SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 1, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 28, 2000
Common Stock, $1.00 par value 155,877,477
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
April 1, January 1,
<S> <C> <C>
(In thousands) 2000 2000
- ---------------------------------------------------------------------------------- ------------ ----------
Current Assets:
Cash and cash equivalents $ 533,471 $ 281,760
Short-term available-for-sale investments at quoted market value 426,015 555,501
(amortized cost of $416,992 and $545,639)
Accounts receivable, less allowances of $32,378 and $33,699 534,569 574,126
Inventories:
Raw materials and supplies 176,751 177,153
Work in process 72,084 66,746
Finished goods 138,703 129,242
Deferred tax asset 165,032 160,959
Other current assets 137,533 54,370
Net assets of discontinued operations (Note 9) 502,629 517,350
---------- ----------
2,686,787 2,517,207
---------- ----------
Property, Plant, and Equipment, at Cost 675,104 756,443
Less: Accumulated depreciation and amortization 250,230 245,796
---------- ----------
424,874 510,647
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value 51,697 40,165
(amortized cost of $39,005 and $38,064) ---------- ----------
Other Assets 181,789 207,732
---------- ----------
Cost in Excess of Net Assets of Acquired Companies 1,206,238 1,227,335
---------- ----------
Long-term Net Assets of Discontinued Operations (Note 9) 625,802 678,756
---------- ----------
$5,177,187 $5,181,842
========== ==========
2
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 1, January 1,
(In thousands except share amounts) 2000 2000
- ---------------------------------------------------------------------------------- ------------ ----------
Current Liabilities:
Short-term obligations and current maturities of long-term obligations $ 268,605 $ 302,962
Advance payable to affiliates 126,033 115,009
Accounts payable 157,950 156,573
Accrued payroll and employee benefits 81,524 89,184
Accrued income taxes 95,388 85,407
Deferred revenue 56,325 47,440
Other accrued expenses (Notes 7 and 8) 271,574 269,774
---------- ----------
1,057,399 1,066,349
---------- ----------
Deferred Income Taxes and Other Deferred Items 162,622 163,063
---------- ----------
Long-term Obligations:
Senior convertible obligations 172,500 172,500
Senior notes 150,000 150,000
Subordinated convertible obligations (Note 4) 1,184,033 1,209,305
Other 63,790 34,169
---------- ----------
1,570,323 1,565,974
---------- ----------
Minority Interest 364,900 364,278
---------- ----------
Common Stock of Subsidiary Subject to Redemption (at redemption value) 7,692 7,692
---------- ----------
Shareholders' Investment:
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 350,000,000 shares authorized; 167,990 167,433
167,989,980 and 167,432,776 shares issued
Capital in excess of par value 1,061,754 1,052,837
Retained earnings 1,057,791 1,041,968
Treasury stock at cost, 11,085,955 and 10,955,798 shares (193,457) (189,646)
Deferred compensation (6,917) (3,190)
Accumulated other comprehensive items (Note 2) (72,910) (54,916)
---------- ----------
2,014,251 2,014,486
---------- ----------
$5,177,187 $5,181,842
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------- ----------- -----------
Revenues $598,929 $ 555,750
-------- ---------
Costs and Operating Expenses:
Cost of revenues 325,183 312,112
Selling, general, and administrative expenses 173,682 154,192
Research and development expenses 48,446 38,032
Restructuring and other unusual costs (income), net (Note 8) (7,700) 1,538
-------- ---------
539,611 505,874
-------- ---------
Operating Income 59,318 49,876
Other Expense, Net (Note 3) (21,172) (8,056)
-------- ---------
Income from Continuing Operations Before Income Taxes, Minority 38,146 41,820
Interest, and Extraordinary Item
Provision for Income Taxes 16,728 17,435
Minority Interest Expense 6,127 6,316
-------- ---------
Income from Continuing Operations Before Extraordinary Item 15,291 18,069
Income from Discontinued Operations (net of provision for income taxes - 10,230
and minority interest of $11,268; Note 9) -------- ---------
Income Before Extraordinary Item 15,291 28,299
Extraordinary Item (net of provision for income taxes of $333; Note 4) 532 -
-------- ---------
Net Income $ 15,823 $ 28,299
======== =========
Earnings per Share from Continuing Operations Before Extraordinary
Item (Note 5):
Basic $ .10 $ .11
======== =========
Diluted $ .09 $ .11
======== =========
Earnings per Share (Note 5):
Basic $ .10 $ .18
======== =========
Diluted $ .09 $ .17
======== =========
Weighted Average Shares (Note 5):
Basic 156,813 158,045
======== =========
Diluted 157,464 158,270
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- --------------------------------------------------------------------- ---------- ------------ ------------
Operating Activities:
Net income $ 15,823 $ 28,299
Income from discontinued operations (Note 9) - (10,230)
-------- ---------
Income from continuing operations 15,823 18,069
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 24,193 27,242
Noncash restructuring and other unusual costs, net (Note 8) 1,834 -
Provision for losses on accounts receivable 1,430 1,197
Minority interest expense 6,127 6,316
Equity in losses of unconsolidated subsidiaries (Note 8) 13,336 17
Change in deferred income taxes (6,274) (6,313)
Gain on sale of businesses (Note 8) (12,393) -
Gain on investments, net (3,465) (2,770)
Extraordinary item, net of income taxes (Note 4) (532) -
Other noncash items, net 265 (93)
Changes in current accounts, excluding the effects of acquisitions and
dispositions:
Accounts receivable 19,930 5,928
Inventories (30,552) (6,663)
Other current assets (44) (2,997)
Accounts payable 6,118 1,759
Other current liabilities 6,254 (6,628)
-------- ---------
Net cash provided by continuing operations 42,050 35,064
Net cash provided by (used in) discontinued operations (9,513) 35,785
-------- ---------
Net cash provided by operating activities 32,537 70,849
-------- ---------
Investing Activities:
Acquisitions, net of cash acquired (4,744) (322,996)
Acquisition of minority interests of subsidiaries (Note 9) (29,252) (19,779)
Proceeds from sale of businesses, net of cash divested (Note 8) 41,813 -
Purchases of available-for-sale investments (108,865) (52,580)
Proceeds from sale of available-for-sale investments 13,762 199,573
Proceeds from maturities of available-for-sale investments 223,457 284,391
Purchases of property, plant, and equipment (23,181) (10,718)
Proceeds from sale of property, plant, and equipment 6,088 5,212
Advance (to) from affiliates 22,872 (233)
(Increase) decrease in other assets 36 (1,256)
Other 8,216 1,309
-------- ---------
Net cash provided by continuing operations 150,202 82,923
Net cash provided by (used in) discontinued operations 57,694 (24,251)
-------- ---------
Net cash provided by investing activities $207,896 $ 58,672
-------- ---------
5
<PAGE>
THERMO ELECTRON CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- --------------------------------------------------------------------- ---------- ------------ ------------
Financing Activities:
Net proceeds from issuance of long-term obligations $ 14,800 $ 14,654
Repayment of long-term obligations (16,005) (1,471)
Net proceeds from issuance of Company and subsidiary common stock 11,786 1,672
Purchases of Company and subsidiary common stock and (21,070) (72,686)
subordinated convertible debentures
Increase in short-term obligations 1,164 6,147
Other 7,243 15,425
-------- ---------
Net cash used in continuing operations (2,082) (36,259)
Net cash used in discontinued operations (894) (70,027)
-------- ---------
Net cash used in financing activities (2,976) (106,286)
-------- ---------
Exchange Rate Effect on Cash of Continuing Operations (4,014) (12,418)
Exchange Rate Effect on Cash of Discontinued Operations 836 (3,292)
-------- ---------
Increase in Cash and Cash Equivalents 234,279 7,525
Cash and Cash Equivalents at Beginning of Period 357,215 396,670
-------- ---------
591,494 404,195
Cash and Cash Equivalents of Discontinued Operations at End of Period (58,023) (92,262)
-------- ---------
Cash and Cash Equivalents at End of Period $533,471 $ 311,933
======== =========
Noncash Activities:
Fair value of assets of acquired companies $ 7,479 $ 561,023
Cash paid for acquired companies (5,000) (363,500)
-------- ---------
Liabilities assumed of acquired companies $ 2,479 $ 197,523
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMO ELECTRON CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Electron Corporation (the Company) without audit and, in the opinion
of management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of the financial position at April 1, 2000, and the results
of operations and cash flows for the three-month periods ended April 1, 2000,
and April 3, 1999. Certain prior-period amounts have been reclassified to
conform to the presentation in the current financial statements. Interim results
are not necessarily indicative of results for a full year.
