-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L9kWzh7gkQNc1CI/pGKLj9GYdwS8N7iGqQis+eRBjR577yliZxNdGig812YDErgC 4g23jDYhGaB8UZFksVExsg== 0000097745-01-000012.txt : 20010322 0000097745-01-000012.hdr.sgml : 20010322 ACCESSION NUMBER: 0000097745-01-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08002 FILM NUMBER: 1574408 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02454-9046 BUSINESS PHONE: 7816221000 10-K 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Exchange Act of 1934 for the fiscal year ended December 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8002 THERMO ELECTRON CORPORATION (Exact name of Registrant as specified in its charter) Delaware 04-2209186 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02454-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ---------------------------------- ----------------------------------------- Common Stock, $1.00 par value New York Stock Exchange Preferred Stock Purchase Rights 3 1/4% Subordinated Convertible Debentures due 2007 American Stock Exchange 4% Subordinated Convertible Debentures due 2005 American Stock Exchange Units, each consisting of a fractional share of Common Stock, $1.00 par value per share, and one redemption right American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 26, 2001, was approximately $5,035,621,000. As of January 26, 2001, the Registrant had 182,591,812 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Sections of Thermo Electron's Annual Report to Shareholders for the year ended December 30, 2000, are incorporated by reference into Parts I and II, and sections of the company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2001, are incorporated by reference into Part III. Copies of these documents can be obtained at no cost by calling the company's Investor Relations department at 781-622-1111. PART I Item 1. Business -------- (a) General Development of Business ------------------------------- Thermo Electron Corporation (also referred to in this document as "Thermo Electron," "we," "the company," or "the registrant") is a global leader in the development, manufacture, and sale of technology-based instrument systems, components, and solutions used in virtually every industry to monitor, collect, and analyze data to provide knowledge for the user. For example, our powerful analysis technologies help biotech researchers sift through data to make the discoveries that will fight disease or prolong life; allow telecommunication equipment manufacturers to fabricate components required to increase the speed and quality of communications; and monitor and control industrial processes on-line to ensure that critical quality standards are met efficiently and safely. In the late 1980s, we adopted a strategy of spinning out certain businesses into separate public subsidiaries in which we kept a majority ownership. By 1997, we had spun out 22 public entities serving many diverse markets. In 1998, we began to reorganize and simplify our structure to regain business focus. During 1999, three of our public subsidiaries were taken private and then a fourth in early 2000. In January 2000, we announced a major reorganization that would allow us to focus solely on our instruments business. As part of this plan, we took private all of our remaining public subsidiaries, other than Spectra-Physics Lasers, Inc. (Spectra-Physics or SPLI), in which we acquired a majority interest in 1999 and continue to own 78 percent; Thermo Fibertek Inc. and its Thermo Fibergen Inc. subsidiary, which are discussed below; and Thermo Cardiosystems Inc., which we sold in February 2001. In addition, we decided to sell noncore businesses with aggregate revenues of more than $1 billion. We also expect to issue as a dividend to our shareholders two businesses that we plan to spin-off completely: - one business serves the healthcare industry with a range of medical products for diagnosis and monitoring; - the other, Thermo Fibertek, supplies systems to the paper making and recycling industry, as well as fiber-based consumer products. In February 2001, the company announced that it had entered into a definitive agreement to sell its power generation business. The businesses to be spun off and sold as part of our reorganization have been accounted for as discontinued operations (see "Description of Business Principal Products and Services"). Except where indicated, the information presented in this Form 10-K pertains to our continuing operations. Our strategy going forward is to emphasize internal growth by investing proceeds from the sale of noncore businesses to pursue developments in the high-growth markets that we serve, particularly life sciences and optical technologies. We also plan to augment that growth by making complementary acquisitions. Thermo Electron is a Delaware corporation and was incorporated in 1956. The company completed its initial public offering in 1967 and was listed on the New York Stock Exchange in 1980. Forward-looking Statements We may make forward-looking statements, as defined in Section 21E of the Securities Exchange Act of 1934, throughout this Annual Report on Form 10-K. Any statements in this document that are not statements of historical fact may be considered forward-looking. As you read this document, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and other similar expressions are intended to identify forward-looking statements. A number of important factors could cause the company's results to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in our 2000 Annual Report to Shareholders, which statements are incorporated in this document by reference. - -------------------- * References to 2000, 1999, and 1998 herein are for the fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999, respectively. 2 (b) Financial Information About Segments ------------------------------------ Financial information about the company's segments (also called "sectors") is summarized in Note 15 to Consolidated Financial Statements in our 2000 Annual Report to Shareholders, which is incorporated in this document by reference. (c) Description of Business ----------------------- (i) Principal Products and Services ------------------------------- We report our business in three sectors: Life Sciences, Optical Technologies, and Measurement and Control. Life Sciences We address the biotechnology and pharmaceutical markets, as well as the clinical laboratory and healthcare industries, through our Life Sciences sector. This sector is organized into five divisions: analytical instruments, clinical diagnostics, scientific equipment, biosciences, and informatics. Analytical instruments includes our offerings of mass spectrometers, liquid and gas chromatographs, and multi-instrument combinations of these products, along with consumable products such as the vials, syringes, and columns necessary for chromatography. These systems are used by the pharmaceutical industry for drug development, testing, and quality control, and by the biotechnology industry for research leading to knowledge about disease and possible treatments. A significant and growing application for these instruments is proteomics, the study of proteins. Most drugs - about 90 percent interact with proteins, so multi-instrument systems that can rapidly identify and quantify proteins are of increasing value to pharmaceutical and biotechnology customers. In early 2000, we introduced an integrated, high-throughput system for the quantitative analysis of proteins, employing the company's new Surveyor high performance liquid chromatograph, LCQ Deca mass spectrometer, and new TurboSEQUEST software. Later in the year, we introduced the TSQ(R) Quantum, the first high-resolution, ultracompact benchtop triple quadrupole mass spectrometer. Clinical diagnostics equipment and supplies are used by healthcare laboratories in doctors' offices and hospitals to detect and diagnose disease. Products in this group include sample preparation instruments and materials to highlight abnormal cells, blood gas and ion-selective electrolyte (ISE) consumables, chemistry reagents, clinical biochemistry instruments and automation equipment, and rapid diagnostic tests for use in physicians' offices. We received U.S. Food and Drug Administration (FDA) clearance in December 1998 for our FLU OIA 15-minute diagnostic test, which detects influenza A and B in patient samples. We also make the only FDA-cleared rapid test for Streptococcus B, which is one of the leading causes of brain damage in newborns. Scientific equipment is used for the preparation and preservation of chemical samples, principally in research settings for pharmaceutical, academic, and government customers. Products in this group include ultralow-temperature freezers, high-speed centrifuges, centrifugal vacuum concentrators, and laboratory freeze dryers. We also design, manufacture, and market electrochemistry and other technologies for quality assurance and regulatory compliance, primarily in the environmental, food and beverage, chemical, pharmaceutical, and biomedical research industries. These products determine the quality of various substances, from food and pharmaceuticals to water and wastewater, by measuring their pH, specific ion concentration, dissolved oxygen, and conductivity. Biosciences instruments and consumables encompass a broad range of products, such as microplate-based handling and reading equipment, optical biosensors, polymerase chain reaction (PCR) thermal cyclers for deoxyribonucleic acid (DNA) amplification, magnetic particle-based molecular separation instruments, and single nucleotide polymorphism (SNP) scoring systems. Consumables include reagents, microtiter plates, liquid-handling pipettes, and pipette tips. Biosciences instruments are used primarily by pharmaceutical companies for drug discovery 3 and development, testing, and quality control, and by biotechnology companies and universities for research leading to knowledge about diseases and possible treatments. These products are typically used on the "front end" of multi-instrument systems, as the instruments prepare and handle samples prior to being loaded into other, advanced instruments. Informatics laboratory information management systems facilitate the monitoring and analysis of samples by storing and organizing the massive amounts of analytical data gathered in laboratories, industrial settings, and clinical testing sites. We are a leading supplier of laboratory information management systems, and provide chromatography data systems (CDS) to analyze chromatographic data obtained via gas or liquid chromatography and capillary electrophoresis. Optical Technologies We are a leader in optical and energy-based systems and technologies that control and apply light throughout the electromagnetic spectrum for many different uses. Products within the Optical Technologies sector are used in multiple markets - particularly the scientific instrument, semiconductor, and telecommunications industries - to fabricate, analyze, and implement advanced materials. These products are grouped into four divisions: photonics, semiconductor, physical properties, and Spectra-Physics. Photonics businesses manufacture optical and optoelectronics components and systems that are used in a variety of industries, including scientific and medical instruments, telecommunications, and semiconductor applications. Our diffraction gratings are used in the line-narrowing packages of excimer lasers used for photolithography systems in semiconductor manufacturing, and in the fabrication of "grisms" (grating and prism), for the multiplexing and demultiplexing of wavelengths in optical telecommunications. Semiconductor products are used in the manufacture of capital equipment that produces and tests semiconductor chips. In particular, we are the leading supplier of molecular beam epitaxy (MBE) systems for the manufacture of gallium arsenide and other compound semiconductor devices. The largest application of these systems is for microwave devices used in cellular telephones and other high-speed wireless communications devices. In 1999, we introduced the V150 MBE, a successor to our market-leading V100 MBE system. The V150 MBE helps customers keep pace with the rapidly growing demand for high-speed telecommunications devices by significantly increasing semiconductor production capacity. In 2000, we introduced the Theta Probe, a next-generation semiconductor, to analyze defects in ultra-thin surface layers of a chip. Physical properties instruments analyze materials for viscosity, surface tension, and thermal properties. We are the leading manufacturer of precision temperature-control products, which are necessary for laser, semiconductor, analytical, laboratory, industrial, and research and development applications. Customers include the food and beverage industries, which use high-precision viscometers to maintain the quality and consistency of their products. Spectra-Physics is a leader in the design, development, manufacture, and distribution of semiconductor-based lasers and laser optics for a broad range of applications, including active and passive components for telecommunications. Passive components are used to mix, filter, and adjust the optical signals transmitted through a fiber optic network, while active components generate and amplify optical signals, or light. Spectra-Physics has also developed high-power semiconductor-based laser products for a variety of other commercial markets, including computer and microelectronics manufacturing, industrial manufacturing, medical image recording, and research and development. Although a significant portion of the installed base of commercial lasers consists of high-power conventional lasers, the laser industry is undergoing a fundamental technology shift to high-power semiconductor-based lasers. This transition is being driven by the advantages offered by semiconductor-based lasers, including lower operating costs, small size, higher reliability, and greater efficiency. 4 Measurement and Control We provide a range of real-time, on-line sensors, monitors, and control systems through our Measurement and Control sector. These products help manufacturers improve and refine their processes to increase productivity and quality. These improvements also help our customers meet government standards for product and worker safety. This sector is organized into six divisions: compliance instruments, weighing and inspection, quality solutions, process instruments, spectroscopy, and industrial products. Compliance instruments and systems monitor environmental pollutants generated by industrial and mobile sources. These include continuous gaseous and aerosol monitors, and water quality instruments for assessing ambient air quality and emissions from stationary sources. Compounds measured include common air pollutants, aerosols, and organic halogens and carbon. We also provide a comprehensive line of gas detectors for controlling and detecting the presence of harmful radiation and combustible and toxic gases for worker and plant safety. These products range from simple handheld, general-purpose portable equipment to more sophisticated fixed systems. Weighing and inspection systems include a comprehensive family of on-line weighing and inspection equipment for consumer products, packaged goods, and bulk materials. Products for the packaged and consumer goods sector provide customers with a quality and productivity solution by ensuring that each package contains the proper quantity of a specific item, whether it be a food product or a book ordered over the Internet. We use a variety of technologies, including X-ray imaging and ultratrace chemical detection, to inspect food, beverage, and pharmaceutical packages to see that they are free of physical contaminants and contain no missing or broken parts. In bulk materials, our product line includes solids flow monitoring and level measurement for a wide variety of process industries including food, chemicals, plastics, and pharmaceuticals. Quality solutions include on-line process optimization systems that use proprietary, ultrahigh-speed, noninvasive measurement technologies to analyze the physical and chemical properties of streams of raw materials in real time. This technology allows the entire stream of material to be analyzed and eliminates the need for off-line sampling, which can add production time and cost. These systems are used primarily to analyze the composition of raw materials for several industries, such as coal, cement, minerals, bulk chemicals, pharmaceuticals, and food products. We also provide process optimization systems for the continuous production of certain web-type finished materials, such as metal strip, plastics, foil, rubber, glass, and paper. These instruments measure the total thickness, basis weight, and coating thickness of such materials. Measurements are gathered without contacting the material or interfering with the production process, and are highly accurate and extremely reliable even in hostile environments such as steel mills. These systems provide tangible economic benefits for customers by reducing materials waste and energy consumption. Process instruments include sophisticated systems for the field measurement and sensor sector of the process control market. These systems provide real-time data collection, analysis, and local control functions using a variety of technologies, including radiation, radar, ultrasonic, and vibrational measurement principles, as well as flow monitoring meters, gas chromatography, mass spectrography, and X-ray fluorescence. Industries served include oil and gas, chemical, semiconductor, pharmaceutical, electric utility, minerals and mining, water and wastewater treatment, and pulp and paper. Process instruments are used to improve efficiency, to provide process and quality control, to maintain regulatory compliance, and to increase worker safety. Spectroscopy instrumentation uses various optical techniques to determine, in a nondestructive manner, the elemental and molecular composition of a wide range of complex liquids and solids. Customers include pharmaceutical, specialty chemical, steel, and basic material producers, who use these instruments either in a laboratory or integrated directly into the production line. Industrial products include businesses that design, develop, and manufacture precision measurement instrumentation and components to increase productivity for chemical, food, oil, gas, and semiconductor companies. 5 Discontinued Operations As a result of our January 2000 reorganization plan and our February 2001 agreement to sell our power generation business, a number of businesses have been accounted for as discontinued operations. The major businesses included in this category are as follows: Businesses being spun off: Thermo Fibertek companies ------------------------- Thermo Fibertek: papermaking and recycling equipment and water-management systems Thermo Fibergen: fiber-based composite products and water-clarification and fiber recovery systems Medical Products company ------------------------ Thermo Biomedical: neurodiagnostic monitoring, vascular, and audiology systems; respiratory-care products; and portable patient-monitors Thermedics Medical: biocompatible polymers; cardiac and respiratory diagnostic and monitoring equipment; and enteral feeding systems Tecomet: specialty metals fabrication, trauma products, prosthetics Major businesses sold to date: Since December 1999, the Company's discontinued operations have sold nearly 30 operating units with annual revenues of over $1 billion. The principal units sold included the following: FES division of Thermo Power Corporation: industrial refrigeration systems Peek division of Thermo Power: intelligent traffic control systems Trex Communications Corporation: satellite communication systems Medical Imaging division of Trex Medical Corporation: medical imaging systems Coleman Research Corporation: systems engineering and analytical services Thermo Cardiosystems: heart-assist devices (received equity interest in buyer) Thermo TerraTech Inc.: environmental services (principal operating units sold) In addition to the power generation business, which we entered into a definitive agreement to sell in February 2001, we are in the process of selling several other businesses included in our discontinued operations with annual revenues of $160 million. (ii) and (xi) New Products; Research and Development -------------------------------------- Our business includes the development and introduction of new products and may include entry into new business sectors. We are not currently committed to any new products that require the investment of a material amount of our assets, nor do we have any definitive plans to enter new businesses that would require such an investment. During 2000, 1999, and 1998, we spent $176.8 million, $171.1 million, and $127.5 million, respectively, on research and development. (iii) Raw Materials ------------- Our management team believes that we have a readily available supply of raw materials for all of our significant products from various sources. We do not anticipate any difficulties obtaining the raw materials essential to our business. 6 (iv) Patents, Licenses, and Trademarks --------------------------------- Patents are important to our business; no particular patent, or related group of patents, is so important, however, that its loss would significantly affect our operations as a whole. Generally, we seek patent protection for inventions and developments made by our personnel and incorporated into our products or otherwise falling within our fields of interest. Patent rights resulting from work sponsored by outside parties do not always accrue exclusively to the company and may be limited by agreements or contracts. We protect some of our technology as trade secrets and, where appropriate, we use trademarks or register our products. We also enter into license agreements with others to grant and/or receive rights to patents and know-how. (v) Seasonal Influences ------------------- Continuing Operations - --------------------- There are no material seasonal influences on sales of our products. Discontinued Operations - ----------------------- Thermo Ecotek, which was previously our Power Generation segment, has typically earned much of its income from May through October. Many of Thermo Ecotek's power plants operate in California. In that state, our agreements with our customers provide strong incentives to operate during the summer months, which are a period of high energy demand. Likewise, Thermo Ecotek typically reports only a marginal profit during the first three months of the year, due to the rate structures under these agreements. Due to the expiration of the fixed price contracts at Thermo Ecotek's California plants, the seasonality of this business was reduced in 2000. (vi) Working Capital Requirements ---------------------------- There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on our working capital. (vii) Dependency on a Single Customer ------------------------------- No customer accounted for more than 10% of our total revenues in any of the past three years. (viii) Backlog ------- Our backlog of firm orders at year-end 2000 and 1999 was as follows:
(In thousands) 2000 1999 - ------------------------------------------------------------------------------------- --------- --------- Life Sciences $118,284 $110,263 Optical Technologies 253,183 134,363 Measurement and Control 194,363 180,157 -------- -------- $565,830 $424,783 ======== ======== We believe that virtually all of our backlog at the end of 2000 will be filled during 2001. 7 (ix) Government Contracts -------------------- Not applicable. (x) Competition ----------- The markets for our products are highly competitive. In general, our success in these markets depends on four factors: - technical advances that result in new products and improved price/performance ratios, - our reputation among customers as a quality provider of products and services, - active research and application-development programs, and - prices of our products and services. In many markets, we compete with large analytical instrument companies such as Agilent Technologies Inc.; PerkinElmer, Inc.; Varian Associates, Inc.; Waters Corporation; and Hitachi, Ltd. In other markets, we compete with numerous smaller, more specialized firms. Life Sciences Analytical instruments. Our principal competitors in this market include Agilent, Waters, Shimadzu Corporation, PerkinElmer, Bruker, and Applied Biosystems, and we compete primarily on the basis of technical performance, customer service and support, and price. Clinical diagnostics. In this market, we compete with Leica Microsystems; Sakura Finetek U.S.A., Inc.; Ventana Corporation; Cytyc Corporation; Wescor Inc.; Jewett Inc.; and Mopec Inc., primarily based on quality, price, and service. In the clinical chemistry reagent market, our competitors include Abbott Laboratories; BioChem Pharma; Chiron Corporation; and Sigma Diagnostics, a division of Sigma-Aldrich Co. Competition in this market is primarily based on product quality and price. Competitors in the market for rapid diagnostic test kits are Abbott Laboratories; Becton, Dickinson and Company; Roche-Boeringher Manheim; and Quidel Corporation. We compete primarily on the basis of innovative technology as well as price. Scientific equipment. Our principal competitors in this market are Jouan S.A.; NuAire Inc.; Sanyo Electric Co. Ltd.; Labconco Corporation; Corning-Costar Corporation; Fisher Scientific International Inc.; Mettler-Toledo International Inc.; Beckman Coulter, Inc.; Metrohm Ltd.; Radiometer; Kyoto; ManTech; and Denver Instruments. We compete primarily on the basis of technical performance, customer service and support, and price. Biosciences instruments and consumables. We compete with PerkinElmer; Molecular Devices Corporation; Beckman Coulter; Bio-Rad Laboratories, Inc.; Agilent; MJ Research Technology; Qiagen Corporation; Biacore International, Inc.; Nalge Nunc Inc.; Corning; Rainin Instruments; Greiner GmbH; and Eppendorf GmbH. In this market, we compete primarily on the basis of technical performance, user convenience, and, to a lesser extent, price. Informatics. Our competitors include PerkinElmer, PE Biosystems, Beckman Coulter, Agilent, LabVantage Solutions, LIMS U.S., Scientific Software Inc., and Waters. We compete primarily on the basis of product performance and price. 8 Optical Technologies Photonics. We compete primarily on the basis of technical suitability, product performance, reliability, and price. Principal competitors include Optical Coating Laboratory, Inc.; Newport Corporation; Hamamatsu Photonics K.K.; Barr Associates, Inc; and JY Horiba. Semiconductor. We compete primarily with Riber Instruments S.A., Oxford Instruments plc., Physical Electronics Inc., Shimadzu Corporation, Omicron GmbH, EDAX Inc., SPECTROFLASH (a subsidiary of Bourevestnik, Inc.), and Asoma Instruments, Inc. In this market, we compete primarily on the basis of quality, performance, technology, and price. Physical properties. We compete with TA Instruments, Inc., a subsidiary of Waters; and Rheometrics Scientific Inc. In this market, we offer mid-level products, with instruments that operate on a personal-computer platform, and compete primarily on the basis of quality, performance, and price. Our temperature control products compete with those of Lauda (Dr. Wobser GmbH & Co. KG); Julabo Labortechnik GmbH; Affinity, Inc.; and Lytron, Inc. on the basis of product performance, technical fit, price, and service. Spectra-Physics. We compete primarily on the basis of quality, performance, customer service, and technology. Principal competitors include SDL, Inc.; Coherent, Inc.; Siemens; Thompson-CSF; Lightwave Electronics Inc.; Continuum (a division of Hoya); and JDS/Uniphase Corporation. Measurement and Control Compliance instruments. Our principal competitors include Monitor Labs Incorporated; Advanced Pollution Instruments; Rupprecht & Pataschnick Co., Inc.; and Mine Safety Appliances Co. We compete in this market primarily on the basis of technical performance, price, reliability, and customer service. Weighing and inspection. Major competitors in the packaged-goods and bulk-materials markets are Ishida Scales Mfg. Co., Ltd.; Mettler-Toledo; Industrial Dynamics Corporation; Carl Schenck AG; and Milltronics Corporation. We compete primarily on the basis of customer service and support, quality and reliability, and price. Quality solutions. Our principal competitors include Scantech Limited; Integrated Measurement Systems, Inc.; Toshiba Corporation; Yokogawa Electric Corporation; and Infrared Engineering Limited. We compete primarily on the basis of technical performance, customer service, and, to a lesser extent, price. Process instruments. In the field measurement instruments and sensors market, we compete primarily on quality and reliability, price, and customer service. We compete with a few large competitors in each product area and with many companies within specific industries. Our major competitors include Fisher-Rosemount, a division of Emerson Electric Co., Inc.; Asea Brown Boveri (Holding) Ltd.; and Yokogawa. We have a relatively small presence within the large and varied process-control marketplace, which is extremely fragmented and consists of several large companies, including Fisher-Rosemount, Elsag Bailey, and Honeywell Process Control, as well as numerous smaller companies. We compete in this market primarily on the basis of technical performance, customer service, price, and reliability. Spectroscopy. In the spectroscopy market, our principal competitors are the Analytical Instrument division of PerkinElmer, Varian, Agilent, and Bio-Rad, and we compete primarily on the basis of quality, performance, technology, and price. 9 Industrial Products. The major competitors include Veeco Instruments, Inc.; Mettler-Toledo; Oryx Systems, Inc.; Yokogawa; and Tektronix, Inc. We compete in this market primarily on the basis of quality, performance, technology, and price. (xii) Environmental Protection Regulations ------------------------------------ Complying with federal, state, and local environmental protection regulations should not significantly affect our capital spending, our earnings, or our competitive position. (xiii) Number of Employees ------------------- As of December 30, 2000, we employed approximately 13,000 persons as part of our continuing operations. (d) Financial Information About Geographic Areas -------------------------------------------- Financial information about geographic areas is summarized in Note 15 to Consolidated Financial Statements in our 2000 Annual Report to Shareholders, which information is incorporated in this document by reference. (e) Executive Officers of the Registrant ------------------------------------ Name Age Present Title (Fiscal Year First Became Executive Officer) ------------------ --- -------------------------------------------------------- Richard F. Syron 57 Chief Executive Officer and Chairman of the Board (1999) Marijn E. Dekkers 43 President and Chief Operating Officer (2000) Guy Broadbent 37 Vice President; President, Optical Technologies (2001) Barry S. Howe 45 Vice President; President, Measurement and Control (2001) Colin Maddix 55 Vice President; President, Life Sciences (2001) Theo Melas-Kyriazi 41 Vice President and Chief Financial Officer (1998) Seth H. Hoogasian 46 Vice President and General Counsel (2001) Peter E. Hornstra 41 Corporate Controller and Chief Accounting Officer (2001) Mr. Syron was appointed President and Chief Executive Officer in June 1999 and Chairman of the Board in January 2000. From April 1994 until May 1999, Mr. Syron was the Chairman and Chief Executive Officer of the American Stock Exchange Inc. Mr. Dekkers was appointed President and Chief Operating Officer in July 2000. From June 1999 to June 2000 Mr. Dekkers served as president of Honeywell International's (formerly Allied Signal) electronic materials division, from August 1997 to May 1999 he served as vice president and general manager of its fluorine products division, and from July 1995 to July 1997 he served as vice president and general manager of its specialty films division. Mr. Broadbent was appointed Vice President of Thermo Electron in January 2001 and President, Optical Technologies in October 2000. From May 2000 to October 2000, Mr. Broadbent was vice president and general manager of the amorphous metals division of Honeywell International and from November 1998 to April 2000 he was business director for Honeywell International's specialty fluorine division. From June 1996 to October 1998, he was the marketing manager of new business development of the plastics division of General Electric Company. He also served as product manager of this division from December 1994 to May 1996. Mr. Howe was appointed Vice President of Thermo Electron in January 2001 and President, Measurement and Control in October 2000. Since 1995, Mr. Howe has held various operating positions at Thermo Electron. These included President, Optical Technologies from February 2000 to October 2000; President and Chief Executive Officer of its Thermo Optek Corporation subsidiary from March 1999 to February 2000; President and Chief Executive Officer of its ThermoSpectra Corporation subsidiary from March 1998 to March 1999; and President and Chief Executive Officer of its Thermo BioAnalysis Corporation subsidiary from February 1995 to March 1998. 10 Mr. Maddix was appointed Vice President of Thermo Electron in January 2001 and President, Life Sciences in February 2000. From March 1998 to October 2000, he was President and Chief Executive Officer of the company's Thermo BioAnalysis subsidiary. From 1996 to March 1998, Mr. Maddix served as President and Chief Executive Officer of the Clinical Products Group of Life Sciences International, which was acquired by Thermo Electron in March 1997. Mr. Melas-Kyriazi was appointed Chief Financial Officer in January 1999. He joined the company in 1986 as Assistant Treasurer and became Treasurer in 1998. He was named President and Chief Executive Officer of the company's ThermoSpectra subsidiary in 1994, a position he held until becoming Vice President of Corporate Strategy for Thermo Electron in 1998. Mr. Hoogasian was appointed General Counsel in 1992 and Vice President in 1996. Mr. Hornstra was appointed Chief Accounting Officer in January 2001 and Corporate Controller in 1996. From 1995 until 1996 Mr. Hornstra was Assistant Corporate Controller. Item 2. Properties ---------- The location and general character of our principal properties by sector as of December 30, 2000, are as follows: Life Sciences We own approximately 1,168,000 square feet of office, engineering, laboratory, and production space, principally in Ohio, California, Massachusetts, Pennsylvania, Texas, Italy, Germany, and Australia. We lease approximately 1,077,000 square feet of office, engineering, laboratory, and production space, principally in Massachusetts, Texas, New York, Virginia, Finland, England, and Germany, under various leases that expire between 2001 and 2016. Optical Technologies We own approximately 510,000 square feet of office, engineering, laboratory, and production space, principally in California, Arizona, New York, Wisconsin, and Germany. We lease approximately 737,000 square feet of office, engineering, laboratory, and production space, principally in California, New Hampshire, Massachusetts, England, and Germany, under various leases that expire between 2001 and 2014. Measurement and Control We own approximately 862,000 square feet of office, engineering, laboratory, and production space, principally in Texas, Wisconsin, New York, New Mexico, Switzerland, and Germany. We lease approximately 1,854,000 square feet of office, engineering, laboratory, and production space, principally in Massachusetts, Texas, California, Minnesota, Maryland, Illinois, England, Germany, the Netherlands, Australia, Canada, and Sweden, under various leases that expire between 2001 and 2068. Corporate Headquarters We own approximately 81,000 square feet of office space in Massachusetts and lease approximately 69,000 square feet of office space under leases that expire in 2004. We believe that all these facilities are in good condition and are suitable and adequate to meet our current needs. If we are unable to renew any of the leases that are due to expire in the next year or two, we believe that suitable replacement properties are available on commercially reasonable terms. 11 Item 3. Legal Proceedings ----------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters --------------------------------------------------------------------- Information concerning the market and market price for our common stock, and our dividend policy, is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in our 2000 Annual Report to Shareholders, which information is incorporated in this document by reference. We sold put options on 5,701,000 shares of our own common stock and purchased call options on 2,850,500 shares of our own common stock during 1998 and 1999. We made these sales and purchases through a series of transactions with an institutional counterparty. No cash was exchanged as a result of these transactions. We had the right to settle the put options by physical settlement of the options or by "net share settlement," using shares of our own common stock. During 2000, we purchased 1,183,500 shares of common stock under the call options for $17.5 million. During 1999, we purchased 1,536,000 shares of common stock under the put options for $24.6 million. During 1999 and 2000, put options for 4,165,000 shares expired. As of December 30, 2000, no put or call options were outstanding. We may, from time to time, enter into additional put and call option arrangements. Each of these transactions was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Item 6. Selected Financial Data ----------------------- This data is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in our 2000 Annual Report to Shareholders, which data is incorporated in this document by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2000 Annual Report to Shareholders, which information is incorporated in this document by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- These disclosures are included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2000 Annual Report to Shareholders, which disclosures are incorporated in this document by reference. Item 8. Financial Statements and Supplementary Data ------------------------------------------- This data is included in our 2000 Annual Report to Shareholders, which data is incorporated in this document by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable. 12 PART III Item 10. Directors and Executive Officers of the Registrant -------------------------------------------------- The information with respect to Directors is listed under the caption "Election of Directors" in our definitive proxy statement to be filed with the Securities and Exchange Commission (SEC), not later than 120 days after the close of the fiscal year. This information is incorporated in this document by reference. We are also required, under Item 405 of Registration S-K, to provide information concerning delinquent filers of reports under Section 16 of the Securities Exchange Act of 1934, as amended. This information is listed under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in our definitive proxy statement to be filed with the SEC, not later than 120 days after the close of the fiscal year. This information is incorporated in this document by reference. Item 11. Executive Compensation ---------------------- This information is listed under the caption "Executive Compensation" in our definitive proxy statement to be filed with the SEC, not later than 120 days after the close of the fiscal year. This information is incorporated in this document by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- This information is listed under the caption "Stock Ownership" in our definitive proxy statement to be filed with the SEC, not later than 120 days after the close of the fiscal year. This information is incorporated in this document by reference. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- This information is listed under the caption "Relationship with Affiliates" in our definitive proxy statement to be filed with the SEC, not later than 120 days after the close of the fiscal year. This information is incorporated in this document by reference. 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a, d) Financial Statements and Schedules ---------------------------------- (1) The financial statements set forth in the list below are filed as part of this Report. (2) The financial statement schedule set forth in the list below is filed as part of this Report. (3) Exhibits filed here or incorporated here by reference are listed in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14 --------------------------------------------------------------------- Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Comprehensive Income and Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Schedule included herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto. (b) Reports on Form 8-K ------------------- On November 29, 2000, the company filed a Current Report on Form 8-K to include the company's press release dated November 29, 2000, with respect to its cash tender offer for Trex Medical Corporation's common stock. (c) Exhibits -------- See the Exhibit Index on page 18. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: March 21, 2001 THERMO ELECTRON CORPORATION By: /s/ Richard F. Syron ------------------------- Richard F. Syron Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of March 21, 2001. Signature Title By: /s/ Richard F. Syron Chairman of the Board, Chief Executive Officer, Richard F. Syron and Director (Principal Executive Officer) By: /s/ Theo Melas-Kyriazi Vice President and Chief Financial Officer Theo Melas-Kyriazi By: /s/ Peter E. Hornstra Corporate Controller and Chief Accounting Officer Peter E. Hornstra By: /s/ Samuel W. Bodman Director Samuel W. Bodman By: /s/ Peter O. Crisp Director Peter O. Crisp By: /s/ Marijn E. Dekkers President, Chief Operating Officer, and Director Marijn E. Dekkers By: /s/ Elias P. Gyftopoulos Director Elias P. Gyftopoulos By: /s/ Frank Jungers Director Frank Jungers By: /s/ Jim P. Manzi Director Jim P. Manzi By: /s/ Robert A. McCabe Director Robert A. McCabe By: /s/ Hutham S. Olayan Director Hutham S. Olayan By: /s/ Robert W. O'Leary Director Robert W. O'Leary 15 Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Thermo Electron Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 15, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 14 is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 15, 2001 16
SCHEDULE II THERMO ELECTRON CORPORATION Valuation and Qualifying Accounts (In thousands)
Balance at Provision Accounts Balance Beginning Charged to Accounts Written at End Description of Year Expense Recovered Off Other (a) of Year - -------------------------------- ---------- ---------- --------- -------- --------- -------- Allowance for Doubtful Accounts Year Ended December 30, 2000 $ 33,650 $ 9,264 $ 450 $ (7,211) $ (5,560) $ 30,593 Year Ended January 1, 2000 $ 26,938 $ 8,614 $ 253 $ (8,908) $ 6,753 $ 33,650 Year Ended January 2, 1999 $ 25,796 $ 5,002 $ 492 $ (8,754) $ 4,402 $ 26,938 Balance at Established Activity Balance Beginning as Cost of Charged to at End Description of Year Acquisitions Reserve Other (c) of Year - -------------------------------- ---------- ------------ ---------- --------- -------- Accrued Acquisition Expenses (b) Year Ended December 30, 2000 $ 19,445 $ 352 $ (6,445) $ (3,282) $ 10,070 Year Ended January 1, 2000 $ 16,284 $ 17,252 $(11,539) $ (2,552) $ 19,445 Year Ended January 2, 1999 $ 20,683 $ 8,387 $(10,036) $ (2,750) $ 16,284 Balance at Provision Activity Balance Beginning Charged to Charged to at End Description of Year Expense (e) Reserve Other (f) of Year - -------------------------------- ---------- ----------- ---------- --------- -------- Accrued Restructuring Costs (d) Year Ended December 30, 2000 $ 5,425 $ 35,785 $(20,216) $ 30 $ 21,024 Year Ended January 1, 2000 $ 11,320 $ 5,931 $(11,177) $ (649) $ 5,425 Year Ended January 2, 1999 $ 244 $ 18,776 $ (7,962) $ 262 $ 11,320 (a) Includes allowance of businesses acquired and sold during the year as described in Note 3 to Consolidated Financial Statements in our 2000 Annual Report to Shareholders and the effect of foreign currency translation. (b) The nature of activity in this account is described in Note 3 to Consolidated Financial Statements in our 2000 Annual Report to Shareholders. (c) Represents reversal of accrued acquisition expenses and corresponding reduction of goodwill resulting from finalization of restructuring plans, the effect of foreign currency translation and, in 2000, the reserves of businesses sold. (d) The nature of activity in this account is described in Note 11 to Consolidated Financial Statements in our 2000 Annual Report to Shareholders. (e) In 2000, excludes $103.6 million of noncash income, net, primarily from the sale of businesses, offset by provisions for asset writedowns. In 1999, includes the reversal of $2.3 million of previously recorded restructuring costs, and excludes provisions of $31.4 million in 1999 and $4.8 million in 1998, primarily for asset writedowns. (f) Represents the effect of foreign currency translation. 17 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant, (filed as Exhibit 1 to the Registrant's Amendment No. 3 to Registration Statement on Form 8-A/A [File No. 1-8002] and incorporated in this document by reference). 3.2 By-laws of the Registrant, as amended (filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). 4.1 Fiscal Agency Agreement dated as of January 3, 1996, between the Registrant and Chemical Bank pertaining to the Registrant's 4 1/4% Subordinated Convertible Debentures due 2003 (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-8002] and incorporated in this document by reference). The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission upon request, a copy of each instrument with respect to other long-term debt of the Registrant or its consolidated subsidiaries. 4. Rights Agreement dated as of January 19, 1996, between the Registrant and The First National Bank of Boston, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A, declared effective by the SEC on January 31, 1996 [File No. 1-8002] as amended by Amendment No. 1 to the Registrant's Registration Statement on Form 8-A/A filed with the Commission on May 30, 1997, and incorporated in this document by reference). 4.3 Amendment No. 1 to Rights Agreement dated as of June 11, 1999, between the Registrant and BankBoston, N.A. (formerly, The First National Bank of Boston), which includes as Exhibit B the amended and restated form of Rights Certificate and as Exhibit C the amended and restated Summary of Rights to Purchase Preferred Stock (filed as Exhibit 2 to Amendment No. 2 to the Registrant's Registration Statement on Form 8-A/A [File No. 1-8002] filed with the Commission on June 21, 1999, and incorporated in this document by reference). 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated in this document by reference). 10.2 Thermo Electron Corporation Executive Retention Plan/Form of Executive Retention Agreement (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 [File No. 1-8002] and incorporated in this document by reference). (Each executive officer has a two-year agreement except Mr. Richard F. Syron and Mr. Marijn Dekkers, each of whom has a three-year agreement, and Mr. Peter E. Hornstra who has a one-year agreement.) 10.3 Revolving Credit Facility Letters from Barclays Bank PLC in favor of the Registrant and its subsidiaries (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated in this document by reference). 18 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 10.4 Stock Holdings Assistance Plan and Form of Promissory Note (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated in this document by reference). 10.5 Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (Maximum number of shares issuable is 679,218 shares, after adjustment to reflect share increases approved in 1986 and 1992 and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.6 Amended and Restated Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). 10.7 Incentive Stock Option Plan of the Registrant (filed as Exhibit 4(d) to the Registrant's Registration Statement on Form S-8 [Reg. No. 33-8993] and incorporated in this document by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.8 Amended and Restated Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (Plan amended in 1984 to extend expiration date to December 14, 1994; maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.9 Amended and Restated Equity Incentive Plan. 10.10 Amended and Restated Thermo Electron Corporation - Thermo TerraTech Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On September 22, 2000, Thermo TerraTech merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 3,707 shares of Thermo Electron.) 10.11 Amended and Restated Thermo Electron Corporation - Thermo Power Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On October 28, 1999, Thermo Power merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 25,219 shares of Thermo Electron.) 19 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 10.12 Amended and Restated Thermo Electron Corporation - Thermo Ecotek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On August 10, 2000, Thermo Ecotek merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 22,461 shares of Thermo Electron.) 10.13 Amended and Restated Thermo Electron Corporation - ThermoTrex Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On August 14, 2000, ThermoTrex merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 15,552 shares of Thermo Electron.) 10.14 Amended and Restated Thermo Electron Corporation - Thermo BioAnalysis Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On April 19, 2000, Thermo BioAnalysis merged with Thermo Instrument Systems Inc. and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 75,119 shares of Thermo Electron.) 10.15 Amended and Restated Thermo Electron Corporation - ThermoLyte Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). 10.16 Amended and Restated Thermo Electron Corporation - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On December 6, 1999, ThermoSpectra merged with Thermo Instrument and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 19,243 shares of Thermo Electron.) 10.17 Amended and Restated Thermo Electron Corporation - ThermoLase Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On August 14, 2000, ThermoLase merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 15,874 shares of Thermo Electron.) 10.18 Amended and Restated Thermo Electron Corporation - ThermoQuest Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On May 11, 2000, ThermoQuest merged with Thermo Instrument and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 107,793 shares of Thermo Electron.) 20 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 10.19 Amended and Restated Thermo Electron Corporation - Thermo Optek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On May 11, 2000, Thermo Optek merged with Thermo Instrument and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 93,934 shares of Thermo Electron.) 10.20 Amended and Restated Thermo Electron Corporation - Thermo Sentron Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On April 4, 2000, Thermo Sentron merged with Thermedics Inc. and on June 30, 2000, Thermedics merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 48,930 shares of Thermo Electron.) 10.21 Amended and Restated Thermo Electron Corporation - Trex Medical Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On November 29, 2000, Trex Medical merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 12,760 shares of Thermo Electron.) 10.22 Amended and Restated Thermo Electron Corporation - Thermedics Detection Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On April 12, 2000, Thermedics Detection merged with Thermedics and on June 30, 2000, Thermedics merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 20,657 shares of Thermo Electron.) 10.23 Amended and Restated Thermo Electron - Thermo Vision Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.26 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On January 6, 2000, Thermo Vision merged with Thermo Instrument and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 30,486 shares of Thermo Electron.) 10.24 Amended and Restated Thermo Electron Corporation - ONIX Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.27 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On April 12, 2000, ONIX merged with Thermo Instrument and on June 30, 2000, Thermo Instrument merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 32,153 shares of Thermo Electron.) 10.25 Amended and Restated Thermo Electron Corporation - The Randers Killam Group Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On May 15, 2000, Randers Killam merged with Thermo TerraTech and on September 22, 2000, Thermo TerraTech merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 35,948 shares of Thermo Electron.) 21 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 10.26 Amended and Restated Thermo Electron Corporation - Trex Communications Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.29 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated in this document by reference). (On November 8, 1999, Trex Communications merged with ThermoTrex and on August 14, 2000, ThermoTrex merged with Thermo Electron. All outstanding options granted under this plan were ultimately assumed by Thermo Electron and converted into options to purchase 24,917 shares of Thermo Electron.) 10.27 Letter Agreement dated as of February 21, 2000, between the Registrant and Mr. John N. Hatsopoulos regarding termination of the Letter Agreement dated September 15, 1998, between the Registrant and Mr. John N. Hatsopoulos (filed as Exhibit 10.53 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.28 Employment Agreement dated January 10, 2000, between the Registrant and Mr. Paul F. Kelleher (filed as Exhibit 10.54 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.29 1997 Spectra-Physics Lasers, Inc. Stock Option Plan (filed as Exhibit 10.6 of Amendment No. 1 to Spectra-Physics Lasers, Inc.'s Registration Statement on Form S-1 [File No. 333-38329] and incorporated in this document by reference). 10.30 Form of Indemnification Agreement between the Registrant and the directors and officers of its majority-owned subsidiaries (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 [Reg. No. 333-90661] and incorporated in this document by reference). 10.31 Form of Amended and Restated Indemnification Agreement between the Registrant and its directors and officers (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 [Reg. No. 333-90661] and incorporated in this document by reference). 10.32 Description of severance arrangements for certain officers of Thermo Electron (filed as Exhibit 10.60 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.33 Employment and Consulting Agreement dated as of March 31, 2000, between the Registrant and George N. Hatsopoulos (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.34 Description of transaction bonus arrangement between Brian D. Holt and the Registrant (filed as Exhibit 10.2 to Thermo Ecotek Corporation's Quarterly Report on Form 10-Q for the quarter ended April 1, 2000 [File No. 1-13572] and incorporated in this document by reference). 10.35 Letter agreement dated July 10, 2000, between the Registrant and Earl R. Lewis pertaining to his resignation (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 22 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- 10.36 Executive Severance Agreement dated as of January 27, 2000, by and between the Registrant and Brian D. Holt (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.37 Employment Agreement between the Registrant and Marijn Dekkers (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 [File No. 1-8002] and incorporated in this document by reference). 10.38 Amended and Restated Employment Agreement dated as of July 11, 2000, between the Registrant and Mr. Richard F. Syron. 10.39 Executive Severance Agreement dated January 25, 2001, by and between the Registrant and Mr. John T. Keiser. 10.40 Employment Offer Letter dated October 3, 2000, between the Registrant and Mr. Guy Broadbent. 10.41 Amendment to Amended and Restated Employment Agreement dated as of March 14, 2001, between the Registrant and Mr. Richard F. Syron. 10.42 Retention Agreement dated January 31, 2000, between the Registrant and Mr. Peter E. Hornstra. 13 Annual Report to Shareholders for the year ended December 30, 2000 (only those portions incorporated in this document by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP.
