UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 28, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
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 New York Stock Exchange
3 1/4% Subordinated Convertible Debentures due 2007 American Stock Exchange
4% Subordinated Convertible Debentures due 2005 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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]
As of June 28, 2002, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was approximately $2,774,137,000. The stock
price used in this computation was the last sales price on that date.
As of January 24, 2003, the Registrant had 163,187,218 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Sections of Thermo Electron Corporation's definitive Proxy Statement for the
Annual Meeting of Shareholders are incorporated by reference into Parts II and
III of this report.
THERMO ELECTRON CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Forward-looking Statements 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 33
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 34
Item 13. Certain Relationships and Related Transactions 34
Item 14. Controls and Procedures 34
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 35
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PART I
Item 1. Business
General Development of Business
Thermo Electron Corporation (also referred to in this document as "Thermo
Electron," "we," the "company," or the "registrant") is a world leader in
high-tech instruments. The company helps life science, laboratory, and
industrial customers advance scientific knowledge, enable drug discovery,
improve manufacturing processes, and protect people and the environment with
instruments, scientific equipment, and sample-in/knowledge-out solutions. The
company's powerful technologies help researchers make discoveries that will
fight disease or prolong life. They automatically monitor and control online
production to ensure the quality and safety of raw materials as well as the
end-products themselves. And they are critical components embedded as enabling
technologies within scientific and industrial devices.
In the late 1980s, Thermo Electron 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. To simplify our structure, we announced in January 2000 a major
reorganization that ultimately resulted in taking private all of our public
subsidiaries, selling noncore businesses, and spinning off our paper recycling
and medical products businesses. As part of the reorganization, we divested of
businesses with aggregate annual revenues of approximately $2 billion. This
reorganization was substantially completed in February 2002, when we took
private Spectra-Physics, Inc., our last publicly traded subsidiary.
The businesses spun off and sold as part of our reorganization have been
accounted for as discontinued operations (see "Business Segments and Products").
The company's continuing operations solely include its instrument businesses.
Except where indicated, the information presented in this report pertains to our
continuing operations.
Our strategy going forward is to focus on integrating our operations to
improve productivity and enable us to better serve our customers with improved
products, technologies, and complete integrated systems and services. We also
intend to emphasize internal growth by pursuing developments in the markets that
we serve that have potential for high growth. In addition, we plan to augment
that growth with strategic acquisitions that expand the reach of our technology
by either rounding out our product lines or bringing them to new markets.
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
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act), are made throughout this
Annual Report on Form 10-K. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," "seeks," "estimates," and similar expressions are intended to
identify forward-looking statements. While the company may elect to update
forward-looking statements in the future, it specifically disclaims any
obligation to do so, even if the company's estimates change, and readers should
not rely on those forward-looking statements as representing the company's views
as of any date subsequent to the date of the filing of this report.
A number of important factors could cause the results of the company to
differ materially from those indicated by such forward-looking statements,
including those detailed under the heading "Forward-looking Statements" in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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Business Segments and Products
We report our business in three principal segments (also called
"sectors"): Life and Laboratory Sciences, Measurement and Control, and Optical
Technologies.
During 2002, the company transferred management responsibility for
several businesses between sectors as follows: (1) the spectroscopy businesses
were moved to the Life and Laboratory Sciences sector from the Measurement and
Control sector; (2) the temperature-control businesses were moved to the
Measurement and Control sector from the Optical Technologies sector; (3) the
electrochemistry products business was moved to the Measurement and Control
sector from the Life and Laboratory Sciences sector; and (4) the Thermo Projects
unit was moved from a separate sector (previously included as "Other") to the
Life and Laboratory Sciences sector. Prior-period sector information has been
restated to reflect these changes.
Life and Laboratory Sciences
We address the pharmaceutical, biotechnology, academic, and other
research and industrial laboratory markets, as well as the clinical laboratory
and healthcare industries, through our Life and Laboratory Sciences sector.
During 2002, this sector was organized as five divisions: Bioscience
Technologies, Analytical Instruments, Spectroscopy, Informatics and Services,
and Clinical Diagnostics.
Bioscience Technologies encompasses a broad range of instruments,
consumables, and robotic systems such as microplate-based handling and reading
equipment; polymerase chain reaction (PCR) thermal cyclers for deoxyribonucleic
acid (DNA) amplification; magnetic particle-based molecular separation
instruments; laboratory automation, software, and instruments; and single
nucleotide polymorphism (SNP) scoring systems. Consumables include reagents,
microtiter plates, liquid-handling pipettes, and pipette tips. Robotic systems
include individual microplate movers and other instrumentation combined with
sophisticated integration software to produce application-specific workstations.
These products are used primarily by pharmaceutical companies for drug discovery
and development, testing, and quality control, and by biotechnology companies
and universities for life science research to help fight disease and prolong
life. These products are typically used on the "front end" of multi-instrument
systems, to prepare and handle samples prior to the samples being loaded into
other, advanced instruments.
This division also includes a range of scientific equipment used for the
preparation and preservation of chemical and biological samples, principally in
research settings for pharmaceutical, academic, and government customers.
Products include cell culture incubators, ultralow-temperature freezers,
high-speed centrifuges, centrifugal vacuum concentrators, biological safety
cabinets, cryopreservation storage tanks, and laboratory freeze-dryers.
Analytical Instruments includes our offerings of ion trap, quadrupole,
and magnetic sector mass spectrometers (MS), liquid chromatographs (LC) and gas
chromatographs (GC), and hyphenated multi-instrument combinations of these
products. Our integrated solutions include state-of-the-art instrument systems,
advanced software, and consumables such as the vials, syringes, and columns
necessary for chromatography. Our systems are tailored to meet the rigorous
demands of lab professionals in applications such as drug discovery and life
science research, environmental analysis, and analytical quantitation.
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.
We continue to introduce new systems that offer a total solution for
high-throughput analysis. For example, our ProteomeXTM multidimensional LC/MS
system is a complete proteomics workstation that now enables routine
identification and quantitation of the thousands of proteins in a complex
sample. It offers sample preparation, analysis, and knowledge management in a
fully integrated system.
Spectroscopy instruments use various optical techniques to determine the
elemental and molecular composition of a wide range of complex liquids and
solids. We manufacture atomic absorption (AA), inductively coupled plasma (ICP),
inductively coupled plasma-mass spectrometer (ICP-MS), Fourier transform
infrared (FT-IR), near-infrared (NIR), Optical Emission, Raman,
ultraviolet/visible (UV-Vis), fluorescence, X-ray diffractometry (XRD), and
X-ray
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fluorescence (XRF) instruments - as well microscopes, sampling accessories,
software, and spectral reference databases. Customers include pharmaceutical,
polymer, petrochemical, food, semiconductor, energy, steel, and basic material
producers, who typically use these instruments for quality assurance and quality
control applications primarily in a laboratory.
Informatics and Services offers laboratory information management systems
(LIMS), chromatography data systems, analytical data archival, and instrument
integration solutions to customers in regulated and nonregulated industries such
as pharmaceuticals, biotechnology, petrochemicals, chemicals, and food and
beverage. We also provide desktop spectroscopy software for data processing,
data management, 3-D data viewing, spectral reference databases, and
chemometrics. These systems are critical to regulatory compliance because they
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 also provide a global services network of experienced consultants
focused on the successful implementation of our customers' projects.
Wide-ranging services include project planning, management of user workshops,
defining business requirements, milestone delivery, systems integration,
workflow modeling, and validation consultancy - in short, everything from
installation to complete integration and automation of the laboratory.
Clinical Diagnostics provides equipment and supplies 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.
Our rapid diagnostic products have extremely high sensitivity and specificity to
test for infectious diseases, including Group A and B Streptococcus; Influenza A
and B; Chlamydia; Respiratory Syncytial Virus (RSV), the most common cause of
lower respiratory tract infections in children worldwide; and Clostridium
difficile Toxin A. We also supply a complete line of equipment and consumables
for anatomical pathology laboratories.
Measurement and Control
We provide a range of real-time, online sensors, monitors, and control
systems to customers in key industrial markets - from chemical, pharmaceutical,
and food and beverage to minerals and mining, and steel - through our
Measurement and Control sector. These products enable customers to control and
optimize their manufacturing processes to increase quality, improve
productivity, and ensure worker safety, environmental protection, and regulatory
compliance. In addition, we offer a comprehensive range of fixed and portable
chemical, radiation, and explosives-detection instruments to help ensure the
safety of public places and people. During 2002, this sector was organized as
three divisions: Process Instruments, Environmental Instruments, and Temperature
Control.
Process Instruments includes a comprehensive family of online weighing
and inspection equipment for consumer products, packaged goods, and bulk
materials. Products for the packaged and consumer goods market ensure that each
package contains the proper quantity of a specific item. For example, 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, have the appropriate quantity of
material, or have 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.
Also included in this division are online process-optimization systems
that use proprietary, ultrahigh-speed, noninvasive measurement technologies to
analyze, in real time, the physical and chemical properties of streams of raw
materials, such as coal, cement, minerals, and pharmaceuticals. This technology
allows the entire stream of material to be analyzed and eliminates the need for
off-line sampling, which can add production time, waste, and cost. We also
manufacture systems that measure the total thickness, basis weight, and coating
thickness of web-type finished materials, such as metal strip, plastics, foil,
rubber, glass, and paper.
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In addition, we provide sophisticated systems for the field-measurement
and sensor sector of the process-control market to improve efficiency, provide
process and quality control, maintain regulatory compliance, and increase worker
safety. 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.
Environmental Instruments serves four major markets: air quality, water
analysis, radiation measurement and protection, and security. Air-quality
instruments are used for environmental air monitoring, gas detection, and
hazardous chemical detection. These include continuous gaseous and aerosol
instruments for monitoring ambient air and emissions, measuring such compounds
as common air pollutants, aerosols, organic halogens, and carbon. We also
provide a comprehensive line of gas detectors for controlling and detecting the
presence of combustible and toxic gases for worker and plant safety. These
products range from simple handheld, general-purpose portable equipment to more
sophisticated fixed systems.
Used both in laboratory and process environments, our water-analysis
products include pH and ISE 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.
Radiation measurement and protection products monitor and detect
radiation in nuclear, environmental, industrial, medical, and security
applications. These products include portable and fixed radiation and
contamination monitors, as well as personal dosimetry products used for
protecting workers that are at risk of radiation exposure.
Our security products include a comprehensive range of fixed and portable
instruments used for chemical, radiation, and explosives-detection. These
products are used in airports, embassies, cargo facilities, border crossings,
and other high-threat facilities. They are also used by emergency response teams
and are critical for the detection and prevention of terrorist acts, as well as
for the emergency and forensic response to such events.
Temperature Control systems are necessary for laser, semiconductor,
analytical, medical, laboratory, industrial, and R&D applications, and we are a
leading manufacturer of precision temperature-control products for these
markets. Products include a complete line of heated/refrigerated circulating
baths, immersion coolers, and recirculating chillers. In addition, we supply
instruments that analyze materials for viscosity, surface tension, and thermal
properties. Customers include the food and pharmaceutical industries as well as
manufacturers of paints, inks, coatings, and adhesives, who depend on
high-precision viscometers to maintain the quality and consistency of their
products.
Optical Technologies
We are a leader in lasers, photonics, and semiconductor equipment and
test systems. Products within the Optical Technologies sector are used in
multiple markets - particularly the scientific instrument, microelectronics,
industrial processes, and biomedical industries. During 2002, these products
were grouped into three divisions: Lasers, Photonics, and Semiconductor.
Lasers encompasses Spectra-Physics, which is a global leader in the
design, development, manufacture, and distribution of high-power semiconductor
and solid-state lasers for industrial, scientific, electronics, and biomedical
markets. For example, nitrogen lasers used as an ionization source in mass
spectrometers enable scientists to study proteins, peptides, and other large
molecules in biomedical research. High-power semiconductor lasers are used in
such applications as direct-to-press printing, cosmetic and therapeutic medical
procedures, and they are key in the drive to make next-generation semiconductor
devices smaller, thinner, and faster. High-power solid-state lasers are used in
PC board manufacturing, rapid prototyping, bioinstrumentation, metrology, and
scientific research.
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Photonics includes optical and optoelectronics components and systems
that make, move, and manipulate light. These products are used in a variety of
applications and industries, including scientific and medical instruments and
semiconductor manufacturing. For example, our diffraction gratings are used in
the line-narrowing packages of excimer lasers used for photolithography systems
in semiconductor manufacturing. Products also include Corion thin-film
interference filters, Hilger scintillation and electro-optic crystals, Oriel
optical components and instruments, and CIDTEC charged-injection device (CID)
solid-state video cameras. The Book of Photon Tools offers catalog customers a
full complement of laser and photonics products, as well as technical
information.
Semiconductor products include compositional metrology tools, used to
analyze defects in ultrathin surface layers of a semiconductor chip and in R&D
for next-generation semiconductor devices. We also manufacture capital equipment
used to test and produce chips, including molecular beam epitaxy (MBE) systems
for the production of compound semiconductors. The largest application of these
systems is for microwave devices used in cellular telephones and other
high-speed wireless communications devices.
For financial information about segments, including domestic and
international operations and export sales, see Note 3 to our Consolidated
Financial Statements beginning on page F-1 of this report.
Sector Changes for 2003
During the first quarter of 2003, we fine-tuned the make-up of our three
sectors. We have moved the compositional-metrology business (formerly in Optical
Technologies) and our elemental-analyzer business (formerly in Measurement and
Control) into the Life and Laboratory Sciences sector. These two businesses are
part of the newly created Scientific Instruments division, which also comprises
the former Spectroscopy and Analytical Instruments divisions. The new division
better aligns our businesses with the way customers work. Specifically, the Life
and Laboratory Sciences sector is now organized to provide all our sample
preparation, handling, and storage offerings through the Bioscience Technologies
division, all our analytical solutions through the Scientific Instruments
division, and our information-management offerings through the Informatics and
Services division. We continue to provide a full range of products and services
to the distinct clinical marketplace through the Clinical Diagnostics division.
In addition, we have moved our ultrahigh-vacuum systems and semiconductor
testing businesses, formerly part of the Optical Technologies sector, into the
Measurement and Control sector's Temperature Control division. This brings
together all of our technologies for maintaining and monitoring precise
operating conditions in process environments. Our Optical Technologies sector
now comprises all of our lasers and photonics offerings, which we united under
the Spectra-Physics brand name.
We believe this sector alignment will help us achieve greater efficiency
in our operations, increase market awareness of our product offerings in the
marketplace, and capture cross-selling opportunities that exist between the
formerly separate organizations. In addition, we believe this structure will
enable us to better develop and provide integrated end-to-end solutions based on
our customers' needs. These changes will be reflected in our financial reports
beginning in the first quarter of 2003.
Discontinued Operations
As a result of our January 2000 reorganization plan, a number of
businesses have been accounted for as discontinued operations. Businesses in
this category included Kadant Inc., a supplier of systems to the papermaking and
paper recycling industry, as well as fiber-based consumer products; and Viasys
Healthcare Inc., a manufacturer of a range of medical products for diagnosis and
monitoring. Kadant was spun off to shareholders in August 2001 and Viasys was
spun off in November 2001. These businesses, together with a number of operating
units that were sold, constituted the company's former Energy and Environment,
Biomedical and Emerging Technologies, and Recycling and Resource Recovery
segments. At March 7, 2003, one operating unit with revenues of $31 million in
2002 remained for sale in discontinued operations.
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New Products and 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 2002, 2001, and 2000, we spent $155.1 million, $171.6 million, and
$176.8 million, respectively, on research and development.
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.
Patents, Licenses, and Trademarks
Patents are important in each segment of 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.
Seasonal Influences
Revenues in the fourth calendar quarter are historically stronger than in
the other quarters due to capital spending patterns of industrial customers.
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.
Dependency on a Single Customer
There is no single customer the loss of which would have a material
adverse effect on our business. No customer accounted for more than 10% of our
total revenues in any of the past three years.
Backlog
Our backlog of firm orders at year-end 2002 and 2001 was as follows:
2002 2001
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(In thousands)
Life and Laboratory Sciences $207,643 $185,097
Measurement and Control 103,665 93,588
Optical Technologies 71,634 155,159
Intersegment (2,347) (1,220)
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$380,595 $432,624
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In the third quarter of 2002, following the company's acquisition of the
remaining minority interest in Spectra-Physics, the company conformed the Lasers
division's backlog policy to the prevailing practice at the company's other
businesses of including in backlog only product orders that are expected to ship
within six months. The Lasers division's historical practice had been to include
orders expected to ship within 12 months. This change resulted in a reduction of
backlog of $39.3 million. The remaining decrease in backlog in the Optical
Technologies sector was principally due to economic conditions facing customers
in the semiconductor and other industrial markets. We believe that virtually all
of our backlog at the end of 2002 will be filled during 2003.
Government Contracts
Although the company transacts business with various government agencies,
no government contract is of such magnitude that a renegotiation of profits or
termination of the contract at the election of the government agency would have
a material adverse effect on the company's financial results.
Competition
General
The company encounters aggressive and able competition in virtually all
of the markets we serve. Because of the diversity of our products and services,
we face many different types of competitors and competition. Our competitors
range from large organizations that produce a comprehensive array of products
and services for a variety of markets to small organizations producing a limited
number of products and services for specialized markets. In general, competitive
climates in the markets we serve are characterized by changing technology that
requires continuing research and development, as well as customer relationships.
Our success in these markets primarily depends on five factors:
- technical performance and advances in technology that result in new
products and improved price/performance ratios;
- our reputation among customers as a quality provider of products and
services;
- customer service and support;
- active research and application-development programs; and
- relative prices of our products and services.
Life and Laboratory Sciences
Bioscience Technologies. In the markets served by this division, our
principal competitors include Kendro Laboratory Products (a subsidiary of SPX
Corporation); PerkinElmer, Inc.; and Beckman Coulter, Inc.
Analytical Instruments. In the markets served by this division, our
principal competitors include Applied Biosystems Inc.; Agilent Technologies Inc.;
Waters Corporation; Shimadzu Corporation; PerkinElmer; and Bruker Daltonics Inc.
Spectroscopy. In the markets served by this division, our principal
competitors include PerkinElmer; Varian Inc.; Agilent; Shimadzu; and Bruker.
Informatics and Services. In the markets served by this division, our
principal competitors include PerkinElmer; Applied Biosystems; Beckman Coulter;
Agilent; and LabVantage Solutions.
Clinical Diagnostics. In the markets served by this division, our principal
competitors include Leica Microsystems; Sakura Finetechnical Co., Ltd.; Becton,
Dickinson and Company; and Roche-Boeringher Manheim.
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Measurement and Control
Process Instruments. In the markets served by this division, our principal
competitors include Mettler-Toledo International Inc.; Yokogawa Electric Corporation;
Fisher-Rosemount (a division of Emerson Electric Co., Inc.); Asea Brown Boveri
(Holding) Ltd.; and Endress & Hauser.
Environmental Instruments. In the markets served by this division, our
principal competitors include Danaher Corporation; Mettler-Toledo; Canberra
Industries, Inc.; and Teledyne Advanced Pollution Instrumentation.
Temperature Control. In the markets served by this division, our principal
competitors include Affinity, Inc.; Polyscience, Inc.; and Lytron Inc.
Optical Technologies
Lasers. In the markets served by this division, our principal competitors
include Coherent, Inc.; Continuum (a division of Excel Technology, Inc.); and
JDS Uniphase Corporation.
Photonics. In the markets served by this division, our principal
competitors include Jobin Yvon Inc.; New Focus, Inc.; and OCLI (a subsidiary of
JDS Uniphase).
Semiconductor. In the markets served by this division, our principal
competitors include Oxford Instruments plc.; Veeco Instruments Inc.; EDAX Inc.;
and Kratos Analytical (a subsidiary of Shimadzu).
Environmental Protection Regulations
Complying with federal, state, and local environmental protection
regulations should not significantly affect our capital spending, earnings, or
competitive position.
Number of Employees
As of December 28, 2002, we had approximately 10,900 employees.
Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 3 to
our Consolidated Financial Statements beginning on page F-1 of this report.
Available Information
The company files annual, quarterly, and current reports, proxy
statements, and other documents with the Securities and Exchange Commission
(SEC) under the Exchange Act. The public may read and copy any materials that we
file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC
maintains a Website that contains reports, proxy and information statements, and
other information regarding issuers, including the company, that file
electronically with the SEC. The public can obtain any documents that we file
with the SEC at www.sec.gov. We also make available free of charge on or through
our own Website at www.thermo.com our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable,
amendments to those reports filed or furnished pursuant to section 13(a) of the
Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
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Executive Officers of the Registrant
Name Age Present Title (Fiscal Year First Became Executive Officer)
- ------------------------- --- --------------------------------------------------------------
Marijn E. Dekkers 45 President and Chief Executive Officer (2000)
Richard F. Syron 59 Executive Chairman and Chairman of the Board (1999)
Guy Broadbent 39 Vice President; President, Optical Technologies (2001)
Marc N. Casper 34 Vice President; President, Life and Laboratory Sciences (2001)
Barry S. Howe 47 Vice President; President, Measurement and Control (2001)
Theo Melas-Kyriazi 43 Vice President and Chief Financial Officer (1998)
Seth H. Hoogasian 48 Vice President, General Counsel, and Secretary (2001)
Peter E. Hornstra 43 Corporate Controller and Chief Accounting Officer (2001)
Mr. Dekkers was appointed Chief Executive Officer in November 2002. He
was President and Chief Operating Officer from July 2000 to November 2002. From
June 1999 to June 2000, Mr. Dekkers served as president of Honeywell
International's (formerly Allied Signal) electronic materials division, and from
August 1997 to May 1999 he served as vice president and general manager of its
fluorine products division.
Mr. Syron was appointed Executive Chairman in November 2002. He joined
the company in June 1999 as President and Chief Executive Officer and was
appointed Chairman of the Board in January 2000. From April 1994 to May 1999,
Mr. Syron was the Chairman and Chief Executive Officer of the American Stock
Exchange Inc.
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 for the plastics division of General Electric
Company.
Mr. Casper was appointed Vice President of Thermo Electron and President,
Life and Laboratory Sciences, in December 2001. From July 2000 to July 2001, Mr.
Casper was president and chief executive officer of Kendro Laboratory Products,
a life sciences company that provides sample-preparation and processing
equipment. From May 1999 to June 2000, Mr. Casper was president for the Americas
at Dade Behring Inc., a manufacturer of clinical-diagnosis products. From
January 1997 to May 1999, Mr. Casper was executive vice president for Europe,
Asia, and Intercontinental at Dade Behring Inc.
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.
Mr. Melas-Kyriazi was appointed Chief Financial Officer in January 1999.
He joined the company in 1986 as Assistant Treasurer and served as Treasurer
from 1988 to 1994. 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, Vice President in
1996, and Secretary in 2001.
Mr. Hornstra was appointed Chief Accounting Officer in January 2001 and
Corporate Controller in 1996.
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Item 2. Properties
The location and general character of our principal properties by sector
as of December 28, 2002, are as follows:
Life and Laboratory Sciences
We own approximately 1,540,000 square feet of office, engineering,
laboratory, and production space, principally in Wisconsin, Ohio, California,
Massachusetts, and New York within the U.S., and in Germany, Italy, and
Switzerland. We lease approximately 1,336,000 square feet of office,
engineering, laboratory, and production space, principally in Massachusetts,
Texas, Colorado, and New York within the U.S., and in Finland, England, Japan,
and France, under various leases that expire between 2003 and 2022.
Measurement and Control
We own approximately 680,000 square feet of office, engineering,
laboratory, and production space, principally in Minnesota, New Hampshire, and
New Mexico within the U.S., and in Germany, and England. We lease approximately
1,169,000 square feet of office, engineering, laboratory, and production space,
principally in Massachusetts, Texas, Ohio, California, and Maryland within the
U.S., and in England, the Netherlands, and Australia, under various leases that
expire between 2003 and 2013.
Optical Technologies
We own approximately 230,000 square feet of office, engineering,
laboratory, and production space, principally in Arizona, Wisconsin, and
California. We lease approximately 531,000 square feet of office, engineering,
laboratory, and production space, principally in California and Massachusetts
within the U.S., and in England, under various leases that expire between 2003
and 2019.
Corporate Headquarters
We own approximately 81,000 square feet of office space in Massachusetts
and lease approximately 3,000 square feet of office space in Massachusetts under
a lease that expires in 2004.
We believe that all of 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.
Item 3. Legal Proceedings
We are a party to a number of claims and lawsuits relating to our
business. Information regarding litigation is contained in Note 11 to our
Consolidated Financial Statements beginning on page F-1 of this report, and is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders, whether through
the solicitation of proxies or otherwise, during our 2002 fourth fiscal quarter.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Market Price of Common Stock
Our 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 2002 and 2001, as reported in the consolidated
transaction reporting system.
2002 2001
-------------------- ---------------------
High Low High Low
------ ------ ------ ------
First Quarter $24.37 $19.30 $26.32 $17.12
Second Quarter 20.60 15.60 28.57 20.97
Third Quarter 17.80 14.50 22.02 17.38
Fourth Quarter 20.52 15.19 23.86 15.98
In August and November 2001, the company spun off to shareholders its
Kadant and Viasys Healthcare subsidiaries. Prices in the above table for periods
prior to these spinoffs have not been adjusted to reflect the spinoffs.
Holders of Common Stock
As of January 24, 2003, the company had 11,502 holders of record of its
common stock. This does not include holdings in street or nominee names.
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.
Securities Authorized for Issuance Under Equity Compensation Plans
The information with respect to securities authorized for issuance under
equity compensation plans is listed under the caption "Equity Compensation Plan
Information" 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 report by reference.
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Item 6. Selected Financial Data
2002 (a) 2001 (b) 2000 (c) 1999 (d) 1998 (e)
-------- -------- -------- -------- --------
(In millions except per share amounts)
Statement of Operations Data
Revenues $2,086.4 $2,188.2 $2,280.5 $2,294.6 $1,880.9
Operating Income 155.5 34.2 266.0 182.1 191.3
Income from Continuing Operations Before Extraordinary
Item and Cumulative Effect of Change in Accounting
Principle 195.3 49.6 62.0 37.3 93.8
Income (Loss) Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle 310.7 (0.8) (23.7) (176.0) 181.5
Net Income (Loss) 309.7 (0.8) (36.1) (174.6) 181.9
Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in
Accounting Principle:
Basic 1.16 .27 .37 .24 .58
Diluted 1.12 .27 .36 .22 .55
Earnings (Loss) per Share:
Basic 1.84 - (.22) (1.10) 1.12
Diluted 1.73 - (.22) (1.12) 1.08
Balance Sheet Data
Working Capital $ 667.8 $ 823.2 $1,737.0 $1,291.6 $2,130.1
Total Assets 3,647.1 3,825.1 4,863.0 5,071.8 5,217.9
Long-term Obligations 451.3 727.5 1,528.5 1,566.0 1,786.4
Minority Interest - 6.9 24.7 348.4 378.9
Common Stock Subject to Redemption - - - 7.7 40.5
Shareholders' Equity 2,033.3 1,908.1 2,534.0 2,013.5 2,256.1
The company's fiscal year for 2002 and earlier ended on the Saturday
closest to December 31. For 2003 and thereafter, the company's fiscal year end
will be December 31. The consolidated financial statements for fiscal years 1998
through 2001 were audited by Arthur Andersen LLP, which has ceased operations. A
copy of the report previously issued by Arthur Andersen on the company's
financial statements as of December 29, 2001, and December 30, 2000, and for
each of the three years in the period ended December 29, 2001, is included
elsewhere in this document. Such report has not been reissued by Arthur
Andersen.
(a) Reflects a $61.3 million pretax charge for restructuring and other costs;
$111.4 million of pretax gains from the sale of shares of FLIR Systems,
Inc.; a net of tax gain of $115.4 million related to the company's
discontinued operations; the repurchase and redemption of $924.9 million
of the company's debt and equity securities; and the reclassification of
the company's $71.9 million principal amount 4 3/8% subordinated
convertible debentures from long-term obligations to current liabilities
as a result of the company's decision to redeem them in April 2003. Also
reflects the adoption of SFAS No. 142, under which amortization of
goodwill ceased.
(b) Reflects a $161.6 million pretax charge for restructuring and other costs;
$35.1 million of pretax gains from the sale of shares of FLIR Systems,
Inc.; a net of tax charge of $50.4 million related to the company's
discontinued operations; a $1.0 million net of tax charge reflecting the
cumulative effect of a change in accounting principle for the adoption of
SFAS No. 133; and the reclassification of $468.1 million of subordinated
convertible debentures from long-term obligations to current liabilities
as a result of the company's decision to redeem them in March 2002. Also
reflects the spinoff of the company's Kadant and Viasys Healthcare
subsidiaries, and the repurchase of $511.4 million of the company's debt
and equity securities.
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(c) Reflects $3.4 million of pretax restructuring and other income, net; a net
of tax charge of $100 million related to the company's discontinued
operations; the issuance of company common stock valued at $448.7 million
to acquire the minority interest of certain subsidiaries; and a $12.9
million net of tax charge reflecting the cumulative effect of a change in
accounting principle for the adoption of SAB No. 101.