Historical financial results have been restated to reflect a decision to
sell several of the Company's businesses, which have been presented as
discontinued operations in the accompanying financial statements (Note 9). The
consolidated balance sheet presented as of January 1, 2000, has been derived
from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. The Company had comprehensive income of $1.4
million in the first quarter of 2000 and a comprehensive loss of $1.4 million in
the first quarter of 1999.
3. Other Expense, Net
The components of other expense, net, in the accompanying statement of
income are as follows:
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Interest Income $ 10,175 $ 14,173
Interest Expense (23,040) (24,457)
Equity in Losses of Unconsolidated Subsidiaries (Note 8) (13,336) (17)
Gain on Investments, Net 3,465 2,770
Other Income (Expense), Net (Note 8) 1,564 (525)
-------- --------
$(21,172) $ (8,056)
======== ========
4. Extraordinary Item
During the first quarter of 2000, the Company repurchased $7.3 million
principal amount of its 4 1/4% subordinated convertible debentures for $6.4
million in cash, resulting in an extraordinary gain of $0.5 million, net of
taxes of $0.3 million.
7
<PAGE>
5. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ------------------------------------------------------------------- ---- ----------- ---------- ----------
Basic
Income from Continuing Operations Before Extraordinary Item $15,291 $ 18,069
Income from Discontinued Operations - 10,230
Extraordinary Item 532 -
------- --------
Net Income $15,823 $ 28,299
------- --------
Weighted Average Shares 156,813 158,045
------- --------
Basic Earnings per Share:
Continuing operations before extraordinary item $ .10 $ .11
Discontinued operations - .06
Extraordinary item - -
------- --------
$ .10 $ .18
======= ========
Diluted
Income from Continuing Operations Before Extraordinary Item $15,291 $ 18,069
Effect of Majority-owned Subsidiaries' Dilutive Securities (867) (618)
- Continuing Operations ------- --------
Income from Continuing Operations Before Extraordinary 14,424 17,451
Item Available to Common Shareholders, as Adjusted
Income from Discontinued Operations - 10,230
Effect of Majority-owned Subsidiaries' Dilutive Securities - - (565)
Discontinued Operations
Extraordinary Item 532 -
------- --------
Income Available to Common Shareholders, as Adjusted $14,956 $ 27,116
------- --------
Weighted Average Shares 156,813 158,045
Effect of Stock Options 651 225
------- --------
Weighted Average Shares, as Adjusted 157,464 158,270
------- --------
Diluted Earnings per Share:
Continuing operations before extraordinary item $ .09 $ .11
Discontinued operations - .06
Extraordinary item - -
------- --------
$ .09 $ .17
======= ========
8
<PAGE>
5. Earnings per Share (continued)
Options to purchase 6,406,000 and 9,607,000 shares of common stock were
not included in the computation of diluted earnings per share for the first
quarter of 2000 and 1999, 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 the first quarter of
2000 and 1999 excludes the effect of assuming the conversion of the Company's
$562 million principal amount 4 1/4% subordinated convertible debentures,
convertible at $37.80 per share, because the effect would be antidilutive. In
addition, the computation of diluted earnings per share for the first quarter of
2000 and 1999 excludes the effect of assuming the repurchase of 2,367,000 and
4,034,000 shares, respectively, of Company common stock at a weighted average
exercise price of $14.06 and $13.97 per share, respectively, in connection with
put options because the effect would be antidilutive.
6. Business Segment Information
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
Revenues:
Life Sciences $190,542 $181,706
Optical Technologies 198,011 178,478
Measurement and Control 187,163 159,200
Power Generation 25,949 41,036
Intersegment (a) (2,736) (4,670)
-------- --------
$598,929 $555,750
======== ========
Income from Continuing Operations Before Income Taxes,
Minority Interest, and Extraordinary Item:
Life Sciences $ 29,075 $ 27,226
Optical Technologies (b) 30,441 16,922
Measurement and Control (c) 10,595 9,613
Power Generation (d) 2,542 4,065
-------- --------
Total segment income (e) 72,653 57,826
Corporate and Other (f) (34,507) (16,006)
-------- --------
$ 38,146 $ 41,820
======== ========
(a) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(b) Includes restructuring and other unusual income of $12.5 million in the
first quarter of 2000 and restructuring and other unusual costs of $1.3
million in the first quarter of 1999. Includes charges of $1.4 million in
the first quarter of 1999 for the sale of inventories revalued in connection
with an acquisition.
(c) Includes restructuring and other unusual costs of $0.2 million in the first
quarter of 2000. Includes charges of $3.2 million in the first quarter of
1999 for the sale of inventories revalued in connection with an acquisition.
(d) Includes restructuring and other unusual income, net, of $0.3 million in the
first quarter of 2000.
(e) Segment income is income before corporate general and administrative
expenses, other income and expense, minority interest, income taxes, and
extraordinary item.
(f) Includes corporate general and administrative expenses, other income and
expense, and, in the first quarter of 2000, restructuring and other unusual
costs of $4.9 million and other unusual charges, net, of $11.7 million. The
results for the first quarter of 1999 include restructuring and other
unusual costs of $0.3 million.
9
<PAGE>
7. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels and the abandonment of excess
facilities. In connection with these restructuring activities, as part of the
cost of acquisitions, the Company established reserves, primarily for severance
and excess facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1997 is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 Acquisitions
---------------------------------------
Abandonment Other
of Excess Pre-1997
(In thousands) Severance Facilities Acquisitions Total
- -------------------------------- -------------- -------------- -------------- -------------- -------------
Balance at January 1, 2000 $ 23 $1,420 $ 248 $7,437 $9,128
Usage - (14) - (318) (332)
Currency translation (5) (27) (15) (164) (211)
------ ------ ------ ------ ------
Balance at April 1, 2000 $ 18 $1,379 $ 233 $6,955 $8,585
====== ====== ====== ====== ======
The remaining accrued acquisition expenses for pre-1997 acquisitions
primarily represent lease obligations for a building in Uxbridge, England, and
an operating facility in Hayworth, England, with obligations through 2007.
The remaining accrued acquisition expenses for 1997 acquisitions primarily
represent lease obligations for an operating location in Runcorn, England, with
an obligation through 2014. The amounts captioned as "other" in 1997 primarily
represent costs to exit certain joint venture arrangements.
A summary of the changes in accrued acquisition expenses for acquisitions
completed during 1998 is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Balance at January 1, 2000 $ 281 $1,185 $ 83 $1,549
Usage (52) (147) (10) (209)
Decrease recorded to cost in excess of net (1) (94) - (95)
assets of acquired companies
Currency translation (9) (22) - (31)
------ ------ ------ ------
Balance at April 1, 2000 $ 219 $ 922 $ 73 $1,214
====== ====== ====== ======
The remaining accrued acquisition expenses for 1998 acquisitions primarily
represent lease obligations for two operating facilities in North America with
leases expiring in 2001. The amounts captioned as "other" in 1998 primarily
represent relocation costs.
10
<PAGE>
7. Accrued Acquisition Expenses (continued)
A summary of the changes in accrued acquisition expenses for acquisitions
completed during 1999 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Balance at January 1, 2000 $4,984 $2,065 $2,611 $9,660
Reserves established 101 55 - 156
Usage (1,013) (52) (226) (1,291)
Decrease due to finalization of (127) - - (127)
restructuring plans, recorded as a
decrease to cost in excess of net assets
of acquired companies
Currency translation (84) (63) (41) (188)
------ ------ ------ ------
Balance at April 1, 2000 $3,861 $2,005 $2,344 $8,210
====== ====== ====== ======
The principal accrued acquisition expenses for 1999 acquisitions are
severance for approximately 175 employees across all functions and for abandoned
facilities, primarily at Spectra-Physics AB. The abandoned facilities at
Spectra-Physics include operating facilities in Sweden, Germany, and France with
obligations through 2000. The amounts captioned as "other" primarily represent
relocation, contract termination, and other exit costs. The Company expects to
pay amounts accrued for severance and other primarily in 2000 and amounts
accrued for abandoned facilities over the respective lease terms. The Company
finalized its restructuring plans for Spectra-Physics in 1999. Unresolved
matters at April 1, 2000, included completion of planned severances and
abandonment of excess facilities for other acquisitions completed in 1999. Such
matters will be resolved no later than one year from the respective acquisition
dates.
