 2,541 $ 5,757 $ 5,141
======= ======= ======= =======
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THERMO ELECTRON CORPORATION
8. Defined Benefit Pension Plans (continued)
During the second quarter of 2005, the company merged two defined benefit
plans in the U.K. and provided the participating employees with a defined
contribution plan while limiting future benefits under the combined defined
benefit plan. The transaction met the criteria of a plan curtailment although no
gain or loss resulted. In connection with the transaction, the company
contributed $10.9 million to the combined U.K. defined benefit plan.
9. Swap Arrangement and Debt
During 2002, the company entered into interest-rate swap arrangements for
its $128.7 million principal amount 7 5/8% senior notes, due in 2008, with the
objective of reducing interest costs. The arrangements provide that the company
will receive a fixed interest rate of 7 5/8% and will pay a variable rate of
90-day LIBOR plus 2.19% (5.85% as of July 2, 2005). The swaps have terms
expiring at the maturity of the debt. The swaps are designated as fair-value
hedges and as such, are carried at fair value, which over time has resulted in
an increase in other long-term assets and long-term debt totaling $5.0 million
at July 2, 2005. The swap arrangements are with different counterparties than
the holders of the underlying debt. Management believes that any credit risk
associated with the swaps is remote based on the creditworthiness of the
financial institutions issuing the swaps.
In May 2005, in connection with plans to refinance part of the bridge
facility that the company borrowed under for the Kendro acquisition (Note 2),
the company entered into forward starting pay fixed swap agreements with several
banks to mitigate the risk of interest rates rising prior to completion of a
debt offering. Based on the company's conclusion that a debt offering was
probable and that such debt will carry semi-annual interest payments over a 10
year term, the swaps hedge the cash flow risk that exists on each of the
semi-annual fixed-rate interest payments on $250 million of principal amount of
the 10 year fixed rate debt issue (or any subsequent refinancing of such debt).
The change in the fair value of the hedge, $2.0 million, net of tax, was
classified as a reduction of other comprehensive items within shareholders'
equity and is being amortized to interest costs over the term of the debt
through 2015.
The company repaid in full $570 million of borrowings under its bridge
loan with cash and proceeds of new debt issuances described below. On May 27,
2005, the company issued $250 million aggregate principal amount of 5% senior
notes (the Notes) due 2015, with an effective interest rate after including the
impact of the swap arrangement of 5.27%. Under the Notes' Indenture, the company
is subject to certain affirmative and negative covenants. The Notes carry
registration rights and provisions that could result in an increase in the
interest rate of up to 50 basis points in the event of delays in the
registration of the Notes under the Securities Act of 1933.
Also on May 27, 2005, the company entered into an arrangement that
provides the company an uncommitted line of credit of up to $250 million through
a series of short-term money market loans funded on an ongoing basis in the
secondary market. Such money market loans have maturity periods of overnight to
364 days and bear varying rates of interest based on the maturity date and
market rate at the time of issuance. On May 27, 2005, the company borrowed $250
million through three short-term loans under the money market arrangement with
maturities of one week to three months. As of July 2, 2005, the company had
outstanding borrowings under this arrangement aggregating $215 million at an
average interest rate of 3.45%.
On June 30, 2005, the company entered into a five-year revolving credit
facility with a bank group that provides up to 175 million euros. The facility
carries interest at a Euribor rate plus 35 basis points. Under the facility,
borrowings of one to six months duration may be drawn. The agreement contains
affirmative, negative and financial covenants and events of default customary
for financings of this type. The financial covenants include interest coverage
and debt-to-capital ratios. No borrowings were outstanding under the facility on
July 2, 2005, however, on July 6, 2005, the company borrowed 150 million euros
($179 million) in three tranches with maturities of one to six months and with
an initial interest rate of 2.45%. A portion of the proceeds was used to repay
$135 million of the short-term money market loans outstanding at July 2, 2005.
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THERMO ELECTRON CORPORATION
10. Warranty Obligations
Product warranties are included in other accrued expenses in the
accompanying balance sheet. The changes in the carrying amount of warranty
obligations are as follows:
Six Months Ended
---------------------
July 2, July 3,
(In thousands) 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Beginning Balance $ 27,369 $ 25,645
Provision charged to income 11,915 9,257
Usage (10,856) (8,016)
Acquisitions 6,002 -
Adjustments to previously provided warranties, net (1,603) (2,206)
Other, net (a) (1,951) 72
-------- --------
Ending Balance $ 30,876 $ 24,752
======== ========
(a) Primarily represents the effects of currency translation.
11. Restructuring and Other Costs (Income), Net
In response to a downturn in markets served by the company and in
connection with the company's overall reorganization, restructuring actions were
initiated in 2002 in a number of business units to reduce costs and
redundancies, principally through headcount reductions and consolidation of
facilities. Certain costs associated with these actions are recorded when
incurred. Further actions were initiated in 2003 and, to a lesser extent, in
2004. Restructuring and other costs recorded in 2005 are primarily for charges
associated with actions initiated prior to 2005 that could not be recorded until
incurred and adjustments to previously provided reserves due to changes in
estimates of amounts due for abandoned facilities, net of expected sub-tenant
rental income. The company expects to incur an additional $0.5 million of
restructuring costs through the remainder of 2005 for charges associated with
the pre-2005 actions that cannot be recorded until incurred. The restructuring
actions undertaken in 2003 and 2004 were substantially complete at the end of
2004. In connection with the acquisition of Kendro, the company expects to
undertake restructuring actions at both acquired and existing facilities. When
determined, the actions at acquired facilities will be recorded as a cost of the
acquisition. The actions at existing facilities will be charged to expense. The
company has not finalized its plans for integrating Kendro with its existing
business but expects that charges to expense will total $10-$20 million.
During the second quarter of 2005, the company recorded net restructuring
and other costs (income) by segment as follows:
Life and
Laboratory Measurement
(In thousands) Sciences and Control Other Corporate Total
- --------------------------------------------------------------------------------------------------------------------------------
Cost of Revenues $11,232 $ 233 $ - $ - $11,465
Restructuring and Other Costs (Income), Net (160) 2,168 (502) 710 2,216
------- ------- -------- ------- -------
$11,072 $ 2,401 $ (502) $ 710 $13,681
======= ======= ======== ======= =======
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11. Restructuring and Other Costs (Income), Net (continued)
During the first six months of 2005, the company recorded net
restructuring and other costs (income) by segment as follows:
Life and
Laboratory Measurement
(In thousands) Sciences and Control Other Corporate Total
- --------------------------------------------------------------------------------------------------------------------------------
Cost of Revenues $11,232 $ 233 $ - $ - $11,465
Restructuring and Other Costs (Income), Net (1,894) 3,202 (573) 1,210 1,945
------- ------- -------- ------- -------
$ 9,338 $ 3,435 $ (573) $ 1,210 $13,410
======= ======= ======== ======= =======
The components of net restructuring and other costs (income) by segment
are as follows:
Life and Laboratory Sciences
- ----------------------------
The Life and Laboratory Sciences segment recorded $11.1 million of net
restructuring and other charges in the second quarter of 2005. The segment
recorded charges to cost of revenues of $11.2 million for the sale of
inventories revalued at the date of acquisition, and $0.2 million of net
restructuring and other income. This amount consisted of $1.0 million of cash
costs, principally associated with facility consolidations, including $0.9
million of severance for 11 employees across all functions; and $0.1 million of
net abandoned-facility costs, primarily for charges associated with facilities
vacated in prior periods that could not be recorded until incurred. These costs
are net of a gain on the sale of an abandoned building in Colorado of $1.3
million.
In the first quarter of 2005, this segment recorded $1.7 million of net
restructuring and other income. This amount consisted of $0.8 million of cash
costs, principally associated with facility consolidations, including $0.5
million of severance for 31 employees across all functions; $0.2 million of net
abandoned-facility costs, primarily for charges associated with facilities
vacated in prior periods that could not be recorded until incurred; and $0.1
million of other cash costs, primarily relocation expenses. The costs are net of
$2.5 million of net gains on the sale of three abandoned buildings in the U.S.
and Germany.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $2.4 million of net
restructuring and other charges in the second quarter of 2005. The segment
recorded charges to cost of revenues of $0.2 million for the sale of inventories
revalued at the date of acquisition, and $2.2 million of cash costs. These cash
costs are principally associated with facility consolidations, including $1.3
million of net abandoned-facility costs, primarily for revised estimates of
costs associated with facilities vacated in prior periods and, to a lesser
extent, costs that could not be recorded until incurred; $0.8 million of
severance for 12 employees, primarily in sales and service functions; and $0.1
million of other cash costs, primarily retention and relocation expenses.