(d) Reflects a $65.2 million pretax charge for restructuring and other costs,
a net of tax charge of $50 million related to the company's discontinued
operations, and the February 1999 acquisition of Spectra-Physics AB.
(e) Reflects a $32.5 million pretax charge for restructuring and other costs.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made throughout this Management's Discussion and Analysis of
Financial Condition and Results of Operations to footnotes included in Notes to
Consolidated Financial Statements, beginning on page F-11 of this report.
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 or spin off many
noncore businesses. In 2001, the company modified the plan and sold its
power-generation business. As a result of these actions, the company's
continuing operations solely include its instrument businesses. The results of
the businesses that have been spun off, sold, or placed for sale have been
presented as discontinued operations in the accompanying financial statements.
The company's continuing operations fall into three principal business segments:
Life and Laboratory Sciences, Measurement and Control, and Optical Technologies.
The company's discussion and analysis of its financial condition and
results of operations is based upon its financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
liabilities. On an on-going basis, the company evaluates its estimates,
including those related to bad debts, inventories, intangible assets, warranty
obligations, income taxes, contingencies and litigation, restructuring, and
discontinued operations. The company bases its estimates on historical
experience, current market and economic conditions, and other assumptions that
management believes are reasonable. The results of these estimates form the
basis for judgments about the carrying value of assets and liabilities where the
values are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
The company believes the following represent its critical accounting
policies and estimates used in the preparation of its financial statements:
(a) The company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to pay amounts
due. If the financial condition of the company's customers were to
deteriorate, reducing their ability to make payments, additional
allowances would be required.
(b) The company writes down its inventories for estimated obsolescence
for differences between the cost and estimated net realizable value
based on recent usage and expected demand. If ultimate usage or
demand varies significantly from expected usage or demand, additional
writedowns may be required.
(c) The company assesses the realizability of its notes receivable based
on judgments concerning the borrower's ability to make the required
payments. If the financial condition of the borrower were to
deteriorate, charges to reduce the carrying value of notes receivable
may be necessary.
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(d) The company periodically evaluates goodwill for impairment using
market comparables for similar businesses and forecasts of discounted
future cash flows. Should the fair value of the company's goodwill
decline because of reduced operating performance, market declines, or
other indicators of impairment, charges for impairment of goodwill
may be necessary.
(e) The company reviews other intangible assets for impairment when
indication of potential impairment exists, such as a significant
reduction in cash flows associated with the assets. Should future
cash flows decline significantly from estimated amounts, charges for
impairment of other intangible assets may be necessary.
(f) In instances where the company sells equipment with an obligation to
install it at a customer site, the company assesses the complexity of
the installation to determine the timing of revenue recognition. If
the nature of the company's products and the related installation
obligations changed so that installation were to become more
complicated and lengthy, the company may be required to defer
additional revenues upon shipment of its products until completion of
installation.
(g) At the time the company recognizes revenue it provides for the
estimated cost of product warranties based primarily on historical
experience. Should product failure rates or the actual cost of
correcting product failures vary from estimates, revisions to the
estimated warranty liability would be necessary.
(h) The company estimates the degree to which tax assets and loss
carryforwards will result in a benefit based on expected
profitability by tax jurisdiction, and provides a valuation allowance
for tax assets and loss carryforwards that it believes will more
likely than not go unused. Should the company's actual future taxable
income by tax jurisdiction vary from estimates, additional allowances
may be necessary.
(i) The company estimates losses on contingencies and litigation and
provides a reserve for these losses. Should the ultimate losses on
contingencies and litigation vary from estimates, adjustments to
those reserves may be required.
(j) The company records restructuring charges for asset impairment based
on estimated future cash flows associated with the equipment and for
the cost of vacating facilities based on expected sub-rental income.
Should actual cash flows associated with impaired equipment and
sub-rental income from vacated facilities vary from estimated
amounts, adjustments may be required.
(k) The company estimates the expected proceeds from the sale of its
discontinued businesses and, when necessary, records losses to reduce
the carrying value of these businesses to estimated realizable value.
Should the actual proceeds, which would include post-closing purchase
price adjustments, vary from estimates, actual results could differ
from expected amounts.
Results of Operations
The discussion of operating income and operating income margin throughout
this Management's Discussion and Analysis of Financial Condition and Results of
Operations includes references to amounts determined in accordance with U.S.
generally accepted accounting principles (GAAP), as well as amounts that exclude
restructuring costs, gains and losses on the sale of businesses, and certain
other items that are discussed by segment below and in more detail in Note 15.
The company believes that this presentation, which is substantially consistent
with how it measures its operating performance, provides information that
investors may find useful as the items, while recurring in the years presented,
vary significantly from period to period.
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2002 Compared With 2001
Continuing Operations
Sales in 2002 were $2.086 billion, a decrease of $101.9 million, or 5%,
from 2001. Excluding the effect of acquisitions, divestitures, and currency
translation, revenues decreased $101.3 million, or 5%. Currency translation had
a favorable effect on revenues as discussed below by segment, due to the
weakening of the U.S. dollar relative to currencies of countries in which the
company operates.
Operating income was $155.5 million in 2002, compared with $34.2 million
in 2001. Segment operating income increased to $205.8 million in 2002 from $85.2
million in 2001. (Segment operating income is operating income excluding costs
incurred at the company's corporate office.) Operating and segment operating
income in 2002 were reduced by additional charges associated with a
restructuring plans initiated during the fourth quarter of 2001, other
restructuring actions initiated in 2002, and certain other costs, net (Note 15).
Operating and segment operating income in 2001 were reduced by charges
associated with restructuring plans initiated during 2001 and certain other
charges, net. The restructuring and other items in both periods are discussed by
segment below and in more detail in Note 15. Excluding the restructuring and
other costs, which totaled $58.7 million in 2002 and $147.3 million in 2001,
segment operating income was $264.5 million in 2002 and $232.4 million in 2001.
The 2001 period included $40.2 million of goodwill amortization. Amortization of
goodwill ceased following the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," effective in
2002 (Note 1). Excluding goodwill amortization and restructuring and other
items, segment operating income totaled $272.7 million in 2001. Segment
operating income excluding goodwill amortization and restructuring and other
items decreased in 2002 due to lower revenues and the resulting reduced
profitability at a number of businesses, discussed below, offset in part by the
impact of cost-reduction and productivity initiatives.
In response to a continued downturn in semiconductor and other industrial
markets served by the company, and in an effort to further integrate business
units and reduce the number of real estate locations, the company continued
restructuring initiatives in 2002 at a number of business units. The
restructuring and related actions primarily consisted of headcount reductions,
writedowns of production equipment and abandonment of leases for
telecommunications products, and consolidation of facilities to streamline
operations and reduce costs. These actions resulted in annual cost reductions
beginning in late 2002 and continuing in early 2003 of approximately $43
million, including $7 million in the Life and Laboratory Sciences segment, $13
million in the Measurement and Control segment, and $23 million in the Optical
Technologies segment. The company expects to incur an additional $6 million of
restructuring costs in 2003 for charges associated with these actions that
cannot be recorded until incurred, such as relocation and moving costs. The
company believes that restructuring actions undertaken in 2002 will be
substantially completed by mid-2003. The company expects to identify additional
sites to consolidate in 2003 and will record charges in connection with any such
actions.
Life and Laboratory Sciences
Sales in the Life and Laboratory Sciences segment increased $25.9 million
to $1.140 billion in 2002. The favorable effects of currency translation
resulted in an increase in revenues of $21.9 million in 2002. Sales decreased
$0.5 million due to divestitures, net of acquisitions. Excluding the effect of
currency translation, divestitures, and acquisitions, revenues grew nominally,
increasing $4.5 million, or 0.4%. Increased demand for high-end technology mass
spectrometry equipment and histology and cytology products was offset in part by
weakened demand for spectroscopy instruments and sample-preparation products
that had mid-single digit percentage declines in sales, primarily due to lower
capital spending. The company believes that many pharmaceutical customers, for
example, are delaying purchases except for high-end equipment where recent
technological advances may provide a competitive advantage.
Operating income margin increased to 15.6% in 2002 from 9.5% in 2001.
(Operating income margin is segment operating income divided by segment
revenues.) The segment's operating income margin increased primarily due to the
discontinuation of goodwill amortization as a result of the adoption of SFAS No.
142 in 2002 and higher restructuring and other costs in 2001, compared with
2002. Excluding restructuring and other costs, net, of $18.3
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million in 2002 and $45.6 million in 2001, and goodwill amortization of $23.6
million in 2001, operating income margin was 17.2% in 2002 and 15.7% in 2001.
The increase in operating income margin resulted primarily from cost reduction
and productivity measures undertaken in 2001 and 2002 and, to a lesser extent,
revenue growth of higher-margin products.
In 2002, the segment recorded restructuring and other charges, net, of
$18.3 million, including $11.4 million of cash costs, primarily for severance,
abandoned facilities, and employee retention at businesses being consolidated,
and charges to cost of revenues of $0.7 million for the sale of inventory
revalued at the date of acquisition and the discontinuation of a product line.
In addition, the segment realized a net loss of $4.8 million on the sale of
assets and small business units, principally its Dynex automated diagnostics
product line, and wrote down $1.4 million of fixed assets at abandoned
facilities (Note 15). Restructuring and other costs, net, in 2001 included cash
costs of $27.3 million, primarily for severance and abandoned facilities; $8.3
million of asset writedowns; $6.9 million of charges to cost of revenues,
principally for discontinued product lines; a charge of $3.4 million for the
writeoff of in-process research and development at an acquired business; $0.7
million of noncash severance costs; and $1.0 million of gains on the sale of a
small business unit and a product line (Note 15).
Measurement and Control
Sales in the Measurement and Control segment decreased $61.9 million to
$614.4 million in 2002. Sales decreased $29.4 million due to divestitures, net
of acquisitions. The favorable effects of currency translation resulted in an
increase in revenues of $8.4 million in 2002. Excluding the effect of
divestitures, acquisitions, and currency translation, revenues decreased $40.9
million, or 7%. The decrease was due to a decline in revenues in each of the
segment's principal businesses, particularly the temperature control business,
where over half of the decrease occurred. The overall revenue decline was due to
economic conditions facing customers, particularly in the semiconductor, energy,
and steel industries. The decrease in revenues was offset in part by an increase
in sales of explosives-detection equipment in the fourth quarter of 2002
following a congressional mandate to begin screening all checked airline baggage
in the United States by the end of 2002. The company expects that a continued
downturn in markets served by the segment will unfavorably affect the segment's
revenue comparisons with corresponding prior-year periods in the near term. A
prolonged downturn could adversely affect the realizability of the segment's
assets, which may result in charges for impairment.
The principal divestitures by the segment included the July 2002 sale of
Thermo BLH and Thermo Nobel, which manufacture and sell strain-gauges, and were
placed for sale in 2001 (Note 2); the August 2001 sale of its Pharos Marine
unit, which manufactures and sells marine-navigation equipment; the April 2001
sale of the CAC and Mid South businesses, which provide the oil and gas industry
with wellhead safety and control products; and the July 2001 sale of its
ThermoMicroscopes unit, a manufacturer of scanning probe microscopes. The
principal acquisition by the segment included the July 2002 purchase of the
radiation-monitoring products business of Saint-Gobain Corporation (Note 2).
Operating income margin increased to 8.2% in 2002 from 2.5% in 2001,
primarily due to significant restructuring and other costs in 2001, and the
discontinuation of goodwill amortization as a result of the adoption of SFAS No.
142 in 2002. Operating income margin, excluding restructuring and other costs,
net, of $13.3 million in 2002 and $44.6 million in 2001, and goodwill
amortization of $12.1 million in 2001, decreased to 10.3% in 2002 from 10.9% in
2001. The decrease in operating income margin resulted primarily from the
decrease in revenues, offset in part by the effects of cost reduction and
productivity measures undertaken in 2001 and 2002.
In 2002, the segment recorded restructuring and other charges, net, of
$13.3 million, including $20.1 million of cash costs, principally for severance,
abandoned facilities, and employee retention. In addition, the segment recorded
$8.7 million of net gains, primarily from the sale of businesses, principally
its Thermo BLH and Thermo Nobel subsidiaries. In 2002, the segment recorded
charges to cost of revenues of $1.4 million for the sale of inventory revalued
at the date of acquisition and $0.5 million of asset writedowns (Note 15).
Restructuring and other costs, net,
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in 2001 included $20.7 million of cash costs, primarily for severance, abandoned
facilities, and other exit costs; $12.0 million, net, for the loss on sale of
businesses or writedowns of businesses subsequently sold; $8.2 million of
charges to cost of revenues, principally for discontinued product lines; $3.6
million of asset writedowns; $1.0 million for impairment of a note receivable;
and $0.2 million of other costs. These charges were offset in part by a gain of
$1.1 million on the sale of a building (Note 15).
Optical Technologies
Sales in the Optical Technologies segment decreased $66.7 million to
$342.2 million in 2002. The unfavorable effects of currency translation resulted
in a decrease in revenues of $1.6 million in 2002. Sales increased $0.6 million
due to the acquisition of a product line, net of divestitures. Excluding the
effect of currency translation, an acquisition, and divestitures, revenues
decreased $65.7 million, or 16%. The decrease was due to a severe slowdown in
the semiconductor and other industrial markets that has adversely affected all
of the segment's principal businesses. The semiconductor industry is highly
cyclical and is experiencing a downturn that began in 2001. The company expects
that the slowdowns in semiconductor and other industrial markets will continue
to result in unfavorable revenue comparisons with corresponding prior-year
periods in the near term. A prolonged downturn could adversely affect the
realizability of the segment's assets, which may result in charges for
impairment.
In the third quarter of 2002, following the company's acquisition of the
remaining minority interest in Spectra-Physics, the company conformed the Lasers
division's backlog policy to the prevailing practice at the company's other
businesses of including in backlog only product orders that are expected to ship
within six months. The Lasers division's historical practice had been to include
orders expected to ship within 12 months. This change resulted in a reduction of
backlog of $39.3 million. Excluding the effect of this change, the segment's
backlog decreased 38% during 2002, and totaled $71.6 million as of December 28,
2002.
Operating income margin was negative 6.5% in 2002, compared with
negative 9.1% in 2001. Excluding restructuring and other costs, net, of $27.1
million in 2002 and $57.1 million in 2001, and goodwill amortization of $4.5
million in 2001, operating income margin was 1.5% in 2002 and 5.9% in 2001. The
decrease in operating income margin was due to lower revenues at each of the
segment's principal businesses, particularly the lasers business
(Spectra-Physics), where the decline in revenues led to operating losses
although the business operated profitably in the fourth quarter of 2002,
excluding restructuring charges. The company initiated additional restructuring
actions in this business in 2002, following those announced in the fourth
quarter of 2001. These actions are discussed below and in Note 15.
In 2002, the segment recorded restructuring and other charges, net, of
$27.1 million, including $10.7 million of cash costs, principally for severance
and abandoned-equipment leases associated with suspended telecom initiatives.
The cash costs also included $0.7 million for the settlement of litigation (Note
11). In addition, this segment wrote off assets totaling $8.8 million, primarily
for abandoned telecommunication and other manufacturing equipment. The segment
also recorded a charge of $0.8 million resulting from the exchange of options to
purchase shares of Spectra-Physics for options to purchase shares of Thermo
Electron following the acquisition of the minority interest in this business in
February 2002 (Note 17). In 2002, the segment also recorded $7.0 million of
charges to cost of revenues, principally for discontinued product lines. The
charges described above were offset in part by a net gain of $0.2 million from
the sale of a small business unit and land (Note 15). Restructuring and other
costs, net, in 2001 included $24.0 million of asset writedowns, principally
fixed assets associated with telecommunication initiatives; $22.1 million of
cash costs for severance, lease obligations for abandoned equipment and
facilities, litigation loss, and other exit costs; and $11.0 million of charges
to cost of revenues for inventory writedowns (Note 15).
Other Income, Net
The company reported other income, net, of $132.5 million and $36.5
million in 2002 and 2001, respectively (Note 4). Other income, net, includes
interest income, interest expense, equity in earnings of unconsolidated
subsidiaries, gain on investments, net, and other items, net. Interest income
decreased to $47.9 million in 2002 from $68.5 million in 2001, primarily due to
lower invested cash balances following the repurchase and redemption of
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company securities, acquisitions, and, to a lesser extent, lower prevailing
interest rates. The company expects that the lower market interest rates
existing in 2003 will continue to adversely affect the yield it earns as
maturing investments originally invested at higher rates are reinvested at
current lower market rates. Following redemptions and repurchases of convertible
obligations in 2002 (Note 10) and repurchases of the company's common stock,
lower invested cash will also contribute to an expected reduction in interest
income. Interest expense decreased to $40.9 million in 2002 from $71.8 million
in 2001 as a result of the redemption, maturity, and repurchase of debentures,
as well as entering into interest-rate swap arrangements, offset in part by
interest on borrowings under securities-lending arrangements (Note 10).
During 2002 and 2001, the company had gains on investments, net, of
$123.1 million and $35.6 million, respectively. The gains included $111.4
million and $35.1 million in 2002 and 2001, respectively, from the sale of
shares of FLIR Systems, Inc. The company obtained an equity interest in FLIR as
part of the acquisition of Spectra-Physics AB in 1999. Of the total gain from
the sale of FLIR shares, $39.5 million and $14.2 million in 2002 and 2001,
respectively, represent a recovery of amounts written down in prior years.
Following a reduction in the company's percentage ownership of FLIR to less than
20%, the company no longer reports its pro-rata share of FLIR's earnings but
instead accounts for its remaining investment as an available-for-sale security
(Note 4). Gains on investments in 2001 were reduced by a charge of $2.8 million
to write down two available-for-sale securities due to impairment that the
company deemed other than temporary. The company recorded income from equity in
earnings of unconsolidated subsidiaries of $2.5 million in 2002 and $4.7 million
in 2001, primarily related to the investment in FLIR through the first quarter
of 2002. In 2001, other income, net, included $0.5 million of other expense,
principally currency losses.
Provision for Income Taxes
The company's effective tax rate was 32.3% and 38.1% in 2002 and 2001,
respectively. Excluding restructuring and other costs, net, and gains from the
sale of FLIR shares, the effective tax rate was 31.0% and 38.1% in 2002 and
2001, respectively. The effective tax rate decreased in 2002, primarily due to
the absence of nondeductible goodwill amortization following the adoption of
SFAS No. 142 and, to a lesser extent, a reorganization of the company's
subsidiaries in several European countries that resulted in a more tax-efficient
corporate structure. The effective tax rate exceeded the statutory federal
income tax rate in 2001 due to the impact of state income taxes and
nondeductible expenses, which included goodwill amortization. Excluding
restructuring and other costs, net, and goodwill amortization, the effective tax
rate was 33.1% in 2001.
Minority Interest Income
Minority interest income of $0.3 million and $5.8 million in 2002 and
2001, respectively, represents minority shareholders' allocable share of losses
at Spectra-Physics through the date on which the company acquired the minority
interest in this subsidiary in February 2002 (Note 17).
Contingent Liabilities
At year-end 2002, the company was contingently liable with respect to
certain lawsuits. An unfavorable outcome in one or more of the matters described
in Note 11 could materially affect the company's financial position as well as
its results of operations and cash flows for a particular quarterly or annual
period.
Income from Continuing Operations
Income from continuing operations before extraordinary item and
cumulative effect of change in accounting principle was $195.3 million in 2002,
compared with $49.6 million in 2001. Results in both periods were affected by
restructuring, gains on the sale of FLIR shares, and other items, discussed
above. Excluding restructuring, gains on the sale of shares of FLIR, and other
items in both periods, income from continuing operations before extraordinary
item and cumulative effect of change in accounting principle increased to $164.4
million in 2002 from $122.4 million in 2001 due to the absence of goodwill
amortization in 2002, offset in part by the reasons discussed above.
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Extraordinary Item
The company repurchased and redeemed debentures during 2002 and 2001,
resulting in an extraordinary charge of $1.0 million, net of a tax benefit of
$0.5 million, in 2002, and an extraordinary gain of $1.1 million, net of a tax
provision of $0.6 million, in 2001 (Note 10).
Cumulative Effect of Change in Accounting Principle
The company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, in the first quarter of 2001, and recorded
an after-tax charge of $1.0 million representing the cumulative effect of the
change in accounting principle.
Recent Accounting Pronouncements
Several recent accounting pronouncements may affect the company's
financial statements in the future. These rule changes are summarized in Note 1.
Discontinued Operations
During 2002, primarily as a result of new tax regulations concerning
deductible losses from divested businesses, the company revised its estimate of
the tax consequences of business disposals in discontinued operations and
recorded a tax benefit of $46.6 million. In addition, in 2002 the company sold
its Trophy Radiologie business for $51 million in cash and principally as a
result of this transaction recorded an after-tax gain of $17.4 million. Also,
the company sold the last remaining component of its former power-generation
business in 2002 and realized a gain from the disposition totaling $13.0
million, primarily for previously unrecognized tax benefits that were realized
upon the sale.
In February 2001, the company sold its interest in Thermo Cardiosystems
Inc. to Thoratec Corporation in exchange for 19.3 million shares of Thoratec
common stock. Certain restrictions, which lapsed in August 2002, limited the
timing of the company's ability to sell these shares. The company recorded an
after-tax charge of $66.0 million in the first quarter of 2001 for a decline in
market value of Thoratec common stock as a loss on disposal of discontinued
operations. Following a sale of shares in February 2002 for net proceeds of $104
million and an after-tax gain of $38.4 million, the company owned less than 20%
of Thoratec's outstanding shares and began accounting for its investment as an
available-for-sale security in continuing operations in the first quarter of
2002, with unrealized gains or losses recorded as part of accumulated other
comprehensive items in the accompanying 2002 balance sheet (Note 17).
In 2001, the company sold a substantial portion of its discontinued
power-generation business for net proceeds of $249 million and realized an
after-tax gain of $15.6 million on the disposition.
The company is not currently aware of any known trends, events, or other
uncertainties involving discontinued operations that it expects will cause the
ultimate loss on disposal of discontinued operations to differ materially from
the amounts recorded to date. Any difference from the amounts recorded would be
reported as an adjustment to the ultimate loss on disposal of discontinued
operations.
2001 Compared With 2000
Continuing Operations
Sales in 2001 were $2.188 billion, a decrease of $92.3 million from 2000.
Excluding the effect of acquisitions, divestitures, and currency translation,
revenues increased $113.5 million, or 5%. Currency translation had an
unfavorable effect on revenues as discussed below by segment, due to the
strengthening of the U.S. dollar relative to currencies of countries in which
the company operates.
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Operating income was $34.2 million in 2001, compared with $266.0 million
in 2000. Segment operating income decreased to $85.2 million in 2001 from $319.8
million in 2000. Operating and segment operating income in 2001 were affected by
restructuring and other costs. Operating and segment operating income in 2000
were affected by gains from the sale of businesses, offset in part by
restructuring and other costs as well as a $1.7 million operating loss in the
third quarter at a business that was sold. The restructuring and other items in
both periods are discussed by segment below and in more detail in Note 15.
Excluding the restructuring and other items, which totaled $147.3 million of
expense in 2001 and $67.3 million of income in 2000, segment operating income
was $232.4 million in 2001 and $252.5 million in 2000. Segment operating income,
excluding restructuring and other items, decreased due to a reduction in segment
operating income of $10.9 million from businesses divested. The company also
recorded $2.3 million of incremental amortization expense in 2001, which
resulted primarily from the purchase of the minority interests of formerly
public subsidiaries in 2000, offset in part by lower amortization expense
following a number of divestitures. In addition, certain businesses discussed
below had lower profitability in 2001.
The company undertook restructuring actions in 2001 to reduce costs in
businesses affected by a severe slowdown in the telecommunications and
semiconductor industries as well as other market sectors hurt by a slowing
economy, including the U.S. steel and cement industries. The restructuring
actions undertaken in 2001 were substantially completed by 2002. In addition to
the actions to reduce costs, the company recorded an impairment charge for
equipment used in telecommunication manufacturing at Spectra-Physics. The
company also recorded provisions for inventories related to the discontinuation
of certain mature or unprofitable product lines and inventories made redundant
by combining businesses and for excess telecommunication inventories at
Spectra-Physics. These actions resulted in annual cost reductions of
approximately $63 million with approximately 40% beginning in the fourth quarter
of 2001 and the balance by the third quarter of 2002, including $20 million in
the Life and Laboratory Sciences segment, $22 million in the Measurement and
Control segment, $18 million in the Optical Technologies segment, and $3 million
at the company's corporate office.
Life and Laboratory Sciences
Sales in the Life and Laboratory Sciences segment increased $67.7 million
to $1.114 billion in 2001. Sales increased $17.9 million due to acquisitions.
The unfavorable effects of currency translation resulted in a decrease in
revenues of $28.1 million in 2001. Excluding the effect of acquisitions and
currency translation, revenues increased $77.9 million, or 7%. Approximately 40%
of the increase was due to higher sales of mass spectrometry products used in
proteomics and drug discovery research. Of the remaining increase, approximately
two thirds was from increased sales of biosciences equipment, including
sample-preparation equipment and microplate and liquid-handling products due to
strong demand from the drug discovery market and expanded distribution channels.
In addition, the segment reported higher revenues from clinical diagnostic
products, including rapid diagnostic tests, as well as increased sales of
spectroscopy instruments due to new product introductions.
Operating income margin decreased to 9.5% in 2001 from 11.4% in 2000. The
segment's operating income margin in both periods was affected by restructuring
and other charges, discussed below. Excluding restructuring and other costs,
net, of $45.6 million in 2001 and $24.7 million in 2000, operating income margin
was 13.6% in 2001 and 13.8% in 2000. The decrease in operating income margin was
primarily due to an increase in goodwill amortization as a result of the
purchase of the minority interests of formerly public subsidiaries. Excluding
the additional amortization expense and the restructuring and other charges,
operating income margin was 13.8% in 2001. Lower profitability due to research
and development expenditures on proteomics initiatives was offset in part by the
effect of higher revenues, discussed above.
Restructuring and other costs, net, in 2001 included cash costs of $27.3
million, primarily for severance and abandoned facilities; $8.3 million of asset
writedowns; $6.9 million of charges to cost of revenues, principally for
discontinued product lines; a charge of $3.4 million for the writeoff of
in-process research and development at an acquired business; $0.7 million of
noncash severance costs; and $1.0 million of gains on the sale of a small
business unit and a product line (Note 15). Restructuring costs in 2000
represent $13.7 million of charges to cost of revenues, principally for
discontinued product lines; $7.0 million of cash costs, primarily for severance
and abandoned facilities; and $4.0 million of asset writedowns (Note 15).
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Measurement and Control
Sales in the Measurement and Control segment decreased $204.0 million to
$676.3 million in 2001. Sales decreased $176.7 million due to divestitures, net
of acquisitions. The unfavorable effects of currency translation resulted in a
decrease in revenues of $11.4 million in 2001. Excluding the effect of
divestitures, acquisitions, and currency translation, revenues decreased $15.9
million, or 2%. The decrease in revenues was primarily due to an 11% decrease in
sales of temperature-control products due to a severe market downturn in the
semiconductor industry, and $12.7 million of lower sales of process instruments.
The lower sales of process instruments primarily included weighing and
inspection equipment due to competitive pressures, and equipment sold to the
U.S. steel and cement industries due to a downturn in those markets. The
decrease in revenue was partially offset by an $8.8 million increase in sales of
environmental-monitoring equipment due in part to increased sales of chemical
and radiation monitors as well as demand from the construction industry and
upgrades of power plants. In April 2001, the segment sold businesses that
contributed $4.4 million of the segment's internal revenue growth in 2001. A
downturn in some markets served by the segment resulted in a decline in revenues
in the third and fourth quarters of 2001 compared with the same quarters of
2000.
In 2001, the segment's principal divestitures included Pharos Marine,
ThermoMicroscopes, and the CAC and Mid South businesses. In 2000, the segment's
divestitures primarily included Spectra Precision, Nicolet Imaging Systems, and
Sierra Research and Technology, Inc. (Note 2).
Operating income margin decreased to 2.5% in 2001 from 20.6% in 2000,
primarily due to restructuring and other charges, net, in 2001 and other income,
net, in 2000. Operating income margin, excluding restructuring and other costs,
net, of $44.6 million in 2001 and other income, net, of $98.1 million in 2000,
decreased to 9.1% in 2001 from 9.5% in 2000. The decrease in operating income
margin resulted primarily from lower profitability at the business units
discussed above that had declining revenues, offset in part by the higher
revenues from sales of environmental-monitoring equipment discussed above
together with cost reduction measures initiated in 2000 and 2001.