</TABLE>
8. Restructuring and Other Unusual Costs (Income), Net
The Company's continuing operations recorded charges (income) by segment
for the first quarter of 2000 as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(In thousands) Optical Measurement Power Corporate Total
Technologies and Control Generation
- ------------------------------------ ------------- ------------- ------------- -------------- ------------
Restructuring and Other Unusual $(12,476) $ 223 $ (312) $ 4,865 $ (7,700)
Costs (Income), Net
Equity in Losses of Unconsolidated 13,394 - - - 13,394
Subsidiaries
Other Expense, Net (1,713) - - - (1,713)
-------- -------- -------- --------- --------
$ (795) $ 223 $ (312) $ 4,865 $ 3,981
======== ======== ======== ========= ========
The components of restructuring and related costs by segment are as
follows:
Optical Technologies
The Optical Technologies segment recorded $12.4 million of unusual income
in the first quarter of 2000 resulting from the sale of Thermo Instrument
Systems Inc.'s Nicolet Imaging Systems (NIS) and Sierra Research and Technology,
Inc. (SRT) subsidiaries. The businesses manufacture products that include
imaging systems used in assembling complex printed circuit boards and in airbag
manufacturing. NIS and SRT were sold for aggregate
11
<PAGE>
8. Restructuring and Other Unusual Costs (Income), Net (continued)
proceeds of $40.0 million and had aggregate revenues and operating income of
$28.3 million and $2.2 million, respectively, in 1999. These units were sold due
to a consolidation trend among manufacturers of test equipment in the markets
these businesses serve. The Company has decided to focus on growth in other
sectors of the instruments market. The segment also recorded a noncash charge of
$13.4 million associated with its equity method investment in FLIR Systems,
Inc., acquired as part of the February 1999 acquisition of Spectra-Physics. FLIR
recorded significant charges in its fourth quarter of 1999 and the segment has
recorded its pro rata share of FLIR's loss. The segment records FLIR's results
on a one quarter lag. This charge was recorded to equity in losses of
unconsolidated subsidiaries, a component of other expense in the accompanying
statement of income. In addition, the Optical Technologies segment recorded
other noncash income of $1.7 million related to hedging transactions of its
majority-owned Spectra-Physics Lasers, Inc. subsidiary that elected early
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The segment also reversed $0.1
million of previously established restructuring reserves during the first
quarter of 2000.
Measurement and Control
The Measurement and Control segment recorded $0.2 million of restructuring
and unusual costs in the first quarter of 2000 for employee retention costs for
a business unit that was sold. The unit was part of the power electronics and
test equipment business that is held for sale. The segment expects to complete
the sale of the remaining units of this business during the first half of 2000.
Power Generation
The Power Generation segment recorded unusual income of $2.0 million in
the first quarter of 2000, representing a gain on the sale of Thermo Ecotek
Corporation's Gorbell facility in Maine. This segment also had restructuring
costs of $1.7 million in the quarter. This amount included $1.0 million of
severance for 45 employees, 8 of whom were terminated in the first quarter of
2000, $0.6 million of noncash charges associated with Thermo Ecotek's gas
marketing business which was closed, and $0.1 million for employee retention
costs. The gas marketing costs include a writeoff of $0.3 million of cost in
excess of net assets of acquired companies and $0.3 million of capitalized
development costs. Thermo Ecotek determined that its gas marketing business was
a noncore business.
Corporate
The Company also recorded $4.9 million of restructuring and unusual costs
in its corporate office during the first quarter of 2000. These costs included
$2.8 million of investment banking, consulting, and legal fees associated with
the Company's reorganization plan, a $1.2 million noncash charge primarily
related to modification of the term of certain stock options of the Company's
former chairman, and $0.9 million of employee retention costs that are being
accrued ratably over the period through which the employees must work to qualify
for a payment.
General
During 1998 and 1999, the Company announced restructuring actions that
included plans for the termination of 729 employees. As of January 1, 2000, the
Company had terminated 717 employees. The restructuring actions in 2000 included
plans for the termination of an additional 48 employees. During the first
quarter of 2000, the Company terminated 15 employees.
The following tables summarize the cash components of the Company's
restructuring plans. The noncash components and other amounts reported as
restructuring and other unusual costs (income), net in the accompanying
statement of income have been summarized in the notes to the tables. Accrued
restructuring costs for the Company's continuing operations are included in
other accrued expenses in the accompanying balance sheet.
12
<PAGE>
8. Restructuring and Other Unusual Costs (Income), Net (continued)
Continuing Operations
Employee Abandonment
Retention of Excess
(In thousands) Severance Facilities Other Total
- --------------------------------- -------------- -------------- ------------- -------------- --------------
1998 Restructuring Plans
Balance at January 1, 2000 $ 893 $ - $ 224 $ 565 $ 1,682
Usage (357) - - - (357)
Reversal of reserves - - (84) - (84)
Currency translation (24) - (2) (9) (35)
------- ------- ------ ------- -------
Balance at April 1, 2000 $ 512 $ - $ 138 $ 556 $ 1,206
======= ======= ====== ======= =======
1999 Restructuring Plans
Balance at January 1, 2000 $ 3,840 $ - $ 324 $ 6,348 $10,512
Usage (2,423) - - - (2,423)
------- ------- ------ ------- -------
Balance at April 1, 2000 $ 1,417 $ - $ 324 $ 6,348 $ 8,089
======= ======= ====== ======= =======
2000 Restructuring Plans
Costs incurred in 2000 (a) $ 957 $ 1,234 $ - $ 2,751 $ 4,942
Usage (179) (245) - (2,751) (3,175)
------- ------- ------ ------- -------
Balance at April 1, 2000 $ 778 $ 989 $ - $ - $ 1,767
======= ======= ====== ======= =======
(a) Reflects restructuring costs of $0.2 million, $1.1 million, and $3.6 million
in the Measurement and Control and Power Generation segments and the
corporate headquarters, respectively. Excludes noncash charges of $0.6
million and $1.2 million in the Power Generation segment and corporate
headquarters, respectively. Also excludes unusual income of $12.4 million
and $2.0 million in the Optical Technologies and Power Generation segments,
respectively.
The Company's continuing operations expect to pay accrued restructuring
costs as follows: severance, primarily in 2000; employee retention obligations,
primarily in 2001 and January 2002; abandoned-facility payments, over lease
terms expiring through 2000; and other costs, primarily in 2000.
13
<PAGE>
8. Restructuring and Other Unusual Costs (Income), Net (continued)
Discontinued Operations
Employee Abandonment
Retention of Excess
(In thousands) Severance Facilities Other Total
- --------------------------------- -------------- -------------- ------------- -------------- --------------
1998 Restructuring Plans
Balance at January 1, 2000 $ 198 $ - $ 1,580 $ - $ 1,778
Usage (33) - (42) - (75)
Reserves reversed due to (34) - (666) - (700)
sale of businesses
Currency translation (8) - - - (8)
------- ------- ------- ------- -------
Balance at April 1, 2000 $ 123 $ - $ 872 $ - $ 995
======= ======= ======= ======= =======
1999 Restructuring Plans
Balance at January 1, 2000 $ 2,682 $ - $19,000 $ 9,743 $31,425
Costs incurred in 2000 by 102 279 - 759 1,140
discontinued operations
Usage (890) (34) (394) (2,020) (3,338)
Reserves reversed (18) - - - (18)
Reserves reversed due to (62) - (972) - (1,034)
sale of businesses
Currency translation (83) - (159) (137) (379)
------- ------- ------- ------- -------
Balance at April 1, 2000 $ 1,731 $ 245 $17,475 $ 8,345 $27,796
======= ======= ======= ======= =======
2000 Restructuring Plans
Costs incurred in 2000 by $ 99 $ 764 $ - $ 77 $ 940
discontinued operations
Usage (99) - - (77) (176)
------- ------- ------- ------- -------
Balance at April 1, 2000 $ - $ 764 $ - $ - $ 764
======= ======= ======= ======= =======
The Company's discontinued operations expect to pay accrued restructuring
costs as follows: severance, primarily in 2000; employee retention obligations,
in 2000 and 2001; abandoned-facility payments, over lease terms expiring through
2014; and other costs, primarily in 2000.
9. Proposed Reorganization and Discontinued Operations
Proposed Reorganization
In January 2000, the Company announced a proposed reorganization involving
the Company and certain of its subsidiaries. The reorganization would split the
Company into three independent public entities. The Company's continuing
operations will focus on its core business of measurement and detection
instruments. This business will consist of Thermo Instrument and its
subsidiaries, as well as Thermedics Detection Inc. and Thermo Sentron Inc. The
Company's plans also include spinning off as a dividend to Company shareholders
Thermo Fibertek Inc. and a medical products company that focuses on patient
monitoring and respiratory equipment.
14
<PAGE>
THERMO ELECTRON CORPORATION
9. Proposed Reorganization and Discontinued Operations (continued)
In addition to the majority-owned subsidiaries the Company had previously
announced its intention to repurchase, the Company announced it intends to
repurchase the publicly traded shares it does not already own in Thermo Optek
Corporation, ThermoQuest Corporation, Thermo BioAnalysis Corporation, Metrika
Systems Corporation, ONIX Systems Inc., Thermo Instrument, and Thermedics Inc.
