SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 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
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
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 28, 2000, was approximately $2,493,791,000.
As of January 28, 2000, the Registrant had 156,800,687 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
January 1, 2000, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 18, 2000, are incorporated by reference into
Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Electron Corporation (also referred to in this document as the
Company or the Registrant) is a global leader in the development, manufacture,
and sale of measurement and detection instruments used in virtually every
industry to monitor, collect, and analyze data that provides knowledge for the
user. For example, the Company's powerful analysis technologies help researchers
sift through data to make the discoveries that will fight disease or prolong
life; allow manufacturers to fabricate ever-smaller components required to
increase the speed and quality of communications; or monitor and control
industrial processes on-line to ensure that critical quality standards are met
efficiently and safely.
In the late eighties, Thermo Electron had adopted a strategy of spinning
out certain of its businesses into separate public subsidiaries in which it held
the majority ownership. By offering employees a stake in their own ventures,
Thermo Electron's objective was to maintain the entrepreneurial culture it
believed was essential to its continued growth and development. By 1997, the
Company had spun out 22 public entities serving many diverse markets.
In 1998, the Company began to reorganize and simplify its structure to
increase business focus. During 1999, three of its subsidiaries were taken
private, and a fourth in early 2000. Also in 1999, the Company's Thermo
Instrument Systems Inc. subsidiary completed the acquisition of Spectra-Physics
AB, a Stockholm Stock Exchange-listed company. As part of the acquisition of
Spectra-Physics, Thermo Instrument acquired Spectra-Physics' majority-owned
public subsidiary, Spectra-Physics Lasers, Inc. (SPLI).
In January 2000, Thermo Electron announced a major reorganization that
would allow it to focus solely on its measurement and detection instrument
business. The Company will offer as a dividend to its shareholders two
businesses that will be spun off completely: one serving the healthcare industry
with a range of medical products for diagnosis and monitoring, and the other
supplying systems to the paper making and recycling industry as well as
fiber-based consumer products. In addition, the Company plans to sell other
non-core businesses with aggregate revenues of more than $1 billion. The
businesses to be spun off and sold have been accounted for as discontinued
operations (see "Description of Business - Principal Products and Services"). As
part of this plan, the Company intends to take private all of its remaining
public subsidiaries, except for SPLI. Except where indicated, the information
presented in this Form 10-K pertains to the Company's continuing operations.
Each component of the reorganization is subject to numerous conditions, as
outlined in Note 17 to Consolidated Financial Statements in the Registrant's
1999* Annual Report to Shareholders, which is incorporated into this document by
reference.
The Company believes that this reorganization will offer a number of
long-term benefits. It will vastly simplify Thermo Electron's corporate
structure and allow it to channel all resources toward a single business -
instrumentation. It will create added value for shareholders by offering a stake
in the two spinoff companies. In addition, it will generate substantial cash
from the sale of businesses that can be reinvested in the future growth of the
Company. The Company's strategy going forward is to emphasize internal growth by
continuing to actively fund research and development, particularly in its
high-growth segments serving the life sciences and telecommunications
industries, and to augment that growth with complementary acquisitions.
Thermo Electron is a Delaware corporation and was incorporated in 1956.
The Company completed its initial public offering in 1967 and was listed on the
New York Stock Exchange in 1980.
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* References to 1999, 1998, and 1997 herein are for the fiscal years ended
January 1, 2000, January 2, 1999, and January 3, 1998, respectively.
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Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 14 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Thermo Electron has elected to focus on its instruments business, and, as
stated previously, has initiated a significant reorganization plan to accomplish
that objective. Although no longer considered a core business under the plan,
its Thermo Ecotek Corporation subsidiary will remain with the Company after it
is taken private as Thermo Electron continues to evaluate how to best exit that
business while creating maximum value for shareholders. As a result, Thermo
Electron currently reports its business in four segments: Life Sciences, Optical
Technologies, Measurement and Control, and Power Generation. This represents a
change in the composition of its segments from prior periods, and the Company
has restated the information contained herein regarding segments for earlier
periods.
Life Sciences
The Company addresses the biotechnology and pharmaceutical markets, as
well as the clinical laboratory and healthcare industries, through its Life
Sciences segment. The segment is organized into five groups: biosciences
instruments and consumables, advanced instrumentation and consumables,
scientific equipment, clinical equipment and supplies, and information
management systems.
Biosciences instruments and consumables encompass a broad range of
instruments, such as microplate-based handling and reading equipment, optical
biosensors, polymerase chain reaction (PCR) thermal cyclers for deoxyribonucleic
acid (DNA) amplification, and capillary electrophoresis (CE). Consumables -
disposable, one-time use, or limited life span products - include reagents,
microtiter plates, liquid-handling pipettes, and pipette tips. Biosciences
instruments are used primarily by pharmaceutical companies for drug discovery
and development, testing, and quality control, and by biotechnology companies
for research leading to knowledge about diseases and possible treatments. These
products are typically used on the "front end" of multi-instrument systems, as
the instruments prepare and handle samples prior to being loaded into other,
advanced instruments.
Advanced instrumentation and consumables includes the Company's offerings
of mass spectrometers, liquid chromatographs, gas chromatographs, and
multi-instrument combinations of these products, along with the vials, syringes,
and columns necessary for chromatography. As with biomolecular instruments,
these products are used by the pharmaceutical industry for drug development,
testing, and quality control; and by the biotechnology industry for research
leading to knowledge about disease and possible treatments. A significant, and
growing, application for these instruments is proteomics, which is the study of
proteins. Most drugs - about 90 percent - interact with proteins, so
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multi-instrument systems that rapidly identify and quantify proteins are of
increasing value to pharmaceutical and biotechnology customers. In 2000, the
Company introduced an integrated, high-throughput system for the quantitative
analysis of proteins, employing the Company's new Surveyor high performance
liquid chromatograph, LCQ Deca mass spectrometer, and new TurboSEQUEST software.
Scientific equipment is used for the preparation and preservation of
chemical samples, principally in research settings for pharmaceutical, academic,
and government customers. Products in this group include ultralow-temperature
freezers, high-speed centrifuges, centrifugal vacuum concentrators, and
laboratory freeze dryers. The Company also designs, manufactures, and markets
electrochemistry and other technologies for quality assurance and regulatory
compliance, primarily in the environmental, food, 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.
Clinical equipment and supplies are used by such healthcare facilities as
reference laboratories, physician-office laboratories, and hospital laboratories
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. The Company received U.S. Food and Drug
Administration (FDA) clearance in December 1998 for its FLU OIA 15-minute
diagnostic test, which detects influenza A and B in patient samples. The Company
also received FDA clearance in 1999 to market a rapid diagnostic test for
Clostridium difficile, an intestinal disease.
Information management systems provided by the Company facilitate the
monitoring and analysis of samples, as well as storage and organization of
information in laboratories, industrial settings, and clinical testing sites.
The Company is a leading supplier of laboratory information management systems
(LIMS) and provides chromatography data systems (CDS) to analyze chromatographic
data obtained via gas or liquid chromatography and CE.
Optical Technologies
The Company is a leader in optical and energy-based systems and
technologies that control and apply light throughout the electromagnetic
spectrum for many different uses. Products within the Optical Technologies
segment are used in multiple markets, particularly the scientific instrument,
semiconductor, and telecommunications industries, to fabricate, analyze, and
implement advanced materials. These products are grouped into four categories:
spectroscopy, semiconductor, physical properties, and photonics. In addition,
the Company's majority-owned SPLI subsidiary, a leader in the design,
development, manufacture, and distribution of lasers and laser systems for a
broad range of markets, is also part of the Optical Technologies segment.
Spectroscopy instrumentation is used for molecular and elemental analysis
based upon energy and light measurements. These precision instruments use optics
to determine, in a nondestructive manner, the composition of a wide range of
complex liquids and solids. Customers include pharmaceutical, specialty
chemical, and basic material producers, who use these instruments either in a
laboratory or integrated into the production line.
Semiconductor products are used in the manufacture of capital equipment
that produces and tests semiconductors. In particular, the Company is the
leading supplier of molecular beam epitaxy (MBE) reactors for the manufacture of
gallium arsenide and other compound semiconductor devices. The largest
application is for microwave devices used in cellular telephones and other
high-speed wireless communications devices. In 1999, the Company introduced the
V150 MBE, a successor to its market-leading V100 MBE system. The V150 MBE helps
customers keep up with the rapidly growing demand for high-speed
telecommunications devices by significantly increasing semiconductor production
capacity.
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Physical properties products analyze materials for viscosity, surface
tension, and thermal properties. Significant customers include the food and
beverage industries, which use high-precision viscometers to maintain quality
and consistency of their products. In addition, the Company manufactures
products for precision temperature control necessary for analytical, laboratory,
industrial, research and development, laser, and semiconductor applications.
Photonics businesses manufacture optical components that are used in a
variety of industries, including scientific and medical instruments,
telecommunications, and semiconductor applications.
Also a part of this segment, SPLI offers technologies of high-power
semiconductor-based laser and semiconductor laser pumped solid state laser
technologies, as well as conventional lasers and laser-related products.
Conventional lasers have unique performance characteristics that make them the
only current solution for certain demanding technical applications. SPLI also
manufactures high-power semiconductor-based lasers, which are generally more
efficient, reliable, cost-effective, and compact than conventional lasers.
SPLI's customers are in the materials processing, life sciences, research and
development, printing, and telecommunications markets. Research and development
emphasis will be on creating components for the next generation of high-speed
fiber-optic telecommunications. In 1999, SPLI introduced a new line of thin-film
filters, which are used to separate data (light) within fiber-optic cable,
allowing more wavelengths of light to travel down the cable to increase what is
known as the "bandwidth" or capacity of the fiber.
Measurement and Control
The Company provides a range of real-time, on-line sensors, monitors, and
control systems through its Measurement and Control segment that not only help
manufacturers ensure their processes and industrial practices meet their own and
government standards for quality, reliability, and safety, but also reduce
costs, save materials, and increase productivity. These products are organized
into five groups: environmental, weighing and inspection, quality control, field
instruments and sensors, and oil and gas.
Environmental products include a complete line of instruments and systems
for monitoring environmental pollutants generated by industrial and mobile
sources. These include continuous gaseous and aerosol monitors, and water
quality instruments for assessing ambient air quality and emissions from
stationary sources. Specific compounds measured include oxides of nitrogen,
sulfur dioxide, ozone, carbon monoxide, carbon dioxide, volatile organic
compounds, fine particulates, total organic carbon, and total organic halogens.
The Company also provides a comprehensive line of radiation and gas
detectors for controlling and detecting the presence of harmful radiation and
combustible and toxic gases for worker and plant safety. These products range
from the simplest handheld general-purpose portable equipment to more
sophisticated stationary installed systems.
Weighing and inspection systems include a comprehensive family of on-line
weighing, force measurement, and inspection equipment for consumer products,
packaged goods, and bulk materials. Products for the packaged and consumer goods
sector provide customers with a quality and productivity solution by ensuring
that each package contains the proper quantity or a specific item, whether it be
a food product or a book ordered over the Internet. In addition, the Company
employs in its systems various technologies including X-ray imaging and
ultratrace chemical detection to inspect food, beverage, and pharmaceutical
packages to see that they are free of physical contaminants and contain no
missing or broken parts. In bulk materials, the Company's product line includes
solids flow monitoring, level measurement, and force and tension measurements
for a wide variety of process industries including food, chemicals, plastics,
and pharmaceuticals.