EX-10.9 2 0002.txt THERMO ELECTRON CORPORATION EQUITY INCENTIVE PLAN As amended and restated effective as of May 17, 2000 1. Purpose The purpose of this Equity Incentive Plan (the "Plan") is to secure for Thermo Electron Corporation (the "Company") and its Stockholders the benefits arising from capital stock ownership by employees and Directors of, and consultants to, the Company and its subsidiaries or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries. The Plan is intended to accomplish these goals by enabling the Company to offer such persons equity-based interests, equity-based incentives or performance-based stock incentives in the Company, or any combination thereof ("Awards"). 2. Administration The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have full power to interpret and administer the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and Awards, and full authority to select the persons to whom Awards will be granted ("Participants"), determine the type and amount of Awards to be granted to Participants (including any combination of Awards), determine the terms and conditions of Awards granted under the Plan (including terms and conditions relating to events of merger, consolidation, dissolution and liquidation, change of control, vesting, forfeiture, restrictions, dividends and interest, if any, on deferred amounts), waive compliance by a participant with any obligation to be performed by him or her under an Award, waive any term or condition of an Award, cancel an existing Award in whole or in part with the consent of a Participant, grant replacement Awards, accelerate the vesting or lapse of any restrictions of any Award and adopt the form of instruments evidencing Awards under the Plan and change such forms from time to time. Any interpretation by the Board of the terms and provisions of the Plan or any Award thereunder and the administration thereof, and all action taken by the Board, shall be final, binding and conclusive on all parties and any person claiming under or through any party. No Director shall be liable for any action or determination made in good faith. The Board may, to the full extent permitted by law, delegate any or all of its responsibilities under the Plan to a committee (the "Committee") appointed by the Board and consisting of two or more members of the Board, each of whom shall be deemed a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) of the Securities Exchange Act of 1934 (the "Exchange Act"). 3. Effective Date The Plan shall be effective as of the date first approved by the Board of Directors, subject to the approval of the Plan by the Corporation's Stockholders. Grants of Awards under the Plan made prior to such approval shall be effective when made (unless otherwise specified by the Board at the time of grant), but shall be conditioned on and subject to such approval of the Plan. 4. Shares Subject to the Plan Subject to adjustment as provided in Section 10.6, the total number of shares of Common Stock reserved and available for distribution under the Plan shall be 15,575,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any Award of shares of Common Stock requiring exercise by the Participant for delivery of such shares terminates without having been exercised in full, is forfeited or is otherwise terminated without a payment being made to the Participant in the form of Common Stock, or if any shares of Common Stock subject to restrictions are repurchased by the Company pursuant to the terms of any Award or are otherwise reacquired by the Company to satisfy obligations arising by virtue of any Award, such shares shall be available for distribution in connection with future Awards under the Plan. 5. Eligibility Employees and Directors of, and consultants to, the Company and its subsidiaries, or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries shall be eligible to receive Awards under the Plan. The Board, or other appropriate committee or person to the extent permitted pursuant to the last sentence of Section 2, shall from time to time select from among such eligible persons those who will receive Awards under the Plan. 6. Types of Awards The Board may offer Awards under the Plan in any form of equity-based interest, equity-based incentive or performance-based stock incentive in Common Stock of the Company or any combination thereof. The type, terms and conditions and restrictions of an Award shall be determined by the Board at the time such Award is made to a Participant; provided however that the maximum number of shares permitted to be granted under any Award or combination of Awards to any Participant during any one calendar year may not exceed 1,500,000 shares of Common Stock. An Award shall be made at the time specified by the Board and shall be subject to such conditions or restrictions as may be imposed by the Board and shall conform to the general rules applicable under the Plan as well as any special rules then applicable under federal tax laws or regulations or the federal securities laws relating to the type of Award granted. Without limiting the foregoing, Awards may take the following forms and shall be subject to the following rules and conditions: 6.1 Options An option is an Award that entitles the holder on exercise thereof to purchase Common Stock at a specified exercise price. Options granted under the Plan may be either incentive stock options ("incentive stock options") that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that are not intended to meet the requirements of Section 422 ("non-statutory options"). 6.1.1 Option Price. The price at which Common Stock may be purchased upon exercise of an option shall be determined by the Board, provided however, the exercise price shall not be less than 85% of the fair market value per share of Common Stock as of the date of grant. The Board shall not have the authority to reprice outstanding stock options granted to directors or executive officers of the Company, except to the extent permitted under Section 10.6 of the Plan in connection with adjustments in the event of certain transactions. 6.1.2 Option Grants. The granting of an option shall take place at the time specified by the Board. Options shall be evidenced by option agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including but not limited to vesting and forfeiture provisions, acceleration, change of control, protection in the event of merger, consolidations, dissolutions and liquidations) as the Board shall deem advisable. Option agreements shall expressly state whether an option grant is intended to qualify as an incentive stock option or non-statutory option. 6.1.3 Option Period. An option will become exercisable at such time or times (which may be immediately or in such installments as the Board shall determine) and on such terms and conditions as the Board shall specify. The option agreements shall specify the terms and conditions applicable in the event of an option holder's termination of employment during the option's term. Any exercise of an option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any additional documents required by the Board and (2) payment in full in accordance with Section 6.1.4 for the number of shares for which the option is exercised. 6.1.4 Payment of Exercise Price. Stock purchased on exercise of an option shall be paid for as follows: (1) in cash or by check (subject to such guidelines as the Company may establish for this purpose), bank draft or money order payable to the order of the Company or (2) if so permitted by the instrument evidencing the option (or in the case of a non-statutory option, by the Board at or after grant of the option), (i) through the delivery of shares of Common Stock that have been outstanding for at least six months (unless the Board expressly approves a shorter period) and that have a fair market value (determined in accordance with procedures prescribed by the Board) equal to the exercise price, (ii) by delivery of a promissory note of the option holder to the Company, payable on such terms as are specified by the Board, (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the permissible forms of payment. 6.1.5 Buyout Provision. The Board may at any time offer to buy out for a payment in cash, shares of Common Stock, deferred stock or restricted stock, an option previously granted, based on such terms and conditions as the Board shall establish and communicate to the option holder at the time that such offer is made. 6.1.6 Special Rules for Incentive Stock Options. Each provision of the Plan and each option agreement evidencing an incentive stock option shall be construed so that each incentive stock option shall be an incentive stock option as defined in Section 422 of the Code or any statutory provision that may replace such Section, and any provisions thereof that cannot be so construed shall be disregarded. Instruments evidencing incentive stock options must contain such provisions as are required under applicable provisions of the Code. Incentive stock options may be granted only to employees of the Company and its subsidiaries. The exercise price of an incentive stock option shall not be less than 100% (110% in the case of an incentive stock option granted to a more than ten percent Stockholder of the Company) of the fair market value of the Common Stock on the date of grant, as determined by the Board. An incentive stock option may not be granted after the tenth anniversary of the date on which the Plan was adopted by the Board and the latest date on which an incentive stock option may be exercised shall be the tenth anniversary (fifth anniversary, in the case of any incentive stock option granted to a more than ten percent Stockholder of the Company) of the date of grant, as determined by the Board. 6.2 Restricted and Unrestricted Stock An Award of restricted stock entitles the recipient thereof to acquire shares of Common Stock upon payment of the purchase price subject to restrictions specified in the instrument evidencing the Award. 6.2.1 Restricted Stock Awards. Awards of restricted stock shall be evidenced by restricted stock agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including restriction and forfeiture provisions, change of control, protection in the event of mergers, consolidations, dissolutions and liquidations) as the Board shall deem advisable. 6.2.2 Restrictions. Until the restrictions specified in a restricted stock agreement shall lapse, restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and upon certain conditions specified in the restricted stock agreement, must be resold to the Company for the price, if any, specified in such agreement. The restrictions shall lapse at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which the restrictions on all or any part of the shares shall lapse. 6.2.3 Rights as a Stockholder. A Participant who acquires shares of restricted stock will have all of the rights of a Stockholder with respect to such shares including the right to receive dividends and to vote such shares. Unless the Board otherwise determines, certificates evidencing shares of restricted stock will remain in the possession of the Company until such shares are free of all restrictions under the Plan. 6.2.4 Purchase Price. The purchase price of shares of restricted stock shall be determined by the Board, in its sole discretion. 6.2.5 Other Awards Settled With Restricted Stock. The Board may provide that any or all the Common Stock delivered pursuant to an Award will be restricted stock. 6.2.6 Unrestricted Stock. The Board may, in its sole discretion, sell to any Participant shares of Common Stock free of restrictions under the Plan for a price determined by the Board, but which may not be less than the par value per share of the Common Stock. 6.3 Deferred Stock 6.3.1 Deferred Stock Award. A deferred stock Award entitles the recipient to receive shares of deferred stock, which is Common Stock to be delivered in the future. Delivery of the Common Stock will take place at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which delivery of all or any part of the Common Stock will take place. 6.3.2 Other Awards Settled with Deferred Stock. The Board may, at the time any Award described in this Section 6 is granted, provide that, at the time Common Stock would otherwise be delivered pursuant to the Award, the Participant will instead receive an instrument evidencing the right to future delivery of deferred stock. 6.4 Performance Awards 6.4.1 Performance Awards. A performance Award entitles the recipient to receive, without payment, an amount, in cash or Common Stock or a combination thereof (such form to be determined by the Board), following the attainment of performance goals. Performance goals may be related to personal performance, corporate performance, departmental performance or any other category of performance deemed by the Board to be important to the success of the Company. The Board will determine the performance goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. 6.4.2 Other Awards Subject to Performance Conditions. The Board may, at the time any Award described in this Section 6 is granted, impose the condition (in addition to any conditions specified or authorized in this Section 6 of the Plan) that performance goals be met prior to the Participant's realization of any payment or benefit under the Award. 7. Purchase Price and Payment Except as otherwise provided in the Plan, the purchase price of Common Stock to be acquired pursuant to an Award shall be the price determined by the Board, provided that such price shall not be less than the par value of the Common Stock. Except as otherwise provided in the Plan, the Board may determine the method of payment of the exercise price or purchase price of an Award granted under the Plan and the form of payment. The Board may determine that all or any part of the purchase price of Common Stock pursuant to an Award has been satisfied by past services rendered by the Participant. The Board may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made. 8. Loans and Supplemental Grants The Company may make a loan to a Participant, either on or after the grant to the Participant of any Award, in connection with the purchase of Common Stock under the Award or with the payment of any obligation incurred or recognized as a result of the Award. The Board will have full authority to decide whether the loan is to be secured or unsecured or with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which it may be forgiven. In connection with any Award, the Board may at the time such Award is made or at a later date, provide for and make a cash payment to the participant not to exceed an amount equal to (a) the amount of any federal, state and local income tax or ordinary income for which the Participant will be liable with respect to the Award, plus (b) an additional amount on a grossed-up basis necessary to make him or her whole after tax, discharging all the participant's income tax liabilities arising from all payments under the Plan. 9. Change in Control 9.1 Impact of Event In the event of a "Change in Control" as defined in Section 9.2, the following provisions shall apply, unless the agreement evidencing the Award otherwise provides (by specific explicit reference to Section 9.2 below). If a Change in Control occurs while any Awards are outstanding, then, effective upon the Change in Control, (i) each outstanding stock option or other stock-based Award awarded under the Plan that was not previously exercisable and vested shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (ii) each outstanding restricted stock award or other stock-based Award subject to restrictions and to the extent not fully vested, shall be deemed to be fully vested, free of restrictions and no longer subject to a right of repurchase by the Company, and (iii) deferral limitations and conditions that relate solely to the passage of time, continued employment or affiliation will be waived and removed as to deferred stock Awards and performance Awards; performance of other conditions (other than conditions relating solely to the passage of time, continued employment or affiliation) will continue to apply unless otherwise provided in the agreement evidencing the Award or in any other agreement between the Participant and the Company or unless otherwise agreed by the Board. 9.2 Definition of "Change in Control" "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of Thermo Electron Corporation ("Thermo Electron") if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of Thermo Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power of the then-outstanding securities of Thermo Electron entitled to vote generally in the election of directors (the "Outstanding TMO Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by Thermo Electron, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Thermo Electron or any corporation controlled by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this definition; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Thermo Electron (the "Thermo Board") (or, if applicable, the Board of Directors of a successor corporation to Thermo Electron), where the term "Continuing Director" means at any date a member of the Thermo Board (i) who was a member of the Thermo Board as of July 1, 1999 or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Thermo Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Thermo Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Thermo Electron or a sale or other disposition of all or substantially all of the assets of Thermo Electron in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Thermo Electron or substantially all of Thermo Electron's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Thermo Electron or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of Thermo Electron of a complete liquidation or dissolution of Thermo Electron. 10. General Provisions 10.1 Documentation of Awards Awards will be evidenced by written instruments, which may differ among Participants, prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company or certificates, letters or similar instruments which need not be executed by the participant but acceptance of which will evidence agreement to the terms thereof. Such instruments shall conform to the requirements of the Plan and may contain such other provisions (including provisions relating to events of merger, consolidation, dissolution and liquidations, change of control and restrictions affecting either the agreement or the Common Stock issued thereunder), as the Board deems advisable. 10.2 Rights as a Stockholder Except as specifically provided by the Plan or the instrument evidencing the Award, the receipt of an Award will not give a Participant rights as a Stockholder with respect to any shares covered by an Award until the date of issue of a stock certificate to the participant for such shares. 10.3 Conditions on Delivery of Stock The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove any restriction from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (c) if the outstanding Common Stock is at the time listed on any stock exchange, until the shares have been listed or authorized to be listed on such exchange upon official notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Common Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such act and may require that the certificates evidencing such Common Stock bear an appropriate legend restricting transfer. If an Award is exercised by the participant's legal representative, the Company will be under no obligation to deliver Common Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 10.4 Tax Withholding The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an Award pursuant to which Common Stock may be delivered, the Board will have the right to require that the participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Common Stock. If and to the extent that such withholding is required, the Board may permit the participant or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirement. 10.5 Transferability of Awards Except as may be authorized by the Board, in its sole discretion, no Award (other than an Award in the form of an outright transfer of cash or Common Stock not subject to any restrictions) may be transferred other than by will or the laws of descent and distribution, and during a Participant's lifetime an Award requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Board may, in its discretion, determine the extent to which Awards granted to a Participant shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the Award executed and delivered by or on behalf of the Company and the Participant. 10.6 Adjustments in the Event of Certain Transactions (a) In the event of a stock dividend, stock split or combination of shares, or other distribution with respect to holders of Common Stock other than normal cash dividends, the Board will make (i) appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above, and (ii) appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provisions of Awards affected by such change. (b) In the event of any recapitalization, merger or consolidation involving the Company, any transaction in which the Company becomes a subsidiary of another entity, any sale or other disposition of all or a substantial portion of the assets of the Company or any similar transaction, as determined by the Board, the Board in its discretion may make appropriate adjustments to outstanding Awards to avoid distortion in the operation of the Plan. 10.7 Employment Rights Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued employment with the Company or any subsidiary or interfere in any way with the right of the Company or subsidiary to terminate any employment relationship at any time or to increase or decrease the compensation of such person. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment relationship even if the termination is in violation of an obligation of the Company to the employee. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Board at the time. For purposes of this Plan, transfer of employment between the Company and its subsidiaries shall not be deemed termination of employment. 10.8 Other Employee Benefits The value of an Award granted to a Participant who is an employee, and the amount of any compensation deemed to be received by an employee as a result of any exercise or purchase of Common Stock pursuant to an Award or sale of shares received under the Plan, will not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, stock ownership, stock purchase, life insurance, medical, health, disability or salary continuation plan. 10.9 Legal Holidays If any day on or before which action under the Plan must be taken falls on a Saturday, Sunday or legal holiday, such action may be taken on the next succeeding day not a Saturday, Sunday or legal holiday. 10.10 Foreign Nationals Without amending the Plan, Awards may be granted to persons who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan, as may, in the judgment of the Board, be necessary or desirable to further the purpose of the Plan. 11. Termination and Amendment The Plan shall remain in full force and effect until terminated by the Board. Subject to the last sentence of this Section 11, the Board may at any time or times amend the Plan or any outstanding Award for any purpose that may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards. No amendment of the Plan or any agreement evidencing Awards under the Plan may adversely affect the rights of any participant under any Award previously granted without such participant's consent. TMO EQUITY INCENTIVE PLAN 05.17.00 RESTATED EX-10.38 3 0003.txt Exhibit 10.38 AMENDED & RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, amends and restates the Employment Agreement by and between Thermo Electron Corporation, a Delaware corporation (together with its successors and assigns permitted under this Agreement, the "Company"), and Mr. Richard F. Syron (the "Executive"), which was effective as of June 1, 1999. The effective date of this Amended and Restated Employment Agreement (the "Agreement") is July 11, 2000 (the "Amendment Date"). W I T N E S S E T H WHEREAS, the Executive has served the Company as its President and Chief Executive Officer pursuant to an employment agreement by and between Executive and the Company, effective as of June 1, 1999 (the "Original Agreement"); WHEREAS, the Company and the Executive desire to amend and restate the terms by which Executive shall remain employed by the Company in accordance with the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a "Party" and together the "Parties") agree as follows: 1. Definitions. (a) "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified. (b) "Base Salary" shall mean the salary provided for in Section 4 below or any increased salary granted to the Executive pursuant to Section 4. (c) "Board" shall mean the Board of Directors of the Company. (d) "Cause" shall mean: (i) the Executive commits a felony or any crime involving moral turpitude; or (ii) in carrying out his duties, the Executive engages in conduct that constitutes gross neglect or gross misconduct or any material violation of this Agreement or any material violation of applicable Company rule or policy, the violation of which amounts to gross neglect or gross misconduct. (e) A "Change in Control" shall mean an event or occurrence set forth in Section 1.1 of the Executive Retention Agreement by and between the Executive and the Company dated as of June 1, 1999 (the "Executive Retention Agreement"), attached hereto and incorporated herein as Exhibit A. (f) "Constructive Termination Without Cause" shall have the same meaning and effect as a termination with "Good Reason" (defined in Section 1(j)). (g) "Disability" shall mean the Executive's inability, due to physical or mental incapacity, to substantially perform his duties and responsibilities under this Agreement as determined by a medical doctor selected by the Company and the Executive. If the Parties cannot agree on a medical doctor, each Party shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purpose. (h) "Effective Date" shall mean the effective date of the Original Agreement, June 1, 1999. (i) "Exercise Period" shall mean the period in which options granted under Section 6 remain exercisable. (j) "Good Reason" or "Constructive Termination Without Cause" shall mean termination by the Executive of his employment, after written notice to the Company within 30 days following the occurrence of any of the following events without his consent: (i) a reduction in the Executive's then current Base Salary or reference bonus opportunity; (ii) the removal of Executive from his position as Chairman of the Board or removal from any position described in Section 3 of this Agreement, unless such action is contemplated by Section 3; (iii) a material diminution in the Executive's duties or responsibilities not directly related to the transfer of responsibilities contemplated in Section 3(b); (iv) a change in the reporting structure so that the Executive reports to any other person or entity other than the Board; (v) the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company within 15 days after a merger, consolidation, sale or similar transaction; or (vi) the material breach of this Agreement by the Company. Following written notice from the Executive, as described above, the Company shall have 15 days in which to cure. If the Company fails to cure, the Executive's termination shall become effective on the 16th day following the written notice. 2 (k) "Stock" shall mean the common stock of the Company. (l) "Termination Date" shall mean in the case of either a voluntary or involuntary termination, the last day upon which Executive works. In the event of the Executive's death, the Termination Date is the date of death. In the case of a Disability, the Termination Date is the date upon which the Executive receives written notice from the Board that it has deemed him to have a Disability, but in no event before the Executive is determined to be disabled (as the term is defined in Section 1(g)). 2. Term of Employment, Effect on Prior Agreements. (a) The Term of Employment ("Term" or "Term of Employment") under this Agreement shall extend until the third anniversary of the Amendment Date. Notwithstanding the foregoing, the Term of Employment may be earlier terminated by either Party in accordance with the provisions of Section 10. (b) Effect on Prior Agreements. It is specifically acknowledged, understood and agreed by the Parties that this Agreement amends and restates the Original Agreement, as of the Amendment Date. The Executive Retention Agreement shall remain in effect in accordance with its terms. 3. Position, Duties and Responsibilities. (a) During the Term of Employment, Executive shall remain employed as the Chief Executive Officer ("CEO") of the Company and as Chairman of the Board, except as provided in Section 3(b). (b) It is understood and agreed that the Board may, in its discretion, appoint the Company's chief operating officer (the "Designee") to assume the duties of CEO on or before the 30th month following the Amendment Date, the effective date of such appointment to be no later than six (6) months following the date of the Board's action. Upon the effective date of such appointment, the Executive shall relinquish the title and responsibilities of CEO and transfer such title and responsibilities to the Designee in accordance with the Board's appointment. Thereafter, Executive shall continue to act as the Company's Chairman of the Board under the terms and provisions of this Agreement. Notwithstanding the Designee's appointment as CEO of the Company, it is specifically understood and agreed that following such appointment the Company's financial and legal functions shall continue for a period of twelve (12) months to report directly to the Executive, unless Executive specifically agrees to transfer such direct line reporting responsibility to the Designee at some earlier date. If for any reason the appointment of the Designee as the CEO does not occur in accordance with this Section 3(b), then the provisions of Section 3(a) shall remain operative during the Term. (c) The Executive, in carrying out his duties under this Agreement, shall report directly to the Board. 3 (d) In the event of a termination of employment of the Executive during the Term for any reason, the Executive shall immediately resign as a member of the Board of the Company and each of its subsidiaries. Upon the expiration of the Term, the Executive shall not be required to resign as a member of the Board of the Company unless the Company has offered Executive terms of employment no less favorable to Executive than the financial terms contained in this Agreement for the period remaining in Executive's term of office as a Director and Executive has not accepted such offer, in which event Executive shall immediately resign as a member of the Board of the Company. (e) Nothing herein shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations subject to the approval of the Board in each case (which approval has been given as to the boards listed in Exhibit B attached), (ii) serving on the boards of a reasonable number of trade associations and/or charitable organizations, (iii) engaging in charitable activities and community affairs, and (iv) managing his personal investments and affairs, provided that such activities set forth in this Section 3(e) do not materially interfere with the proper performance of his duties and responsibilities hereunder. (f) The parties agree that upon the appointment of the Designee as CEO, Executive and the Company will negotiate and enter into a new employment agreement, and the terms of this Agreement with respect to compensation, the granting of new stock options and benefits will no longer be controlling. It is specifically agreed that (i) the terms of such subsequent agreement shall be no less favorable to Executive than the terms contained in this Agreement (ii) and that the term of employment under such new employment agreement shall continue through the fourth anniversary of the Amendment Date. 4. Base Salary. The Executive shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, of $800,000, which will be increased every twelve to eighteen months in the discretion of the Board. 5. Annual Cash Incentive Award. During the Term of Employment, the Executive shall participate in the annual cash incentive award program of the Company. Under such program, the Executive shall have a reference bonus each calendar year equal to $500,000, prorated for partial years. The actual bonus paid will be a multiple of the reference bonus (from zero to two times the reference bonus). The actual multiple will reflect a variety of subjective and objective factors, as determined by the Board. The Executive shall be paid his annual cash incentive award no later than other senior executives are paid their annual cash incentive awards. For the years 1999, 2000 and 2001, the Executive shall have a minimum guaranteed bonus of $145,833.32 for calendar year 1999, $250,000 for calendar year 2000, and $104,166.68 for the first five months of calendar year 2001 (the "Minimum Guaranteed Bonus" amounts). 6. Restricted Stock and Stock Option Awards. Executive shall receive restricted stock and stock option awards under this Agreement as follows: (a) Initial Restricted Stock Awards. On the Effective Date, and on each anniversary of the Effective Date upon which Executive remains employed by the Company, the Company granted or shall grant the Executive an award of a 4 number of shares of Stock (the "Initial Restricted Stock") having a market value equal to $200,000 based on the average of the closing prices per share of Stock on the New York Stock Exchange for the five business days preceding and including the corresponding grant date, substantially in accordance with the terms set forth in Exhibit C to this Agreement, except that vesting will occur on the third anniversary of each grant date. (b) Initial Stock Option Award. On the Effective Date, the Company granted the Executive a 7-year non-qualified stock option award, substantially in the form attached to this Agreement as Exhibit D, as modified by the terms of this Agreement, to purchase 1,000,000 shares of Stock, (the "Initial Stock Option") with transfer restrictions lapsing on the first three anniversaries of the date of grant (333,333 on June 1, 2000 and 2001 and 333,334 on June 1, 2002) . The exercise price of the Initial Stock Option shall be the average of the closing prices of the Stock on the New York Stock Exchange for the five business days preceding and including June 1, 1999. (c) Subsequent Restricted Stock Awards. On June 30, 2000 (the "Grant Date"), the Company granted the Executive an award of twenty-five (25,000) shares of Stock (the "Subsequent Restricted Stock") subject to a transfer restriction which will lapse while Executive remains employed by the Company annually ratably over the three (3) year period beginning with the first anniversary of the Grant Date. The Subsequent Restricted Stock will be granted in accordance with the terms and conditions of the Company's Equity Incentive Plan (the "Plan"). The Company and the Executive have executed a restricted stock agreement substantially in accordance with the terms set forth in Exhibit E. (d) Subsequent and Performance Stock Option Awards. (i) On the Grant Date, the Company granted to Executive a stock option to purchase three hundred thousand (300,000) shares of Stock, the exercise price of which was the average of the closing prices of the Stock on the New York Stock Exchange for the five business days preceding and including the Grant Date (the "Subsequent Stock Option"). The Subsequent Stock Option was granted in accordance with the terms and conditions of the Plan. The Company and the Executive have executed a stock option agreement substantially in accordance with the terms set forth in Exhibit F. The shares of Stock issuable upon exercise of the Subsequent Stock Option will be subject to a repurchase right in the Company which will lapse while Executive remains employed by the Company ratably on the first three anniversary dates of the Grant Date. The Subsequent Stock Option shall be exercisable for a period of seven (7) years from the Grant Date. The Company shall use its best efforts to adjust the Subsequent Stock Option to reflect the distribution to shareholders of shares of Thermo Fibertek Inc. and Thermo Biomedical, Inc., in accordance with the Emerging Issues Task Force, Issue 90-9: Changes to Fixed Employee Stock Option Plans as a Result of a Restructuring, Example 3, Situation 1, as the same may be in force and effect on the date of such distributions. (ii) Conditioned upon his continued employment and the Executive achieving financial and strategic performance objectives established by the Board and the Executive, the Company shall grant to Executive additional stock options to purchase two hundred and sixty thousand (260,000) shares of 5 Stock on each of the first, second and third anniversaries of the Amendment Date (the "Performance Stock Options"). The exercise price of the Performance Stock Options shall be the average of the closing prices of the Stock on the New York Stock Exchange for the five business days preceding and including the date of each grant. The Performance Stock Options will be granted in accordance with the terms and conditions of the Plan. Each grant will be evidenced by the Company's then standard employee stock option agreement, which shall be executed by the Executive and the Company. Each Performance Stock Option shall vest while the Executive remains employed by the Company ratably on the first three anniversary dates of each grant date, and shall be exercisable for a period of seven (7) years from the date each is granted. (e) Change in Control. If a Change in Control occurs during the Term, then, effective upon the Change in Control, (i) each outstanding option to purchase shares of Stock of the Company held by the Executive, whether or not issued under this Agreement, shall become fully vested, immediately exercisable in full and will no longer be subject to a right of repurchase by the Company and (ii) each outstanding restricted stock award held by the Executive, whether or not issued under this Agreement, shall be deemed to be fully vested. 7. Employee Benefit Programs. During the Term of Employment, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded. In no way limiting the foregoing, during the Term the Company will maintain, at its cost, term life insurance on the life of the Executive for the benefit of his beneficiaries with a face amount equal to three million dollars ($3,000,000.). The Executive shall be entitled to four weeks paid vacation per year of employment. 8. Perquisites. During the Term of Employment, the Executive shall be entitled to participate in all of the Company's executive perquisites in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior-level executives, including without limitation, the Company's automobile reimbursement arrangement. 9. Reimbursement of Business and Other Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement including, without limitation, reasonable legal fees incurred in the negotiation and preparation of this Agreement, and the Company shall promptly reimburse him for such expenses, subject to documentation in accordance with the Company's policy. 6 10. Termination of Employment During the Term. (a) Termination Due to Death. In the event that the Executive's employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to the following benefits: (i) the sum of (1) the Executive's base salary through the Termination Date, (2) a pro-rata annual cash incentive award for the year in which the Executive's death occurs, based on the reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of termination, payable when annual cash incentive awards are normally paid to other executives (the "Severance Bonus"); and (3) the amount of any cash compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay through the Termination Date, in each case to the extent not previously paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and (ii) all stock options (to the extent previously granted under this Agreement or any other agreement), including previously exercised stock options, shall become fully vested and no longer subject to a right of repurchase by the Company; all options shall remain exercisable until two years from the Termination Date (but in no event beyond the end of each such option's Exercise Period); and (iii) the transfer restrictions on all restricted stock granted to Executive under this Agreement or any other agreement shall lapse. (b) Termination Due to Disability. In the event that the Executive's employment is terminated by either party due to his Disability, he shall be entitled to the following benefits: (i) disability benefits in accordance with the long-term disability ("LTD") program then in effect for senior executives of the Company; (ii) Base salary through the end of the LTD elimination period; (iii) the sum of (1) the Severance Bonus; and (2) the amount of any cash compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay through the Termination Date, in each case to the extent not previously paid; (iv) All stock options (to the extent previously granted under this Agreement or any other agreement), including previously exercised stock options, shall become fully vested and no longer subject to a right of repurchase by the Company; all options shall remain exercisable until two years from the Termination Date (but in no event beyond the end of each such option's Exercise Period); 7 (v) the transfer restrictions on all restricted stock granted to Executive under this Agreement or any other agreement shall lapse; and (vi) the Executive shall be entitled to continued participation at Company expense in all medical and dental insurance coverage in which he was participating on the date of his termination until the earlier of (x) 18 months following the date of termination and (y) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer. In no event shall a termination of the Executive's employment for Disability occur until the Party terminating his employment gives written notice to the other Party in accordance with Section 24 below, and until Executive is determined to be disabled as defined in Section 1(f). (c) Termination by the Company for Cause. In the event the Company terminates the Executive's employment for Cause: (i) he shall be entitled to a payment of base salary and accrued vacation pay through the Termination Date; (ii) no further lapsing of the Company's repurchase right, and no further vesting, shall occur and Executive shall have 90 days to exercise all vested and outstanding options (but in no event beyond the end of each such option's Exercise Period); and (iii) all restricted stock granted to Executive as to which transfer restrictions have not lapsed shall be forfeited. (d) Termination without Cause, or for Good Reason. In the event the Executive's employment is terminated by the Company without Cause or by the Executive with Good Reason (but not in any event as a result of Disability, death, or as the result of a termination with Cause or without Good Reason), the Executive shall be entitled to the following: (i) the Company shall pay to the Executive in equal monthly installments, over the period specified below, beginning 30 days after the Termination Date the aggregate of the following amounts: (A) the sum of the Accrued Obligations; and (B) the Termination Payment Amount. The Termination Payment Amount shall be determined as follows: 8