Restructuring and other costs, net, in 2001 included $20.7 million of
cash costs, primarily for severance, abandoned facilities, and other exit costs;
$12.0 million, net, for the loss on sale of businesses or writedowns of
businesses subsequently sold; $8.2 million of charges to cost of revenues,
principally for discontinued product lines; $3.6 million of asset writedowns;
$1.0 million for impairment of a note receivable; and $0.2 million of other
costs. These charges were offset in part by a gain of $1.1 million on the sale
of a building (Note 15). The businesses for which the segment recorded a loss on
or prior to sale were ThermoMicroscopes and Pharos Marine. In 2000,
restructuring and other income, net, totaled $98.1 million and included gains on
the sale of businesses, net, of $126.7 million, and the related operating loss
of $1.7 million of one of the divested businesses in the third quarter of 2000
prior to its sale; $18.7 million of 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; $6.1 million of cash costs,
primarily for severance and facility costs; charges to cost of revenues of $2.7
million, primarily for discontinued product lines; and a gain of $0.6 million
from the termination of a lease (Note 15).
Optical Technologies
Sales in the Optical Technologies segment increased $45.0 million to
$408.9 million in 2001. Sales decreased $0.4 million due to a divestiture, net
of a small acquisition. The unfavorable effects of currency translation resulted
in a decrease in revenues of $7.0 million in 2001. Excluding the effect of a
divestiture, an acquisition, and currency translation, revenues increased $52.4
million, or 14%. The increase in revenues was due in part to $37.5 million of
increased demand for semiconductor-based lasers used in industrial, research and
development, and life sciences applications. The balance of the increase was due
to higher sales in the first half of 2001 of molecular beam epitaxy systems and
components to the semiconductor industry and, to a lesser extent, increased
sales of photonics products including gratings and other optical components used
in systems for lithography and telecommunication devices. Poor economic
conditions in the telecommunications markets resulted in a decline in segment
revenues in the third and fourth quarters of 2001 compared with the same
quarters of 2000.
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Operating income margin decreased to negative 9.1% in 2001 from 5.1% in
2000. Excluding restructuring and other costs of $57.1 million in 2001 and $6.0
million in 2000, operating income margin was 4.8% in 2001 and 6.8% in 2000. The
decrease in operating income margin excluding restructuring and other costs was
primarily due to $2.8 million of operating losses at Spectra-Physics from its
telecom product introductions and associated startup costs, compared with
profitable operations in 2000. The decrease in operating income margin was also
due to $0.9 million of higher goodwill amortization in 2001 following the
purchase of the minority interests of formerly public subsidiaries in 2000.
Restructuring and other costs, net, in 2001 included $24.0 million of
asset writedowns, principally fixed assets associated with telecommunication
initiatives; $22.1 million of cash costs for severance, lease obligations for
abandoned equipment and facilities, litigation loss, and other exit costs; and
$11.0 million of charges to cost of revenues for inventory writedowns (Note 15).
Restructuring and other costs in 2000 represent $2.9 million of charges to cost
of revenues principally for discontinued product lines, a $1.5 million writeoff
of in-process research and development at an acquired business, $1.1 million of
cash costs, and $0.5 million of asset writedowns, primarily goodwill on a
business held for sale (Note 15).
Other Income (Expense), Net
The company reported other income, net, of $36.5 million in 2001 and
other expense, net, of $81.2 million in 2000 (Note 4). Interest income increased
to $68.5 million in 2001 from $40.2 million in 2000, primarily due to proceeds
from the sale of businesses, including discontinued operations, offset in part
by cash used in 2000 and 2001 for the purchase of the minority interests of
formerly public subsidiaries and in 2001 for repurchases of the company's debt
and equity securities. Interest expense decreased to $71.8 million in 2001 from
$83.1 million in 2000, as a result of the maturity and repurchase of debentures.
The company recorded income from equity in earnings of unconsolidated
subsidiaries of $4.7 million in 2001 and incurred a net equity loss of $47.3
million in 2000, primarily related to its investment in FLIR, which undertook
significant restructuring actions in 2000. The company had gains on investments,
net, of $35.6 million in 2001 and $6.8 million in 2000. The gain in 2001
includes $35.1 million from the sale of shares of FLIR. Of the total gain from
the sale of FLIR, $14.2 million represents a recovery of previous writedowns of
FLIR. The gain in 2001 was reduced by a charge of $2.8 million to write down two
available-for-sale securities due to impairment that the company deemed other
than temporary. In 2001, other income, net, includes $0.5 million of other
expense, principally currency losses. In 2000, other expense, net, also includes
$2.3 million of net currency gains, primarily resulting from hedging activities
at Spectra-Physics, which elected early adoption of SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities."
Provision for Income Taxes
The company's effective tax rate was 38.1% and 60.7% in 2001 and 2000,
respectively. Excluding the tax effect of restructuring and other costs or
income and gains from the sale of shares of FLIR, the effective tax rate was
38.1% and 39.4% in 2001 and 2000, respectively. The effective tax rate exceeded
the statutory federal income tax rate in both periods due to the impact of state
income taxes and nondeductible expenses, including amortization of goodwill.
Minority Interest Income (Expense)
The company recorded minority interest income of $5.8 million in 2001 and
minority interest expense of $10.6 million in 2000, representing minority
shareholders' allocable share of subsidiary losses or earnings. Minority
interest expense decreased due to the purchase in 2000 of the minority interest
in all of the company's formerly public subsidiaries in continuing operations
except Spectra-Physics (Note 17). In 2001, Spectra-Physics incurred a loss and
minority interest income represents the minority shareholders' share of the
loss.
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Income from Continuing Operations
Income from continuing operations before extraordinary item and
cumulative effect of change in accounting principle was $49.6 million in 2001,
compared with $62.0 million in 2000. Results in both periods were affected by
restructuring, gains on the sale of shares of FLIR, and other items, discussed
above. Excluding the restructuring, gains on the sale of shares of FLIR, and
other items in both periods, income from continuing operations before
extraordinary item and cumulative effect of change in accounting principle
increased to $122.4 million in 2001 from $100.0 million in 2000 due to the
reasons discussed above.
Extraordinary Item
The company repurchased debentures during 2001 and 2000, resulting in
extraordinary gains of $1.1 million, net of taxes of $0.6 million, in 2001, and
$0.5 million, net of taxes of $0.3 million, in 2000 (Note 10).
Cumulative Effect of Change in Accounting Principle
The company adopted SFAS No. 133, as amended, in the first quarter of
2001 and recorded a charge representing the cumulative effect of the change in
accounting principle of $1.0 million, net of an income tax benefit of $0.7
million (Note 1). In addition, in accordance with the requirements of SEC Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements,"
the company adopted the pronouncement as of January 2, 2000, and recorded a
charge in the first quarter of 2000 representing the cumulative effect of the
change in accounting principle of $12.9 million, net of an income tax benefit of
$8.5 million and minority interest of $0.5 million (Note 16).
Discontinued Operations
The company recorded a provision of $66.0 million, net of taxes, in the
first quarter of 2001 for a decline in market value of Thoratec common stock as
a loss on disposal of discontinued operations. The Thoratec shares were obtained
in February 2001 upon the sale of the company's interest in Thermo
Cardiosystems.
In June 2001, the company sold a substantial portion of its discontinued
power-generation business for net proceeds of $249 million and realized an
after-tax gain of $15.6 million on the disposition.
The company recorded a provision of $100 million, net of taxes, in 2000
as a revision to the estimate of loss on disposal of discontinued operations
recorded in 1999. 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.
Liquidity and Capital Resources
Consolidated working capital was $667.8 million at December 28, 2002,
compared with $823.2 million at December 29, 2001. Included in working capital
were cash, cash equivalents, and short-term available-for-sale investments of
$875.5 million at December 28, 2002, compared with $1.042 billion at December
29, 2001. In addition, the company had $9.4 million of long-term
available-for-sale investments at December 29, 2001.
2002
Cash provided by operating activities was $102.9 million during 2002,
including $112.4 million provided by continuing operations. Payments for
restructuring actions of the company's continuing operations, principally
severance, lease costs, and other expenses of real estate consolidation, used
cash of $44.2 million, net of taxes, in 2002. Aside from cash used for
restructuring actions, a decrease in other current liabilities used cash of
$71.6 million, including $44.8 million of income tax payments and $10.8 million
of accrued interest, principally due to the debt redemption discussed in Note
10. The income tax payments include approximately $39.0 million related to gains
on investments. The use of cash of $9.5 million from discontinued operations was
principally due to the payment of liabilities, primarily for the settlement of
litigation, including a patent-infringement matter (Note 11), offset in part by
cash from tax benefits associated with discontinued operations.
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In connection with restructuring actions undertaken by continuing
operations, the company had accrued $41.6 million for restructuring costs at
December 28, 2002. The company expects to pay $22.2 million of this amount for
severance, employee retention, and other costs primarily through 2003. The
balance of $19.4 million will be paid for lease obligations over the remaining
terms of the leases, with approximately 71% to be paid through 2003 and the
remainder through 2012. In addition, at December 28, 2002, the company had
accrued $8.8 million for acquisition expenses. Accrued acquisition expenses
included $1.8 million of severance and relocation obligations, which the company
expects to pay primarily through the third quarter of 2003. The balance
primarily represents abandoned-facility payments that will be paid over the
remaining terms of the leases through 2014.
During 2002, the primary investing activities of the company's continuing
operations, excluding available-for-sale investment activities, included the
sale of other investments, acquisitions and divestitures, the collection of
notes receivable, the purchase of shares of a majority-owned subsidiary, and the
purchase of property, plant, and equipment. The company's continuing operations
received proceeds of $65.5 million from the sale of other investments,
principally shares of FLIR (Note 4), and proceeds of $23.6 million from the sale
of businesses, net of cash divested (Note 2). In addition, the company's
continuing operations expended $78.7 million for acquisitions (Note 2), $23.2
million to purchase the remaining minority-owned shares of its Spectra-Physics
subsidiary (Note 17), and $40.2 million for purchases of property, plant, and
equipment, net of dispositions. The company's continuing operations collected
$76.4 million from notes receivable, which included the repayment of Viasys
Healthcare's $33.4 million principal amount note in May 2002, the August 2002
repayment of a $25.0 million principal amount note receivable related to the
sale of a business in 2000, and partial repayment from Trimble Navigation
Limited in March 2002 (Note 2). During 2002, investing activities of the
company's discontinued operations provided $151.0 million of cash, primarily
representing proceeds of $104 million from the sale of Thoratec common stock
(Note 17) and the sale of Trophy Radiologie.
The company's financing activities used $593.0 million of cash during
2002, including $592.7 million for continuing operations. During 2002, the
company's continuing operations expended $590.7 million to redeem certain
convertible debentures. The company increased short-term notes payable by $311.1
million to partially fund debt redemptions (Note 10). The company's continuing
operations received net proceeds of $25.3 million from the exercise of employee
stock options. During 2002, the company expended $334.2 million to repurchase
its debt and equity securities, of which $285.6 million was expended to
repurchase 15.4 million shares of the company's common stock. As of December 28,
2002, the company had approximately $62 million remaining under Board of
Directors authorizations to repurchase its own securities. In February 2003, the
company's Board of Directors authorized the repurchase of an additional $100
million tranche of its own debt and equity securities through February 26, 2004.
In December 2002, the company entered into arrangements under which the company
may borrow up to $250 million for working capital needs and possible
acquisitions (Note 10).
2001
Cash provided by operating activities was $188.4 million in 2001,
including $184.4 million from continuing operations. Accounts receivable used
$19.0 million of cash, principally as a result of strong fourth quarter revenue
growth in 2001 over the fourth quarter of 2000 at the company's Life and
Laboratory Sciences segment. Accounts payable decreased $19.1 million primarily
due to a lower volume of purchasing activities resulting from slowdowns in
several businesses. Other current liabilities increased by $50.5 million,
including $39.7 million of restructuring reserves and $10.2 million of accrued
interest, due to the timing of payments.
During 2001, the company's investing activities expended $73.2 million,
net of dispositions, for purchases of property, plant, and equipment; $69.5
million for the purchase of shares of a majority-owned subsidiary; and $14.1
million, net of cash acquired, for acquisitions. In addition, the company
recorded proceeds from the sale of businesses, net of cash divested, of $46.8
million, and $43.3 million for the sale of other investments, principally shares
of FLIR.
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The company's financing activities used $696.3 million of cash during
2001, including $503.0 million for continuing operations. The company's
continuing operations expended $43.1 million for the repayment of long-term
obligations and received net proceeds of $69.9 million from the exercise of
employee stock options. In addition, the company expended $511.4 million to
repurchase its debt and equity securities in 2001. During 2001, the company's
discontinued operations used $193.3 million of cash, including cash at the
company's Kadant subsidiary, which was spun off in August 2001, and for the
repayment of debt.
2000
Cash provided by operating activities was $199.9 million in 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 at certain of the
company's business units. Of the total increase in inventories, $14.5 million
resulted from the adoption of SAB No. 101. Accounts receivable used $27.4
million of cash due to increased revenues. The increase in receivables was
reduced by $21.6 million due to the adoption of SAB No. 101. Other current
liabilities increased by $48.0 million, including $15.5 million of restructuring
reserves and $29.1 million of accrued income taxes.
During 2000, the company's investing activities expended $307.2 million
to acquire the minority interest of certain majority-owned subsidiaries; $74.0
million, net of dispositions, for purchases of property, plant, and equipment;
and $15.8 million, net of cash acquired, for acquisitions. In addition, the
company recorded proceeds from the sale of businesses, net of cash divested, of
$253.6 million. During 2000, investing activities of the company's discontinued
operations provided $394.6 million, primarily representing proceeds from the
sale of businesses.
The company's financing activities used $137.6 million of cash during
2000, including $155.5 million for continuing operations. The company's
continuing operations expended $161.2 million for the repayment of long-term
obligations, $29.2 million to repurchase its debt and equity securities, and
$14.6 million to purchase debentures of certain of the company's majority-owned
subsidiaries.
Contractual Obligations and Other Commercial Commitments
The table below summarizes, by period due or expiration of commitment,
the company's contractual obligations and other commercial commitments as of
December 28, 2002, which are principally for its continuing operations.
Payments Due by Period or Expiration of Commitment
-------------------------------------------------------------------------------
Less than After
1 Year 1-3 Years 4-5 Years 5 Years Total
--------- --------- --------- -------- --------
(In thousands)
Contractual Obligations and Other
Commercial Commitments:
Long-term obligations $117,144 $228,366 $ 78,471 $144,504 $568,485
Operating leases 40,312 89,356 20,017 83,072 232,757
-------- -------- -------- -------- --------
Total contractual obligations 157,456 317,722 98,488 227,576 801,242
-------- -------- -------- -------- --------
Other Commitments:
Standby letters of credit 40,549 3,676 161 169 44,555
Guarantees 25,166 2,023 8 4 27,201
-------- -------- -------- -------- --------
Total other commitments 65,715 5,699 169 173 71,756
-------- -------- -------- -------- --------
$223,171 $323,421 $ 98,657 $227,749 $872,998
======== ======== ======== ======== ========
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The company does not use special purpose entities or other
off-balance-sheet financing techniques except for operating leases and other
commitments disclosed in the previous table.
The company has no material commitments for purchases of property, plant,
and equipment and expects that for 2003, such expenditures will approximate $55
to $60 million.
The company believes that its existing resources, including cash and
investments, future cash flow from operations, and available borrowings under
credit facilities, are sufficient to meet the working capital requirements of
its existing businesses for the foreseeable future, including at least the next
24 months.
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, our actual results and could cause our actual results in 2003 and beyond
to differ materially from those expressed in any forward-looking statements made
by us.
We must develop new products, adapt to rapid and significant
technological change, and respond to introductions of new products in order to
remain competitive. Our growth strategy includes significant investment in and
expenditures for product development, including in the area of proteomics. We
sell our products in several industries that are characterized by rapid and
significant technological changes, frequent new product and service
introductions, and enhancements and evolving industry standards. Without the
timely introduction of new products, services, and enhancements, our products
and services will likely become technologically obsolete over time, in which
case our revenue and operating results would suffer.
Our customers use many of our products to develop, test, and manufacture
their own products. As a result, we must anticipate industry trends and develop
products in advance of the commercialization of our customers' products. If we
fail to adequately predict our customers' needs and future activities, we may
invest heavily in research and development of products and services that do not
lead to significant revenue.
Many of our existing products and those under development are
technologically innovative and require significant planning, design,
development, and testing at the technological, product, and
manufacturing-process levels. These activities require us to make significant
investments.
Products in our markets undergo rapid and significant technological
change because of quickly changing industry standards and the introduction of
new products and technologies that make existing products and technologies
uncompetitive or obsolete. Our competitors may adapt more quickly to new
technologies and changes in customers' requirements than we can. The products
that we are currently developing, or those we will develop in the future, may
not be technologically feasible or accepted by the marketplace, and our products
or technologies could become uncompetitive or obsolete.
We sell our products and services to a number of companies that operate
in cyclical industries, which would adversely affect our results of operations
when those industries experience a downturn. The growth and profitability of
some of our businesses depend in part on sales to industries that are subject to
cyclical downturns and are experiencing slowing trends. For example, our Optical
Technologies segment depends in part on sales to the semiconductor industry and
our Measurement and Control segment depends in part on sales to the steel and
cement industries. A continued slowdown in these industries would adversely
affect sales by these segments, which in turn would adversely affect our
revenues and results of operations.
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Our business is adversely impacted by the continuing general worldwide
economic slowdown and related uncertainties affecting markets in which we
operate. Continuing adverse economic conditions worldwide could adversely impact
our business in 2003 and beyond, resulting in:
- reduced demand for some of our products;
- increased rate of order cancellations or delays;
- increased risk of excess and obsolete inventories;
- increased pressure on the prices for our products and services; and
- greater difficulty in collecting accounts receivable.
For example, continued softness in the laboratory equipment, industrial
manufacturing, and semiconductor markets could adversely affect our future
operating results.
Changes in governmental regulations may reduce demand for our products or
increase our expenses. We compete in many markets in which we and our customers
must comply with federal, state, local, and international regulations, such as
environmental, health and safety, and food and drug regulations. We develop,
configure, and market our products to meet customer needs created by those
regulations. Any significant change in regulations could reduce demand for our
products. For example, many of our instruments are marketed to the
pharmaceutical industry for use in discovering and developing drugs. Changes in
the U.S. Food and Drug Administration's regulation of the drug discovery and
development process could have an adverse effect on the demand for these
products.
Demand for most of our products depends on capital spending policies of
our customers and on government funding policies. Our customers include
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 product and economic cycles, have a significant effect on the capital
spending policies of these entities. These policies in turn can have a
significant effect on the demand for our products.
Our inability to protect our intellectual property could have a material
adverse effect on our business. In addition, third parties may claim that we
infringe their intellectual property, and we could suffer significant litigation
or licensing expense as a result. We place considerable emphasis on obtaining
patent and trade secret protection for significant new technologies, products,
and processes because of the length of time and expense associated with bringing
new products through the development process and into the marketplace. Our
success depends in part on our ability to develop patentable products and obtain
and enforce patent protection for our products both in the United States and in
other countries. We own numerous U.S. and foreign patents, and we intend to file
additional applications, as appropriate, for patents covering our products.
Patents may not be issued for any pending or future patent applications owned by
or licensed to us, and the claims allowed under any issued patents may not be
sufficiently broad to protect our technology. Any issued patents owned by or
licensed to us may be challenged, invalidated, or circumvented, and the rights
under these patents may not provide us with competitive advantages. In addition,
competitors may design around our technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture increased
market position. We could incur substantial costs to defend ourselves in suits
brought against us or in suits in which we may assert our patent rights against
others. An unfavorable outcome of any such litigation could materially adversely
affect our business and results of operations.
We also rely on trade secrets and proprietary know-how which we seek to
protect our products, in part, by confidentiality agreements with our
collaborators, employees, and consultants. These agreements may be breached and
we may not have adequate remedies for any breach. In addition, our trade secrets
may otherwise become known or be independently developed by our competitors.
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Third parties may assert claims against us to the effect that we are
infringing on their intellectual property rights. We could incur substantial
costs and diversion of management resources in defending these claims, which
could have a material adverse effect on our business, financial condition, and
results of operations. In addition, parties making these claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief, which could effectively block our ability to make, use, sell,
distribute, or market our products and services in the United States or abroad.
In the event that a claim relating to intellectual property is asserted against
us, or third parties not affiliated with us hold pending or issued patents that
relate to our products or technology, we may seek licenses to such intellectual
property or challenge those patents. However, we may be unable to obtain these
licenses on commercially reasonable terms, if at all, and our challenge of the
patents may be unsuccessful. Our failure to obtain the necessary licenses or
other rights could prevent the sale, manufacture, or distribution of our
products and, therefore, could have a material adverse effect on our business,
financial condition, and results of operations.
We have retained contingent liabilities from businesses that we have
sold. From 1997 through 2002, we divested over 60 businesses with aggregate
annual revenues in excess of $2 billion. As part of these transactions, we
retained responsibility for some of the contingent liabilities related to these
businesses, such as lawsuits, product liability claims, and potential claims by
buyers that representations and warranties we made about the businesses were
inaccurate. The resolution of these contingencies has not had a material adverse
effect on our results of operations or financial condition; however, we can not
be certain that this favorable pattern will continue.
We face a number of challenges in integrating and consolidating our
businesses. We have historically operated our businesses largely as autonomous,
unaffiliated operations. For the past few years, we have been consolidating our
operations and managing them in a more coordinated manner. The following factors
may make it difficult to successfully complete the integration and consolidation
of our operations:
- Our success in integrating our businesses depends on our ability to
coordinate or consolidate geographically separate organizations and
integrate personnel with different business backgrounds and corporate
cultures.
- Our ability to combine our businesses requires 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 and consolidation process could be disruptive to our
businesses.
Moreover, we may not be able to realize all of the cost savings and other
benefits that we expect to result from the integration and consolidation
process.
Our results could be impacted if we are unable to realize potential
future savings from new sourcing initiatives. As part of our corporate
consolidation over the past two years, we have undertaken significant real
estate consolidations and cost-savings initiatives relating to sourcing
materials and services purchased by us throughout our businesses. While we
anticipate continued significant savings from additional sourcing initiatives
and further real estate consolidations, future savings opportunities may be
fewer and smaller in size, and may be more difficult to achieve.
Implementation of our new branding strategy may be difficult and could
adversely affect our business. We historically operated our business largely as
autonomous, unaffiliated companies and as a result each of our businesses
independently created and developed its own brand names. We are implementing a
new marketing and branding strategy which involves the transition from multiple,
unrelated brands to two brands, Thermo Electron and Spectra-Physics. Several of
our existing brands such as Finnigan, Nicolet, and Oriel command strong market
recognition and customer loyalty. We believe the transition to the two new
brands will enhance and strengthen our collective brand image and brand
awareness across the entire company. Our success in transitioning our brands
depends on many factors, including effective communication of the transition to
our customers, acceptance and recognition by customers
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of these new brands, and successful execution of the branding campaign by our
marketing and sales teams. If we are not successful in implementing this
strategy and transitioning our brands, we may experience erosion in our product
recognition, brand image and customer loyalty, and a decrease in demand for our
products.
It may be difficult for us to implement our strategies for improving
internal growth. Some of the markets in which we compete have been flat or
declining over the past several years. To address this issue, we are pursuing a
number of strategies to improve our internal growth, including:
- finding new markets for our products, including in the area of
proteomics;
- developing new applications for our technologies;
- combining sales and marketing operations in appropriate markets to
compete more effectively;
- actively funding research and development;
- commencing key customer initiatives;
- strengthening our presence in selected geographic markets; and
- developing commercial tools and infrastructure to increase and
support cross-selling opportunities of products and services to take
advantage of our breadth in product offerings.
We may not be able to successfully implement these strategies, and these
strategies may not result in the growth of our business.
We have significant international operations, which entail the risk that
exchange rate fluctuations may negatively affect demand for our products and our
profitability. International revenues account for a substantial portion of our
revenues, and we intend to continue expanding our presence in international
markets. In 2002, our international revenues from continuing operations,
including export revenues from the United States, accounted for approximately
52% of our total revenues. International revenues are subject to the risk that
fluctuations in exchange rates may adversely affect product demand and the
profitability in U.S. dollars of products and services provided by us in
international markets, where payment for our products and services is made in
the local currency. For example, while in fiscal 2002, currency translation had
a favorable effect on revenues of our continuing operations of $28.7 million, in
fiscal 2001, the unfavorable effects of currency translation decreased revenues
of our continuing operations by $46.5 million.
We have acquired several companies and businesses; as a result we have
recorded significant goodwill on our balance sheet, which we must continually
evaluate for potential impairment. We have acquired significant intangible
assets, including approximately $1.4 billion of goodwill that we have recorded
on our balance sheet as of December 28, 2002. We assess the realizability of the
goodwill we have on our books annually as well as whenever events or changes in
circumstances indicate that the goodwill may be impaired. These events or
circumstances generally include operating losses or a significant decline in
earnings associated with the acquired business or asset. Our ability to realize
the value of the goodwill will depend on the future cash flows of these
businesses. These cash flows in turn depend in part on how well we have
integrated these businesses.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to market risk from changes in interest rates,
currency exchange rates, and equity prices, which could affect its 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 currencies. The company enters into forward currency-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 currency hedging activities; however, the purpose of the company's
currency hedging activities is to protect the company's local currency cash
flows related to these commitments from fluctuations in currency exchange rates.
The company's forward currency-exchange contracts principally hedge transactions
denominated in U.S. dollars, Euros, British pounds sterling, Japanese yen, and
Swiss francs. Income and losses arising from forward contracts are recognized as
offsets to losses and income resulting from the underlying exposure being
hedged. The company does not enter into speculative currency agreements.
Interest Rates
Certain of the company's short- and long-term available-for-sale
investments and long-term obligations 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 2002 and 2001 market interest rates would result in a
negative impact to the company of $2 million and $9 million, respectively, on
the net fair value of its interest-sensitive financial instruments.
In addition, interest rate changes would result in a change in the
company's interest expense due to variable-rate debt instruments. A 100-basis
point increase in 90-day LIBOR at December 28, 2002, would increase the
company's annual pre-tax interest expense by $4 million.
Currency Exchange Rates
The company generally views its investment in international subsidiaries
with a functional currency other than the company's reporting currency as
long-term. The company's investment in international subsidiaries is sensitive
to fluctuations in currency exchange rates. The functional currencies of the
company's international subsidiaries are principally denominated in Euros,
British pounds sterling, and Japanese yen. The effect of a change in currency
exchange rates on the company's net investment in international subsidiaries is
reflected in the "accumulated other comprehensive items" component of
shareholders' equity. A 10% depreciation in year-end 2002 and 2001 functional
currencies, relative to the U.S. dollar, would result in a reduction of
shareholders' equity of $76 million and $72 million, respectively.
The fair value of forward currency-exchange contracts is sensitive to
changes in currency exchange rates. The fair value of forward currency-exchange
contracts is the estimated amount that the company would pay or receive upon
termination of the contract, taking into account the change in currency exchange
rates. A 10% depreciation in year-end 2002 and 2001 currency exchange rates
related to the company's contracts would result in an increase in the unrealized
loss on forward currency-exchange contracts of $3.3 million and $5.1 million,
respectively. The unrealized gains or losses on forward currency-exchange
contracts resulting from changes in currency exchange rates are expected to
approximately offset losses or gains on the exposures being hedged.
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 currency exchange rates. A 10% depreciation in the related
year-end 2002 and 2001 currency exchange rates would result in a negative impact
of $1.2 million and $1.7 million, respectively, on the company's net income.
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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 convertible obligations are sensitive to fluctuations in the price of
the company's common stock. 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% decrease in year-end 2002 market equity prices would result in a negative
impact to the company of $9 million on the net fair value of its price-sensitive
equity financial instruments, principally its available-for-sale investments. A
10% increase in the year-end 2001 market equity prices would result in a
negative impact to the company of $7 million on the net fair value of its
price-sensitive equity financial instruments, principally its convertible
obligations.
Item 8. Financial Statements and Supplementary Data
This data is submitted as a separate section to this report. See Item 15
"Exhibits, Financial Statement Schedules, and Reports on Form 8-K."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
In June 2002, we changed our independent accountants as reported in our
Current Report on Form 8-K dated June 21, 2002.
Our consolidated financial statements for each of the two fiscal years
ended December 29, 2001, and December 30, 2000, were audited by Arthur Andersen
LLP, independent accountants. On August 31, 2002, Arthur Andersen ceased
practicing before the SEC. Therefore, Arthur Andersen did not participate in the
preparation of this Form 10-K, did not reissue its audit report with respect to
the financial statements included in this Form 10-K, and did not consent to the
inclusion of its audit report in this Form 10-K. As a result, holders of our
securities may have no effective remedy against Arthur Andersen in connection
with a material misstatement or omission in the financial statements to which
its audit report relates. In addition, even if such holders were able to assert
such a claim, because it has ceased operations, Arthur Andersen may fail or
otherwise have insufficient assets to satisfy claims made by holders of our
securities that might arise under federal securities laws or otherwise with
respect to Arthur Andersen's audit report.
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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
SEC, not later than 120 days after the close of the fiscal year. This
information is incorporated in this report by reference. Information relating to
our executive officers is included in Item 1 of this report.