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Quality control systems are manufactured by the Company for on-line
process optimization, taking ultrahigh-speed noninvasive measurements and
analyzing the physical and chemical properties of streams of raw materials in
real time. These systems are used primarily to analyze the composition of raw
materials for certain basic industries, such as coal, cement, and minerals
production. This technology allows the entire stream of material to be analyzed
and eliminates the need for off-line sampling, which adds production time and
cost.
Process optimization systems are also provided by the Company for the
continuous production of certain web-type finished materials, such as metal
strip, plastics, foil, rubber, glass, and paper. The Company's instruments
measure the total thickness, basis weight, and coating thickness of such
materials, and are also capable of detecting defects the size of a pinhole in
these webs. They can measure a single point on the material, several points, or
generate a web profile. Measurements are gathered without contacting the
material or interfering with the production process, and are highly accurate and
extremely reliable - even in hostile environments such as steel mills. These
systems provide tangible economic benefits for customers, while reducing
materials waste and energy consumption.
Field instruments and sensors are provided by the Company for use in the
process control industry. These instruments measure level, density, flow, and
composition, acquiring data for use in controlling industrial and chemical
processes. Level and density instruments include point-level, continuous-level,
and density sensors that use a variety of technologies, including commercial
radiation, radar, ultrasonic, and vibrational measurement principles. Flow
instrumentation includes ultrasonic flowmeters, in-line turbine meters,
pitostatic air flow monitors, and electronic flow metering instruments used for
natural gas custody transfer. The Company's on-line composition analysis
instruments are used to measure chemical compounds in a variety of liquids,
gases, and solids using gas chromatographic, mass spectrographic, and X-ray
fluorescent technologies. The Company also offers strip chart and video graphic
recorders along with instrumentation for measuring and recording AC power in
industrial facilities.
Oil and gas products cover specifically designed and installed sensor
systems that are used to provide real-time measurement, data communication, and
local control of process functions, primarily for customers in the production
segment of the oil and gas industry. These special-purpose instruments and
sensors include rod pump controllers, remote terminal units, gas-injection
systems, and both topside and subsea wellhead safety and control systems. These
systems and the aftermarket services provided are required by oil and gas
companies throughout the world, particularly those operating offshore platforms.
The Company's electrical generators, switchgear, and motor control units are
used in a wide variety of industrial and commercial applications.
Power Generation
Through its Thermo Ecotek business, the Company develops, owns, and
operates independent (nonutility) electric power-generation facilities in this
country and overseas, as well as a natural gas gathering, storage, and marketing
business in the U.S.
Thermo Ecotek currently operates six power plants fueled by agricultural
and wood wastes, known as biomass. Its facilities are typically developed and
operated through joint ventures or limited partnerships in which it has a
majority interest, or through wholly owned subsidiaries. Thermo Ecotek believes
that utility deregulation may present opportunities for updating, or repowering,
existing plants and is pursuing the development of additional power projects
both in the U.S. and overseas. In November 1997, Thermo Ecotek purchased two
deregulated plants in southern California for repowering, and acquired the
rights to develop a similar site in Florida in January 1999. Overseas, the
Company indirectly acquired a majority interest in two energy centers in the
Czech Republic in early 1998, and in September 1999 acquired an electricity
generating facility in Germany.
Thermo Ecotek also established a Texas-based natural gas gathering,
storage, and marketing business in 1998. Called Star Natural Gas, this business
provides midstream services to the natural gas industry by offering natural gas
gathering capabilities from the wellhead to the transmission pipeline; gas
processing, which involves the extraction of natural gas liquids; gas treatment
for removal of impurities; and underground storage facilities. These services
provide a means by which gas producers move and market their products.
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The Company believes that global energy deregulation presents future
opportunities for independent power generation. However, since Thermo Ecotek has
been deemed a non-core business according to Thermo Electron's reorganization
plan, any future investment will be funded solely by Thermo Ecotek.
In August 1995, Thermo Ecotek entered into a Limited Partnership Agreement
with KFx Wyoming, Inc., a subsidiary of KFx, Inc., to develop, construct, and
operate a coal-beneficiation plant in Gillette, Wyoming. The facility employed
patented "clean coal" technology to remove excess moisture and increase energy
from low-grade regional coal. Although Thermo Ecotek believes the technology
employed at the plant was viable, and a high-quality coal product was produced,
various operational problems were encountered that would require a significant
investment to yield production volumes that would meet the Company's objectives.
As a result, in May 1999, Thermo Ecotek decided to cease operation of the plant
and hold for sale its investment in the facility.
Discontinued Operations
As a result of its reorganization plan announced January 31, 2000, in
which Thermo Electron will take private, spin off, and sell a number of
companies to focus on the instrumentation marketplace, a number of businesses
have been accounted for as discontinued operations. The major businesses
included in this category are as follows:
Businesses to be spun off:
Thermo Fibertek companies
Thermo Fibertek: papermaking and recycling equipment and water-management
systems
Thermo Fibergen: fiber-based composite products and water-clarification
and fiber recovery systems
New Medical Products company
Thermo Biomedical: neurodiagnostic monitoring, vascular, and audiology
systems; respiratory-care products; and portable
patient-monitors
Thermedics Medical: biocompatible polymers; cardiac and respiratory
diagnostic and monitoring equipment; and enteral
feeding systems
Businesses to be sold include the following:
Thermo Cardiosystems: heart-assist devices
Trex Medical: medical imaging systems
Thermo TerraTech: environmental management and infrastructure engineering
services
Thermo Coleman: systems engineering and analytical services
Peek: intelligent traffic control systems
NuTemp: industrial refrigeration systems
Thermo Trilogy: biopesticide products
Peter Brotherhood: industrial turbines and compressors
(ii) and (xi) New Products; Research and Development
The Company's business includes the development and introduction of new
products and may include entry into new business segments. The Company has made
no commitments to new products that require the investment of a material amount
of the Company's assets, nor does it have any definitive plans to enter new
business segments that would require such an investment.
During 1999, 1998, and 1997, the Company expended $171.1 million, $128.0
million, and $123.9 million, respectively, on research and development.
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(iii) Raw Materials
Continuing Operations
In the opinion of management, the Company has a readily available supply
of raw materials for all of its significant products from various sources and
does not anticipate any difficulties in obtaining the raw materials essential to
its business.
Discontinued Operations
Certain raw materials used in the manufacture of Thermo Cardiosystems'
left ventricular-assist systems (LVAS) are available from only one or two
suppliers. Thermo Cardiosystems is making efforts to minimize the risks
associated with sole sources and ensure long-term availability, including
qualifying alternative materials and components or developing alternative
sources for materials and components supplied by a single source. Although
Thermo Cardiosystems believes that it has adequate supplies of materials and
components to meet demand for the LVAS for the foreseeable future, no assurance
can be given that Thermo Cardiosystems will not experience shortages of certain
materials or components in the future that could delay shipments of the LVAS.
The cost to Thermo Cardiosystems to evaluate and test alternative
materials and components and the time necessary to obtain FDA approval for these
materials and components are inherently difficult to determine because both time
and cost are dependent on at least two factors: the similarity of alternative
materials or components to the original materials or components, and the amount
of third-party testing that may have already been completed on alternative
materials or components. There can be no assurance that the substitution of
alternative materials or components will not cause delays in Thermo
Cardiosystems' LVAS development program or adversely affect Thermo
Cardiosystems' ability to manufacture and ship LVAS to meet demand.
(iv) Patents, Licenses, and Trademarks
Continuing Operations
The Company considers patents to be important in the present operation of
its business; however, the Company does not consider any patent, or related
group of patents, to be of such importance that its expiration or termination
would materially affect the Company's business taken as a whole. The Company
seeks patent protection for inventions and developments made by its personnel
and incorporated into its products or otherwise falling within its 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.
The Company protects some of its technology as trade secrets and, where
appropriate, uses trademarks or registers its products. It also enters into
license agreements with others to grant and/or receive rights to patents and
know-how.
Discontinued Operations
Thermo Cardiosystems has received correspondence from a third party
alleging that the textured surface of the LVAS housing infringes certain patent
rights of such third party. In general, an owner of intellectual property can
prevent others from using such property without a license and is entitled to
damages for unauthorized usage. Thermo Cardiosystems has investigated the bases
of the allegation and, based on the opinion of its counsel and the Company's
assessment of the proceedings in the United States Patent and Trademark Office
to date, it believes that if it were sued on these bases, it would have
meritorious defenses. Given the inherent uncertainties in dispute resolution,
however, if Thermo Cardiosystems were sued and the outcome were unfavorable,
Thermo Cardiosystems' results of operations or financial condition could be
materially adversely affected in amounts Thermo Cardiosystems cannot reasonably
estimate.
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(v) Seasonal Influences
Thermo Ecotek, which represents the Power Generation segment, historically
has earned a disproportionately high share of its income from May through
October due to the rate structures under the power-sales agreements relating to
its California power plants, which provided strong incentives to operate during
this period of high demand. Conversely, Thermo Ecotek historically has operated
at a marginal profit during the first calendar quarter due to the rate structure
under these agreements. Due to the expiration of the fixed price contracts at
Thermo Ecotek's California plants, the seasonality of this business is expected
to be reduced in the future.
There are no other material seasonal influences on the Company's sales of
products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
The Power Generation segment derived 10% or more of its revenues during
the past three years from its three most significant electric utility customers.
Revenues from Southern California Edison as a percentage of the Power Generation
segment's revenues were approximately 34%, 35%, and 34% in 1999, 1998, and 1997,
respectively. Revenues from Pacific Gas & Electric as a percentage of the Power
Generation segment's revenues were approximately 26%, 34%, and 35% in 1999,
1998, and 1997, respectively. Revenues from Public Service of New Hampshire as a
percentage of the Power Generation segment's revenues were approximately 19%,
19%, and 20% in 1999, 1998, and 1997, respectively.
(viii) Backlog
The Company's backlog of firm orders at year-end 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- -------- --------
Life Sciences $110,224 $ 91,250
Optical Technologies 200,421 122,361
Measurement and Control 114,138 96,036
Power Generation 47,245 98,733
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$472,028 $408,380
======== ========
The Company believes substantially all of the year-end 1999 backlog will
be filled during 2000. The decrease in backlog at the Power Generation segment
primarily results from the expiration of fixed price contracts at Thermo Ecotek.
(ix) Government Contracts
Not applicable.
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(x) Competition
The markets for the Company's products are highly competitive. The Company
generally competes on the basis of technical advances that result in new
products and improved price/performance ratios, reputation among customers as a
quality leader for products and services, and active research and
application-development programs. To a lesser extent, the Company competes on
the basis of price. In many markets, the Company competes with large analytical
instrument companies such as Agilent Technologies; PerkinElmer, Inc.; Varian
Associates, Inc.; Waters Corporation; and Hitachi, Ltd. Certain products
manufactured by the Company also compete with products sold by numerous smaller,
specialized firms.