In the first quarter of 2005, this segment recorded $1.0 million of net
restructuring and other charges. These costs consisted of $1.1 million of cash
costs, principally associated with facility consolidations, including $1.0
million of net abandoned-facility costs, primarily for revised estimates of
costs associated with facilities vacated in prior periods and costs that could
not be recorded until incurred, and $0.1 million of severance for 8 employees,
primarily in sales and service functions. The segment recorded a gain of $0.1
million on the sale of a small product line in England for cash proceeds of $4.6
million.
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THERMO ELECTRON CORPORATION
11. Restructuring and Other Costs (Income), Net (continued)
Other
- -----
The company recorded a gain of $0.5 million in the second quarter of 2005
as a result of revising its estimate of lease obligations due to sub-leasing an
abandoned facility of a divested business.
Corporate
- ---------
The company recorded $0.7 million of restructuring and other charges at
its corporate offices in the second quarter of 2005, all of which were cash
costs. In the first quarter of 2005, the company recorded $0.5 million of
restructuring and other charges at its corporate offices, all of which were cash
costs. The cash costs were primarily for severance for 15 employees.
General
- -------
The following table summarizes the company's severance actions in 2005.
Number of
2003 Restructuring Plans Employees
- --------------------------------------------------------------------------------------------------------------------------------
Remaining Terminations at December 31, 2004 48
Terminations Announced in 2005 3
Terminations Occurring to Date in 2005 (12)
Adjustments to Plan (12)
---
Remaining Terminations at July 2, 2005 27
===
Number of
2004 Restructuring Plans Employees
- --------------------------------------------------------------------------------------------------------------------------------
Remaining Terminations at December 31, 2004 30
Terminations Announced in 2005 57
Terminations Occurring to Date in 2005 (71)
Adjustments to Plan (2)
---
Remaining Terminations at July 2, 2005 14
===
Number of
2005 Restructuring Plans Employees
- --------------------------------------------------------------------------------------------------------------------------------
Terminations Announced in 2005 17
Terminations Occurring to Date in 2005 (14)
---
Remaining Terminations at July 2, 2005 3
===
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11. Restructuring and Other Costs (Income), Net (continued)
The following table summarizes the cash components of the company's
restructuring plans. The noncash components and other amounts reported as
restructuring and other costs, net, in the accompanying 2005 statement of income
have been summarized in the notes to the table. 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
- --------------------------------------------------------------------------------------------------------------------------------
Pre-2004 Restructuring Plans
Balance at December 31, 2004 $ 2,285 $ 63 $ 9,525 $ 26 $11,899
Costs incurred in 2005 (b) 38 - 2,386 91 2,515
Reserves reversed (359) - (372) - (731)
Payments (644) (63) (2,856) (96) (3,659)
Currency translation (139) - (437) - (576)
------- ------- ------- ------- -------
Balance at July 2, 2005 $ 1,181 $ - $ 8,246 $ 21 $ 9,448
======= ======= ======= ======= =======
2004 Restructuring Plans
Balance at December 31, 2004 $ 3,517 $ - $ 301 $ 102 $ 3,920
Costs incurred in 2005 (b) 1,666 - 220 133 2,019
Reserves reversed - - - - -
Payments (3,995) - (283) (176) (4,454)
Currency translation (305) - (28) (1) (334)
------- ------- ------- ------- -------
Balance at July 2, 2005 $ 883 $ - $ 210 $ 58 $ 1,151
======= ======= ======= ======= =======
2005 Restructuring Plans
Costs incurred in 2005 (b) $ 2,008 $ 20 $ - $ 35 $ 2,063
Payments (1,142) (20) - (34) (1,196)
Currency translation (27) - - (1) (28)
------- ------- ------- ------- -------
Balance at July 2, 2005 $ 839 $ - $ - $ - $ 839
======= ======= ======= ======= =======
(a) Employee-retention costs are accrued ratably over the period through which
employees must work to qualify for a payment.
(b) Excludes net gains of $3.9 million from the sale of four abandoned
buildings in the Life and Laboratory Sciences segment and $0.1 million from
the sale of a small product line in the Measurement and Control segment.
The company expects to pay accrued restructuring costs as follows:
severance, primarily through 2007; employee-retention obligations and other
costs, primarily through 2005; and abandoned-facility payments, over lease terms
expiring through 2012.
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12. Litigation
In September 2004, Applera Corporation, MDS Inc. and Applied
Biosystems/MDS Scientific Instruments filed a lawsuit alleging that the
company's mass spectrometer systems infringe a patent of the plaintiffs. The
plaintiffs seek damages, including treble damages for alleged willful
infringement, attorneys' fees, prejudgment interest and injunctive relief.
The company has been named a defendant, along with many other companies,
in a patent-infringement lawsuit brought by the Lemelson Medical, Education &
Research Foundation, L.P. The suit asserts that products manufactured, used, or
sold by the defendants infringe one or more patents related to methods of
machine vision or computer-image analysis.
The company intends to vigorously defend these matters. In the opinion of
management, an unfavorable outcome of either or both of these matters could have
a material adverse effect on the company's financial position as well as its
results of operations and cash flows.
On December 8, 2004 and February 23, 2005, the company asserted in two
lawsuits against a combination of Applera Corporation, MDS Inc. and Applied
Biosystems/MDS Scientific Instruments that these parties infringe two patents of
the company.
The company's continuing and discontinued operations are a defendant in a
number of other pending legal proceedings incidental to present and former
operations. The company does not expect the outcome of these proceedings, either
individually or in the aggregate, to have a material adverse effect on its
financial position, results of operations, or cash flows.
13. Discontinued Operations
In the second quarter of 2005, the company settled litigation and
received proceeds from an arbitration award related to divested businesses. In
addition, the company recorded an increase in the net realizable value of a
building held for sale after entering an agreement to sell the facility. The
building had previously been written down to estimated disposal value. As a
result of these transactions, the company recorded an after-tax gain on the
disposal of discontinued operations of $3.5 million.
In the first quarter of 2005, the company recorded after-tax gains of
$3.3 million from the disposal of discontinued operations. The gains represent
additional proceeds from the sale of businesses divested prior to 2004,
including the sale of abandoned real estate and post-closing adjustments.
In the second quarter of 2004, the company's discontinued operations
(Spectra-Physics) had revenues of $55.4 million and net income of $40.5 million,
including a tax benefit of $36.9 million. In the first six months of 2004, the
company's discontinued operations had revenues of $112.4 million and net income
of $44.0 million, including a tax benefit of $35.8 million.
Current liabilities of discontinued operations in the accompanying
balance sheet includes obligations for abandoned leases, litigation, severance
and related obligations of previously owned businesses.
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. 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. While
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THERMO ELECTRON CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
- --------------------------------------------------------------------------------
the company may elect to update forward-looking statements in the future, it
specifically disclaims any obligation to do so, even if the company's estimates
change, and readers should not rely on those forward-looking statements as
representing the company's views as of any date subsequent to the date of the
filing of this Quarterly Report. There are a number of important factors that
could cause the actual 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 this report on Form 10-Q.
Overview of Results of Operations and Liquidity
The company develops and manufactures a broad range of products that are
sold worldwide. The company expands the product lines and services it offers by
developing and commercializing its own core technologies and by making strategic
acquisitions of complementary businesses. In July 2004, the company sold
Spectra-Physics, its optical technologies segment. The company's continuing
operations fall into two principal business segments: Life and Laboratory
Sciences and Measurement and Control.