We are also required, under Item 405 of Regulation S-K, to provide
information concerning delinquent filers of reports under Section 16 of the
Exchange Act, 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 report 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
report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information with respect to security ownership of certain beneficial
owners and management 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. The information with respect to securities
authorized for issuance under equity compensation plans is listed under the
caption "Equity Compensation Plan Information" 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 report by reference.
Item 13. Certain Relationships and Related Transactions
This information is listed under the captions "Relationship with
Affiliates" and "Compensation Committee Interlocks and Insider Participation" 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
report by reference.
Item 14. Controls and Procedures
The company's management, including its Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures within 90 days of the filing of this report
pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in ensuring that information required to
be disclosed in the reports that the company files or submits under the Exchange
Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms. There have been no significant changes in
internal controls, or in factors that could significantly affect internal
controls, subsequent to the date the company's management, including its Chief
Executive Officer and Chief Financial Officer, completed its evaluation.
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PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements (see Index on page F-1 of this report):
Reports of Independent Accountants
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders' Equity
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedule (see Index on page F-1 of this report):
Schedule II: Valuation and Qualifying Accounts
Reports of Independent Accountants
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 December 12, 2002, the company filed a Current Report on Form 8-K with
respect to the election of Marijn Dekkers, the Registrant's president and
chief operating officer, to the position of president and chief executive
officer, and the election of Richard F. Syron, the Registrant's chairman
and chief executive officer, to the position of full-time executive
chairman.
(c) Exhibits
See the Exhibit Index on page 39.
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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 7, 2003 THERMO ELECTRON CORPORATION
By: /s/ Marijn E. Dekkers
-------------------------------------
Marijn E. Dekkers
President and 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 7, 2003.
Signature Title
- --------- -----
By: /s/ Marijn E. Dekkers President, Chief Executive Officer, and Director
------------------------------ (Principal Executive Officer)
Marijn E. Dekkers
By: /s/ Richard F. Syron Chairman of the Board
------------------------------
Richard F. Syron
By: /s/ Theo Melas-Kyriazi Vice President and Chief Financial Officer
------------------------------ (Principal Financial Officer)
Theo Melas-Kyriazi
By: /s/ Peter E. Hornstra Corporate Controller and Chief Accounting Officer
------------------------------ (Principal Accounting Officer)
Peter E. Hornstra
By: /s/ Peter O. Crisp Director
------------------------------
Peter O. Crisp
By: /s/ John L. LaMattina Director
------------------------------
John L. LaMattina
By: /s/ Jim P. Manzi Director
------------------------------
Jim P. Manzi
By: /s/ Robert A. McCabe Director
------------------------------
Robert A. McCabe
By: /s/ Robert W. O'Leary Director
------------------------------
Robert W. O'Leary
By: /s/ Michael E. Porter Director
------------------------------
Michael E. Porter
By: /s/ Elaine S. Ullian Director
------------------------------
Elaine S. Ullian
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THERMO ELECTRON CORPORATION
CERTIFICATIONS
I, Marijn E. Dekkers, certify that:
1. I have reviewed this annual report on Form 10-K of Thermo Electron
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003
/s/ Marijn E. Dekkers
-------------------------------------
Marijn E. Dekkers
President and Chief Executive Officer
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THERMO ELECTRON CORPORATION
I, Theo Melas-Kyriazi, certify that:
1. I have reviewed this annual report on Form 10-K of Thermo Electron
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003
/s/ Theo Melas-Kyriazi
------------------------
Theo Melas-Kyriazi
Chief Financial Officer
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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 and effective as of
February 27, 2003.
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.
4.1 Rights Agreement dated as of October 29, 2001, between the
Registrant and American Stock Transfer & Trust Company, 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 4.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 2001 [File No. 1-8002] and
incorporated in this document by reference).
4.2 Amendment No. 1 to Rights Agreement dated as of February 7,
2002, between the Registrant and American Stock Transfer &
Trust Company (filed as Exhibit 4.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29,
2001 [File No. 1-8002] and incorporated in this document by
reference).
10.1 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. Marc
N. Casper and Mr. Peter E. Hornstra, each of whom has a
one-year agreement.)
10.2 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).
10.3 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).
10.4 Thermo Electron Corporation Directors Stock Option Plan, as
amended and restated as of February 7, 2002 (filed as Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 2001 [File No. 1-8002] and
incorporated in this document by reference).
10.5 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).
10.6 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.)
<
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.7 Thermo Electron Corporation Equity Incentive Plan, as amended
and restated as of February 7, 2002 (filed as Exhibit 10.10 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 2001 [File No. 1-8002] and
incorporated in this document by reference).
10.8 Thermo Electron Corporation 2001 Equity Incentive Plan, as
amended and restated as of February 7, 2002 (filed as Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 2001 [File No. 1-8002] and
incorporated in this document by reference).
10.9 Thermo Electron Corporation Employees' Equity Incentive Plan,
as amended and restated as of February 7, 2002 (filed as
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 29, 2001 [File No. 1-8002]
and incorporated in this document by reference).
10.10 Thermo Electron Corporation Deferred Compensation Plan,
effective November 1, 2001 (filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 2001 [File No. 1-8002] and incorporated in
this document by reference).
10.11 Thermo Electron Corporation 2000 Employees Equity Incentive
Plan.
Each of the plans listed in Exhibits 10.12 to 10.53 originally
provided for the grant of options to acquire the shares of the
Registrant's formerly majority-owned subsidiaries. In
connection with the reorganization of the Registrant commenced
in 1999, all of the Registrant's formerly majority-owned
subsidiaries were taken private and as a result, these plans
were frozen and all of the options originally granted under
the plans ultimately became options to purchase shares of
Common Stock of the Registrant.
10.12 Amended and Restated Thermo Electron Corporation - Thermo
Information Solutions Inc. Nonqualified Stock Option Plan
(Thermo Information Solutions merged with Thermo Coleman
Corporation on September 17, 1999, and Thermo Coleman merged
with Thermo Electron on October 15, 1999.)
10.13 Amended and Restated Thermo Information Solutions Inc. Equity
Incentive Plan (Thermo Information Solutions merged with
Thermo Coleman Corporation on September 17, 1999, and Thermo
Coleman merged with Thermo Electron on October 15, 1999.)
10.14 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). (Thermo Power
merged with Thermo Electron on October 28, 1999.)
10.15 Amended and Restated Thermo Coleman Corporation Equity
Incentive Plan (Thermo Coleman merged with Thermo Electron on
October 15, 1999.)
10.16 Nonqualified Stock Option Plan of Thermo Power Corporation, as
amended (filed as Exhibit 10(i) to the Quarterly Report on
Form 10-Q of Thermo Power for the quarter ended April 3, 1993
[File No. 1-10573] and incorporated herein by reference).
(Thermo Power merged with Thermo Electron on October 28,
1999.)
10.17 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). (Trex
Communications merged with ThermoTrex on November 8, 1999, and
ThermoTrex merged with Thermo Electron on August 14, 2000.)
<
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.18 Amended and Restated Trex Communications Corporation Equity
Incentive Plan (Trex Communications merged with ThermoTrex on
November 8, 1999, and ThermoTrex merged with Thermo Electron
on August 14, 2000.)
10.19 Amended and Restated Thermo Instrument Systems Inc. -
ThermoSpectra Corporation Nonqualified Stock Option Plan
(filed as Exhibit 10.7 to the Quarterly Report on Form 10-Q of
Thermo Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (ThermoSpectra
merged with Thermo Instrument on December 9, 1999, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.20 Equity Incentive Plan of ThermoSpectra Corporation (filed as
Exhibit 10.18 to ThermoSpectra's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference). (ThermoSpectra merged with Thermo Instrument on
December 9, 1999, and Thermo Instrument merged with Thermo
Electron on June 30, 2000.)
10.21 Amended and Restated Thermo Instrument Systems - Thermo Vision
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.12 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated in this document by reference).
(Thermo Vision merged with Thermo Instrument on January 6,
2000, and Thermo Instrument merged with Thermo Electron on
June 30, 2000.)
10.22 Equity Incentive Plan of Thermo Vision Corporation (filed as
Exhibit 10.9 to the Annual Report on Form 10-K of Thermo
Vision for the fiscal year ended January 3, 1998 [File No.
1-13391] and incorporated herein by reference). (Thermo Vision
merged with Thermo Instrument on January 6, 2000, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.23 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). (Thermo Sentron
merged with Thermedics Inc. on April 4, 2000, and Thermedics
merged with Thermo Electron on June 30, 2000.)
10.24 Equity Incentive Plan of Thermo Sentron Inc. (filed as Exhibit
10.7 to Thermo Sentron's Registration Statement on Form S-1
[Reg. No. 333-806] and incorporated herein by reference).
(Thermo Sentron merged with Thermedics Inc. on April 4, 2000,
and Thermedics merged with Thermo Electron on June 30, 2000.)
10.25 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). (Thermedics
Detection merged with Thermedics on April 12, 2000, and
Thermedics merged with Thermo Electron on June 30, 2000.)
10.26 Equity Incentive Plan of Thermedics Detection Inc. (filed as
Exhibit 10.7 to Thermedics Detection's Registration Statement
on Form S-1 [File No. 333-19199] and incorporated in this
document by reference). (Thermedics Detection merged with
Thermedics on April 12, 2000, and Thermedics merged with
Thermo Electron on June 30, 2000.)
<
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.27 Amended and Restated Equity Incentive Plan of Thermedics Inc.
(filed as Exhibit 10.7 to the Quarterly Report on Form 10-Q
of Thermedics for the quarter ended July 3, 1999 [File No.
1-9567] and incorporated herein by reference). (Thermedics
merged with Thermo Electron on June 30, 2000.)
10.28 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). (ONIX merged with
Thermo Instrument on April 12, 2000, and Thermo Instrument
merged with Thermo Electron on June 30, 2000.)
10.29 Amended and Restated Thermo Instrument Systems Inc. - ONIX
Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit
10.13 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (ONIX merged
with Thermo Instrument on April 12, 2000, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.30 Amended and Restated Equity Incentive Plan of ONIX Systems
Inc. (filed as Exhibit 10.11 to the Annual Report on Form 10-K
of ONIX for the fiscal year ended January 1, 2000 [File No.
1-13975] and incorporated herein by reference). (ONIX merged
with Thermo Instrument on April 12, 2000, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.31 Amended and Restated Equity Incentive Plan of Thermo
BioAnalysis Corporation (filed as Exhibit 10.3 to the
Quarterly Report on Form 10-Q of Thermo BioAnalysis for the
quarter ended July 3, 1999 [File No. 1-12179] and incorporated
herein by reference). (Thermo BioAnalysis merged with Thermo
Instrument on April 19, 2000, and Thermo Instrument merged
with Thermo Electron on June 30, 2000.)
10.32 Amended and Restated Thermo Instrument Systems Inc. - Metrika
Systems Corporation Nonqualified Stock Option Plan (filed as
Exhibit 10.11 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (Metrika merged
with Thermo Instrument on May 3, 2000, and Thermo Instrument
merged with Thermo Electron on June 30, 2000.)
10.33 Amended and Restated Equity Incentive Plan of Metrika Systems
Corporation (filed as Exhibit 10.3 to the Quarterly Report on
Form 10-Q of Metrika for the quarter ended July 3, 1999 [File
No. 1-13085] and incorporated herein by reference). (Metrika
merged with Thermo Instrument on May 3, 2000, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.34 Amended and Restated Thermo Instrument Systems Inc. -
ThermoQuest Corporation Nonqualified Stock Option Plan (filed
as Exhibit 10.8 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (ThermoQuest
merged with Thermo Instrument on May 11, 2000, and Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.35 Amended and Restated Equity Incentive Plan of ThermoQuest
Corporation (filed as Exhibit 10.2 to the Quarterly Report on
Form 10-Q of ThermoQuest for the quarter ended July 3, 1999
[File No. 1-14262] and incorporated herein by reference).
(ThermoQuest merged with Thermo Instrument on May 11, 2000,
and Thermo Instrument merged with Thermo Electron on June 30,
2000.)
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.36 Amended and Restated Equity Incentive Plan of Thermo Optek
Corporation (filed as Exhibit 10.2 to the Quarterly Report on
Form 10-Q of Thermo Optek for the quarter ended July 3, 1999
[File No. 1-11757] and incorporated herein by reference).
(Thermo Optek merged with Thermo Instrument on May 11, 2000,
and Thermo Instrument merged with Thermo Electron on June 30,
2000.)
10.37 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). (Randers Killam
merged with Thermo TerraTech on May 15, 2000, and Thermo
TerraTech merged with Thermo Electron on September 22, 2000.)
10.38 Equity Incentive Plan of The Randers Killam Group Inc. (filed
as Exhibit 10.7 to the Quarterly Report on Form 10-Q of
Randers Killam for the quarter ended January 3, 1998 [File No.
0-18095] and incorporated herein by reference). (Randers
Killam merged with Thermo TerraTech on May 15, 2000, and
Thermo TerraTech merged with Thermo Electron on September 22,
2000.)
10.39 Amended and Restated Equity Incentive Plan of Thermo
Instrument Systems Inc. (filed as Exhibit 10.6 to the
Quarterly Report on Form 10-Q of Thermo Instrument for the
quarter ended July 3, 1999 [File No. 1-9786] and incorporated
herein by reference). (Thermo Instrument merged with Thermo
Electron on June 30, 2000.)
10.40 Amended and Restated Thermo Instrument Systems Inc. - Thermo
BioAnalysis Corporation Nonqualified Stock Option Plan (filed
as Exhibit 10.9 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.41 Amended and Restated Thermo Instrument Systems Inc. - Thermo
Optek Corporation Nonqualified Stock Option Plan (filed as
Exhibit 10.10 to the Quarterly Report on Form 10-Q of Thermo
Instrument for the quarter ended July 3, 1999 [File No.
1-9786] and incorporated herein by reference). (Thermo
Instrument merged with Thermo Electron on June 30, 2000.)
10.42 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). (Thermo Ecotek
merged with Thermo Electron on August 10, 2000.)
10.43 Amended and Restated Nonqualified Stock Option Plan of Thermo
Ecotek Corporation (filed as Exhibit 10.6 to the Quarterly
Report on Form 10-Q of Thermo Ecotek for the quarter ended
July 3, 1999 [File No. 1-13572] and incorporated herein by
reference). (Thermo Ecotek merged with Thermo Electron on
August 10, 2000.)
10.44 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). (ThermoTrex
merged with Thermo Electron on August 14, 2000.)
<
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.45 Amended and Restated Nonqualified Stock Option Plan of
ThermoTrex Corporation (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q of ThermoTrex for the quarter ended July
3, 1999 [File No. 1-10791] and incorporated herein by
reference). (ThermoTrex merged with Thermo Electron on August
14, 2000.)
10.46 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). (ThermoLase
merged with Thermo Electron on August 14, 2000.)
10.47 Amended and Restated Nonqualified Stock Option Plan of
ThermoLase Corporation (filed as Exhibit 10.5 to the Quarterly
Report on Form 10-Q of ThermoLase for the quarter ended July
3, 1999 [File No. 1-13104] and incorporated herein by
reference). (ThermoLase merged with Thermo Electron on August
14, 2000.)
10.48 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). (Thermo TerraTech
merged with Thermo Electron on September 22, 2000.)
10.49 Amended and Restated Nonqualified Stock Option Plan of Thermo
TerraTech Inc. (filed as Exhibit 10.34 to the Annual Report on
Form 10-K of Thermo TerraTech for the year ended April 1, 2000
[File No. 1-09549] and incorporated herein by reference).
(Thermo TerraTech merged with Thermo Electron on September 22,
2000.)
10.50 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). (Trex Medical
merged with Thermo Electron on November 29, 2000.)
10.51 Amended and Restated Equity Incentive Plan of Trex Medical
Corporation (filed as Exhibit 10.2 to the Quarterly Report on
Form 10-Q of Trex Medical for the quarter ended July 3, 1999
[File No. 1-11827] and incorporated herein by reference).
(Trex Medical merged with Thermo Electron on November 29,
2000.)
10.52 1997 Spectra-Physics Lasers, Inc. Stock Option Plan (filed as
Exhibit 10.6 of Amendment No. 1 to Spectra-Physics'
Registration Statement on Form S-1 [File No. 333-38329] and
incorporated in this document by reference). (Spectra-Physics
merged with Thermo Electron on February 25, 2002.)
10.53 2000 Spectra-Physics Lasers, Inc. Stock Option Plan (filed as
Exhibit 10.1 to Spectra-Physics' Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000 [File No. 000-23461]
and incorporated in this document by reference).
(Spectra-Physics merged with Thermo Electron on February 25,
2002.)
10.54 Description of Amendments to Certain Stock Option Plans made
in February 2002 (filed as Exhibit 10.31 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
29, 2001 [File No. 1-8002] and incorporated in this document
by reference).
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.55 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).
10.56 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).
10.57 Amended and Restated Employment Agreement between the
Registrant and Mr. Marijn Dekkers (filed as Exhibit 99.1 to
the Registrant's Current Report on Form 8-K dated December 12,
2002 [File No. 1-8002] and incorporated in this document by
reference).
10.58 Amended and Restated Employment Agreement between the
Registrant and Mr. Richard F. Syron (filed as Exhibit 99.2 to
the Registrant's Current Report on Form 8-K dated December 12,
2002 [File No. 1-8002] and incorporated in this document by
reference).
10.59 Employment Offer Letter dated October 3, 2000, between the
Registrant and Mr. Guy Broadbent (filed as Exhibit 10.40 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 30, 2000 [File No. 1-8002] and
incorporated in this document by reference).
10.60 Amendment to Amended and Restated Employment Agreement dated
as of March 14, 2001, between the Registrant and Mr. Richard
F. Syron (filed as Exhibit 10.41 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30,
2000 [File No. 1-8002] and incorporated in this document by
reference).
10.61 Plan and Agreement of Distribution dated August 3, 2001,
between the Registrant and Kadant Inc. (filed as Exhibit 99.3
to the Registrant's Current Report on Form 8-K dated August 6,
2001 [File No. 1-8002] and incorporated in this document by
reference).
10.62 Tax Matters Agreement effective as of August 8, 2001, between
the Registrant and Kadant Inc. (filed as Exhibit 99.4 to the
Registrant's Current Report on Form 8-K dated August 6, 2001
[File No. 1-8002] and incorporated in this document by
reference).
10.63 Transition Services Agreement dated August 3, 2001, between
the Registrant and Kadant Inc. (filed as Exhibit 99.5 to the
Registrant's Current Report on Form 8-K dated August 6, 2001
[File No. 1-8002] and incorporated in this document by
reference).
10.64 Amendment to the Plan and Agreement of Distribution dated
December 27, 2001, between the Registrant and Kadant Inc.
(filed as Exhibit 10.48 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 2001 [File
No. 1-8002] and incorporated in this document by reference).
10.65 Plan and Agreement of Distribution dated November 15, 2001,
between the Registrant and Viasys Healthcare Inc. (filed as
Exhibit 99.2 to the Registrant's Current Report on Form 8-K
dated November 15, 2001 [File No. 1-8002] and incorporated in
this document by reference).
<
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.66 Tax Matters Agreement dated November 15, 2001, between the
Registrant and Viasys Healthcare Inc. (filed as Exhibit 99.3
to the Registrant's Current Report on Form 8-K dated November
15, 2001 [File No. 1-8002] and incorporated in this document
by reference).
10.67 Transition Services Agreement dated November 15, 2001, between
the Registrant and Viasys Healthcare Inc. (filed as Exhibit
99.4 to the Registrant's Current Report on Form 8-K dated
November 15, 2001 [File No. 1-8002] and incorporated in this
document by reference).
10.68 Employment Agreement dated as of November 29, 2001, between
the Registrant and Mr. Marc N. Casper (filed as Exhibit 10.54
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 2001 [File No. 1-8002] and
incorporated in this document by reference).
10.69 Letter Agreement dated as of November 27, 2001, among SPX
Corporation, Kendro Laboratory Products, L.P., the Registrant,
and Mr. Marc N. Casper (filed as Exhibit 10.55 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 2001 [File No. 1-8002] and incorporated in
this document by reference).
10.70 Master Securities Loan Agreement between Thermo Electron
Corporation and JPMorgan Chase Bank (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 29, 2002 [File No. 1-8002] and incorporated in this
document by reference).
10.71 Master Securities Loan Agreement between Thermo Electron
Corporation and ABN AMRO Inc. (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 29, 2002 [File No. 1-8002] and incorporated in this
document by reference).
10.72 364-Day Credit Agreement among the Registrant, the Several
Lenders thereto, Barclays Bank Plc, as Lead Arranger, Book
Runner and Administrative Agent, ABN AMRO Bank N.V., as Lead
Arranger and Syndication Agent, and Fleet National Bank and
JPMorgan Chase Bank, as co-documentation agents, dated as of
December 20, 2002.
10.73 Three-Year Credit Agreement among the Registrant, the Several
Lenders thereto, Barclays Bank Plc, as Lead Arranger, Book
Runner and Administrative Agent, ABN AMRO Bank N.V., as Lead
Arranger and Syndication Agent, and Fleet National Bank and
JPMorgan Chase Bank, as co-documentation agents, dated as of
December 20, 2002.
10.74 Executive Registry Program at the Massachusetts General
Hospital.
16.1 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission, dated June 25, 2002 (filed as Exhibit 16 to the
Registrant's Current Report on Form 8-K dated June 21, 2002
[File No. 1-8002] and incorporated in this document by
reference).
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Limitation of Remedies Against Arthur Andersen LLP (Reference
is made to Item 9 of this Report.)
99.1 Certification of Marijn E. Dekkers, President and Chief
Executive Officer of the Registrant pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Theo Melas-Kyriazi, Chief Financial Officer
of the Registrant pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
<
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THERMO ELECTRON CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be
included in Item 8:
Page
----
Report of Independent Accountants on financial statements at December 28, 2002, and for the year then ended F-2
Report of Independent Accountants on financial statements at December 29, 2001, and for the two years then ended F-3
Consolidated Statement of Operations for the years ended December 28, 2002, December 29, 2001, and December 30, 2000 F-4
Consolidated Balance Sheet as of December 28, 2002, and December 29, 2001 F-5
Consolidated Statement of Cash Flows for the years ended December 28, 2002, December 29, 2001, and December 30, 2000 F-7
Consolidated Statement of Comprehensive Income and Shareholders' Equity for the years ended December 28, 2002,
December 29, 2001, and December 30, 2000 F-9
Notes to Consolidated Financial Statements F-11
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries is filed as
part of this Report as required to be included in Item 15(a):
Page
----
Schedule II - Valuation and Qualifying Accounts F-61
Report of Independent Accountants at December 28, 2002, and for the year then ended F-62
Report of Independent Accountants at December 29, 2001, and for the two years then ended F-63
<
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THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders,
Thermo Electron Corporation:
In our opinion, the accompanying consolidated balance sheet as of
December 28, 2002 and the related consolidated statement of operations,
statement of cash flows, and statement of comprehensive income and shareholders'
equity for the year then ended present fairly, in all material respects, the
financial position of Thermo Electron Corporation and its subsidiaries as of
December 28, 2002, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of the company as of December 29, 2001, and for each of the two years
in the period ended December 29, 2001, prior to the revisions discussed in Notes
1 and 3, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated February 7, 2002, except with
respect to the matters discussed in Note 19*, as to which the date is February
25, 2002.
As disclosed in Note 1 to the consolidated financial statements, the
company changed the manner in which it accounts for goodwill and other
intangible assets upon adoption of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" on December 30, 2001.
As discussed above, the consolidated financial statements of Thermo
Electron Corporation as of December 29, 2001, and for each of the two years in
the period ended December 29, 2001, were audited by other independent
accountants who have ceased operations. As described in Note 1, these financial
statements have been restated to include the transitional disclosures required
by Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," which was adopted by the company on December 30, 2001. As
described in Note 3, these financial statements have also been restated to
reflect the change in the composition of the company's reportable segments. We
audited the transitional disclosures for 2001 and 2000 described in Note 1. We
also audited the adjustments described in Note 3 that were applied to restate
the 2001 and 2000 consolidated financial statements. In our opinion, all such
adjustments and transitional disclosures are appropriate and have been properly
applied. However, we were not engaged to audit, review, or apply any procedures
to the 2001 or 2000 consolidated financial statements of the company other than
with respect to such adjustments and transitional disclosures and, accordingly,
we do not express an opinion or any other form of assurance on the 2001 and 2000
consolidated financial statements taken as a whole.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2003 (except as to the
information in Note 19, for which
the date is February 28, 2003)
*The discussion of the subsequent events discussed in Note 19 in 2001, is now
included in Note 10 and Note 17.
<
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THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSSUED BY ARTHUR ANDERSEN LLP.
AS DISCUSSED IN NOTE 1, THERMO ELECTRON CORPORATION HAS RESTATED ITS FINANCIAL
STATEMENTS FOR THE YEARS ENDED DECEMBER 29, 2001, AND DECEMBER 30, 2000, TO
INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS," AND AS
DISCUSSED IN NOTE 3, THERMO ELECTRON HAS RESTATED ITS BUSINESS SEGMENT
INFORMATION TO REFLECT A TRANSFER OF MANAGEMENT RESPONSIBILITY FOR SEVERAL
BUSINESSES BETWEEN SEGMENTS. THE REVISIONS TO THE 2001 AND 2000 FINANCIAL
STATEMENTS RELATED TO THESE TRANSITIONAL DISCLOSURES AND THE CHANGE IN BUSINESS
SEGMENT INFORMATION WERE REPORTED ON BY PRICEWATERHOUSECOOPERS LLP, AS STATED IN
THEIR REPORT APPEARING HEREIN.
To the Shareholders and Board of Directors of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheets of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of December
29, 2001, and December 30, 2000,* and the related consolidated statements of
operations, cash flows, and comprehensive loss and shareholders' investment for
each of the three years in the period ended December 29, 2001.* 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 29, 2001, and December 30,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 29, 2001,* in conformity with
accounting principles generally accepted in the United States.
As explained in Note 1 to the consolidated financial statements,
effective December 31, 2000, the company changed its method of accounting for
derivative instruments and hedging activities through the adoption of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. As explained in Notes 1 and 16
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 7, 2002 (except with respect
to the matters discussed in Note 19*, as
to which the date is February 25, 2002)
*The company's consolidated balance sheet as of December 30, 2000, and the
consolidated statements of operations, cash flows, and comprehensive loss and
shareholders' investment for the year ended January 1, 2000, are not included
in this Form 10-K. Additionally, the discussion of the subsequent events
discussed in Note 19 in 2001, is now included in Note 10 and Note 17.