Life Sciences
Biosciences instruments and consumables. The Company competes with
PerkinElmer; Molecular Devices Corporation; Beckman Coulter, Inc.; Bio-Rad
Laboratories, Inc.; Agilent; MJ Research Technology; Qiagen Corporation; Biacore
International, Inc.; Nalge Nunc Inc.; Corning-Costar Corporation; Rainin
Instruments; Greiner GmbH; and Eppendorf GmbH. The Company competes primarily on
the basis of technical performance, user convenience, and, to a lesser extent,
price.
Advanced instrumentation and consumables. The Company's principal
competitors include Agilent, Waters, Shimadzu Corporation, and PerkinElmer. The
Company competes primarily on the basis of technical performance, customer
service and support, and price.
Scientific equipment. The Company's principal competitors in this market
are Jouan S.A., NuAire Inc., Sanyo Electric Co. Ltd., Labconco Corporation,
Corning, Fisher Scientific International Inc., Mettler-Toledo International
Inc., Beckman Coulter, Metrohm Ltd., Radiometer, Kyoto, ManTech,
and Denver Instruments. In this market, the Company competes primarily on the
basis of technical performance, customer service and support, and price.
Clinical equipment and supplies. The Company competes with Leica
Microsystems; Sakura Finetek U.S.A., Inc.; Ventana Corporation; Cytyc
Corporation; Wescor Inc.; Jewett Inc.; and Mopec Inc. The Company competes
primarily on the basis of quality, price, and service.
In the clinical chemistry reagent market, the Company's competitors
include Abbott Laboratories; BioChem Pharma; Chiron Corporation; and Sigma
Diagnostics, a division of Sigma-Aldrich Co. The Company competes in this market
primarily on the basis of product quality and price.
Competitors in the market for rapid diagnostic test kits are Abbott
Laboratories; Becton, Dickinson and Company; Roche-Boeringher Manheim; and
Quidel Corporation. The Company competes primarily on the basis of its
innovative technology as well as price.
Information management systems. The Company's competitors include
PerkinElmer, PE Biosystems, Beckman Coulter, Agilent, LabVantage Solutions, LIMS
U.S., Scientific Software Inc., and Waters. The Company competes primarily on
the basis of product performance and price.
Optical Technologies
Spectroscopy. In the spectroscopy market, the Company competes primarily
with the Analytical Instrument division of PerkinElmer, Varian, Agilent, and
Bio-Rad. The Company competes primarily on the basis of quality, performance,
technology, and price.
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Semiconductor. The Company competes primarily with Riber Instruments S.A.
and Oxford Instruments plc. In this market, the Company competes primarily on
the basis of quality, performance, technology, and price.
Physical properties. The Company competes with TA Instruments, Inc., a
subsidiary of Waters; and Rheometrics Scientific Inc. The Company offers
mid-level products in this market, with instruments that operate on a
personal-computer platform. The Company competes in this market primarily on the
basis of quality, performance, and price.
Photonics. The Company competes primarily on the basis of technical
suitability, product performance, reliability, and price. Principal competitors
include Optical Coating Laboratory, Inc. and Newport Corporation.
Measurement and Control
Environmental. The Company's principal competitors include Monitor Labs
Incorporated; Advanced Pollution Instruments; Rupprecht & Pataschnick Co., Inc.;
and Mine Safety Appliances Co. The Company competes in this market primarily
on the basis of technical performance, price, reliability, and customer service.
Weighing and inspection. Major competitors in the packaged-goods and
bulk-materials markets are Ishida Scales Mfg. Co., Ltd.; Mettler-Toledo AG; Carl
Schenck AG; and Milltronics Corporation. Competitive pressures affecting the
market for precision-weighing and inspection equipment include customer service
and support, quality and reliability, price, accuracy, ease of use, distribution
channels, technical features, compatibility with customers' manufacturing
processes, and regulatory approvals.
Quality control. The Company's principal competitors include Scantech
Limited, Integrated Measurement Systems, Inc., Toshiba Corporation, Yokogawa
Electric Corporation, and Infrared Engineering Limited. The Company competes
primarily on the basis of technical performance, customer service, and, to a
lesser extent, price.
Field instruments and sensors. In the field measurement instruments and
sensors market the Company competes primarily on quality and reliability,
technical features, accuracy, ease of use, price, and reputation for aftermarket
service. The Company competes with a few large competitors in each product area
and with many companies within specific industries. Major competitors include
Fisher-Rosemount, a division of Emerson Electric Co., Inc.; Asea Brown Boveri
(Holding) Ltd.; and Yokogawa.
Oil and gas. The Company has a relatively small presence within the large
and varied process-control marketplace, which is extremely fragmented and
consists of several large companies, including Fisher-Rosemount, Elsag Bailey,
and Honeywell Process Control, as well as numerous smaller companies. The
Company competes in this market primarily on the basis of technical performance,
customer service, price, and reliability.
Power Generation
The worldwide independent power market consists of numerous companies,
ranging from small startups to multinational firms. In addition, a number of
regulated utilities have created subsidiaries that compete as nonutility
generators. Nonutility generators often specialize in market niches, such as a
specific technology or fuel (for example, gas-fired cogeneration,
refuse-to-energy, hydropower, geothermal, wind, solar, wood, or coal) or a
specific region of the country where they believe they have a market advantage.
However, many nonutility generators seek to develop projects powered by the best
fuel available. Many companies in this market have substantially greater
financial, technical, and operational resources than the Company. The Company
competes primarily on the basis of project experience, technical expertise,
capital resources, and power pricing.
11
<PAGE>
(xii) Environmental Protection Regulations
The Company believes that compliance with federal, state, and local
environmental protection regulations will not have a material adverse effect on
its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
At January 1, 2000, the Company employed approximately 25,400 persons, of
which 14,160 were employed by the Company's continuing operations and 11,240 by
the Company's discontinued operations.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 14 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, which information is incorporated herein by reference.
</TABLE>
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive Officer)
-------------------- --- ----------------------------------------------------------
Richard F. Syron 56 Chief Executive Officer and President (1999)
Brian D. Holt 50 Chief Operating Officer, Energy and Environment (1998)
John T. Keiser 64 Chief Operating Officer, Biomedical (1998)
Earl R. Lewis 56 Chief Operating Officer, Measurement and Detection (1998)
William A. Rainville 58 Chief Operating Officer, Recycling and Resource Recovery (1993)
Theo Melas-Kyriazi 40 Chief Financial Officer and Vice President (1998)
Paul F. Kelleher 57 Senior Vice President, Finance and Administration (1982)
Each executive officer serves until his successor is chosen or appointed and qualified or until
earlier resignation, death, or removal. Mr. Syron was appointed President and Chief Executive Officer
in June 1999 and Chairman of the Board in January 2000. From April 1994 until May 1999, Mr. Syron was
the Chairman and Chief Executive officer of the American Stock Exchange Inc. Mr. Holt was appointed
Chief Operating Officer, Energy and Environment, in September 1998. From March 1996 to September 1998
he was a Vice President of the Company. Mr. Holt has been President and Chief Executive Officer of
Thermo Ecotek since February 1994. Mr. Keiser was appointed Chief Operating Officer, Biomedical, in
September 1998. From 1985 until 1994, Mr. Keiser was President of the Eberline Instrument division of
Thermo Instrument. In 1994 he was appointed Senior Vice President of Thermedics and President of Thermo
Biomedical. In March 1998, he was named President of Thermedics. Mr. Lewis was appointed Chief
Operating Officer, Instrumentation, in September 1998, and his title was changed to Chief Operating
Officer, Measurement and Detection, in March 1999. Mr. Lewis was a Vice President of the Company from
March 1996 to June 1998 and a Senior Vice President of the Company from June 1998 to September 1998.
Since 1990 Mr. Lewis has held various positions with Thermo Instrument, and effective March 1997, was
named President and in January 1998 was named Chief Executive Officer of Thermo Instrument. Mr.
Rainville was appointed Chief Operating Officer, Recycling and Resource Recovery, in September 1998. He
was a Senior Vice President of the Company from 1993 until 1998 and was a Vice President of the Company
from 1986 to 1993. Mr. Melas-Kyriazi was appointed Chief Financial Officer on January 1, 1999. He
joined the Company in 1986 as Assistant Treasurer, and became Treasurer in 1998. He was named President
and Chief Executive Officer of ThermoSpectra in 1994, a position he held until becoming Vice President
of Corporate Strategy of the Company in 1998. Mr. Kelleher has held comparable positions with the
Company for at least the last five years.
12
<PAGE>
Item 2. Properties
The location and general character of the Company's principal properties
by segment as of January 1, 2000, are as follows:
Life Sciences
The Company owns approximately 1,080,000 square feet of office,
engineering, laboratory, and production space, principally in Ohio, California,
Pennsylvania, Massachusetts, Italy, Germany, and England, and leases
approximately 1,130,000 square feet of office, engineering, laboratory, and
production space, principally in Massachusetts, Virginia, Texas, Colorado, New
York, Finland, England, and France, under leases expiring from 2000 to 2016.
Optical Technologies
The Company owns approximately 860,000 square feet of office, engineering,
laboratory, and production space, principally in Wisconsin, California, New
York, Arizona, Germany, Switzerland, and England, and leases approximately
1,330,000 square feet of office, engineering, laboratory, and production space,
principally in Massachusetts, California, Connecticut, New Hampshire, and
England, under leases expiring from 2000 to 2017.
Measurement and Control
The Company owns approximately 400,000 square feet of office, engineering,
laboratory, and production space, principally in New Mexico, California, Texas,
Indiana, Arkansas, Louisiana, Germany, and England, and leases approximately
2,110,000 square feet of office, engineering, laboratory, and production space,
principally in Ohio, Texas, Massachusetts, California, Minnesota, Maryland,
Georgia, Sweden, Germany, England, Australia, and the Netherlands, under leases
expiring from 2000 to 2068.
Power Generation
The Company leases approximately 50,000 square feet of office space,
principally in Massachusetts and Texas, under leases expiring from 2000 to 2004.
The Company operates three independent power plants in California and New
Hampshire, under leases expiring from 2000 to 2010. The Company owns three
independent power plants in New Hampshire and California and a
coal-beneficiation plant in Wyoming.
The Company believes that its facilities are in good condition and are
suitable and adequate to meet its current needs, and that suitable replacements
are available on commercially reasonable terms for any leases that expire in the
near term in the event that the Company is unable to renew such leases on
reasonable terms.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $1.00 par value, and dividend policy, is included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
During 1998 and 1999, in a series of transactions with an institutional
counterparty, the Registrant sold put options on an aggregate of 5,701,000
shares of its common stock and purchased call options on an aggregate of
2,850,500 shares of its common stock. No cash was exchanged as a result of these
transactions. The Registrant has a remaining maximum potential obligation under
the put options to buy back 2,367,000 shares at a weighted average exercise
price of $14.06 for an aggregate of $33.3 million. These put and call options
are exercisable only at maturity and expire between April and May 2000. The
Registrant has the right to settle the put options by physical settlement of the
options or by net share settlement using shares of the Registrant's common
stock. Under the remaining call options, the Registrant has the right, but not
the obligation, to purchase from the counterparty 1,183,500 shares of its common
stock at an average price per share of $14.76 in 2000. The Registrant may, from
time to time, enter into additional put and call option arrangements. During
1999, the Registrant purchased 1,536,000 shares of its common stock under the
put options for $24.6 million. During 1999 and January 2000, put options for
1,798,000 shares expired. Each of these transactions was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of January 1, 2000,
and Supplementary Data are included in the Registrant's 1999 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not Applicable.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference from the material contained under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the caption
"Stock Ownership" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive Compensation"
in the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the close of the fiscal year.