The Company also announced the terms of its previously announced repurchases of
Thermo Sentron, Thermedics Detection, and Thermo Ecotek.
During the second quarter of 2000, Thermo Instrument successfully
completed cash tender offers of $28.00 per share for Thermo BioAnalysis, $9.00
per share for Metrika Systems, and $9.00 per share for ONIX Systems 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 has
ceased to be publicly traded. Because Thermo Instrument owned more than 90% of
the outstanding shares of Thermo Optek and ThermoQuest common stock, each of
these companies were repurchased through a short-form merger at $15.00 and
$17.00 per share, respectively, during the second quarter of 2000 and their
common stock has ceased to be publicly traded.
Thermedics has successfully completed cash tender offers of $8.00 and
$15.50 per share for Thermedics Detection and Thermo Sentron, respectively, in
order to bring its and the Company's collective ownership of these companies 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 has
ceased to be publicly traded.
The Company has also commenced exchange offers for Thermo Instrument and
Thermedics in which shares of Company common stock would be offered to Thermo
Instrument and Thermedics shareholders in exchange for their shares in order to
bring the Company's ownership in each of them to at least 90%. The exchange
ratio for Thermo Instrument has been set at 0.85 shares of Company common stock
for each share of Thermo Instrument, and the exchange ratio for Thermedics has
been set at 0.45 shares of Company common stock for each share of Thermedics. If
the exchange offers are successful, Thermo Instrument and Thermedics would then
be spun into the Company through short-form mergers at the same exchange ratios
that are being offered in the exchange offers.
Because the Company owns more than 90% of the outstanding shares of Thermo
Ecotek, the Company expects to repurchase Thermo Ecotek through a short-form
merger. Thermo Ecotek shareholders will receive 0.431 shares of Company common
stock for each share of Thermo Ecotek held. Although it is no longer a core
business under the reorganization plan, Thermo Ecotek will be taken private and
remain within the Company while the Company continues to evaluate how to best
exit the business while maximizing shareholder value.
The spinoffs of Thermo Fibertek and the medical products company will
require a favorable ruling by the Internal Revenue Service regarding the tax
treatment of the spinoffs, review by the Securities and Exchange Commission
(SEC) of necessary filings related to the medical products company, final
Company Board of Directors actions, and other customary conditions. In addition,
the spinoff of the medical products company will be conditioned on the
successful completion of the proposed repurchases of Thermo Instrument and
Thermedics.
The repurchase of Thermo Ecotek will require review by the SEC of
necessary filings. The proposed exchange offers for Thermo Instrument and
Thermedics will require: review by the SEC of necessary filings; the receipt of
enough acceptances from minority shareholders so that the Company's equity
ownership of each of these companies reaches at least 90%; and other customary
conditions.
15
<PAGE>
9. Proposed Reorganization and Discontinued Operations (continued)
The short-form merger for Thermo Ecotek is expected to be completed by the
end of the third quarter of 2000. The exchange offers for Thermo Instrument and
Thermedics are expected to be completed by the end of the third quarter of 2000.
In October 1999, Thermo TerraTech Inc. entered into a definitive agreement
and plan of merger with the Company pursuant to which the Company would acquire
all of Thermo TerraTech's outstanding shares of common stock not already owned
by the Company in exchange for a number of shares of the Company's common stock
to be determined based upon the average closing price of the Company's common
stock during the 20 trading days ending five days prior to the effective date of
the merger. Under the agreement, as amended, Thermo TerraTech shareholders would
receive Company common stock valued between $7.50 and $9.25 per share of Thermo
TerraTech common stock. However, the Company may elect to terminate the
agreement if it is required to issue more than 1.8 million shares of its common
stock in this transaction. Also in October 1999, ThermoRetec Corporation and The
Randers Killam Group Inc. entered into definitive agreements and plans of merger
with the Company pursuant to which the Company would acquire, 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. Following the mergers, the common stock of Thermo TerraTech,
ThermoRetec, and Randers Killam would cease to be publicly traded. The mergers
of ThermoRetec and Randers Killam are expected to be completed in the second
quarter of 2000. The merger of Thermo TerraTech is expected to be completed
during the third quarter of 2000.
In December 1999, ThermoLase Corporation entered into a definitive
agreement and plan of merger with the Company pursuant to which the Company
would acquire all of ThermoLase's outstanding shares of common stock not already
owned by ThermoTrex Corporation or the Company in exchange for a number of
shares of the Company's common stock to be determined based on the average
closing price of the Company's common stock for the 20 trading days prior to the
effective date of the merger, to be not less than 0.132 shares or more than
0.198 shares of the Company's common stock. Following the merger, the common
stock of ThermoLase would cease to be publicly traded. In addition, under the
agreement, units of ThermoLase would be modified so that, following the merger,
each unit would consist of a fractional share of Company common stock, which
would be redeemable in April 2001 for $20.25. The merger of ThermoLase is
expected to be completed in the third quarter of 2000.
In December 1999, ThermoTrex entered into a definitive agreement and plan
of merger pursuant to which the Company would acquire 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 one share of ThermoTrex common stock for
0.5503 shares of Company common stock. Following the merger, the common stock of
ThermoTrex would cease to be publicly traded. The merger of ThermoTrex is
expected to be completed in the third quarter of 2000.
Discontinued Operations
The Company has also announced its intention to sell several of its
businesses. These businesses, together with the businesses to be spun off,
constitute the Company's former Biomedical and Emerging Technologies and
Resource Recovery segments as well as the Company's environmental businesses and
Thermo Power Corporation. In accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 30 concerning reporting the effects of
disposal of a segment of a business, the Company has classified the results of
these businesses, as well as the results of the businesses being spun off as
dividends (collectively, "the discontinued businesses"), as discontinued in the
accompanying statement of income. In addition, the net assets of the
discontinued businesses were classified as net assets of discontinued operations
in the accompanying balance sheet. Current net assets of discontinued operations
primarily consist of cash, inventories, and accounts receivable net of certain
liabilities, primarily accrued expenses and accounts payable. Long-term net
assets of discontinued operations primarily consist of machinery and equipment
and cost in excess of net assets of acquired companies. In addition, long-term
net assets of discontinued operations reflect subordinated convertible
debentures of Thermo Cardiosystems Inc. and Thermo Fibertek.
</TABLE>
16
<PAGE>
9. Proposed Reorganization and Discontinued Operations (continued)
Summary operating results of the discontinued businesses were as follows:
<TABLE>
<CAPTION>
Three
Months Ended
<S> <C>
(In thousands) April 3,1999
- ---------------------------------------------------------------------------------- ----- -----------------
Revenues $453,788
Costs and Expenses 432,290
--------
Income from Discontinued Operations Before Income Taxes and Minority Interest 21,498
Provision for Income Taxes 13,464
Minority Interest Income (2,196)
--------
Income from Discontinued Operations $ 10,230
========
During the first quarter of 2000, the Company's discontinued operations
had revenues and net income of $400.7 million and $24.1 million, respectively.
During the first quarter of 2000, the discontinued operations received proceeds
of $89.1 million, net of cash divested, from the sale of businesses. While there
can be no assurance as to the timing of the sale of any particular business, the
Company expects to complete the sale of the remaining businesses by the end of
2000. The Company expects to complete the spinoffs of Thermo Fibertek and the
medical products company by early 2001.
10. Recent Accounting Pronouncement
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." SAB 101 includes requirements for
when shipments may be recorded as revenue when the terms of the sale include
customer acceptance provisions or an obligation of the seller to install the
product. In such instances, SAB 101 generally requires that revenue recognition
occur at completion of installation and/or upon customer acceptance. SAB 101
requires that companies conform their revenue recognition practices to the
requirements therein no later than the second quarter of calendar 2000 through
recording a cumulative net of tax effect of the change in accounting as of
January 2, 2000. The Company has not yet completed the analysis to determine the
effect that SAB 101 will have on its financial statements.
11. Subsequent Event
On May 11, 2000, Thermo Instrument announced that it had entered into an
agreement to sell its wholly owned Spectra Precision, Inc. businesses to Trimble
Navigation Limited for approximately $200 million in cash and $80 million in
seller debt financing. Spectra Precision, part of the Measurement and Control
segment, was acquired in February 1999 as part of Spectra-Physics and provides
the construction, surveying, and heavy machine industries with precision
positioning equipment. These businesses are being sold as they are outside the
Company's renewed focus on measurement and detection instrumentation. Closing of
the transaction, expected at the end of the second quarter of 2000, is subject
to regulatory approval, financing, and other customary conditions.
17
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 2000, filed with the Securities and Exchange
Commission.