Revenues
Three Months Ended Six Months Ended
-------------------------------------------- --------------------------------------------
(Dollars in thousands) July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Life and Laboratory Sciences $ 487,462 74.6% $ 369,823 70.4% $ 880,767 72.6% $ 735,289 70.0%
Measurement and Control 166,159 25.4% 155,486 29.6% 332,062 27.4% 315,052 30.0%
---------- ----- ---------- ----- ---------- ----- --------- -----
$ 653,621 100% $ 525,309 100% $1,212,829 100% $1,050,341 100%
========== ===== ========== ===== ========== ===== ========= =====
The company's revenues grew by 24% during the second quarter of 2005 over
the same period in 2004. The strengthening of non-U.S. currencies relative to
the dollar caused an increase in reported revenues as did acquisitions, net of
divestitures. Aside from currency translation and the effect of acquisitions,
net of divestitures, revenues increased $35.3 million or 7%, as a result of
increased demand in each of the company's principal businesses and, to a lesser
extent, increased prices.
The company's strategy is to augment internal growth at existing
businesses with complementary acquisitions such as those completed in 2005 (Note
2) and 2004. The principal acquisitions included the Kendro Laboratory Products
division of SPX Corporation, a provider of a wide range of laboratory equipment
for sample preparation, processing and storage, which was acquired in May 2005;
Rupprecht and Patashnick Co., Inc. (R&P), a provider of continuous particulate
monitoring instrumentation for the ambient air, emissions monitoring and
industrial hygiene markets, which was acquired in April 2005; Niton LLC, a
provider of portable X-ray analyzers to the metals, petrochemical and
environmental markets, which was acquired in March 2005; InnaPhase Corporation,
a supplier of laboratory information management systems for the pharmaceutical
and biotechnology markets, which was acquired in September 2004; and US
Counseling Services, Inc. (USCS), a supplier of equipment asset management
services to the pharmaceutical, healthcare and related industries, which was
acquired in April 2004.
In the second quarter of 2005, the company's operating income and
operating income margin decreased to $53.2 million and 8.1%, respectively, from
$59.0 million and 11.2%, respectively, in 2004. (Operating income margin is
operating income divided by revenues.) The decrease resulted primarily from
$13.5 million of higher amortization expense associated with acquisition-related
intangible assets and $11.1 million of higher charges to cost of revenues,
primarily for the sale of inventories revalued at the date of acquisition. The
effect of these items was offset in part by higher profitability from increased
revenues.
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Overview of Results of Operations and Liquidity (continued)
Income from continuing operations increased to $56.8 million in the
second quarter of 2005 from $50.6 million in the second quarter of 2004,
primarily due to gains on the sale of investments, offset in part by the lower
operating income discussed above.
During the first six months of 2005, the company's cash flow from
operations totaled $89.0 million, compared with $105.1 million in the first six
months of 2004. The decrease resulted primarily from a $40.5 million investment
in working capital in 2005, principally a reduction in other current liabilities
and an increase in inventories, compared with a $21.6 million investment in
working capital in the first six months of 2004.
As of July 2, 2005, the company's outstanding debt totaled $701.2
million, of which 65% is due in 2007 and thereafter. The company believes that
its existing cash and short-term investments, future cash flow from operations,
and available borrowings of up to $250 million under its existing 5-year
revolving credit agreement will be sufficient to meet its capital requirements
for the foreseeable future, including at least the next 24 months.
Critical Accounting Policies
The company's discussion and analysis of its financial condition and
results of operations is based upon its financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
liabilities. On an on-going basis, the company evaluates its estimates,
including those related to bad debts, inventories, intangible assets, warranty
obligations, income taxes, pension costs, contingencies and litigation,
restructuring and sale of businesses. The company bases its estimates on
historical experience, current market and economic conditions and other
assumptions that management believes are reasonable. The results of these
estimates form the basis for judgments about the carrying value of assets and
liabilities where the values are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. The company had no changes in its critical accounting policies from
those described in its Form 10-Q for the quarter ended April 2, 2005.
Results of Operations
Second Quarter 2005 Compared With Second Quarter 2004
- -----------------------------------------------------
Continuing Operations
Sales in the second quarter of 2005 were $653.6 million, an increase of
$128.3 million from the second quarter of 2004. Sales increased $83.7 million
due to acquisitions, net of divestitures. The favorable effects of currency
translation resulted in an increase in revenues of $9.3 million in 2005. Aside
from currency translation and the effect of acquisitions, net of divestitures,
revenues increased $35.3 million, or 7%, due primarily to a broad-based increase
in demand in each of the company's principal businesses and, to a lesser extent,
increased prices. Sales were particularly strong in Asia while European markets
also rebounded from flat performance in recent periods.
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THERMO ELECTRON CORPORATION
Second Quarter 2005 Compared With Second Quarter 2004 (continued)
- -----------------------------------------------------
Operating Income Margin
Three Months Ended
----------------------
July 2, July 3,
2005 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Life and Laboratory Sciences 10.1% 14.4%
Measurement and Control 7.3% 8.0%
Consolidated 8.1% 11.2%
Operating income was $53.2 million in the second quarter of 2005,
compared with $59.0 million in the second quarter of 2004. Operating income
margin decreased to 8.1% in 2005 from 11.2% in 2004. Operating income decreased
primarily due to $13.5 million of higher amortization expense for
acquisition-related intangible assets and $11.1 million of higher charges to
cost of revenues, primarily for the sale of inventories revalued at the date of
acquisition. Following the acquisitions completed in the second quarter of 2005,
the company expects amortization of acquisition-related intangible assets will
total approximately $25 million per quarter in the third quarter of 2005 and
thereafter.
Restructuring actions were initiated in 2003 and, to a lesser extent, in
2004 and 2005 in a number of business units to reduce costs and redundancies in
response to a downturn in markets served by the company and in connection with
the company's overall reorganization, principally through headcount reductions
and consolidation of facilities. The company expects to incur an additional $0.5
million of restructuring costs, primarily in 2005, for charges associated with
these actions that cannot be recorded until incurred. The company is evaluating
potential restructuring actions that may be undertaken at Kendro or within
existing businesses with which Kendro is being integrated. Such actions may
include rationalizing product lines, consolidation of facilities and reductions
in staffing levels. The actions at acquired facilities will be recorded as a
cost of the acquisition through an increase to goodwill. The actions at existing
facilities will be charged to expense. The company has not finalized its plans
for integrating Kendro with its existing business but expects that charges to
expense will total $10-$20 million.
Life and Laboratory Sciences
Three Months Ended
----------------------------------
July 2, July 3,
(Dollars in thousands) 2005 2004 Change
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $487,462 $369,823 31.8%
Operating Income Margin 10.1% 14.4% (4.3)
Sales in the Life and Laboratory Sciences segment increased $117.6
million, or 32%, to $487.5 million in the second quarter of 2005. Sales
increased $83.4 million due to the acquisitions of Kendro in May 2005, Niton in
March 2005, InnaPhase in September 2004 and USCS in April 2004, net of a product
line divestiture. The favorable effects of currency translation resulted in an
increase in revenues of $6.9 million in 2005. Excluding the changes in revenues
resulting from currency translation, acquisitions and a divestiture, revenues
increased $27.4 million, or 8%, due to a broad-based increase in demand from
life science and industrial customers. The increase in revenues was, to a lesser
extent, due to price increases.
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THERMO ELECTRON CORPORATION
Second Quarter 2005 Compared With Second Quarter 2004 (continued)
- -----------------------------------------------------
Operating income margin was 10.1% in the second quarter of 2005 and 14.4%
in the second quarter of 2004. The decrease in operating income margin was due
in part to an increase in amortization expense of acquisition-related intangible
assets of $12.8 million. Operating income margin was also affected by
restructuring and other costs, net, of $11.1 million in 2005 and restructuring
and other income, net, of $0.5 million in 2004. The costs in 2005 were
principally charges to cost of revenues for the sale of inventories revalued at
the date of acquisition.