15
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The financial statements set forth in the list below are filed as part
of this Report.
(2)The financial statement schedule set forth in the list below is filed
as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Schedule included herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
On December 23, 1999, the Company filed a Current Report on Form 8-K for
events occurring December 21, 1999, with respect to the election of
Richard F. Syron, the Registrant's president and chief executive officer,
to the position of chairman of the board of directors.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
16
<PAGE>
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 22, 2000 THERMO ELECTRON CORPORATION
By: /s/ Richard F. Syron
Richard F. Syron
Chief Executive Officer and President
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 22, 2000.
Signature Title
By: /s/ Richard F. Syron Chairman of the Board, Chief Executive
Richard F. Syron Officer, President, and Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer and Vice
Theo Melas-Kyriazi President
By: /s/ Paul F. Kelleher Senior Vice President, Finance and Administration
Paul F. Kelleher (Chief Accounting Officer)
By: /s/ Samuel W. Bodman Director
Samuel W. Bodman
By: /s/ Peter O. Crisp Director
Peter O. Crisp
By: /s/ Elias P. Gyftopoulos Director
Elias P. Gyftopoulos
By: /s/ George N. Hatsopoulos Director
George N. Hatsopoulos
By: /s/ Frank Jungers Director
Frank Jungers
By: /s/ Robert A. McCabe Director
Robert A. McCabe
By: /s/ Hutham S. Olayan Director
Hutham S. Olayan
By: /s/ Robert W. O'Leary Director
Robert W. O'Leary
By: /s/ Roger D. Wellington Director
Roger D. Wellington
17
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Electron Corporation:
We have audited in accordance with generally accepted auditing standards,
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 17, 2000 (except with respect to
the matters discussed in Note 17, as to which the date is March 7, 2000). 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 16 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 17, 2000
</TABLE>
18
<PAGE>
SCHEDULE II
THERMO ELECTRON CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Provision Accounts
Balance at Charged to Written Balance
Beginning Expense Accounts Off at End
Description of Year Recovered Other (a) of Year
- ------------------------------- ---------- ---------- --------- -------- --------- --------
Allowance for Doubtful Accounts
Year Ended January 1, 2000 $ 26,938 $ 8,626 $ 253 $ (8,908) $ 6,790 $ 33,699
Year Ended January 2, 1999 $ 25,796 $ 5,002 $ 492 $ (8,754) $ 4,402 $ 26,938
Year Ended January 3, 1998 $ 20,835 $ 4,981 $ 304 $ (5,674) $ 5,350 $ 25,796
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance at Established Activity Balance
Beginning as Cost of Charged at End
Description of Year Acquisitions to Reserve Other (c) of Year
- ------------------------------------------ ---------- ------------ ---------- --------- -------
Accrued Acquisition Expenses (b)
Year Ended January 1, 2000 $ 16,284 $ 18,144 $(11,539) $ (2,552) $ 20,337
Year Ended January 2, 1999 $ 20,683 $ 8,387 $(10,036) $ (2,750) $ 16,284
Year Ended January 3, 1998 $ 20,412 $ 24,579 $(19,367) $ (4,941) $ 20,683
Balance at Provision Activity Balance
Beginning Charged to Charged Other (f) at End
Description of Year Expense (e) to Reserve of Year
- ------------------------------- ---------- ------------- ---------- --------- -------
Accrued Restructuring Costs (d)
Year Ended January 1, 2000 $ 11,320 $ 13,404 $(12,491) $ (649) $11,584
Year Ended January 2, 1999 $ 244 $ 18,776 $(7,962) $ 262 $11,320
Year Ended January 3, 1998 $ - $ 953 $ (709) $ - $ 244
(a) Includes allowance of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders and the effect of foreign currency translation.
(b) The nature of activity in this account is described in Note 3 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(c) Represents reversal of accrued acquisition expenses and corresponding
reduction of cost in excess of net assets of acquired companies resulting
from finalization of restructuring plans and the effect of foreign currency
translation.
(d) The nature of activity in this account is described in Note 11 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(e) In 1999, includes the reversal of $2.3 million of previously recorded
restructuring costs, and excludes provision of $136.2 million in 1999 and
$4.8 million in 1998, primarily for asset write-downs.
(f) Represents the effect of foreign currency translation.
19
<PAGE>
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 herein by reference).
3.2 By-laws of the Registrant, as amended (filed as Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
4.1 Fiscal Agency Agreement dated as of January 3, 1996, between the
Registrant and Chemical Bank pertaining to the Registrant's 4
1/4% Subordinated Convertible Debentures due 2003 (filed as
Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995 [File No. 1-8002] and
incorporated herein by reference).
The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K, to furnish to the Commission upon request, a copy
of each instrument with respect to other long-term debt of the
Registrant or its consolidated subsidiaries.
4.2 Rights Agreement dated as of January 19, 1996, between the Registrant
and The First National Bank of Boston, which includes as Exhibit
A the Form of Certificate of Designations, as Exhibit B the Form
of Rights Certificate, and as Exhibit C the Summary of Rights to
Purchase Preferred Stock (filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A, declared effective by the
Commission on January 31, 1996 [File No. 1-8002] as amended by
Amendment No. 1 to the Registrant's Registration Statement on
Form 8-A/A filed with the Commission on May 30, 1997, and
incorporated herein by reference).
4.3 Amendment No. 1 to Rights Agreement dated as of June 11, 1999,
between the Registrant and BankBoston, N.A. (formerly, The First
National Bank of Boston), which includes as Exhibit B the amended
and restated form of Rights Certificate and as Exhibit C the
amended and restated Summary of Rights to Purchase Preferred
Stock (filed as Amendment No. 2 to the Registrant's Registration
Statement on Form 8-A/A [File No. 1-8002] filed with the
Commission on June 21, 1999, and incorporated herein by
reference).
4.4 Indenture dated as of October 29, 1998, by and between the
Registrant and Bankers Trust Company, as Trustee, relating to the
issuance of senior debt securities by the Registrant (filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated
October 29, 1998, filed with the Securities and Exchange
Commission on October 30, 1998, and incorporated herein by
reference).
4.5 First Supplemental Indenture dated as of October 29, 1998, by and
between the Registrant and Bankers Trust Company, as Trustee,
relating to the issuance by the Registrant of $150,000,000
aggregate principal amount of its 7.625% Notes due 2008 (filed as
Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated
October 29, 1998, filed with the Securities and Exchange
Commission on October 30, 1998, incorporated herein by
reference).
10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993
(filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference).
20
<PAGE>
Exhibit
Number Description of Exhibit
10.2 Thermo Electron Corporation 1998 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 herein by
reference). (Each executive officer has a two- year agreement
except Mr. Richard F. Syron, who has a three-year agreement.)
10.3 - 10.4 Reserved.
10.5 Amended and Restated Reimbursement Agreement dated as of December
31, 1993, among Chemical Trust Company of California as Owner
Trustee; Delano Energy Company Inc.; ABN AMRO Bank N.V., Boston
Branch, for itself and as Agent; The First National Bank of
Boston, as Co-agent; Barclays Bank PLC, as Co-agent; Societe
Generale, as Co-agent; and BayBank, as Lead Manager (filed as
Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994 [File No. 1-8002] and
incorporated herein by reference).
10.6 Amended and Restated Participation Agreement dated as of December
31, 1991, among Delano Energy Company Inc.; Thermo Ecotek
Corporation (formerly Thermo Energy Systems Corporation);
Chemical Trust Company of California, as Owner Trustee; ABN AMRO
Bank N.V., Boston Branch, as Co-agent; Bank of Montreal, as
Co-agent; Barclays Bank PLC, as Co-agent; Society Generale, as
Co-agent; BayBank, as Lead Manager; and ABN AMRO Bank N.V.,
Cayman Island Branch, and joined in by the Registrant (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994 [File No. 1-8002] and
incorporated herein by reference).
10.7 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 herein by
reference).
10.8 Stock Holdings Assistance Plan and Form of Promissory Note (filed
as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
for the year ended January 3, 1998 [File No.
1-8002] and incorporated herein by reference).
10.9 - 10.20 Reserved.
10.21 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 herein by reference). (Maximum
number of shares issuable is 679,218 shares, after adjustment to
reflect share increases approved in 1986 and 1992 and 3-for-2
stock splits effected in October 1986, October 1993, May 1995,
and June 1996.)
10.22 Amended and Restated Directors' Stock Option Plan of the Registrant (filed as Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No. 1-8002] and incorporated herein by reference).
10.23 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 herein by reference). (Maximum
number of shares issuable in the aggregate under this plan and
the Registrant's Nonqualified Stock Option Plan is 13,552,734
shares, after adjustment to reflect share increases approved in
1984 and 1986, share decrease approved in 1989, and 3-for-2 stock
splits effected in October 1986, October 1993, May 1995, and June
1996.)
21
<PAGE>
Exhibit
Number Description of Exhibit
10.24 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 herein by reference). (Plan amended in
1984 to extend expiration date to December 14, 1994; maximum
number of shares issuable in the aggregate under this plan and
the Registrant's Incentive Stock Option Plan is 13,552,734
shares, after adjustment to reflect share increases approved in
1984 and 1986, share decrease approved in 1989, and 3-for-2 stock
splits effected in October 1986, October 1993, May 1995, and June
1996.)
10.25 Amended and Restated Equity Incentive Plan (filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and
incorporated herein by reference).
10.26 Amended and Restated Thermo Electron Corporation - Thermedics
Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 [File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable is 450,000 shares,
after adjustment to reflect share increase approved in 1988,
5-for-4 stock split effected in January 1985, 4-for-3 stock split
effected in September 1985, and 3-for-2 stock splits effected in
October 1986 and November 1993.)
10.27 Amended and Restated Thermo Electron Corporation - Thermo Instrument Systems Inc.
(formerly Thermo Environmental Corporation) Nonqualified Stock Option Plan (filed as
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July
3, 1999 [File No. 1-8002] and incorporated herein by reference). (Maximum number of
shares issuable is 527,343 shares, after adjustment to reflect 3-for-2 stock splits
effected in July 1993 and April 1995, 5-for-4 stock splits effected in December 1995 and
October 1997.)
10.28 Thermo Electron Corporation - Thermo Instrument Systems Inc. Nonqualified Stock Option
Plan (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable is 750,356 shares, after adjustment to
reflect share increase approved in 1988, 3-for-2 stock splits effected in January 1988,
July 1993, and April 1995, and 5-for-4 stock splits effected in December 1995 and October
1997.)
10.29 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
herein by reference).
10.30 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 herein by
reference). (On October 28, 1999, Thermo Power merged with Thermo
Electron. All outstanding options granted under this plan were
assumed by Thermo Electron and converted into options to purchase
25,219 shares of Thermo Electron.)