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THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
2002 2001 2000
---------- ---------- ----------
Revenues (Notes 3 and 16) $2,086,355 $2,188,210 $2,280,522
---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues (Note 15) 1,158,979 1,229,588 1,258,686
Selling, general, and administrative expenses 564,656 620,104 646,920
Research and development expenses 155,121 171,614 176,756
Restructuring and other costs (income), net (Note 15) 52,146 132,702 (67,855)
---------- ---------- ----------
1,930,902 2,154,008 2,014,507
---------- ---------- ----------
Operating Income 155,453 34,202 266,015
Other Income (Expense), Net (Notes 4 and 15) 132,533 36,479 (81,184)
---------- ---------- ----------
Income from Continuing Operations Before Provision for Income Taxes, Minority
Interest, Extraordinary Item, and Cumulative Effect of Change in Accounting
Principle 287,986 70,681 184,831
Provision for Income Taxes (Note 6) (92,987) (26,929) (112,217)
Minority Interest Income (Expense) 331 5,840 (10,567)
---------- ---------- ----------
Income from Continuing Operations Before Extraordinary Item and Cumulative Effect of
Change in Accounting Principle 195,330 49,592 62,047
Income from Discontinued Operations (net of income tax provision and minority interest
of $12,249; Note 17) - - 14,228
Gain (Loss) on Disposal of Discontinued Operations, Net (includes tax benefit of
$21,008, $22,741, and $104,000; Note 17) 115,370 (50,440) (100,000)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item and Cumulative Effect of Change in Accounting
Principle 310,700 (848) (23,725)
Extraordinary Item (net of income tax benefit of $522 and income tax provision of $637
and $333; Note 10) (970) 1,061 532
---------- ---------- ----------
Income (Loss) Before Cumulative Effect of Change in Accounting Principle 309,730 213 (23,193)
Cumulative Effect of Change in Accounting Principle (net of income tax benefit and
minority interest of $663 and $8,986; Notes 1 and 16) - (994) (12,918)
---------- ---------- ----------
Net Income (Loss) $ 309,730 $ (781) $ (36,111)
========== ========== ==========
Earnings per Share from Continuing Operations Before Extraordinary
Item and Cumulative Effect of Change in Accounting Principle (Note 7)
Basic $ 1.16 $ .27 $ .37
========== ========== ==========
Diluted $ 1.12 $ .27 $ .36
========== ========== ==========
Earnings (Loss) per Share (Note 7)
Basic $ 1.84 $ - $ (.22)
========== ========== ==========
Diluted $ 1.73 $ - $ (.22)
========== ========== ==========
Weighted Average Shares (Note 7)
Basic 168,572 180,560 167,462
========== ========== ==========
Diluted 186,611 183,916 170,519
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
2002 2001
---------- ----------
Assets
Current Assets:
Cash and cash equivalents $ 339,038 $ 297,557
Short-term available-for-sale investments, at quoted market value (Notes 4, 9, and 15) 536,430 744,321
Accounts receivable, less allowances of $25,576 and $26,525 429,740 410,960
Inventories (Note 15) 332,804 337,041
Deferred tax asset (Note 6) 79,057 82,766
Other current assets 54,490 92,565
---------- ----------
1,771,559 1,965,210
---------- ----------
Property, Plant, and Equipment, at Cost, Net (Note 15) 272,908 270,712
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value (Notes 9 and 15) - 9,360
---------- ----------
Other Assets (Notes 2 and 15) 186,390 231,395
---------- ----------
Goodwill (Notes 2 and 15) 1,416,205 1,348,393
---------- ----------
$3,647,062 $3,825,070
========== ==========
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THERMO ELECTRON CORPORATION
CONSOLIDATED BALANCE SHEET - (Continued)
(In thousands except share amounts)
2002 2001
---------- ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term obligations and current maturities of long-term obligations
(Notes 10 and 19) $ 484,480 $ 528,988
Accounts payable 111,994 111,950
Accrued payroll and employee benefits 97,856 92,262
Accrued income taxes 44,519 30,797
Deferred revenue 51,259 48,166
Accrued restructuring costs (Note 15) 41,579 60,685
Other accrued expenses (Note 2) 178,227 203,775
Net liabilities of discontinued operations (Note 17) 93,806 65,416
---------- ----------
1,103,720 1,142,039
---------- ----------
Deferred Income Taxes (Note 6) 10,144 7,907
---------- ----------
Other Deferred Items (Note 5) 48,534 32,579
---------- ----------
Long-term Obligations (Notes 10 and 19):
Senior convertible obligations - 145,414
Senior notes 141,032 128,725
Subordinated convertible obligations 304,549 445,377
Other 5,760 7,986
---------- ----------
451,341 727,502
---------- ----------
Minority Interest (Note 17) - 6,901
---------- ----------
Commitments and Contingencies (Note 11)
Shareholders' Equity (Notes 5 and 12):
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 350,000,000 shares authorized; 169,952,419 and
199,816,264 shares issued 169,952 199,816
Capital in excess of par value 1,212,145 1,758,567
Retained earnings 819,411 509,681
Treasury stock at cost, 7,098,501 and 23,458,555 shares (129,675) (457,475)
Deferred compensation (4,852) (3,157)
Accumulated other comprehensive items (Note 8) (33,658) (99,290)
---------- ----------
2,033,323 1,908,142
---------- ----------
$3,647,062 $3,825,070
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
2002 2001 2000
--------- --------- ---------
Operating Activities
Net income (loss) $ 309,730 $ (781) $ (36,111)
Adjustments to reconcile net income (loss) to income from continuing
operations:
Income from discontinued operations (Note 17) - - (14,228)
(Gain) loss on disposal of discontinued operations, net (Note 17) (115,370) 50,440 100,000
--------- --------- ---------
Income from continuing operations 194,360 49,659 49,661
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 56,376 98,521 97,486
Noncash restructuring and other costs, net (Note 15) 11,750 41,144 22,865
Provision for losses on accounts receivable 4,114 6,316 9,264
Minority interest (income) expense (331) (5,840) 10,567
Equity in (earnings) loss of unconsolidated subsidiaries (Note 15) (2,533) (4,699) 47,315
Cumulative effect of change in accounting principle, net of income
taxes and minority interest (Notes 1 and 16) - 994 12,918
Change in deferred income taxes 23,770 (16,751) (39,700)
(Gain) loss on sale of businesses (Notes 2 and 15) (2,484) 10,943 (126,330)
Gain on investments, net (Notes 4, 9, and 15) (123,134) (35,579) (6,849)
Extraordinary item, net of income taxes (Note 10) 970 (1,061) (532)
Other noncash items, net 15,547 34,264 29,213
Other income (1,381) (511) (4,372)
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable 4,535 (19,041) (27,395)
Inventories 21,470 7,724 (77,356)
Other current assets 9,888 (13,097) (4,710)
Accounts payable (8,000) (19,082) 17,742
Other current liabilities (92,563) 50,472 47,982
--------- --------- ---------
Net cash provided by continuing operations 112,354 184,376 57,769
Net cash provided by (used in) discontinued operations (9,462) 4,025 142,152
--------- --------- ---------
Net cash provided by operating activities 102,892 188,401 199,921
--------- --------- ---------
Investing Activities
Purchases of available-for-sale investments (83) (680,337) (473,576)
Proceeds from sale of available-for-sale investments (Note 4) 122,094 248,036 113,220
Proceeds from maturities of available-for-sale investments 217,011 250,345 403,134
Proceeds from sale of other investments (Note 4) 65,540 43,255 6,367
Purchases of property, plant, and equipment (51,212) (84,799) (74,039)
Proceeds from sale of property, plant, and equipment 11,016 11,638 21,828
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THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(In thousands)
2002 2001 2000
--------- --------- ---------
Investing Activities (continued)
Acquisition of minority interests of subsidiaries (Note 17) $ (23,212) $ (69,528) $(307,166)
Acquisitions, net of cash acquired (Note 2) (78,683) (14,130) (15,808)
Collection of notes receivable 76,392 - -
Proceeds from sale of businesses, net of cash divested (Note 2) 23,559 46,767 253,583
Advance to affiliates - (16,088) (96,434)
Increase in other assets (8,688) (5,077) (3,954)
Other 3,754 (1,580) 7,826
--------- --------- ---------
Net cash provided by (used in) continuing operations 357,488 (271,498) (165,019)
Net cash provided by discontinued operations 150,991 447,654 394,596
--------- --------- ---------
Net cash provided by investing activities 508,479 176,156 229,577
--------- --------- ---------
Financing Activities
Redemption and repayment of long-term obligations (Note 10) (598,050) (43,129) (161,191)
Purchases of company and subsidiary common stock and subordinated
convertible debentures (Note 10) (334,152) (511,393) (43,787)
Net proceeds from issuance of company and subsidiary common stock
(Notes 5 and 12) 25,335 69,873 58,466
Increase (decrease) in short-term notes payable 311,134 (16,870) (19,183)
Proceeds from issuance of long-term obligations 31 249 14,577
Other 2,970 (1,760) (4,377)
--------- --------- ---------
Net cash used in continuing operations (592,732) (503,030) (155,495)
Net cash provided by (used in) discontinued operations (234) (193,283) 17,914
--------- --------- ---------
Net cash used in financing activities (592,966) (696,313) (137,581)
--------- --------- ---------
Exchange Rate Effect on Cash of Continuing Operations 14,986 (3,760) (2,883)
Exchange Rate Effect on Cash of Discontinued Operations 476 4,464 (9,997)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 33,867 (331,052) 279,037
Cash and Cash Equivalents at Beginning of Year 305,200 636,252 357,215
--------- --------- ---------
339,067 305,200 636,252
Cash and Cash Equivalents of Discontinued Operations at End of Year (29) (7,643) (130,728)
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 339,038 $ 297,557 $ 505,524
========= ========= =========
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial statements.
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THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AND SHAREHOLDERS' EQUITY
(In thousands)
2002 2001 2000
---------- ---------- ----------
Comprehensive Income
Net Income (Loss) $ 309,730 $ (781) $ (36,111)
---------- ---------- ----------
Other Comprehensive Items (Note 8):
Currency translation adjustment 91,261 (24,606) (44,975)
Unrealized gains (losses) on available-for-sale investments, net of
reclassification adjustment (65,894) 20,320 4,558
Unrealized gains (losses) on hedging instruments, net of reclassification
adjustment (2,828) 1,338 -
Minimum pension liability adjustment (18,949) - -
---------- ---------- ----------
3,590 (2,948) (40,417)
Minority interest - (81) 5,188
---------- ---------- ----------
3,590 (3,029) (35,229)
---------- ---------- ----------
$ 313,320 $ (3,810) $ (71,340)
========== ========== ==========
Shareholders' Equity
Common Stock, $1 Par Value:
Balance at beginning of year $ 199,816 $ 195,877 $ 167,433
Acquisition of minority interests of subsidiaries (Note 17) - - 22,553
Issuance of stock under employees' and directors' stock plans 2,136 3,939 5,891
Restoration of stock to authorized but unissued status (Note 12) (32,000) - -
---------- ---------- ----------
Balance at end of year 169,952 199,816 195,877
---------- ---------- ----------
Capital in Excess of Par Value:
Balance at beginning of year 1,758,567 1,681,452 1,052,837
Acquisition of minority interests of subsidiaries (Note 17) - - 541,434
Activity under employees' and directors' stock plans 31,669 56,542 84,840
Tax benefit related to employees' and directors' stock plans 6,696 9,461 18,000
Effect of subsidiaries' equity transactions 613 11,112 (15,659)
Restoration of stock to authorized but unissued status (Note 12) (585,400) - -
---------- ---------- ----------
Balance at end of year 1,212,145 1,758,567 1,681,452
---------- ---------- ----------
Retained Earnings:
Balance at beginning of year 509,681 1,005,857 1,041,968
Distribution of Kadant and Viasys Healthcare subsidiaries to
shareholders (Note 17) - (495,395) -
Net income (loss) 309,730 (781) (36,111)
---------- ---------- ----------
Balance at end of year $ 819,411 $ 509,681 $1,005,857
---------- ---------- ----------
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THERMO ELECTRON CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AND SHAREHOLDERS' EQUITY - (Continued)
(In thousands)
2002 2001 2000
---------- ---------- ----------
Treasury Stock:
Balance at beginning of year $ (457,475) $ (246,228) $ (189,646)
Purchases of company common stock (285,632) (196,544) (22,826)
Activity under employees' and directors' stock plans (3,968) (12,305) (26,590)
Receipt of company common stock as repayment of notes receivable - (2,398) (6,155)
Receipt of company common stock in connection with sale of business - - (1,011)
Restoration of stock to authorized but unissued status (Note 12) 617,400 - -
---------- ---------- ----------
Balance at end of year (129,675) (457,475) (246,228)
---------- ---------- ----------
Deferred Compensation (Note 5):
Balance at beginning of year (3,157) (6,640) (3,149)
Awards under employees' stock plans (4,207) (429) (7,818)
Amortization of deferred compensation 2,272 3,700 3,725
Forfeitures under employees' stock plans 240 212 602
---------- ---------- ----------
Balance at end of year (4,852) (3,157) (6,640)
---------- ---------- ----------
Accumulated Other Comprehensive Items (Note 8):
Balance at beginning of year (99,290) (96,342) (55,925)
Other comprehensive items (45,034) (2,948) (40,417)
Reclassification of equity interests to available-for-sale investments
(Notes 4 and 17) 110,666 - -
---------- ---------- ----------
Balance at end of year (33,658) (99,290) (96,342)
---------- ---------- ----------
$2,033,323 $1,908,142 $2,533,976
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
<
F-10
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
A world leader in high-tech instruments, Thermo Electron Corporation (the
company) helps life science, laboratory, and industrial customers advance
scientific knowledge, enable drug discovery, improve manufacturing processes,
and protect people and the environment with instruments, scientific equipment,
and sample-in/knowledge-out solutions. The company's powerful technologies help
researchers make discoveries that will fight disease or prolong life. They
automatically monitor and control online production to ensure the quality and
safety of raw materials as well as the end-products themselves. And they are
critical components embedded as enabling technologies within scientific and
industrial devices.
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
During 2000 and 2001, the company completed the principal aspects of a
major corporate reorganization. As part of this reorganization, the company spun
off two businesses and sold a number of operating units. In addition, the
company has taken private all of its majority-owned subsidiaries in its
continuing operations, including Spectra-Physics, Inc., effective February 2002.
The results of operations of certain major lines of business that have been spun
off, sold, or placed for sale have been classified as discontinued operations in
the accompanying financial statements (Note 17).
Fiscal Year
The company has adopted a fiscal year ending the Saturday nearest
December 31. References to 2002, 2001, and 2000 are for the fiscal years ended
December 28, 2002, December 29, 2001, and December 30, 2000, 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 cannot 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 16).
The company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to pay amounts due.
Deferred revenue in the accompanying balance sheet consists primarily of
unearned revenue on service contracts, which is recognized ratably over the
terms of the contracts. Substantially all of the deferred revenue in the
accompanying 2002 balance sheet will be recognized within one year.
Warranty Obligations
The company provides for the estimated cost of product warranties,
primarily from historical information, at the time product revenue is
recognized. While the company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of its
component supplies, the company's warranty obligation is affected by product
failure rates, utilization levels, material usage, service delivery costs
incurred in correcting a
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
product failure, and supplier warranties on parts delivered to the company.
Should actual product failure rates, utilization levels, material usage, service
delivery costs, or supplier warranties on parts differ from the company's
estimates, revisions to the estimated warranty liability would be required. The
changes in the carrying amount of product warranties for the year ended December
28, 2002, are as follows (in thousands):
Balance at December 29, 2001 $ 26,396
Provision charged to income 17,266
Usage (19,645)
Other, net (a) 3,344
--------
Balance at December 28, 2002 $ 27,361
========
(a) Primarily represents the effects of currency translation.
Stock-based Compensation Plans and Pro Forma Stock-based Compensation Expense
The company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' equity.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which sets forth a fair-value-based method of
recognizing stock-based compensation expense. As permitted by SFAS No. 123, the
company has elected to continue to apply APB No. 25 to account for its
stock-based compensation plans. Had compensation cost for awards granted after
1994 under the company's stock-based compensation plans been determined based on
the fair value at the grant dates consistent with the method set forth under
SFAS No. 123, the effect on certain financial information of the company would
have been as follows:
2002 2001 2000
-------- -------- --------
(In thousands except
per share amounts)
Income from Continuing Operations Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle:
As reported $195,330 $ 49,592 $ 62,047
Add: Stock-based employee compensation expense included in reported
results, net of tax 3,117 2,294 2,272
Deduct: Total stock-based employee compensation expense determined under
the fair-value-based method for all awards, net of tax (27,749) (26,090) (20,855)
-------- -------- --------
Pro forma $170,698 $ 25,796 $ 43,464
======== ======== ========
Basic Earnings per Share from Continuing Operations Before Extraordinary
Item and Cumulative Effect of Change in Accounting Principle:
As reported $ 1.16 $ .27 $ .37
Pro forma $ 1.01 $ .14 $ .26
Diluted Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in Accounting
Principle:
As reported $ 1.12 $ .27 $ .36
Pro forma $ .99 $ .14 $ .25
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
2002 2001 2000
-------- -------- --------
(In thousands except
per share amounts)
Net Income (Loss):
As reported $309,730 $ (781) $(36,111)
Add: Stock-based employee compensation expense included in reported net
income, net of tax 3,117 2,294 2,272
Deduct: Total stock-based employee compensation expense determined under
the fair-value-based method for all awards, net of tax (27,749) (26,090) (20,855)
-------- -------- --------
Pro forma $285,098 $(24,577) $(54,694)
======== ======== ========
Basic Earnings (Loss) per Share:
As reported $ 1.84 $ - $ (.22)
Pro forma $ 1.69 $ (.14) $ (.33)
Diluted Earnings (Loss) per Share:
As reported $ 1.73 $ - $ (.22)
Pro forma $ 1.60 $ (.13) $ (.33)
The weighted average fair value per share of options granted was $9.23,
$9.85, and $6.58 in 2002, 2001, and 2000, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model assuming an expected dividend yield of zero and with the
following weighted-average assumptions:
2002 2001 2000
--------- --------- ---------
Volatility 42% 45% 35%
Risk-free Interest Rate 4.2% 4.1% 4.9%
Expected Life of Options 6.0 years 5.0 years 3.9 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.
Income Taxes
In accordance with 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 7).
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
Cash equivalents consists principally of 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.
Available-for-sale Investments
The company's marketable debt and 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' equity (Notes 8 and 9). Decreases in market values of
individual securities below cost for a duration of six to nine months are deemed
indicative of other than temporary impairment and the company writes down the
carrying amount of the investments to market value through other income
(expense), net, in the accompanying statement of operations.
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:
2002 2001
-------- --------
(In thousands)
Raw Materials and Supplies $134,039 $149,817
Work in Progress 50,894 56,417
Finished Goods (includes $18,982 and $14,918 at customer locations) 147,871 130,807
-------- --------
$332,804 $337,041
======== ========
The company periodically reviews its quantities of inventories on hand
and compares these amounts to expected use 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 (Note 15).
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, 2
to 40 years; machinery and equipment, 1 to 15 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:
2002 2001
-------- --------
(In thousands)
Land $ 34,221 $ 33,099
Buildings and Improvements 156,812 142,697
Machinery, Equipment, and Leasehold Improvements 362,316 306,590
-------- --------
553,349 482,386
Less: Accumulated Depreciation and Amortization 280,441 211,674
-------- --------
$272,908 $270,712
======== ========
Depreciation and amortization expense of property, plant, and equipment
was $48.1 million, $51.4 million, and $52.9 million in 2002, 2001, and 2000,
respectively.
<
F-14
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Other Assets
Other assets in the accompanying balance sheet includes intangible
assets, notes receivable, deferred debt expense, other assets, and, in 2001,
prepaid pension costs and an equity-method investment in FLIR Systems, Inc.
(Note 4). Intangible assets include the costs of acquired product technology,
patents, trademarks, 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. The company has recorded no intangible
assets with indefinite lives. The company reviews other intangible assets for
impairment when indication of potential impairment exists, such as a significant
reduction in cash flows associated with the assets. Acquired intangible assets
are as follows:
Accumulated
Gross Amortization Net
-------- ------------ --------
(In thousands)
December 28, 2002
Product technology $ 58,250 $(17,877) $ 40,373
Patents 41,103 (20,409) 20,694
Trademarks 4,489 (1,143) 3,346
Other 4,663 (729) 3,934
-------- -------- --------
$108,505 $(40,158) $ 68,347
======== ======== ========
December 29, 2001
Product technology $ 25,227 $(13,333) $ 11,894
Patents 40,447 (16,685) 23,762
Trademarks 2,421 (799) 1,622
Other 4,477 (1,618) 2,859
-------- -------- --------
$ 72,572 $(32,435) $ 40,137
======== ======== ========
The estimated future amortization expense of acquired intangible assets
is as follows (in thousands):
2003 $ 9,573
2004 8,831
2005 7,036
2006 6,237
2007 5,853
2008 and thereafter 30,817
--------
$ 68,347
========
Amortization of acquired intangible assets was $8.3 million, $6.9
million, and $6.7 million in 2002, 2001, and 2000, respectively.
<
F-15
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Goodwill
Goodwill was amortized through December 29, 2001, using the straight-line
method over periods ranging from 5 to 40 years. Accumulated amortization was
$233.0 million at year-end 2001. In June 2001, the FASB issued SFAS No. 142,
"Goodwill and Other Intangible Assets." The company adopted SFAS No. 142
effective December 30, 2001. Under SFAS No. 142, amortization of goodwill ceased
and the company assesses the realizability of this asset annually and whenever
events or changes in circumstances indicate it may be impaired. Such events or
circumstances generally include the occurrence of operating losses or a
significant decline in earnings associated with one or more of the company's
reporting units. The company estimates the fair value of its reporting units by
using market comparables for similar businesses and forecasts of discounted
future cash flows. When impairment is indicated, any excess of carrying value
over fair value is recorded as a loss (Note 15).
The company performed an initial test for impairment upon adoption of
SFAS No. 142 at December 29, 2001, and determined that goodwill was not
impaired. The company completed an annual test for impairment at December 28,
2002, and determined that goodwill was not impaired.
Pro forma results for 2001 and 2000, as if SFAS No. 142 had been adopted
at the beginning of 2000, are as follows:
2001 2000
-------- --------
(In thousands except
per share amounts)
Income from Continuing Operations Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle:
As reported $ 49,592 $ 62,047
Pro forma 86,390 95,495
Basic Earnings per Share from Continuing Operations Before Extraordinary
Item and Cumulative Effect of Change in Accounting Principle:
As reported .27 .37
Pro forma .48 .57
Diluted Earnings per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in Accounting
Principle:
As reported .27 .36
Pro forma .47 .55
Net Income (Loss):
As reported $ (781) $(36,111)
Pro forma 36,017 (2,663)
Basic Earnings (Loss) per Share:
As reported - (.22)
Pro forma .20 (.02)
Diluted Earnings (Loss) per Share:
As reported - (.22)
Pro forma .20 (.02)
<
F-16
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
The changes in the carrying amount of goodwill for 2002 and 2001 by
segment are as follows:
Life and
Laboratory Measurement Optical
Sciences and Control Technologies Total
---------- ----------- ------------ ----------
(In thousands)
Balance at December 30, 2000 $ 808,908 $ 430,531 $ 139,225 $1,378,664
Acquisitions 10,915 474 - 11,389
Amortization (23,629) (12,117) (4,478) (40,224)
Write off due to sale or planned sale of businesses (8,515) (22,455) (2,214) (33,184)
Acquisition of minority interest of subsidiary - - 45,829 45,829
Other (a) (1,975) (146) - (2,121)
Currency translation (8,283) (2,999) (678) (11,960)
---------- ---------- ---------- ----------
Balance at December 29, 2001 777,421 393,288 177,684 1,348,393
Acquisitions 22,666 2,361 - 25,027
Write off due to sale of businesses (463) (3,332) (517) (4,312)
Acquisition of minority interest of subsidiary - - 15,807 15,807
Other (a) 351 (2,239) (3,036) (4,924)
Currency translation 25,791 8,032 2,391 36,214
---------- ---------- ---------- ----------
Balance at December 28, 2002 $ 825,766 $ 398,110 $ 192,329 $1,416,205
========== ========== ========== ==========
(a) Principally represents use of previously reserved acquired net operating losses and reversal of acquisition reserves
that were not required.
Currency Translation
All assets and liabilities of the company's non-U.S. 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' equity.
Currency transaction gains and losses are included in the accompanying statement
of operations and are not material for the three years presented.
Forward Contracts
Effective in the first quarter of 2001, the company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, requires that all derivatives, including forward currency-exchange
contracts, be recognized on the balance sheet at fair value. Derivatives that
are not hedges must be recorded at fair value through earnings. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative are either offset against the change in fair value of the hedged
item through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The company immediately records in
earnings the extent to which a hedge is not effective in achieving offsetting
changes in fair value or cash flows. Adoption of SFAS No. 133 in the first
quarter of 2001 resulted in the deferral of a gain of $1.0 million, net of tax
and minority interest, and a corresponding loss on periods prior to 2001, which
was classified as "Cumulative effect of the change in accounting principle" in
the accompanying 2001 statement of operations. This deferred gain
<
F-17
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
related to forward currency-exchange contracts that were marked to market
through earnings prior to the adoption of SFAS No. 133. The entire deferred gain
recorded upon adoption was reclassified into earnings during 2001 as the
underlying hedged transactions occurred.
The company uses forward currency-exchange contracts primarily to hedge
certain operational (cash-flow hedges) and balance sheet (fair-value hedges)
exposures resulting from changes in currency exchange rates. Such exposures
result from sales that are denominated in currencies other than the functional
currencies of the respective operations. These contracts principally hedge
transactions denominated in U.S. dollars, Euros, British pounds sterling,
Japanese yen, and Swiss francs. The company enters into these currency-exchange
contracts to hedge anticipated product sales and recorded accounts receivable
made in the normal course of business. Accordingly, the hedges are not
speculative in nature. As part of the company's overall strategy to manage the
level of exposure to the risk of currency-exchange fluctuations, some operating
units hedge a portion of their currency exposures anticipated over the ensuing
12-month period, using exchange contracts that have maturities of 12 months or
less. The company does not hold or engage in transactions involving derivative
instruments for purposes other than risk management.
The company records its forward currency-exchange contracts at fair value
in its balance sheet as other current assets or other accrued expenses and, for
cash-flow hedges, the related gains or losses on these contracts are deferred as
a component of accumulated other comprehensive items in the accompanying balance
sheet. These deferred gains and losses are recognized in income in the period in
which the underlying anticipated transaction occurs. Unrealized gains and losses
resulting from the impact of currency exchange rate movements on fair-value
hedges are recognized in earnings in the period in which the exchange rates
change and offset the currency losses and gains on the underlying exposure being
hedged. Cash flows resulting from currency-exchange contracts qualifying as
cash-flow hedges are recorded in the accompanying statement of cash flows in the
same category as the item being hedged. At December 28, 2002, the company had
deferred losses, net of income taxes, relating to forward currency-exchange
contracts of approximately $1.5 million, substantially all of which is expected
to be recognized as expense over the next 12 months to approximately offset
gains on the exposures being hedged. The ineffective portion of the gain or loss
on derivative instruments is recorded in other income (expense), net, in the
accompanying 2002 and 2001 statement of operations and is not material.
See Note 15 for the effect in 2000 of a majority-owned subsidiary's early
adoption of SFAS No. 133.
Prior to adoption of SFAS No. 133, gains and losses arising from forward
currency-exchange contracts were recognized as offsets to losses and gains
resulting from the exposures being hedged.
Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs and is effective in 2003. The company does not
expect the adoption of this new standard to have a material impact on its
financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." The standard provides guidance on
measuring impairment of long-lived assets and applying discontinued operations
accounting upon adoption. The company adopted the standard during the first
quarter of 2002. Adoption of the standard did not materially affect the
company's financial statements.
<
F-18
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Adoption of the standard is generally required in 2003. Under the
standard, gains and losses on early extinguishment of debt, currently classified
by the company as extraordinary items, will no longer be treated as such but
instead will be reported as other nonoperating income or expense. Prior periods
will be restated to conform to this presentation.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes Emerging Issues
Task Force Issue (EITF) 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." The standard affects the accounting for
restructuring charges and related activities and generally will lengthen the
timeframe for reporting of expenses relating to restructuring activities beyond
the period in which a plan is initiated. The provisions of this statement are
required to be adopted for exit or disposal activities that are initiated after
2002. The provisions of EITF 94-3 will continue to apply with regard to the
company's previously announced restructuring plans.
In November 2002, the EITF reached a final consensus on EITF Issue No.
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The
provisions of EITF 00-21 are required to be adopted for revenue arrangements
entered into by the company after June 28, 2003, although early adoption is
permitted. EITF 00-21 addresses arrangements with customers that have multiple
deliverables such as equipment and installation and provides guidance as to when
recognition of revenue for each deliverable is appropriate. The company is
evaluating the timing and impact of adoption of EITF 00-21.
In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of FIN No. 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, while the disclosure requirements are applicable in 2002. The
company is complying with the disclosure requirements of FIN No. 45 and is
evaluating the effect the other requirements may have on its financial
statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair-value-based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. As
provided for in SFAS No. 123, the company has elected to apply APB No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans. APB No. 25 does not require
options to be expensed when granted with an exercise price equal to fair market
value. The company is complying with the disclosure requirements of SFAS No.
148.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." The primary objectives of FIN
No. 46 are to provide guidance on the identification of entities for which
control is achieved through means other than through voting rights ("variable
interest entities" or "VIEs") and how to determine when and which business
enterprise should consolidate the VIE. This new model for consolidation applies
to an entity for which either: (a) the equity investors (if any) do not have a
controlling financial interest; or (b) the
<
F-19
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
equity investment at risk is insufficient to finance that entity's activities
without receiving additional subordinated financial support from other parties.
In addition, FIN No. 46 requires that both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE make additional
disclosures. The company is required to apply FIN No. 46 to all new variable
interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the company is
required to apply FIN No. 46 on July 1, 2003. The company does not expect FIN
No. 46 will have a material effect on its financial statements.
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 including
post-closing adjustments (Note 17), in estimating future cash flows to quantify
impairment of assets, and in determining the ultimate loss from abandoning
leases at facilities being exited (Note 15). Actual results could differ from
those estimates.
Note 2. Acquisitions and Dispositions
Acquisitions
In July 2002, the Measurement and Control segment acquired the
radiation-monitoring products business (RMP) of Saint-Gobain Corporation to
further enhance its line of security products. The aggregate purchase price was
$31.4 million in cash. The purchase price exceeded the fair value of the
acquired net assets and, accordingly, $2.4 million has been allocated as
goodwill. RMP is a major supplier of radiation safety, security, and industrial
equipment to the U.S. market, and the leader in personal radiation monitoring in
the United Kingdom.
In a transaction undertaken in April and May 2002, the Life and
Laboratory Sciences segment acquired CRS Robotics Corporation (CRS), a Toronto
Stock Exchange-listed company, for 5.75 Canadian dollars per share
(approximately $3.68 per share). The segment subsequently renamed the business
Thermo CRS. The aggregate purchase price was $43.0 million in cash, net of cash
acquired. The purchase price exceeded the fair value of the acquired net assets
and, accordingly, $21.9 million has been allocated as goodwill. Thermo CRS is a
global supplier of lab automation robotics, software, and equipment to the
drug-discovery market. The acquisition was made to further enhance the segment's
product offering for laboratory automation equipment.
In 2002, in addition to the acquisitions of RMP and CRS, the company made
two other acquisitions for $4.3 million in cash.