- ------------------------------------------------------------------------------------------------ Year Termination Termination Payment Amount Payout Period Pursuant to This Section10(d) Occurs - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Prior to July 11, 2001 An amount equal to three (3) times 36 months (Executive's then current base salary + $200,000) - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ On or after July 11, An amount equal to two (2) times 24 months 2001 but prior to July (Executive's then current base salary + 11, 2002 $200,000) - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ On or after July 11, An amount equal to Executive's then 12 months 2002 current base salary + $200,000 - ------------------------------------------------------------------------------------------------
(ii) for three years after the Termination Date, or such longer period as may be provided by the term of the appropriate plan, program, practice or policy, the Company shall continue to provide medical and dental benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable medical and dental benefit plans in effect on the Termination Date and in which Executive participated as of such date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical and dental benefits from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) transfer restrictions shall lapse on all restricted stock and the stock options (to the extent previously granted under this Agreement or under the terms of any other agreement), including previously exercised stock options, shall be fully vested and no longer subject to a right of repurchase by the Company; and shall remain exercisable until two years from the Termination Date (but in no event beyond the end of each such option's Exercise Period); and (vi) the restrictions on the restricted stock granted pursuant to this Agreement or any other agreement shall lapse. (e) Voluntary Termination. A termination of employment by the Executive on his own initiative, other than a termination due to death or Disability or Good Reason, shall have the same consequences as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10(e) shall be effective upon 30 days prior written notice to the Company. 9 (f) Taxes. (i) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below), and thereafter, the Executive becomes eligible to receive "Contingent Compensation Payments" (as defined below) the Company shall, as soon as administratively feasible after the Executive becomes so eligible determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (A) which of the payments or benefits due to the Executive following such Change in Ownership or Control constitute Contingent Compensation Payments, (B) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payment and (C) the amount of the "Gross-Up Payment" (as defined below) due to the Executive with respect to such Contingent Compensation Payment. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (1) that he agrees with the Company's determination pursuant to the preceding sentence or (2) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he agrees with the Company's determination, the Company shall make the Gross-Up Payment to the Executive within three business days following delivery to the Company of the Executive Response. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 15 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 15-day period, such dispute shall be settled by arbitration in accordance with Section 13 below. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-Up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-Up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by the amount of the accrued interest thereon computed at the prime rate announced from time to time by The Wall Street Journal compounded monthly from the date that such payments originally were due. In the event that the Executive fails to deliver an Executive Response on or before the required date, the Company's initial determination shall be final. (ii) For purposes of this Section 10(f), the following terms shall have the following respective meanings: (A) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. 10 (B) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or supplied to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. (C) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. (g) Outplacement Services. In the event the Executive's employment terminates in accordance with Section 10(d), the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate of $50,000, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. (h) Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (i) No Mitigation; No Offset. The Executive shall not be required to mitigate the amount of any payment or benefit provided in this Section 10 by seeking other employment otherwise. Further, except as provided in Sections 10(b) (vi) and 10 (d) (ii), the amount of any payment or benefits provided for in this Section 10 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer or be offset by any amount claimed to be owed by the Executive to the Company. 11. Termination of Employment Upon Expiration of the Term. (a) Upon the expiration of the Term, (i) the Company shall pay to Executive in equal monthly installments, for a twelve-month period, beginning 30 days after the expiration of the Term, an amount equal to the sum of the (x) Accrued Obligations and (y) Executive's current base salary as in effect on the expiration of the Term plus $200,000; (ii) for twelve months after the Termination Date, or such longer period as may be provided by the term of the appropriate plan, program, practice or policy, the Company shall continue to provide medical and dental benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable medical and dental benefit plans in effect on the Termination Date and in which Executive participated as of such 11 date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical and dental benefits from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any Other Benefits; and (iv) no further lapsing of the Company's repurchase rights, and no further vesting, shall occur and Executive shall have two years from the expiration of the Term to exercise all vested and outstanding options (but in no event beyond the end of each such option's Exercise Period); and (v) all restricted stock granted to Executive as to which transfer restrictions have not lapsed shall be forfeited. (b) Notwithstanding the foregoing, Sections 11(a)(iv) and (v) shall not apply for so long as Executive shall remain a member of the Board of the Company pursuant to Section 3(d) of this Agreement. 12. Confidentiality & Assignment of Inventions. (a) Executive shall abide by his previously executed confidentiality and assignment of inventions agreement, set forth in Exhibit G, attached and incorporated herein. (b) Upon the termination of the Executive's employment, the Executive (or in the event of his death, the Executive's personal representative) shall promptly surrender to the Company the original and all copies of any materials containing confidential information of the Company which are then in the Executive's possession or control, provided, however, the Executive shall not be required to surrender his rolodexes, personal diaries and other items of a personal nature. 13. Noncompetition; Nonsolicitation. (a) The Executive acknowledges (i) that in the course of his employment with the Company he will become familiar with trade secrets and customer lists of, and other confidential information concerning, the Company and its Affiliates, customers, and clients and (ii) that his services will be of special, unique and extraordinary value to the Company. (b) The Executive agrees that during the Term of Employment and for a period of one year following his termination of employment (the "Noncompetition Period") he shall not in any manner, directly or indirectly, through any person, firm, corporation or enterprise, alone or as a member of a 12 partnership or as an officer, director, stockholder, investor or employee of or advisor or consultant to any person, firm, corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged (collectively, ("Restricted Activity")), in any Competitive Activity. A Competitive Activity shall mean a business that (i) is being conducted by the Company or any Affiliate at the time in question and (ii) was being conducted, or was under active consideration to be conducted, by the Company or any Affiliate, at the date of the termination of the Executive's employment, provided that Competitive Activity shall not include a business of the Company contributing less than 1% of the Company's revenues for the year in question and provided further that an activity shall not be deemed to be a Competitive Activity if the activity contributes less than 1% of the revenues for the year in question of the business by which the Executive is employed or with which he is otherwise associated; and provided further that it is agreed and understood that the prohibitions provided for in this Section 13(b) shall not restrict Executive from engaging in Restricted Activity for any subsidiary, division or affiliate or unit of a company (collectively a "Related Entity") if that Related Entity is not engaged in Competitive Activity, irrespective of whether some other Related Entity of that company engages in what would otherwise be considered to be Competitive Activity (as long as Executive does not engage in Restricted Activity for such other Related Entity). (c) The Executive further agrees that during the Noncompetition Period he shall not (i) in any manner, directly or indirectly, hire or cause to be hired any employee of or advisor or consultant to the Company or any of its Affiliates any purpose or in any capacity whatsoever, or (ii) in connection with any business to which Section 13(b) applies, call on, service, solicit or otherwise do business with any customer of the Company or any of its Affiliates; provided, however, that the restriction contained in clause (i) of this Section 13(c) shall not apply to, or interfere with, the proper performance by the Executive of his duties and responsibilities under Section 3 of this Agreement. (d) Nothing in this Section 13 shall prohibit the Executive from being a passive owner of not more than one percent of the outstanding common stock, capital stock and equity of any firm, corporation or enterprise so long as the Executive has no active participation in the management of business of such firm, corporation or enterprise. (e) If the restrictions stated herein are found by a court to be unreasonable, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 14. Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by binding arbitration, to be held in Boston, Massachusetts, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs of the mediation, arbitration or litigation including, without limitation, reasonable attorneys' fees of both parties, shall be borne by the Company. Pending the resolution of the dispute, the Company shall continue payment of all amounts due and provisions of all benefits to which Executive is entitled, which amounts shall be subject to repayment to the Company if the Company prevails. 13 15. Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. Nothing in this paragraph is intended to prevent the parties from raising any and all defenses with respect to the necessity for, and scope of, such injunctive or equitable relief. 16. Indemnification. (a) The Executive shall continue to be indemnified under the amended and restated Indemnification Agreement, dated as of October 13, 1999, a copy of which is attached as Exhibit H, in accordance with the terms of such agreement. (b) The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other senior executives. (c) The Company acknowledges the possibility that the Executive may lose significant benefits at his current employer because of his entering into the Original Agreement and this Agreement. In the event his current employer refuses to pay any such benefit, the Executive agrees to use his best efforts to obtain the benefit, including possible arbitration proceedings, if necessary. The Company will fully indemnify the Executive for all his expenses, including legal fees, incurred in attempting to obtain such benefits. If the Executive is not able to obtain the benefit before June 1, 2000, the Company will indemnify the Executive by paying an amount equal to the value of the benefit forfeited, but in no event more than $1.5 million. 17. Assignability; Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive). and assigns. Rights or obligations of the Company under this Agreement may be assigned or transferred by the Company pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall take whatever action it reasonably can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law. 14 18. Representations. (a) The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. The Executive represents that he knows of no agreement between him and any other person, firm or organization that would be violated by the performance of his obligations under this Agreement. (b) Executive hereby represent and warrants that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Executive further represents and warrants that Executive's performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Executive in confidence or in trust prior to Executive's employment with the Company. Executive will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others. Executive will not hereafter grant anyone any rights inconsistent with the terms of this Agreement. 19. Entire Agreement. This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto. This is an integrated document. 20. Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be. 21. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Agreement. 22. Survivorship. Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive's employment. This Agreement itself (as distinguished from the Executive's employment) may not be terminated by either Party without the written consent of the other Party. 15 23. References. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 24. Governing Law/Jurisdiction. This Agreement shall be governed in accordance with the laws of Massachusetts without reference to principles of conflict of laws. 25. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally, (b) sent by certified or registered mail, postage prepaid, return receipt requested or (c) delivered by overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier) to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of: If to the Company: Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 Attention: Vice President and General Counsel Copy: Chairman, Human Resources Committee of the Board of Directors If to the Executive: Richard F. Syron c/o Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 26. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 27. Counterparts. This Agreement may be executed in two or more counterparts. 16 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. THERMO ELECTRON CORPORATION By: /s/ Frank Jungers ---------------------------- Frank Jungers Chairman of the Human Resources Committee of the Board of Directors /s/ Richard F. Syron ---------------------------- Richard F. Syron 17 EX-10.39 4 0004.txt Exhibit 10.39 January 25, 2001 Mr. John T. Keiser 1319 Camino Corrales Santa Fe, NM 87505 Dear Jack: This letter confirms our arrangement regarding your resignation as an officer and director of Thermo Electron Corporation and any of its subsidiaries and affiliates (collectively, the "Company"). The following is our agreement related to your resignation from the Company: 1. Termination of Employment: Your employment with the Company will terminate effective as of March 31, 2001 (the "Employment Termination Date"). You will be paid your regular salary through the Employment Termination Date. At the discretion of the new Chief Executive Officer of Thermo Biomedical Inc., you may be considered for part-time employment beyond the Employment Termination Date. 2. 2000 Bonus: You will be entitled to receive a $120,000 bonus for your performance in 2000, which bonus shall be payable at the same time in 2001 as bonuses to other senior executives are paid. You will be entitled to a bonus of $30,000 for the first quarter of 2001, payable on the Employment Termination Date. 3. Severance Payments: You will be entitled to receive a lump sum severance payment of $600,000 payable within 10 days after you countersign this letter, representing the sum of two times your current annual base salary. You also will be entitled to receive an additional severance payment of $75,000 on July 1, 2001. 4. Accrued Vacation: You will be paid for any accrued but unused vacation time which you had earned through the Employment Termination Date. You will not continue to earn vacation or other paid time off after the Employment Termination Date. 5. Full Payment: You agree that all payments provided to you under paragraphs 1, 2 and 4 of this Agreement are in complete satisfaction of any and all compensation due to you from the Company through the Employment Termination Date. You agree to reimburse the Company for all personal expenses due and owing to the Company as of the Employment Termination Date. Mr. John T. Keiser January 25, 2001 Page 2 6. Employee Benefit Programs: Your participation in all employee benefit programs of the Company will cease effective as of the Employment Termination Date in accordance with the terms of those programs. You will have the option to elect to continue your health care coverage under COBRA beginning on the day after the Employment Termination Date for a period of up to 18 months, in which case the Company will pay the full monthly premium cost of your coverage under the applicable health care plan. Detailed information will be provided to you under separate cover. You will also have the option, at your sole expense, of converting your basic (not supplemental) life insurance coverage to an individual plan through Prudential. If interested, please let us know by January 31, 2001 and conversion information will be furnished to you. A conversion option is not available for long term disability coverage. 7. Money Match Plus Plan: Your active participation in the Money Match Plus Plan shall end on the Employment Termination Date. Information will be provided to you regarding various election options available to you regarding your account. 8. Stock Options: No further vesting of your stock options in the Company and no further lapsing of the Company's repurchase rights will occur after the Employment Termination Date. If you do not exercise your vested options by the earliest of (i) the date of the original expiration date of the options, (ii) the date that is three months after the Employment Termination Date (in the case of options identified with an asterisk next to the grant ID number on the attached schedule) or (iii) the second anniversary of the Employment Termination Date (in the case of all other options identified on the attached schedule), your options will expire and be canceled, and you will have no further rights with respect to your options. 9. Taxes: All payments by the Company under this Agreement will be reduced by all taxes and other amounts that the Company is required to withhold under applicable law and all other deductions authorized by you. 10. Company Property: You will return to the Company any and all documents, materials and information related to the Company, or its subsidiaries, affiliates or businesses, and all other property of the Company, including, without limitation, equipment and files in your possession or control, on or before the Employment Termination Date, except that you may retain your personal computer. Further, you agree that on and after the date hereof you will not for any purpose attempt to access or use any Company computer or computer network or system, including without limitation its electronic mail system. 11. Restricted Stock: Your 20,000 restricted shares of the Company's common stock shall vest as of the Employment Termination Date. Mr. John T. Keiser January 25, 2001 Page 3 12. Release: In exchange for the consideration described in paragraphs 3 and 11 hereof, you hereby irrevocably and unconditionally waive, release, acquit and forever discharge the Company and each of its respective current, former or future officers, directors, employees, agents, representatives, shareholders and legal predecessors and successors from any and all claims, liabilities, damages, actions, causes of action and suits, whether known or unknown, which you now have, own or hold, or claim to have, own or hold, or which at any time heretofore, had owned or held, or claimed to have owned or held, or which you at any time hereafter may have, own or hold, or claim to have owned or held against them, based upon, arising out of or in connection with any circumstance, matter or state of fact up to the date of this agreement, including without limitation those based upon or arising out of the termination of your employment and other relationships with the Company, your service as an officer or director of the Company, your compensation while employed by the Company, your stock options or any terms thereof or relating thereto and any of the Company's policies, procedures or requirements. You hereby agree not to file any lawsuit to assert such claims, which include, but are not limited to, any claims for breach of contract, wrongful termination, or age, sex, race, disability or other discrimination under the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967 or other federal, state or local laws prohibiting such discrimination or under any other federal, state or local employment laws. YOU UNDERSTAND AND ACKNOWLEDGE THAT YOU HAVE BEEN ADVISED TO SEEK THE ADVICE OF AN ATTORNEY, IF YOU SO CHOOSE, PRIOR TO SIGNING THIS RELEASE AND TO THE EXTENT DESCRIBED HEREIN YOU ARE GIVING UP ANY LEGAL CLAIMS YOU HAVE AGAINST THE COMPANY AND EACH OF ITS RESPECTIVE CURRENT, FORMER OR FUTURE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, SHAREHOLDERS, LEGAL PREDECESSORS AND SUCCESSORS BY SIGNING THIS RELEASE. YOU FURTHER UNDERSTAND THAT YOU MAY HAVE 21 DAYS TO CONSIDER THIS AGREEMENT, THAT YOU MAY REVOKE IT AT ANY TIME DURING THE SEVEN DAYS AFTER YOU SIGN IT, AND THAT IT WILL NOT BECOME EFFECTIVE UNTIL THE 7-DAY REVOCATION PERIOD HAS PASSED WITHOUT REVOCATION. YOU FULLY UNDERSTAND YOUR RIGHT TO TAKE 21 DAYS TO CONSIDER SIGNING THIS RELEASE AND, AFTER HAVING SUFFICIENT TIME TO CONSIDER YOUR OPTIONS, YOU HEREBY WAIVE YOUR RIGHT TO TAKE THE FULL 21-DAY PERIOD. YOU ACKNOWLEDGE THAT YOU ARE SIGNING THIS RELEASE KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE CONSIDERATION DESCRIBED IN PARAGRAPHS 3 and 11 HEREOF. Mr. John T. Keiser January 25, 2001 Page 4 13. Restriction on Purchase or Sale of Common Stock: You understand that you will no longer be a "Reporting Person," for purposes of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. However, you understand that for a period of six months following the date hereof you are required to report certain transactions pursuant to such rules and regulations on Forms 4 and 5. You are also urged to contact the Corporate Secretary of the Company, Ms. Sandra L. Lambert, should you have any questions regarding compliance with the insider trading regulations under the federal securities laws. 14. Non-Compete. Until July 1, 2001 (the "Non-Compete Period"), you shall not, either directly or indirectly as a stockholder, investor, partner, director, officer, employee or consultant, compete or engage in any business that competes, anywhere in the world, with the business of the Company. Notwithstanding the foregoing, you may own, solely as an investor, up to 1% of the common stock of any publicly-traded competitor. You agree that the duration and geographic scope of this non-competition provision are reasonable. In the event that any court determines that the duration or geographic scope, or both, are unreasonable and that such provision is to that extent unenforceable, the parties agree that the provision shall remain in full force and effect for the greatest time period and in the greatest geographic area that would not render it unenforceable. The parties intend that this non-competition provision shall be deemed a series of separate covenants, one for each and every county of each and every state of the U.S. and each and every political subdivision of each and every country outside of the U.S. Further, during the Non-Compete Period, you hereby agree you shall not, either directly or indirectly as a stockholder, investor, partner, director, officer, employee or otherwise, attempt to induce any employee of the Company to terminate his or her employment with the Company, or hire or caused to be hired any such employee, or attempt to induce any customer or supplier of the Company to terminate its relationship with the Company. 15. Resignation. You hereby resign effective as of today all of your positions as an officer and director of the Company. Notwithstanding the foregoing, you shall remain an employee until March 31, 2001 in accordance with the terms of paragraph 1 above and shall be entitled to continue to participate until March 31, 2001 in the Company's automobile program for officers and its executive supplemental medical reimbursement program. 16. Non-Disparagement: You agree that you will continue to support and promote the interests of the Company and that you will not criticize, disparage, defame or in any way comment negatively to anyone about the Company or any of the people or organizations connected with them, or do or say anything that could disrupt the good morale of the employees of the Company or otherwise harm the interests or reputation of the Company and any of the organizations or people connected with them. The Company agrees that it will cause the officers of the Company not to criticize, disparage Mr. John T. Keiser January 25, 2001 Page 5 or defame you or otherwise do or say anything that harms your reputation and that the Company shall be solely responsible for any breach of the provisions in this paragraph 16 by any such officers. Nothing in this provision shall prevent the parties from (i) complying with compulsory legal process or otherwise making disclosures in connection with litigation or administrative proceedings, (ii) making such disclosures as are necessary to obtain legal advice, (iii) making disclosures as are required by federal, state or local regulatory authorities, and (iv) making disclosures which by law are required or cannot be prohibited. 17. Cooperation: You agree to reasonably cooperate with the Company with respect to all matters arising during or related to your employment, including but not limited to cooperation in connection with any governmental investigation, litigation or regulatory or other proceeding which may have arisen or which may arise following the signing of this Agreement. 18. Waiver of Jury Trial: Each of the parties hereby expressly, knowingly and voluntarily waives all benefit and advantage of any right to a trial by jury, and each agrees that he or it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, a trial by jury in any action arising in connection with this Agreement. 19. Company Information and Invention Agreement. You agree to comply with the terms of a Thermo Electron Company Information and Invention Agreement, a copy of which is attached hereto. Such agreement supersedes any prior agreement covering the same subject matter which you may have signed with the Company previously. 20. Entire Agreement: This letter contains the entire Agreement between you and the Company and supersedes all prior and contemporaneous agreements, communications and understandings, whether written or oral, relating to the subject matter of this letter, including your Executive Retention Agreement (which is hereby canceled), except that your Indemnification Agreement with the Company and the Thermo Electron Company Information and Invention Agreement shall survive in accordance with their terms. This Agreement will be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts without regard to choice of law provisions. 21. Severability: If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and replaced with a provision which is enforceable and comes closest to the intent of the parties underlying the unenforceable provision. 22. Relief: In the event of breach of the provisions of this Agreement by any party, in addition to any other rights that the other parties may have Mr. John T. Keiser January 25, 2001 Page 6 under law or in equity, each party shall have the right to specific performance and injunctive relief, it being acknowledged and agreed that money damages will not provide an adequate remedy. In the event litigation is brought with respect to this Agreement, the prevailing party shall be entitled to recover from the losing party his or its reasonable attorney's fees and expenses. 23. Successors and Assigns: This Agreement shall be bending upon and inure to the benefit of the parties hereto and their respective successors and assigns, including corporations with which, or into which, the Company may be merged or which may succeed to its respective assets or business; provided, however, that your obligations are personal and may not be assigned. 24. Amendment: This Agreement may be amended or modified only by a written instrument executed by you and the Company. 25. Voluntary Agreement: In signing this Agreement, you give the Company assurance that you have signed it voluntarily and with a full understanding of its terms and that you have had sufficient opportunity to consider this Agreement and to consult with anyone of your choosing before signing it. If the terms of this Agreement are acceptable to you, please sign and return it to the undersigned. At the time you sign and return this Agreement, it will take effect as a legally-binding agreement between you and the Company on the basis set forth above. Date Received by Addressee: January 25, 2001 THERMO ELECTRON CORPORATION By: /s/ Anne Pol ----------------------------- Title: Senior Vice President, Human Resources Accepted and Agreed to: /s/ John T. Keiser - ------------------------- EX-10.40 5 0005.txt Exhibit 10.40 October 3, 2000 Mr. Guy Broadbent 8 Crestview Lane Sparta, NJ 07871 Dear Guy: I am pleased to extend an employment offer to you as President of the Optical Technologies Sector of Thermo Electron, beginning on October 13, 2000. The President title will be confirmed by the Thermo Electron Board of Directors at their next meeting. In your new position you will report directly to Marijn Dekkers. Your starting salary will be $22,500 per month ($270,000 annualized). You will participate in Thermo Electron's management bonus plan, which provides you the opportunity to earn additional compensation based on individual and company performance. Your reference bonus is $135,000 subject to a multiplier of 0-2 times based on a combination of subjective and objective factors, the details of which will be provided to you. To be eligible for a bonus payment, a participant must be actively employed at the end of the bonus plan period. Your 2000 bonus is guaranteed at $135,000. In addition, I intend to recommend to the Human Resource Committee of the Thermo Electron Board of Directors to approve the issuance to you of options to purchase 100,000 shares of Thermo Electron stock at market value at the date of grant. The options are 7 year options, vesting over a 3 year period, and are subject to all terms and conditions of the stock option agreement, which will be given to you when approved. I will also recommend to the Human Resource Committee of the Thermo Electron Board of Directors the award of 6,000 shares of restricted stock of Thermo Electron Corporation. The award will have a term of 3 years and vest 33% per year beginning on the first anniversary of the grant date, and is subject to all terms and conditions of an agreement which will be given to you when approved. You will receive a relocation bonus equal to two months of your salary grossed up and a sign on bonus equal to $50,000. To assist you in relocating to the Boston area we will provide you with relocation support that is described in the attached document. In addition, Thermo Electron will reimburse you for up to 3 points on your home mortgage. As an officer of Thermo Electron, you will receive our executive health insurance supplement. This $5,000 annual supplement will be paid to you in $1,250 quarterly payments. These funds are for your discretionary use, are not restricted to medical payments and are taxable income. Mr. Guy Broadbent October 3, 2000 Page Two Upon employment, you are eligible to participate in the Company's standard employee benefit programs. You will be eligible to accrue vacation at the rate of 4 weeks per year. You will also be entitled to participate in our car lease/allowance program. Under this program, you may either have the company lease a company car for you or receive a quarterly allowance of $3,125. If you decide to have the company lease a vehicle, you can select the make, model and options as long as the vehicle is appropriate for business use. If the acquisition cost of the car exceeds $26,000, the balance will be deducted from your payroll checks. The sales tax and insurance are paid separately by the company and are not calculated in the $26,000 limit. In accordance with the Company's standard employment practice, you will be required to sign an Information and Invention Agreement, as well as acknowledgements for Company policies on Drugs and Alcohol in the Workplace, Pre-employment Drug Testing, Sexual Harassment, Insider Trading Policy and Business Conduct Policy, copies of which are enclosed. Since the Company has certain government contracts, we are required to maintain a drug free workplace. This employment offer is conditional upon your passing a pre-employment medical examination, which includes testing for illegal drugs or controlled substances. The Company pays the cost of the examinations. Please contact Donna Cappadona at 781-622-1156 to arrange an appointment for the medical examination. Your employment status with Thermo Electron is "at will" which means that your employment is not guaranteed for any definite time period and may be terminated by you or by Thermo Electron at any time and for any reason with or without cause or advance notice. This employment status may not be altered except by written agreement signed by an Officer of Thermo Electron. If your employment is terminated by the company for other than cause (as defined below), you will be paid one year's salary and the market value for each share of the restricted stock in this offer that is unvested. "Cause" in this instance includes gross personal misconduct, insubordination, misappropriation of funds, fraud, dishonesty, or any conduct which is in willful violation of any applicable law or regulation pertaining to the business. I look forward to having you join us and I am confident that you will be an excellent addition to Thermo Electron. Please indicate your acceptance by returning a signed copy of this letter to me as soon as possible. If you have any questions, please do not hesitate to call me. Very truly yours, /s/ Richard F. Syron /s/ Guy Broadbent ___________________________ Agreed:___________________________ Richard F. Syron Guy Broadbent Chairman and CEO October 13, 2000 Date: ___________________________ cc. P. Northern, B Watts EX-10.41 6 0006.txt Exhibit 10.41 To: Richard F. Syron From: Frank Jungers, Chairman of the Human Resources Committee of the Thermo Electron Corporation Board of Directors Date: March 14, 2001 RE: Amendment to the Amended & Restated Employment Agreement We hereby agree that your Amended & Restated Employment Agreement, dated July 11, 2000 is amended, as provided for herein. Except as specifically modified herein, the terms of your Amended & Restated Employment Agreement, and all other agreements, exhibits and other instruments related thereto or to your employment with Thermo Electron Corporation (including any of its successors or assigns, the "Company") shall remain in full force and effect. This amendment to your Amended & Restated Employment Agreement shall be referred to herein as the "Amendment." Effective March 14, 2001 (the "Amendment Effective Date"), your Employment Agreement is amended as follows: 1. Restricted Stock and Stock Options. Section 6 of the Amended & Restated Employment Agreement is amended by adding the following new subsection (f) to the end thereof: "(f) Additional Vesting Rules. Notwithstanding any provision of this Agreement or any other agreement between Executive and the Company to the contrary, the following additional vesting rules shall apply to stock option and restricted stock awards granted to Executive by the Company: (i) if Executive's employment with the Company continues after July 10, 2003 but is terminated by Executive without Good Reason prior to July 10, 2004: (A) the then outstanding unvested options to purchase shares of Stock of the Company held by the Executive and granted after the Amendment Effective Date, whether or not issued under this Agreement, shall become fifty percent (50%) vested, and (B) fifty percent (50%) of the outstanding unvested restricted stock awards held by the Executive, whether or not issued under this Agreement, shall be fully vested; (ii) if Executive is employed by the Company on July 10, 2004: (A) all outstanding stock options (granted after the Amendment Effective Date), shall become fully vested; and (B) all such options shall remain exercisable for their entire exercise period and the rules set forth in Section 10 governing post-termination exercise shall not apply, and (C) the transfer restrictions on all restricted stock granted to Executive under this Agreement or any other agreement shall lapse." 2. Executive Retention Award. Section 3 of the Amended & Restated Employment Agreement is amended by adding the following subsection (g) to the end thereof: "(g) Executive Retention Benefit. Executive shall be entitled to a retention benefit (the "Executive Retention Benefit"), with payments to begin upon the termination of his employment from the Company for any reason, in accordance with the following: (i) If the Designee is appointed CEO in accordance with Section 3(b) and (A) Executive is removed involuntarily from his position as Chairman of the Board on or before July 10, 2004, Executive shall be entitled to an Executive Retention Benefit with a lump sum value, as determined by the Board in its discretion, to be not less than Three Million Two Hundred Thousand Dollars ($3.2M) and not more than Four Million Eight Hundred Thousand Dollars ($4.8M), with a targeted mid-point of Four Million Dollars ($4M); (B) Executive voluntarily resigns his position as Chairman of the Board on or before July 10, 2004, Executive shall be entitled to an Executive Retention Benefit with a lump sum value, as determined by the Board in its discretion, to be not less than Eight Hundred Thousand Dollars ($800,000) and not more than One Million Two Hundred Thousand Dollars ($1.2M), with a targeted mid-point of One Million Dollars ($1M); (C) Executive resigns or is removed from his position as Chairman of the Board after July 10, 2004 but before July 10, 2005, Executive shall be entitled to an Executive Retention Benefit with a lump sum value, as determined by the Board in its discretion, to be not less than Two Million Four Hundred Thousand Dollars ($2.4M) and not more than Three Million Six Hundred Thousand Dollars ($3.6M), with a targeted mid-point of Three Million Dollars ($3M); (D) Executive resigns or is removed from his position as Chairman of the Board after July 10, 2005, Executive shall be entitled to an Executive Retention Benefit with a lump sum value, as determined by the Board in its discretion, to be not less than One Million Six Hundred Thousand Dollars ($1.6M) and not more than Two Million Four Hundred Thousand Dollars ($2.4M), with a targeted mid-point of Two Million Dollars ($2M); 2 (ii) The Board, in its discretion, shall determine the amount of Executive Retention Benefit upon the occurrence of any of the events described in (i)(A)-(D) next above, in accordance with the provisions set forth in each such subsection. (iii) Executive in his discretion shall elect the form of payment for the Executive Retention Benefit, which shall be in whole or in part either a lump sum distribution or an annuity purchased with such lump sum value. The undersigned hereby represents that he is duly authorized to execute this Amendment on behalf of the Company and that all necessary approvals of any board, committee, body, or other person have been obtained. It is understood and agreed that this Amendment to Executive's Amended & Restated Employment Agreement shall constitute a binding agreement upon execution by both parties. This Amendment is executed as an instrument under seal as of the date indicated below. Thermo Electron Corporation By: /s/ Frank Jungers --------------------------- Frank Jungers Chairman of the Human Resources Committee of the Board of Directors Agreed to and Accepted by: /s/ Richard F. Syron - ---------------------------- Richard F. Syron Date: March 14, 2001 ---------------------- 3 EX-10.42 7 0007.txt Exhibit 10.42 [Thermo Electron Corporation Logo] Human Resources Memorandum To: Peter Hornstra From: Anne Pol Date: January 31, 2000 Re: Thermo Electron Reorganization At the meeting today, Dick Syron discussed the company's reorganization plans. These changes are critical for the long term health and success of Thermo Electron. As you have heard, this transition will take up to two years to complete. To make the transition successfully, it is important that we retain your services during this period. To provide you with incentive to support the company through this transition, Thermo Electron is offering you a transition bonus equal to 100% of your base salary. This bonus will be paid to you on January 1, 2002. If you are offered a new position within the reorganized company or businesses that are spun off, you will be paid a prorated portion of this bonus equal to the percent of this transition period that you were in your present position. Since this bonus will be considered income it will be subject to appropriate federal, state, city and other tax withholding requirements. As always, your employment during this period will continue to be as an employee-at-will. If you elect to leave the company voluntarily Prior to December 31, 2001, you will forfeit this bonus. If your employment is terminated during this transition period without cause, your transaction bonus will be paid to you at that time. Termination of your employment for cause during this period (e.g. for gross personal misconduct, insubordination, misappropriation of funds, fraud, dishonesty, gross neglect of or failure to perform the duties reasonably required of you, or any conduct which is in willful violation of any applicable law or regulation pertaining to Thermo Electron) will also result in the forfeiture of this bonus. I appreciate your past contributions to Thermo Electron and look forward to working with you as we reorganize our business to assure our future success. If you have any questions regarding any of the terms of this agreement, please do not hesitate to contact me. Once you have read and understood the terms of this offer, please indicate your agreement by signing below on the line above your typewritten name, make a copy for your records and return the original document to Joe Momyer. /s/ Peter Hornstra February 4, 2000 - ----------------------- ------------------------- Peter Hornstra EX-13 8 0008.txt Exhibit 13 Thermo Electron Corporation Consolidated Financial Statements 2000 Thermo Electron Corporation 2000 Financial Statements Consolidated Statement of Operations