In the second quarter of 2005, the segment recorded restructuring and
other costs, net, of $11.1 million, primarily the charges to cost of revenues
described above. In addition, $1.0 million of cash costs for severance and
abandoned facility costs for businesses that have been consolidated were offset
by a gain of $1.3 million from the sale of real estate (Note 11). In 2004, the
segment recorded restructuring and other income, net, of $0.5 million, including
a gain of $2.6 million on the sale of a product line. This gain was offset in
part by $1.8 million of cash costs, primarily for severance, abandoned
facilities and relocation expenses at businesses being consolidated and charges
to costs of revenues of $0.3 million, primarily for accelerated depreciation on
manufacturing equipment that was abandoned as a result of site consolidations.
Measurement and Control
Three Months Ended
----------------------------------
July 2, July 3,
(Dollars in thousands) 2005 2004 Change
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $166,159 $155,486 6.9%
Operating Income Margin 7.3% 8.0% (0.7)
Sales in the Measurement and Control segment increased $10.7 million, or
7%, to $166.2 million in the second quarter of 2005. The favorable effects of
currency translation resulted in an increase in revenues of $2.4 million in
2005. Sales increased $0.4 million due to acquisitions, net of a divestiture. In
addition to the changes in revenue resulting from currency translation,
acquisitions and a divestiture, revenues increased $7.9 million, or 5%. The
increase was primarily the result of higher demand from industrial customers,
particularly in Asia, and customers purchasing instruments for use in
environmental and security applications.
Operating income margin decreased to 7.3% in 2005 from 8.0% in 2004. The
decrease in operating income margin resulted primarily from $1.0 million of
higher restructuring and other costs and $0.7 million of higher amortization
expense associated with acquisition-related intangible assets.
In the second quarter of 2005, the segment recorded restructuring and
other costs, net, of $2.4 million, including $2.2 million of cash costs,
principally for previously abandoned facilities at businesses being consolidated
(Note 11) and $0.2 million of charges to cost of revenues for the sale of
inventories revalued at the date of acquisition. In 2004, the segment recorded
restructuring and other costs, net, of $1.4 million, including cash costs of
$1.3 million, principally for abandoned facilities, severance and relocation
expenses at businesses that were consolidated. In addition, the segment recorded
charges to cost of revenues of $0.1 million for the sale of inventories revalued
at the date of acquisition.
Other Income, Net
- -----------------
The company reported other income, net, of $25.5 million and $10.7
million in the second quarter of 2005 and 2004, respectively (Note 4). Other
income, net, includes interest income, interest expense, gain on investments,
net, and other items, net. Interest income increased to $2.6 million in 2005
from $1.7 million in 2004, primarily due to higher invested cash balances
following the sale of Spectra-Physics in July 2004 and, to a lesser extent,
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THERMO ELECTRON CORPORATION
Second Quarter 2005 Compared With Second Quarter 2004 (continued)
- -----------------------------------------------------
increased market interest rates, offset in part by cash used to fund
acquisitions. Interest expense increased to $7.3 million in 2005 from $2.7
million in 2004 as a result of debt used to partially fund the acquisition of
Kendro and, to a lesser extent, higher rates associated with the company's
variable rate debt.
During the second quarter of 2005 and 2004, the company had gains on
investments, net, of $29.8 million and $10.8 million, respectively. The gains
included $28.9 million and $8.0 million in 2005 and 2004, respectively, from the
sale of shares of Thoratec Corporation and a loss of $1.3 million in 2005 on the
sale of shares of Newport Corporation. Following these sales, the company no
longer owned shares of Thoratec or Newport.
Provision for Income Taxes
- --------------------------
The company's effective tax rate was 27.9% and 27.4% in the second
quarter of 2005 and 2004, respectively. The increase in the effective tax rate
resulted primarily from higher projected income in higher-tax jurisdictions
following the acquisition of Kendro.
The American Jobs Creation Act of 2004, signed into law in October 2004,
allows companies to repatriate permanently reinvested non-U.S. earnings in 2005
or 2006 at an effective rate of 5.25%. The company does not currently expect to
take advantage of this provision. The new tax law also phases out an existing
deduction based on export revenues and replaces it with a deduction for a
portion of the profit derived from domestic manufacturing activities. The
company is continuing to evaluate the effect of these changes but does not
expect a material net impact on its tax provision.
On July 20, 2005, the United Kingdom enacted legislation, retroactive to
March 15, 2005, that eliminates a tax benefit associated with certain debt
arrangements among subsidiaries where the debt arrangements lack business
purpose. Although the company believes that its existing U.K. finance structure
has business purpose, in the event that U.K. Inland Revenue were to determine
that the debt arrangements among the subsidiaries lack business purpose, the
company's effective tax rate would increase. The benefit from the company's U.K.
finance structure that is potentially affected by this law change is reducing
the company's estimated 2005 effective tax rate by 2.6 percentage points.
Contingent Liabilities
- ----------------------
At July 2, 2005, the company was contingently liable with respect to
certain lawsuits. An unfavorable outcome in either of the matters described in
the first two paragraphs of Note 12 could materially affect the company's
financial position as well as its results of operations and cash flows.
Discontinued Operations
In the second quarter of 2005, the company settled litigation and
received proceeds from an arbitration award related to divested businesses. In
addition, the company recorded an increase in the net realizable value of a
building held for sale after entering an agreement to sell the facility. As a
result of these transactions, the company recorded an after-tax gain on the
disposal of discontinued operations of $3.5 million.
In the second quarter of 2004, the company's discontinued operations
(Spectra-Physics) had revenues of $55.4 million and net income of $40.5 million,
including a tax benefit of $36.9 million. The company sold Spectra-Physics in
July 2004.
First Six Months 2005 Compared With First Six Months 2004
- ---------------------------------------------------------
Continuing Operations
Sales in the first six months of 2005 were $1,212.8 million, an increase
of $162.5 million from the first six months of 2004. Sales increased $108.5
million due to acquisitions, net of divestitures. The favorable effects of
currency translation resulted in an increase in revenues of $20.8 million in
2005. Aside from currency translation and the effect of acquisitions, net of
divestitures, revenues increased $33.2 million, or 3%. A broad-based increase
occurred in second quarter demand after flat performance in the first quarter.
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THERMO ELECTRON CORPORATION
First Six Months 2005 Compared With First Six Months 2004 (continued)
- ---------------------------------------------------------
Operating Income Margin
Six Months Ended
---------------------
July 2, July 3,
2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Life and Laboratory Sciences 11.5% 13.6%
Measurement and Control 9.2% 8.4%
Consolidated 9.3% 10.6%
Operating income was $112.9 million in the first six months of 2005,
compared with $111.8 million in the first six months of 2004. Operating income
increased due to higher sales including revenues from acquisitions,
substantially offset by the items discussed below. Operating income margin
decreased to 9.3% in 2005 from 10.6% in 2004. Operating income margin decreased
primarily due to $17.1 million of higher amortization expense for
acquisition-related intangible assets and $8.7 million of higher charges to cost
of revenues, primarily for the sale of inventories revalued at the date of
acquisition.
Life and Laboratory Sciences
Six Months Ended
----------------------------------
July 2, July 3,
(Dollars in thousands) 2005 2004 Change
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $880,767 $735,289 19.8%
Operating Income Margin 11.5% 13.6% (2.1)
Sales in the Life and Laboratory Sciences segment increased $145.5
million, or 20%, to $880.8 million in the first six months of 2005. Sales
increased $108.7 million due to the acquisitions of Kendro in May 2005, Niton in
March 2005, InnaPhase in September 2004 and USCS in April 2004, net of a product
line divestiture. The favorable effects of currency translation resulted in an
increase in revenues of $15.5 million in 2005. Excluding the changes in revenues
resulting from currency translation, acquisitions and a divestiture, revenues
increased $21.3 million, or 3%, due to broad-based higher demand from life
science and industrial customers in the second quarter of 2005, following flat
demand in the first quarter of 2005.
Operating income margin was 11.5% in the first six months of 2005 and
13.6% in the first six months of 2004. Operating income margin decreased due to
$16.3 million of higher amortization expense associated with acquisition-
related intangible assets. Operating income margin was also affected by
restructuring and other costs, net, of $9.3 million in 2005 and $3.3 million in
2004, as discussed below. These decreases were offset in part by higher
profitability due to increased revenues.