<
F-20
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2. Acquisitions and Dispositions (continued)
The components of the purchase price allocation for 2002 acquisitions are
as follows:
CRS RMP Other Total
-------- -------- -------- --------
(In thousands)
Purchase Price:
Cash paid (a) $ 43,187 $ 31,367 $ 4,271 $ 78,825
Cash acquired (142) - - (142)
-------- -------- -------- --------
$ 43,045 $ 31,367 $ 4,271 $ 78,683
======== ======== ======== ========
Allocation:
Current assets $ 5,874 $ 15,620 $ 3,137 $ 24,631
Property, plant, and equipment 837 6,799 - 7,636
Acquired intangible assets 22,935 11,800 2,330 37,065
Goodwill 21,946 2,361 720 25,027
Other assets - 380 - 380
Liabilities assumed and other (8,547) (5,593) (1,916) (16,056)
-------- -------- -------- --------
$ 43,045 $ 31,367 $ 4,271 $ 78,683
======== ======== ======== ========
(a) Includes acquisition expenses.
Acquired intangible assets for 2002 acquisitions are as follows:
CRS RMP Other Total
-------- -------- -------- --------
(In thousands)
Product Technology $ 20,367 $ 8,451 $ 2,330 $ 31,148
Patents - 499 - 499
Trademarks 1,183 864 - 2,047
Other 1,385 1,986 - 3,371
-------- -------- -------- --------
$ 22,935 $ 11,800 $ 2,330 $ 37,065
======== ======== ======== ========
The weighted-average amortization periods for intangible assets acquired
in 2002 are: 11 years for product technology and patents; 6 years for
trademarks; and 8 years for other intangible assets. The weighted-average
amortization period for all intangible assets acquired in 2002 is 10 years.
In 2001 and 2000, the company made several acquisitions for $14.1 million
and $15.8 million in cash, net of cash acquired, respectively.
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 the acquisitions in 2001 and 2000 exceeded the estimated
fair value of the acquired net assets by $25.0 million, which was amortized
principally over 40 years through 2001. Allocation of the purchase price for
acquisitions was based on estimates of the fair value of the net assets acquired
and, for acquisitions completed
<
F-21
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2. Acquisitions and Dispositions (continued)
in 2002, 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 results are not presented as the acquisitions did not
materially affect the company's results of operations individually or in the
aggregate.
The company has undertaken restructuring activities at acquired
businesses. These activities, which were accounted for in accordance with EITF
95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination," have primarily included reductions in staffing levels and the
abandonment of excess facilities. In connection with these restructuring
activities, as part of the cost of acquisitions, the company established
reserves 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 during 2002 is as follows:
Abandonment
of Excess
Severance Facilities Other Total
--------- ----------- ------ ------
(In thousands)
Reserves established $1,727 $ 509 $ 487 $2,723
Payments (477) - - (477)
Currency translation 69 79 12 160
------ ------ ------ -------
Balance at December 28, 2002 $1,319 $ 588 $ 499 $2,406
====== ====== ====== ======
The principal accrued acquisition expenses for 2002 acquisitions were for
severance for approximately 102 employees at the acquired businesses, primarily
in manufacturing, research and development, and sales and service; closure of a
Thermo CRS manufacturing facility in Austria, with a lease expiring in 2003,
whose operations were consolidated into other existing facilities; and
relocation of RMP employees from the seller's operations in Ohio and the United
Kingdom to the company's facilities. The company expects to pay amounts accrued
for acquisition expenses primarily through the third quarter of 2003.
<
F-22
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2. Acquisitions and Dispositions (continued)
A summary of the changes in accrued acquisition expenses for acquisitions
completed before 2000 is as follows:
Abandonment
of Excess
Severance Facilities Other Total
--------- ----------- ------- -------
(In thousands)
Balance at January 1, 2000 $ 5,566 $11,215 $ 2,664 $19,445
Reserves established 90 111 - 201
Payments (2,971) (2,326) (1,034) (6,331)
Decrease recorded as a reduction in goodwill (279) (193) (39) (511)
Reserves of businesses sold (715) (154) (999) (1,868)
Currency translation 155 (976) (79) (900)
------- ------- ------- -------
Balance at December 30, 2000 1,846 7,677 513 10,036
Payments (467) (1,038) (358) (1,863)
Decrease recorded as a reduction in other
intangible assets (720) (194) - (914)
Currency translation (33) (219) (24) (276)
------- ------- ------- -------
Balance at December 29, 2001 626 6,226 131 6,983
Payments (353) (452) (73) (878)
Decrease recorded as a reduction in goodwill
and other intangible assets (329) - (73) (402)
Currency translation 56 648 15 719
------- ------- ------- -------
Balance at December 28, 2002 $ - $ 6,422 $ - $ 6,422
======= ======= ======= =======
The principal acquisition expenses for pre-2000 acquisitions were for
severance for approximately 776 employees across all functions and for abandoned
facilities, primarily related to the company's acquisitions of Life Sciences
International PLC in 1997, the product-monitoring businesses of Graseby Limited
in 1998, and Spectra-Physics AB in 1999. The abandoned facilities for the 1997
and 1998 acquisitions include two operating facilities in North America with
leases that expired in 2001 and four operating facilities in England with leases
expiring through 2014. The abandoned facilities at Spectra-Physics include
operating facilities in Sweden, Germany, and France with obligations that
principally expired in 2001. The amounts captioned as "other" primarily
represent employee relocation, contract termination, and other exit costs. Upon
finalization of restructuring plans or settlement of obligations for less than
the expected amount, any excess reserves have been reversed with a corresponding
decrease in goodwill or other intangible assets when no goodwill exists.
The company did not establish material reserves for restructuring
businesses acquired in 2000 or 2001.
<
F-23
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2. Acquisitions and Dispositions (continued)
Dispositions
In 2002 and 2001, the company's continuing operations sold several
noncore businesses for net cash proceeds of $23.6 million and $46.8 million,
respectively, and recorded $2.5 million of net pretax gains in 2002 and $10.9
million of pretax losses in 2001, which are included in restructuring and other
costs (income), net, in the accompanying statement of operations.
In July 2000, the company's Measurement and Control segment 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 at an initial interest rate of 10%. The note from the buyer called for
repayment in two equal, annual installments beginning in July 2001, but
permitted extension of maturity under certain conditions. Trimble elected to
defer the note payable due in July 2001, and the company and Trimble negotiated
a change in terms in March 2002. Under the revised terms, Trimble paid $11
million of principal, together with $10 million of accrued interest. Maturity
for the remaining balance was extended to July 2004, and the amended note
carries an interest rate of 10.41% and has provisions that require earlier
repayment under certain conditions. Interest on the note is added to the note's
principal balance if payment of the interest would cause Trimble to violate
covenants under its primary bank agreements. As of December 28, 2002, the
principal balance of the note had increased to $69.1 million as a result of this
provision. The note is included in other assets in the accompanying balance
sheet. In addition, the company obtained warrants to purchase up to 376,233
shares of Trimble, of which 200,000 shares were exercisable immediately at
$15.11 per share through 2007, and the balance of which becomes exercisable for
five-year terms at various times and prices depending on the outstanding balance
of the note. At December 28, 2002, warrants to purchase an additional 35,188
shares had become exercisable at prices ranging from $9.18 to $14.46 per share.
Spectra Precision, formerly part of the Measurement and Control segment, was
acquired as part of Spectra-Physics AB in 1999 and provides the construction,
surveying, and heavy-machine industries with precision-positioning equipment.
In addition, 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 costs (income), net,
in the accompanying statement of operations.
Note 3. Business Segment and Geographical Information
The company's businesses are managed in three segments:
Life and Laboratory Sciences: serves the pharmaceutical, biotechnology,
and other research and industrial laboratory markets, as well as scientists in
government and academia, with tools that enable discovery, R&D, and quality
assurance. The segment also serves the healthcare market with rapid
point-of-care diagnostic tests, and with equipment, laboratory-automation
systems, and consumables for clinical and anatomical pathology laboratories.
Measurement and Control: enables customers in key industrial markets,
including chemical, semiconductor, pharmaceutical, food and beverage, minerals
and mining, and steel, to control and optimize their manufacturing processes.
The segment's analytical tools, online process instruments, and precision
temperature-control systems increase quality, improve productivity, and ensure
worker safety, environmental protection, and regulatory compliance. The segment
also offers a comprehensive range of chemical, radiation, and
explosives-detection instruments.
<
F-24
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3. Business Segment and Geographical Information (continued)
Optical Technologies: provides high-power semiconductor and solid-state
lasers, as well as other photonic components and devices used in applications
ranging from industrial and microelectronic manufacturing and scientific
research to medical diagnostics and analytical instrumentation. Under the
Spectra-Physics brand, the segment offers a broad range of photonics products,
an extensive catalog, and specialized services for the design, prototyping, and
manufacturing of optical-based equipment.
During 2002, the company transferred management responsibility for
several businesses between segments as follows: (1) the spectroscopy businesses
were moved to the Life and Laboratory Sciences segment from the Measurement and
Control segment; (2) the temperature-control businesses were moved to the
Measurement and Control segment from the Optical Technologies segment; (3) the
electrochemistry products business was moved to the Measurement and Control
segment from the Life and Laboratory Sciences segment; and (4) the Thermo
Projects unit was moved from a separate segment (previously included as "Other")
to the Life and Laboratory Sciences segment. Prior-period segment information
has been restated to reflect these changes.
2002 2001 2000
---------- ---------- ----------
(In thousands)
Business Segment Information
Revenues:
Life and Laboratory Sciences $1,139,671 $1,113,780 $1,046,087
Measurement and Control 614,377 676,271 880,315
Optical Technologies 342,220 408,935 363,938
Intersegment (a) (9,913) (10,776) (9,818)
---------- ---------- ----------
$2,086,355 $2,188,210 $2,280,522
========== ========== ==========
Income from Continuing Operations Before Provision for Income Taxes,
Minority Interest, Extraordinary Item, and Cumulative Effect of Change
in Accounting Principle:
Life and Laboratory Sciences (b) $ 177,664 $ 105,655 $ 119,622
Measurement and Control (c) 50,288 16,879 181,493
Optical Technologies (d) (22,139) (37,366) 18,665
---------- ---------- ----------
Total Segment Operating Income (e) 205,813 85,168 319,780
Corporate/Other (f) 82,173 (14,487) (134,949)
---------- ---------- ----------
$ 287,986 $ 70,681 $ 184,831
========== ========== ==========
Total Assets:
Life and Laboratory Sciences $1,636,778 $1,454,028 $1,526,741
Measurement and Control 958,267 1,133,303 1,164,371
Optical Technologies 409,551 521,527 493,124
Corporate (g) 642,466 716,212 775,448
Net Assets of Discontinued Operations - - 903,293
---------- ---------- ----------
$3,647,062 $3,825,070 $4,862,977
========== ========== ==========
<
F-25
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3. Business Segment and Geographical Information (continued)
2002 2001 2000
---------- ---------- ----------
(In thousands)
Depreciation:
Life and Laboratory Sciences $ 20,853 $ 21,046 $ 21,548
Measurement and Control 10,131 13,649 18,079
Optical Technologies 14,193 14,633 12,098
Corporate 2,880 2,100 1,189
---------- ---------- ----------
$ 48,057 $ 51,428 $ 52,914
========== ========== ==========
Amortization:
Life and Laboratory Sciences $ 5,323 $ 27,838 $ 24,182
Measurement and Control 1,600 13,344 15,209
Optical Technologies 1,396 5,911 4,681
Corporate - - 500
---------- ---------- ----------
$ 8,319 $ 47,093 $ 44,572
========== ========== ==========
Capital Expenditures:
Life and Laboratory Sciences $ 24,937 $ 28,307 $ 21,689
Measurement and Control 10,329 13,268 21,652
Optical Technologies 13,981 37,218 29,095
Corporate 1,965 6,006 1,603
---------- ---------- ----------
$ 51,212 $ 84,799 $ 74,039
========== ========== ==========
Geographical Information
Revenues (h):
United States $1,379,673 $1,480,033 $1,574,737
England 293,643 315,033 311,660
Germany 244,396 184,175 198,416
Other 567,649 520,133 540,445
Transfers among geographical areas (a) (399,006) (311,164) (344,736)
---------- ---------- ----------
$2,086,355 $2,188,210 $2,280,522
========== ========== ==========
Long-lived Assets (i):
United States $ 168,044 $ 199,111 $ 222,169
England 27,544 24,613 28,215
Germany 27,319 21,358 21,963
Other 57,785 46,840 38,930
---------- ---------- ----------
$ 280,692 $ 291,922 $ 311,277
========== ========== ==========
Export Sales Included in United States Revenues Above (j) $ 376,142 $ 386,799 $ 436,378
========== ========== ==========
<
F-26
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3. Business Segment and Geographical Information (continued)
(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 costs, net, of $18.3 million, $45.6
million, and $24.7 million in 2002, 2001, and 2000, respectively.
(c) Includes restructuring and other costs of $13.3 million and $44.6 million
in 2002 and 2001, respectively, and restructuring and other income, net, of
$99.8 million in 2000.
(d) Includes restructuring and other costs, net, of $27.1 million, $57.1
million, and $6.0 million in 2002, 2001, and 2000, respectively.
(e) Segment operating income is operating income excluding costs incurred at
the company's corporate office.
(f) Includes corporate general and administrative expenses and other income and
expense. Includes corporate restructuring and other costs of $2.6 million,
$11.5 million, and $20.5 million at the company's corporate office in 2002,
2001, and 2000, respectively. Other income and expense includes $111.4
million and $35.1 million of income in 2002 and 2001, respectively, and
$45.1 million of charges in 2000, primarily related to the company's
investment in FLIR, and other expense of $2.8 million for impairment of
investments in 2001.
(g) Primarily cash and cash equivalents, short- and long-term investments, and
property and equipment at the company's corporate office.
(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.
Note 4. Other Income (Expense), Net
The components of other income (expense), net, in the accompanying
statement of operations are as follows:
2002 2001 2000
-------- -------- --------
(In thousands)
Interest Income $ 47,874 $ 68,490 $ 40,151
Interest Expense (Note 10) (40,916) (71,769) (83,142)
Equity in Earnings (Loss) of Unconsolidated Subsidiaries (Note 15) 2,533 4,699 (47,315)
Gain on Investments, Net (Notes 9 and 15) 123,134 35,579 6,849
Other Items, Net (92) (520) 2,273
-------- -------- --------
$132,533 $ 36,479 $(81,184)
======== ======== ========
The company acquired 4,162,000 shares of FLIR common stock in connection
with a business acquired in 1999. FLIR designs, manufactures, and markets
thermal imaging and broadcast camera systems that detect infrared radiation or
heat emitted directly by all objects and materials. Through the first quarter of
2002, the company accounted 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. The investment in FLIR is included in other assets in the accompanying
2001 balance sheet. In December 2001, following a sale of shares, the company's
ownership of FLIR fell below 20%. In the first quarter of 2002, the company
recorded $2.1 million of income as its share of FLIR's fourth quarter 2001
earnings through the date on which the company's ownership fell below 20%.
Effective March 30, 2002, the company accounts for its investment in FLIR as an
available-for-sale security and no longer records its share of FLIR's earnings.
As an available-for-sale security, the investment in FLIR is recorded at quoted
market value in current assets and unrealized gains or losses are recorded as a
part of accumulated other comprehensive items in the accompanying 2002 balance
sheet.
<
F-27
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Other Income (Expense), Net (continued)
The company sold 2,669,700 and 1,150,000 shares of FLIR common stock
during 2002 and 2001, respectively, and realized gains of $111.4 million and
$35.1 million, respectively. These gains included $39.5 million and $14.2
million in 2002 and 2001, respectively, from the recovery of amounts written
down in prior years. At December 28, 2002, the company owned 334,175 shares of
FLIR with a market value of $15.8 million.
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 15).
Summary unaudited financial information for FLIR as of and for the 12
months ended September 30, 2001 and 2000, is as follows:
2001 2000
-------- --------
(In thousands)
Current Assets $118,093 $114,494
Noncurrent Assets 43,903 51,439
-------- --------
Total Assets $161,996 $165,933
======== ========
Current Liabilities $103,804 $132,917
Noncurrent Liabilities 8,948 4,251
Shareholders' Equity 49,244 28,765
-------- --------
Total Liabilities and Shareholders' Equity $161,996 $165,933
======== ========
Twelve Months Ended
---------------------------------
September 30, September 30,
2001 2000
------------- -------------
(In thousands)
Revenues $206,573 $181,562
Cost of Revenues 95,587 114,211
-------- --------
Gross Profit $110,986 $ 67,351
======== ========
Net Earnings (Loss) $ 18,247 $(59,992)
======== ========
<
F-28
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. 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) or by the company's chief
executive officer in limited circumstances, including restricted stock, stock
options, stock bonus shares, or performance-based shares. Generally, options
granted prior to July 2000 under these plans are exercisable immediately, but
shares acquired upon exercise are subject to certain transfer restrictions and
the right of the company to repurchase the shares at the exercise price upon
certain events, primarily termination of employment. The restrictions and
repurchase rights lapse over periods ranging from 0-10 years, depending on the
term of the option, which may range from 3-12 years. Options granted in or after
July 2000 under these plans generally vest over three to five years, assuming
continued employment with certain exceptions. Upon a change in control of the
company, all options, regardless of grant date, become immediately exercisable
and shares acquired upon exercise cease to be subject to transfer restrictions
and the company's repurchase rights. Nonqualified options are generally granted
at fair market value, although options may be granted 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.
Following the completion of a cash tender offer in December 2001 for all
the shares of Spectra-Physics it did not previously own, the company completed a
short-form merger with Spectra-Physics in February 2002. Options to purchase
shares of Spectra-Physics became options to purchase 2,242,000 shares of Thermo
Electron common stock, which was accounted for in accordance with the
methodology set forth in FIN No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" (Note 17).
In August and November 2001, the company distributed all of its shares of
two subsidiaries to the company's shareholders (Note 17). The intrinsic value of
the options issued under the company's employee stock plans prior to the
spinoffs was maintained following the spinoffs in accordance with the
methodology set forth in FIN No. 44. The data in the accompanying tables has
been adjusted to reflect the spinoffs. Options to purchase 908,000 shares of
company common stock held by employees of these businesses were cancelled on the
dates of the spinoffs. These employees received equivalent options in stock of
their respective business.
In 2002, 2001, and 2000, the company awarded to a number of key employees
323,000, 17,120, and 372,800 shares, respectively, of restricted company common
stock or restricted units that convert into an equivalent number of shares of
common stock assuming continued employment, with some exceptions. The awards had
an aggregate value of $6.5 million, $0.4 million, and $7.8 million,
respectively. The awards generally vest over three years, assuming continued
employment, with some exceptions. Of the shares/units awarded in 2002, 112,000
units vested immediately. During 2000, 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 the amount over the vesting
periods.
<
F-29
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Employee Benefit Plans (continued)
A summary of the company's stock option activity is as follows:
2002 2001 2000
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
(Shares in thousands)
Options Outstanding, Beginning of Year 19,663 $17.78 24,579 $16.62 15,849 $16.86
Granted 5,322 19.69 3,086 22.00 2,595 18.49
Assumed in mergers with subsidiaries (Note 17) 2,242 42.71 - - 16,221 14.62
Exercised (2,049) 13.03 (4,258) 13.16 (5,915) 13.53
Forfeited (2,706) 26.46 (2,836) 19.27 (4,171) 15.25
Canceled due to spinoffs - - (908) 17.53 - -
------ ------ ------
Options Outstanding, End of Year 22,472 $20.11 19,663 $17.78 24,579 $16.62
====== ====== ====== ====== ====== ======
Options Exercisable 11,391 $19.44 15,612 $16.83 23,120 $16.41
====== ====== ====== ====== ====== ======
Options Available for Grant 3,667 8,234 3,826
====== ====== ======
A summary of the status of the company's stock options at December 28, 2002, is as follows:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of of Remaining Exercise of Exercise
Exercise Prices Shares Contractual Life Price Shares Price
----------------- ------ ---------------- -------- ------ --------
(Shares in thousands)
$ 3.49 - $ 11.20 2,731 3.1 years $ 9.17 1,986 $ 9.24
11.21 - 16.99 6,008 3.3 years 14.43 4,416 14.57
17.00 - 20.85 7,627 6.8 years 19.50 1,862 18.75
20.86 - 30.50 4,127 5.4 years 23.89 1,889 24.35
30.51 - 38.22 1,029 5.6 years 33.94 641 33.60
38.23 - 69.10 803 7.2 years 56.01 505 55.49
69.11 - $196.48 147 6.8 years 88.35 92 90.56
------ ------
$ 3.49 - $196.48 22,472 5.1 years $20.11 11,391 $19.44
====== ======
<
F-30
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Employee Benefit Plans (continued)
Employee Stock Purchase Plan
Qualifying 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.
Effective with the 2002 plan year, the company changed the fiscal year-end of
its plan from October 31 to December 31. In February 2003, the company issued
147,000 shares of its common stock for the 2002 plan year. During 2001 and 2000,
the company issued 184,000 shares and 693,000 shares, respectively, of its
common stock under this plan.
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 $20.0
million, $19.0 million, and $18.0 million in 2002, 2001, and 2000, 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 those 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:
2002 2001 2000
------- ------- -------
(In thousands)
Service Cost $ 1,778 $ 2,615 $ 2,238
Interest Cost on Benefit Obligation 4,245 3,941 3,834
Expected Return on Plan Assets (4,567) (4,951) (5,793)
Recognized Net Actuarial (Gain) Loss 106 (19) (180)
Amortization of Unrecognized Gain - - (2)
Amortization of Unrecognized Initial Obligation 37 35 36
------- ------- -------
$ 1,599 $ 1,621 $ 133
======= ======= =======
<
F-31
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Employee Benefit Plans (continued)
The activity under the company's defined benefit plans is as follows:
2002 2001
-------- --------
(In thousands)
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 67,169 $ 73,772
Service cost 1,778 2,615
Interest cost 4,245 3,941
Benefits paid (2,841) (2,212)
Actuarial (gain) loss 5,999 (8,358)
Currency translation 8,814 (2,589)
-------- --------
Benefit obligation, end of year 85,164 67,169
-------- --------
Change in Plan Assets:
Fair value of plan assets, beginning of year 62,555 76,579
Company contributions 634 580
Benefits paid (2,841) (2,212)
Actual loss on plan assets (10,275) (10,064)
Currency translation 6,060 (2,328)
-------- --------
Fair value of plan assets, end of year 56,133 62,555
-------- --------
Funded Status (29,031) (4,614)
Unrecognized Net Actuarial Loss 29,997 7,126
Unrecognized Initial Obligation 40 67
-------- --------
Net Amount Recognized $ 1,006 $ 2,579
======== ========
Amounts Recognized in the Balance Sheet:
Prepaid pension asset $ - $ 16,468
Accrued pension liability (26,104) (13,956)
Other assets 40 67
Accumulated other comprehensive items 27,070 -
-------- --------
Net Amount Recognized $ 1,006 $ 2,579
======== ========
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 $85.2 million, $80.5 million,
and $56.1 million, respectively, at year-end 2002, and $18.5 million, $17.6
million, and $5.6 million, respectively, at year-end 2001.
The weighted average rates used to determine the net periodic benefit
costs were as follows:
2002 2001 2000
---- ---- ----
Discount Rate 5.8% 6.1% 5.6%
Rate of Increase in Salary Levels 3.7% 4.4% 4.4%
Expected Long-term Rate of Return on Assets 7.4% 7.0% 6.9%
<
F-32
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. 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:
2002 2001 2000
-------- -------- --------
(In thousands)
U.S. $210,171 $ 5,745 $ 91,342
Non-U.S. 77,815 64,936 93,489
-------- -------- --------
$287,986 $ 70,681 $184,831
======== ======== ========
The components of the provision for income taxes of continuing operations are as follows:
2002 2001 2000
-------- -------- --------
(In thousands)
Currently Payable:
Federal $ 54,154 $ 11,117 $ 55,819
Non-U.S. 24,115 23,572 53,586
State 1,837 3,318 8,311
-------- -------- --------
80,106 38,007 117,716
-------- -------- --------
Net Deferred (Prepaid):
Federal 11,086 (12,787) (635)
Non-U.S. 1,429 2,667 (4,535)
State 366 (958) (329)
-------- -------- --------
12,881 (11,078) (5,499)
-------- -------- --------
$ 92,987 $ 26,929 $112,217
======== ======== ========
The total provision for income taxes included in the accompanying
statement of operations is as follows:
2002 2001 2000
--------- --------- ---------
(In thousands)
Continuing Operations $ 92,987 $ 26,929 $ 112,217
Discontinued Operations - - 10,427
Gain/Loss on Disposal of Discontinued Operations (21,008) (22,741) (104,000)
Extraordinary Item (522) 637 333
Cumulative Effect of Change in Accounting Principle - (663) (8,543)
--------- --------- ---------
$ 71,457 $ 4,162 $ 10,434
========= ========= =========
The company receives 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 $6.7
million, $9.5 million, and $18.0 million of such benefits of the company that
have been allocated to capital in excess of par value in 2002, 2001, and 2000,
respectively. In addition, the provision for income taxes that is currently
payable does not reflect $19.0 million of tax benefits used to reduce goodwill
in 2000.
<
F-33
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Income Taxes (continued)
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:
2002 2001 2000
-------- -------- --------
(In thousands)
Provision for Income Taxes at Statutory Rate $100,795 $ 24,738 $ 64,691
Increases (Decreases) Resulting From:
Federal tax credits (3,016) (2,955) (4,113)
Foreign sales corporation/extraterritorial income exclusion (2,357) (2,401) (7,325)
Losses not benefited in the year they occurred (3,192) (4,687) 1,005
Non-U.S. tax rate and tax law differential (1,873) (1,017) 301
State income taxes, net of federal tax 1,432 1,535 5,188
Nondeductible expenses 927 926 1,347
Goodwill of businesses sold 206 - 30,190
Amortization and write off of goodwill 151 13,095 11,330
Writedown and equity in loss of unconsolidated subsidiary - - 12,062
Other, net (86) (2,305) (2,459)
-------- -------- --------
$ 92,987 $ 26,929 $112,217
======== ======== ========
Net deferred tax asset in the accompanying balance sheet consists of the following:
2002 2001
-------- --------
(In thousands)
Deferred Tax Asset (Liability):
Net operating loss and credit carryforwards $ 66,859 $ 46,568
Reserves and accruals 49,408 52,234
Inventory basis difference 31,308 39,246
Accrued compensation 19,506 10,952
Depreciation and amortization (5,252) 11,299
Available-for-sale investments (15,162) (18,114)
Other, net 734 (2,750)
-------- --------
147,401 139,435
Less: Valuation allowance 65,476 45,370
-------- --------
$ 81,925 $ 94,065
======== ========
The company estimates the degree to which tax assets and loss
carryforwards will result in a benefit based on expected profitability by tax
jurisdiction and provides a valuation allowance for tax assets and loss
carryforwards that it believes will more likely than not go unused.
Approximately $8 million of the valuation allowance in 2002 relates to
unbenefited foreign tax credit carryforwards. The balance of the valuation
allowance primarily relates to the uncertainty surrounding the realization of
acquired tax loss and credit carryforwards. Any tax benefit resulting from the
use of acquired loss carryforwards is used to reduce goodwill.
<
F-34
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Income Taxes (continued)
At year-end 2002, the company had federal, state, and non-U.S. net
operating loss carryforwards of $3 million, $322 million, and $139 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 2003 through 2021. Of the non-U.S. net operating loss
carryforwards, $12 million expire in the years 2003 through 2015, and the
remainder do not expire.
A provision has not been made for U.S. or additional non-U.S. taxes on
$576 million of undistributed earnings of international subsidiaries that could
be subject to taxation if remitted to the U.S. because the company plans to keep
these amounts permanently reinvested overseas.
Note 7. Earnings (Loss) per Share
2002 2001 2000
--------- --------- ---------
(In thousands except per share amounts)
Income from Continuing Operations Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle $ 195,330 $ 49,592 $ 62,047
Income from Discontinued Operations - - 14,228
Gain (Loss) on Disposal of Discontinued Operations, Net 115,370 (50,440) (100,000)
Extraordinary Item (970) 1,061 532
Cumulative Effect of Change in Accounting Principle - (994) (12,918)
--------- --------- ---------
Net Income (Loss) for Basic Earnings per Share 309,730 (781) (36,111)
Effect of:
Convertible debentures 13,986 - -
Majority-owned subsidiaries' dilutive securities - continuing operations - - (1,331)
Majority-owned subsidiaries' dilutive securities - discontinued operations - - (113)
--------- --------- ---------
Income (Loss) Available to Common Shareholders, as Adjusted for Diluted
Earnings per Share $ 323,716 $ (781) $ (37,555)
--------- --------- ---------
Basic Weighted Average Shares 168,572 180,560 167,462
Effect of:
Convertible debentures 15,952 463 238
Stock options 2,068 2,893 2,819
Contingently issuable shares 19 - -
--------- --------- ---------
Diluted Weighted Average Shares 186,611 183,916 170,519
--------- --------- ---------
<
F-35
>
THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Earnings (Loss) per Share (continued)
2002 2001 2000
--------- --------- ---------
(In thousands except per share amounts)
Basic Earnings (Loss) per Share:
Continuing operations before extraordinary item and cumulative effect of
change in accounting principle $ 1.16 $ .27 $ .37
Discontinued operations .68 (.28) (.51)
Extraordinary item (.01) .01 -
Cumulative effect of change in accounting principle - (.01) (.08)
--------- --------- ---------
$ 1.84 $ - $ (.22)
========= ========= =========
Diluted Earnings (Loss) per Share:
Continuing operations before extraordinary item and cumulative effect of
change in accounting principle $ 1.12 $ .27 $ .36
Discontinued operations .62 (.27) (.50)
Extraordinary item (.01) .01 -
Cumulative effect of change in accounting principle - (.01) (.08)
--------- --------- ---------
$ 1.73 $ - $ (.22)
========= ========= =========
Options to purchase 10,786,000, 4,755,000, and 4,726,000 shares of common
stock were not included in the computation of diluted earnings (loss) per share
for 2002, 2001, and 2000, respectively, because the options' exercise prices
were greater than the average market price for the common stock and their effect
would have been antidilutive.