(In thousands except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- Revenues (Notes 14 and 15) $2,280,522 $2,294,620 $1,880,906 ---------- ---------- ---------- Costs and Operating Expenses: Cost of revenues (Note 11) 1,258,686 1,245,773 1,008,115 Selling, general, and administrative expenses 646,920 658,297 530,406 Research and development expenses 176,756 171,100 127,461 Restructuring and other unusual costs (income), net (Note 11) (67,855) 37,346 23,583 ---------- ---------- ---------- 2,014,507 2,112,516 1,689,565 ---------- ---------- ---------- Operating Income 266,015 182,104 191,341 Gain on Issuance of Stock by Subsidiaries (Note 9) - - 18,583 Other Income (Expense), Net (Notes 10 and 11) (81,184) (57,345) 6,558 ---------- ---------- ---------- Income from Continuing Operations Before Provision for Income Taxes, Minority Interest, Extraordinary Item, and Cumulative Effect of Change in Accounting Principle 184,831 124,759 216,482 Provision for Income Taxes (Note 8) 112,217 64,428 90,491 Minority Interest Expense 10,567 23,048 32,231 ---------- ---------- ---------- Income from Continuing Operations Before Extraordinary Item and 62,047 37,283 93,760 Cumulative Effect of Change in Accounting Principle Income (Loss) from Discontinued Operations (net of income tax provision (benefit) and minority interest of $12,249, $(107,089), and $91,981; Note 18) 14,228 (163,325) 87,701 Provision for Loss on Disposal of Discontinued Operations (net of income tax provision (benefit) of $(104,000) and $174,000; Note 18) (100,000) (50,000) - ---------- ---------- ---------- Income (Loss) Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle (23,725) (176,042) 181,461 Extraordinary Item (net of income tax provision and minority interest of $333, $900, and $470; Note 5) 532 1,469 440 ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Change in Accounting Principle (23,193) (174,573) 181,901 Cumulative Effect of Change in Accounting Principle (net of income tax benefit and minority interest of $8,986; Note 14) (12,918) - - Net Income (Loss) $ (36,111) $ (174,573) $ 181,901 ========== ========== ========== Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle (Note 16) Basic $ .37 $ .24 $ .58 ========== ========== ========== Diluted $ .36 $ .22 $ .55 ========== ========== ========== Earnings (Loss) per Share (Note 16) Basic $ (.22) $ (1.10) $ 1.12 ========== ========== ========== Diluted $ (.22) $ (1.12) $ 1.08 ========== ========== ========== Weighted Average Shares (Note 16) Basic 167,462 157,987 161,866 ========== ========== ========== Diluted 170,519 158,223 162,973 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
2 Thermo Electron Corporation 2000 Financial Statements Consolidated Balance Sheet
(In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 505,524 $ 237,844 Short-term available-for-sale investments, at quoted market value (amortized cost of $510,312 and $545,640; Notes 2 and 11) 521,329 555,501 Accounts receivable, less allowances of $30,593 and $33,650 431,476 534,241 Unbilled contract costs and fees 18,520 18,575 Inventories (Note 11) 394,152 365,876 Deferred tax asset (Note 8) 148,051 119,671 Other current assets 75,007 34,705 Net assets of discontinued operations (Note 18) 371,470 497,728 ---------- ---------- 2,465,529 2,364,141 ---------- ---------- Property, Plant, and Equipment, at Cost, Net (Note 11) 285,878 315,647 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $9,883 and $4,838; Notes 2 and 11) 17,110 6,145 ---------- ---------- Other Assets (Notes 3 and 11) 183,974 199,713 ---------- ---------- Goodwill (Notes 3, 8, and 11) 1,378,663 1,224,827 ---------- ---------- Long-term Net Assets of Discontinued Operations (Note 18) 531,823 961,284 ---------- ---------- $4,862,977 $5,071,757 ========== ========== 3 Thermo Electron Corporation 2000 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Investment Current Liabilities: Short-term obligations and current maturities of long-term obligations (Note 5) $ 103,356 $ 275,308 Advance payable to affiliates (Note 5) 16,088 112,523 Accounts payable 139,662 135,442 Accrued payroll and employee benefits 78,483 87,705 Accrued income taxes 95,344 112,993 Deferred revenue 50,341 47,440 Accrued installation and warranty costs 37,058 44,198 Other accrued expenses (Notes 1, 3, and 11) 208,219 256,981 ---------- ---------- 728,551 1,072,590 ---------- ---------- Deferred Income Taxes (Note 8) 10,691 23,735 ---------- ---------- Other Deferred Items 36,539 39,892 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 172,500 172,500 Senior notes 150,000 150,000 Subordinated convertible obligations 1,177,565 1,209,305 Other 28,418 34,169 ---------- ---------- 1,528,483 1,565,974 ---------- ---------- Minority Interest (Note 18) 24,737 348,356 ---------- ---------- Commitments and Contingencies (Note 6) Common Stock Subject to Redemption (at redemption value; Note 1) - 7,692 ---------- ---------- Shareholders' Investment (Notes 4 and 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 195,877,421 and 167,432,776 shares issued 195,877 167,433 Capital in excess of par value 1,681,452 1,052,837 Retained earnings 1,005,857 1,041,968 Treasury stock at cost, 13,708,863 and 10,955,798 shares (246,228) (189,646) Deferred compensation (6,640) (3,149) Accumulated other comprehensive items (Note 17) (96,342) (55,925) ---------- ---------- 2,533,976 2,013,518 ---------- ---------- $4,862,977 $5,071,757 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
4 Thermo Electron Corporation 2000 Financial Statements Consolidated Statement of Cash Flows
(In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Operating Activities Net income (loss) $ (36,111) $(174,573) $ 181,901 Adjustments to reconcile net income (loss) to income from continuing operations: (Income) loss from discontinued operations (Note 18) (14,228) 163,325 (87,701) Provision for loss on disposal of discontinued operations (Note 18) 100,000 50,000 - --------- --------- --------- Income from continuing operations 49,661 38,752 94,200 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 97,486 91,429 75,169 Noncash restructuring and other unusual costs, net (Note 11) 22,865 30,214 3,226 Provision for losses on accounts receivable 9,264 8,614 5,002 Minority interest expense 10,567 23,048 32,231 Equity in (earnings) loss of unconsolidated subsidiaries (Note 11) 47,315 7,274 (150) Cumulative effect of change in accounting principle, net of income taxes and minority interest (Note 14) 12,918 - - Change in deferred income taxes (39,700) (28,378) (493) Gain on issuance of stock by subsidiaries (Note 9) - - (18,583) Gain on sale of businesses (Notes 3 and 11) (126,330) - - Gain on investments, net (6,849) (3,662) (12,812) Extraordinary item, net of income taxes and minority interest (Note 5) (532) (1,469) (440) Other noncash items, net 29,213 17,675 19,686 Other unusual income (4,372) - - Changes in current accounts, excluding the effects of acquisitions and dispositions: Accounts receivable (27,395) (19,737) (485) Inventories (77,356) 14,260 11,733 Other current assets (4,710) (8,800) 10,973 Accounts payable 17,742 2,012 (14,971) Other current liabilities 47,982 17,499 31,166 --------- --------- --------- Net cash provided by continuing operations 57,769 188,731 235,452 Net cash provided by discontinued operations 142,152 148,390 93,010 --------- --------- --------- Net cash provided by operating activities 199,921 337,121 328,462 --------- --------- --------- Investing Activities Acquisitions, net of cash acquired (Note 3) (15,808) (344,615) (173,685) Acquisition of minority interests of subsidiaries (Note 18) (307,166) (43,176) - Payment to affiliated company for prior year acquisition - - (19,117) Refund of acquisition purchase price (Note 3) - 8,969 - Proceeds from sale of businesses (Note 3) 253,583 61 750 Purchases of available-for-sale investments (473,576) (554,870) (1,896,051) 5 Thermo Electron Corporation 2000 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Investing Activities (continued) Proceeds from sale of available-for-sale investments $ 113,220 $ 281,451 $ 134,472 Proceeds from maturities of available-for-sale investments 403,134 794,288 1,505,494 Purchases of property, plant, and equipment (74,039) (61,238) (38,331) Proceeds from sale of property, plant, and equipment 21,828 9,604 12,098 Advance (to) from affiliates (96,434) 8,633 (49,646) Increase in other assets (3,954) (4,797) (3,287) Other 14,193 5,956 (786) --------- --------- --------- Net cash provided by (used in) continuing operations (165,019) 100,266 (528,089) Net cash provided by (used in) discontinued operations 394,596 (173,834) (104,227) --------- --------- --------- Net cash provided by (used in) investing activities 229,577 (73,568) (632,316) --------- --------- --------- Financing Activities Net proceeds from issuance of long-term obligations 14,577 16,813 393,196 Repayment of long-term obligations (161,191) (40,283) (25,961) Net proceeds from issuance of Company and subsidiary common stock (Notes 7 and 9) 58,466 14,896 384,686 Purchases of Company and subsidiary common stock and subordinated convertible debentures (Note 5) (43,787) (190,412) (440,492) Increase (decrease) in short-term notes payable (19,183) 25,373 (8,948) Other (4,377) (6,669) (35,582) --------- --------- --------- Net cash provided by (used in) continuing operations (155,495) (180,282) 266,899 Net cash provided by (used in) discontinued operations 17,914 (106,601) (164,721) --------- --------- --------- Net cash provided by (used in) financing activities (137,581) (286,883) 102,178 --------- --------- --------- Exchange Rate Effect on Cash in Continuing Operations (2,883) (12,242) 1,886 Exchange Rate Effect on Cash in Discontinued Operations (9,997) (3,883) 2,880 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 279,037 (39,455) (196,910) Cash and Cash Equivalents at Beginning of Year 357,215 396,670 593,580 --------- --------- --------- 636,252 357,215 396,670 Cash and Cash Equivalents of Discontinued Operations at End of Year (130,728) (119,371) (162,887) --------- --------- --------- Cash and Cash Equivalents at End of Year $ 505,524 $ 237,844 $ 233,783 ========= ========= ========= See Note 12 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 6 Thermo Electron Corporation 2000 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Comprehensive Income Net Income (Loss) $ (36,111) $ (174,573) $ 181,901 ---------- ---------- ---------- Other Comprehensive Items (Note 17): Foreign currency translation adjustment (44,975) (50,979) 24,089 Unrealized gains (losses) on available-for-sale investments, net of reclassification adjustment 4,558 4,651 (3,943) ---------- ---------- ---------- (40,417) (46,328) 20,146 Minority interest 5,188 9,439 (6,194) ---------- ---------- ---------- (35,229) (36,889) 13,952 ---------- ---------- ---------- $ (71,340) $ (211,462) $ 195,853 ========== ========== ========== Shareholders' Investment Common Stock, $1 Par Value: Balance at beginning of year $ 167,433 $ 166,971 $ 159,206 Acquisition of minority interests of subsidiaries (Note 18) 22,553 - - Public offering of Company common stock (Note 7) - - 7,475 Issuance of stock under employees' and directors' stock 5,891 462 290 ---------- ---------- ---------- plans Balance at end of year 195,877 167,433 166,971 ---------- ---------- ---------- Capital in Excess of Par Value: Balance at beginning of year 1,052,837 1,033,799 843,709 Acquisition of minority interests of subsidiaries (Note 18) 541,434 - - Public offering of Company common stock (Note 7) - - 282,655 Activity under employees' and directors' stock plans 84,840 4,093 (3,285) Tax benefit related to employees' and directors' stock plans 18,000 1,645 10,938 Effect of majority-owned subsidiaries' equity transactions (15,659) 13,300 (100,218) ---------- ---------- ---------- Balance at end of year 1,681,452 1,052,837 1,033,799 ---------- ---------- ---------- Retained Earnings: Balance at beginning of year 1,041,968 1,216,541 1,034,640 Net income (loss) (36,111) (174,573) 181,901 ---------- ---------- ---------- Balance at end of year $1,005,857 $1,041,968 $1,216,541 ---------- ---------- ---------- 7 Thermo Electron Corporation 2000 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued) (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Treasury Stock: Balance at beginning of year $ (189,646) $ (151,643) $ (3,839) Purchases of Company common stock (22,826) (44,758) (148,132) Activity under employees' and directors' stock plans (26,590) 6,755 328 Receipt of Company common stock as repayment of notes receivable (6,155) - - Receipt of Company common stock in connection with sale of business (1,011) - - ---------- ---------- ---------- Balance at end of year (246,228) (189,646) (151,643) ---------- ---------- ---------- Deferred Compensation (Note 4): Balance at beginning of year (3,149) - - Awards under employees' stock plans (7,818) (4,061) - Amortization of deferred compensation 3,725 912 - Forfeitures under employees' stock plans 602 - - ---------- ---------- ---------- Balance at end of year (6,640) (3,149) - ---------- ---------- ---------- Accumulated Other Comprehensive Items (Note 17): Balance at beginning of year (55,925) (9,597) (29,743) Other comprehensive items (40,417) (46,328) 20,146 ---------- ---------- ---------- Balance at end of year (96,342) (55,925) (9,597) ---------- ---------- ---------- $2,533,976 $2,013,518 $2,256,071 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 8 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies - -------------------------------------------------------------------------------- Nature of Operations Thermo Electron Corporation (the Company) is a global leader in the development, manufacture, and sale of technology-based instrument systems, components, and solutions used in virtually every industry to monitor, collect, and analyze data to provide knowledge for the user. For example, the Company's powerful analysis technologies help biotech researchers sift through data to make the discoveries that will fight disease or prolong life; allow telecommunications equipment manufacturers to fabricate components required to increase the speed and quality of communications; and monitor and control industrial processes on-line to ensure that critical quality standards are met efficiently and safely. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its majority- and wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Presentation In January 2000, the Company modified its proposed reorganization involving the Company and certain of its subsidiaries. As part of this reorganization, the Company announced plans to spin off or sell several of its businesses and has taken private all of its other remaining majority-owned subsidiaries in its continuing operations except for Spectra-Physics Lasers, Inc. (SPLI). In February 2001, the Company entered into a definitive agreement to sell its power generation business. The results of operations of certain major lines of business that have been or will be sold or spun-off have been classified as discontinued operations in the accompanying financial statements (Note 18). In addition, certain amounts in 1999 and 1998 have been reclassified to conform to the presentation in the 2000 financial statements. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 2000, 1999, and 1998 are for the fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999, respectively. Revenue Recognition Prior to 2000, the Company generally recognized revenues upon shipment of its products. During the fourth quarter of 2000, effective as of January 2, 2000, the Company adopted Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Under SAB No. 101, when the terms of sale include customer acceptance provisions, and compliance with those provisions can not be demonstrated until customer use, revenues are recognized upon acceptance. Revenues for products that require installation for which the installation is essential to functionality or is not deemed inconsequential or perfunctory are recognized upon completion of installation. Revenues for products sold where installation is not essential to functionality and is deemed inconsequential or perfunctory are recognized upon shipment with estimated installation costs accrued (Note 14). In restating quarterly results for 2000 to comply with SAB No. 101, the Company included adjustments to record amounts billed to customers for shipping and handling costs as revenues with the associated costs reported as cost of revenues. Previously, amounts billed to customers for shipping and handling had generally been reported as an offset to the related cost. Periods prior to 2000 were not restated for shipping and handling costs due to immateriality. The Company provides a reserve for its estimate of warranty costs at the time revenue is recognized. Deferred revenue in the accompanying balance sheet consists primarily of unearned revenue on service contracts. Substantially all of the deferred revenue in the accompanying 2000 balance sheet will be recognized within one year. 9 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased by the subsidiary, by the subsidiary's parent, or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions, and the net effect of these transactions is reflected in the accompanying statement of comprehensive income and shareholders' investment as "Effect of majority-owned subsidiaries' equity transactions." Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to shareholders' investment. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings (Loss) per Share Basic earnings (loss) per share has been computed by dividing net income (loss) by the weighted average number of shares outstanding during the year. Except where the result would be antidilutive to income from continuing operations, diluted earnings (loss) per share has been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects (Note 16). Cash and Cash Equivalents Cash equivalents consists principally of corporate bonds and notes, U.S. government-agency securities, money market funds, commercial paper, and other marketable securities purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The components of inventories are as follows:
(In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Raw Materials and Supplies $169,885 $169,887 Work in Progress 65,625 66,746 Finished Goods (includes $33,605 at customer locations in 2000) 158,642 129,243 -------- -------- $394,152 $365,876 ======== ======== 10 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) The Company periodically reviews its quantities of inventories on hand and compares these amounts to expected usage of each particular product or product line. The Company records as a charge to cost of revenues any amounts required to reduce the carrying value of inventories to net realizable value. Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 3 to 40 years; machinery and equipment, 1 to 20 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of the following: (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Land $ 40,292 $ 46,492 Buildings and Improvements 143,012 168,487 Machinery, Equipment, and Leasehold Improvements 301,251 278,097 -------- -------- 484,555 493,076 Less: Accumulated Depreciation and Amortization 198,677 177,429 -------- -------- $285,878 $315,647 ======== ======== Other Assets Other assets in the accompanying balance sheet includes intangible assets, notes receivable, deferred debt expense, prepaid pension costs, and other assets. Intangible assets include the costs of acquired trademarks, patents, product technology, and other specifically identifiable intangible assets and are being amortized using the straight-line method over their estimated useful lives, which range from 2 to 20 years. Intangible assets were $46.8 million and $48.2 million, net of accumulated amortization of $36.1 million and $29.4 million, at year-end 2000 and 1999, respectively. Goodwill Goodwill is amortized using the straight-line method over periods ranging from 5 to 40 years. Accumulated amortization was $192.8 million and $154.9 million at year-end 2000 and 1999, respectively. The Company assesses the future useful life of this and other noncurrent assets whenever events or changes in circumstances indicate that the current useful life has diminished. Such events or circumstances generally include the occurrence of operating losses or a significant decline in earnings associated with the acquired business or asset. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. The Company assesses cash flows before interest charges, and when impairment is indicated, writes the asset down to fair value. If quoted market values are not available, the Company estimates fair value by calculating the present value of future cash flows. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss (Note 11). 11 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Common Stock Subject to Redemption In April 1997, ThermoLase Corporation, a formerly majority-owned subsidiary of the Company, completed an exchange offer whereby its shareholders had the opportunity to exchange one share of existing ThermoLase common stock and $3.00 (in cash or ThermoLase common stock) for a new unit consisting of one share of ThermoLase common stock and one redemption right. The redemption right entitled the holder to sell the related share of common stock to ThermoLase for $20.25 during the period from April 3, 2001, through April 30, 2001. In connection with this offer, in April 1997, ThermoLase issued 2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5 million in cash, net of expenses. As a result of these transactions, $40.5 million was reclassified in 1997 from "Shareholders' investment" and "Minority interest" to "Common stock subject to redemption," based on the issuance of the 2,000,000 redemption rights, each carrying a maximum liability of $20.25. During 1999, the Company purchased 1,620,127 of ThermoLase's redemption rights. The remaining 379,873 redemption rights outstanding have a redemption value of $7.7 million and are included in other accrued expenses in the accompanying 2000 balance sheet. As a result of the Company's merger with ThermoLase (Note 18), the ThermoLase units were modified to consist of a fractional share of Company common stock, which is redeemable at the option of the holder in April 2001 for $20.25. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the "Accumulated other comprehensive items" component of shareholders' investment. Foreign currency transaction gains and losses are included in the accompanying statement of operations and are not material for the three years presented. Forward Contracts The Company uses short-term forward foreign exchange contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish krona, and Netherlands guilders. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Gains and losses arising from forward foreign exchange contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company does not generally enter into speculative foreign currency agreements. See Note 11 for the effect of a majority-owned subsidiary's early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Recent Accounting Pronouncement During 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133. SFAS No. 133, as amended, requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. Changes in the fair value of derivatives that are not hedges must be recorded through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company is required to adopt SFAS No. 133 in 2001. The adoption of SFAS No. 133 will not materially affect the Company's financial statements. 12 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in determining the loss on disposition of the Company's discontinued operations (Note 18). Actual results could differ from those estimates. 2. Available-for-sale Investments - -------------------------------------------------------------------------------- The Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded in the "Accumulated other comprehensive items" component of shareholders' investment. The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows:
Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses - --------------------------------------------------------------------------------------------------------- 2000 Corporate Bonds and Notes $ 434,140 $ 431,553 $ 2,749 $ (162) U.S. Government-agency Securities 42,475 42,318 222 (65) Other 61,824 46,324 17,633 (2,133) ---------- ---------- ---------- ---------- $ 538,439 $ 520,195 $ 20,604 $ (2,360) ========== ========== ========== ========== 1999 Corporate Bonds and Notes $ 319,065 $ 320,058 $ 183 $ (1,176) U.S. Government-agency Securities 187,722 188,162 21 (461) Other 54,859 42,258 13,955 (1,354) ---------- ---------- ---------- ---------- $ 561,646 $ 550,478 $ 14,159 $ (2,991) ========== ========== ========== ========== Short- and long-term available-for-sale investments in the accompanying 2000 balance sheet include equity securities of $45.3 million and debt securities of $254.9 million with contractual maturities of one year or less and $238.2 million with contractual maturities of more than one year through five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call features of the securities that enable either the Company, the issuer, or both to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of operations. The net gain on the sale of available-for-sale investments resulted from gross realized gains of $9.3 million, $7.6 million, and $13.6 million and gross realized losses of $2.5 million, $3.9 million, and $0.8 million in 2000, 1999, and 1998, respectively. 13 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions and Dispositions - -------------------------------------------------------------------------------- Acquisitions In 2000, the Company made several acquisitions for $15.8 million in cash, net of cash acquired. In February 1999, the Company acquired 17,494,684 shares (or approximately 99%) of Spectra-Physics AB, a Stockholm Stock Exchange-listed company, for approximately 160 Swedish krona per share (approximately $20 per share) in completion of the Company's cash tender offer to acquire all of the outstanding shares of Spectra-Physics. In March 2000, the Company completed the acquisition of the remaining Spectra-Physics shares outstanding pursuant to the compulsory acquisition rules applicable to Swedish companies. As part of the acquisition of Spectra-Physics, the Company acquired Spectra-Physics' majority- owned public subsidiary, SPLI. The aggregate purchase price was approximately $351.5 million, including related expenses. On the date of acquisition, Spectra- Physics had $39.1 million of cash, which included $30.5 million held by SPLI. Spectra-Physics manufactures a wide range of laser-based instrumentation systems, primarily for the process-control, industrial measurement, research, commercial, and government markets. In connection with the acquisition of Spectra-Physics, the Company acquired 4,162,000 shares of FLIR Systems, Inc. common stock. FLIR designs, manufactures, and markets thermal imaging and broadcast camera systems that detect infrared radiation or heat emitted directly by all objects and materials. The Company accounts for its investment in FLIR using the equity method with a one quarter lag to ensure the availability of FLIR's operating results in time to enable the Company to include its pro rata share of FLIR's results with its own. During 1999, FLIR consummated a pooling-of-interests transaction that decreased the Company's pro rata share of FLIR's equity from 34.6% to 29.4%. During 2000, the Company recorded a charge to reflect an impairment of its investment in FLIR that was deemed to be other than temporary (Note 11). The investment in FLIR is included in other assets in the accompanying balance sheet. Summary unaudited financial information for FLIR as of September 30, 2000, and for the 12 months then ended is as follows:
(In thousands) 2000 - ---------------------------------------------------------------------------------------------------------- Current Assets $ 114,494 Noncurrent Assets 51,439 --------- Total Assets $ 165,933 ========= Current Liabilities $ 132,917 Noncurrent Liabilities 4,251 Shareholders' Equity 28,765 --------- Total Liabilities and Shareholders' Equity $ 165,933 ========= (In thousands) Twelve Months Ended September 30, 2000 - ---------------------------------------------------------------------------------------------------------- Revenues $181,562 Cost of Revenues 114,211 Gross Profit $ 67,351 ======== Net Loss $(59,992) ======== 14 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions and Dispositions (continued) - -------------------------------------------------------------------------------- In 1999, in addition to the acquisition of Spectra-Physics, the Company and its formerly majority-owned subsidiaries made several other acquisitions for $32.2 million in cash, net of cash acquired. In 1998, the Company's formerly majority-owned subsidiaries made several acquisitions for $173.7 million in cash, net of cash acquired. These acquisitions have been accounted for using the purchase method of accounting, and the acquired companies' results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $289.2 million, which is being amortized principally over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in 2000, is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. In connection with its acquisitions, the Company has undertaken restructuring activities at the acquired businesses. The Company's restructuring activities, which were accounted for in accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing levels and the abandonment of excess facilities. In connection with these restructuring activities, as part of the cost of the acquisitions, the Company established reserves as detailed below, primarily for severance and excess facilities. In accordance with EITF 95-3, the Company finalizes its restructuring plans no later than one year from the respective dates of the acquisitions. Accrued acquisition expenses are included in other accrued expenses in the accompanying balance sheet. A summary of the changes in accrued acquisition expenses for acquisitions completed before and during 1998 is as follows:
1998 Acquisitions -------------------------------------- Abandonment of Excess Pre-1998 (In thousands) Severance Facilities Other Acquisitions Total - ---------------------------------------------------------------------------------------------------------- Balance at January 3, 1998 $ - $ - $ - $ 20,683 $ 20,683 Reserves established 3,937 2,083 468 - 6,488 Increases in reserves related to 1997 acquisitions - - - 1,899 1,899 Payments (1,588) (418) (247) (7,783) (10,036) Decrease recorded as a reduction in goodwill - - - (3,021) (3,021) Currency translation 9 (33) 23 272 271 -------- -------- -------- -------- -------- Balance at January 2, 1999 2,358 1,632 244 12,050 16,284 Reserves established 989 1,464 616 - 3,069 Payments (1,939) (1,479) (752) (2,442) (6,612) Decrease recorded as a reduction in goodwill (1,055) (466) - - (1,521) Currency translation (72) 34 (25) (480) (543) -------- -------- -------- -------- -------- Balance at January 1, 2000 281 1,185 83 9,128 10,677 Payments (189) (354) (44) (1,796) (2,383) Decrease recorded as a reduction in goodwill (66) (94) (39) (99) (298) Currency translation (26) (85) - (718) (829) -------- -------- -------- -------- -------- Balance at December 30, 2000 $ - $ 652 $ - $ 6,515 $ 7,167 ======== ======== ======== ======== ======== 15 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions and Dispositions (continued) - -------------------------------------------------------------------------------- The principal acquisition expenses for pre-1998 acquisitions were for severance for 385 employees across all functions and for abandoned facilities, primarily from the 1997 acquisition of Life Sciences International PLC. The facilities primarily include an operating location in Runcorn, England, with an obligation through 2014. The Company finalized its restructuring plans for the 1997 acquisitions in 1998. The principal acquisition expenses for 1998 acquisitions were for severance for 216 employees across all functions and for abandoned facilities, primarily related to the Company's acquisition of the product-monitoring businesses of Graseby Limited. The abandoned facilities related to the product-monitoring businesses include two operating facilities in North America with leases expiring in 2001. The amounts captioned as "other" in 1998 primarily represent employee relocation costs. The Company finalized its restructuring plans for the 1998 acquisitions in 1999. A summary of accrued acquisition expenses for acquisitions completed during 1999 is as follows:
Abandonment of Excess (In thousands) Severance Facilities Other Total - ---------------------------------------------------------------------------------------------------------- Reserves established $ 9,464 $ 1,355 $ 3,364 $14,183 Payments (3,899) (71) (957) (4,927) Currency translation (303) (111) (74) (488) ------- ------- ------- ------- Balance at January 1, 2000 5,262 1,173 2,333 8,768 Reserves established 90 111 - 201 Payments (2,767) (420) (761) (3,948) Decrease recorded as a reduction in goodwill (213) - - (213) Reserves of businesses sold (715) (154) (999) (1,868) Currency translation 189 (200) (60) (71) ------- ------- ------- ------- Balance at December 30, 2000 $ 1,846 $ 510 $ 513 $ 2,869 ======= ======= ======= ======= The principal acquisition expenses for 1999 acquisitions were for severance for approximately 175 employees across all functions and for abandoned facilities, primarily at Spectra-Physics. The abandoned facilities at Spectra-Physics include operating facilities in Sweden, Germany, and France with obligations primarily through 2001. The amounts captioned as "other" primarily represent employee relocation, contract termination, and other exit costs. The Company expects to pay amounts accrued for severance, abandoned facilities, and other primarily through 2001. The Company finalized its restructuring plans for Spectra-Physics and other 1999 acquisitions in 1999 and 2000. A summary of accrued acquisition expenses for acquisitions completed during 2000 is as follows:
Abandonment of Excess (In thousands) Severance Facilities Total - ---------------------------------------------------------------------------------------------------------- Reserves established $ 99 $ 52 $ 151 Payments (94) (20) (114) Currency translation (3) - (3) ----- ----- ----- Balance at December 30, 2000 $ 2 $ 32 $ 34 ===== ===== ===== 16 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions and Dispositions (continued) - -------------------------------------------------------------------------------- Unresolved matters at year-end 2000 include completion of planned severances and abandonment of excess facilities for acquisitions completed in 2000. Such matters will be resolved no later than one year from the respective acquisition dates. Dispositions On July 14, 2000, the Company completed the sale of its wholly owned Spectra Precision businesses to Trimble Navigation Limited for $208.1 million in net cash proceeds and $80.0 million in seller debt financing, subject to a post-closing adjustment. The note from the buyer calls for repayment in two equal, annual installments beginning in July 2001 and carries interest at 10% per annum. The note has provisions that require earlier repayment under certain conditions. Spectra Precision, formerly part of the Measurement and Control segment, was acquired as part of Spectra-Physics and provides the construction, surveying, and heavy machine industries with precision positioning equipment. In 2000, the Company's continuing operations sold several other noncore businesses for net cash proceeds of $45.5 million. The Company realized aggregate pretax gains of $126.3 million in 2000 from the sale of businesses, which are included in restructuring and other unusual costs (income), net, in the accompanying statement of operations. These businesses were sold as part of an effort to focus on potentially higher-growth opportunities in the Life Sciences and Optical Technologies segments. 4. Employee Benefit Plans - -------------------------------------------------------------------------------- Stock-based Compensation Plans Stock Option Plans - ------------------ The Company has stock-based compensation plans for its key employees, directors, and others. These plans permit the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options outstanding under these plans are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights may lapse over periods ranging from zero to ten years, depending on the term of the option, which may range from three to twelve years. Nonqualified options are generally granted at fair market value, although the Board Committee has discretion to grant options at a price at or above 85% of the fair market value on the date of grant. Incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, stock options have been granted at fair market value. The Company also has a directors' stock option plan that provides for the annual grant of stock options of the Company to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are immediately exercisable and expire three to seven years after the date of grant. In November 1998, the Company's employees, excluding its officers and directors, were offered the opportunity to exchange previously granted options to purchase shares of Company common stock for an amount of options equal to half of the number of options previously held, exercisable at a price equal to the fair market value at the time of the exchange offer. Holders of options to acquire 1,513,000 shares at a weighted average exercise price of $36.15 per share elected to participate in this exchange and, as a result, received options to purchase 756,000 shares of Company common stock at $18.08 per share, which are included in the 1998 grants in the table below. The other terms of the new options were the same as the exchanged options except that the holders could not sell shares purchased pursuant to such new options for six months from the exchange date. The options exchanged were canceled by the Company. 17 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) - -------------------------------------------------------------------------------- In 2000 and 1999, the Company awarded 372,800 and 193,000 shares, respectively, of restricted Company common stock with an aggregate value of $7.8 million and $3.5 million, respectively, to certain key employees. The shares generally vest over three years, assuming continued employment, with certain exceptions. Also in 1999, certain of the Company's formerly majority-owned subsidiaries awarded shares of restricted common stock of their respective companies. The shares of subsidiary common stock had the same terms as the Company's restricted common stock and had an aggregate value of $0.6 million. During 2000, the restricted common stock of the Company's formerly majority-owned subsidiaries was converted into 100,715 shares of restricted Company common stock with the same terms. The Company has recorded the fair value of the restricted stock as deferred compensation in the accompanying balance sheet and is amortizing such amount over the vesting periods. A summary of the Company's stock option activity is as follows:
2000 1999 1998 ---------------------------------------------------------- Weighted Weighted Weighted Number Average Number Average Number Exercise of Exercise of Exercise of Average (Shares in thousands) Shares Price Shares Price Shares Price - ---------------------------------------------- -------- ---------- -------- ---------- --------- --------- Options Outstanding, Beginning of Year 13,628 $19.61 9,913 $22.38 8,831 $24.19 Granted 2,231 21.50 3,406 16.83 3,554 23.64 Assumed in mergers with subsidiaries (Note 18) 13,948 17.00 1,612 11.61 - - Exercised (5,086) 15.74 (382) 12.57 (625) 15.96 Forfeited (3,586) 17.73 (921) 27.99 (334) 33.38 Canceled due to exchange - - - - (1,513) 36.15 ------ ------ ------ Options Outstanding, End of Year 21,135 $19.32 13,628 $19.61 9,913 $22.38 ====== ====== ====== ====== ====== ====== Options Exercisable 21,135 $19.32 13,628 $19.61 9,909 $22.38 ====== ====== ====== ====== ====== ====== Options Available for Grant 3,290 4,756 3,417 ====== ====== ====== A summary of the status of the Company's stock options at December 30, 2000, is as follows:
Options Outstanding and Exercisable ------------------------------------------------------ Number Weighted Weighted of Average Average Shares Remaining Exercise Range of Exercise Prices (In thousands) Contractual Life Price - --------------------------------------------------------------------------------------------------------- $ 2.15 - $ 14.63 7,467 7.1 years $ 11.85 14.64 - 27.12 10,520 6.0 years 18.90 27.13 - 39.61 2,534 6.6 years 34.11 39.62 - 226.87 614 8.0 years 56.99 ------ $ 2.15 - $226.87 21,135 6.5 years $ 19.32 ====== 18 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) - -------------------------------------------------------------------------------- Employee Stock Purchase Plan - ---------------------------- Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by the Company. Under this program, shares of the Company's common stock may be purchased at 85% of the lower of the fair market value at the beginning or end of the purchase period, and the shares purchased are subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Prior to the 2000 plan year, participants of employee stock purchase programs sponsored by the Company's formerly majority-owned public subsidiaries could also elect to purchase shares of the common stock of the subsidiary at which they are employed under the same general terms described above. During 2000 and 1999, the Company issued 693,000 shares and 415,000 shares, respectively, of its common stock under this plan. No shares of Company common stock were issued under this plan during 1998. Pro Forma Stock-based Compensation Expense In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards granted after 1994 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on certain financial information of the Company would have been as follows: (In thousands except per share amounts) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As reported $ 62,047 $ 37,283 $ 93,760 Pro forma 45,965 25,281 84,901 Basic Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As reported .37 .24 .58 Pro forma .27 .16 .52 Diluted Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As reported .36 .22 .55 Pro forma .26 .14 .49 Net Income (Loss): As reported $ (36,111) $(174,573) $ 181,901 Pro forma (52,131) (201,186) 158,602 Basic Earnings (Loss) per Share: As reported (.22) (1.10) 1.12 Pro forma (.31) (1.27) .98 Diluted Earnings (Loss) per Share: As reported (.22) (1.12) 1.08 Pro forma (.31) (1.29) .94 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. 19 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) - -------------------------------------------------------------------------------- The weighted average fair value per share of options granted was $7.65, $5.61, and $8.13 in 2000, 1999, and 1998, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Volatility 35% 32% 29% Risk-free Interest Rate 4.9% 5.6% 4.8% Expected Life of Options 3.9 years 3.9 years 4.7 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan and Other Defined Contribution Plans The Company's 401(k) savings plan covers the majority of the Company's eligible full-time U.S. employees. Contributions to the plan are made by both the employee and the Company. Company contributions are based on the level of employee contributions. Certain of the Company's subsidiaries offer retirement plans in lieu of participation in the Company's principal 401(k) savings plan. Company contributions to these plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $18.3 million, $15.8 million, and $13.4 million in 2000, 1999, and 1998, respectively. Defined Benefit Pension Plans Two of the Company's German subsidiaries and one of its U.K. subsidiaries have defined benefit pension plans covering substantially all full-time employees at the respective subsidiaries. One of the German subsidiaries' plans is unfunded, as permitted under the plan and applicable laws. Net periodic benefit costs for the plans in aggregate included the following components: (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Service Cost $ 2,238 $ 2,639 $ 2,859 Interest Cost on Benefit Obligation 3,834 3,899 4,414 Expected Return on Plan Assets (5,793) (5,264) (6,616) Recognized Net Actuarial Gain (180) (34) (39) Amortization of Unrecognized Gain (2) (23) (50) Amortization of Unrecognized Initial Obligation 36 41 43 ------- ------- ------- $ 133 $ 1,258 $ 611 ======= ======= ======= 20 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) - -------------------------------------------------------------------------------- The activity under the Company's defined benefit plans is as follows:
(In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation, beginning of year $ 71,762 $ 77,013 Service cost 2,238 2,639 Interest cost 3,834 3,899 Benefits paid (1,878) (1,876) Actuarial (gain) loss 3,525 (5,288) Currency translation (5,709) (4,625) -------- -------- Benefit obligation, end of year 73,772 71,762 -------- -------- Change in Plan Assets: Fair value of plan assets, beginning of year 89,393 79,893 Company contributions 114 186 Benefits paid (1,474) (1,482) Actual return (loss) on plan assets (4,505) 13,981 Currency translation (6,949) (3,185) ------- ------- Fair value of plan assets, end of year 76,579 89,393 ------- ------- Funded Status 2,807 17,631 Unrecognized Net Actuarial (Gain) Loss 252 (14,595) Unrecognized Initial Obligation 107 155 -------- -------- Prepaid Pension Costs $ 3,166 $ 3,191 ======== ======== The aggregate projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $18.0 million, $14.2 million, and $5.7 million, respectively, at year-end 2000 and $17.7 million, $14.6 million, and $5.2 million, respectively, at year-end 1999. The weighted average rates used to determine the net periodic pension costs were as follows:
2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Discount Rate 5.3% 5.1% 7.0% Rate of Increase in Salary Levels 4.4% 4.4% 6.3% Expected Long-term Rate of Return on Assets 6.9% 6.9% 9.7% 21 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements - --------------------------------------------------------------------------------
(In thousands except per share amounts) 2000 1999 - ---------------------------------------------------------------------------------------------------------- 4 1/2% Senior Convertible Debentures, Due 2003, Convertible at $40.54 per Share $ 172,500 $ 172,500 7 5/8% Senior Notes, Due 2008 150,000 150,000 4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $37.80 per Share 561,563 568,837 4% Subordinated Convertible Debentures, Due 2005, Convertible at $41.94 per Share 247,000 247,000 4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible at $40.30 per Share 110,191 111,335 4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible at $131.71 per Share 98,310 106,775 3 1/4% Subordinated Convertible Debentures, Due 2007, Convertible at $49.06 per Share 78,048 78,948 4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible at $38.28 per Share 35,029 42,124 Noninterest-bearing Subordinated Convertible Debentures, Due 2003, Convertible at $72.62 per Share 31,565 31,565 2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible at $33.17 per Share 15,859 15,859 2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible into Shares of Subsidiary Common Stock 4,787 5,042 Noninterest-bearing Subordinated Convertible Debentures, Due 2001, Convertible at $31.46 per Share 1,680 1,820 5% Subordinated Convertible Debentures, Due 2000, Convertible into Shares of Subsidiary Common Stock - 60,731 5% Subordinated Convertible Debentures, Due 2000, Convertible into Shares of Subsidiary Common Stock - 60,530 4 7/8% Subordinated Convertible Debentures, Due 2000, Convertible into Shares of Subsidiary Common Stock - 33,650 Other 44,361 42,593 ---------- ---------- 1,550,893 1,729,309 Less: Current Maturities 22,410 163,335 ---------- ---------- $1,528,483 $1,565,974 ========== ========== Outstanding debentures issued by subsidiaries that were taken private in transactions in which the consideration paid to stockholders of the subsidiary was Company common stock have become convertible into the Company's common stock. Outstanding debentures issued by subsidiaries that have been taken private in transactions in which the consideration paid to stockholders of the subsidiary was cash became convertible into the same cash consideration payable in the merger transaction. Holders of such debentures had the right to cause the debentures to be redeemed 90 days following the effective date of the merger (Note 18). The interest cost of this debt has been included as interest expense of continuing operations in the accompanying statement of operations. No allocation of interest expense for debt of the Company's continuing operations has been made to discontinued operations. In the event of a change in control of the Company (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors, each holder of the 4 1/4% subordinated convertible debentures issued by the Company will have the right to require the Company to buy all or part of the holder's debentures, at par value plus accrued interest, within 50 calendar days after the date of expiration of a specified approval period. 22 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 5. Long-term Obligations and Other Financing Arrangements (continued) - -------------------------------------------------------------------------------- The annual requirements for long-term obligations are as follows:
(In thousands) - ---------------------------------------------------------------------------------------------------------- 2001 $ 22,410 2002 14,905 2003 898,760 2004 134,275 2005 247,603 2006 and thereafter 232,940 ---------- $1,550,893 ========== See Note 13 for fair value information pertaining to the Company's long- term obligations. Short-term obligations and current maturities of long-term obligations in the accompanying balance sheet includes $80.9 million and $112.0 million in 2000 and 1999, respectively, of short-term bank borrowings and borrowings under lines of credit of certain of the Company's subsidiaries. The weighted average interest rate for these borrowings was 4.7% and 3.4% at year- end 2000 and 1999, respectively. Unused lines of credit were $240 million as of year-end 2000. During 2000, the Company repurchased $7.3 million principal amount of its 4 1/4% subordinated convertible debentures for $6.5 million in cash, resulting in an extraordinary gain of $0.5 million, net of taxes of $0.3 million. During 1999, the Company repurchased $16.2 million principal amount of its 4 1/4% subordinated convertible debentures for $13.6 million in cash, resulting in an extraordinary gain of $1.5 million, net of taxes of $0.9 million. During 1998, certain formerly majority-owned subsidiaries repurchased $14.3 million principal amount of their subordinated convertible debentures for $13.3 million in cash, resulting in an extraordinary gain of $0.4 million, net of taxes and minority interest of $0.5 million. The Company has a cash management arrangement in which certain of its subsidiaries participate, including certain operating units of discontinued operations. Amounts invested by the subsidiaries in this arrangement that will be retained by the discontinued operations at disposal have been classified as "advance payable to affiliates" in the accompanying balance sheet. Long-term net assets of discontinued operations in 2000 and 1999 includes $153.0 million principal amount of 4 1/2% subordinated debentures due 2004 and convertible into shares of Thermo Fibertek Inc. common stock at $12.10 per share. The net assets of discontinued operations at year-end 2000 and 1999 also reflects $17.0 million and $49.2 million, respectively, of redeemable stock obligations of Thermo Fibergen Inc., redeemable in September 2000 or 2001. The Company will remain a guarantor of these obligations following the spin off of Thermo Fibertek and its Thermo Fibergen subsidiary (Note 18). Long-term net assets of discontinued operations also includes $54.8 million and $58.0 million principal amount of 4 3/4% subordinated convertible debentures of Thermo Cardiosystems Inc. at year-end 2000 and 1999, respectively. In February 2001, the Company sold Thermo Cardiosystems to Thoratec Corporation. Under the terms of the sale, Thermo Cardiosystems' 4 3/4% subordinated convertible debentures have been assumed by Thoratec and will remain outstanding and are convertible into shares of Thoratec common stock. The Company will remain a guarantor of these obligations. In connection with the sale and this continuing guaranty, the Company has received a security interest in certain cash and marketable securities of Thoratec with an initial value of $45 million. 23 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 6. Commitments and Contingencies - -------------------------------------------------------------------------------- Operating Leases The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of operations includes expenses from operating leases of $42.2 million, $43.4 million, and $36.1 million in 2000, 1999, and 1998, respectively. Future minimum payments due under noncancelable operating leases at December 30, 2000, are $32.4 million in 2001, $28.1 million in 2002, $23.0 million in 2003, $18.7 million in 2004, $13.2 million in 2005, and $32.4 million in 2006 and thereafter. Total future minimum lease payments are $147.8 million. Letters of Credit Outstanding letters of credit, principally relating to performance bonds, totaled $43 million at December 30, 2000. Litigation and Related Contingencies Continuing Operations The Company's Thermo Finnigan Corporation subsidiary (now Thermo Finnigan LLC) has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company (now Agilent, Inc.), for alleged violation of two U.S. patents owned by Finnigan. The patents pertain to methods used in ion-trap mass spectrometers. The complaint was filed in the U.S. District Court for the District of Massachusetts. Finnigan has asked for damages to compensate for the infringement, and for injunctions against further infringement. The District Court action was stayed pending completion of a parallel investigation by the United States International Trade Commission (ITC). In April 1998, the ITC determined that the defendants did not engage in unfair practices in U.S. import trade with respect to the Finnigan patents, and that the Finnigan patents are invalid and/or not infringed. Finnigan appealed the ITC's determination with respect to one of its patents to the United States Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in June 1999 affirming the ITC's determination of noninfringement but reversing the ITC's determination of invalidity. Bruker presented counterclaims in the ITC investigation. The counterclaims were removed to the District Court in Massachusetts and also stayed. These claims allege that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers manufactured by Bruker. They also allege that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in unfair competition by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorneys' fees) it has sustained. The stays on both cases in the District Court in Massachusetts have been lifted, and the cases are proceeding in the District Court. In February 1999, Finnigan filed complaints against Bruker-Daltonik GmbH and Hewlett-Packard GmbH in District Court in Dusseldorf, Germany, for violation of four German patents owned by Finnigan and related actions in other European jurisdictions. The patents pertain to methods used in ion-trap mass spectrometers. Bruker and Hewlett-Packard have challenged the validity of these patents in Federal Patent Court in Munich. Bruker has filed a complaint against Finnigan in District Court in Dusseldorf for alleged violation of two German patents owned by Bruker relating to ion-trap mass spectrometry and in response Finnigan filed suit in Munich seeking patent nullification. In the German actions, Finnigan has secured a judgment of patent infringement against Bruker and Agilent from the Dusseldorf District Court, which judgment enjoins these entities from offering for sale or providing infringing ion-trap mass spectrometers for intended use by customers in Germany. The judgment has been appealed by the defendants, and the defendants have also collaterally attacked the validity of the patent in the German Federal Patent Court in Munich. However, the injunction remains in force. In January 2001, the suit by Finnigan in Munich seeking patent nullification was decided substantially against Finnigan, although the decision will be appealed. 24 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 6. Commitments and Contingencies (continued) - -------------------------------------------------------------------------------- The Company has been named a defendant, along with many other companies, in a patent infringement lawsuit brought by the Lemelson Medical, Education & Research Foundation, L.P. The suit asserts that products manufactured, used, or sold by the defendants infringe one or more patents related to methods of machine vision or computer image analysis. Also, SPLI and its Opto Power subsidiary have been sued for patent infringement by Rockwell International Corp. The suit claims that SPLI and Opto Power infringe a patent for the manufacture of a film used in semiconductor applications. Both the Lemelson and Rockwell actions seek damages, including enhanced damages for alleged willful infringement and attorney's fees, and Lemelson seeks injunctive relief. Discontinued Operations The Company's Trex Medical Corporation subsidiary is a defendant in a lawsuit brought by Fischer Imaging Corporation, which alleges that the prone breast-biopsy systems of the Lorad division of Trex Medical infringe Fischer's patents on a precision mammographic needle-biopsy system and a motorized mammographic biopsy apparatus. Lorad's cumulative revenues from these products totaled approximately $167 million through September 30, 2000. Trex Medical sold this business in 2000 but retained this litigation as a term of the sale. The Company's Thermo Coleman Corporation subsidiary has been named as a defendant in a lawsuit initiated by certain former employees. This suit was filed under the "qui tam" provisions of the Federal False Claims Act (the Act), which permit an individual to bring suit in the name of the United States and, if the United States obtains a judgment against the defendant, to share in any recovery. The suit alleges, among other things, that Thermo Coleman violated the Act as a result of its performance of certain support-service functions under a subcontract from a third party, which, in turn, contracted directly with the U.S. government. The complaint seeks an order requiring Thermo Coleman to cease and desist from such allegedly improper practices, the award of treble damages in an unspecified amount, plus other penalties. The amount of billings under the contract activities in question were approximately $7.6 million. The U.S. government has decided not to intervene in the lawsuit. Thermo Coleman sold its core business in 2000 but retained this litigation as a term of the sale. The Company intends to vigorously defend the matters in continuing and discontinued operations described above. In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 7. Common Stock - -------------------------------------------------------------------------------- In 2000, the Company issued 22.6 million shares of its common stock valued at $448.7 million to complete mergers with several of its formerly majority-owned subsidiaries (Note 18). In April 1998, the Company sold 7,475,000 shares of its common stock at $40.625 per share for net proceeds of $290.1 million. During 1998 and 1999, in a series of transactions with an institutional counterparty, the Company sold put options and purchased call options. No cash was exchanged as a result of these transactions. The Company had the right to settle the put options by physical settlement of the options or by net share settlement using shares of the Company's common stock. During 2000, the Company purchased 1,183,500 shares of its common stock under the call options for $17.5 million. During 1999, the Company purchased 1,536,000 shares of its common stock under the put options for $24.6 million. During 1999 and 2000, put options for 4,165,000 shares expired. No remaining obligation under the put options exists at December 30, 2000. At December 30, 2000, the Company had reserved 58,273,413 unissued shares of its common stock for possible issuance under stock-based compensation plans and for possible conversion of the Company's convertible debentures. The Company has distributed rights under a shareholder rights plan adopted by the Company's Board of Directors to holders of outstanding shares of the Company's common stock. Each right entitles the holder to purchase one ten-thousandth of a share (a Unit) of Series B Junior Participating Preferred Stock, $100 par value, at a purchase price of $250 per Unit, subject to adjustment. The rights will not be exercisable until the earlier of (i) 10 days 25 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 7. Common Stock (continued) - -------------------------------------------------------------------------------- following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of common stock (the Stock Acquisition Date), or (ii) 10 business days following the commencement of a tender offer or exchange offer for 15% or more of the outstanding shares of common stock. In the event that a person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, except pursuant to an offer for all outstanding shares of common stock approved by at least a majority of the members of the Board of Directors, each holder of a right (except for the Acquiring Person) will thereafter have the right to receive, upon exercise, that number of shares of common stock that equals the exercise price of the right divided by one-half of the current market price of the common stock. In the event that, at any time after any person has become an Acquiring Person, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or its common stock is changed or exchanged (other than a merger that follows an offer approved by the Board of Directors), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a right (except for the Acquiring Person) shall thereafter have the right to receive, upon exercise, the number of shares of common stock of the acquiring company that equals the exercise price of the right divided by one half of the current market price of such common stock. At any time until 10 days following the Stock Acquisition Date, the Company may redeem the rights in whole, but not in part, at a price of $.01 per right (payable in cash or stock). The rights expire on January 29, 2006, unless earlier redeemed or exchanged. 8. Income Taxes - -------------------------------------------------------------------------------- The components of income from continuing operations before provision for income taxes, minority interest, extraordinary item, and cumulative effect of change in accounting principle are as follows:
(In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Domestic $ 91,342 $ 39,761 $130,753 Foreign 93,489 84,998 85,729 --------- -------- -------- $ 184,831 $124,759 $216,482 ========= ======== ======== The components of the provision for income taxes of continuing operations are as follows: (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Currently Payable: Federal $ 55,819 $ 25,102 $ 44,330 Foreign 53,586 40,417 34,309 State 8,311 6,364 9,282 --------- -------- -------- 117,716 71,883 87,921 --------- -------- -------- Net Deferred (Prepaid): Federal (635) (6,197) 2,903 Foreign (4,535) 520 (770) State (329) (1,778) 437 --------- -------- -------- (5,499) (7,455) 2,570 --------- -------- -------- $ 112,217 $ 64,428 $ 90,491 ========= ======== ======== 26 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) - -------------------------------------------------------------------------------- The total provision for income taxes included in the accompanying statement of operations is as follows: (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Continuing Operations $ 112,217 $ 64,428 $ 90,491 Discontinued Operations 10,427 (54,807) 80,189 Loss on Disposal of Discontinued Operations (104,000) 174,000 - Extraordinary Item 333 900 337 Cumulative Effect of Change in Accounting Principle (8,543) - - --------- --------- --------- $ 10,434 $ 184,521 $ 171,017 ========= ========= ========= The Company and its majority-owned subsidiaries receive a tax deduction upon the exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $18.0 million, $2.7 million, and $12.9 million of such benefits of the Company and its formerly majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions, in 2000, 1999, and 1998, respectively. In addition, the provision for income taxes that is currently payable does not reflect $19.0 million, $3.5 million, and $4.4 million of tax benefits used to reduce goodwill in 2000, 1999, and 1998, respectively. The provision for income taxes in the accompanying statement of operations differs from the provision calculated by applying the statutory federal income tax rate of 35% to income from continuing operations before provision for income taxes, minority interest, extraordinary item, and cumulative effect of change in accounting principle due to the following: (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Provision for Income Taxes at Statutory Rate $ 64,691 $ 43,666 $ 75,769 Increases (Decreases) Resulting From: Goodwill of businesses sold 30,190 - - Amortization and write off of goodwill 11,330 16,648 8,694 Writedown and equity in loss of unconsolidated subsidiary 12,062 - - Foreign sales corporation (7,325) (3,558) (2,981) Federal tax credits (4,113) (3,697) - Gain on issuance of stock by subsidiaries - - (6,504) State income taxes, net of federal tax 5,188 2,979 6,349 Foreign tax rate and tax law differential 301 6,771 1,017 Nondeductible expenses 1,347 2,246 4,895 Losses not benefited 1,005 1,235 - Other, net (2,459) (1,862) 3,252 -------- -------- -------- $112,217 $ 64,428 $ 90,491 ======== ======== ======== 27 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 8. Income Taxes (continued) - -------------------------------------------------------------------------------- Net deferred tax asset in the accompanying balance sheet consists of the following:
(In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Deferred Tax Asset (Liability): Net operating loss and credit carryforwards $ 94,874 $ 80,196 Reserves and accruals 55,460 36,405 Inventory basis difference 34,322 28,613 Accrued compensation 12,097 13,544 Depreciation and amortization (5,621) (6,508) Other, net 1,102 (17,094) -------- -------- 192,234 135,156 Less: Valuation allowance 54,874 39,220 -------- -------- $137,360 $ 95,936 ======== ======== The valuation allowance primarily relates to the uncertainty surrounding the realization of tax loss and credit carryforwards. Any tax benefit resulting from the use of acquired loss carryforwards is used to reduce goodwill. At year-end 2000, the Company had federal, state, and foreign net operating loss carryforwards of $1.5 million, $223 million, and $165 million, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal and state net operating loss carryforwards expire in the years 2001 through 2014. Of the foreign net operating loss carryforwards, $77 million expire in the years 2001 through 2009, and the remainder do not expire. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. A provision has not been made for U.S. or additional foreign taxes on $500 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested overseas. 9. Transactions in Stock of Subsidiaries - -------------------------------------------------------------------------------- Gain on issuance of stock by subsidiaries in the accompanying 1998 statement of operations resulted from the following transactions: Initial public offering of 3,300,000 shares of ONIX Systems Inc. common stock at $14.50 per share for net proceeds of $43.7 million resulted in a gain of $10.0 million. Public offering of 2,450,000 shares of Thermo BioAnalysis Corporation common stock at $18.125 per share for net proceeds of $41.5 million resulted in a gain of $5.9 million. Conversion of $1.8 million of Thermo Optek Corporation 5% subordinated convertible debentures, convertible at $13.94 per share, into 127,646 shares of Thermo Optek common stock resulted in a gain of $0.9 million. Conversion of $4.0 million of ThermoQuest Corporation 5% subordinated convertible debentures, convertible at $16.50 per share, into 239,393 shares of ThermoQuest common stock resulted in a gain of $1.8 million. 28 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 10. Other Income (Expense), Net - -------------------------------------------------------------------------------- The components of other income (expense), net, in the accompanying statement of operations are as follows (Note 11):
(In thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ Interest Income $ 43,066 $ 41,977 $ 76,565 Interest Expense (86,057) (93,001) (84,211) Equity in Earnings (Loss) of Unconsolidated Subsidiaries (47,315) (7,274) 150 Gain on Investments, Net 6,849 3,662 12,812 Other Items, Net 2,273 (2,709) 1,242 -------- -------- -------- $(81,184) $(57,345) $ 6,558 ======== ======== ======== 11. Restructuring and Other Unusual Costs (Income), Net - -------------------------------------------------------------------------------- 2000 As a result of a review of existing businesses following the appointment of a new president and chief operating officer in July 2000, the Company commenced a restructuring of a number of business units to reduce costs and shed unproductive assets. The restructuring primarily consists of headcount reductions, discontinuing certain mature or unprofitable product lines, and consolidation of facilities to streamline operations and reduce costs. During 2000, the Company recorded $81.4 million of restructuring and unusual charges primarily associated with these actions, including $19.3 million of charges to cost of revenues. These charges are detailed by segment below. The Company expects to incur an additional $0.5 million of costs in 2001 for charges that can not be recorded until incurred. The Company expects that the restructuring actions undertaken in 2000 will be substantially completed by the end of the second quarter of 2001. In addition, the Company recorded other unusual income, net, of $130.0 million and nonoperating charges of $45.1 million during 2000, as detailed by segment below. The Company recorded charges (income) by segment for 2000 as follows:
Optical Measurement (In thousands) Life Sciences Technologies and Control (a) Corporate Total - ---------------------------------------------------------------------------------------------------------- Cost of Revenues $ 8,369 $ 2,916 $ 8,000 $ - $ 19,285 Restructuring and Other Unusual Costs (Income), Net 7,939 3,600 (99,890) 20,496 (67,855) Equity in Loss of Unconsolidated Subsidiaries - 47,421 - - 47,421 Other Income, Net - (2,281) - - (2,281) -------- -------- -------- -------- -------- $ 16,308 $ 51,656 $(91,890) $ 20,496 $ (3,430) ======== ======== ======== ======== ======== (a) Excludes an operating loss of $1.7 million at the Spectra Precision businesses in the third quarter of 2000 prior to their sale (Note 3). 29 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- The components of restructuring and other unusual costs (income) by segment are as follows: Life Sciences - ------------- The Life Sciences segment recorded $16.3 million of restructuring and unusual costs in 2000. The segment recorded charges to cost of revenues of $8.4 million, primarily for discontinued product lines, and $7.9 million of other costs. The other restructuring and unusual costs consist of $6.5 million of cash costs, including $4.0 million of severance for 78 employees across all functions; $1.1 million for ongoing lease costs through 2003 for facilities described below; $0.8 million of provisions for two lawsuits; and $0.6 million for other exit costs. A total of 31 employees were terminated as of December 30, 2000. The segment also recorded $1.4 million of asset writedowns in connection with the closure of a small business and the consolidation and abandonment of facilities. The asset writedowns include $0.7 million of goodwill and $0.7 million of fixed assets. The facility consolidations include closure of sales offices in Spain, Belgium, and Japan and the transfer of their activities to other offices, consolidation of two German units into one facility, and relocation of a unit to other facilities within Colorado. Optical Technologies - -------------------- The Optical Technologies segment recorded $6.5 million of restructuring and unusual costs in 2000. The segment recorded charges to cost of revenues of $2.9 million, primarily for discontinued product lines, and $3.6 million of other costs. The other restructuring and unusual costs consist of a charge of $1.5 million for in-process research and development in connection with an acquisition; $0.9 million of asset writedowns; and $1.2 million of cash costs, including $0.3 million of severance for 22 employees across all functions, $0.4 million for ongoing lease costs, and $0.5 million of other exit costs. All of the severed employees had been terminated as of December 30, 2000. The asset writedowns primarily consist of charges to reduce the carrying value of a small business unit that is held for sale to estimated disposal value and include $0.7 million of goodwill and $0.2 million of fixed assets. The lease costs are for closure of a facility in California with lease payments that ceased in 2000. The Optical Technologies segment also recorded a charge of $23.7 million in 2000 to write down the carrying value of its 29% equity method investment in FLIR (Note 3) based on a decline in the market value of FLIR shares that the Company deemed other than temporary. The segment also recorded other noncash charges of $23.7 million in 2000, representing the Company's pro rata share of FLIR's losses. Both of these charges were recorded to equity in earnings (loss) of unconsolidated subsidiaries, a component of other income (expense), net, in the accompanying statement of operations. Prior to its acquisition by the Company, SPLI elected early adoption of SFAS No. 133. Under SFAS No. 133, SPLI is permitted under certain conditions to enter into foreign exchange contracts to hedge probable anticipated transactions without recording gains and losses on such contracts in income. The Company has not elected early adoption of SFAS No. 133, although it must adopt the statement in 2001. The Company accounts for hedging transactions under SFAS No. 52. Under SFAS No. 52, such contracts are deemed to be speculative hedges and must be marked to market with the resulting gain or loss reported as a component of the Company's results of operations. During 2000, the Company recorded income on foreign exchange contracts entered into by SPLI of $2.3 million, which is included in other income (expense), net, in the accompanying statement of operations. Measurement and Control - ----------------------- The Measurement and Control segment recorded $91.9 million of restructuring and unusual income, net, in 2000. The segment had a net gain of $126.3 million on the sale of several businesses, primarily Spectra Precision (Note 3), Nicolet Imaging Systems (NIS), and Sierra Research and Technology Inc. (SRT). NIS and SRT manufacture products that include imaging systems used in assembling complex printed circuit boards and in airbag manufacturing. Spectra Precision, NIS, and SRT had aggregate revenues and operating income of $125.7 million and $11.0 million, respectively, in 2000 through their respective disposal dates. The segment also recorded charges of $20.6 million for 30 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- asset writedowns to reduce the carrying value of businesses held for sale to estimated disposal value and for fixed assets unique to certain discontinued products; $8.0 million of charges to cost of revenues, primarily for discontinued product lines; and $6.8 million of cash costs, including $3.0 million of severance for 128 employees across all functions, $2.4 million of lease costs through 2001, and $1.4 million of other exit costs, primarily employee retention and relocation costs incurred in 2000. A total of 101 employees were terminated as of December 30, 2000. The lease costs include amounts for the closure of sales offices in Norway, New Zealand, and Germany and a manufacturing operation in the U.K. The asset writedowns included $17.6 million of goodwill, $2.8 million of fixed assets, and $0.2 million of other assets. The businesses held for sale primarily include CAC Inc. and the Mid South Companies, which provide the oil and gas industry with wellhead safety and control products; the Test and Measurement business, which manufactures and sells data acquisition systems, digital oscilloscopes, and recorders; and the Pharos Marine businesses, which manufacture and sell marine navigation equipment and systems. In addition, in February 2001, the Company decided to hold for sale a unit that manufactures scanning probe microscopes. The businesses held for sale had aggregate revenues and operating income before restructuring and unusual items in 2000 of $102.3 million and $0.9 million, respectively. These businesses are generally cyclical, noncore units that are being sold to generate funds to invest in potentially higher-growth opportunities. The segment also had unusual income of $0.6 million in 2000, primarily representing a gain on the termination of a lease. Corporate - --------- The Company recorded $20.5 million of restructuring and unusual costs, net, at its corporate office in 2000. This amount includes $3.0 million of severance for 21 employees, 14 of which were terminated as of December 30, 2000; $16.1 million of investment banking, consulting, and legal fees associated with the Company's reorganization plan; $3.6 million of employee retention costs that are being accrued ratably over the period through which the employees must work to qualify for a payment; and $1.6 million of noncash costs. The Company also recorded unusual income of $3.8 million, representing a gain from the sale of an office building adjacent to the Company's corporate headquarters. During 2000, in connection with the Company's reorganization, the Company entered into an incentive bonus agreement with its investment bankers under which the bankers will receive a cash payment in June 2001. The payment will be between 0.75% and 2.5% of the Company's diluted market capitalization in excess of $24 per share using the highest average market value of Company common stock for 20 consecutive days between December 1, 1999, and May 31, 2001. As of December 30, 2000, the Company had accrued $8.5 million of costs under this agreement, which are included in the restructuring and unusual costs discussed above. 1999 During 1999, the Company recorded restructuring and unusual costs of $46.8 million and other nonoperating charges of $18.4 million in connection with broad scale restructuring actions affecting a number of business units. Restructuring and other unusual costs, net, include $37.7 million of restructuring costs, $0.3 million of other unusual income, net, and $9.4 million of inventory provisions. The inventory provisions are included in cost of revenues. The Company also recorded $17.0 million of other nonoperating charges and $1.4 million of income tax expense. These charges are detailed by segment below. 31 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- The Company recorded charges (income) by segment for 1999 as follows: (In thousands) Life Optical Measurement Sciences Technologies and Control Corporate Total - ---------------------------------------------------------------------------------------------------------- Cost of Revenues $ - $ 3,156 $ 6,270 $ - $ 9,426 Restructuring and Other Unusual Costs (Income), Net (326) 971 30,956 5,745 37,346 Equity in Loss of Unconsolidated - 11,066 - - 11,066 Subsidiaries Other Expense, Net - 2,316 - 3,609 5,925 Income Tax Expense - - 1,409 - 1,409 -------- -------- -------- -------- -------- $ (326) $ 17,509 $ 38,635 $ 9,354 $ 65,172 ======== ======== ======== ======== ======== The components of restructuring and unusual costs (income) by segment are as follows: Life Sciences - ------------- During 1999, the Life Sciences segment settled certain severance matters for less than had been previously accrued and, as a result, reversed $0.3 million of previously established reserves. Optical Technologies - -------------------- The Optical Technologies segment recorded $4.1 million of restructuring and unusual costs in 1999. The Optical Technologies segment recorded an adjustment to cost of revenues of $3.2 million relating to the sale of inventories that were revalued at the date of the acquisition of SPLI and restructuring costs of $1.0 million, primarily abandoned lease costs for manufacturing facilities in the United Kingdom with lease obligations through 2000, and other facility costs. The Optical Technologies segment also recorded $13.4 million of nonoperating charges in 1999. During the first calendar quarter of 1999, FLIR recorded a loss in connection with a pooling-of-interests transaction and certain restructuring actions. The Company has recorded its pro rata share of this loss, $5.1 million, in equity in earnings (loss) of unconsolidated subsidiaries, a component of other income (expense), net, in the accompanying statement of operations. In addition, as a result of the pooling consummated by FLIR and related issuance of FLIR shares in March 1999, the Company's pro rata share of FLIR's equity decreased to 29.4% from 34.6% prior to the transaction. This decrease totaled $6.0 million and has been recorded as a loss in equity in earnings (loss) of unconsolidated subsidiaries in the accompanying statement of operations, pursuant to SAB No. 51, "Accounting for Sales of Stock by a Subsidiary." In addition, during 1999, the Optical Technologies segment recorded a loss of $2.3 million on foreign exchange contracts accounted for under SFAS No. 133 by SPLI. Measurement and Control - ----------------------- During 1999, the Measurement and Control segment recorded restructuring and unusual costs of $37.2 million and other nonoperating charges of $1.4 million as a result of the actions detailed below. The Company recorded restructuring costs of $30.1 million, a tax asset writeoff of $1.4 million, and inventory provisions of $0.9 million, related to a decision to sell its power electronics and test equipment business. The planned sale of the power electronics and test equipment businesses followed a period of declining sales and profitability in these units. These businesses are dependent on the cyclical nature of the semiconductor industry and have lower growth prospects than other businesses held by the Company. As a result, the Company decided to sell these units. Restructuring costs include $28.5 million to write off related goodwill to reduce the carrying value of the business to the estimated proceeds from its sale. In addition, restructuring costs include a charge of $1.6 million recorded to write off the 32 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- Company's remaining net investment in a subsidiary of the power electronics and test equipment business, which the Company transferred to a buyer in consideration for a release from certain contractual obligations, primarily ongoing lease obligations. The tax writeoff represents a deferred tax asset that will not be realized as a result of exiting this business. The inventory provisions result from exiting and reengineering certain product lines. Revenues and operating losses, excluding restructuring and related costs, of the power electronics and test equipment business were $28.2 million and $0.5 million, respectively, for 1999, and net assets totaled $17.5 million at year-end 1999. The Company also recorded other unusual costs of $0.9 million in 1999 at the power electronics and test equipment business. As of December 30, 2000, all but one of the principal operating units of this business had been sold. The segment has decided to hold this last unit and abandon its plans to dispose of it. The Measurement and Control segment's unusual charges also include a charge to cost of revenues of $3.5 million relating to the sale of inventories at certain Spectra-Physics units that were revalued at the date of their acquisition, and $1.9 million for inventories deemed excessive based on low demand at the segment's quality assurance and security products business. Corporate - --------- During 1999, the Company recorded $5.7 million of restructuring and unusual costs and $3.6 million of other nonoperating charges. Restructuring costs consist of $4.9 million for severance costs for seven senior-level employees and $0.8 million of legal and advisory costs related to the Company's reorganization. The Company also recorded $3.6 million of other nonoperating charges to write down available-for-sale investments due to impairment that the Company deemed other than temporary based upon market prices. These charges are included in gain on investments, net, a component of other income (expense), net, in the accompanying statement of operations. General - ------- As of January 2, 1999, the Company had terminated 495 employees of the 729 announced in 1998. The restructuring actions in 1999 included plans for the termination of an additional 38 employees. During 2000 and 1999, 233 employees were terminated in connection with the restructuring plans announced in 1998 and 1999 and the remainder were not terminated as a result of factors including attrition and sale of businesses. 