Results of Operations
First Quarter 2000 Compared With First Quarter 1999
Continuing Operations
Sales in the first quarter of 2000 were $598.9 million, an increase of
$43.2 million, or 8%, over the first quarter of 1999. Segment income is
operating income before corporate charges. Segment income decreased to $60.1
million in 2000 from $63.7 million in 1999, excluding unusual income, net, of
$12.6 million in 2000 and restructuring costs of $1.2 million in 1999, described
below, and a charge for the sale of inventories revalued at the date of
acquisition of $4.6 million in 1999. Operating income, including these items,
was $59.3 million in 2000, compared with $49.9 million in 1999.
Life Sciences
Sales from the Life Sciences segment increased $8.8 million to $190.5
million in the first quarter of 2000. Sales increased $7.5 million due to
acquisitions. The unfavorable effects of currency translation, due to the
strengthening of the U.S. dollar relative to foreign currencies in countries in
which the segment operates, decreased revenues by $7.4 million in 2000.
Excluding the effect of acquisitions and currency translation, revenues
increased $8.7 million. Revenues from pharmaceutical and biochemical research
products increased $3.9 million due to higher demand for the segment's
immunoassay testing and newly introduced Multiblock deoxyribonucleic acid (DNA)
amplification products. Revenues from analytical instruments increased $3.2
million due to higher sales of mass spectrometers in Europe and Asia. Revenues
from scientific equipment increased $2.2 million due to higher demand for
controlled-environment laboratory equipment. These increases in revenues were
offset in part by lower revenues from information management systems due to
lower demand in the U.S.
Segment income margin (segment income divided by revenues) improved
slightly to 15.3% in 2000 from 15.0% in 1999. The segment's gross profit margin
improved primarily due to a change in product mix.
Optical Technologies
Sales from the Optical Technologies segment increased $19.5 million to
$198.0 million in the first quarter of 2000. Sales increased $13.8 million due
to acquisitions, net of dispositions, primarily the acquisition of
Spectra-Physics Lasers, Inc. (SPLI), in which Thermo Instrument acquired a
majority interest on February 22, 1999. The dispositions primarily included the
segment's Nicolet Imaging Systems (NIS) and Sierra Research and Technology, Inc.
(SRT) businesses that were sold in March 2000. These units were sold due to a
consolidation trend among manufacturers of test equipment in the markets these
businesses serve. The Company has decided to focus on growth in other sectors of
the instruments market. The unfavorable effects of currency translation, due to
the strengthening of the U.S. dollar relative to foreign currencies in countries
in which the segment operates, decreased revenues by $5.4
18
<PAGE>
First Quarter 2000 Compared With First Quarter 1999 (continued)
million in 2000. Excluding the effect of acquisitions, dispositions, and
currency translation, revenues increased $11.1 million. The increase in revenues
was due in part to $4.6 million of increased demand for products sold to the
semiconductor industry by the segment's physical properties business. The
semiconductor sector is experiencing renewed growth after a downturn in the
first half of 1999. Revenues from elemental analysis instruments increased $3.2
million in 2000 primarily due to new product introductions, and sales of
photonics products increased $2.8 million primarily due to strong demand for
gratings used in systems for semiconductor manufacturers and in
telecommunications.
Segment income margin, excluding unusual income of $12.5 million in the
first quarter of 2000 and restructuring costs of $1.3 million and a charge for
the sale of inventories revalued at the date of acquisition of $1.4 million in
the first quarter of 1999, decreased to 9.1% in 2000 from 11.0% in 1999. Segment
income margin decreased due to a high level of sales and profitability at SPLI
for the six weeks of the 1999 quarter that it was included in the segment's
results. In addition, SPLI increased its research and development expenses to
15% of its revenues in 2000 from 8% in the 1999 period, primarily for products
in the telecommunications market. The segment income margin for SPLI was 2% and
20% in 2000 and 1999, respectively, excluding a charge for revalued inventories
in 1999. Excluding restructuring and unusual costs/income and the results of
SPLI from both periods, segment income margin increased to 10.7% in 2000 from
9.7% in 1999 as a result of higher sales at certain businesses discussed above.
The unusual income in 2000 primarily represents a gain of $12.4 million on the
sale of NIS and SRT. The restructuring costs in 1999 were primarily facility
closing costs and severance associated with a restructuring plan undertaken in
1998 and completed in 1999.
Measurement and Control
Sales increased $28.0 million to $187.2 million in the Measurement and
Control segment in the first quarter of 2000. Sales increased $32.3 million due
to acquisitions, primarily that of Spectra-Physics AB's wholly owned businesses,
acquired on February 22, 1999. The unfavorable effects of currency translation,
due to the strengthening of the U.S. dollar relative to foreign currencies in
countries in which the segment operates, caused revenues to decrease by $2.8
million in 2000. Excluding the effect of acquisitions and currency translation,
revenues decreased $1.5 million. Revenues from process control products
decreased $1.5 million, primarily as a result of reduced discretionary capital
spending by companies in the process control industry and by the oil and gas
production sector. Revenues from process-optimization systems decreased $1.2
million, primarily due to a reduction in spending in the metals industry due to
depressed pricing. Revenues from this segment's quality assurance and safety
products business decreased $0.9 million. The decline in sales at this business
resulted from lower demand for ultratrace chemical detectors. The demand for
ultratrace chemical detectors was adversely affected by recycling practices in
Europe which now involve melting and reforming plastic returnables instead of
sanitizing and reusing containers. These decreases in revenues were offset in
part by higher revenues from the sale of environmental-monitoring instruments as
well as power electronics and test equipment as a result of increased sales to
the semiconductor industry following softness in the first half of 1999. This
segment is holding the power electronics and test equipment business for sale as
a cyclical, noncore unit, and expects the divestiture to be completed during the
first half of 2000. This business had revenues of $7.4 million in the first
quarter of 2000 with a nominal segment loss before restructuring costs.
Segment income margin, excluding restructuring and unusual costs of $0.2
million in 2000 and a charge of $3.2 million for the sale of inventories
revalued at the date of acquisition in 1999, decreased to 5.8% in 2000 from 8.0%
in 1999. Segment income margin decreased primarily due to the inclusion of the
wholly owned businesses of Spectra-Physics for the entire quarter in 2000,
including the months of January and February, which historically have weaker
operating margins than March. The wholly owned businesses of Spectra-Physics had
a segment income margin of 3.7% in 2000 and 10.8% in 1999, excluding a charge
for revalued inventories in 1999. Excluding restructuring and unusual costs and
the results of the Spectra-Physics wholly owned businesses from both periods,
segment income margin decreased to 6.9% in 2000 from 7.2% in 1999, due primarily
to lower sales at certain operating units discussed above. The restructuring
costs in 2000 represent employee retention costs for the power electronics and
test equipment business.
19
<PAGE>
First Quarter 2000 Compared With First Quarter 1999 (continued)
Power Generation
Sales from the Power Generation segment, which consists of the Company's
Thermo Ecotek subsidiary, decreased $15.1 million to $25.9 million in the first
quarter of 2000. Revenues decreased $23.0 million due to the expiration or
negotiated termination of fixed price contracts for the sale of power at Thermo
Ecotek's principal California plants and a facility in Maine. This decrease was
offset in part by $7.9 million of higher revenues from the 1999 acquisitions of
a plant in Germany and a gas gathering and two gas storage facilities in the
United States, as well as the expansion of a facility in the Czech Republic. As
noted below, the periods during which Thermo Ecotek received fixed rates for
power at its four principal California facilities ended in 1999. The expiration
or negotiated termination of fixed price power-sales agreements has had and will
continue to have a significant adverse effect on Thermo Ecotek's revenues and
profitability as discussed below.
Segment income margin, excluding unusual income, net, of $0.3 million in
2000, was 8.6% in 2000 and 9.9% in 1999. The decrease in segment income margin
resulted in part from $1.5 million of operating losses in the first quarter of
2000 at Thermo Ecotek's Mendota and Delano plants due to the expiration or
termination of fixed price contract periods. This decrease was offset in part by
a $4.4 million reduction in operating losses as a result of the closure of
Thermo Ecotek's coal-beneficiation facility in mid-1999. Unusual income resulted
from Thermo Ecotek's sale of its Gorbell facility in Maine during the first
quarter of 2000 for a gain of $2.0 million. This unusual income was offset in
part by employee severance and retention costs of $1.1 million and the write-off
of capitalized development costs and cost in excess of net assets of acquired
companies totaling $0.6 million as a result of the closure of a gas marketing
business.