10.31 Amended and Restated Thermo Electron Corporation - Thermo
Cardiosystems Inc. Nonqualified Stock Option Plan (filed as
Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 [File No. 1-8002] and
incorporated herein by reference).
22
<PAGE>
Exhibit
Number Description of Exhibit
10.32 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
herein by reference).
10.33 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 herein by
reference).
10.34 Amended and Restated Thermo Electron Corporation - Thermo
Fibertek Inc. Nonqualified Stock Option Plan (filed as Exhibit
10.12 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
10.35 Amended and Restated Thermo Electron Corporation - Thermo Voltek
Corp. Nonqualified Stock Option Plan (filed as Exhibit 10.13 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 [File No. 1-8002] and incorporated herein by
reference). (On March 26, 1999, Thermo Voltek merged with
Thermedics. All outstanding options granted under this plan were
converted into options to purchase 24,462 shares of Thermedics.)
10.36 Amended and Restated Thermo Electron Corporation - Thermo
BioAnalysis Corporation Nonqualified Stock Option Plan (filed as
Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 [File No. 1-8002] and
incorporated herein by reference).
10.37 Amended and Restated Thermo Electron Corporation - ThermoLyte Corporation Nonqualified
Stock Option Plan (filed as Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by
reference).
10.38 Amended and Restated Thermo Electron Corporation - ThermoRetec
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.16 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
10.39 Amended and Restated Thermo Electron Corporation - ThermoSpectra
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.17 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference). (On December 6, 1999, ThermoSpectra merged
with Thermo Instrument. All outstanding options granted under
this plan were converted into options to purchase 22,646 shares
of Thermo Instrument.)
10.40 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 herein by
reference).
10.41 Amended and Restated Thermo Electron Corporation - ThermoQuest
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.19 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
10.42 Amended and Restated Thermo Electron Corporation - Thermo Optek
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.20 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
23
<PAGE>
Exhibit
Number Description of Exhibit
10.43 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 herein by reference).
10.44 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
herein by reference).
10.45 Amended and Restated Thermo Electron Corporation - Thermo
Fibergen Inc. Nonqualified Stock Option Plan (filed as Exhibit
10.23 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
10.46 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 herein by
reference).
10.47 Amended and Restated Thermo Electron Corporation - Metrika
Systems Corporation Nonqualified Stock Option Plan (filed as
Exhibit 10.25 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 [File No. 1-8002] and
incorporated herein by reference).
10.48 Amended and Restated Thermo Electron - Thermo Vision Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.26 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 [File No. 1-8002] and incorporated herein by
reference). (On January 6, 2000, Thermo Vision merged with Thermo
Instrument. All outstanding options granted under this plan were
converted into options to purchase 39,870 shares of Thermo
Instrument.)
10.49 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 herein by reference).
10.50 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
herein by reference).
10.51 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 herein by reference). (On November 8, 1999, Trex
Communications merged with ThermoTrex. All outstanding options
granted under this plan were converted into options to purchase
57,121 shares of ThermoTrex.)
10.52 Amended and Restated Thermo Electron Corporation - Thermo Trilogy
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.30 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-8002] and incorporated
herein by reference).
24
<PAGE>
Exhibit
Number Description of Exhibit
10.53 Letter Agreement dated as of February 21, 2000, between the Registrant and Mr. John N.
Hatsopoulos regarding termination of the Letter Agreement dated September 15, 1998,
between the Registrant and Mr. John N. Hatsopoulos.
10.54 Employment Agreement dated January 10, 2000, between the Registrant and Mr. Paul F.
Kelleher.
10.55 Subordinated Indenture, dated January 15, 1998, among the
Registrant, Thermo Instrument Systems Inc., and Bankers Trust
Company as trustee, relating to $250,000,000 principal amount of
4% Convertible Subordinated Debentures due 2005 issued by Thermo
Instrument Systems Inc. (filed as Exhibit 4.1 to Thermo
Instrument Systems' Current Report on Form 8-K filed with the
Commission on January 16, 1998 [File No. 1-9786] and incorporated
herein by reference).
10.56 Employment Agreement dated as of March 12, 1999, between the
Registrant and Mr. Richard F. Syron.
10.57 1997 Spectra-Physics Lasers, Inc. Stock Option Plan (filed as Exhibit 10.6 of Amendment
No. 1 to Spectra-Physics Lasers, Inc.'s Registration Statement on Form S-1 [File No.
333-38329] and is incorporated herein by reference).
10.58 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 herein by
reference).
10.59 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 herein by reference).
10.60 Description of severance arrangements for certain officers of
Thermo Electron.
13 Annual Report to Shareholders for the year ended January 1, 2000
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended January 1, 2000
(restated for discontinued operations).
27.2 Financial Data Schedule for the year ended January 2, 1999
(restated for discontinued operations).
27.3 Financial Data Schedule for the year ended January 3, 1998
(restated for discontinued operations).
</TABLE>
(..continued)
-4-
Mr. John N. Hatsopoulos
3 Woodcock Lane
Lincoln, MA 01733
Dear John:
This letter (the "Agreement") confirms our agreement regarding
termination of your consulting services with Thermo Electron Corporation (the
"Company"). This Agreement shall be effective as of February 21, 2000 (the
"Effective Date"). This Agreement replaces and supersedes any and all prior
agreements between you and the Company regarding the engagement of you for your
services by the Company, whether written or oral, formal or informal, including
without limitation that certain letter agreement by and between you and the
Company dated September 15, 1998 relating to your retirement and engagement as a
consultant (the "Consulting Agreement"), which such Consulting Agreement shall
be, as of the Effective Date terminated and of no further force or effect.
In exchange for the mutual covenants set forth in this Agreement,
including without limitation, your execution of the General Release of all
Claims attached and incorporated herein as Exhibit 1, the Company agrees to the
following:
1. Termination of Consulting Agreement. By mutual agreement the
Consulting Agreement will terminate as of the Effective Date. As of that date
you shall have no further obligation or right to render any services to the
Company of any kind, including but not limited to consulting services,
investment management services or any other type of services.
2. Lump Sum Payment and Stock Options.
(a) As of the Effective Date, the Company shall deem the amount of
compensation owed to you from the Effective Date through December
31, 2003 under the Consulting Agreement as fully earned and
payable to you in a single lump sum payment of $1,958,333.40
(minus any applicable federal, state and local taxes and other
withholdings) as soon as reasonably practicable following the
Effective Date.
(b) If an option is (i) Vested (i.e., the underlying shares are not
subject to repurchase by the Company or its subsidiaries, as
applicable) and (ii) in the money, it shall be exercisable from
the Effective Date until May 21, 2000 or February 21, 2002, as
indicated on Exhibit 2 (attached and incorporated herein).
(c) Notwithstanding the terms of any stock option plan or agreement
pursuant to which such options were granted and regardless of the
fact that you are no longer a director of the Company or any of
its subsidiaries, the following terms and conditions shall apply
to the stock options previously granted to you that are, as of
the Effective Date, either not Vested (i.e., the underlying
shares are subject to repurchase rights by the Company or its
subsidiaries, as applicable) or not "in the money:"
(i) The resale restrictions and the Company's or it 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) December 31, 2003;
provided that, the Company shall waive the resale restrictions to the
extent necessary to allow you to realize sufficient proceeds from such
sale to pay state and federal income taxes resulting from such sale and
from exercise of the option by which the stock was acquired.
(ii) Any option that is, under its original terms, exercisable on
December 31, 2003 shall thereafter remain exercisable until April 1,
2004.
(iii) Any option or portion of an option that is, under its original
terms, scheduled to Vest after December 31, 2003 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 on or before April 1, 2004 to the extent its Vesting has
been so accelerated.
The options described in this subparagraph (c) are identified on Exhibit
3 (attached and incorporated herein).
3. Resignation from the Board. Effective as of the Effective Date, you
hereby resign as a member of the Company's Board of Directors, and the Boards of
Directors of its subsidiaries, as the case may be.
4. Health Insurance. At its cost, the Company will continue to provide,
or use its best efforts to obtain for you, through December 31, 2003, group
health and dental insurance coverage for you and your eligible dependents
substantially the same as group health and dental coverage currently provided to
you by the Company. If the provision of such insurance coverage provides taxable
income to you, the Company will pay you such additional amount as will, net of
tax on such amount, equal taxes on the taxable income so created.
5. Return of Company Property; Support Services and Reimbursement. On or
about March 5, 2000, you will return to the Company any and all documents,
materials and information related to the Company, or its subsidiaries,
affiliates or businesses, and all other property of the Company, including,
without limitation, Company credit cards and files. The Company shall, until
December 31, 2003, continue to provide you with (i) an office situated in an
office building that is located in a suburb west of Boston with occupancy rates
similar to your current office space; (ii) communications and office equipment
and services similar to those it now provides to you; provided that, your
personal computer will not be linked to any Thermo Electron computer network;
(iii) fully operational Bloomberg terminal and service; (iv) full-time services
of your present secretary or, if she is unable or unwilling to continue as such,
the Company shall use its best efforts to secure for you a full-time secretary
of substantially similar experience; (v) the newspapers and periodicals that you
now receive; and (vi) a non-accountable allowance for your travel and other
expenses of $100,000 per year payable $25,000 quarterly in arrears (prorated for
any fraction of a quarter).
6. Taxes. All payments by the Company under this Agreement will be
reduced by all taxes and other amounts that the Company is required to withhold
under applicable law and all other deductions authorized by you.
7. Restriction on Purchase or Sale of Common Stock. You understand that
you will continue to be a "Reporting Person" for purposes of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder for a period of six months following the Effective Date and that you
are required to preclear transactions in the Company and its subsidiaries'
securities with the Company's Stock Transaction Coordinator, Ms. Pauline I.
Northern. You are also reminded that you will remain subject to insider trading
regulations under federal securities law. You are urged to contact the Corporate
Secretary of the Company, Ms. Sandra L. Lambert, should you have any questions
regarding compliance with the insider trading regulations under the federal
securities laws.
8. Confidentiality of this Agreement. You agree that all information
relating in any way to the subject matter of this Agreement, including the terms
of this Agreement, shall be held confidential by you and shall not be publicized
or disclosed by you to any person (other than an immediate family member, legal
counsel or financial advisor, provided that any such individual to whom
disclosure is made agrees to be bound by these confidentiality obligations),
business entity or government agency, except as mandated by state or federal
law.
9. Company Information and Invention Agreement. You agree to abide by
and comply with the terms of the Thermo Electron Corporation Information and
Invention Agreement executed by you, a copy of which is attached and
incorporated herein as Exhibit 4.
10. Non-Disparagement. You agree that you will be supportive in your
public statements about the Company and its subsidiaries and affiliates and that
you will not disparage the Company or its subsidiaries or affiliates, or any of
the people or organizations connected with them, or do or say anything that
could disrupt the good morale of the employees of the Company or otherwise harm
the reputation of the Company and its subsidiaries and affiliates and any of the
organizations or people connected with them. The Company agrees that it will
cause the officers of the Company and its subsidiaries not to disparage you or
otherwise do or say anything that harms your reputation and that the Company
shall be solely responsible for any breach of the provisions contained in this
Section 10 by any such officers. Should any party violate the requirements of
this provision, any non-breaching party shall be relieved of the requirements of
this provision to the extent necessary to respond to statements made by the
breaching party. Nothing in this provision shall prevent the parties from (i)
complying with compulsory legal process or otherwise making disclosures in
connection with litigation or administrative proceedings, (ii) making such
disclosures as are necessary to obtain legal advice, (iii) making disclosures as
are required by federal, state or local regulatory authorities, and (iv) making
disclosures which by law are required or cannot be prohibited.