The computation of diluted earnings per share for 2002 excludes the
effect of assuming the conversion of the company's 4 3/8% subordinated
convertible debentures with a principal balance of $71.9 million and convertible
at $111.83 per share, because the effect would be antidilutive. The computation
of diluted earnings (loss) per share for 2001 and 2000 excludes the effect of
all convertible debentures except the company's noninterest-bearing subordinated
convertible debentures because the effect would be antidilutive.
Note 8. Comprehensive Income
Comprehensive income combines net income (loss) and other comprehensive
items. Other comprehensive items represents certain amounts that are reported as
components of shareholders' equity in the accompanying balance sheet, including
currency translation adjustments, unrealized net of tax gains and losses on
available-for-sale investments and hedging instruments, and minimum pension
liability adjustment.
Accumulated other comprehensive items in the accompanying balance sheet
consists of the following:
2002 2001
--------- ---------
(In thousands)
Cumulative Translation Adjustment $ (41,448) $(132,709)
Net Unrealized Gains on Available-for-sale Investments 28,229 32,081
Net Unrealized Gains (Losses) on Hedging Instruments (1,490) 1,338
Minimum Pension Liability Adjustment (net of tax benefit of $8,121) (18,949) -
--------- ---------
$ (33,658) $ (99,290)
========= =========
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Comprehensive Income (continued)
Comprehensive income in 2002 excludes the effect of unrealized gains of
$111 million that existed at the date the company reclassified equity interests
in FLIR and Thoratec Corporation to available-for-sale investments (Notes 4 and
17).
The change in unrealized gains (losses) on available-for-sale
investments, a component of other comprehensive items in the accompanying
statement of comprehensive income and shareholders' equity, includes the
following:
2002 2001 2000
-------- -------- --------
(In thousands)
Unrealized Holding Gains (Losses) Arising During the Year (net of
income tax provision (benefit) of $(22,067), $12,136, and $5,257) $(34,481) $ 21,077 $ 8,668
Reclassification Adjustment for Gains Included in Net Income/ Loss
(net of income tax provision of $15,746, $505, and $2,739) (31,413) (757) (4,110)
-------- -------- --------
Net Unrealized Gains (Losses) (net of income tax provision (benefit)
of $(37,813), $11,631, and $2,518) $(65,894) $ 20,320 $ 4,558
======== ======== ========
The change in unrealized gains (losses) on hedging instruments, a
component of other comprehensive items in the accompanying statement of
comprehensive income and shareholders' equity, includes the following:
2002 2001
------- -------
(In thousands)
Unrealized Holding Gains (Losses) Arising During the Year (net of
income tax provision (benefit) of $(1,794) and $2,861) $(2,852) $ 4,330
Reclassification Adjustment for (Gains) Losses Included in Net
Income/Loss (net of income tax (provision) benefit of $15 and
$(1,995)) 24 (2,992)
------- -------
Net Unrealized Gains (Losses) (net of income tax provision (benefit)
of $(1,779) and $866) $(2,828) $ 1,338
======= =======
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9. Available-for-sale Investments
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
Value Basis Gains Losses
-------- -------- ---------- ----------
(In thousands)
2002
Corporate Bonds and Notes $431,222 $424,681 $ 6,731 $ (190)
Other 105,208 68,321 37,138 (251)
-------- -------- -------- --------
$536,430 $493,002 $ 43,869 $ (441)
======== ======== ======== ========
2001
Corporate Bonds and Notes $682,520 $666,432 $ 16,372 $ (284)
Other 71,161 37,054 34,231 (124)
-------- -------- -------- --------
$753,681 $703,486 $ 50,603 $ (408)
======== ======== ======== ========
Amortized cost for short-term available-for-sale investments was $493.0
million and $697.8 million in the accompanying 2002 and 2001 balance sheets,
respectively. Amortized cost for long-term available-for-sale investments was
$5.7 million in the accompanying 2001 balance sheet.
Short-term available-for-sale investments in the accompanying 2002
balance sheet include equity securities of $105.2 million and debt securities of
$350.7 million with contractual maturities of one year or less and $80.5 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.
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 $126.6
million, $5.0 million, and $9.3 million, and gross realized losses of $3.5
million, $3.7 million, and $2.5 million in 2002, 2001, and 2000, respectively.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10. Long-term Obligations and Other Financing Arrangements
2002 2001
---------- ----------
(In thousands except
per share amounts)
7 5/8% Senior Notes, Due 2008 $ 141,032 $ 128,725
4% Subordinated Convertible Debentures, Due 2005, Convertible at $35.77 per Share 226,501 231,508
3 1/4% Subordinated Convertible Debentures, Due 2007, Convertible at $41.84 per Share 78,048 78,048
4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible at $111.83 per Share
(called for redemption in April 2003; Note 19) 71,873 75,168
Noninterest-bearing Subordinated Convertible Debentures, Due 2003, Convertible at $61.67
per Share 31,320 31,420
2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible at $28.16 per Share 11,536 11,583
4 1/2% Senior Convertible Debentures, Due 2003, Convertible at $34.42 per Share (called
for redemption in October 2002) - 145,414
4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $32.09 per Share
(called for redemption in March 2002) - 398,498
4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible at $34.22 per Share
(called for redemption in March 2002) - 69,614
4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible at $32.50 per Share
(called for redemption in October 2002) - 17,650
Other 8,175 10,303
---------- ----------
568,485 1,197,931
Less: Current Maturities 117,144 470,429
---------- ----------
$ 451,341 $ 727,502
========== ==========
As a result of the spinoffs to shareholders discussed in Note 17, the
conversion price of each of the company's convertible debentures was reduced in
2001 to approximately 85% of the conversion price at December 30, 2000, in
accordance with the terms of the convertible debentures.
Outstanding debentures issued by subsidiaries that were taken private in
transactions in which the consideration paid to stockholders of the subsidiary
was Thermo Electron common stock have become convertible into the company's
common stock. Outstanding debentures issued by subsidiaries that were taken
private in transactions in which the consideration paid to stockholders of the
subsidiary was cash became convertible into an amount based on the same cash
consideration payable in the merger transactions. 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.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10. Long-term Obligations and Other Financing Arrangements (continued)
The annual requirements for long-term obligations are as follows (in
thousands):
2003 $117,144
2004 1,016
2005 226,945
2006 405
2007 78,471
2008 and thereafter 144,504
--------
$568,485
========
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 $75.4 million and $58.5 million at
year-end 2002 and 2001, 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 2.3% and 3.1% at
year-end 2002 and 2001, respectively. Unused lines of credit for non-U.S.
subsidiaries were $180 million as of year-end 2002. The unused lines of credit
generally provide for short-term unsecured borrowings at various interest rates.
In addition, the company has facilities of $250 million discussed below.
In 2002, the company redeemed all of its outstanding 4 1/2% senior
convertible debentures due 2003, 4 1/4% and 4 5/8% subordinated convertible
debentures due 2003, and 4 7/8% subordinated convertible debentures due 2004
with the objective of reducing interest costs. The principal amounts redeemed
for the 4 1/2%, 4 1/4%, 4 5/8%, and 4 7/8% debentures were $121.1 million,
$398.4 million, $57.9 million, and $13.3 million, respectively. The redemption
price was 100% of the principal amount of the debentures plus accrued interest.
Redemptions and repurchases of subordinated convertible debentures resulted in
an extraordinary charge of $1.0 million, net of a tax benefit of $0.5 million,
in 2002, and extraordinary gains of $1.1 million and $0.5 million in 2001 and
2000, respectively. The gains are net of taxes of $0.6 million and $0.3 million
in 2001 and 2000, respectively. Effective in 2003, gains or losses resulting
from the repurchase or redemption of the company's debentures will be reported
as other nonoperating income or expense, and prior periods will be restated to
conform to this presentation (Note 1).
In connection with the 2002 debt redemption discussed above, the company
entered into securities-lending agreements with third parties under which the
company may borrow funds for short-term needs. Borrowings are collateralized by
available-for-sale investments. As of December 28, 2002, the company had
outstanding borrowings of $292.0 million under these arrangements with
maturities between January 2003 and June 2003 and a weighted average interest
rate of 1.87%. The proceeds of the borrowings were used to partially fund the
debt redemption discussed above. The company has pledged $306.6 million of
available-for-sale securities in the accompanying 2002 balance sheet as
collateral for such borrowings.
In December 2002, the company entered into revolving credit agreements
with a bank group that provide for up to $250 million of unsecured borrowings.
These arrangements consist of a 364-day revolving credit facility of $125
million that will expire in December 2003, and a three-year $125 million
revolving credit facility that will expire in December 2005. The agreements call
for interest at either a LIBOR-based rate or a rate based on the prime lending
rate of the agent bank, at the company's option. The rate at December 28, 2002,
was 2.14% under the more favorable of the two rates. The company has agreed to
certain financial covenants including interest coverage and debt-to-capital
ratios. As of year-end 2002, no borrowings were outstanding. The company may use
the credit facilities for working capital needs and possible acquisitions.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10. Long-term Obligations and Other Financing Arrangements (continued)
During 2002, the company entered into interest-rate swap arrangements for
its $128.7 million principal amount 7.625% senior notes, due in 2008, with the
objective of reducing interest costs. The arrangements provide that the company
will receive a fixed interest rate of 7.625%, and will pay a variable rate of
90-day LIBOR plus 2.19% (3.58% as of December 28, 2002). The swaps have terms
expiring at the maturity of the debt. The swaps are designated as fair-value
hedges and as such, are carried at fair value, which resulted in an increase in
other long-term assets and long-term debt of $12.3 million at December 28, 2002.
The swap arrangements are with different counterparties than the holders of the
underlying debt. Management believes that any credit risk associated with the
swaps is remote based on the creditworthiness of the financial institutions
issuing the swaps.
Note 11. Commitments and Contingencies
Operating Leases
The company leases portions of its office and operating facilities under
various operating lease arrangements. Income from continuing operations includes
expense from operating leases of $36.0 million, $43.9 million, and $42.2 million
in 2002, 2001, and 2000, respectively. Future minimum payments due under
noncancelable operating leases at December 28, 2002, are $40.3 million in 2003,
$36.2 million in 2004, $30.3 million in 2005, $22.9 million in 2006, $20.0
million in 2007, and $83.1 million in 2008 and thereafter. Total future minimum
lease payments are $232.8 million.
Letters of Credit and Guarantees
Outstanding letters of credit totaled $44.6 million at December 28, 2002,
including $7.4 million for businesses that have been sold. The expiration of
these credits ranges through 2012 for existing businesses and through 2003 for
businesses that have been sold.
Outstanding surety bonds totaled $26.0 million at December 28, 2002,
including $23.1 million for businesses that have been sold or included within
discontinued operations. The expiration of these bonds ranges through 2010 for
existing businesses and primarily through 2006 for businesses that have been
sold and for discontinued operations.
The letters of credit and surety bonds principally secure performance
obligations, and allow the holder to draw funds up to the face amount of the
letter of credit or bond if the applicable business unit does not perform as
contractually required.
The company has other outstanding guarantees totaling $1.2 million at
December 28, 2002, that relate to the payment of customs and third-party
indebtedness of an equity investee. These carry no expiration.
Indemnifications
In conjunction with certain transactions, primarily divestitures, the
company has agreed to indemnify the other parties with respect to certain
liabilities related to the businesses that were sold or leased properties that
were abandoned (e.g., retention of certain environmental, tax, employee, and
product liabilities). The scope and duration of such indemnity obligations vary
from transaction to transaction. Where appropriate, an obligation for such
indemnifications is recorded as a liability. Generally, a maximum obligation
cannot be reasonably estimated. Other than obligations recorded as liabilities
at the time of divestiture, historically the company has not made significant
payments for these indemnifications.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11. Commitments and Contingencies (continued)
In connection with the company's efforts to reduce the number of
facilities that it occupies, the company has vacated some of its leased
facilities or sublet them to third parties. When the company sublets a facility
to a third party, it remains the primary obligor under the master lease
agreement with the owner of the facility. As a result, if a third party vacates
the sublet facility, the company would be obligated to make lease or other
payments under the master lease agreement. The company believes that the
financial risk of default by sublessors is individually and in the aggregate not
material to the company's financial position or results of operations.
In connection with the sale of products in the ordinary course of
business, the company often makes representations affirming, among other things,
that its products do not infringe on the intellectual property rights of others
and agrees to indemnify customers against third-party claims for such
infringement. The company has not been required to make material payments under
such provisions.
Litigation and Related Contingencies
Continuing Operations
- ---------------------
The company has been named a defendant, along with many other companies,
in a patent-infringement lawsuit brought by the Lemelson Medical, Education &
Research Foundation, L.P. The suit asserts that products manufactured, used, or
sold by the defendants infringe one or more patents related to methods of
machine vision or computer-image analysis. The Lemelson action seeks damages,
including enhanced damages for alleged willful infringement, attorney's fees,
and injunctive relief.
During 2002, the company settled a patent-infringement matter that
Rockwell International Corp. had brought against Spectra-Physics and its Opto
Power subsidiary. Under the settlement, the company paid Rockwell $4.0 million.
The settlement was charged against a reserve established for this matter except
for $0.7 million that was included in restructuring and other costs in the
accompanying 2002 statement of operations (Note 15).
Discontinued Operations
- -----------------------
The company's Thermo Coleman Corporation subsidiary has been named as a
defendant in a lawsuit initiated by two former employees. The suit alleges,
among other things, that Thermo Coleman violated the Federal False Claims Act in
connection with the performance of a government contract. The complaint seeks
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. Thermo Coleman sold its core business in 2000, but retained this
litigation as a term of the sale.
During 2002, the company settled a patent-infringement matter that
Fischer Imaging Corporation had brought against the company's former Trex
Medical subsidiary. The company sold Trex Medical in 2000, but retained this
obligation as a term of the sale. Under the settlement, the company paid Fischer
$25 million and agreed to pay an additional $7.2 million over eight years. The
portion of the settlement that was paid was charged against a reserve
established for this matter. The balance of the amount to be paid will also be
charged against the reserve as paid.
The company intends to vigorously defend the unresolved matters in
continuing and discontinued operations described above. In the opinion of
management, an unfavorable outcome in one or more of the unresolved matters
described above could materially affect the company's financial position as well
as its results of operations and cash flows for a particular quarterly or annual
period.
The company's continuing and discontinued operations are a defendant in a
number of other pending legal proceedings incidental to present and former
operations. The company does not expect the outcome of these proceedings, either
individually or in the aggregate, to have a material adverse effect on its
financial position, results of operations, or cash flows.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 12. Common and Preferred Stock
At December 28, 2002, the company had reserved 36,594,369 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 50,000 shares of authorized but unissued $100 par value
preferred stock.
In 2002, the company restored 32,000,000 shares of common stock to
authorized but unissued status, which had been held in treasury 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 17).
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 existed
after 2000.
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
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.
<
F-43
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 13. Fair Value of Financial Instruments
The company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, a note
receivable from Trimble (Note 2), short-term obligations and current maturities
of long-term obligations, accounts payable, long-term obligations, and forward
currency-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), 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 9).
The carrying amount and fair value of the company's note receivable,
long-term obligations, and forward currency-exchange contracts are as follows:
2002 2001
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands)
Note Receivable $ 69,136 $ 70,002 $ 80,000 $ 80,201
======== ======== ======== ========
Current Maturities of Convertible Obligations $114,729 $112,121 $468,112 $466,720
======== ======== ======== ========
Long-term Obligations:
Convertible obligations $304,549 $292,138 $590,791 $562,264
Other 146,792 146,792 136,711 140,006
-------- -------- -------- --------
$451,341 $438,930 $727,502 $702,270
======== ======== ======== ========
Forward Currency-exchange Contracts Receivable $ 1,111 $ 1,111 $ 3,585 $ 3,585
The fair value of the note receivable was determined based on borrowing
rates available to companies of comparable creditworthiness at the respective
year ends.
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 notional amounts of forward currency-exchange contracts outstanding
totaled $89.2 million and $90.1 million at year-end 2002 and 2001, respectively.
The fair value of such contracts is the estimated amount that the company would
receive upon liquidation of the contracts, taking into account the change in
currency exchange rates.
<
F-44
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14. Supplemental Cash Flow Information
2002 2001 2000
-------- -------- --------
(In thousands)
Cash Paid For
Interest $ 51,156 $ 61,797 $ 84,380
======== ======== ========
Income taxes $ 64,309 $ 44,822 $ 93,136
======== ======== ========
Noncash Activities
Fair value of assets of acquired companies $ 94,881 $ 18,161 $ 25,114
Cash paid for acquired companies (78,825) (14,834) (17,311)
-------- -------- --------
Liabilities assumed of acquired companies $ 16,056 $ 3,327 $ 7,803
======== ======== ========
Issuance of company common stock in exchange for minority
interests of subsidiaries (Note 17) $ - $ - $448,747
======== ======== ========
Receipt of note in connection with sale of business (Note 2) $ - $ - $ 80,000
======== ======== ========
Note 15. Restructuring and Other Costs (Income), Net
2002
In response to a continued downturn in markets served by the company,
restructuring actions were initiated in 2002 in a number of business units to
reduce costs and shed unproductive assets. The restructuring and related actions
primarily consisted of headcount reductions, writedowns of production equipment
for telecommunications products at Spectra-Physics, discontinuation of three
mature or unprofitable product lines, and consolidation of facilities to
streamline operations and reduce costs. During 2002, the company recorded $61.3
million of restructuring and other charges primarily associated with these
actions, including $9.1 million of charges to cost of revenues. These charges
are detailed by segment below. The company expects to incur an additional $6
million of restructuring costs in 2003 for charges associated with these actions
that cannot be recorded until incurred, such as relocation and moving costs. The
company believes that restructuring actions undertaken in 2002 will be
substantially completed by mid-2003. The company expects to identify additional
sites to consolidate in 2003 and will record charges in connection with any such
actions.
The company recorded net restructuring and other charges by segment for
2002 as follows:
Life and
Laboratory Measurement Optical
Sciences and Control Technologies Corporate Total
---------- ----------- ------------ --------- -------
(In thousands)
Cost of Revenues $ 734 $ 1,384 $ 7,008 $ - $ 9,126
Restructuring and Other Costs, Net 17,572 11,910 20,102 2,562 52,146
------- ------- ------- ------- -------
$18,306 $13,294 $27,110 $ 2,562 $61,272
======= ======= ======= ======= =======
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
The components of net restructuring and other charges by segment are as
follows:
Life and Laboratory Sciences
- ----------------------------
The Life and Laboratory Sciences segment recorded $18.3 million of net
restructuring and other charges in 2002. The segment recorded charges to cost of
revenues of $0.7 million, which consisted of $0.5 million for the sale of
inventory revalued at the date of acquisition and $0.2 million for a
discontinued product line, and $17.6 million of other costs. These other costs
consisted of $11.4 million of cash costs, including $5.2 million of severance
for 236 employees across all functions; $2.0 million of ongoing lease costs
through 2005 for abandoned facilities described below; $1.4 million of
employee-retention costs; $0.7 million of pension costs for terminated employees
that was accrued as a pension liability; $0.5 million for the termination of a
distributor agreement; and $1.6 million of other cash costs, primarily
relocation expenses. In addition, the segment realized a net loss of $4.8
million on the sale of assets and small business units, principally its Dynex
automated diagnostics product line, and wrote down $1.4 million of fixed assets
at abandoned facilities. The abandoned-facility costs included $1.6 million of
additional expense related to a facility in Finland that was abandoned in 2001,
at which time the segment recorded estimated abandonment cost. The segment has
been unable to sublease the space and has reserved the remaining obligation
through the expiration of the lease in 2005. Other facility consolidations in
2002 included closure of three sales and services offices in the Netherlands,
the United Kingdom, and California, and a manufacturing facility in Texas. The
activities of these facilities were transferred to other locations. In addition,
certain other office and manufacturing space in Massachusetts that was abandoned
and reserved for in 2001 has been occupied by the company's Measurement and
Control segment, and consequently, the remaining reserve for abandonment of $1.5
million has been reversed.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $13.3 million of net
restructuring and other charges in 2002. The segment recorded charges to cost of
revenues of $1.4 million for the sale of inventory revalued at the date of
acquisition, and $11.9 million of other costs. These other costs consisted of
$20.1 million of cash costs, including $10.7 million of severance for 352
employees across all functions; $4.9 million of ongoing lease costs through 2007
for abandoned facilities described below; $2.0 million of employee-retention
costs; and $2.5 million of other cash costs, primarily relocation expenses. The
charge also included $0.5 million of asset writedowns, and was offset by $8.7
million of net gains, primarily on the sale of businesses, principally the
segment's Thermo BLH and Thermo Nobel subsidiaries (Note 2). The charges for
severance, abandoned facilities, and other items are net of reversals of $2.4
million, $2.3 million, and $0.4 million, respectively, that the segment had
provided in 2000 and 2001. Of the total amount reversed, $2.1 million had been
initially provided in 2001 to downsize the segment's operations in Maryland.
During 2002, following a change in that operation's management, the 2001 plan to
restructure the Maryland operations was substantially revised to include closure
of the plant. The amounts provided in 2001 were reversed and all of the actions
contemplated in the 2001 plan are components of the expanded 2002 plan, recorded
in 2002. The remainder of the 2000 and 2001 plan reserves that were reversed
were not required primarily due to employee attrition and favorable settlement
of lease obligations. The facility consolidations in the 2002 plan included
closure of six manufacturing facilities in the United States and one sales and
service facility in Australia, and the transfer of their activities to other
locations.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $27.1 million of net
restructuring and other charges in 2002. The segment recorded charges to cost of
revenues of $7.0 million, which consisted of $6.5 million for two discontinued
product lines and $0.5 million for the sale of inventory revalued at the date of
acquisition, and $20.1 million of other costs. These other costs consisted of
$10.7 million of cash costs, including $6.4 million of severance for 315
employees across all functions; $1.6 million of ongoing lease costs, primarily
for abandoned equipment; $0.5 million of employee-retention costs; $0.7 million
for the settlement of litigation (Note 11); $1.1 million of cancellation fees
for
<
F-46
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
fixed asset purchases; and $0.4 million of other cash costs, primarily
relocation expenses. The charges for severance and abandoned facilities are net
of reversals of $1.3 million and $3.3 million, respectively, that the segment
had provided in 2001 and 2002. The severance reserves that were reversed were no
longer required primarily due to employee attrition. The reversal of the
abandoned facility reserves is primarily due to the favorable settlement of
lease obligations. In addition, this segment wrote off assets totaling $8.8
million, primarily for abandoned telecommunication and other manufacturing
equipment. The segment also recorded a charge of $0.8 million as a result of the
options to purchase shares of Spectra-Physics becoming options to purchase
shares of Thermo Electron, following the acquisition of the minority interest in
this business in February 2002 (Note 17). These charges were offset in part by a
$0.2 million net gain from the sale of a small business unit and land. Following
these actions in 2002, the company suspended initiatives for products that
address telecom markets based on the continuing economic downturn in these
markets.
Corporate
- ---------
The company recorded $2.6 million of restructuring and other charges at
its corporate office in 2002, which were primarily cash costs, principally for
third-party advisory fees. While the company no longer has any public
subsidiaries, it has numerous non-U.S. subsidiaries through which the formerly
public subsidiaries conducted business. The third-party advisory fees are being
incurred to simplify this legal structure.
2001
In response to a downturn in telecommunications, semiconductor, and other
markets served by the company's businesses and in an effort to further integrate
business units, the company initiated restructuring actions in the second
quarter of 2001 in a number of business units to reduce costs and shed
unproductive assets. Further actions were initiated in the fourth quarter of
2001. The restructuring and related actions primarily consisted of headcount
reductions, writedowns of telecommunication equipment and excess
telecommunication inventories at Spectra-Physics, discontinuation of a number of
mature or unprofitable product lines, and consolidation of facilities to
streamline operations and reduce costs. During 2001, the company recorded $158.8
million of restructuring and other charges primarily associated with these
actions, including $26.1 million of charges to cost of revenues. In addition,
the company recorded $2.8 million of other nonoperating charges during 2001.
These charges are detailed by segment below.
The company recorded net restructuring and other charges by segment for
2001 as follows:
Life and
Laboratory Measurement Optical
Sciences and Control Technologies Corporate Total
---------- ----------- ------------ --------- --------
(In thousands)
Cost of Revenues $ 6,863 $ 8,196 $ 11,036 $ - $ 26,095
Restructuring and Other Costs, Net 38,696 36,396 46,092 11,518 132,702
Loss on Investments - 1,983 801 - 2,784
-------- -------- -------- -------- --------
$ 45,559 $ 46,575 $ 57,929 $ 11,518 $161,581
======== ======== ======== ======== ========
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
The components of net restructuring and other charges by segment are as
follows:
Life and Laboratory Sciences
- ----------------------------
The Life and Laboratory Sciences segment recorded $45.6 million of net
restructuring and other charges in 2001. The segment recorded charges to cost of
revenues of $6.9 million, primarily for discontinued product lines, and $38.7
million of other costs. These other costs consisted of $27.3 million of cash
costs, including $17.1 million of severance for 570 employees across all
functions; $8.7 million of ongoing lease costs through 2012 for facilities
described below; and $1.5 million of other costs. The charge also included a
$3.4 million writeoff of in-process research and development costs at an
acquired business, $8.3 million of asset writedowns, and $0.7 million of noncash
severance costs, offset by $1.0 million of gains for the sale of a small
business unit and a product line. The writeoff of in-process research and
development was determined through established valuation techniques and was
charged to expense upon acquisition because technological feasibility had not
been established and no future alternative uses existed. The asset writedowns
principally included $5.1 million of goodwill for business units that were
closed, $2.3 million of fixed assets at facilities being consolidated, and $0.9
million of other assets. The facility consolidations included closure of 17
sales and service offices, including 16 in Europe and one in the United States,
and the closure of nine factories, including five in Europe and four in the
United States. The activities of these facilities were transferred to other
locations in those regions.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $44.6 million of net
restructuring and other charges in 2001. The segment recorded charges to cost of
revenues of $8.2 million, primarily for discontinued product lines, and $36.4
million of other costs, net. These other costs consisted of $20.7 million of
cash costs, including $15.4 million of severance for 777 employees across all
functions; $4.0 million of ongoing lease costs through 2009 for facilities
described below; and $1.3 million of other cash costs. The charge also included
losses of $12.0 million on the sale of businesses and writedowns of goodwill for
businesses subsequently sold, $4.6 million of asset writedowns, and $0.2 million
of other costs, offset in part by a gain of $1.1 million on the sale of a
building. The principal businesses that were sold that resulted in losses were
noncore businesses and included Pharos Marine, a marine navigation unit, in
August 2001, and ThermoMicroscopes, a manufacturer of scanning probe
microscopes, in July 2001. The asset writedowns included $3.6 million of fixed
assets at facilities being closed and $1.0 million for impairment of a note
receivable that was a preacquisition asset of a business acquired in 1999. The
facility consolidations included closure of 12 sales and service offices,
including 11 in Europe and one in the United States, and the closure of 14
factories, including eight in the United States, five in Europe, and one in
Canada. The activities of these sales and service offices and factories were
transferred to other facilities in those regions.
This segment also recorded $2.0 million of other nonoperating charges in
2001 to write down to market value an available-for-sale investment that was a
preacquisition asset of a business acquired in 1999, due to an impairment that
the company deemed other than temporary.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $57.1 million of net
restructuring and other charges in 2001. The segment recorded charges to cost of
revenues of $11.0 million, primarily for excess telecommunication inventories at
Spectra-Physics and discontinued product lines, and $46.1 million of other
costs. The excess telecommunication inventories resulted from a severe slowdown
in this market and the writedown reduced the carrying value of these and other
inventories to estimated net realizable value. The $46.1 million of other costs
consisted of $22.1 million of cash
<
F-48
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
costs, including $5.6 million of severance for 346 employees, primarily in
manufacturing positions; $7.0 million for leases on abandoned equipment; $5.9
million of loss on litigation; $1.2 million of ongoing lease costs through 2005
for facilities described below; and $2.4 million of other cash costs. The other
cash costs primarily represented cancellation fees for fixed-asset purchases and
termination of distributor agreements. The segment also recorded $24.0 million
of asset writedowns including $21.3 million of fixed assets, principally
equipment used in telecommunication manufacturing for which estimated future
cash flows were not sufficient to recover the carrying value. The asset
writedowns also included $2.3 million of goodwill to reduce the carrying value
of two small business units held for sale to their estimated disposal value, and
$0.4 million of costs associated with an abandoned financing at Spectra-Physics.