1998 During 1998, the Company recorded restructuring and unusual costs of $32.5 million as described below, including restructuring and other unusual costs of $23.6 million, inventory write downs of $8.6 million, and other costs of $0.3 million. The inventory write downs are included in cost of revenues in the accompanying statement of operations. The charges occurred as a result of an economic crisis in Asia; a related downturn in the semiconductor industry; and depressed prices in the oil, petrochemical, and natural resources industries. The Company recorded charges by segment for 1998 as follows: Life Optical Measurement (In thousands) Sciences Technologies and Control Corporate Total - ---------------------------------------------------------------------------------------------------------- Cost of Revenues $ 2,772 $ 2,946 $ 2,869 $ - $ 8,587 Restructuring and Other Unusual Costs, Net 5,900 3,609 13,699 375 23,583 Other Expense, Net 335 - - - 335 ------- ------- ------- ------- ------- $ 9,007 $ 6,555 $16,568 $ 375 $32,505 ======= ======= ======= ======= ======= 33 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- The components of restructuring and unusual costs by segment are as follows: Life Sciences - ------------- The Life Sciences segment recorded restructuring and unusual costs of $8.7 million and nonoperating charges of $0.3 million in 1998. Restructuring costs consist of $4.6 million related to severance costs for 190 employees across all functions and $1.3 million of facility-closing costs, including $1.2 million of asset writedowns and $0.1 million of lease costs for facilities in the United Kingdom with obligations through 1999. In addition, the Company recorded inventory writedowns totaling $2.8 million related to discontinuing several low-margin product lines and the disposal of inventories at a manufacturing facility being closed. The Company also recorded a charge of $0.3 million related to its share of restructuring costs at a joint venture as a reduction in the Company's equity in earnings (loss) of unconsolidated subsidiaries, which is included in other income (expense), net, in the accompanying statement of operations. Optical Technologies - -------------------- The Optical Technologies segment recorded restructuring and unusual costs of $6.6 million in 1998. Restructuring costs of $3.6 million consist of $2.0 million related to severance costs for 200 employees across all functions, $0.6 million for facility closing costs for facilities in the United Kingdom, a loss of $0.4 million related to the sale of a division, and $0.6 million of other costs. The $0.6 million of facility-closing costs include $0.2 million for lease payments on abandoned facilities with lease obligations through 2000 and $0.4 million to write down related fixed assets. The Company also recorded inventory writedowns of $2.9 million related to discontinuing certain product lines and increased excess and obsolescence reserves associated with lower product demand. Measurement and Control - ----------------------- The Measurement and Control segment recorded restructuring and unusual costs of $16.6 million in 1998. Restructuring costs of $13.7 million consist of $9.4 million related to severance costs for 390 employees across all functions; $1.9 million of facility-closing costs, primarily writedowns of fixed assets at abandoned facilities; $0.8 million for the write off of goodwill for an operating unit that was closed; and $1.6 million of other charges discussed below. The Company also recorded $2.9 million of inventory writedowns, primarily for products deemed excess based on recent demand. Five former employees of the Company's Epsilon Industrial, Inc. subsidiary had sought damages in an arbitration proceeding for alleged breaches of agreements entered into with such employees prior to Epsilon's acquisition by the Company. The arbitrators rendered a decision with respect to such claims during 1998, and the Company recorded $1.6 million of unusual costs related to the resolution of this matter in 1998. Corporate - --------- During 1998 the Company recorded $0.4 million of other restructuring and unusual costs. 34 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- The following table summarizes the cash components of the Company's restructuring plans. The noncash components and other amounts reported as restructuring and unusual costs (income), net, in the accompanying statement of operations have been summarized in the notes to the tables. Abandonment Employee of Excess (In thousands) Severance Retention (a) Facilities Other Total - --------------------------------------------------------------------------------------------------------- 1998 Restructuring Plans Costs incurred in 1998 (b) $ 15,700 $ - $ 1,656 $ 1,420 $ 18,776 1998 usage (6,630) - (418) (670) (7,718) Currency translation 211 - 25 26 262 -------- -------- -------- -------- -------- Balance at January 2, 1999 9,281 - 1,263 776 11,320 Costs incurred in 1999 (c) 1,486 - 1,280 652 3,418 1999 usage (7,205) - (2,046) (838) (10,089) Reserves reversed (d) (2,101) - (217) - (2,318) Currency translation (568) - (55) (26) (649) -------- -------- -------- -------- -------- Balance at January 1, 2000 893 - 225 564 1,682 Cost incurred in 2000 - - 144 - 144 2000 usage (774) - (284) - (1,058) Reserves reversed - - (84) - (84) Currency translation (22) - (1) (44) (67) -------- -------- -------- -------- -------- Balance at December 30, 2000 $ 97 $ - $ - $ 520 $ 617 ======== ======== ======== ======== ======== 1999 Restructuring Plans Costs incurred in 1999 (e) $ 3,938 $ - $ - $ 893 $ 4,831 1999 usage (195) - - (893) (1,088) -------- -------- -------- -------- -------- Balance at January 1, 2000 3,743 - - - 3,743 2000 usage (2,851) - - - (2,851) Reserves reversed (6) - - - (6) -------- -------- -------- -------- -------- Balance at December 30, 2000 $ 886 $ - $ - $ - $ 886 ======== ======== ======== ======== ======== 2000 Restructuring Plans Costs incurred in 2000 (f) $ 10,469 $ 4,116 $ 3,818 $ 17,533 $ 35,936 2000 usage (6,488) (830) (1,031) (7,958) (16,307) Reserves reversed (205) - - - (205) Currency translation 48 (3) 33 19 97 -------- -------- -------- -------- -------- Balance at December 30, 2000 $ 3,824 $ 3,283 $ 2,820 $ 9,594 $ 19,521 ======== ======== ======== ======== ======== (a) Employee retention costs are accrued ratably over the period through which the employees must work to qualify for a payment. The awards were based on specified percentages of employees' salaries and were generally awarded to help ensure continued employment at least through completion of the Company's reorganization plan. 35 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 11. Restructuring and Other Unusual Costs (Income), Net (continued) - -------------------------------------------------------------------------------- (b) Excludes noncash charges of $1.2 million, $0.8 million, and $0.8 million in the Life Sciences, Optical Technologies, and Measurement and Control segments, respectively, and $1.6 million of cash costs in the Measurement and Control segment related to an arbitration matter, which was paid in 1998. (c) Excludes a noncash charge of $0.1 million in the Measurement and Control segment. (d) Reflects reversals of previously recorded restructuring costs of $0.3 million and $2.0 million in the Life Sciences and Measurement and Control segments, respectively. (e) Excludes noncash charges, net, of $30.2 million and $0.9 million in the Measurement and Control segment and the Corporate headquarters, respectively. Also excludes unusual costs of $0.3 million in the Measurement and Control segment. (f) Excludes noncash charges, net, of $1.4 million and $2.5 million in the Life Sciences and Optical Technologies segments, respectively, and noncash income, net, of $106.3 million and $2.2 million in the Measurement and Control segment and the Corporate headquarters, respectively. Also, excludes $0.8 million of cash costs in the Life Sciences segment related to two lawsuits. The Company's continuing operations expect to pay accrued restructuring costs as follows: severance, primarily in 2001; employee retention obligations, primarily in 2001 and January 2002; abandoned-facility payments, over lease terms expiring through 2003; and other costs, which primarily represent investment banking fees associated with the Company's reorganization, in 2001. 12. Supplemental Cash Flow Information - --------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Cash Paid For Interest $ 87,295 $ 94,210 $ 78,253 ========== ========== =========== Income taxes $ 93,136 $ 71,637 $ 88,688 ========== ========== =========== Noncash Activities Receipt of note in connection with sale of business $ 80,000 $ - $ - ========== ========== =========== Conversions of Company and subsidiary convertible obligations $ - $ 9,277 $ 11,911 ========== ========== =========== Issuance of subsidiary subordinated convertible debentures in connection with exchange offer $ - $ - $ 15,859 ========== ========== =========== Exchange of subsidiary common stock for common stock of subsidiary subject to redemption $ - $ - $ 40,500 ========== ========== =========== Issuance of Company common stock in exchange for minority interests of subsidiaries (Note 18) $ 448,747 $ - $ - ========== ========== =========== Fair value of assets of acquired companies $ 25,114 $ 604,114 $ 235,902 Cash paid for acquired companies (17,311) (385,260) (182,406) Issuance of short- and long-term obligations for acquired company - (14,852) - ---------- ---------- ----------- Liabilities assumed of acquired companies $ 7,803 $ 204,002 $ 53,496 ========== ========== =========== 36 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 13. Fair Value of Financial Instruments - -------------------------------------------------------------------------------- The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale investments, accounts receivable, short-term obligations and current maturities of long-term obligations, advance payable to affiliates, accounts payable, long-term obligations, common stock subject to redemption, and forward foreign exchange contracts. The carrying amounts of cash and cash equivalents, accounts receivable, short-term obligations and current maturities of long-term obligations (excluding convertible obligations), advance payable to affiliates, and accounts payable approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices (Note 2). The carrying amount and fair value of the Company's long-term obligations, common stock subject to redemption, and off-balance-sheet financial instruments are as follows:
2000 1999 ------------------------------------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - ---------------------------------------------------------------------------------------------------------- Current Maturities of Convertible Obligations $ 6,467 $ 6,450 $ 155,081 $ 152,103 =========== =========== ========== =========== Long-term Obligations: Convertible obligations $ 1,350,065 $ 1,283,979 $1,381,805 $ 1,110,626 Other 178,418 180,268 184,169 183,217 ----------- ----------- ---------- ----------- $ 1,528,483 $ 1,464,247 $1,565,974 $ 1,293,843 =========== =========== ========== =========== Common Stock Subject to Redemption $ 7,692 $ 7,692 $ 7,692 $ 6,553 =========== =========== ========== =========== Off-balance-sheet Financial Instruments: Forward foreign exchange contracts (receivable) payable $ (213) $ 400 The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The fair value of common stock subject to redemption was determined based upon quoted market prices. The notional amounts of forward foreign exchange contracts outstanding, excluding the contracts at SPLI discussed below, totaled $69.1 million and $76.2 million at year-end 2000 and 1999, respectively. The fair value of such contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates. The forward foreign exchange contracts of SPLI that are not hedges of firm commitments are recorded in the accompanying balance sheet at fair value. The fair value of these contracts was a receivable of $1.9 million and a payable of $2.0 million at year-end 2000 and 1999, respectively, and these amounts are included in other assets and other deferred items, respectively, in the accompanying balance sheet (Note 11). 14. Adoption of SAB No. 101 - -------------------------------------------------------------------------------- In December 1999, the SEC issued SAB No. 101, which establishes criteria for recording revenue when the terms of the sale include customer acceptance provisions or an obligation of the seller to install the product. In instances where these terms exist and the Company is unable to demonstrate that the customer's acceptance criteria has been met prior to customer use or when the installation is essential to functionality or is not deemed inconsequential or perfunctory, SAB No. 101 requires that revenue recognition occur at completion of installation and/or upon customer acceptance. In accordance with the requirements of SAB No. 101, the Company has adopted the pronouncement as of 37 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 14. Adoption of SAB No. 101 (continued) - -------------------------------------------------------------------------------- January 2, 2000, and has recorded the cumulative effect of the change in accounting principle on periods prior to 2000 in the restated results for the first quarter of 2000. The cumulative effect on net income totaled $12.9 million, net of an income tax benefit of $8.5 million and minority interest of $0.5 million. Revenues of $41.3 million in 2000 (as restated for the adoption of SAB No. 101) relate to shipments that occurred in 1999 but for which installation and/or acceptance did not occur until 2000. These revenues were recorded in 1999 prior to the adoption of SAB No. 101 and thus were a component in the determination of the cumulative effect of the change in accounting principle for periods prior to 2000. The Company has not provided pro forma data for 1999 and 1998 as the amounts are not readily determinable based on the nature of the revenue adjustments required by SAB No. 101. The Company's unaudited quarterly results for 2000 have been restated as shown below. Amounts captioned "as previously reported" have been restated where applicable to reflect the Company's continuing operations:
(In thousands except per share amounts) First Second Third - ---------------------------------------------------------------------------------------------------------- Revenues: As previously reported $572,980 $583,115 $546,611 As adjusted 576,604 579,950 546,949 Gross Profit: As previously reported 268,108 268,668 228,696 As adjusted 268,595 266,249 226,348 Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As previously reported 13,830 22,705 8,490 As adjusted 14,479 21,698 7,281 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As previously reported 15,291 25,261 13,488 As adjusted 15,940 24,255 12,279 Net Income: As previously reported 15,823 25,261 13,488 As adjusted 3,554 24,255 12,279 Basic Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As previously reported .09 .15 .05 As adjusted .09 .14 .04 Diluted Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: As previously reported .08 .14 .05 As adjusted .09 .13 .04 Basic Earnings per Share: As previously reported .10 .16 .08 As adjusted .02 .16 .07 Diluted Earnings per Share: As previously reported .09 .16 .07 As adjusted .02 .15 .07 38 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 15. Business Segment and Geographical Information - -------------------------------------------------------------------------------- The Company's businesses are managed in three segments: - Life Sciences: systems for drug discovery and medical diagnosis and for chemical analysis at ultratrace levels; - Optical Technologies: optical and energy-based analytical systems; high-power laser systems; and industrial imaging, inspection, and measurement instruments; and - Measurement and Control: on-line systems for industrial process and quality control, field-measurement instruments, and real-time sensors. During 2000, the Company moved its spectroscopy and certain other businesses from the Optical Technologies segment to the Measurement and Control segment due to an organizational change. Prior periods have been restated to conform to this presentation. (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Business Segment Information Revenues: Life Sciences $ 780,020 $ 764,636 $ 705,105 Optical Technologies 480,014 394,588 265,446 Measurement and Control 1,037,331 1,160,283 936,302 Intersegment (a) (16,843) (24,887) (25,947) ---------- ---------- ---------- $2,280,522 $2,294,620 $1,880,906 ========== ========== ========== Income from Continuing Operations Before Provision for Income Taxes, Minority Interest, Extraordinary Item, and Cumulative Effect of Change in Accounting Principle: Life Sciences (b) $ 91,863 $ 117,199 $ 100,541 Optical Technologies (c) 34,727 31,289 29,190 Measurement and Control (d) 193,190 70,744 92,201 ---------- ---------- ---------- Total Segment Income (e) 319,780 219,232 221,932 Corporate and Other (f) (134,949) (94,473) (5,450) ---------- ---------- ---------- $ 184,831 $ 124,759 $ 216,482 ========== ========== ========== Total Assets: Life Sciences $1,217,824 $1,150,946 $1,150,086 Optical Technologies 614,520 506,406 333,394 Measurement and Control 1,351,892 1,511,307 1,220,276 Corporate (g) 775,448 444,086 963,621 Net Assets of Discontinued Operations 903,293 1,459,012 1,550,568 ---------- ---------- ---------- $4,862,977 $5,071,757 $5,217,945 ========== ========== ========== Depreciation: Life Sciences $ 16,093 $ 15,673 $ 15,685 Optical Technologies 14,742 11,899 6,505 Measurement and Control 20,892 22,551 17,111 Corporate 1,187 1,227 1,130 ---------- ---------- ---------- $ 52,914 $ 51,350 $ 40,431 ========== ========== ========== 39 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 15. Business Segment and Geographical Information (continued) - -------------------------------------------------------------------------------- (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Amortization: Life Sciences $ 19,418 $ 14,966 $ 13,181 Optical Technologies 6,337 4,194 4,141 Measurement and Control 18,317 20,049 16,813 Corporate 500 870 603 ---------- ---------- ---------- $ 44,572 $ 40,079 $ 34,738 ========== ========== ========== Capital Expenditures: Life Sciences $ 18,849 $ 14,498 $ 15,886 Optical Technologies 31,988 18,509 6,588 Measurement and Control 21,599 22,411 13,236 Corporate 1,603 5,820 2,621 ---------- ---------- ---------- $ 74,039 $ 61,238 $ 38,331 ========== ========== ========== Geographical Information Revenues (h): United States $1,574,737 $1,522,610 $1,227,355 England 311,660 339,151 316,326 Other 712,154 779,396 608,188 Transfers among geographical areas (a) (318,029) (346,537) (270,963) ---------- ---------- ---------- $2,280,522 $2,294,620 $1,880,906 ========== ========== ========== Long-lived Assets (i): United States $ 222,169 $ 206,409 $ 155,376 Sweden 262 66,339 93 Other 88,846 122,723 100,621 ---------- ---------- ---------- $ 311,277 $ 395,471 $ 256,090 ========== ========== ========== Export Sales Included in United States Revenues Above (j) $ 436,378 $ 435,558 $ 402,104 ========== ========== ========== (a) Intersegment sales and transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Includes restructuring and other unusual costs, net, of $7.9 million and $5.9 million in 2000 and 1998, respectively, and restructuring and other unusual income of $0.3 million in 1999. Includes charges of $8.4 million and $2.8 million in 2000 and 1998, respectively, primarily inventory provisions. (c) Includes restructuring and other unusual costs of $3.6 million, $1.0 million, and $3.6 million in 2000, 1999, and 1998, respectively. Includes charges of $2.9 million, $3.2 million, and $2.9 million in 2000, 1999, and 1998, respectively, primarily inventory provisions and charges for the sale of inventories revalued in connection with acquisitions. 40 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 15. Business Segment and Geographical Information (continued) - -------------------------------------------------------------------------------- (d) Includes restructuring and other unusual income, net, of $99.9 million in 2000 and restructuring and other unusual costs of $31.0 million and $13.7 million in 1999 and 1998, respectively. Includes charges of $8.0 million, $6.3 million, and $2.9 million in 2000, 1999, and 1998, respectively, primarily inventory provisions and charges for the sale of inventories revalued in connection with acquisitions. (e) Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, income taxes, and extraordinary item. (f) Includes corporate general and administrative expenses, other income and expense, and gain on issuance of stock by subsidiaries. Includes restructuring and unusual costs of $20.5 million, $5.7 million, and $0.4 million at the Company's headquarters in 2000, 1999, and 1998, respectively. Other income and expense includes $45.1 million and $13.4 million of charges in 2000 and 1999, respectively, primarily related to the Company's investment in FLIR; other expense of $3.6 million for impairment of investments in 1999; and other expense of $0.3 million in 1998. (g) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's headquarters. (h) Revenues are attributed to countries based on selling location. (i) Includes property, plant, and equipment, net, and other long-term tangible assets. (j) In general, export revenues are denominated in U.S. dollars. 16. Earnings (Loss) per Share - -------------------------------------------------------------------------------- (In thousands except per share amounts) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Basic Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle $ 62,047 $ 37,283 $ 93,760 Income (Loss) from Discontinued Operations 14,228 (163,325) 87,701 Provision for Loss on Disposal of Discontinued Operations (100,000) (50,000) - Extraordinary Item 532 1,469 440 Cumulative Effect of Change in Accounting Principle (12,918) - - --------- --------- --------- Net Income (Loss) $ (36,111) $(174,573) $ 181,901 --------- --------- --------- Weighted Average Shares 167,462 157,987 161,866 --------- --------- --------- Basic Earnings (Loss) per Share: Continuing operations before extraordinary item and cumulative effect of change in accounting principle $ .37 $ .24 $ .58 Discontinued operations (.51) (1.35) .54 Extraordinary item - .01 - Cumulative effect of change in accounting principle (.08) - - --------- --------- --------- $ (.22) $ (1.10) $ 1.12 ========= ========= ========= 41 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 16. Earnings (Loss) per Share (continued) - -------------------------------------------------------------------------------- (In thousands except per share amounts) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Diluted Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle $ 62,047 $ 37,283 $ 93,760 Income (Loss) from Discontinued Operations 14,228 (163,325) 87,701 Provision for Loss on Disposal of Discontinued Operations (100,000) (50,000) - Extraordinary Item 532 1,469 440 Cumulative Effect of Change in Accounting Principle (12,918) - - --------- --------- --------- Net Income (Loss) (36,111) (174,573) 181,901 Effect of: Majority-owned subsidiaries' dilutive securities - continuing operations (1,331) (3,071) (3,578) Majority-owned subsidiaries' dilutive securities - discontinued operations (113) (145) (1,528) --------- --------- --------- Income (Loss) Available to Common Shareholders, as Adjusted $ (37,555) $(177,789) $ 176,795 --------- --------- --------- Weighted Average Shares 167,462 157,987 161,866 Effect of: Stock options 2,819 236 1,107 Convertible obligations 238 - - --------- --------- --------- Weighted Average Shares, as Adjusted 170,519 158,223 162,973 --------- --------- --------- Diluted Earnings (Loss) per Share: Continuing operations before extraordinary item and cumulative effect of change in accounting principle $ .36 $ .22 $ .55 Discontinued operations (.50) (1.35) .53 Extraordinary item - .01 - Cumulative effect of change in accounting principle (.08) - - --------- --------- --------- $ (.22) $ (1.12) $ 1.08 ========= ========= ========= Options to purchase 4,726,000, 12,200,000, and 3,845,000 shares of common stock were not included in the computation of diluted earnings (loss) per share for 2000, 1999, and 1998, respectively, because the options' exercise prices were greater than the average market price for the common stock and their effect would have been antidilutive. 42 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 16. Earnings (Loss) per Share (continued) - -------------------------------------------------------------------------------- During 2000, convertible obligations of certain of the Company's formerly public subsidiaries became convertible into Company common stock (Note 18). The computation of diluted earnings (loss) per share for 2000 excludes the effect of assuming the conversion of the following of the Company's subordinated convertible debentures because the effect would be antidilutive:
Conversion Principal Interest Price per Amount Rate Share ---------------------------------------- (In thousands) $561,563 4 1/4% $ 37.80 247,000 4% 41.94 172,500 4 1/2% 40.54 110,191 4 5/8% 40.30 98,310 4 3/8% 131.71 78,048 3 1/4% 49.06 35,029 4 7/8% 38.28 15,859 2 7/8% 33.17 The computation of diluted earnings (loss) per share for 1999 and 1998 excludes the effect of assuming the conversion of the Company's 4 1/4% subordinated convertible debentures, convertible at $37.80 per share, because the effect would be antidilutive. In addition, the computation of diluted earnings (loss) per share for 1999 excludes the effect of assuming the repurchase of 2,367,000 shares of Company common stock at a weighted average exercise price of $14.06 per share in connection with put options (Note 7), because the effect would be antidilutive. 17. Comprehensive Income - -------------------------------------------------------------------------------- Comprehensive income combines net income (loss) and "other comprehensive items," which represents certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses on available-for-sale investments. Accumulated other comprehensive items in the accompanying balance sheet consists of the following:
(In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- Cumulative Translation Adjustment $(108,103) $ (63,128) Net Unrealized Gains on Available-for-sale Investments 11,761 7,203 --------- --------- $ (96,342) $ (55,925) ========= ========= 43 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 17. Comprehensive Income (continued) - -------------------------------------------------------------------------------- Unrealized gains (losses) on available-for-sale investments, a component of other comprehensive items in the accompanying statement of comprehensive income and shareholders' investment, includes the following:
(In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Unrealized Holding Gains Arising During the Year (net of income tax provision of $5,257, $3,956, and $2,481) $ 8,668 $ 6,848 $ 3,744 Reclassification Adjustment for Gains Included in Net Income (Loss) (net of income tax provision of $2,739, $1,465, and $5,125) (4,110) (2,197) (7,687) ------- ------- ------- Net Unrealized Gains (Losses) (net of income tax provision (benefit) of $2,518, $2,491, and $(2,644)) $ 4,558 $ 4,651 $(3,943) ======= ======= ======= 18. Reorganization and Discontinued Operations - -------------------------------------------------------------------------------- Reorganization In January 2000, the Company modified its proposed reorganization involving the Company and certain of its subsidiaries. The reorganization would split the Company into three independent public entities. In February 2001, the Company entered into a definitive agreement to sell its power generation business. The Company's continuing operations solely include its core measurement and detection instrument businesses. The Company's plans also include spinning off as a dividend to Company shareholders Thermo Fibertek and a medical products company that focuses on patient monitoring and respiratory equipment. During 1999 and 2000, the Company acquired the minority interest in certain of its privately held subsidiaries and all of its formerly publicly held subsidiaries other than SPLI, Thermo Cardiosystems, Thermo Fibertek, and Thermo Fibergen. In connection with these acquisitions, the Company expended $368.6 million and $43.2 million of cash in 2000 and 1999, respectively, and issued 22.6 million shares of its common stock valued at $448.7 million in 2000. In addition, the stock options of the subsidiaries were converted into stock options that are exercisable into 13.9 million shares of Company common stock. The stock options had a fair value of $115.3 million. As a result of the completion of the cash tender offers and other repurchases, exchange offers, and stock option conversions, the Company has recorded an increase in goodwill of approximately $380 million in 2000. This asset is being amortized principally over 40 years. As a result of the completion of the exchange offers for Thermo Instrument Systems, Inc., Thermedics Inc., Thermo Ecotek Corporation, ThermoLase, ThermoTrex Corporation, and Thermo TerraTech Inc., $790.2 million principal amount of convertible obligations of these subsidiaries became obligations convertible into Company common stock. Details of the transactions summarized above are as follows: Continuing Operations 2000 Thermo Instrument completed a merger with Thermo Vision Corporation pursuant to which Thermo Instrument acquired, for $7.00 per share in cash, all of the outstanding shares of common stock of Thermo Vision not already owned by Thermo Instrument or the Company. The common stock of Thermo Vision ceased to be publicly traded. Thermo Instrument completed cash tender offers of $28.00 per share for Thermo BioAnalysis, $9.00 per share for Metrika Systems Corporation, and $9.00 per share for ONIX in order to bring its and the Company's collective ownership of these businesses to at least 90%. Subsequently, Thermo Instrument completed the acquisition of the outstanding minority interest in each of these companies through short-form mergers at the same prices as the tender 44 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 18. Reorganization and Discontinued Operations (continued) - -------------------------------------------------------------------------------- offers and their common stock ceased to be publicly traded. Because Thermo Instrument owned more than 90% of the outstanding shares of Thermo Optek and ThermoQuest common stock, each of these companies were repurchased through short-form mergers at $15.00 and $17.00 per share, respectively, and their common stock ceased to be publicly traded. Thermedics completed cash tender offers of $8.00 and $15.50 per share for Thermedics Detection Inc. and Thermo Sentron Inc., respectively, in order to bring its and the Company's collective ownership of these businesses to at least 90%. Subsequently, Thermedics completed the acquisition of the outstanding minority interest in each of these companies through short-form mergers at the same prices as the tender offers and their common stock ceased to be publicly traded. The Company completed an exchange offer for Thermo Instrument in which shares of Company common stock were offered to Thermo Instrument shareholders in exchange for their shares in order to bring the Company's ownership in Thermo Instrument to at least 90%. The exchange ratio for Thermo Instrument was 0.85 shares of Company common stock for each share of Thermo Instrument common stock. Subsequently, Thermo Instrument was spun into the Company through a short-form merger at the same exchange ratio that was offered in the exchange offer and its common stock ceased to be publicly traded. As a result of the completion of the merger with Thermo Instrument, the Company issued 12.6 million shares of its common stock valued at $265.9 million. 1999 Thermedics completed a merger with Thermo Voltek Corporation pursuant to which Thermedics acquired, for $7.00 per share in cash, all of the outstanding shares of common stock of Thermo Voltek not already owned by Thermedics or the Company. The common stock of Thermo Voltek ceased to be publicly traded. Thermo Instrument completed a merger with ThermoSpectra Corporation pursuant to which Thermo Instrument acquired, for $16.00 per share in cash, all of the outstanding shares of common stock of ThermoSpectra not already owned by Thermo Instrument or the Company. The common stock of ThermoSpectra ceased to be publicly traded. Discontinued Operations 2000 The Company completed a merger with Thermedics pursuant to which the Company acquired all of Thermedics' outstanding shares of common stock not already owned by the Company in exchange for Company common stock at a ratio of 0.45 shares for each share of Thermedics common stock. The common stock of Thermedics ceased to be publicly traded. The Company completed a merger with Thermo TerraTech pursuant to which the Company acquired all of Thermo TerraTech's outstanding shares of common stock not already owned by the Company in exchange for Company common stock at a ratio of 0.3945 shares for each share of Thermo TerraTech common stock. The common stock of Thermo TerraTech ceased to be publicly traded. The Company completed a merger with ThermoLase pursuant to which the Company acquired all of ThermoLase's outstanding shares of common stock not already owned by ThermoTrex or the Company in exchange for Company common stock at a ratio of 0.132 shares for each share of ThermoLase common stock. The common stock of ThermoLase ceased to be publicly traded. In addition, under the agreement, units of ThermoLase were modified so that each unit consists of a fractional share of Company common stock, which is redeemable at the option of the holder in April 2001 for $20.25 (Note 1). The Company completed a merger with ThermoTrex pursuant to which the Company acquired all of ThermoTrex's outstanding shares of common stock not already owned by the Company in exchange for Company common stock at a ratio of 0.5503 shares for each share of ThermoTrex common stock. The common stock of ThermoTrex ceased to be publicly traded. 45 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 18. Reorganization and Discontinued Operations (continued) - -------------------------------------------------------------------------------- The Company completed a cash tender offer of $2.15 per share for Trex Medical to bring its ownership of this business to at least 90%. Subsequently, the Company completed the acquisition of the outstanding minority interest in Trex Medical through a short-form merger at the same price as the tender offer and the common stock of Trex Medical ceased to be publicly traded. The Company completed mergers with ThermoRetec Corporation and The Randers Killam Group Inc. pursuant to which the Company acquired, for $7.00 and $4.50 per share in cash, respectively, all of the outstanding shares of common stock of ThermoRetec and Randers Killam not already owned by Thermo TerraTech or the Company. The common stock of each of ThermoRetec and Randers Killam ceased to be publicly traded. Because the Company owned more than 90% of the outstanding shares of Thermo Ecotek, the Company repurchased Thermo Ecotek through a short-form merger. Thermo Ecotek shareholders received 0.431 shares of Company common stock for each share of Thermo Ecotek common stock. The common stock of Thermo Ecotek ceased to be publicly traded. As a result of the completion of the mergers with Thermedics, Thermo TerraTech, ThermoLase, ThermoTrex, and Thermo Ecotek, the Company issued 10.0 million shares of its common stock valued at $182.8 million. The spinoffs of Thermo Fibertek and the medical products company will require final Company Board of Directors actions, review by the SEC of necessary filings for the medical products company, and other customary conditions. In February 2001, the Company received a favorable Internal Revenue Service ruling regarding the spinoff of these businesses. The favorable ruling requires that the spinoffs occur within one year of the ruling, and, subject to certain conditions, that the businesses raise additional equity capital in public offerings within one year of their spinoffs. 1999 The Company completed a merger with Thermo Power Corporation pursuant to which the Company acquired, for $12.00 per share in cash, all of the outstanding shares of common stock of Thermo Power not already owned by the Company. The common stock of Thermo Power ceased to be publicly traded. Discontinued Operations In January 2000, the Company also announced its intention to sell several of its businesses. These businesses, together with the businesses to be spun off, constituted the Company's former Biomedical and Emerging Technologies and Resource Recovery segments as well as the Company's environmental businesses, and Thermo Power. In February 2001, the Company entered into a definitive agreement to sell its power generation business. In accordance with the provisions of APB No. 30 concerning reporting the effects of disposal of a segment of a business, the Company has classified the results of these businesses, as well as the results of the businesses being spun off as dividends (collectively, "the discontinued businesses"), as discontinued operations in the accompanying statement of operations. In addition, the net assets of the discontinued businesses were classified as net assets of discontinued operations in the accompanying balance sheet. Current net assets of discontinued operations primarily consists of cash, inventories, and accounts receivable, net of certain liabilities, primarily accrued expenses and accounts payable. Long-term net assets of discontinued operations primarily consists of machinery and equipment and goodwill. In addition, long-term net assets of discontinued operations include subordinated convertible debentures of Thermo Cardiosystems and Thermo Fibertek (Note 5). 46 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 18. Reorganization and Discontinued Operations (continued) - -------------------------------------------------------------------------------- Summary operating results for 1998 and 1999 of the businesses discontinued in January 2000 and for 1998 through 2000 for the power generation business, were as follows: (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Revenues $ 120,256 $2,009,130 $1,986,690 Costs and Expenses 93,779 2,280,192 1,811,662 ---------- ---------- ---------- Income (Loss) from Discontinued Operations Before Income Taxes, Minority Interest, and Extraordinary Item 26,477 (271,062) 175,028 Income Tax (Provision) Benefit (10,427) 54,807 (80,189) Minority Interest (Expense) Income (1,822) 52,282 (11,792) ---------- ---------- ---------- Income (Loss) from Discontinued Operations Before Extraordinary Item 14,228 (163,973) 83,047 Extraordinary Item, Net of Income Taxes and Minority Interest - 648 4,654 ---------- ---------- ---------- Income (Loss) from Discontinued Operations $ 14,228 $ (163,325) $ 87,701 ========== ========== ========== During 2000, the Company's discontinued operations (excluding the power generation business) had revenues and a net loss of $1.49 billion and $38.8 million, respectively. The Company received proceeds in 2000 from the sale of discontinued businesses of $390.1 million. In 1999, the Company recorded a charge of $50 million, including a provision for income taxes of $174 million, for the estimated loss on disposal of the discontinued businesses. The charge was determined using management's best estimate of the selling prices of the businesses and their estimated results through the dates of sale. In 2000, the Company recorded an additional charge of $100 million, net of an income tax benefit of $104 million, for changes in the actual and estimated proceeds of businesses discontinued in 2000, including Thermo Cardiosystems. In February 2001, the Company sold Thermo Cardiosystems to Thoratec Corporation in exchange for approximately 19.3 million shares of Thoratec common stock. Certain contractual restrictions limit the Company's ability to sell these shares, although the restrictions fully lapse in August 2002. Changes in the market value of Thoratec common stock will materially affect the ultimate proceeds from the disposal of discontinued operations. Excluding potential changes in the value of Thoratec's common stock, the Company is not currently aware of any known trends, events, or other uncertainties involving discontinued operations that it expects will cause the ultimate loss on disposal of discontinued operations to differ materially from the amounts recorded in the accompanying statement of operations. Any difference from the amounts recorded would be reported as an adjustment to the loss on disposal of discontinued operations. The Company expects to realize a gain on the sale of the power generation business that will be recorded at the time the transaction closes. While there can be no assurance as to the timing of the sale of any particular business, the Company expects to substantially complete the sale of any remaining businesses by the middle of 2001. The Company expects to complete the spinoffs of Thermo Fibertek and the medical products company during the second half of 2001. 47 Thermo Electron Corporation 2000 Financial Statements Notes to Consolidated Financial Statements 19. Unaudited Quarterly Information - -------------------------------------------------------------------------------- The following has been restated to reflect, where applicable, the Company's continuing operations and, in 2000, the adoption of SAB No. 101.