11. Company's Relief on Breach. You agree that your knowing and material
breach of the terms of this Agreement, including but not limited to a knowing
and material breach of either Paragraph 8, 9 or 10, shall, notwithstanding
anything contained herein to the contrary, (i) cause all Vested options listed
on Exhibits 2 and 3 hereof to terminate and be immediately canceled 90 days
after the date the Company notifies you of the breach and you will have no
further rights with respect to such options if you do not exercise such options
within such 90 day period, (ii) cause all options which are not Vested listed on
Exhibit 3 to be canceled and forfeited as of such date and (iii) immediately
terminate the Company's obligations set forth in the last sentence of Paragraph
5. It is understood that the foregoing relief will be in addition to any other
legal or equitable remedy available to the Company, including without limitation
the right to specific performance and injunctive relief.
12. Indemnification Agreement. Notwithstanding anything contained herein
to the contrary, the Thermo Electron Corporation Amended and Restated
Indemnification Agreement, effective as of October 13, 1999 (the
"Indemnification Agreement"), by and between the Company and you and attached
and incorporated herein as Exhibit 5 shall remain in full force and effect, and
in accordance with its terms.
13. Cooperation. You agree to reasonably cooperate with the Company with
respect to all matters arising during or related to your past employment or
consulting engagement, including but not limited to cooperation in connection
with any governmental investigation, litigation or regulatory or other
proceeding which may have arisen or which may arise following the signing of
this Agreement, subject to applicable privileges.
14. Choice of Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the laws
of the Commonwealth of Massachusetts, without giving effect to the conflict of
law principles thereof.
15. Entire Agreement. This Agreement contains the entire agreement
between you and the Company and replaces all prior and contemporaneous
agreements, communications and understandings, whether written or oral, with
respect to your relationship with the Company, including but not limited to the
Consulting Agreement.
16. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and replaced with a provision which is enforceable and comes
closest to the intent of the parties underlying the unenforceable provision.
17. Successors and Assigns. No party hereto may assign any of its rights
under this Agreement without the prior written consent of the other party. This
Agreement is binding on each of the parties' permitted assigns, successors in
interest, heirs, administrators and executors.
18. Voluntary Agreement. In signing this Agreement, you give the Company
assurance that you have signed it voluntarily and with a full understanding of
its terms and that you have sufficient opportunity to consider this Agreement
and to consult with anyone of your choosing before signing it. If the terms of
this Agreement are acceptable to you, please sign and return it to the
undersigned. Upon the execution of this Agreement, it will take effect as a
legally-binding agreement between you and the Company on the basis set forth
above, as of the Effective Date.
19. Document Under Seal. This Agreement is intended to be signed as an
instrument under seal as of the Effective Date.
THERMO ELECTRON CORPORATION
-----------------------------------
By: Richard Syron
Title: CEO and President
Accepted and Agreed to:
- --------------------------------
John N. Hatsopoulos
4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of January 10,
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 Paul F. Kelleher, residing at 61 Davis
Road, Carlisle, Massachusetts 01741 (the "Employee").
The Company desires to retain the services of the Employee through March
31, 2004, and the Employee desires to be employed by the Company on the terms
set forth herein. 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,
and the Employee hereby accepts employment with the Company, upon the terms set
forth in this Agreement, for the period commencing on the date hereof, and
continuing until the earlier of March 31, 2004 or termination in accordance with
the provisions of Section 4 (such period, the "Employment Period").
2. Capacity. The Employee shall provide services to the Company relating
primarily to finance and accounting. The Employee shall be based at the
Company's headquarters in Waltham, Massachusetts or at such place or places as
may be reasonably designated by the Company's Chief Financial Officer or such
officer or officers of the Company designated by the Chief Financial Officer.
The Employee shall be subject to the supervision of, and shall have such
authority as is reasonably delegated to him by, the Chief Financial Officer or
his designee. Further, subject to the fiduciary duties of the Company's Board of
Directors and the fiduciary duties of the board of directors of ThermoLase
Corporation ("ThermoLase"), the Company shall use its best efforts to cause the
Employee to be a director of ThermoLase during the Employment Period while
ThermoLase is a public company. The Employee will not be entitled to receive any
cash or other compensation for his services as a director of ThermoLase so long
as he is employed by the Company.
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 Financial Officer or his designee shall from time
to time reasonably assign to him. Further, commencing April 1, 2000 through the
end of the Employment Period, the Employee's employment status will be reduced
from full-time to part-time. In his capacity as a part-time employee, the
Employee will 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, a base salary at the following annualized
rates:
a. From January 1, 2000 through March 31, 2000
(subject to any applicable year-end salary increase):$205,000
b. From April 1, 2000 through March 31, 2004:$125,000
3.2 Bonuses. The Employee will be eligible to receive a bonus for the period
from January 1, 1999 through December 31, 1999 in accordance with the past
practices of the Company, payable at such time as such bonuses are normally
paid. In addition, the Employee shall be eligible to receive a discretionary
bonus for the period from January 1, 2000 through March 31, 2000. The amount of
such bonuses will, as always, be subject to the discretion of the Board of
Directors of the Company. The Employee will not be eligible for any bonus for
the period from April 1, 2000 through the end of the Employment Period.
3.3 Fringe Benefits. 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, health and other qualifications make him eligible
to participate. Further, from April 1, 2004 through July 31, 2007, the Company
shall continue to provide at its expense family medical and dental benefits to
the Employee on terms substantially equivalent to the medical and dental
benefits provided to him as of the last day of the Employment Period; provided,
however, the Company's obligation to provide such benefits during such time
period shall cease in the event of the Employee's death.
3.4 Reimbursement of Expenses. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request; provided, however, that the
amount available for such travel, entertainment and other expenses may
reasonably be fixed in advance by the Chief Financial Officer.
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 without Cause (as defined
below), at any time, immediately upon written notice to the Employee;
4.2 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, (d) gross neglect of his duties and responsibilities under the
terms of this Agreement (other than as a result of disability) and (e)
insubordination;
4.3 Upon the death of the Employee;
4.4 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 Section 4.2 or at the election of the Employee
pursuant to Section 4.4, the Company shall pay to the Employee the compensation
and benefits which would otherwise be payable to him through the last day of his
actual employment by the Company; provided, however, that if the Employee's
employment is terminated by the Company pursuant to Section 4.1, the Company
shall pay to the Employee a severance payment in an amount equal to the balance
of the base salary amounts otherwise payable to the Employee for the period from
the date of termination to March 31, 2004 as set forth in Section 3.1 above,
will continue to provide benefits to the Employee, on a substantially equivalent
basis to the benefits otherwise payable to him under Section 3.3, through March
31, 2004, and from April 1, 2004 through July 31, 2007, will continue to provide
such medical and dental benefits payable to him during such time period under
Section 3.3.
5.2 Termination for Death. If the Employee's employment is
terminated by death pursuant to Section 4.3, the Company shall pay to the estate
of the Employee a lump sum in an amount equal to the balance of the base salary
amounts otherwise payable to the Employee for the period from the date of
termination to March 31, 2004 as set forth in Section 3.1 and will continue to
provide at its expense through March 31, 2004, family medical and dental
benefits on terms substantially equivalent to the medical and dental benefits
provided to him immediately prior to his death.
5.3. Survival. Notwithstanding anything herein to the contrary,
Sections 8 through 17 of this Agreement shall survive the termination of this
Agreement.
6. Options and Restricted Stock.
6.1 Upon the later of December 15, 1999 and the date of this
Agreement, all stock options in the Company and any of its subsidiaries that are
"underwater" as of such date (i.e., the exercise price of such option is greater
than the closing price of the common stock underlying such option on such date)
shall become fully vested and immediately exercisable on such date and all of
the Company's and its subsidiaries' repurchase rights with respect thereto shall
lapse; provided, however, that such options shall otherwise remain subject to
all of the terms and conditions thereof. Further, 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, or upon the earlier termination
of this Agreement other than pursuant to Section 4.1, such stock options will no
longer vest and no further lapsing of the Company's and its subsidiaries'
repurchase rights will occur. In the event that this Agreement is terminated
pursuant to Section 4.1, then such stock options will continue to vest and the
Company's and its subsidiaries' repurchase rights will continue to lapse until
March 31, 2004. In either such case, the Employee will then have until the
earlier of (i) 90 days or two years after such termination, depending on the
term of the option as specified by the Company's Stock Option Manager or (ii)
the expiration of the exercise period, to exercise the Employee's vested
options. If the Employee does not exercise his vested 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 Upon the later of December 15, 1999 and the date of this
Agreement, all stock of the Company granted to the Employee subject to
restrictions shall become fully vested on such date and all of the Company's
repurchase rights with respect thereto shall lapse.
7. Retirement. Except as specifically set forth in this Agreement, the
Employee hereby resigns effective as of March 31, 2000 any and all of his
positions as an officer of the Company and as an officer, director and employee
of all of the Company's subsidiaries and affiliates other than his position as a
director of ThermoLase. The Employee further agrees that on March 31, 2004, the
Employee will retire, effective as of such date, as an employee of the Company
and, unless ThermoLase is then a public company, resign as a director of
ThermoLase.
8. Cooperation. The Employee agrees to reasonably cooperate with
the Company with respect to all matters arising during or related to his
employment, including but not limited to cooperation in connection with any
governmental investigation, litigation or regulatory or other proceeding which
may have arisen or which may arise following the signing of this Agreement.
9. Amendment to Executive Retention Agreement. You and the Company agree
that, effective April 1, 2000, that certain Executive Retention Agreement
between you and the Company is hereby amended by deleting Sections 3.2 and 4.2
thereof in their entirety. Except as amended hereby, however, such agreement
shall remain in full force and effect.
10. 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.
11. Restriction on Purchase or Sale of Common Stock. The Employee
understands that he will continue to 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, for the period ending the earlier
of (i) the date that the shares of ThermoLase are no longer registered under
Section 12 of the Exchange Act and (ii) six months following his termination as
a director of ThermoLase, and that during that period he is required to preclear
transactions in the Company and its affiliates' securities with the Company's
Stock Transaction Coordinator, Ms. Pauline I. Northern. 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.
12. 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 12.
13. 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.
14. Amendment. This Agreement may be amended or modified only by a
written instrument executed by all of the parties hereto.
15. 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.
16. 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.
17. Miscellaneous.
17.1 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.
17.2 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.
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17.3 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: ________________________________
Name:
Name: Anne Pol
Title: Senior Vice President
EMPLOYEE
-----------------------------------
Paul F. Kelleher
Exhibit 10.56
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 12th day of March, 1999 by and
between Thermo Electron Corporation, a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Mr.
Richard F. Syron (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement") and the
Executive desires to enter into the Agreement and to accept such employment,
subject to the terms and provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Affiliate" of a person or other entity shall mean a person or other
entity that directly or indirectly controls, is controlled by, or is under
common control with the person or other entity specified.