The power-sales agreements for Thermo Ecotek's Mendota, Woodland, and
Delano plants in California are so-called standard offer #4 (SO#4) contracts,
which required Pacific Gas & Electric (PG&E), in the case of Mendota and
Woodland, and Southern California Edison (SCE), in the case of the Delano
facilities, to purchase the power output of the projects at fixed rates through
specified periods. Thereafter, the utility will pay a rate based upon the costs
that would have otherwise been incurred by the purchasing utilities in
generating their own electricity or in purchasing it from other sources (avoided
cost). Avoided cost rates are currently substantially lower than the rates
Thermo Ecotek has received under the fixed-rate portions of its contracts and
are expected to remain so for the foreseeable future. PG&E commenced paying for
power purchased from the Mendota and Woodland facilities at avoided cost rates
effective in July and August 1999, respectively. Based on current avoided cost
rates, Thermo Ecotek expects that the Woodland plant will operate at breakeven
or nominal operating losses through 2010, primarily as a result of nonrecourse
lease obligations that have been partially funded from the Woodland plant's past
cash flows. Absent sufficient reductions in fuel prices and other operating
costs, Thermo Ecotek will draw down power reserve funds to cover operating cash
shortfalls and then, if such funds are depleted, either renegotiate its
nonrecourse lease for the Woodland plant or forfeit its interest in the plant.
Revenues from the Woodland plant were $24.1 million in 1999. The results of the
Woodland facility were approximately breakeven in 1999, as a result of recording
as an expense the funding of reserves required under Woodland's nonrecourse
lease agreement to cover expected shortfalls in lease payments.
The Mendota facility's 2000 revenues and operating results were affected
by the transition to avoided cost rates. The plant's revenues and operating loss
were $1.9 million and $0.7 million, respectively, in the first quarter of 2000.
The plant had revenues and operating income of $21.0 million and $0.5 million,
respectively, in calendar 1999. The power-sales agreement with SCE for the
Delano facilities called for fixed contract rates through September 2000. In
anticipation of a decline in rates at its Delano facilities, Thermo Ecotek
reached an agreement in May 1999 to terminate its power-sales agreement,
effective December 31, 1999. During the first quarter of 2000, Thermo Ecotek
decided that it was uneconomical to operate the Delano facilities following the
termination of their power-sales agreement and the plants suspended operations
in March 2000. The Delano facilities' aggregate revenues and operating income in
1999 were $60.5 million and $29.9 million, respectively. If Thermo Ecotek had
been paid
20
<PAGE>
First Quarter 2000 Compared With First Quarter 1999 (continued)
avoided cost rates for all of 1999 at its four principal California plants,
revenues would have been approximately $64 million lower. In response to these
declines in revenues and operating income, Thermo Ecotek may continue to explore
other options for its biomass facilities, including disposal.
Other Expense, Net
The Company reported other expense, net, of $21.2 million and $8.1 million
in the first quarter of 2000 and 1999, respectively. Other expense, net includes
interest income, interest expense, equity in losses of unconsolidated
subsidiaries, gain on investments, net, and other income (expense), net.
Interest income decreased to $10.2 million in 2000 from $14.2 million in 1999.
The decrease resulted primarily from the use of cash for acquisitions,
principally Spectra-Physics, and the purchases of securities of the Company and
its majority-owned subsidiaries. Interest expense decreased to $23.0 million in
2000 from $24.5 million in 1999, as a result of the repurchase of Company and
subsidiary debentures in 1999 and the first quarter of 2000.
The Company incurred a loss of $13.3 million in 2000 from its equity in
the results of unconsolidated subsidiaries, primarily $13.4 million at FLIR
Systems, Inc., which recorded significant charges in its fourth quarter of 1999.
The Company reports its pro rata share of FLIR's results on a one quarter lag.
During 2000, gain on investments, net increased to $3.5 million from $2.8
million in 1999. In 2000, other expense, net also includes $1.6 million of
currency gains, including $1.7 million resulting from hedging activities at
SPLI, which elected early adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
Income Taxes
The Company's effective tax rate was 44% and 42% in the first quarter of
2000 and 1999, respectively. The effective tax rates vary from the statutory
federal income tax rate primarily due to state income taxes and nondeductible
expenses, including amortization of cost in excess of net assets of acquired
companies. The effective tax rate increased in 2000 due to the tax benefit for
the loss at FLIR being recorded at 28%, the tax rate of the Swedish subsidiary
that holds the investment in FLIR.
Minority Interest Expense
The Company recorded minority interest expense of $6.1 million and $6.3
million in the first quarter of 2000 and 1999, respectively.
Discontinued Operations
The Company's discontinued operations had income of $10.2 million in the
first quarter of 1999, net of taxes and minority interest. While the Company is
not currently aware of any known trends, events, or uncertainties involving
discontinued operations, it is reasonably possible that expected proceeds from
the sale of businesses could differ materially from the amounts estimated. Any
difference from the amounts recorded would be reported as an adjustment to the
loss on disposal of discontinued operations that was recorded in 1999.
21
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $1.63 billion at April 1, 2000, compared
with $1.45 billion at January 1, 2000. Included in working capital were cash,
cash equivalents, and short-term available-for-sale investments of $959.5
million at April 1, 2000, compared with $837.3 million at January 1, 2000. In
addition, the Company had $51.7 million of long-term available-for-sale
investments at April 1, 2000, compared with $40.2 million at January 1, 2000. Of
the total $1.01 billion of cash, cash equivalents, and short- and long-term
available-for-sale investments at April 1, 2000, $928.0 million was held by the
Company's majority-owned subsidiaries, and the balance was held by the Company
and its wholly owned subsidiaries.
Cash provided by operating activities was $32.5 million during the first
quarter of 2000, including $42.1 million from continuing operations. Cash of
$30.6 million was used to fund an increase in inventories, primarily in the
Optical Technologies and Life Sciences segments due to a build up of inventory
in preparation for new product releases and the replenishment of year-end
inventory levels. A decrease in accounts receivable provided $19.9 million in
cash, primarily in the Power Generation, Optical Technologies, and Life Sciences
segments due to lower sales volume in the first quarter of 2000, compared with
the fourth quarter of 1999. In connection with certain restructuring actions
undertaken by the Company's continuing operations during 1999, the Company had
accrued $11.1 million for restructuring and unusual costs at April 1, 2000,
which the Company expects to pay primarily during the remainder of 2000. In
addition, at April 1, 2000, the Company had accrued $18.0 million for
acquisition expenses. Accrued acquisition expenses includes $4.1 million of
severance obligations, which the Company expects to pay primarily in 2000. The
balance, which primarily represents abandoned-facility payments, will be paid
over the remaining terms of the leases through 2014.
During the first quarter of 2000, the primary investing activities of the
Company's continuing operations, excluding available-for-sale investments
activity, included the acquisition of minority interests of subsidiaries, the
sale of businesses, and the purchase of property, plant, and equipment. Two of
the Company's majority-owned subsidiaries expended an aggregate of $29.3 million
to acquire the minority interest of subsidiaries (Note 9). The Company will
expend additional cash of approximately $325 million, primarily in the second
quarter of 2000, for the planned repurchases of the public shares that it does
not already own of certain majority-owned subsidiaries. In the first quarter of
2000, the Company's majority-owned subsidiaries sold businesses for aggregate
net proceeds, net of cash divested, of $41.8 million, including Thermo
Instrument's sale of NIS and SRT. The Company's continuing operations expended
$23.2 million for purchases of property, plant, and equipment and $4.7 million,
net of cash acquired, for an acquisition. During the first quarter of 2000,
investing activities of the Company's discontinued operations provided $57.7
million of cash, primarily representing net proceeds, net of cash divested, of
$89.1 million from the sale of businesses, including Thermo Power Corporation's
sale of its FES division and ThermoTrex Corporation's sale of its Trex
Communications subsidiary. In addition, the Company's discontinued operations
used $6.1 million to acquire the minority interest of privately held
subsidiaries, $9.8 million for the purchase of property, plant, and equipment,
and $3.0 million for acquisitions.
The Company's financing activities used $3.0 million of cash during the
first quarter of 2000, including $2.1 million for continuing operations. During
the first quarter of 2000, the Company expended $6.5 million to purchase shares
of its common stock and debentures. In addition, the Company expended $14.6
million to purchase debentures of certain of the Company's majority-owned
subsidiaries.