In 2005, the segment recorded restructuring and other costs, net, of $9.3
million. The segment had $8.6 million of higher charges to cost of revenues,
primarily for the sale of inventories revalued at the date of acquisition. The
segment incurred $1.9 million of cash costs, primarily for severance, abandoned
facilities and relocation expenses at businesses that have been consolidated.
These costs were offset by $3.9 million of net gains on the sale of four
abandoned buildings (Note 11). In 2004, the segment recorded restructuring and
other costs, net, of $3.3 million, including charges to cost of revenues of $2.6
million, primarily for the sale of inventories revalued at the date of
acquisition, and $2.9 million of cash costs, primarily for severance, abandoned
facilities and relocation expenses at businesses being consolidated. In
addition, the segment recorded a gain of $2.6 million on the sale of a product
line and a loss of $0.4 million from the sale of two abandoned buildings.
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THERMO ELECTRON CORPORATION
First Six Months 2005 Compared With First Six Months 2004 (continued)
- ---------------------------------------------------------
Measurement and Control
Six Months Ended
----------------------------------
July 2, July 3,
(Dollars in thousands) 2005 2004 Change
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $332,062 $315,052 5.4%
Operating Income Margin 9.2% 8.4% 0.8
Sales in the Measurement and Control segment increased $17.0 million, or
5%, to $332.1 million in the first six months of 2005. The favorable effects of
currency translation resulted in an increase in revenues of $5.3 million in
2005. Sales decreased $0.2 million due to a divestiture, net of acquisitions. In
addition to the changes in revenue resulting from currency translation, a
divestiture and acquisitions, revenues increased $11.9 million, or 4%. The
increase was primarily the result of higher demand from industrial customers,
particularly in Asia, and customers purchasing instruments for use in
environmental and security applications.
Operating income margin increased to 9.2% in 2005 from 8.4% in 2004. The
increase in operating income margin resulted primarily from higher sales
volumes, offset in part by $0.8 million of higher amortization expense
associated with acquisition-related intangible assets and $0.8 million of higher
restructuring and other costs, as discussed below.
In the first six months of 2005, the segment recorded restructuring and
other costs, net, of $3.4 million, including $3.3 million of cash costs,
principally for previously abandoned facilities at businesses being consolidated
(Note 11). In addition, the segment had $0.2 million of charges to cost of
revenues for the sale of inventories revalued at the date of acquisition and
$0.1 million of a gain on the sale of a product line. In 2004, the segment
recorded restructuring and other costs, net, of $2.6 million, including cash
costs of $2.4 million, principally for abandoned facilities, severance and
relocation expenses at businesses that were consolidated. In addition, the
segment recorded charges of $0.1 million, primarily for the writedown of
equipment at an abandoned facility, and charges to cost of revenues of $0.1
million for the sale of inventories revalued at the date of acquisition.
Other Income, Net
- -----------------
The company reported other income, net, of $28.8 million and $13.3
million in the first six months of 2005 and 2004, respectively (Note 4). Other
income, net, includes interest income, interest expense, gain on investments,
net, and other items, net. Interest income increased to $5.9 million in 2005
from $3.6 million in 2004, primarily due to higher invested cash balances
following the sale of Spectra-Physics in July 2004 and, to a lesser extent,
increased market interest rates, offset in part by cash used to fund
acquisitions. Interest expense increased to $10.4 million in 2005 from $5.4
million in 2004 as a result of debt used to partially fund the Kendro
acquisition and, to a lesser extent, higher rates associated with the company's
variable rate debt.
During the first six months of 2005 and 2004, the company had gains on
investments, net, of $32.1 million and $13.5 million, respectively. The gains
included $28.9 million and $9.6 million in 2005 and 2004 from the sale of shares
of Thoratec and a loss of $1.3 million in 2005 from the sale of shares of
Newport.
Provision for Income Taxes
- --------------------------
The company's effective tax rate was 27.8% and 27.9% in the first six
months of 2005 and 2004, respectively.
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THERMO ELECTRON CORPORATION
First Six Months 2005 Compared With First Six Months 2004 (continued)
- ---------------------------------------------------------
Discontinued Operations
In the first six months of 2005, the company recorded after-tax gains of
$6.7 million from the disposal of discontinued operations. The gains arose from
the settlement of litigation, an increase in the net realizable value of an
abandoned facility for which a sale agreement was reached and additional
proceeds from the sale of businesses divested prior to 2004, including the sale
of abandoned real estate and post-closing adjustments.
In the first six months of 2004, the company's discontinued operations
(Spectra-Physics) had revenues of $112.4 million and net income of $44.0
million, including a tax benefit of $35.8 million. The company sold
Spectra-Physics in July 2004.
Liquidity and Capital Resources
First Six Months 2005
- ---------------------
Consolidated working capital was $450.1 million at July 2, 2005, compared
with $890.9 million at December 31, 2004. Included in working capital were cash,
cash equivalents and short-term available-for-sale investments of $170.8 million
at July 2, 2005, compared with $512.3 million at December 31, 2004. The decrease
results primarily from use of cash, cash equivalents, short-term
available-for-sale investments and short-term debt to partially fund the Kendro
acquisition.
Cash provided by operating activities was $89.0 million during the first
six months of 2005, including $90.6 million provided by continuing operations
and $1.6 million used by discontinued operations. The company used cash of $15.2
million to increase inventories, particularly mass spectrometry and spectroscopy
instruments, for new product introductions and expansion of operations in China.
A reduction in other current liabilities used $22.2 million of cash in the first
six months of 2005, including approximately half for annual incentive
compensation that was paid in the first quarter. The company contributed $10.9
million of funding to a U.K. pension plan in June 2005 (Note 8). Payments for
restructuring actions of the company's continuing operations, principally
severance, lease costs and other expenses of real estate consolidation, used
cash of $9.3 million in the first six months of 2005.
In connection with restructuring actions undertaken by continuing
operations, the company had accrued $11.4 million for restructuring costs at
July 2, 2005. The company expects to pay approximately $2.9 million of this
amount for severance primarily through 2005. The balance of $8.5 million will be
paid for lease obligations over the remaining terms of the leases, with
approximately 70% to be paid through 2006 and the remainder through 2012. In
addition, at July 2, 2005, the company had accrued $5.0 million for acquisition
expenses. Accrued acquisition expenses included $1.6 million of severance and
relocation obligations, which the company expects to pay primarily through 2005.
The balance primarily represents abandoned-facility payments that will be paid
over the remaining terms of the leases through 2014.
During the first six months of 2005, the primary investing activities of
the company's continuing operations, excluding available-for-sale investment
activities, included acquisitions and the purchase and sale of property, plant
and equipment. The company expended $914.9 million, net of cash acquired, for
the acquisitions of Niton, R&P and Kendro (Note 2). The company expended $16.4
million for purchases of property, plant and equipment and had proceeds from the
sale of property, principally abandoned real estate, of $9.5 million.
The company's financing activities provided $473.2 million of cash during
the first six months of 2005, principally issuance of $250 million senior notes
due in 2015 and a net increase in short-term borrowings of $219.2 million.
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THERMO ELECTRON CORPORATION
First Six Months 2005 (continued)
- ---------------------
The company repaid in full $570 million of borrowings under its bridge
loan with cash and proceeds of new debt issuances described below. On May 27,
2005, the company issued $250 million aggregate principal amount of 5% senior
notes (the Notes) due 2015, with an effective interest rate after including the
impact of an interest swap arrangement of 5.27%. Under the Notes' Indenture, the
company is subject to certain affirmative and negative covenants. The Notes
carry registration rights and provisions that could result in an increase in the
interest rate of up to 50 basis points in the event of delays in the
registration of the Notes under the Securities Act of 1933.
Also on May 27, 2005, the company entered into an arrangement that
provides the company an uncommitted line of credit of up to $250 million through
a series of short-term money market loans funded on an ongoing basis in the
secondary market. Such money market loans have maturity periods of overnight to
364 days and bear varying rates of interest based on the maturity date and
market rate at the time of issuance. On May 27, 2005, the company borrowed $250
million through three short-term loans under the money market arrangement with
maturities of one week to three months. As of July 2, 2005, the company had
outstanding borrowings under this arrangement aggregating $215 million at an
average interest rate of 3.45%.