(b) "Base Salary" shall mean the salary provided for in Section 4 below
or any
increased salary granted to the Executive pursuant to Section 4.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean:
(i) the Executive commits a felony or any crime involving moral
turpitude; or
(ii) in carrying out his duties, the Executive engages in conduct that
constitutes willful gross neglect or willful gross misconduct resulting in
material economic harm to the Company.
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(e) A "Change in Control" shall mean an event or occurrence set forth in
Section 1.1 of the Executive Retention Agreement attached hereto as Exhibit A.
(f) "Constructive Termination Without Cause" shall mean termination by the
Executive of his employment after written notice to the Company within 30 days
following the occurrence of any of the following events without his consent:
(i) a reduction in the Executive's then current Base Salary or
reference bonus opportunity;
the failure to elect or reelect the Executive to any of the positions described
in Section 3(a) or the removal of him from any such position;
(ii) a material diminution in the Executive's duties or
responsibilities;
(iii) a change in the reporting structure so that the Executive
reports to someone other than the Board; or
(iv) the failure of the Company to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Company within 15 days after a
merger, consolidation, sale or similar transaction.
Following written notice from the Executive, as described above, the Company
shall have 15 days in which to cure. If the Company fails to cure, the
Executive's termination shall become effective on the 16th day following the
written notice.
(g) "Disability" shall mean the Executive's inability, due to physical or
mental incapacity, to substantially perform his duties and responsibilities
under this Agreement as determined by a medical doctor selected by the Company
and the Executive. If the Parties cannot agree on a medical doctor, each Party
shall select a medical doctor and the two doctors shall select a third who shall
be the approved medical doctor for this purpose.
(h) "Effective Date" shall mean June 1, 1999.
(i) "Stock" shall mean the Common Stock of the Company.
(j) "Transfer Restrictions" shall mean the transfer restrictions on the
Stock covered by the Initial Stock Option described in Section 6(b) below.
2. Term of Employment. The Term of Employment shall begin on the Effective Date,
and shall extend until the third anniversary of the Effective Date; provided,
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however, that the Term of Employment shall automatically extend for additional
one year periods after the third anniversary of the Effective Date unless either
Party shall give the other Party at least 12 months prior written notice that
he/it is electing not to so extend the Term of Employment. Notwithstanding the
foregoing, the Term of Employment may be earlier terminated by either Party in
accordance with the provisions of Section 10.
3. Position, Duties and Responsibilities.
(a) Commencing on the Effective Date and continuing for the remainder of
the Term of Employment, the Executive shall be employed as the President and
Chief Executive Officer and be responsible for the general management of the
affairs of the Company. The Executive, in carrying out his duties under this
Agreement, shall report to the Board.
(b) The Board will nominate the Executive for election as a Director at
the Annual Meeting of Stockholders to be held on May 27, 1999, to serve a
three-year term expiring on the date of the Annual Meeting of Stockholders to be
held in the year 2002. In the event of a termination of employment of the
Executive for any reason (other than death), the Executive shall immediately
resign as a Director of the Company and each of its subsidiaries.
(c) Nothing herein shall preclude the Executive from (i) serving on the
boards of directors of a reasonable number of other corporations subject to the
approval of the Board in each case (which approval has been given as to the
boards listed in Exhibit B attached), (ii) serving on the boards of a reasonable
number of trade associations and/or charitable organizations, (iii) engaging in
charitable activities and community affairs, and (iv) managing his personal
investments and affairs, provided that such activities set forth in this Section
3(c) do not materially interfere with the proper performance of his duties and
responsibilities under Section 3(a).
4. Base Salary. The Executive shall be paid an annualized Base Salary, payable
in accordance with the regular payroll practices of the Company, of $800,000.
The Base Salary shall be reviewed annually for increase in the discretion of the
Board.
5. Annual Incentive Award. During the Term of Employment, the Executive shall
participate in the annual incentive program of the Company. Under such program,
the Executive shall have a reference bonus each calendar year equal to $500,000,
prorated for partial years. The actual bonus paid will be a multiple of the
reference bonus (from zero to two times the reference bonus). The actual
multiple will reflect a variety of subjective and objective factors, as
determined by the Board. The Executive shall be paid his annual incentive award
no later than other senior executives are paid their annual incentive awards.
For the years 1999, 2000 and 2001, the Executive shall have a minimum guaranteed
bonus of $145,833.32 for calendar 1999, $250,000 for calendar 2000, and
$104,166.68 for the first five months of 2001 (the "Minimum Guaranteed Bonus"
amounts).
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6. Restricted Stock and Stock Option Awards.
(a) Restricted Stock Awards. On the Effective Date, and on the first and
second anniversaries of the Effective Date, the Company shall grant the
Executive an award of a number of shares of Stock (the "Restricted Stock")
having a market value equal to $200,000 based on the average of the closing
prices per share of Stock on the New York Stock Exchange for the five business
days preceding and including the corresponding grant date, substantially in
accordance with the terms set forth in Exhibit C to this Agreement, except that
vesting will occur on the third anniversary of each grant date.
(b) Initial Stock Option Award. On the Effective Date, the Company shall
grant the Executive a 7-year non-qualified stock option award, substantially in
the form attached to this Agreement as Exhibit D, as modified by the terms of
this Agreement, to purchase 1,000,000 shares of Stock,(the "Initial Stock
Option") with Transfer Restrictions lapsing on the first three anniversaries of
the date of grant (333,333 on June 1, 2000 and 2001 and 333,334 on June 1,
2002). The exercise price of the Initial Stock Option shall be the average of
the closing prices of the Stock on the New York Stock Exchange for the five
business days preceding and including June 1, 1999.
7. Employee Benefit Programs. During the Term of Employment, the Executive shall
be entitled to participate in all employee pension and welfare benefit plans and
programs made available to the Company's senior level executives or to its
employees generally, as such plans or programs may be in effect from time to
time, including, without limitation, pension, profit sharing, savings and other
retirement plans or programs, medical, dental, hospitalization, short-term and
long-term disability and life insurance plans, accidental death and
dismemberment protection, travel accident insurance, and any other pension or
retirement plans or programs and any other employee welfare benefit plans or
programs that may be sponsored by the Company from time to time, including any
plans that supplement the above-listed types of plans or programs, whether
funded or unfunded. The Executive shall be entitled to four weeks paid vacation
per year of employment.
8. Perquisites. During the Term of Employment, the Executive shall be entitled
to participate in all of the Company's executive perquisites in accordance with
the terms and conditions of such arrangements as are in effect from time to time
for the Company's senior-level executives.
9. Reimbursement of Business and Other Expenses.
(a) The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement including, without
limitation, legal fees incurred in the negotiation and preparation of this
Agreement, and the Company shall promptly reimburse him for such expenses,
subject to documentation in accordance with the Company's policy.
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(b) In connection with establishing a new principal residence in the
Boston area, the Company agrees to purchase the Executive's Bronxville house for
$1,500,000, and at the closing of the sale, the Executive shall deliver to the
Company a customary deed, together with related documents, conveying good and
marketable title to the property, free and clear of all material easements and
encumbrances. Following the purchase of the house, the Company will use its
reasonable best efforts to resell the house at a price subject to the prior
approval of the Executive, which approval shall not be unreasonably withheld.
Upon the sale of the house by the Company, either (a) the Company will pay the
Executive the excess, if any, of the gross sales price over $1,500,000, or (b)
the Executive will pay the Company the excess, if any, of $1,500,000 over the
gross sales price. The Company agrees to pay all closing costs, including
brokerage fees, incurred in connection with the purchase and subsequent sale of
the house. In addition, the Executive shall be entitled to reimbursement of his
relocation expenses including all reasonable out-of-pocket expenses of moving
his family and personal belongings to a new home in the Boston area. For a
period of up to six months, he shall also be entitled to reimbursement for
temporary living expenses in the Boston area while locating a permanent
residence. To the extent that certain relocation expenses are considered taxable
income to the Executive, the Company will relieve the Executive of the
additional tax burden (federal, FICA, and state income taxes) from such costs as
well as the tax impact of the tax reimbursement itself.
10. Termination of Employment.
(a) Termination Due to Death. In the event that the Executive's employment
is terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to the following benefits:
(i) Base Salary through the end of the month in which death occurs;
(ii) a pro-rata annual incentive award for the year in which the
Executive's death occurs, based on the reference bonus for such year, but
in no event less than the Minimum Guaranteed Bonus for the year of death,
payable when annual incentive awards are normally paid to other senior
executives;
(iii) Transfer Restrictions shall lapse on all Initial Stock Options,
including previously exercised Initial Stock Options; all outstanding
Initial Stock Options shall remain exercisable until the later of June 1,
2002 or two years from the date of death (but in no event beyond the option
expiration date of June 1, 2006); and
(iv) the restrictions on the Restricted Stock granted pursuant to
Section 6 shall lapse.
(b) Termination Due to Disability. In the event that the Executive's
employment is terminated by either party due to his Disability, he shall be
entitled to the following benefits:
(i) disability benefits in accordance with the long-term disability
("LTD") program then in effect for senior executives of the Company;
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(ii) Base Salary through the end of the LTD elimination period;
(iii) a pro-rata annual incentive award for the year in which the
Executive's termination occurs, based on the reference bonus for such year,
but in no event less than the Minimum Guaranteed Bonus for the year of
termination, payable when annual incentive awards are normally paid to
other senior executives;
(iv) Transfer Restrictions shall lapse on all Initial Stock Options,
including previously exercised Initial Stock Options; all outstanding
Initial Stock Options shall remain exercisable until the later of June 1,
2002 or two years from the employment termination date (but in no event
beyond the option expiration date of June 1, 2006); and
(v) the restrictions on the Restricted Stock granted pursuant to
Section 6 shall lapse.
(vi) the Executive shall be entitled to continued participation at
Company expense in all medical and dental insurance coverage in which he
was participating on the date of his termination until the earlier of (x)
18 months following the date of termination and (y) the date, or dates, he
receives equivalent coverage and benefits under the plans and programs of a
subsequent employer.
In no event shall a termination of the Executive's employment for Disability
occur until the Party terminating his employment gives written notice to the
other Party in accordance with Section 24 below.
(c) Termination by the Company for Cause. In the event the Company
terminates the Executive's employment for Cause:
(i) he shall be entitled to Base Salary through the date of the
termination;
(ii) no further lapsing of Transfer Restrictions shall occur;
Executive shall have 90 days to exercise all outstanding Initial Stock
Options as to which Transfer Restrictions have previously lapsed; and
(iii) all Restricted Stock granted under Section 6 as to which
restrictions have not lapsed shall be forfeited.
(d) Termination without Cause or Constructive Termination without Cause.
