[Company Logo]
January 13, 2006
Mr. Kevin Vaughn
Reviewing Accountant
Mail Stop 6010
U.S. Securities and Exchange Commission
Washington, DC 20549
Re: Thermo Electron Corporation
File No. 001-08002
Dear Mr. Vaughn:
Thermo Electron Corporation (the company) provides the following information in
response to the staff's letter of December 16, 2005.
Form 10-K for the Year Ended December 31, 2004
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Consolidated Balance Sheets (page F-5)
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Comment 1: We note that you had outstanding other accrued expenses of
$178.9 million and $171.2 million as of December 31, 2004 and
December 31, 2003. We further note that this balance has
increased to $206.9 million as of October 1, 2005. Please tell
us and revise future filings to disclose separately, either on
the face of the balance sheet or in the footnotes to the
financial statements, any item in excess of 5 percent of total
current liabilities. Refer to Rule 5-02.20 of Regulation S-X. We
note your reference to Note 2 - Acquisitions and Dispositions;
however, the liability components discussed there do not appear
to be a significant component of the other accrued expenses.
Response: In researching the staff's comment, the company determined that
a liability for customer deposits exceeded the 5% threshold in
certain periods but was inadvertently not presented as a
separate line or in a note. This liability totaled $47.8 million
(8%) at December 31, 2004. In future filings, the company will
separately disclose this and any other liabilities that exceed
5% of current liabilities. The company notes that accrued
restructuring costs were shown as a separate line item in the
2004 Form 10-K but were later reclassified to other accrued
expenses in the company's Form 10-Q beginning in the first
quarter of 2005, as they fell below the 5% threshold and are
separately disclosed in a footnote. This reclassification (which
was made for both balance sheets presented in each 2005 Form
10-Q) caused $15 million of the increase in other accrued
expenses referenced by the staff.
U.S. Securities and Exchange Commission - 2 - January 13, 2006
Notes to Consolidated Financial Statements
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Note 14. Supplemental Cash Flow Information (page F-45)
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Comment 2: We note that you sold Spectra-Physics to Newport Corporation
(Newport) for $275 million which included $175 million in cash,
$50 million in Newport stock and a $50 million note receivable
from Newport. Revise your supplemental cash flow information
note in future filings to disclosure the non-cash portions of
the sale transaction with Newport. Refer to paragraph 32 of SFAS
131.
Response: The company notes the staff's comment and agrees to provide the
requested information in future filings.
Form 10-Q for the Quarter Ended July 2, 2005
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Notes to Condensed Consolidated Financial Statements
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Note 2. Acquisitions (page 8)
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Comment 3: We note that you recorded $444 million, or 53%, of the purchase
price of Kendro to goodwill. Please tell us and revise future
filings to clearly state to investors why you paid such a
significant premium for the Kendro business in accordance with
paragraph 51(b) of SFAS 141.
Response: The company's acquisitions between 2002 and 2005 have had a
significant portion of the purchase price allocated to goodwill.
In note 2 on page F-20 of the company's Form 10-K for the year
ended December 31, 2004, the company discloses that its
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 company products; and elimination of
duplicative facilities, functions, and staffing. The company
expects such synergies from the Kendro acquisition and is
incurring significant exit costs at existing and Kendro business
units to integrate operations in a manner to best achieve the
synergies. The company will provide disclosure in future filings
concerning the factors leading to goodwill.
Form 10-Q as of October 1, 2005
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Note 3 - Business Segment Information (page 12)
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Comment 4: We note your disclosure in the Form 8-K dated October 26, 2005
that you include the non-GAAP measures because you believe it
helps investors to better understand your core operating results
and future prospects "consistent with how management measures
and forecasts the company's performance." We further note that
the segment disclosures in Note 3 of the October 1, 2005 Form
10-Q and of the December 31, 2004 Form 10-K discloses total
operating income for the segments. However, the non-GAAP
adjusted operating income is not included in the segment
disclosures. In light of your disclosure in the Form 8-K, please
tell us why you believe the measure of segment profit (loss) in
your October 1, 2005 Form 10-Q and your December 31, 2005 Form
10-K complies with paragraphs 29 and 30 of SFAS 131.
U.S. Securities and Exchange Commission - 3 - January 13, 2006
Response: The company notes the staff's comment and acknowledges that the
non-GAAP adjusted operating income measure discussed in the
earnings release furnished under Form 8-K is a more appropriate
measure of segment profitability given the guidelines of
paragraphs 29 and 30 of SFAS 131. The company proposes in future
filings to use this as the measure of segment profitability
reported in the segment footnote in lieu of operating income.
Such amounts will be reconciled to income from continuing
operations before income taxes as required by paragraph 32b of
SFAS 131.
Form 8-K Filed October 26, 2005
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Comment 5: We note that you present your non-GAAP measures in the form of
statements of operations. That format may be confusing to
investors as it reflects several separate non-GAAP measures,
including non-GAAP cost of revenues, non-GAAP amortization
expenses, non-GAAP restructuring expenses, non-GAAP costs and
operating expenses, non-GAAP operating income, non-GAAP other
income, non-GAAP income before taxes, non-GAAP income tax
expense and non-GAAP net income, which all have not been
identified or described to investors. In fact, it appears that
management does not use all of these non-GAAP measures but they
are shown here as a result of the presentation format. Please
note that Instruction 2 to Item 2.02 of Form 8-K requires that
when furnishing information under this item you must provide all
the disclosures required by paragraph (e)(1)(i) of Item 10 of
Regulation S-K and FAQ 8 Regarding the Use of Non-GAAP Financial
Measures dated June 13, 2003 for each non-GAAP measure
presented. Specifically, you should provide a reconciliation of
each non-GAAP measure to the most directly comparable GAAP
measure and explain why you believe each measure provides useful
information to investors.
o To eliminate investor confusion, please remove the non-GAAP
statements of operations format from future filings and only
disclose those non-GAAP measures used by management with the
appropriate reconciliations, as you have provided in your
segment data table.
o Otherwise, confirm that you will revise your Forms 8-K in
future periods to provide all the disclosures required by Item
10(e)(I)(i) of Regulation S-K for each non-GAAP measure
presented in the statement, and provide us with a sample of
your proposed disclosure. We may have further comment.
Response: The company notes the staff's comment and proposes to present in
future Form 8-K filings a reconciliation in the format suggested
in the staff's first bullet point of comment 5.
The company acknowledges that:
o the company is responsible for the adequacy and accuracy of
the disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any
action with respect to the filing; and
o the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
I am available to discuss our responses to any of the above comments at (781)
622-1247. My fax number is (781) 768-6630. Thank you for your assistance.
Sincerely,
/s/ Peter E. Hornstra
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Peter E. Hornstra
Chief Accounting Officer
cc: Tom Dyer