On June 30, 2005, the company entered into a five-year revolving credit
facility with a bank group that provides up to 175 million euros. The facility
carries interest at a Euribor rate plus 35 basis points. Under the facility,
borrowings of one to six months duration may be drawn. The agreement contains
affirmative, negative and financial covenants and events of default customary
for financings of this type. The financial covenants include interest coverage
and debt-to-capital ratios. No borrowings were outstanding under the facility on
July 2, 2005, however, on July 6, 2005, the company borrowed 150 million euros
($179 million) in three tranches with maturities of one to six months and with
an initial interest rate of 2.45%. A portion of the proceeds was used to repay
$135 million of the short-term money market loans outstanding at July 2, 2005.
The company has no material commitments for purchases of property, plant
and equipment and expects that for all of 2005, such expenditures will
approximate $48 - $52 million and its contractual obligations and other
commercial commitments did not change materially between December 31, 2004 and
July 2, 2005.
The company believes that its existing cash and short-term investments;
future cash flow from operations; and available borrowings of up to $250 million
under its existing 5-year revolving credit agreement will be sufficient to meet
its capital requirements for the foreseeable future, including at least the next
24 months.
First Six Months 2004
- ---------------------
Cash provided by operating activities was $105.1 million during the first
six months of 2004, including $95.2 million provided by continuing operations
and $9.9 million provided by discontinued operations. Payments for restructuring
actions of the company's continuing operations, principally severance, lease
costs and other expenses of real estate consolidation, used cash of $9.4 million
in the first six months of 2004. Inventories increased $25.7 million, due in
part to increased production of mass spectrometry and spectroscopy instruments
in response to higher demand for these products. Cash provided by discontinued
operations of $9.9 million principally represents the positive cash flow of
Spectra-Physics, offset in part by payment of liabilities from businesses sold
prior to 2003, including settlement of litigation and lease payments on
abandoned facilities.
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THERMO ELECTRON CORPORATION
First Six Months 2004 (continued)
- ---------------------
During the first six months of 2004, the primary investing activities of
the company's continuing operations, excluding available-for-sale investment
activities, included the acquisition of USCS for $75.7 million, net of cash
acquired, and the purchase of property, plant and equipment. The company's
continuing operations expended $22.1 million for purchases of property, plant
and equipment and had proceeds from the sale of property of $3.4 million.
The company's financing activities used $49.7 million of cash during the
first six months of 2004, principally for continuing operations. During the
first quarter of 2004, the company's continuing operations received net proceeds
of $40.9 million from the exercise of employee stock options. In addition, the
company expended $82.0 million to repurchase 3.1 million shares of the company's
common stock and $8.1 million to reduce short-term notes payable.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The company is exposed to market risk from changes in interest rates,
currency exchange rates and equity prices, which could affect its results of
operations and financial condition.
The company increased its LIBOR-based borrowings following the Kendro
acquisition (Note 9). A 100-basis-point increase in 90-day LIBOR at July 2,
2005, would increase the company's annual pre-tax interest expense by $3
million.
During the second quarter of 2005, the company sold substantially all of
its available-for-sale equity investments (Note 4). A 10% decrease in July 2,
2005 market equity prices would result in an immaterial impact on the net fair
value of the company's remaining price sensitive equity financial instruments.
Except as described above, the company's exposure to market risk from
interest rates and currency exchange rates has not changed materially from its
exposure at year-end 2004.
Item 4 - Controls and Procedures
- --------------------------------
The company's management, with the participation of the company's chief
executive officer and chief financial officer, evaluated the effectiveness of
the company's disclosure controls and procedures as of July 2, 2005. The term
"disclosure controls and procedures," as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the
evaluation of the company's disclosure controls and procedures as of July 2,
2005, the company's chief executive officer and chief financial officer
concluded that, as of such date, the company's disclosure controls and
procedures were effective at the reasonable assurance level.
There have been no changes in the company's internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
during the fiscal quarter ended July 2, 2005, that have materially affected or
are reasonably likely to materially affect the company's internal control over
financial reporting. The company acquired Kendro on May 9, 2005 and is in the
process of evaluating Kendro's internal control over financial reporting and
will make changes where appropriate.
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THERMO ELECTRON CORPORATION
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, our actual results and could cause our actual results in 2005 and beyond
to differ materially from those expressed in any forward-looking statements made
by us.
We must develop new products, adapt to rapid and significant
technological change and respond to introductions of new products in order to
remain competitive. Our growth strategy includes significant investment in and
expenditures for product development. We sell our products in several industries
that are characterized by rapid and significant technological changes, frequent
new product and service introductions and enhancements and evolving industry
standards. Without the timely introduction of new products, services and
enhancements, our products and services will likely become technologically
obsolete over time, in which case our revenue and operating results would
suffer.
Development of our products requires significant investment; our products
and technologies could become uncompetitive or obsolete. Our customers use many
of our products to develop, test and manufacture their own products. As a
result, we must anticipate industry trends and develop products in advance of
the commercialization of our customers' products. If we fail to adequately
predict our customers' needs and future activities, we may invest heavily in
research and development of products and services that do not lead to
significant revenue.
Many of our existing products and those under development are
technologically innovative and require significant planning, design, development
and testing at the technological, product and manufacturing-process levels.
These activities require us to make significant investments.
Products in our markets undergo rapid and significant technological
change because of quickly changing industry standards and the introduction of
new products and technologies that make existing products and technologies
uncompetitive or obsolete. Our competitors may adapt more quickly to new
technologies and changes in customers' requirements than we can. The products
that we are currently developing, or those we will develop in the future, may
not be technologically feasible or accepted by the marketplace, and our products
or technologies could become uncompetitive or obsolete.
Our Measurement and Control segment sells products and services to a
number of companies that operate in cyclical industries; downturns in those
industries would adversely affect our results of operations. The growth and
profitability of some of our businesses in the Measurement and Control segment
depend in part on sales to industries that are subject to cyclical downturns.
For example, certain businesses in this segment depend in part on sales to the
steel, cement and semiconductor industries. Slowdowns in these industries would
adversely affect sales by these businesses, which in turn would adversely affect
our revenues and results of operations.
Our business is impacted by general economic conditions and related
uncertainties affecting markets in which we operate. Adverse economic conditions
could adversely impact our business in 2005 and beyond, resulting in:
- reduced demand for some of our products;
- increased rate of order cancellations or delays;
- increased risk of excess and obsolete inventories;
- increased pressure on the prices for our products and services; and
- greater difficulty in collecting accounts receivable.
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THERMO ELECTRON CORPORATION
Forward-looking Statements (continued)
Changes in governmental regulations may reduce demand for our products or
increase our expenses. We compete in many markets in which we and our customers
must comply with federal, state, local and international regulations, such as
environmental, health and safety, and food and drug regulations. We develop,
configure and market our products to meet customer needs created by those
regulations. Any significant change in regulations could reduce demand for our
products or increase our expenses. For example, many of our instruments are
marketed to the pharmaceutical industry for use in discovering and developing
drugs. Changes in the U.S. Food and Drug Administration's regulation of the drug
discovery and development process could have an adverse effect on the demand for
these products.
Demand for most of our products depends on capital spending policies of
our customers and on government funding policies. Our customers include
pharmaceutical and chemical companies, laboratories, universities, healthcare
providers, government agencies and public and private research institutions.
Many factors, including public policy spending priorities, available resources
and product and economic cycles, have a significant effect on the capital
spending policies of these entities. These policies in turn can have a
significant effect on the demand for our products. For example, in the first
quarter of 2005, we experienced a slow down in demand from the pharmaceutical
market.
Our inability to protect our intellectual property could have a material
adverse effect on our business. In addition, third parties may claim that we
infringe their intellectual property and we could suffer significant litigation
or licensing expense as a result. We place considerable emphasis on obtaining
patent and trade secret protection for significant new technologies, products
and processes because of the length of time and expense associated with bringing
new products through the development process and into the marketplace. Our
success depends in part on our ability to develop patentable products and obtain
and enforce patent protection for our products both in the United States and in
other countries. We own numerous U.S. and foreign patents, and we intend to file
additional applications, as appropriate, for patents covering our products.