As discussed above, a substantial percentage of the Company's consolidated
cash and investments is held by subsidiaries that are not wholly owned by the
Company. This percentage may vary significantly over time. Pursuant to the
Thermo Electron Corporate Charter (the Charter), to which each of the
majority-owned subsidiaries of the Company is a party, the combined financial
resources of Thermo Electron and its subsidiaries allow the Company to provide
banking, credit, and other financial services to its subsidiaries so that each
member of the Thermo Electron group of companies may benefit from the financial
strength of the entire organization. Toward that end, the Charter states that
each member of the group may be required to provide certain credit support to
the consolidated entity. This
22
<PAGE>
Liquidity and Capital Resources (continued)
credit may rank junior, pari passu with, or senior in priority to payment of the
other indebtedness of these members. Nonetheless, the Company's ability to
access assets held by its majority-owned subsidiaries through dividends, loans,
or other transactions is subject in each instance to a fiduciary duty owed to
the minority shareholders of the relevant subsidiary. In addition, dividends
received by Thermo Electron from a subsidiary that does not consolidate with
Thermo Electron for tax purposes are subject to tax. Therefore, under certain
circumstances, a portion of the Company's consolidated cash and short-term
investments may not be readily available to Thermo Electron or certain of its
subsidiaries.
During May 2000, Thermo Ecotek entered into an agreement with a bank group
to factor a portion of the payments to be received from the termination of the
power-sales agreement at its Delano facilities.
Thermo Ecotek received approximately $53 million under this arrangement.
On May 11, 2000, Thermo Instrument announced that it had entered into an
agreement to sell its wholly owned Spectra Precision, Inc. businesses to Trimble
Navigation Limited for approximately $200 million in cash and $80 million in
seller debt financing (Note 11).
The Company expects significant additional cash proceeds from the sale of
discontinued operations in 2000. The Company has received cash proceeds of
$135.8 million for businesses sold in 2000 through May 12, 2000.
The Company has no material commitments for purchases of property, plant,
and equipment and expects that for the remainder of 2000 such expenditures will
approximate the current level of expenditures.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates,
foreign currency exchange rates, and equity prices has not changed materially
from its exposure at year-end 1999.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page immediately preceding exhibits.
</TABLE>
(b) Reports on Form 8-K
On February 1, 2000, the Company filed a Current Report on Form 8-K dated
January 31, 2000, with respect to a proposed corporate reorganization.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 12th day of May 2000.
THERMO ELECTRON CORPORATION
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------------
10.1 Employment and Consulting Agreement dated as of March 31, 2000,
between Thermo Electron Corporation and George N. Hatsopoulos.
10.2 Description of transaction bonus arrangement between Brian D.
Holt and Thermo Electron Corporation (filed as Exhibit 10.2 to
Thermo Ecotek Corporation's Quarterly Report on Form 10-Q for the
quarter ended April 1, 2000 [File No. 1-13572] and incorporated
herein by reference).
27.1 Financial Data Schedule for the quarter ended April 1, 2000.
27.2 Restated Financial Data Schedule for the quarter ended April 3,
1999.
EMPLOYMENT AND CONSULTING AGREEMENT
This Employment and Consulting Agreement (the "Agreement"), dated as of
March 31, 2000, is entered into between Thermo Electron Corporation, a Delaware
corporation with its principal place of business at 81 Wyman Street, Waltham,
Massachusetts 02454 (the "Company"), and George N. Hatsopoulos, residing at 233
Tower Road, Lincoln, Massachusetts 01773 (the "Employee").
The parties desire to enter into an employment agreement on the terms set
forth herein and, subsequent to the term of the employment agreement, the
Company desires to appoint the Employee as a consultant to the Company. In
consideration of the mutual covenants and promises contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the Employee on
a part-time basis, and the Employee hereby accepts employment with the Company
on a part-time basis, upon the terms set forth in this Agreement, for the period
commencing on the date hereof, and continuing until the earlier of March 31,
2002 or termination in accordance with the provisions of Section 4 (such period,
the "Employment Period").
2. Capacity. The Employee shall provide such technical and advisory
services to the Company as are requested from time to time by the Company and
are consistent with a senior executive position with the Company; however, the
parties acknowledge and agree that the scope of services requested by the
Company shall be limited to the Company's instrument businesses and
technologies, conducted primarily by Thermo Instrument Systems Inc. and its
subsidiaries. The Employee shall be treated as a common law employee of the
Company, subject to the supervision of, and shall have such authority as is
delegated and such duties as are assigned to him by, the Chief Executive Officer
or his designee.
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Chief Executive Officer or his designee shall from time
to time reasonably assign to him. In his capacity as a part-time employee, the
Employee agrees to be available to devote, on average, approximately twenty
hours per week to fulfilling such duties and responsibilities. The Employee
agrees to abide by the rules, regulations, instructions, personnel practices and
policies of the Company and any changes therein that may be adopted from time to
time by the Company.
3. Compensation and Benefits.
3.1 Base Salary. The Company shall pay to the Employee, at such
times as the Company pays its employees in general, an annual base salary equal
to $500,000.
<PAGE>
3.2 Bonus. The Employee will be entitled to receive a bonus for the
period beginning January 1, 2000 and ending March 31, 2000, in an amount to be
determined in the discretion of the Company's Board of Directors, payable at
such time as such bonuses are normally paid. The Employee, however, will not be
eligible for any bonus during the Employment Period.
3.3 Fringe Benefits. During the Employment Period, (i) the Employee
shall be entitled to participate in all benefit programs that the Company
establishes and makes available to its employees to the extent that the
Employee's position, tenure, salary, age, part-time status and other
qualifications make him eligible to participate, it being understood that the
Employee will no longer be eligible for the Company's Executive Medical Plan or
Executive Auto Cash Allowance Program and (ii) the Company will use its best
efforts to continue to include the Employee as a named insured person under the
Company's directors and officers liability insurance policy. During the
Employment Period, the Company shall use its best efforts to obtain for the
Employee health and dental care insurance for him and his dependents with
substantially the same coverage as in effect on the date hereof, at the
Company's sole cost and expense. During the Employment Period and the consulting
period described in Section 14 below, the Company shall, at no cost to the
Employee, continue to provide the Employee with (i) an office in an office
building that is located in a suburb west of Boston with occupancy rates similar
to the Employee's current office space; (ii) communications and office equipment
and services similar to those it now provides the Employee; provided that the
Employee's personal computer will not be linked to any Company computer network;
(iii) full-time services of the Employee's present administrative assistant or,
if she is unable or unwilling to continue as such, the Company shall use its
best efforts to secure for the Employee a full-time administrative assistant of
substantially similar experience; and (iv) the newspapers and periodicals that
the Employee now receives.
3.4 Reimbursement of Expenses. During the Employment Period and the
consulting period described in Section 14 below the Company shall promptly
reimburse the Employee for his reasonable expenses incurred in the performance
of his duties hereunder, not to exceed $100,000 per year. The Employee agrees to
provide receipts or other evidence of such expenses. The reasonableness of such
expenses shall be determined on a basis consistent with the Company's and the
Employee's past practices in this regard, including the Employee's use of a
private aircraft for business travel and home entertainment of persons with an
actual or potential connection to the Company or who may be helpful to the
Company.
4. Employment Termination. The employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any
of the following:
4.1 At the election of the Company, for Cause, immediately upon
written notice by the Company to the Employee. For the purposes of this Section
4, "Cause" for termination shall mean the Employee's (a) conviction of a felony,
or a misdemeanor involving material fraud or material dishonesty, (b) material
fraud or material dishonesty in the course of his employment with the Company,
(c) misconduct that is materially injurious to the Company or its subsidiaries
and affiliates, and (d) gross neglect of his duties and responsibilities under
the terms of this Agreement;
<PAGE>
4.2 Upon the death of the Employee;
4.3 At the election of the Employee, upon not less than 30 days
prior written notice of termination.
5. Effect of Termination.
5.1 Termination by the Company or at the Election of the Employee.
In the event the Employee's employment is terminated by the Company pursuant to
Section 4.1 or at the election of the Employee pursuant to Section 4.3, the
Company shall pay to the Employee the compensation and benefits which would
otherwise be payable to him under Section 3 through the last day of his actual
employment by the Company, and the parties' obligations under Sections 14 and 15
shall terminate.
5.2 Termination for Death. If the Employee's employment is
terminated by death pursuant to Section 4.2, the Company shall pay to the estate
of the Employee a lump sum in an amount equal to the balance of the base salary
and consulting amounts otherwise payable to the Employee for the period from the
date of termination to March 31, 2004 as set forth in Sections 3.1 and 14.
5.3 Survival. Notwithstanding anything herein to the contrary,
Sections 9 - 13 and 16 - 22 of this Agreement shall survive the termination of
employment or the consulting arrangement.