2000 (In thousands except per share amounts) First (a) Second (b) Third (c) Fourth (d) - ---------------------------------------------------------------------------------------------------------- Revenues $576,604 $579,950 $546,949 $577,019 Gross Profit 268,595 266,249 226,348 260,644 Income from Continuing Operations Before Extraordinary 14,479 21,698 7,281 18,589 Item and Cumulative Effect of Change in Accounting Principle Income (Loss) Before Extraordinary Item and Cumulative 15,940 24,255 12,279 (76,199) Effect of Change in Accounting Principle Net Income (Loss) (e) 3,554 24,255 12,279 (76,199) Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: Basic .09 .14 .04 .10 Diluted .09 .13 .04 .10 Earnings (Loss) per Share (e): Basic .02 .16 .07 (.42) Diluted .02 .15 .07 (.41) 1999 (In thousands except per share amounts) First (f) Second (g) Third (h) Fourth (i) - ---------------------------------------------------------------------------------------------------------- Revenues $514,714 $586,763 $572,768 $620,375 Gross Profit 235,679 268,451 262,180 282,537 Income (Loss) from Continuing Operations Before Extraordinary Item 15,859 (17,138) 19,069 19,493 Income (Loss) Before Extraordinary Item 28,299 (235,188) 36,329 (5,482) Net Income (Loss) (j) 28,299 (235,188) 36,329 (4,013) Earnings (Loss) per Share from Continuing Operations Before Extraordinary Item: Basic .10 (.11) .12 .12 Diluted .10 (.11) .12 .11 Earnings (Loss) per Share (j): Basic .18 (1.49) .23 (.03) Diluted .17 (1.49) .22 (.04) Amounts reflect aggregate restructuring and unusual items, net, and nonoperating items, net, as follows: (a) Costs of $4.3 million and a $12.9 million charge for the cumulative effect of change in accounting principle for the adoption of SAB No. 101. (b) Income of $1.5 million. (c) Income of $31.9 million. In July 2000, the Company sold the Spectra-Precision businesses. (d) Costs of $25.7 million and a net of tax charge of $100 million related to the Company's discontinued operations. (e) Extraordinary item, net of taxes, of $0.5 million in the first quarter. (f) Costs of $6.2 million. In February 1999, the Company acquired Spectra-Physics. (g) Costs of $49.6 million. (h) Costs of $4.7 million. (i) Costs of $4.7 million. (j) Extraordinary item, net of taxes, of $1.5 million in the fourth quarter. 48 Thermo Electron Corporation 2000 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited the accompanying consolidated balance sheet of Thermo Electron Corporation (a Delaware corporation) and subsidiaries as of December 30, 2000, and January 1, 2000, and the related consolidated statements of operations, cash flows, and comprehensive income and shareholders' investment for each of the three years in the period ended December 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Electron Corporation and subsidiaries as of December 30, 2000, and January 1, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Notes 1 and 14 to the consolidated financial statements, effective January 2, 2000, the Company changed its method of accounting for revenue recognition on certain product shipments through the adoption of Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." Arthur Andersen LLP Boston, Massachusetts February 15, 2001 49 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Forward-looking Statements." Overview - -------------------------------------------------------------------------------- The Company develops and manufactures a broad range of products that are sold worldwide. The Company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. In January 2000, the Company announced a major reorganization plan under which it planned to sell many noncore businesses. In February 2001, the Company entered into a definitive agreement to sell its power generation business. As a result of these actions, the Company's continuing operations solely include its core measurement and detection instrument businesses. As part of this reorganization, the Company plans to spin off in the form of a dividend its Thermo Fibertek paper recycling subsidiary and a medical products company that develops, manufactures, and markets cardio-respiratory and neurologic monitoring and diagnostic equipment. The results of the businesses that have been or will be sold or spun off have been presented as discontinued operations in the accompanying financial statements. The Company's continuing operations fall into three business segments: Life Sciences, Optical Technologies, and Measurement and Control. Although the Company's three segments are diversified in terms of technology, product offerings, and geographic markets served, the future financial performance of the Company as a whole will be largely affected by the strength of worldwide economies and the continued adoption and diligent enforcement of health, safety, and environmental regulations and standards, among other factors. Results of Operations - -------------------------------------------------------------------------------- 2000 Compared With 1999 Continuing Operations Sales in 2000 were $2.28 billion, a decrease of $14.1 million from 1999. Excluding the effect of acquisitions, divestitures, and currency translation effects, revenues increased $146.6 million, or 7%. Operating income was $266.0 million in 2000, compared with $182.1 million in 1999. Segment income increased to $319.8 million in 2000 from $219.2 million in 1999. (Segment income is operating income excluding corporate general and administrative expenses and corporate restructuring and other unusual items, net.) The 2000 period included significant gains on the sale of businesses, inventory provisions, and restructuring and unusual costs and the 1999 period included significant restructuring and unusual costs. These items are discussed below. Excluding unusual income, net, of $67.3 million in 2000 and unusual costs of $41.0 million in 1999, segment income decreased to $252.5 million in 2000 from $260.2 million in 1999. Segment income excluding unusual items decreased in part due to a reduction in segment income of $8.6 million from businesses divested. In addition, $4.9 million of incremental amortization expense resulted primarily from the purchase of the minority interests of formerly public subsidiaries, offset in part by lower amortization expense following certain divestitures. These decreases in segment income were offset in part by higher profitability at certain units. During 2000, the Company moved its spectroscopy and certain other businesses from the Optical Technologies segment to the Measurement and Control segment due to an organizational change. Prior periods have been restated to conform to this presentation. 50 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 2000 Compared With 1999 (continued) The restructuring actions undertaken in 2000 are expected to be substantially completed by the end of the second quarter of 2001. These actions are expected to result in annualized savings of approximately $5 million, $2 million, $4 million, and $2 million in the Life Sciences, Optical Technologies, and Measurement and Control segments and corporate office, respectively, generally beginning in the fourth quarter of 2000. Life Sciences - ------------- Sales in the Life Sciences segment increased $15.4 million to $780.0 million in 2000. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, resulted in a decrease in revenues of $29.6 million in 2000. Revenues increased $13.7 million due to acquisitions, offset in part by a decrease of $2.0 million due to the adoption of Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Excluding the effect of currency translation, acquisitions, and the adoption of SAB No. 101, revenues increased $33.3 million, or 4%. Increased demand for mass spectrometers contributed $19.1 million of higher revenues, due in part to strong sales in Japan. Sales of clinical diagnostic products increased $12.4 million due to higher demand for clinical chemistry analyzers and reagents and point of care testing products. Sales increased $9.1 million due to higher demand for controlled-environment laboratory equipment. Growth in these businesses was offset in part by lower revenues from laboratory information management systems due to completion of year-2000 compliance projects in 1999. Segment income margin decreased to 11.8% in 2000 from 15.3% in 1999. The segment's margin decreased primarily due to restructuring and related actions in 2000. Excluding inventory provisions and restructuring and unusual costs, segment income margin decreased to 13.9% in 2000 (or 14.3% before the impact of SAB No. 101) from 15.3% in 1999 due to lower sales of laboratory information management systems, which have a higher profit margin than the segment's other products. In addition, segment income margin was negatively affected by the purchase of the minority interests of formerly public subsidiaries, which resulted in $4.5 million of higher amortization expense, and $1.8 million of research and development spending on proteomics initiatives. The restructuring and unusual costs totaled $16.3 million and included $8.4 million of charges to cost of revenues, primarily for discontinued product lines; $6.5 million of cash costs, primarily for severance and facilities closures; and $1.4 million of asset writedowns at a small business unit that was closed and for abandoned facilities. The segment recorded unusual income of $0.3 million in 1999 for the reversal of previously recorded restructuring costs (Note 11). Optical Technologies - -------------------- Sales in the Optical Technologies segment increased $85.4 million to $480.0 million in 2000. Sales increased $19.4 million due to acquisitions, primarily the inclusion of a full year of revenues from the acquisition of a majority interest in Spectra-Physics Lasers, Inc. (SPLI) on February 22, 1999. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, resulted in a decrease in revenues of $13.3 million in 2000. The adoption of SAB No. 101 reduced revenues by $13.1 million. Excluding the effect of acquisitions, currency translation, and the adoption of SAB No. 101, revenues increased $92.4 million, or 25%. Sales of semiconductor-based lasers increased $41.9 million due to higher demand from computer and microelectronic manufacturers. Sales of temperature-control systems increased $27.3 million in 2000 as a result of strong demand from the semiconductor industry. Revenues from the sale of photonics products increased $17.3 million as a result of strong demand for gratings and other optical components used in systems for lithography and telecommunication devices. In addition, higher sales of molecular beam epitaxy systems resulted from increased demand from semiconductor manufacturers. The growth and profitability of this segment is, in part, dependent on the cyclical nature of the semiconductor and telecommunications industries, which experienced strong growth in 2000. These industries experienced slowing trends in late 2000 and early 2001 and as a result the Company believes this segment's growth rate in 2001 will be lower than that achieved in 2000. 51 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 2000 Compared With 1999 (continued) Segment income margin was 7.2% in 2000 and 7.9% in 1999. Excluding inventory provisions and restructuring and unusual costs, segment income margin was 8.6% in 2000 (or 9.1% before the impact of SAB No. 101), compared with 9.0% in 1999. Segment income margin was unfavorably affected by the growth in revenues at SPLI, which has lower operating margins due to heavy investments in telecommunications products. In addition, the segment had $2.1 million of higher amortization expense, primarily resulting from the purchase of the minority interests in formerly public subsidiaries. These factors were offset by higher profitability resulting from increased sales of photonics products and temperature control systems. The restructuring and unusual costs in 2000 totaled $6.5 million and included charges to cost of revenues of $2.9 million, primarily for discontinued product lines; a $1.5 million charge for in-process research and development in connection with an acquisition; $1.2 million of cash costs for severance and facility exit costs; and $0.9 million of asset writedowns primarily to reduce the carrying value of a small business unit that is held for sale to estimated disposal value. The restructuring and unusual costs in 1999 included $3.2 million of charges to cost of revenues for the sale of inventories revalued at the date of acquisition and $1.0 million of facility closing costs and severance associated with a restructuring plan undertaken in 1998 and completed in 1999 (Note 11). Measurement and Control - ----------------------- Sales in the Measurement and Control segment decreased $123.0 million to $1.037 billion in 2000. Sales decreased $101.7 million due to divestitures, net of acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, resulted in a decrease in revenues of $37.1 million in 2000. Revenues increased $2.9 million due to the adoption of SAB No. 101. Excluding the effect of divestitures, acquisitions, currency translation, and the adoption of SAB No. 101, revenues increased $12.9 million, or 1%. Revenues from the sale of process instruments increased $8.1 million, primarily due to strong demand from the natural gas industry, which is benefiting from higher gas prices. In addition, sales of environmental monitoring equipment increased $7.2 million. Revenues from the sale of spectroscopy instruments increased $4.6 million due to higher demand. These increases were offset in part by lower sales of weighing and inspection equipment resulting from reduced demand from the global packaged food industry. This industry is in a period of consolidation and the Company believes that a decrease in customers' capital spending has resulted from uncertainty in the marketplace. The segment's divestitures primarily included Spectra Precision, Nicolet Imaging Systems (NIS), and Sierra Research and Technology, Inc. (SRT) (Note 3). These units were sold as part of an effort to focus on potentially higher-growth opportunities in the Life Sciences and Optical Technologies segments. In 2000, through the dates of sale, these businesses had aggregate revenues of $125.7 million and segment income of $11.0 million. In addition, this segment is holding several units for sale, including businesses that provide the oil and gas industry with wellhead safety and control products and a manufacturer of data acquisition systems, digital oscilloscopes, and recorders. In the first quarter of 2001, the segment decided to hold for sale a business unit that manufactures scanning probe microscopes. The segment expects to record a pretax charge of $4 - $5 million in the first quarter of 2001 to reduce the unit's carrying value to estimated disposal value. The businesses held for sale are cyclical, noncore units, and the segment expects the divestitures to be primarily completed in the first half of 2001. In 2000, the businesses held for sale had aggregate revenues of $102.3 million and segment income before restructuring and unusual charges of $0.9 million. Segment income margin increased to 18.6% in 2000 from 6.1% in 1999, primarily due to gains on the sale of businesses. Segment income margin, excluding inventory provisions and restructuring and unusual items, increased to 9.9% in 2000 (or 10.0% before the impact of SAB No. 101) from 9.3% in 1999. Higher profitability from increased sales of process instruments and environmental monitoring equipment was offset in part by lower margins from spectroscopy instruments due to price competition at certain of the segment's elemental analysis businesses. Restructuring and unusual income, net, in 2000 totaled $90.1 million and included gains on the sale of businesses, net, of $126.3 million, and the related operating loss of $1.7 million of one of the divested businesses in the third quarter of 52 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 2000 Compared With 1999 (continued) 2000 prior to its sale; $20.6 million of asset writedowns to reduce the carrying value of businesses held for sale to estimated disposal value; charges to cost of revenues of $8.0 million, primarily for discontinued product lines; $6.8 million of cash costs for severance and facility costs; and a gain of $0.6 million from the termination of a lease. The 1999 restructuring and unusual costs totaled $37.2 million, including $31.0 million of restructuring charges, primarily to reduce the carrying value of the power electronics and test equipment business to estimated disposal value; $3.5 million of charges for the sale of inventories revalued at the date of acquisition; and $2.8 million of inventory provisions (Note 11). Other Expense, Net - ------------------ The Company reported other expense, net, of $81.2 million and $57.3 million in 2000 and 1999, respectively (Note 10). Other expense, net, includes interest income, interest expense, equity in earnings (loss) of unconsolidated subsidiaries, gain on investments, net, and other items, net. Interest income increased to $43.1 million in 2000 from $42.0 million in 1999 due to investment of cash proceeds from the divestiture of noncore businesses, offset in part by lower cash balances from the purchase of the minority interests in certain formerly public subsidiaries. Interest expense decreased to $86.1 million in 2000 from $93.0 million in 1999 as a result of the maturity and repurchase of Company and subsidiary debentures in 1999 and 2000. The Company incurred a loss of $47.3 million in 2000 from its equity in the results of unconsolidated subsidiaries, primarily $47.4 million at FLIR, including a writedown of the carrying value of the investment in FLIR to market value. In 1999, the Company's equity in the results of unconsolidated subsidiary totaled a loss of $7.3 million, including $11.1 million of unusual charges related to FLIR (Notes 3 and 11). The Company reports its pro rata share of FLIR's results on a one-quarter lag. During 2000, gain on investments, net, was $6.8 million, compared with $3.7 million in 1999. The 1999 gain on investments, net, includes $3.6 million of charges for impairment that was deemed other than temporary. In 2000, other income, net, also includes $2.3 million of currency gains, primarily resulting from hedging activities at SPLI, which elected early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In 1999, the Company had $2.3 million of losses from SPLI's hedging activities (Note 11). Provision for Income Taxes - -------------------------- The Company's effective tax rate was 61% and 52% in 2000 and 1999, respectively. The effective tax rate in 2000 includes the effect of the sale of Spectra Precision, which had a lower tax basis than book basis, resulting in a significant tax gain on the sale. Excluding unusual items, the effective tax rate in 2000 and 1999 was 39% and 40%, respectively. The effective tax rate in each period exceeds the statutory federal income tax rate primarily due to state income taxes and nondeductible expenses, including amortization of goodwill. Minority Interest Expense - ------------------------- The Company recorded minority interest expense of $10.6 million and $23.0 million in 2000 and 1999, respectively. Minority interest expense decreased due to the purchase of the minority interests in certain formerly public subsidiaries. Contingent Liabilities - ---------------------- At year-end 2000, the Company was contingently liable with respect to certain lawsuits (Note 6). In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters discussed in Note 6 of Notes to Consolidated Financial Statements could materially affect the results of operations or cash flows for a particular quarter or annual period. 53 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 2000 Compared With 1999 (continued) Income from Continuing Operations - --------------------------------- Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle was $62.0 million in 2000, compared with $37.3 million in 1999. Results were affected by restructuring costs and unusual items, net, in both periods as well as the significant tax provision in 2000 on a gain on the sale of a business as discussed above. Excluding these items, income from continuing operations before extraordinary item and cumulative effect of change in accounting principle was $104.4 million in 2000 and $79.8 million in 1999. Cumulative Effect of Change in Accounting Principle - --------------------------------------------------- In accordance with the requirements of SAB No. 101, the Company adopted the pronouncement as of January 2, 2000, and recorded a cumulative effect of change in accounting principle of $12.9 million, net of an income tax benefit of $8.5 million and minority interest of $0.5 million (Note 14). Discontinued Operations The Company recorded a net of tax provision of $100 million in 2000 as a revision to the estimate of $50 million recorded in 1999 for loss on disposal of discontinued operations. The increase in the loss resulted from lower after-tax proceeds from the sale of noncore businesses than had been anticipated at the time the businesses were discontinued. The Company believes that deterioration in the financial markets in the latter part of 2000, including tighter financing terms and lower equity values, adversely affected the selling prices of the discontinued businesses. Following the sale of Thermo Cardiosystems in February 2001, the Company's discontinued operations hold 19.3 million shares of Thoratec Corporation. Certain contractual restrictions limit the Company's ability to sell these shares, although the restrictions fully lapse in August 2002. Changes in the market value of Thoratec's common stock will materially affect the ultimate proceeds from the disposal of discontinued operations. Excluding potential changes in the value of Thoratec common stock, the Company is not currently aware of any known trends, events, or other uncertainties involving discontinued operations that it expects will cause the ultimate loss on disposal of discontinued operations to differ materially from the amounts recorded in the accompanying statement of operations. Any difference from the amounts recorded would be reported as an adjustment to the loss on disposal of discontinued operations (Note 18). In February 2001, the Company entered into a definitive agreement to sell its power generation business and, as a result, has treated this business as a discontinued operation in the accompanying financial statements. The Company expects to realize a gain on the sale of this business, which will be recorded at the time the transaction closes. The power generation business had income of $14.2 million in 2000, net of taxes and minority interest. The Company's discontinued operations had an aggregate loss of $163.3 million in 1999, net of taxes and minority interest, primarily as a result of asset impairment charges. 1999 Compared With 1998 Continuing Operations Sales in 1999 were $2.29 billion, an increase of $413.7 million, or 22%, over 1998. Excluding the effects of acquisitions, divestitures, and currency translation, revenues decreased $68.7 million, or 4%. Operating income decreased to $182.1 million in 1999 from $191.3 million in 1998. Segment income decreased to $219.2 million in 1999 from $221.9 million in 1998. Excluding unusual costs totaling $41.0 million in 1999 and $31.8 million in 1998, segment income increased to $260.2 million in 1999 from $253.7 million in 1998. The unusual costs in both periods include restructuring costs and inventory provisions and are discussed below. Segment income excluding unusual items increased due to the benefit in the latter half of 1999 of restructuring actions taken in 1998, offset in part by lower sales and profitability at certain businesses. The Company's restructuring actions in 1999 occurred principally 54 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1999 Compared With 1998 (continued) as a result of exiting certain operations with low current or expected profitability and did not include significant cost reduction measures. Restructuring actions undertaken in 1998 were substantially completed in 1999 and resulted in annualized cost savings of approximately $29 million, including $8 million in the Life Sciences segment, $7 million in the Optical Technologies segment, and $14 million in the Measurement and Control segment, beginning primarily in the second half of 1999. Life Sciences - ------------- Sales in the Life Sciences segment increased 8% to $764.6 million in 1999. Sales increased by $59.6 million due to acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, decreased revenues by $4.9 million in 1999. Excluding the effect of acquisitions and currency translation, revenues increased $4.8 million, or 1%. Revenues from laboratory information management systems increased by $8.5 million due to year-2000 compliance demand and expansion of sales and distribution channels. Revenues from the sale of immunoassay testing and multiblock deoxyribonucleic acid (DNA) amplification products increased $5.4 million due to higher demand in Asia. This increase was offset in part by lower revenues from the sale of analytical instruments, primarily due to a $5.8 million decline in revenues in Asia as a result of lower shipments to Japan, and $3.2 million of lower demand for its Fourier-transform mass spectrometers, offset in part by increased demand for other mass spectrometers. Segment income margin increased to 15.3% in 1999 from 14.3% in 1998. The segment's margin increased primarily due to restructuring and related actions in 1998. Excluding inventory provisions and restructuring and unusual items, segment income margin decreased to 15.3% in 1999 from 15.5% in 1998. The decrease in segment income margin in 1999 resulted from higher selling costs, including the expansion of selling efforts in China and India. The segment recorded unusual income of $0.3 million in 1999 for the reversal of previously recorded restructuring costs. In 1998, the segment recorded restructuring costs of $5.9 million and inventory provisions of $2.8 million. The restructuring costs recorded in 1998 were primarily for severance and abandoned-facility payments and the inventory provisions were for discontinuing several low-margin product lines and disposal of inventories at a closed facility. Optical Technologies - -------------------- Sales in the Optical Technologies segment increased 49% to $394.6 million in 1999. Sales increased by $136.3 million due to acquisitions, net of divestitures, primarily that of SPLI, in which the segment acquired a majority interest in February 1999. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, decreased revenues by $2.2 million in 1999. Excluding the effect of acquisitions and currency translation, revenues decreased $4.9 million, or 2%. Revenues decreased due to a continued downturn in the semiconductor industry in the first half of 1999. Sales to this industry grew modestly in the last half of 1999. Segment income margin decreased to 7.9% in 1999 from 11.0% in 1998, primarily due to the inclusion of SPLI in 1999. Excluding inventory provisions and restructuring and unusual items, segment income margin decreased to 9.0% in 1999 from 13.5% in 1998. The segment income margin for SPLI was 4.9% in 1999, excluding a charge for the sale of inventories revalued at the date of acquisition. SPLI experienced a decline in sales from its prior-year preacquisition results and undertook restructuring actions in 1999. In addition, segment income margin decreased due to higher research and development expenses for new products, including the V150 Molecular Beam Epitaxy system. The restructuring and unusual costs in 1999 included $3.2 million of charges to cost of revenues for the sale of inventories revalued at the date of acquisition and $1.0 million of facility closing costs and severance associated with a restructuring plan undertaken in 1998 and completed in 1999. The restructuring and unusual costs in 1998 included $3.6 million of severance, abandoned-facility, and employee relocation costs and $2.9 million of inventory provisions. 55 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1999 Compared With 1998 (continued) Measurement and Control - ----------------------- Sales increased 24% to $1.160 billion in the Measurement and Control segment in 1999. Sales increased $303.3 million due to acquisitions, net of divestitures, primarily that of Spectra-Physics AB's wholly owned businesses, acquired in February 1999. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to other currencies in countries in which the segment operates, decreased revenues by $9.6 million in 1999. Excluding the effect of acquisitions and currency translation, revenues decreased $69.7 million, or 8%. Revenues from quality control systems decreased $19.4 million due to a reduction in spending by raw-material producers, particularly in the cement sector due to depressed pricing and lower demand for near-infrared analyzers and ultratrace chemical detectors. The demand for ultratrace chemical detectors was adversely affected by recycling practices in Europe, which now involve melting and reforming plastic returnables instead of sanitizing and reusing containers. Revenues in this division decreased to a lesser extent due to lower demand for explosives detection devices following completion in early 1998 of a contract with the Federal Aviation Administration. Revenues from the sale of equipment to the oil and gas industry decreased $19.2 million, primarily as a result of reduced discretionary capital spending by companies in the process control industry and by the oil and gas production sector. Energy prices declined precipitously in 1998 and, while prices rebounded in 1999, capital equipment spending did not return to prior levels. In addition, lower prices for natural resources in the first half of 1999 reduced spending in that industry. Revenues at the segment's weighing and inspection division decreased by $16.6 million due to consolidation in the packaged food industry, which has reduced demand. In addition, the segment's power electronics and test and measurement equipment businesses experienced lower demand resulting from softness in the semiconductor industry in the first half of 1999. Segment income margin decreased to 6.1% in 1999 from 9.8% in 1998. Excluding inventory provisions and restructuring and unusual items, segment income margin decreased to 9.3% in 1999 from 11.6% in 1998. Segment income margin decreased primarily due to the decline in revenues at certain businesses described above. In addition, the businesses of Spectra-Physics that are reported in this segment had an operating income margin of 8.5%, excluding a charge for the sale of inventories revalued at the date of acquisition. In 1999, this segment incurred restructuring and unusual costs of $37.2 million, including $31.0 million of restructuring charges, primarily to reduce the carrying value of the power electronics and test equipment business to estimated disposal value. The segment also recorded $3.5 million of charges for the sale of inventories revalued at the date of acquisition and $2.8 million of inventory provisions. In 1998, the segment recorded $16.6 million of restructuring and unusual charges, including $11.3 million for severance and abandoned-facility payments, $2.9 million of inventory provisions, $1.6 million related to the resolution of an arbitration proceeding, and $0.8 million of a write off of goodwill for an operating unit that was closed. Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense - ----------------------------------------------------------------------- As a result of the sale of stock by subsidiaries and the issuance of stock upon conversion of convertible debentures, the Company recorded gains of $18.6 million in 1998. See Notes 1 and 9 of Notes to Consolidated Financial Statements for a more complete description of these transactions. The Company recorded minority interest expense of $23.0 million and $32.2 million in 1999 and 1998, respectively. Minority interest expense decreased in 1999 primarily as a result of restructuring and other unusual costs at the Company's formerly majority-owned subsidiaries. Minority interest expense in 1998 included $3.3 million related to gains recorded by a formerly majority-owned subsidiary of the Company as a result of the sale of stock by its subsidiaries and the issuance of stock by its subsidiaries upon conversion of convertible debentures. Other Income (Expense), Net - --------------------------- The Company reported other expense, net, of $57.3 million in 1999, and other income, net, of $6.6 million in 1998. Interest income decreased to $42.0 million in 1999 from $76.6 million in 1998. The decrease resulted primarily from the use of cash for acquisitions, principally Spectra-Physics, and the purchase of securities of the Company and 56 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1999 Compared With 1998 (continued) its formerly majority-owned subsidiaries. Interest expense increased to $93.0 million in 1999 from $84.2 million in 1998, as a result of the October 1998 issuance of $150.0 million principal amount of senior notes, offset in part by the repayment of $69.3 million of long-term obligations in 1999. The Company incurred a loss of $7.3 million in 1999 from its equity in the results of unconsolidated subsidiaries, including $11.1 million of unusual charges related to FLIR. Excluding the unusual charges, equity in earnings of unconsolidated subsidiaries increased to $3.8 million in 1999 from $0.2 million in 1998, principally as a result of earnings from FLIR. During 1999, gain on investments, net, decreased to $3.7 million from $12.8 million in 1998, due to the sale in 1998 of certain equity securities that resulted in a gain. In 1999, other expense, net, also includes $2.7 million of losses on foreign exchange contracts, including $2.3 million from SPLI's early adoption of SFAS No. 133. Provision for Income Taxes - -------------------------- The Company's effective tax rate was 52% and 42% in 1999 and 1998, respectively. Excluding unusual items, the effective tax rate was 40% in 1999 and 41% in 1998. The effective tax rates vary from the statutory federal income tax rate primarily due to state income taxes and nondeductible expenses. Discontinued Operations The Company's discontinued operations incurred a loss of $163.3 million in 1999 and had income of $87.7 million in 1998. The amounts in both periods are net of taxes and minority interest. Excluding restructuring and unusual charges, the discontinued operations had income of $70.6 million and $102.7 million in 1999 and 1998, respectively, net of income taxes and minority interest. The decrease resulted primarily from a decrease in gain on issuance of stock by subsidiaries in 1999. In addition, the Company's Trex Medical Corporation and Thermo Coleman Corporation subsidiaries incurred losses in 1999, compared with profitable operations in 1998. Trex Medical lost a significant customer in the fourth quarter of 1998 and had lower demand for general purpose X-ray and radiographic/fluoroscopic systems. Thermo Coleman had losses at two business units in its Thermo Information Solutions subsidiary that were sold prior to year end. These decreases in income were offset in part by higher income at the Company's biomedical units other than Trex Medical. The Company recorded a provision in 1999 of $50 million for the estimated loss on the disposal of discontinued operations. This amount includes a tax provision of $174 million. The charge was determined using management's best estimate of the selling prices of the businesses and their estimated results through the dates of disposal. Liquidity and Capital Resources - -------------------------------------------------------------------------------- Consolidated working capital was $1.74 billion at December 30, 2000, compared with $1.29 billion at January 1, 2000. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $1.03 billion at December 30, 2000, compared with $793.3 million at January 1, 2000. In addition, the Company had $17.1 million of long-term available-for-sale investments at December 30, 2000, compared with $6.1 million at January 1, 2000. Cash provided by operating activities was $199.9 million during 2000, including $57.8 million from continuing operations. Cash of $77.4 million was used to fund an increase in inventories in response to growth in the Optical Technologies segment and, to a lesser extent, at the Life Sciences segment's mass spectrometry unit. Of the total increase in inventories, $14.5 million resulted from the adoption of SAB No. 101. An increase in accounts receivable used cash of $27.4 million due to increased revenues. The increase in receivables was reduced by $21.6 million due to the adoption of SAB No. 101. An increase in other current liabilities provided $48.0 million of cash, including $15.5 million of restructuring costs and $29.1 million of accrued income taxes. In connection with certain restructuring actions undertaken by the Company's continuing operations, the Company had accrued $21.0 million for restructuring and unusual costs at December 30, 2000. The Company expects to pay $18.2 million of this amount for severance, 57 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) - -------------------------------------------------------------------------------- employee retention, and other costs through January 2002. The remaining balance of $2.8 million will be paid through the expiration of lease obligations in 2003. In addition, at December 30, 2000, the Company had accrued $10.1 million for acquisition expenses. Accrued acquisition expenses includes $1.8 million of severance obligations, which the Company expects to pay during 2001. The balance, which primarily represents abandoned-facility payments, will be paid over the remaining terms of the leases through 2014. During 2000, the primary investing activities of the Company's continuing operations, excluding available-for-sale investment activities, included the acquisition of minority interests of subsidiaries, the sale of businesses, and the purchase of property, plant, and equipment. The Company's continuing operations expended an aggregate of $307.2 million to acquire the minority interest of certain majority-owned subsidiaries (Note 18). In 2000, the Company's continuing operations sold businesses for aggregate proceeds, net of cash divested, of $253.6 million (Note 18). The Company's continuing operations expended $74.0 million for purchases of property, plant, and equipment and $15.8 million, net of cash acquired, for acquisitions during 2000. During 2000, investing activities of the Company's discontinued operations provided $394.6 million of cash, primarily representing proceeds, net of cash divested, of $390.1 million from the sale of businesses, including the FES and Peek divisions of Thermo Power Corporation, Coleman Research Corporation, Trex Communications Corporation, the Medical Imaging business of Trex Medical, and the Lancaster Laboratories business of Thermo TerraTech Inc. In addition, Thermo Ecotek Corporation entered into an agreement with a bank group to factor a portion of the payments to be received from the termination of the power-sales agreement at its Delano facilities on a nonrecourse basis. Proceeds from this arrangement, together with termination payments received prior to the factoring agreement, totaled $83.8 million. The Company's discontinued operations also used $61.4 million to acquire the minority interest of certain majority-owned subsidiaries and $77.7 million for the purchase of property, plant, and equipment. The Company's financing activities used $137.6 million of cash during 2000, including $155.5 million for continuing operations. During 2000, the Company expended $161.2 million for the repayment of long-term obligations, $29.2 million to purchase shares of its common stock and debentures, and $14.6 million to purchase debentures of certain of the Company's majority-owned subsidiaries. The Company has no material commitments for purchases of property, plant, and equipment and expects that for 2001, such expenditures will approximate $100 million. The Company believes that its existing resources are sufficient to meet the working capital requirements of its existing businesses for the foreseeable future, including at least the next 24 months. Market Risk - -------------------------------------------------------------------------------- The Company is exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Additionally, the Company uses short-term forward contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The Company does not engage in extensive foreign currency hedging activities; however, the purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The Company's forward foreign exchange contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish krona, and Netherlands guilders. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company generally does not enter into speculative foreign currency agreements. See Note 11 for the effect of a majority-owned subsidiary's early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 58 Thermo Electron Corporation 2000 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk (continued) - -------------------------------------------------------------------------------- Interest Rates Certain of the Company's short- and long-term available-for-sale investments, long-term obligations, and interest rate swap agreements are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase or issuance of the financial instrument. A 10% decrease in year-end 2000 and 1999 market interest rates would result in a negative impact to the Company of $16 million and $35 million, respectively, on the net fair value of its interest-sensitive financial instruments. Foreign Currency Exchange Rates The Company generally views its investment in foreign subsidiaries with a functional currency other than the Company's reporting currency as long-term. The Company's investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of the Company's foreign subsidiaries are principally denominated in British pounds sterling, Netherlands guilders, Swedish krona, French francs, and German marks. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is reflected in the "Accumulated other comprehensive items" component of shareholders' investment. A 10% depreciation in year-end 2000 and 1999 functional currencies, relative to the U.S. dollar, would result in a reduction of shareholders' investment of $62 million and $41 million, respectively. The fair value of forward foreign exchange contracts is sensitive to changes in foreign currency exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign currency exchange rates. A 10% depreciation in year-end 2000 and 1999 foreign currency exchange rates related to the Company's contracts would result in an increase in the unrealized loss on forward foreign exchange contracts of $7.0 million and $10.5 million, respectively. Since the Company uses forward foreign exchange contracts as hedges of firm purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts resulting from changes in foreign currency exchange rates would be offset by a corresponding change in the fair value of the hedged item. Certain of the Company's cash and cash equivalents are denominated in currencies other than the functional currency of the depositor and are sensitive to changes in foreign currency exchange rates. A 10% depreciation in the related year-end 2000 and 1999 foreign currency exchange rates would result in a negative impact of $0.3 million and $1.1 million, respectively, on the Company's net income. Equity Prices The Company's available-for-sale investment portfolio includes equity securities that are sensitive to fluctuations in price. In addition, the Company's and its subsidiaries' convertible obligations are sensitive to fluctuations in the price of Company or subsidiary common stock into which the obligations are convertible. Changes in equity prices would result in changes in the fair value of the Company's available-for-sale investments and convertible obligations due to the difference between the current market price and the market price at the date of purchase or issuance of the financial instrument. A 10% increase in the year-end 2000 and 1999 market equity prices would result in a negative impact to the Company of $26 million and $20 million, respectively, on the net fair value of its price-sensitive equity financial instruments, principally its convertible obligations. 59 Thermo Electron Corporation 2000 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Thermo Electron wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, Thermo Electron's actual results and could cause its actual results in 2001 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Thermo Electron. Thermo Electron faces a number of challenges in integrating its instrument businesses. Thermo Electron has historically operated its instrument businesses largely as autonomous, unaffiliated operations. As part of its reorganization, Thermo Electron has begun to manage these operations in a more coordinated manner. The following factors may make it difficult to successfully integrate and consolidate Thermo Electron's instrument operations: -Thermo Electron's success in integrating these businesses will depend on its ability to coordinate geographically separate organizations and integrate personnel with different business backgrounds and corporate cultures. -Thermo Electron's ability to combine these businesses will require coordination of previously autonomous administrative, sales and marketing, distribution, and accounting and finance functions and expansion and integration of information and management systems. -The integration process could become disruptive to Thermo Electron's instrument businesses. Moreover, Thermo Electron may not be able to realize all of the cost savings and other benefits that it expects to result from the integration process, even if the process is completed. It may be difficult for Thermo Electron to expand because some of the markets for its products are not growing. Some of the markets in which Thermo Electron competes have been flat or declining over the past several years. To address this issue, Thermo Electron is pursuing a number of strategies to improve its internal growth, including: - finding new markets for its products, including, most significantly, in the areas of proteomics and photonics; - developing new applications for its technologies; - combining sales and marketing operations in appropriate markets to compete more effectively; - actively funding research and development; and - strengthening its presence in selected geographic markets. Thermo Electron may not be able to successfully implement these strategies, and these strategies may not result in growth of Thermo Electron's business. The proposed spinoffs of Thermo Fibertek and the business that serves the healthcare industry may not result in companies with strong liquidity or financial performance. The completion of the spinoffs of Thermo Fibertek and the business that serves the healthcare industry with a range of medical products for diagnostics and monitoring is subject to final action by the board of directors of Thermo Electron. In addition, Thermo Electron has chosen to delay the spinoffs until the second half of 2001, as a result of the current weakness in the financial markets, in order to maximize shareholder value. 60 Thermo Electron Corporation 2000 Financial Statements Forward-looking Statements Thermo Electron is unable to predict the liquidity or market performance of the shares of the businesses it plans to spin off. Although Thermo Fibertek has publicly traded shares, the historic prices of these shares may not be representative of the trading price of Thermo Fibertek's common stock after the number of shares held by its stockholders other than Thermo Electron increases as a result of the spinoff. There is currently no public trading market for the shares of the company that conducts the business that serves the healthcare industry. The businesses that Thermo Electron is spinning off may not have the financial resources and management skills necessary to succeed as independent entities. As a result of the spin-off of Thermo Fibertek, Thermo Electron will remain as the guarantor of indebtedness issued by Thermo Fibertek even though Thermo Electron will no longer control Thermo Fibertek's business or operations. Thermo Electron has guaranteed the payment of principal and interest on $153 million principal amount of debentures issued by Thermo Fibertek Inc. These debentures mature in July 2004. Thermo Electron will remain liable as a guarantor for this obligation following the spinoff, although it will no longer control the business or operations of Thermo Fibertek. Thermo Electron has significant international operations, which entail the risk that exchange rate fluctuations may negatively affect demand for its products and its profitability. International revenues account for a substantial portion of Thermo Electron's revenues, and Thermo Electron intends to continue expanding its presence in international markets. In 2000, Thermo Electron's international revenues from continuing operations, including export revenues from the United States, accounted for approximately 50% of its total revenues. International revenues are subject to the risk that changes in exchange rates may adversely affect product demand and the profitability in U.S. dollars of products and services provided by Thermo Electron in foreign markets, where payment for Thermo Electron's products and services is made in the local currency. For example, in fiscal 2000, the unfavorable effects of currency translation decreased revenues of Thermo Electron's continuing operations by $80.0 million. Thermo Electron has acquired several companies and businesses; as a result it has recorded significant goodwill on its balance sheet, which it must continually evaluate for potential impairment. Thermo Electron has acquired significant intangible assets, including approximately $1.4 billion of goodwill that it has recorded on its balance sheet as of December 30, 2000. Thermo Electron amortizes this goodwill principally over 40 year periods. Thermo Electron assesses the future useful life of the goodwill it has on its books whenever events or changes in circumstances indicate that the current useful life has diminished. These events or circumstances generally include operating losses or a significant decline in earnings associated with the acquired business or asset. Goodwill amortization from Thermo Electron's continuing operations was $38 million in fiscal 2000. Thermo Electron's ability to realize the value of the goodwill that it has recorded as a result of its acquisition of the minority interests in its formerly publicly-traded subsidiaries will depend on the future cash flows of these businesses. These cash flows in turn depend in part on how well Thermo Electron has integrated these businesses. Thermo Electron must develop new products, adapt to rapid and significant technological change, and respond to introductions of new products in order to remain competitive. Thermo Electron's growth strategy includes significant investment in and expenditures for product development, including most significantly in the areas of proteomics and photonics. Thermo Electron intends to increase spending in the area of research and development. Thermo Electron sells its products in several industries that are characterized by rapid and significant technological changes, frequent new product and service introductions and enhancements and evolving industry standards. Without the timely introduction of new products, services and enhancements, Thermo Electron's products and services will likely become technologically obsolete over time, in which case its revenue and operating results would suffer. Thermo Electron's customers use many of its products to develop, test and manufacture their own products. As a result, Thermo Electron must anticipate industry trends and develop products in advance of the commercialization of its customers' products. If it fails to adequately predict its customers' needs and future activities, Thermo Electron may invest heavily in research and development of products and services that do not lead to significant revenue. 61 Thermo Electron Corporation 2000 Financial Statements Forward-looking Statements Many of its products and products under development are technologically innovative and require significant planning, design, development, and testing at the technological, product, and manufacturing-process levels. These activities require Thermo Electron to make significant investments. Products in Thermo Electron's markets undergo rapid and significant technological change because of quickly changing industry standards and the introduction of new products and technologies that make existing products and technologies uncompetitive or obsolete. Thermo Electron's competitors may adapt more quickly to new technologies and changes in customers' requirements than Thermo Electron can. The products Thermo Electron is currently developing, or those it will develop in the future, may not be technologically feasible or accepted by the marketplace, and its products or technologies could become uncompetitive or obsolete. Thermo Electron sells its products and services to a number of companies that operate in cyclical industries, which could adversely affect its results of operations when those industries experience a downturn. The growth and profitability of Thermo Electron's Optical Technologies segment depends in part on sales to the semiconductor and telecommunications industries, which are subject to cyclical downturns. These industries have begun to experience slowing trends in late 2000 and early 2001. A prolonged slowdown in these industries would adversely affect sales by the Optical Technologies segment, which in turn could adversely affect Thermo Electron's revenues and results of operations. Changes in governmental regulations may reduce demand for Thermo Electron's products or increase its expenses. Thermo Electron competes in many markets in which it and its customers must comply with federal, state, local, and foreign regulations, such as environmental, health and safety, and food and drug regulations. Thermo Electron develops, configures, and markets its products to meet customer needs created by those regulations. Any significant change in regulations could reduce demand for Thermo Electron's products. For example, many of Thermo Electron's instruments are marketed to the pharmaceutical industry for use in discovering and developing drugs. Changes in the Food and Drug Administration's regulation of the drug discovery and development process could have an adverse effect on the demand for these products. Demand for some of Thermo Electron's products depends on capital spending policies of its customers and on government funding policies. Thermo Electron's customers include manufacturers of semiconductors and products incorporating semiconductors, pharmaceutical and chemical companies, laboratories, universities, healthcare providers, government agencies, and public and private research institutions. Many factors, including public policy spending priorities, available resources, and economic cycles, have a significant effect on the capital spending policies of these entities. These policies in turn can have a significant effect on the demand for our products. For example, sales of weighing and inspection equipment have decreased as a result of lower demand from the global packaged food industry, which is undergoing a period of consolidation. 62 Thermo Electron Corporation 2000 Financial Statements Selected Financial Information
(In millions except per share amounts) 2000 (a) 1999 (b) 1998 (c) 1997 (d) 1996 - ---------------------------------------------------------------------------------------------------------- Statement of Operations Data Revenues $2,280.5 $2,294.6 $1,880.9 $1,811.5 $1,412.2 Gross Profit 1,021.8 1,048.8 872.8 859.2 656.9 Operating Income 266.0 182.1 191.3 235.5 139.0 Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 62.0 37.3 93.8 142.4 148.4 Income (Loss) Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle (23.7) (176.0) 181.5 239.3 190.8 Net Income (Loss) (36.1) (174.6) 181.9 239.3 190.8 Earnings per Share from Continuing Operations Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle: Basic .37 .24 .58 .93 1.05 Diluted .36 .22 .55 .87 .95 Earnings (Loss) per Share: Basic (.22) (1.10) 1.12 1.57 1.35 Diluted (.22) (1.12) 1.08 1.45 1.17 Balance Sheet Data Working Capital $1,737.0 $1,291.6 $2,130.1 $1,983.8 $2,221.6 Total Assets 4,863.0 5,071.8 5,217.9 4,731.6 4,243.7 Long-term Obligations 1,528.5 1,566.0 1,786.4 1,463.9 1,422.6 Minority Interest 24.7 348.4 378.9 442.1 335.5 Common Stock Subject to Redemption - 7.7 40.5 40.5 2.6 Shareholders' Investment 2,534.0 2,013.5 2,256.1 2,004.0 1,749.2 (a) Reflects $3.4 million of pretax restructuring and related income, net, the issuance of Company common stock valued at $448.7 million to acquire the minority interest of certain subsidiaries, and a $12.9 million charge reflecting the cumulative effect of change in accounting principle for the adoption of SAB No. 101. (b) Reflects a $65.2 million pretax charge for restructuring and related costs and the February 1999 acquisition of Spectra-Physics AB. (c) Reflects a $32.5 million pretax charge for restructuring and related costs, the issuance of $150.0 million principal amount of the Company's notes, and the Company's public offering of common stock for net proceeds of $290.1 million. (d) Reflects the March 1997 acquisition of Life Sciences International PLC. 63 Thermo Electron Corporation 2000 Financial Statements Common Stock Market Information The Company's common stock is traded on the New York Stock Exchange under the symbol TMO. The following table sets forth the high and low sale prices of the Company's common stock for 2000 and 1999, as reported in the consolidated transaction reporting system.