Patents may not be issued for any pending or future patent applications owned by
or licensed to us, and the claims allowed under any issued patents may not be
sufficiently broad to protect our technology. Any issued patents owned by or
licensed to us may be challenged, invalidated, or circumvented, and the rights
under these patents may not provide us with competitive advantages. In addition,
competitors may design around our technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture increased
market position. We could incur substantial costs to defend ourselves in suits
brought against us or in suits in which we may assert our patent rights against
others. An unfavorable outcome of any such litigation could materially adversely
affect our business and results of operations.
We also rely on trade secrets and proprietary know-how which we seek to
protect our products, in part, by confidentiality agreements with our
collaborators, employees and consultants. These agreements may be breached and
we may not have adequate remedies for any breach. In addition, our trade secrets
may otherwise become known or be independently developed by our competitors.
Third parties may assert claims against us to the effect that we are
infringing on their intellectual property rights. For example, in September 2004
Applied Biosystems/MDS Scientific Instruments and related parties brought a
lawsuit against us alleging our mass spectrometer systems infringe a patent held
by the plaintiffs. We could incur substantial costs and diversion of management
resources in defending these claims, which could have a material adverse effect
on our business, financial condition and results of operations. In addition,
parties making these claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief, which could
effectively block our ability to make, use, sell, distribute, or market our
products and services in the United States or abroad. In the event that a claim
relating to intellectual property is asserted against us, or third parties not
affiliated with us hold pending or issued patents that relate to our products or
technology, we may seek licenses to such intellectual property or challenge
those patents. However, we may be unable to obtain these licenses on
commercially reasonable terms, if at all, and our challenge of the patents may
be unsuccessful. Our failure to obtain the necessary licenses or other rights
could prevent the sale, manufacture, or distribution of our products and,
therefore, could have a material adverse effect on our business, financial
condition and results of operations.
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THERMO ELECTRON CORPORATION
Forward-looking Statements (continued)
If any of our security products fail to detect explosives or radiation,
we could be exposed to product liability and related claims for which we may not
have adequate insurance coverage. The products sold by our environmental
instruments division include a comprehensive range of fixed and portable
instruments used for chemical, radiation and trace explosives detection. These
products are used in airports, embassies, cargo facilities, border crossings and
other high-threat facilities for the detection and prevention of terrorist acts.
If any of these products were to malfunction it is possible that explosive or
radioactive material could pass through the product undetected, which could lead
to product liability claims. There are also many other factors beyond our
control that could lead to liability claims, such as the reliability and
competence of the customers' operators and the training of such operators. Any
such product liability claims brought against us could be significant and any
adverse determination may result in liabilities in excess of our insurance
coverage. Although we carry product liability insurance, we cannot be certain
that our current insurance will be sufficient to cover these claims or that it
can be maintained on acceptable terms, if at all.
We have retained contingent liabilities from businesses that we have
sold. From 1997 through 2004, we divested over 60 businesses with aggregate
annual revenues in excess of $2 billion. As part of these transactions, we
retained responsibility for some of the contingent liabilities related to these
businesses, such as lawsuits, product liability and environmental claims and
potential claims by buyers that representations and warranties we made about the
businesses were inaccurate. The resolution of these contingencies has not had a
material adverse effect on our results of operations or financial condition;
however, we can not be certain that this favorable pattern will continue.
Our results could be impacted if we are unable to realize potential
future benefits from new productivity initiatives. In addition to the real
estate consolidations and cost-saving initiatives that we have pursued over the
past three years, we are instituting practical process improvement, or PPI,
programs at our locations to further enhance our productivity, efficiency and
customer satisfaction. While we anticipate continued benefits from these PPI
initiatives as well as our continuing sourcing activities, future benefits are
expected to be fewer and smaller in size and may be more difficult to achieve.
Our branding strategy could be unsuccessful. We historically operated our
business largely as autonomous, unaffiliated companies, and as a result, each of
our businesses independently created and developed its own brand names. Our
marketing and branding strategy transitions multiple, unrelated brands to one
brand, Thermo Electron. Several of our former brands such as Finnigan and
Nicolet commanded strong market recognition and customer loyalty. We believe the
transition to the one brand enhances and strengthens our collective brand image
and brand awareness across the entire company. Our success in promoting our
brand depends on many factors, including effective communication of the
transition to our customers, acceptance and recognition by customers of this
brand, and successful execution of the branding campaign by our marketing and
sales teams. If we are not successful with this strategy, we may experience
erosion in our product recognition, brand image and customer loyalty, and a
decrease in demand for our products.
It may be difficult for us to implement our strategies for improving
internal growth. Some of the markets in which we compete have been flat or
declining over the past several years. To address this issue, we are pursuing a
number of strategies to improve our internal growth, including:
- finding new markets for our products;
- developing new applications for our technologies;
- combining sales and marketing operations in appropriate markets to
compete more effectively;
- allocating research and development funding to products with higher
growth prospects;
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THERMO ELECTRON CORPORATION
Forward-looking Statements (continued)
- continuing key customer initiatives;
- expanding our service offerings;
- strengthening our presence in selected geographic markets; and
- continuing the development of commercial tools and infrastructure to
increase and support cross-selling opportunities of products and
services to take advantage of our breadth in product offerings.
We may not be able to successfully implement these strategies, and these
strategies may not result in the growth of our business.
As a multinational corporation, we are exposed to fluctuations in
currency exchange rates, which could adversely affect our cash flows and results
of operations. International revenues account for a substantial portion of our
revenues, and we intend to continue expanding our presence in international
markets. In 2004, our international revenues from continuing operations,
including export revenues from the United States, accounted for approximately
60% of our total revenues. The exposure to fluctuations in currency exchange
rates takes on different forms. International revenues are subject to the risk
that fluctuations in exchange rates could adversely affect product demand and
the profitability in U.S. dollars of products and services provided by us in
international markets, where payment for our products and services is made in
the local currency. As a multinational corporation, our businesses occasionally
invoice third-party customers in currencies other than the one in which they
primarily do business (the "functional currency"). Movements in the invoiced
currency relative to the functional currency could adversely impact our cash
flows and our results of operations. In addition, reported sales made in
non-U.S. currencies by our international businesses, when translated into U.S.
dollars for financial reporting purposes, fluctuate due to exchange rate
movement. Should our international sales grow, exposure to fluctuations in
currency exchange rates could have a larger effect on our financial results. In
fiscal 2004 and 2003, currency translation had a favorable effect on revenues of
our continuing operations of $92.1 million and $116.8 million, respectively, due
to weakening of the U.S. dollar relative to other currencies in which the
company sells products and services. A strengthening of the U.S. dollar would
unfavorably affect revenues.
Our inability to successfully identify and complete acquisitions or
successfully integrate any new or previous acquisitions could have a material
adverse effect on our business. Our business strategy includes the acquisition
of technologies and businesses that complement or augment our existing products
and services. Promising acquisitions are difficult to identify and complete for
a number of reasons, including competition among prospective buyers and the need
for regulatory, including antitrust, approvals. We may not be able to identify
and successfully complete transactions. Any acquisition we may complete may be
made at a substantial premium over the fair value of the net assets of the
acquired company. Further, we may not be able to integrate any acquired
businesses successfully into our existing businesses, make such businesses
profitable, or realize anticipated cost savings or synergies, if any, from these
acquisitions, which could adversely affect our business. For example, we will
need to integrate the Kendro business that we recently acquired in order to
realize its anticipated cost savings and synergies.
Moreover, we previously acquired several companies and businesses. As a
result of these acquisitions, we recorded significant goodwill on our balance
sheet, which amounts to approximately $1.95 billion as of July 2, 2005. We
assess the realizability of the goodwill we have on our books annually as well
as whenever events or changes in circumstances indicate that the goodwill may be
impaired. These events or circumstances generally include operating losses or a
significant decline in earnings associated with the acquired business or asset.
Our ability to realize the value of the goodwill will depend on the future cash
flows of these businesses. These cash flows in turn depend in part on how well
we have integrated these businesses. If we are not able to realize the value of
the goodwill, we may be required to incur material charges relating to the
impairment of those assets.