6. Options and Restricted Stock.
6.1 During the Employment Period, the Employee shall be entitled to
retain his stock options in the Company and any of its subsidiaries, subject to
the terms and conditions of such options. Upon the termination of the Employment
Period, including upon any earlier termination of employment, all stock options
which are "in-the-money" as of the date hereof and have Vested (i.e., the
underlying shares are not subject to repurchase by the Company or its
subsidiaries, as applicable) or will have Vested as of the last day of the
Employment Period (such options being identified on Exhibit 1 attached and
incorporated herein) will no longer Vest and no further lapsing of the Company's
and its subsidiaries' repurchase rights will occur. The Employee will then have
until the earlier of (i) 90 days or two years after such termination, depending
on the terms of the option as specified by Exhibit 1 (attached and incorporated
herein) or (ii) the expiration of the exercise period, to exercise such options.
If the Employee does not exercise such options by the applicable deadline, such
options will be cancelled, and the Employee will have no further rights with
respect to such options.
6.2 Notwithstanding the terms of any stock option plan or agreement
pursuant to which such options were granted and regardless of whether the
Employee is an employee of the Company or any of its subsidiaries, the following
terms and conditions shall apply to the stock options previously granted to the
Employee that are, as of the date hereof, either not "in the money" (such
options being identified on Exhibit 2 attached and incorporated herein) or "in
the money" and Vesting in the consulting period described in Section 14 hereof
(such options being identified on Exhibit 3 attached and incorporated herein):
<PAGE>
(i) The resale restrictions and the Company's or its
subsidiaries' repurchase rights with respect to such
options shall continue to ratably lapse in accordance with
their original terms through the earlier of (A) the
original expiration date of such option or (B) March 31,
2004;
(ii) Any option that is, under its original terms, exercisable
on March 31, 2004 shall thereafter remain exercisable until
June 30, 2004. If the Employee does not exercise such
options by such deadline, such options will be cancelled,
and the Employee will have no further rights with respect
to such options; and
(iii) Any option that is, under its original terms, scheduled to
Vest after March 31, 2004 is hereby forfeited, unless there
occurs on or before that date a change of control (as
defined by the terms of the original option) that would
have accelerated the Vesting under its original terms, in
which event the option shall be exercisable to the extent
its Vesting has been so accelerated.
6.3 All stock of the Company previously acquired by the Employee
pursuant to the exercise of a Type B stock option shall become fully Vested and
all of the Company's repurchase rights and transfer restrictions with respect
thereto shall lapse on such date that is on or after May 10, 2000 as mutually
determined by the Employee and the Company; provided, however if the parties do
not mutually select a vesting date, such stock shall Vest on January 7, 2001.
6.4 Solely for purposes of this Section 6, the term "Employee" shall
be deemed to include GDH Partners LP and the 1994 Hatsopoulos Family Trust, to
the extent any stock option shall have been transferred to either such entity
with the consent of the Company, and each such entity may exercise the rights
granted to the Employee, and shall be subject to the obligations of the
Employee, in this Section 6 with respect to any stock options so transferred to
such entity.
6.5 In the event of any conflict between the provisions of this
Section 6 and the provisions of any option plan or option agreement covering the
options set forth in Exhibits 1, 2 or 3 attached and incorporated herein, the
provisions of this Section 6 shall prevail.
7. Retirement. The Employee hereby resigns effective as of March 31, 2000
his position as a member of the board of directors of the Company and as a
member of the board of directors of all of the Company's subsidiaries on which
he currently serves.
8. Annual Report. During the Employment Period and the consulting period
described in Section 14 below, the Company agrees to list the Employee in the
Company's Annual Report to Shareholders as the Company's founder and chairman
emeritus.
9. Cooperation. The Employee agrees to reasonably cooperate with the
Company with respect to all matters arising during or related to his employment
and consulting services, including but not limited to cooperation in connection
with any governmental investigation, litigation or regulatory or other
proceeding, subject to applicable privileges.
<PAGE>
10. Termination of Executive Retention Agreement. The Employee and the
Company agree that, effective April 1, 2000, that certain Executive Retention
Agreement between the Employee and the Company shall hereby be terminated and
shall be of no further force or effect.
11. Company Information and Invention Agreement. The Employee agrees to
execute and comply with the terms of a Thermo Electron Company Information and
Invention Agreement, a copy of which is attached as Exhibit 4 hereto. Such
agreement supersedes any prior agreement covering the same subject matter which
the Employee may have signed with the Company.
12. Waiver of Jury Trial. Each of the parties hereby expressly, knowingly
and voluntarily waives all benefit and advantage of any right to a trial by
jury, and each agrees that he or it will not at any time insist upon, or plead
or in any manner whatsoever claim or take the benefit or advantage of, a trial
by jury in any action arising in connection with this Agreement.
13. Restriction on Purchase or Sale of Common Stock. The Employee
understands that he will no longer be a "Reporting Person" for purposes of
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
rules and regulations promulgated thereunder. However, the Employee understands
that he may be required to report certain transactions pursuant to such rules
and registrations on Forms 4 and 5 for up to six months after March 31, 2000.
The Employee is also urged to contact the Corporate Secretary of the Company,
Ms. Sandra L. Lambert, should he have any questions regarding compliance with
the insider trading regulations under the federal securities laws.
14. Consulting Services: From April 1, 2002 to March 31, 2004 (the
"Consulting Period"), the Employee agrees to provide, and make himself available
to provide, consulting services to the Company on a half-time basis, at such
time or times as is mutually agreeable by the parties. The Employee agrees to
use his best efforts, business judgment and skill in rendering consulting
services hereunder. It is expressly agreed that during the Consulting Period the
Employee will be acting as an independent contractor in performing his services
hereunder and not as an employee or agent of the Company and as such will not be
treated as an employee for any reason whatsoever, including but not limited to
federal or state tax purposes. In the event of the Employee's death, disability
or other incapacity resulting in his inability to perform his consulting duties
hereunder, all compensation due and owing under Section 15 shall continue to be
payable to him or his estate. The Company may terminate this consulting
arrangement for Cause and, in such event, the Company shall have no further
obligation to the Employee under this consulting arrangement. "Cause" shall mean
the Employee's (a) conviction of a felony, or a misdemeanor involving material
fraud or material dishonesty, (b) material fraud or material dishonesty in the
course of consulting hereunder, (c) gross misconduct that is materially
injurious to the Company or its subsidiaries and affiliates, or (d) gross
neglect of his duties and responsibilities under the terms of this consulting
arrangement.
<PAGE>
15. Consultant Compensation: In consideration for the Employee's agreement
to provide consulting services, the Company shall pay him at the rate of
$500,000 per year during the Consulting Period, payable monthly in arrears. The
Company shall reimburse the Employee for his costs and expenses incurred by him
in connection with his provision of consulting services to the Company as
provided in Section 3.4 hereof. In addition, during the Consulting Period, the
Company shall use its best efforts to obtain for the Employee health and dental
care insurance for him and his dependents with substantially the same coverage
as in effect as of March 31, 2002, at the Company's sole cost and expense.
16. Other Activities. This Agreement shall not prohibit the Employee from
engaging in any other business activities during the Employment Period and
Consulting Period provided that such other business activities (i) shall be
subject to the prior approval of the Company, which approval shall not be
unreasonably withheld, and provided such approval or disapproval shall be
communicated to him in writing within 10 business days of such request for
approval (it being understood that the failure by the Company to so communicate
its disapproval in writing within such 10-day period shall be deemed an approval
of such request), and (ii) do not prevent him from performing his obligations
under this Agreement. In this connection, the parties agree that the Employee's
formation and operation of an "incubator" for bioengineering businesses is an
approved activity and agree that (i) the Company shall not assign to the
Employee conflicting duties and (ii) the Employee may recuse himself from
Company assignments that present a material risk of such a conflict.
17. Notices. All notices required or permitted under this Agreement shall
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 17.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
19. Amendment. This Agreement may be amended or modified only by a written
instrument executed by all of the parties hereto.
20. Governing Law. This Agreement and all issues relating to this
Agreement and the transactions contemplated hereby shall be governed by,
enforced under and construed in accordance with the laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule that would cause the application of laws of any jurisdiction other than
those of the Commonwealth of Massachusetts.
21. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of all of the parties hereto and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its respective assets or business; provided,
however, that the obligations of the Employee are personal and shall not be
assigned by him.
<PAGE>
22. Miscellaneous.
22.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
22.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
22.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
THERMO ELECTRON CORPORATION
By: /s/ R. F. Syron
-------------------------------------------
Name: Richard F. Syron
Title: President and Chief Executive Officer
EMPLOYEE
/s/ George N. Hatsopoulos
-------------------------------------------
George N. Hatsopoulos
Accepted and agreed to
By:
GDH Partners LP
By: /s/ Daphne Hatsopoulos
-------------------------------
1994 Hatsopoulos Family Trust
By: /s/ Daphne Hatsopoulos
-------------------------------
Trustee
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO ELECTRON CORPORATION'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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0
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO ELECTRON CORPORATION'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 3,1999
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