The facility consolidations included closure of three sales and service offices,
including two in Europe and one in the United States; the closure of three
factories in the United States; and the closure of two distribution facilities
in Europe. The activities of these sites were transferred to other facilities in
those regions.
This segment also recorded $0.8 million of other nonoperating charges in
2001 to write down an investment to its market value due to an impairment that
the company deemed other than temporary.
Corporate
- ---------
The company recorded $11.5 million of restructuring and other charges at
its corporate office in 2001. This amount included $11.3 million of cash costs,
including $5.9 million of investment banking, consulting, and legal fees
associated with the company's reorganization plan; $3.5 million of
employee-retention costs that was accrued ratably through 2001, the period
through which the employees had to work to qualify for a payment; and $1.9
million for severance for 21 employees. The charge also included $0.2 million of
noncash severance costs.
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 the restructuring of a number of business units to reduce costs and
shed unproductive assets. The restructuring primarily consisted of headcount
reductions, discontinuation of a number of 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 other
charges primarily associated with these actions, including $19.3 million of
charges to cost of revenues. These charges are detailed by segment below. In
addition, the company recorded other income, net, of $130.0 million and
nonoperating charges of $45.1 million during 2000, as detailed by segment below.
The company recorded net restructuring and other charges (income) by
segment for 2000 as follows:
Life and
Laboratory Measurement Optical
Sciences and Control Technologies Corporate Total
---------- ----------- ------------ --------- ---------
(In thousands)
Cost of Revenues $ 13,704 $ 2,665 $ 2,916 $ - $ 19,285
Restructuring and Other Costs
(Income), Net 11,006 (102,475) 3,118 20,496 (67,855)
Equity in Loss of Unconsolidated
Subsidiaries - - 47,421 - 47,421
Other Income, Net - - (2,281) - (2,281)
--------- --------- --------- --------- ---------
$ 24,710 $ (99,810) $ 51,174 $ 20,496 $ (3,430)
========= ========= ========= ========= =========
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
The components of net restructuring and other charges (income) by segment
are as follows:
Life and Laboratory Sciences
- ----------------------------
The Life and Laboratory Sciences segment recorded $24.7 million of
restructuring and other charges in 2000. The segment recorded charges to cost of
revenues of $13.7 million, primarily for discontinued product lines, and $11.0
million of other costs. These other costs consisted of $7.0 million of cash
costs, including $5.3 million of severance for 142 employees across all
functions; $0.8 million for ongoing lease costs through 2003 for facilities
described below; a $0.3 million provision for a lawsuit; and $0.6 million for
other exit costs. The segment also recorded $4.0 million of asset writedowns in
connection with the closure of a small business and the consolidation and
abandonment of facilities. The asset writedowns included $2.3 million of
goodwill and $1.7 million of fixed assets. The facility consolidations included
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 the closure of a manufacturing operation in the U.K.
Measurement and Control
- -----------------------
The Measurement and Control segment recorded $99.8 million of
restructuring and other income, net, in 2000. The segment recorded charges to
cost of revenues of $2.7 million, primarily for discontinued product lines, and
recorded $102.5 million of other income, net. The segment had a net gain of
$126.7 million on the sale of several businesses, primarily Spectra Precision
(Note 2), 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 $18.7 million for asset
writedowns including $16.1 million of goodwill to reduce the carrying value of
businesses held for sale to estimated disposal value, $2.4 million of fixed
assets unique to certain discontinued products and $0.2 million of other assets,
and recorded $6.1 million of cash costs. The cash costs included $1.6 million of
severance for 64 employees across all functions; $2.8 million of lease costs
through 2001; a $0.5 million provision for a lawsuit; and $1.2 million of other
exit costs, primarily employee-retention and relocation costs incurred in 2000.
The lease costs included amounts for the closure of sales offices in Norway, New
Zealand, and Germany, and relocation of a business unit to other facilities
within Colorado. The businesses held for sale primarily included 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 Pharos Marine. The segment also had other income of $0.6 million
in 2000, primarily representing a gain on the termination of a lease.
Optical Technologies
- --------------------
The Optical Technologies segment recorded $6.0 million of restructuring
and other costs in 2000. The segment recorded charges to cost of revenues of
$2.9 million, primarily for discontinued product lines, and $3.1 million of
other costs. These other costs consisted of a charge of $1.5 million for
in-process research and development in connection with an acquisition; $0.5
million of asset writedowns; and $1.1 million of cash costs, including $0.4
million of severance for 22 employees across all functions, $0.3 million for
ongoing lease costs, and $0.4 million of other exit costs. The asset writedowns
primarily consisted of a writedown of goodwill in order to reduce the carrying
value of a small business unit that was held for sale to estimated disposal
value. The lease costs related to the closure of a facility in California with
lease payments that ceased in 2000.
<
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
The Optical Technologies segment recorded a charge of $23.7 million in
2000 to write down the carrying value of its equity-method investment in FLIR
(Note 4) 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, Spectra-Physics elected early
adoption of SFAS No. 133. Under SFAS No. 133, Spectra-Physics is permitted under
certain conditions to enter into currency-exchange contracts to hedge probable
anticipated transactions without recording gains and losses on such contracts in
income. The company did not adopt SFAS No. 133 until 2001, and through 2000
accounted for hedging transactions under SFAS No. 52. Under SFAS No. 52, such
contracts were deemed to be speculative hedges and were 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 currency-exchange
contracts entered into by Spectra-Physics of $2.3 million, which is included in
other income (expense), net, in the accompanying statement of operations.
Corporate
The company recorded $20.5 million of restructuring and other charges,
net, at its corporate office in 2000. This amount included $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 was accrued
ratably over the period through which the employees had to work to qualify for a
payment; $3.0 million of severance for 21 employees; and $1.6 million of noncash
costs. The company also recorded other income of $3.8 million, representing a
gain from the sale of an office building adjacent to the company's corporate
office.
The following table summarizes the severance actions of the company in
2000, 2001, and 2002.
Number of
Employees
---------
2000 Restructuring Plans
Terminations Announced in 2000 249
Terminations Occurring in 2000 (168)
Adjustment to Plan (1)
----
Remaining Terminations at December 30, 2000 80
Additional Terminations Announced in 2001 16
Terminations Occurring in 2001 (91)
Adjustment to Plan (1)
----
Remaining Terminations at December 29, 2001 4
Terminations Occurring in 2002 (4)
----
Remaining Terminations at December 28, 2002 -
====
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F-51
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
Number of
Employees
---------
2001 Restructuring Plans
Terminations Announced in 2001 1,714
Terminations Occurring in 2001 (1,001)
------
Remaining Terminations at December 29, 2001 713
Additional Terminations Announced in 2002 247
Terminations Occurring in 2002 (877)
Adjustment to Plan (53)
------
Remaining Terminations at December 28, 2002 30
======
2002 Restructuring Plans
Terminations Announced in 2002 665
Terminations Occurring in 2002 (354)
------
Remaining Terminations at December 28, 2002 311
======
The following table summarizes the cash components of the company's
restructuring plans. The noncash components and other amounts reported as
restructuring and other costs (income), net, in the accompanying statement of
operations have been summarized in the notes to the tables.
Abandonment
of Excess
Severance Facilities Other Total
---------- ----------- ------- -------
(In thousands)
Pre-2000 Restructuring Plans
Balance at January 1, 2000 $ 4,636 $ 225 $ 564 $ 5,425
Costs incurred in 2000 - 144 - 144
2000 usage (3,625) (284) - (3,909)
Reserves reversed (6) (84) - (90)
Currency translation (22) (1) (44) (67)
------- ------- ------- -------
Balance at December 30, 2000 983 - 520 1,503
2001 usage (405) - - (405)
Currency translation (7) - (14) (21)
------- ------- ------- -------
Balance at December 29, 2001 571 - 506 1,077
2002 usage (307) - - (307)
Transfer to accrued pension costs (a) - - (534) (534)
Currency translation - - 28 28
------- ------- ------- -------
Balance at December 28, 2002 $ 264 $ - $ - $ 264
======= ======= ======= =======
<
F-52
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
Abandonment
Employee of Excess
Severance Retention (b) Facilities Other Total
--------- ------------- ----------- -------- --------
(In thousands)
2000 Restructuring Plans
Costs incurred in 2000 (c) $ 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
Costs incurred in 2001 328 3,472 21 5,963 9,784
2001 usage (2,415) (468) (909) (14,277) (18,069)
Reserves reversed (105) - (21) - (126)
Currency translation (44) - (45) (80) (169)
-------- -------- -------- -------- --------
Balance at December 29, 2001 1,588 6,287 1,866 1,200 10,941
Reserves reversed (d) (85) - (990) (36) (1,111)
2002 usage (1,214) (6,054) (925) (1,088) (9,281)
Currency translation 137 - 114 4 255
-------- -------- -------- -------- --------
Balance at December 28, 2002 $ 426 $ 233 $ 65 $ 80 $ 804
======== ======== ======== ======== ========
2001 Restructuring Plans
Costs incurred in 2001 (e) $ 40,076 $ 297 $ 21,058 $ 5,099 $ 66,530
2001 usage (13,585) (155) (1,180) (2,353) (17,273)
Reserves reversed (385) - (182) (90) (657)
Currency translation (14) 1 69 11 67
-------- -------- -------- -------- --------
Balance at December 29, 2001 26,092 143 19,765 2,667 48,667
Costs incurred in 2002 (f) 9,539 2,812 8,013 4,406 24,770
Reserves reversed (d) (4,900) (4) (6,831) (562) (12,297)
2002 usage (27,176) (2,558) (10,190) (4,961) (44,885)
Currency translation 2,050 24 744 115 2,933
-------- -------- -------- -------- --------
Balance at December 28, 2002 $ 5,605 $ 417 $ 11,501 $ 1,665 $ 19,188
======== ======== ======== ======== ========
2002 Restructuring Plans
Costs incurred in 2002 (g) $ 18,021 $ 1,015 $ 8,326 $ 4,496 $ 31,858
Reserves reversed (d) (77) - - - (77)
2002 usage (6,305) (50) (579) (3,850) (10,784)
Currency translation 229 2 53 42 326
-------- -------- -------- -------- --------
Balance at December 28, 2002 $ 11,868 $ 967 $ 7,800 $ 688 $ 21,323
======== ======== ======== ======== ========
<
F-53
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Restructuring and Other Costs (Income), Net (continued)
(a) Balance of accrued restructuring costs from 1998 plans related to pension
liability associated with employees terminated in 1998, which was
transferred to accrued pension costs in 2002.
(b) Employee-retention costs are accrued ratably over the period through which
employees must work to qualify for a payment. The 2000 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.
(c) Excludes noncash charges, net, of $4.0 million and $2.0 million in the Life
and Laboratory Sciences and Optical Technologies segments, respectively,
and noncash income, net, of $108.6 million and $2.2 million in the
Measurement and Control segment and at the company's corporate office,
respectively. Also excludes $0.3 million and $0.5 million of cash costs in
the Life and Laboratory Sciences and Measurement and Control segments,
respectively, related to two lawsuits.
(d) Represents reductions in cost of plans as described in the discussion of
restructuring actions by segment.
(e) Excludes noncash charges, net, of $11.4 million, $15.6 million, $24.0
million, and $0.2 million in the Life and Laboratory Sciences, Measurement
and Control, and Optical Technologies segments, and at the company's
corporate office, respectively, and loss on litigation of $5.9 million in
the Optical Technologies sector.
(f) Excludes net gains from the sale of businesses and other assets of $0.9
million and $2.4 million in the Life and Laboratory Sciences and
Measurement and Control segments, respectively; noncash charges of $7.0
million in the Optical Technologies segment; a cash charge of $0.7 million
recorded in accrued pension costs in the Life and Laboratory Sciences
segment; and loss on litigation of $0.7 million in the Optical Technologies
segment.
(g) Excludes noncash charges of $7.1 million, $2.3 million, and $0.2 million in
the Life and Laboratory Sciences and Optical Technologies segments and at
the company's corporate office, respectively, and net gains from the sale
of businesses and other assets of $5.8 million in the Measurement and
Control segment.
The company expects to pay accrued restructuring costs as follows:
severance, employee-retention obligations, and other costs, which primarily
represent cancellation/termination fees, primarily through 2003; and
abandoned-facility payments over lease terms expiring through 2012.
Note 16. Adoption of SAB No. 101
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements," which established 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 adopted the pronouncement as of January 2, 2000, and 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) related 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.
<
F-54
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. Reorganization and Discontinued Operations
Reorganization
During 2000 and 2001, the company completed the principal aspects of a
major corporate reorganization. The reorganization split the company into three
independent public entities and resulted in the divestiture of a number of
businesses. The company spun off as a dividend to its shareholders Kadant Inc.
and Viasys Healthcare Inc. in August and November 2001, respectively. The
company's continuing operations solely include its instruments businesses.
During 2000, the company completed the acquisition of the minority
interest in certain of its privately held subsidiaries and all of its formerly
publicly held subsidiaries other than Spectra-Physics, Thermo Cardiosystems,
Kadant, and Thermo Fibergen. In connection with these acquisitions, the company
expended $368.6 million of cash and issued 22.6 million shares of its common
stock valued at $448.7 million. In addition, the stock options of the
subsidiaries were converted into stock options 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 recorded
an increase in goodwill of approximately $380 million in 2000.
In 2001, the company increased its ownership in Spectra-Physics to 93.6%
through a cash tender offer of $17.50 per share. In connection with this offer,
and an earlier repurchase of Spectra-Physics shares in 2001, the company
expended $69.5 million in 2001 and recorded an increase in goodwill of $45.8
million. In February 2002, the company acquired the shares of Spectra-Physics it
did not previously own through a short-form merger at the same price as the
tender offer and Spectra-Physics ceased to be publicly traded. The company
expended $23.2 million of cash to complete the purchase of the minority interest
and recorded an increase in goodwill of $15.8 million. Options to purchase
shares of Spectra-Physics became options to purchase 2,242,000 shares of Thermo
Electron common stock, which was accounted for in accordance with the
methodology set forth in FIN No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" (Note 5).
As a result of the completion of the exchange offers for its formerly
majority-owned subsidiaries, Thermo Instrument Systems Inc., Thermedics Inc.,
Thermo Ecotek Corporation, ThermoLase Corporation, 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:
Acquisition of Minority Interests - 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 Corporation, $9.00 per share for Metrika Systems Corporation,
and $9.00 per share for ONIX Systems Inc. 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 offers, and their common stock ceased to be publicly
traded. Because Thermo Instrument owned more than 90% of the outstanding shares
of Thermo Optek Corporation and ThermoQuest Corporation 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.
<
F-55
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. Reorganization and Discontinued Operations (continued)
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.
Acquisition of Minority Interests - 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 consisted of a
fractional share of company common stock. The units were redeemed in April 2001
for $7.5 million in cash.
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.
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.
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. Reorganization and Discontinued Operations (continued)
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.
Discontinued Operations
In January 2000, the company announced its intention to sell several of
its businesses. These businesses, together with the businesses spun off,
constituted the company's former Biomedical and Emerging Technologies and
Recycling and Resource Recovery segments, as well as the company's environmental
businesses and its Thermo Power subsidiary. In addition, in June and July 2001,
the company sold 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 classified the results of these businesses,
as well as the results of the businesses spun off as dividends (collectively,
"the discontinued businesses"), as discontinued operations in the accompanying
statement of operations. In 2001, net liabilities of discontinued operations
principally represents remaining obligations of the discontinued businesses
including severance, lease, litigation, and tax obligations, net of the carrying
value of the company's shares of Thoratec common stock, discussed below, and the
net assets of three remaining operating units held for sale. In 2002, the
Thoratec shares were reclassified to available-for-sale investments as discussed
below and two of the three remaining operating units were sold.
Summary operating results for 2000 of the power-generation business were
as follows (in thousands):
2000
--------
Revenues $120,256
Costs and Expenses 93,779
--------
Income from Discontinued Operations Before Income Taxes and Minority Interest 26,477
Income Tax Provision (10,427)
Minority Interest Expense (1,822)
--------
Income from Discontinued Operations $ 14,228
========
During 2002, the company's discontinued operations had revenues and
operating income of $82.7 million and $7.4 million, respectively. During 2001,
the company's discontinued operations had revenues and operating income of
$658.3 million and $50.4 million, respectively. During 2000, the company's
discontinued operations (excluding the power-generation business) had revenues
and an operating loss of $1.49 billion and $40.2 million, respectively. The
company received proceeds from the sale of discontinued businesses of $42.7
million, $347.8 million, and $390.1 million in 2002, 2001, and 2000,
respectively. In 2000, the company recorded a charge of $100 million, net of an
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. Reorganization and Discontinued Operations (continued)
income tax benefit of $104 million, for changes in the actual and estimated
proceeds of businesses discontinued in 2000. Of the businesses announced for
sale, all but one with revenues of $31 million in 2002 have been sold as of
December 28, 2002.
Spinoffs
- --------
On July 9, 2001, the company's Board of Directors approved the spinoff of
the company's 91%-owned Kadant subsidiary as a dividend to the company's
shareholders. On August 8, 2001, the company distributed all of its shares of
Kadant to Thermo Electron shareholders of record as of July 30, 2001.
Immediately after the distribution, the company no longer owned shares of
Kadant. The company received a ruling from the Internal Revenue Service (IRS)
that the dividend of Kadant shares qualified in large part as a tax-free
distribution for U.S. federal income tax purposes. Approximately 8% of the
shares distributed to each shareholder were taxable because the company
purchased them during the past five years. Cash distributed in lieu of
fractional shares was also taxable. The stock dividend resulted in a reduction
of net assets of discontinued operations and retained earnings of $197 million.
In connection with the spinoff, the company and Kadant entered into a
plan and agreement of distribution. The agreement provided for, among other
things, the company to continue to guarantee Kadant's $153.0 million principal
amount subordinated convertible debentures due 2004. The agreement required
Kadant to maintain certain financial ratios during the time that the company
guaranteed these obligations. In December 2002, Kadant redeemed all of its
outstanding subordinated convertible debentures.
On October 11, 2001, the company's Board of Directors approved the
spinoff of the company's wholly owned Viasys Healthcare subsidiary as a dividend
to the company's shareholders. On November 15, 2001, the company distributed all
of its shares of Viasys Healthcare to Thermo Electron shareholders of record as
of November 7, 2001. Immediately after the planned distribution, the company no
longer owned shares of Viasys Healthcare. The company received a ruling from the
IRS that the dividend of Viasys Healthcare shares qualified as a tax-free
distribution for U.S. federal income tax purposes, except that the cash received
in lieu of fractional shares was taxable. The stock dividend resulted in a
reduction of net assets of discontinued operations and retained earnings of $298
million.
The ruling from the IRS required that the spinoffs raise additional
equity capital in public offerings within one year of their spinoffs. Kadant
completed an offering in 2002 and Viasys Healthcare obtained an extension from
the IRS until November 2003 to conduct an offering.
Thermo Cardiosystems
- --------------------
In February 2001, the company sold its interest in Thermo Cardiosystems
to Thoratec in exchange for 19.3 million shares of Thoratec common stock, which
represented a 34% interest that had a market value of $11.56 per share on the
date of the transaction. Certain restrictions, which lapsed in August 2002,
limited the timing of the company's ability to sell these shares. The company
accounted for the sale of Thermo Cardiosystems and the ownership of the Thoratec
shares as discontinued operations. The company recorded an after-tax charge of
$66.0 million in the first quarter of 2001 for a decline in market value of
Thoratec common stock as a loss on disposal of discontinued operations, and
thereafter, carried the shares at a new cost basis of $6.50 per share. Following
a sale of shares in February 2002 for net proceeds of $104 million and an
after-tax gain of $38.4 million, the company owned less than 20% of Thoratec's
outstanding shares. Accordingly, pursuant to SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the company began accounting
for its investment as an available-for-sale security in continuing operations in
the first quarter of 2002. As such, the investment is recorded as quoted market
value in current assets, and unrealized gains or losses are recorded as a part
of accumulated other comprehensive items in the accompanying 2002 balance sheet.
As of December 28, 2002, the company held 7.7 million shares of Thoratec with a
market value of $62 million.
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. Reorganization and Discontinued Operations (continued)
Power-Generation Business
- -------------------------
In March 2002, the company sold the last remaining component of its
former power-generation business and realized a gain from the disposition
totaling $13.0 million, principally for previously unrecognized tax benefits
that were realized upon the sale.
In June and July 2001, the company sold the chief components of the
power-generation business for proceeds of $249 million, net of cash divested.
The company realized a gain on disposition of $15.6 million, net of tax.
Other
- -----
During 2002, primarily as a result of new tax regulations concerning
deductible losses from divested businesses, the company revised its estimate of
the tax consequences of business disposals in discontinued operations and
recorded a tax benefit of $46.6 million. Also in 2002, the company sold its
Trophy Radiologie business for approximately $51 million in cash and,
principally as a result of this transaction, recorded an after-tax gain of $17.4
million. This business is engaged in the production and sale of dental X-ray
imaging systems and related software.
Note 18. Unaudited Quarterly Information
2002
------------------------------------------------------
First (a) Second (b) Third (c) Fourth (d)
--------- ---------- --------- ----------
(In thousands except per share amounts)
Revenues $491,326 $509,113 $517,171 $568,745
Gross Profit 223,656 229,788 228,657 245,275
Income from Continuing Operations Before Extraordinary Item 64,381 49,490 38,983 42,476
Income Before Extraordinary Item 115,751 68,490 38,983 87,476
Net Income (e) 115,044 68,517 39,017 87,152
Earnings per Share from Continuing Operations Before Extraordinary
Item:
Basic .37 .29 .24 .26
Diluted .34 .28 .23 .25
Earnings per Share:
Basic .66 .40 .24 .53
Diluted .59 .38 .23 .51
Amounts reflect aggregate restructuring and other items, net, and nonoperating
items, net, as follows:
(a) Costs of $8.4 million, gains of $56.3 million from the sale of shares of
FLIR, and a net of tax gain of $51.4 million related to the company's
discontinued operations.
(b) Costs of $17.0 million, gains of $31.6 million from the sale of shares of
FLIR, and a tax benefit of $19.0 million related to the company's
discontinued operations.
(c) Costs of $8.6 million and gains of $6.6 million from the sale of shares of
FLIR.
(d) Costs of $27.2 million, gains of $16.9 million from the sale of shares of
FLIR, and a net of tax gain of $45.0 million related to the company's
discontinued operations.
(e) Extraordinary loss, net of tax, of $0.7 million and $0.3 million in the
first and fourth quarters, respectively, and nominal extraordinary income,
net of tax, in the second and third quarters.
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THERMO ELECTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 18. Unaudited Quarterly Information (continued)
2001
------------------------------------------------------
First (f) Second (g) Third (h) Fourth (i)
--------- ---------- --------- ----------
(In thousands except per share amounts)
Revenues $573,089 $542,472 $512,941 $559,708
Gross Profit 255,254 238,062 228,486 236,820
Income (Loss) from Continuing Operations Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle 21,819 9,423 25,677 (7,327)
Income (Loss) Before Extraordinary Item and Cumulative Effect of
Change in Accounting Principle (44,181) 24,983 25,677 (7,327)
Net Income (Loss) (j) (45,175) 24,983 26,279 (6,868)
Earnings (Loss) per Share from Continuing Operations Before
Extraordinary Item and Cumulative Effect of Change in Accounting
Principle:
Basic .12 .05 .14 (.04)
Diluted .12 .05 .14 (.04)
Earnings (Loss) per Share:
Basic (.25) .14 .15 (.04)
Diluted (.24) .14 .14 (.04)
Amounts reflect aggregate restructuring and other items, net, and nonoperating
items, net, as follows:
(f) Costs of $12.9 million, a net of tax charge of $66.0 million related to the
company's discontinued operations, and a $1.0 million charge for the
cumulative effect of change in accounting principle for the adoption of
SFAS No. 133.
(g) Costs of $37.0 million and a net of tax gain of $15.6 million related to
the company's discontinued operations.
(h) Costs of $9.6 million and gains of $8.6 million from the sale of shares of FLIR.
(i) Costs of $102.2 million and gains of $26.5 million from the sale of shares of FLIR.
(j) Extraordinary income, net of taxes, of $0.6 million and $0.5 million in the
third and fourth quarters, respectively.
Note 19. Subsequent Event
In February 2003, the company announced that in April 2003, it will
redeem all of its outstanding 4 3/8% subordinated convertible debentures due
2004. As of December 28, 2002, the principal amount outstanding for these
debentures was $71.9 million. The redemption price is 100% of the principal
amount of the debentures, plus accrued interest. Accordingly, the obligations
have been presented as current liabilities in the accompanying 2002 balance
sheet.
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THERMO ELECTRON CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Provision Accounts Balance
Beginning Charged to Accounts Written at End
of Year Expense Recovered Off Other (a) of Year
---------- ---------- --------- -------- --------- -------
Allowance for Doubtful Accounts
Year Ended December 28, 2002 $26,525 $ 4,114 $ 165 $(7,444) $ 2,216 $25,576
Year Ended December 29, 2001 $30,593 $ 6,316 $ 23 $(8,147) $(2,260) $26,525
Year Ended December 30, 2000 $33,650 $ 9,264 $ 450 $(7,211) $(5,560) $30,593
Balance at Established Activity Balance
Beginning as Cost of Charged to at End
of Year Acquisitions Reserve Other (c) of Year
---------- ------------ ---------- --------- --------
Accrued Acquisition Expenses (b)
Year Ended December 28, 2002 $ 7,104 $ 2,723 $ (1,357) $ 358 $ 8,828
Year Ended December 29, 2001 $ 10,070 $ 144 $ (1,920) $ (1,190) $ 7,104
Year Ended December 30, 2000 $ 19,445 $ 352 $ (6,445) $ (3,282) $ 10,070
Balance at Provision Activity Balance
Beginning Charged to Charged to at End
of Year Expense (e) Reserve Other (f) of Year
---------- ----------- ---------- --------- --------
Accrued Restructuring Costs (d)
Year Ended December 28, 2002 $ 60,685 $ 43,143 $(65,257) $ 3,008 $ 41,579
Year Ended December 29, 2001 $ 21,024 $ 76,314 $(35,747) $ (906) $ 60,685
Year Ended December 30, 2000 $ 5,425 $ 35,785 $(20,216) $ 30 $ 21,024
(a) Includes allowance of businesses acquired and sold during the year as
described in Note 2 and the effect of currency translation.
(b) The nature of activity in this account is described in Note 2.
(c) Represents reversal of accrued acquisition expenses and corresponding
reduction of goodwill or other intangible assets resulting from
finalization of restructuring plans, the effect of currency translation
and, in 2001 and 2000, the reserves of businesses sold.
(d) The nature of activity in this account is described in Note 15.
(e) In 2002, excludes $7.5 million of noncash costs, net, primarily for asset
writedowns, and excludes a cash charge of $0.7 million recorded in accrued
pension costs, and loss on litigation of $0.7 million. In 2001, excludes
$51.1 million of noncash costs, net, primarily for asset writedowns, and
excludes a $5.9 million loss on litigation. In 2000, excludes $104.6
million of noncash income, net, primarily from the sale of businesses,
offset by provisions for asset writedowns, and excludes $0.8 million of
cash costs related to two lawsuits.
(f) Represents the effect of currency translation and, in 2002, a transfer to
accrued pension costs of $0.5 million.
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THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Thermo Electron Corporation:
Our audit of the consolidated financial statements referred to in our
report dated February 4, 2003 (except as to the information in Note 19, for
which the date is February 28, 2003), appearing in this Annual Report on Form
10-K of Thermo Electron Corporation also included an audit of the financial
statement schedule for the year ended December 28, 2002, listed in Item 15(a)(2)
of this Form 10-K. In our opinion, the financial statement schedule for the year
ended December 28, 2002, presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. The financial statement schedule of Thermo
Electron Corporation for the years ended December 29, 2001, and December 30,
2000, were audited by other independent accountants who have ceased operations.
Those independent accountants expressed an unqualified opinion on the financial
statement schedule in their report dated February 7, 2002.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2003
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THERMO ELECTRON CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT APPLIES TO
SUPPLEMENTAL SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 29, 2001, AND DECEMBER 30, 2000.
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 7, 2002
(except with respect to the matters discussed in Note 19*, as to which the date
is February 25, 2002). 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 13** 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 7, 2002
*The discussion of the subsequent events discussed in Note 19 in 2001, is now
included in Note 10 and Note 17.
**The schedule is now listed in Item 15 on page 35.
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