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THERMO ELECTRON CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the company's Annual Meeting of Stockholders held on May 17, 2005,
the stockholders elected a class of two incumbent directors, John L. LaMattina
and Michael E. Porter, to a three-year term expiring at the 2008 Annual Meeting
of Stockholders. In addition, the stockholders ratified the selection by the
Audit Committee of the company's Board of Directors of PricewaterhouseCoopers
LLP as the company's independent auditors for the fiscal year ending. December
31, 2005. The stockholders also approved the company's 2005 stock incentive
plan. A stockholder proposal regarding the vote standard for director elections,
as described in the company's definitive proxy statement for the company's 2005
Annual Meeting of Stockholders, was not approved by the stockholders. The
results of the votes for each of these proposals were as follows:
Proposal 1 - Election of two directors, constituting the class of directors to
be elected for a three-year term expiring in 2008:
Nominee For Withheld
- ----------------- ----------- ----------
John L. LaMattina 134,159,241 4,763,681
Michael E. Porter 83,777,666 55,145,256
No abstentions or broker non-votes were recorded on the proposal.
Proposal 2 - Ratification of selection by the Audit Committee of the company's
Board of Directors of PricewaterhouseCoopers LLP as the company's independent
auditors for the fiscal year ending December 31, 2005:
For Against Abstained
----------- ---------- ---------
137,450,272 512,228 960,422
No broker non-votes were recorded on the proposal.
Proposal 3 - Approval of the company's 2005 stock incentive plan:
For Against Abstained
----------- ---------- ---------
108,225,197 12,890,958 1,110,445
16,696,322 broker non-votes were recorded on the proposal.
Proposal 4 - Stockholder proposal regarding the vote standard for director elections:
For Against Abstained
----------- ---------- ---------
53,215,336 67,360,542 1,650,721
16,696,323 broker non-votes were recorded on the proposal.
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THERMO ELECTRON CORPORATION
Item 6 - Exhibits
- -----------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Amendment to Purchase Agreement among the Company, the
indirect, wholly owned subsidiaries of the Company named
therein, SPX Corporation, and the direct and indirect, wholly
owned subsidiaries of SPX Corporation named therein, dated May
6, 2005 (filed as Exhibit 99.2 to the Company's Current Report
on Form 8-K filed May 12, 2005 [File No. 1-8002] and
incorporated herein by reference).
10.1 Credit Agreement among the Company, the several banks and
other financial institutions or entities from time to time
parties thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent, Barclays Bank PLC, as Syndication Agent, and ABN AMRO
Bank, N.V., as Documentation Agent, dated May 9, 2005 (filed
as Exhibit 99.1 to the Company's Current Report on Form 8-K
filed May 12, 2005 [File 1-8002] and incorporated herein by
reference).
10.2 2005 Stock Incentive Plan, as amended.
10.3 Form of Thermo Electron Corporation Stock Option Agreement for
use in connection with the grant of stock options under the
Company's 2005 Stock Incentive Plan to officers and directors
(filed as Exhibit 99.1 to the Company's Current Report on Form
8-K filed May 23, 2005 [File No. 1-8002] and incorporated
herein by reference).
10.4 Indenture, dated as of May 27, 2005, between the Company and
JPMorgan Chase Bank, N.A. (filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K filed June 3, 2005 [File
No. 1-8002] and incorporated herein by reference).
10.5 Registration Rights Agreement, dated as of May 27, 2005, among
the Company and J.P. Morgan Securities Inc., Barclays Capital
Inc., ABN AMRO Incorporated, Banc of America Securities LLC,
KeyBanc Capital Markets, a Division of McDonald Investments
Inc., and Mitsubishi Securities International plc (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K filed
June 3, 2005 [Filed No. 1-8002] and incorporated herein by
reference).
10.6+ Credit Agreement among the Company, Thermo Luxembourg Holding
S.a.r.l., Thermo Finance Company B.V., the several banks and
other financial institutions or entities from time to time
parties thereto, ABN AMRO Bank, N.V., as Administrative Agent,
Sole Bookrunner and a Lead Arranger, Barclays Bank PLC, as
co-Documentation Agent, JPMorgan Chase Bank, N.A., as
co-Documentation Agent, and Bank of Tokyo-Mitsubishi Trust
Company, as Syndication Agent, dated June 30, 2005.
10.7 Form of Fixed Rate Promissory Note (Multiple Loans) for use in
connection with money market loans to the Company by JPMorgan
Chase Bank, N.A.
31.1 Certification of Chief Executive Officer required by Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer required by Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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THERMO ELECTRON CORPORATION
Item 6 - Exhibits (continued)
- -----------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
32.1 Certification of Chief Executive Officer required by Exchange
Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Certification of Chief Financial Officer required by Exchange
Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
- ----------------------------
*Certification is not deemed "filed" for purposes of Section 18 of the Exchange
Act, or otherwise subject to the liability of that section. Such certification
is not deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.
+Confidential treatment requested as to certain portions, which portions have
been separately filed with the Securities and Exchange Commission.
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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 4th day of August 2005.
THERMO ELECTRON CORPORATION
/s/ Peter M. Wilver
-------------------------------------------------
Peter M. Wilver
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
- --------------------------------------------------------------------------------
2.1 Amendment to Purchase Agreement among the Company, the
indirect, wholly owned subsidiaries of the Company named
therein, SPX Corporation, and the direct and indirect, wholly
owned subsidiaries of SPX Corporation named therein, dated May
6, 2005 (filed as Exhibit 99.2 to the Company's Current Report
on Form 8-K filed May 12, 2005 [File No. 1-8002] and
incorporated herein by reference).
10.1 Credit Agreement among the Company, the several banks and
other financial institutions or entities from time to time
parties thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent, Barclays Bank PLC, as Syndication Agent, and ABN AMRO
Bank, N.V., as Documentation Agent, dated May 9, 2005 (filed
as Exhibit 99.1 to the Company's Current Report on Form 8-K
filed May 12, 2005 [File 1-8002] and incorporated herein by
reference).
10.2 2005 Stock Incentive Plan, as amended.
10.3 Form of Thermo Electron Corporation Stock Option Agreement for
use in connection with the grant of stock options under the
Company's 2005 Stock Incentive Plan to officers and directors
(filed as Exhibit 99.1 to the Company's Current Report on Form
8-K filed May 23, 2005 [File No. 1-8002] and incorporated
herein by reference).
10.4 Indenture, dated as of May 27, 2005, between the Company and
JPMorgan Chase Bank, N.A. (filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K filed June 3, 2005 [File
No. 1-8002] and incorporated herein by reference).
10.5 Registration Rights Agreement, dated as of May 27, 2005, among
the Company and J.P. Morgan Securities Inc., Barclays Capital
Inc., ABN AMRO Incorporated, Banc of America Securities LLC,
KeyBanc Capital Markets, a Division of McDonald Investments
Inc., and Mitsubishi Securities International plc (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K filed
June 3, 2005 [Filed No. 1-8002] and incorporated herein by
reference).
10.6+ Credit Agreement among the Company, Thermo Luxembourg Holding
S.a.r.l., Thermo Finance Company B.V., the several banks and
other financial institutions or entities from time to time
parties thereto, ABN AMRO Bank, N.V., as Administrative Agent,
Sole Bookrunner and a Lead Arranger, Barclays Bank PLC, as
co-Documentation Agent, JPMorgan Chase Bank, N.A., as
co-Documentation Agent, and Bank of Tokyo-Mitsubishi Trust
Company, as Syndication Agent, dated June 30, 2005.
10.7 Form of Fixed Rate Promissory Note (Multiple Loans) for use in
connection with money market loans to the Company by JPMorgan
Chase Bank, N.A.
31.1 Certification of Chief Executive Officer required by Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer required by Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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THERMO ELECTRON CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
32.1 Certification of Chief Executive Officer required by Exchange
Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Certification of Chief Financial Officer required by Exchange
Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
- ----------------------------
*Certification is not deemed "filed" for purposes of Section 18 of the Exchange
Act, or otherwise subject to the liability of that section. Such certification
is not deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.
+Confidential treatment requested as to certain portions, which portions have
been separately filed with the Securities and Exchange Commission.
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