2000 1999 --------------------------------------- Quarter High Low High Low - ------------------------------------------------------------------------------------------------------ First $26.25 $14.25 $18.19 $13.38 Second 21.77 17.94 20.06 12.69 Third 26.94 20.06 19.69 15.75 Fourth 31.10 24.25 15.88 13.00 As of January 26, 2001, the Company had 13,470 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the New York Stock Exchange for the Company's common stock on January 26, 2001, was $27.68 per share. Common stock of the Company's majority-owned Thermo Fibertek Inc. (TFT) and Thermo Fibergen Inc. (TFG) subsidiaries are traded on the American Stock Exchange. Common stock of the Company's majority-owned Spectra-Physics Lasers, Inc. (SPLI) subsidiary is traded on the NASDAQ National Market System. Shareholder Services Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive Company information as quickly as possible. All material is also available from Thermo Electron's Internet site at www.thermo.com, under Investors. Stock Transfer Agent Fleet National Bank is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: Fleet National Bank, c/o EquiServe, P.O. Box 43010, Providence, Rhode Island 02940-3010, (781) 575-3120. You may also send an e-mail to shareholder-equiserve @equiserve.com, or visit the transfer agent's Internet site at www.equiserve.com. Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, as filed with the Securities and Exchange Commission, may be obtained at no charge by contacting the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, (781) 622-1111, or is available from the Company's Internet site at www.thermo.com, under Investors. 64
EX-21 9 0009.txt Exhibit 21 THERMO ELECTRON CORPORATION Subsidiaries of the Registrant As of February 14, 2001, Thermo Electron Corporation owned the following companies:
NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Coleman Corporation Delaware 100 Thermo Information Solutions Inc. Delaware 100 Thermo Info France S.A. France 100 Thermo Info UK Limited England 100 Open Connections Holdings Limited England 100 TIS Holdings, Inc. New Hampshire 100 Peter Brotherhood Holdings Ltd. England 100 Aircogen Ltd. England 80 Peter Brotherhood Limited England 100 Peter Brotherhood Pension Fund Trustees Ltd. England 100 Thermo Electron Realty Limited England 100 Thermo Holdings Limited England 100 Thermo Electron, S.A. de C.V. Mexico 100 VIASYS Healthcare Inc. Delaware 100 Corpak LLC Delaware 100 SensorMedics Corporation Delaware 100 SensorMedics B.V. Netherlands 100 SensorMedics (Deutschland) GmbH Germany 100 Eden Medical Electronics, Inc. Delaware 100 Grason-Stadler, Inc. Massachusetts 100 Neuroscience Limited England 100 Nicolet Biomedical Japan Inc. Japan 100 Nicolet Biomedical Ltd. England 100 Nicolet Biomedical S.A.R.L. France 100 Nicolet - EME GmbH Germany 100 Nicolet Vascular Inc. Delaware 100 ILS, Inc. Delaware 100 IMEX International, Inc. Colorado 100 Bear Medical Systems Inc. Delaware 100 Bird Medical Technologies, Inc. California 100 Bird Products Corporation California 100 Bird Life Design Corporation California 100 Stackhouse, Inc. California 100 Medical Data Electronics, Inc. Delaware 100 Tecomet Inc. Massachusetts 100 Thermo Polymer LLC Delaware 100 Gulf Precision, Inc. Arizona 100 Seeley Enterprises, Inc. New Mexico 100 ITC Holdings Inc. Delaware 100 Keystone Scientific Inc. Pennsylvania 100 Loftus Furnace Company Pennsylvania 100 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Met-Therm, Inc. Ohio 100 NAPCO, Inc. Connecticut 100 Nicolet Biomedical of California Inc. California 100 North East Surgical Tool Corp. Massachusetts 100 North Carbondale Minerals, Inc. California 100 Thermo WI, Inc. Wisconsin 100 Perfection Heat Treating Company Michigan 100 San Marcos Resource Recovery, Inc. California 100 Southern Ocean County Resource Recovery, Inc. New Jersey 100 Staten Island Cogeneration Corporation New York 100 TE Great Lakes Inc. Michigan 100 TEC Cogeneration Inc. Florida 100 South Florida Cogeneration Associates Florida 50* TEC Energy Corporation California 100 North County Resource Recovery Associates California 100* (50% of which is owned directly by San Marcos Resource Recovery, Inc.) Thermo Electron Export Inc. Barbados 100 Thermo Electron (London) Ltd. England 50* Thermo Finance (UK) Limited England 100 Thermo Foundation, Inc. Massachusetts 100 TMO THI Holdings Inc. Delaware 100 Thermo Leasing Corporation Delaware 100 Thermo Capital Company LLC Delaware 50 ThermoTrex Acquisition Corporation Delaware 100 ThermoLase Acquisition Corporation Delaware 100 TMO, Inc. Massachusetts 100 TMOI Inc. Delaware 100 TMOTFG Holdings Corp. Delaware 100 Erich Jaeger Holdinds Deutschland Germany 100 Erich Jaeger GmbH Germany 100 HMS Health Management Systems GmbH Germany 100 Erich Jaeger Gesellschaft m.b.H. Austria 100 Erich Jaeger (U.K.) Ltd. England 100 Erich Jaeger S.A.R.L. France 100 Erich Jaeger B.V. Netherlands 100 Erich Jaeger Benelux B.V. Netherlands 100 Erich Jaeger, Inc. Delaware 100 TMO TCA Holdings, Inc. Delaware 100 Walpak Company Illinois 100 Thermo Detection Inc. Delaware 100 Detection Securities Corporation Massachusetts 100 Thermo Orion Inc. Massachusetts 100 Advanced Sensor Technology Massachusetts 100 Orion Research Limited England 100 Thermo Orion Puerto Rico Inc. Delaware 100 Russell pH Limited Scotland 100 2 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Rutter & Co. Netherlands 100 Rutter Instrumentation S.A.R.L. France 90 Systech B.V. Netherlands 50 Thermo Keytek LLC Delaware 100 ThermedeTec Corporation Delaware 100 Thermedics Detection de Argentina S.A. Argentina 99 (additionally 1% of the shares are owned directly by Thermo Detection Inc.) Thermedics Detection de Mexico, S.A. de C.V. Mexico 99 (additionally 1% of the shares are owned directly by Thermo Detection Inc.) Thermedics Detection Limited England 100 Thermedics Detection Scandinavia AS Norway 100 Thermo Sentron Inc. Delaware 100 Allen Coding Systems Limited England 100 Thermo Allen Coding Corporation Delaware 100 Goring Kerr Limited England 100 Best Checkweighers Limited England 100 Intertest (UK) Limited England 100 Goring Kerr Detection Limited England 100 Goring Kerr (NZ) Limited New Zealand 100 Goring Kerr Canada Inc. Canada 100 Goring Kerr Inc. New York 100 Ramsey France S.A.R.L. France 100 Ramsey Ingenieros S.A. Spain 100 Ramsey Italia S.R.L. Italy 100 Tecno Europa Elettromeccanica S.R.L. Italy 100 Thermo Ramsey Inc. Massachusetts 100 Xuzhou Ramsey Technology Development Co., Limited China 50* Thermo Sentron Australia Pty. Ltd. Australia 100 Thermo Sentron B.V. Netherlands 100 Thermo Sentron Canada Inc. Canada 100 Thermo Sentron Limited England 100 Hitech Electrocontrols Limited England 100 Hitech Licenses Ltd. England 100 Hitech Metal Detectors Ltd. England 100 Westerland Engineering Ltd. England 100 Thermo Sentron SEC Corporation Massachusetts l00 Thermo Sentron (South Africa) Pty. Ltd. South Africa 100 Thermo Voltek Europe B.V. Netherlands 100 Comtest Italia S.R.L. Italy 100 Comtest Limited England 100 UVC Realty Corp. New York 100 Thermo Administrative Services Corporation Delaware 100 Thermo Amex Management Company Inc. Delaware 100 Thermo Amex Finance, L.P. Delaware 99* Thermo Amex Convertible Growth Fund I., L.P. Delaware 99* 3 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Ecotek Newco Corporation Delaware 100 Mountainview Power Development Company LLC Delaware 100 Thermo Ecotek Corporation Delaware 100 Central Valley Fuels Management Inc. Delaware 100 Delano Energy Company Inc. Delaware 100 Eco Fuels Inc. Wyoming 100 Independent Power Services Corporation Nevada 100 KFP Operating Company, Inc. Delaware 100 Lake Worth Generation Corporation Delaware 100 Lake Worth Generation LLC Delaware 100 Mountainview Power Company Delaware 100 Mountainview Power Company LLC Delaware 100 Mountainview Power Construction Company Delaware 100 Riverside Canal Power Company California 100 SFS Corporation New Hampshire 100 Thermo Fuels Inc. Delaware 100 KFx Fuel Partners, L.P. Delaware 100 TES Securities Corporation Delaware 100 Thermendota, Inc. California 100 Mendota Biomass Power, Ltd. California 100 MBPL Agriwaste Corporation California 100 Thermo Ecotek International Holdings Inc. Cayman Islands 100 Gouripore Power Company Pvt. Ltd. India 83 Thermo Ecotek Europe Holdings B.V. Netherlands 100 EMD Ventures B.V. Netherlands 65* Kraftwerk, Premnitz GmbH & Co KG Germany 65 EMD Pribram sro Czech Republic 65 Magnicon B.V. Netherlands 83.5 ECS sro Czech Republic 83.5 EuroEnergy Group B.V. Netherlands 50* Thermo EuroVentures sro Czech Republic 100 Thermo Ecotek International Inc. Cayman Islands 100 TCK Cogeneration Dominicana Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) TCK Dominicana Holdings Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) Thermo Electron of Maine, Inc. Maine 100 Gorbell/Thermo Electron Power Company Maine 80* Thermo Electron of New Hampshire, Inc. New Hampshire 100 Hemphill Power and Light Company New Hampshire 66* Thermo Electron of Whitefield, Inc. New Hampshire 100 Whitefield Power and Light Company New Hampshire 100* (39% of which is owned directly by SFS Corporation) 4 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Star Natural Gas Company Delaware 95 Star/RESC LLC Texas 75 Star Field Services Company Delaware 100 Totem Gas Storage Company LLC Colorado 90 Totem Power, LLC Colorado 100 Thermo Fuels Company, Inc. California 100 Thermo Trilogy Corporation Delaware 80.03 Thermo Trilogy International Holdings, Inc. Cayman Islands 100 AgriSense-BCS, Ltd. England 100 P J Margo Pvt. Ltd. India 50* AgriDyne Technologies S.A. de C.V. Mexico 100 Ulna Incorporated California 100 West County Generation LLC Delaware 100 Woodland Biomass Power, Inc. California 100 Woodland Biomass Power, Ltd. California 100* (.1% of which is owned directly by Thermo Ecotek Corporation) Thermo Electron Foundation, Inc. Massachusetts 100 Thermo Electron Metallurgical Services, Inc. Texas 100 Thermo Finance Company B.V. Netherlands 100 Thermo Fibertek Inc. Delaware 90.62 AES Equipos y Sistemas S.A. de C.V. Mexico 100 ArcLine Products, Inc. New York 100 Fibertek Construction Company, Inc. Maine 100 Thermo AES Canada Inc. Canada 100 Thermo Black Clawson Inc. Delaware 100 Thermo Black Clawson (China) China 100 Thermo Black Clawson S.A. France 100 Thermo Fibertek Holdings Limited England 100 Thermo Black Clawson Limited England 100 Thermo Fibertek U.K. Limited England 100 D.S.T. Pattern Engineering Company Limited England 100 Vickerys Limited England 100 Winterburn Limited England 100 Thermo Web Systems, Inc. Massachusetts 100 Fiberprep Inc. Delaware 95 (31.05% of which shares are owned directly by E. & M. Lamort, S.A.) Fiberprep Securities Corporation Delaware 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Acreboten A.B. Sweden 100 Lamort Equipementos Industrials Ltda. Brazil 60* Lamort GmbH Germany 100 Lamort Iberia S.A. Spain 100 Lamort Italia S.R.L. Italy 100 Lamort Paper Services Ltd. England 100 Nordiska Lamort Lodding A.B. Sweden 100 5 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Fibergen Inc. Delaware 90.56 (additionally 0.08% of the shares are owned directly by Thermo Electron Corporation) Fibergen Securities Corporation Massachusetts 100 GranTek Inc. Wisconsin 100 Next Fiber Products Inc. Delaware 100 Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited England 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 Thermo Life Sciences Limited England 100 Kenbury Limited England 100 Denley Ltd. England 100 Gas Tech, Inc. California 100 Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Life Sciences International Limited England 100 Comdata Services Limited England 100 Lipshaw Limited England 100 Luckham Limited England 100 Phicom Limited England 100 Southions Investments Limited England 100 Sungei Puntar Rubber Estate Limited England 100 Westions Limited England 100 Whale Scientific Limited England 100 Forma Scientific Ltd. England 100 Ravensward Ltd. England 100 E-C Apparatus Ltd. England 100 Shandon (Germany) Ltd. England 100 Savant Instruments Ltd. England 100 Helmet Securities Limited England 100 Life Sciences International Kft Hungary 100 Life Sciences International, Inc. Pennsylvania 100 LSI (US) Inc. Delaware 100 LSI North America Service Inc. Delaware 100 Life Sciences International Holdings BV Netherlands 100 Life Sciences International (Poland) SP z O.O Poland 100 Britlowes Limited England 100 Commendstar Limited England 100 Consumer & Video Holdings Limited England 100 Video Communications Limited England 100 Greensecure Projects Limited England 100 Hybaid Ltd. England 100 Hybaid BV Netherlands 100 Labsystems Europe SA Spain 100 Labsystems Ges mbH Austria 100 6 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Omnigene Limited England 58.50 Shenbridge Limited England 100 Southern Instruments Holdings Limited England 100 Finishlong Ltd. England 100 Metrika Systems Corporation Delaware 100 Gamma-Metrics Minerals Pty Ltd. South Australia 100 Thermo Radiometrie France 100 Gamma-Metrics California 100 Thermo Gamma-Metrics India Private Limited India 100 Thermo MF Physics Corporation Delaware 100 Thermo Radiometrie Corporation Delaware 100 Radiometrie U.S.A., Inc. California 100 Radiometrie Limited England 100 National Nuclear Corporation California 100 Thermo Nucleonics LLC Delaware 51 (additionally, 49% of the shares are owned directly by TBA Nucleonics Holding Corporation) ONIX Systems Inc. Delaware 100 Thermo Brandt Instruments Inc. Delaware 100 CAC Inc. Delaware 100 Flow Automation Inc. Texas 100 Lots 82 and 83, Inc. Louisiana 100 Mid-South Power Systems, Inc. Louisiana 100 Mid-South Controls & Services, Inc. Louisiana 100 Thermo Instrument Controls de Mexico, S.A. de C.V. Mexico 100 (1% of which shares are owned directly by ONIX Systems Inc.) ONIX Process Analysis Inc. Texas 100 OnIX Holdings Limited England 100 CAC UK Limited England 100 ONIX Measurement Limited England 100 ONIX Process Analysis Limited England 100 Polysonics, Inc. Texas 100 TN Spectrace Europe B.V. Netherlands 100 TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 Thermo Westronics Inc. Texas 100 Thermo Nicolet Corporation Wisconsin 100 7 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Electron German Holdings Inc. Delaware 35.4 (7.2% of shares are owned directly by Dynex Technologies Inc., 6.6% of shares are owned directly by Radiometrie Corporation, 16.6% of shares are owned directly by Metrika Systems Corporation, 2.2% of shares are owned directly by Thermo Electron Corporation, 0.5% of shares are owned directly by ThermoSpectra Corporation, 29.3% of shares are owned directly by Finnigan MAT (Nevada) Inc., 2.2% of shares are owned directly by ThermedTec Corp.) Thermo Vacuum Generators Inc. Delaware 100 FI Instruments Inc. Delaware 100 Thermo Haake Inc. Delaware 100 Scintag, Inc. California 100 Thermo Spectronic Inc. Delaware 100 SLM International Inc. Illinois 100 Thermo Elemental Inc. Massachusetts 100 Thermo ARL U.S. LLC Delaware 100 A.R.L. Applied Research Laboratories S.A. Switzerland 100 Fisons Instruments (Proprietary) Limited South Africa 100 Thermo Optek Wissenschaftliche Gerate GesmbH Austria 100 Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument Technology Co. China 100 Limited Thermo Cahn Corporation Wisconsin 100 Mattson Instruments Limited England 100 Thermo Optek Limited England 100 Thermo VG Systems Limited England 100 Norlab Instruments Ltd. England 100 Thermo Elemental Limited England 100 Unicam Limited England 100 Unicam Export Limited England 100 Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Thermo Instruments Nordic AB Sweden 100 Thermo Instruments Nordic AS Norway 100 Nicolet Japan K.K. Japan 100 Thermo Spectra-Tech Inc. Wisconsin 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited England 100 Thermo Nicolet Limited England 100 Hilger Analytical Limited England 100 Thermo Electron Limited England 100 Thermo Instrument Systems Japan Holdings, Inc. Delaware 100 Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Instruments (Canada) Inc. Canada 100 Fisons Instruments Inc. Canada 100 Unicam Analytical Inc. Canada 100 8 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Optek S.A.R.L. France 100 Thermo Optek Holding B.V. Netherlands 100 Thermo Optek B.V. Netherlands 100 Thermo Optek N.V. Belgium 99 (additionally, 1% of the shares are owned by Thermo Optek Holding B.V.) Tein Benelux B.V. Netherlands 100 Thermo Optek Materials Analysis (S.E.A.) Pte Limited Singapore 100 ThermoSpectra Corporation Delaware 100 Gould Instrument Systems, Inc. Ohio 100 Gould & Nicolet S.A. France 95 (additionally, 5% of the shares are owned directly by ThermoSpectra Corporation) Thermo Kevex X-Ray Inc. Delaware 100 Neslab Instruments Europa BV Netherlands 100 Thermo NESLAB Inc. New Hampshire 100 Nicolet Instrument Technologies Inc. Wisconsin 100 Thermo Noran Inc. Wisconsin 100 ThermoMicroscopes Corp. California 100 ThermoMicroscopes S.A. Switzerland 100 PSI Virgin Islands Incorporated U.S. Virgin Islands 100 ThermoSpectra B.V. Netherlands 100 Nicolet Technologies B.V. Netherlands 100 NORAN Instruments B.V. Netherlands 100 ThermoSpectra Limited England 100 Nicolet Technologies Ltd. England 100 Spectrace Instruments Inc. California 100 TMO THI Acquisition Corp. Delaware 100 Thermo Electron Sweden Forvaltning AB Sweden 100 Spectra-Physics AB Sweden 99 Spectra-Physics Holdings USA, Inc. Delaware 100 Pharos Holdings, Inc. Delaware 100 Thermo BLH Inc. Delaware 100 Pharos de Costa Rica S.A. Costa Rica 100 Automatic Power, Inc. Delaware 100 Spectra-Physics VisionTech, Inc. Delaware 100 Pharos Tech, Inc. Delaware 100 Spectra-Physics Lasers, Inc. Delaware 78.1 Laser Analytical Systems GmbH Germany 100 Laser Analytical Systems, Inc. 100 Opto Power Corporation Delaware 100 Spectra-Physics Laser Data Systems, Inc. Delaware 100 Spectra-Physics France S.A. France 100 Spectra-Physics GmbH Germany 100 Spectra-Physics K.K. Japan 100 Spectra-Physics Lasers B.V. Netherlands 100 Spectra-Physics Lasers Ltd. England 100 9 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Spectra-Physics Foreign Sales Corp. Barbados 100 Spectra-Physics Canada Ltd. Canada 100 Spectra-Physics Holdings Plc England 100 AB Pharos Marine Ltd. England 100 Pharos Marine Pte Ltd. Singapore 100 Automatic Power Ltd. England 100 Continental Satellite TV Ltd. England 100 Spectra-Physics Holdings S.A. France 100 Saroph B.V. Netherlands 100 Thermo Nobel AB Sweden 100 Nobel Electronique S.A.R.L. France 100 Nobel Elektroniikka Oy AB Finland 100 Nobel Elektronikk A/S Norway 100 Nobel Elektronik GmbH Germany 100 AB Givareteknik Sweden 100 Nobel Systems Ltd. England 100 AB Pharos Marine Sweden 100 Thermo Radiometrie Oy Finland 100 Thermo Radiometrie KK Japan 100 Spectra Precision (Asia) Pte. Ltd. Singapore 100 Saroph Sweden AB Sweden 100 Finnigan FT/MS Inc. Delaware 100 Thermo Finnigan LLC Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, Inc. California 100 Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products S.R.L. Italy 100 Thermo Masslab Limited England 100 H.D. Technologies Limited England 100 Thermo Instruments Australia Pty. Limited Australia 100 Thermo Finnigan Ltd. England 100 Hypersil Limited England 100 Finnigan Properties, Inc. California 100 Thermo Forma Inc. Delaware 100 Thermo IEC Inc. Delaware 100 International Equipment Company Limited England 100 Thermo Savant Inc. New York 100 Thermo Hypersil Inc. Delaware 100 Life Sciences International (Hong Kong) Limited Hong Kong 100 TMQ SEG (Hong Kong) Limited Hong Kong 100 ThermoQuest B.V. Netherlands 100 Thermo Separation Products B.V. B.A. Belgium 100 10 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Finnigan France France 100 Finnigan Automass S.A. France 100 Thermo Separation Products S.A. France 100 Thermo Hypersil France 100 ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Gerate GmbH Austria 100 Thermo Separation Products AG Switzerland 100 ThermoQuest K.K. Japan 100 Thru-Put Systems, Inc. Florida 100 SID Instruments Inc. Delaware 100 FI S.A. France 100 Fisons Instruments BV Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. England 100 Thermo Haake (U.K.) Limited England 100 Thermo Instrumentos Cientificos S.A. Spain 100 Thermo BioAnalysis Corporation Delaware 100 Thermo BioStar Inc. Delaware 100 Data Medical Associates, Inc. Texas 100 DMA Latinoamericana S.A. de C.V. Mexico 50 Labsystems (SEA) Pte. Ltd. Singapore 100 Fastighets AB Skrubba Sweden 100 Dynex Technologies spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 Thermo DYNEX Inc. Virginia 100 Thermo Labsystems B.V. Netherlands 100 Labsystems, Inc. Delaware 100 Thermo BioAnalysis Japan K.K. Japan 100 Labsystems OY Finland 100 Thermo Labsystems India Pvt. Ltd. India 100 Biosystems OY Finland 100 Konelab OY Finland 100 AO Analytical Systems Russian Fed. 100 Labsystems (Hong Kong) Limited Hong Kong 99 Labsystems BTD China 67 Labsystems LHD China 90 Labsystems Lenpipette Russia 95 Labsystems Pakistan (Private) Ltd Pakistan 33.50 Labsystems Sweden AB Sweden 100 Labsystems (UK) Limited England 100 11 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Shandon Ltd. England 100 Anglia Scientific Instruments Limited England 100 Shandon Southern Instruments Limited England 100 Life Sciences International (Benelux) B.V. Netherlands 100 Labsystems B.V. Netherlands 100 Thermo Shandon Inc. Pennsylvania 100 E-C Apparatus Corporation Florida 100 Whale Scientific Corporation Colorado 100 ALKO Diagnostic Corporation Massachusetts 100 TBA Nucleonics Holding Corporation Delaware 100 TBA Securities Corporation Massachusetts 100 Thermo BioAnalysis GmbH Germany 85 (additionally 15% is owned by Thermo Electron German Holdings USA Inc.) BLH-SR-4 Sensoren GmbH Germany 100 DYNEX Technologies GmbH Germany 100 Nicolet Instrument GmbH Germany 100 Hybaid GmbH Germany 100 Gebruder Haake GmbH Germany 90 (additionally, 10% of the shares are owned directly by Thermo Nicolet Corporation) RHEO S.A. France 100 Interactiva Biotechnologie GmbH Germany 100 ITC Grundstucksverwaltungs GmbH Germany 100 ITC Grundstucksverwaltungs GmbH & Co. Germany 90 (additionally 10% of the shares are owned by ITC Holdings Inc.) Labsystems GmbH Germany 100 Thermo Finnigan GmbH Germany 90 (additionally, 10% of the shares are owned directly by Metrika Systems Corporation) Therno Life Sciences GmbH Germant 100 Thermo Hypersil GmbH Germany 100 Finnigan MAT GmbH Germany 100 ThermoQuest Analytische Systeme GmbH Germany 100 Shandon GmbH Germany 100 Thermo Radiometrie GmbH Germany 90 (additionally 10% of the shares are owned directly by Metrika Systems Corporation) DMC Mess-& Regeltechnik GmbH Germany 100 ESM Eberline Instruments GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Goring Kerr Detection GmbH Germany 100 Thermo Sentron GmbH Germany 100 Thermo Instruments GmbH Germany 100 ESM Andersen Instruments GmbH Germany 100 12 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermedics Detection GmbH Germany 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 Thermo NORAN GmbH Germany 100 TopoMetrix GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100 Thermo BioAnalysis Limited England 100 Thermo Fast U.K. Limited England 100 Thermo BioAnalysis Holdings, Limited England 100 Dynex Technologies Limited England 100 Thermo LabSystems Limited England 100 Thermo BioAnalysis S.A. France 100 Shandon France S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Labsystems S.A.R.L. France 100 Thermo LabSystems (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 BioAnalysis Labsystems, S.A. Spain 100 Trace Scientific Limited Australia 100 Trace BioSciences Pty. Ltd. Australia 100 Trace BioSciences NZ Limited New Zealand 99 Trace America, Inc. Florida 100 Herbos Dijaganosticka Croatia 50 Shanghai Long March Chiron Trace Medical Science Co. China 22 Ltd. Thermo Environmental Instruments Inc. California 100 Thermo Andersen Inc. Delaware 100 Andersen Instruments Limited England 100 Thermo MIE Corporation Massachusetts 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) Van Hengel Holding B.V. Netherlands 100 Thermo Instrument Systems B.V. Netherlands 100 Euroglas B.V. Netherlands 100 Mesure de Traces B.V. Netherlands 100 ThIS Automation B.V. Netherlands 100 This Analytical B.V. Netherlands 100 This Gas Analysis B.V. Netherlands 100 This Lab Systems B.V. Netherlands 100 This Scientific B.V. Netherlands 100 Thermo Jarrell Ash, S.A. Spain 100 Thermo Vision Corporation Delaware 100 Thermo CIDTEC Inc. New York 100 Centro Vision Inc. Delaware 100 Hilger Crystals Limited England 100 Thermo Laser Science Inc. Delaware 100 13 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Oriel Corporation Delaware 100 Thermo Opticon Corporation Delaware 100 Thermo Power Corporation Massachusetts 100 ACI Holdings Inc. New York 100 NuTemp, Inc. Illinois 100 Tecogen Securities Corporation Massachusetts 100 T-Lyte Corporation Delaware 98 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 TTT Metals of Minnesota Inc. Minnesota 100 TTT Metals of California Inc. California 100 TTT Metals of Wisconsin Inc. Wisconsin 100 TMA/Hanford, Inc. Washington 100 Clark-Trombley Consulting Engineers, Inc. Michigan 100 Thermo REI Inc. Michigan 100 Randers Engineering of Massachusetts, Inc. Michigan 100 RGPC Inc. Michigan 100 Thermo RDC Inc. Michigan 100 Thermo VTC Inc. Michigan 100 Fellows, Read & Associates, Inc. New Jersey 100 George A. Schock & Associates, Inc. New Jersey 100 Jennison Engineering, Inc. Vermont 100 Lancaster Laboratories LLC Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Thermo EuroTech (Delaware) Inc. Delaware 100 Thermo EuroTech Ireland Ltd. Ireland 100 Thermo EuroTech N.V. Netherlands 91 Grond- & Watersaneringstechniek Nederland B.V. Netherlands 100 Refining & Trading Holland B.V. Netherlands 100 ThermoRetec Corporation Delaware 100 ThermoRetec Construction Corporation Virginia 100 GeoWest Golden Inc. Colorado 100 GeoWest TriTechnics of Ohio, LLC Colorado 100 RETEC Thermal, Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of Washington Inc. Washington 100 14 NAME STATE OR JURISDICTION PERCENT OF OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ TRI Oak Ridge Inc. Delaware 100 TRI Oak Ridge LLC Delaware 50 (additionally, 50% of the shares are owned directly by Coleman Services Incorporated) TRUtech L.L.C. Delaware 47.5* Thermo Securities Corporation Delaware 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Partnership Delaware 60* ThermoLase LLC Delaware 100 ThermoLase England L.L.C. Delaware 46* ThermoLase (Scotland) Ltd. Scotland 100 ThermoLase (Ireland) Ltd. Ireland 100 ThermoLase UK Limited England 100 ThermoLase Iberica, S.A. Spain 100 ThermoLase (South Africa) Ltd. South Africa 100 ThermoLase Japan L.L.C. Wyoming 50* ThermoTrex East Inc. Massachusetts 100 Trex Medical Corporation Delaware 100 Trex Medical Systems Corporation Delaware 100 Trex Trophy Dental Inc. Virginia 100 Trex Medical France S.A. France 100 Trophy Radiologie S.A. France 100 Stephan'X S.A. France 100 SCI Boucher Debard Baudry Guillot France 100 Trophy Benelux S.A. Belgium 100 Trophy Radiologie Italia S.R.L. Italy 100 Trophy Radiologie Japan KK Japan 100 Trophy Radiologie GmbH Germany 100 P.T. Trophy Rajawali Indonesia Indonesia 51* Trophy Radiologia Espana SA Spain 100 Trophy Radiologie U.K. Ltd. England 100 *Joint Venture/Partnership
EX-23 10 0010.txt Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 15, 2001, included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended December 30, 2000, into the Company's previously filed Registration Statement No. 33-00182 on Form S-8, Registration Statement No. 33-8993 on Form S-8, Registration Statement No. 33-8973 on Form S-8, Registration Statement No. 33-16460 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 33-25052 on Form S-8, Registration Statement No. 33-37865 on Form S-8, Registration Statement No. 33-37867 on Form S-8, Registration Statement No. 33-36223 on Form S-8, Registration Statement No. 33-52826 on Form S-8, Registration Statement No. 33-52804 on Form S-8, Registration Statement No. 33-52806 on Form S-8, Registration Statement No. 33-52800 on Form S-8, Registration Statement No. 33-37868 on Form S-8, Registration Statement No. 33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8, Registration Statement No. 33-54347 on Form S-8, Registration Statement No. 33-54453 on Form S-8, Registration Statement No. 033-65237 on Form S-8, Registration Statement No. 033-61561 on Form S-8, Registration Statement No. 033-58487 on Form S-8, Registration Statement No. 333-01277 on Form S-3, Registration Statement No. 333-01893 on Form S-3, Registration Statement No. 333-19535 on Form S-8, Registration Statement No. 333-19633-01 on Form S-3, Registration Statement No. 333-34909-01 on Form S-3, Registration Statement No. 333-14265 on Form S-8, Registration Statement No. 333-62957 on Form S-3, Registration Statement No. 333-90761 on Form S-8, Registration Statement No. 333-90823 on Form S-8, Registration Statement No. 333-94627 on Form S-8, Registration Statement No. 333-32035-01 on Form S-3, Registration Statement No. 333-48432 on Form S-8, Registration Statement No. 333-46408 on Form S-8, Registration Statement No. 333-43702 on Form S-8, Registration Statement No. 333-43698 on Form S-8, Registration Statement No. 333-40578 on Form S-8, Registration Statement No. 333-40576 on Form S-8, Registration Statement No. 333-33070 on Form S-8, Registration Statement No. 333-33062 on Form S-8, Registration Statement No. 333-33068 on Form S-8, Registration Statement No. 333-33064 on Form S-8, Registration Statement No. 333-33058 on Form S-8, Registration Statement No. 333-33066 on Form S-8, Registration Statement No. 333-33060 on Form S-8, Registration Statement No. 333-33074 on Form S-8, and Registration Statement No. 333-33072 on Form S-8. Arthur Andersen LLP Boston, Massachusetts March 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----