In the event the Executive's employment is terminated by the Company without
Cause, other than due to Disability, death or the failure of the Company to
extend this Agreement in accordance with Section 2 hereof, or in the event there
is a Constructive Termination without Cause, the Executive shall be entitled to
the following benefits:
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(i) Base Salary through the date of termination;
(ii) Base Salary, at the annualized rate in effect on the date of
termination, for the greater of (x) 12 months and (y) the remaining Term of
Employment following such termination (the "Salary Continuation Period");
(iii) a pro-rata annual incentive award for the year in which
termination occurs, based on his reference bonus for such year, but in no
event less than the Minimum Guaranteed Bonus for the year of termination,
payable when annual incentive awards are normally paid to other senior
executives;
(iv) an annual incentive award for the Salary Continuation Period,
based on his reference bonus for the year in which termination occurs and
payable on a pro-rata basis in equal installments over the Salary
Continuation Period;
(v) Transfer Restrictions shall lapse on all Initial Stock Options,
including previously exercised Initial Stock Options; the Initial Stock
Options shall continue to be exercisable until the later of June 1, 2002 or
two years from the employment termination date (but in no event beyond the
option expiration date of June 1, 2006);
(vi) the restrictions on the Restricted Stock granted pursuant to
Section 6 shall lapse; and
(vii) the Executive shall be entitled to continued participation at
Company expense in all medical and dental insurance coverage in which he
was participating on the date of his termination until the earlier of (x)
18 months following the date of termination and (y) the date, or dates, he
receives equivalent coverage and benefits under the plans and programs of a
subsequent employer.
(e) Voluntary Termination. A termination of employment by the Executive on
his own initiative, other than a termination due to death or Disability or a
Constructive Termination without Cause, shall have the same consequences as
provided in Section 10(c) for a termination for Cause. A voluntary termination
under this Section 10(e) shall be effective upon 30 days prior written notice to
the Company.
(f) Other Termination Benefits. In the case of any of the foregoing
terminations, the Executive or his estate shall also be entitled to:
(i) the balance of any incentive awards due but not yet paid,
including awards due for performance periods which have been completed, but
which have not yet been paid;
(ii) any expense reimbursements due the Executive;
(iii) payment of all amounts when due as a result of the termination;
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(iv) payment of any amounts due under Section 15(c); and
(v) other benefits, if any, in accordance with applicable plans and
programs of the Company.
(g) Termination Following a Change in Control. Notwithstanding anything to
the contrary in this Agreement or in the Executive Retention Agreement between
the Executive and the Company, the form of which is attached hereto as Exhibit
A, in the event the Executive's employment with the Company is terminated within
18 months following a Change in Control, the Executive shall be entitled to
benefits equal to the greater of (a) the benefits due and payable to him under
Section 4 of the Executive Retention Agreement as a result of such termination,
or (b) the benefits due and payable to him under Section 10 of this Employment
Agreement as a result of such termination. In furtherance thereof, it is the
Parties' understanding that in the event of a termination under such
circumstances, the Executive shall only be entitled to receive benefits payable
under one or the other of the foregoing agreements (but not both) determined on
a benefit by benefit basis by the Executive and that the term "Other Benefits"
as defined in the Executive Retention Agreement shall not include benefits
payable under this Employment Agreement.
(h) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(i) No Mitigation; No Offset. The Executive shall not be required to
mitigate the amount of any payment or benefit provided in this Section 10 by
seeking other employment otherwise. Further, except as provided in Sections
10(b)(vi) and 10(d)(vii), the amount of any payment or benefits provided for in
this Section 10 shall not be reduced by any compensation earned by the Executive
as a result of employment by another employer or be offset by any amount claimed
to be owed by the Executive to the Company.
11. Confidentiality.
(a) During the Term of Employment and thereafter, the Executive shall not
disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company or (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information.
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(b) Upon the termination of the Executive's employment, the Executive (or
in the event of his death, the Executive's personal representative) shall
promptly surrender to the Company the original and all copies of any materials
containing confidential information of the Company which are then in the
Executive's possession or control, provided, however, the Executive shall not be
required to surrender his rolodexes, personal diaries and other items of a
personal nature.
12. Noncompetition; Nonsolicitation.
(a) The Executive acknowledges (i) that in the course of his employment
with the Company he will become familiar with trade secrets and customer lists
of, and other confidential information concerning, the Company and its
Affiliates, customers, and clients and (ii) that his services will be of
special, unique and extraordinary value to the Company.
(b) The Executive agrees that during the Term of Employment and for a
period of one year following his termination of employment (the "Noncompetition
Period") he shall not in any manner, directly or indirectly, through any person,
firm, corporation or enterprise, alone or as a member of a partnership or as an
officer, director, stockholder, investor or employee of or advisor or consultant
to any person, firm, corporation or enterprise or otherwise, engage or be
engaged, or assist any other person, firm, corporation or enterprise in engaging
or being engaged, in any Competitive Activity. A Competitive Activity shall mean
a business that (i)is being conducted by the Company or any Affiliate at the
time in question and (ii) was being conducted, or was under active consideration
to be conducted, by the Company or any Affiliate, at the date of the termination
of the Executive's employment, provided that Competitive Activity shall not
include a business of the Company contributing less than 5% of the Company's
revenues for the year in question and provided further that an activity shall
not be deemed to be a Competitive Activity if the activity contributes less than
5% of the revenues for the year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(c) The Executive further agrees that during the Noncompetition Period he
shall not (i) in any manner, directly or indirectly, induce or attempt to induce
any employee of or advisor or consultant to the Company or any of its Affiliates
to terminate or abandon his or her or its employment or relationship with the
Company or any of its Affiliates for any purpose whatsoever, or (ii) in
connection with any business to which Section 12(b) applies, call on, service,
solicit or otherwise do business with any customer of the Company or any of its
Affiliates; provided, however, that the restriction contained in clause (i) of
this Section 12(c) shall not apply to, or interfere with, the proper performance
by the Executive of his duties and responsibilities under Section 3 of this
Agreement.
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(d) Nothing in this Section 12 shall prohibit the Executive from being a
passive owner of not more than one percent of the outstanding common stock,
capital stock and equity of any firm, corporation or enterprise so long as the
Executive has no active participation in the management of business of such
firm, corporation or enterprise.
(e) If the restrictions stated herein are found by a court to be
unreasonable, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
13. Resolution of Disputes. Any disputes arising under or in connection with
this Agreement shall be resolved by third party mediation of the dispute and,
failing that, by binding arbitration, to be held in Boston, Massachusetts, in
accordance with the rules and procedures of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Costs of the mediation,
arbitration or litigation including, without limitation, reasonable attorneys'
fees of both parties, shall be borne by the Company. Pending the resolution of
the dispute, the Company shall continue payment of all amounts due and
provisions of all benefits to which Executive is entitled, which amounts shall
be subject to repayment to the Company if the Company prevails.
14. Remedies. The Parties acknowledge that in the event of a breach or
threatened breach of Section 11 or 12 the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 11 or 12, the Company shall be entitled to seek such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
11 or 12.
15. Indemnification.
(a) The Executive shall continue to be indemnified under the
Indemnification Agreement signed as of September 25, 1997, a copy of which is
attached as Exhibit E.
(b) The Company agrees to continue and maintain a directors' and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other senior executives.
(c) The Company acknowledges the possibility that the Executive may lose
significant benefits at his current employer because of his entering into this
Agreement. In the event his current employer refuses to pay any such benefit,
the Executive agrees to use his best efforts to obtain the benefit, including
possible arbitration proceedings, if necessary. The Company will fully indemnify
the Executive for all his expenses, including legal fees, incurred in attempting
to obtain such benefits. If the Executive is not able to obtain the benefit
before June 1, 2000, the Company will indemnify the Executive by paying an
amount equal to the value of the benefit forfeited, but in no event more than
$1.5 million.
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16. Assignability; Binding Nature. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, heirs (in
the case of the Executive) and assigns. Rights or obligations of the Company
under this Agreement may be assigned or transferred by the Company pursuant to a
merger or consolidation in which the Company is not the continuing entity, or
the sale or liquidation of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it shall take whatever action it reasonably can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law.
17. Representations. The Company represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person, firm or organization. The Executive represents that he
knows of no agreement between him and any other person, firm or organization
that would be violated by the performance of his obligations under this
Agreement.
18. Entire Agreement. This Agreement contains the entire understanding and
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto.
19. Amendment or Waiver. No provision in this Agreement may be amended unless
such amendment is agreed to in writing and signed by the Executive and an
authorized officer of the Company. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
20. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by law
so as to achieve the purposes of this Agreement.
21. Survivorship. Except as otherwise expressly set forth in this Agreement, the
respective rights and obligations of the Parties hereunder shall survive any
termination of the Executive's employment. This Agreement itself (as
distinguished from the Executive's employment) may not be terminated by either
Party without the written consent of the other Party.
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22. References. In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
23. Governing Law/Jurisdiction. This Agreement shall be governed in accordance
with the laws of Massachusetts without reference to principles of conflict of
laws.
24. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed given when (a) delivered
personally, (b) sent by certified or registered mail, postage prepaid, return
receipt requested or (c) delivered by overnight courier (provided that a written
acknowledgment of receipt is obtained by the overnight courier) to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254
Attention: Vice President and General Counsel
Copy: Chairman, Human Resources Committee
of the Board of Directors
If to the Executive: Richard F. Syron
c/o Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254 .
25. Headings. The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
26. Counterparts. This Agreement may be executed in two or more counterparts.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
THERMO ELECTRON CORPORATION
By: /s/ George N. Hatsopoulos
----------------------------------
George N. Hatsopoulos
Chairman
/s/ Richard F. Syron
----------------------------------
Richard F. Syron
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EXHIBIT A
Executive Retention Agreement
THIS AGREEMENT by and between THERMO ELECTRON CORPORATION, a Delaware
corporation (the "Company"), and _________________ (the "Executive") is made as
of __________, 1999 (the "Effective Date").
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its
stockholders;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued employment and dedication of the Company's key personnel without
distraction from the possibility of a change in control of the Company and
related events and circumstances; and
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the Company agrees that the Executive shall receive the
severance benefits set forth in this Agreement in the event the Executive's
employment with the Company is terminated under the circumstances described
below subsequent to a Change in Control (as defined in Section 1.1).
1. Key Definitions.
As used herein, the following terms shall have the following respective
meanings:
1.1 "Change in Control" means an event or occurrence set forth in
any one or more of subsections (a) through (d) below (including an event or
occurrence that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of
any capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 40% or more of either (i) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change in Control: (i) any
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acquisition by the Company, (ii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iii) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i) and (ii) of subsection (c) of
this Section 1.1; or
(b) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company), where the term "Continuing
Director" means at any date a member of the Board (i) who was a member of the
Board on the date of the execution of this Agreement or (ii) who was nominated
or elected subsequent to such date by at least a majority of the directors who
were Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election; provided, however, that there shall be excluded from this clause (ii)
any individual whose initial assumption of office occurred as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by
or on behalf of a person other than the Board; or
(c) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially all of the assets
of the Company in one or a series of transactions (a "Business Combination"),
unless, immediately following such Business Combination, each of the following
two conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or substantially all of
the Company's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively; and (ii)
no Person (excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
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1.2 "Change in Control Date" means the first date during the Term
(as defined in Section 2) on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if (a) a Change in Control occurs,
(b) the Executive's employment with the Company is terminated prior to the date
on which the Change in Control occurs, and (c) it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or in anticipation of a
Change in Control, then for all purposes of this Agreement the "Change in
Control Date" shall mean the date immediately prior to the date of such
termination of employment.
1.3 "Cause" means the Executive's willful engagement in illegal
conduct or gross misconduct after the Change in Control Date which is materially
and demonstrably injurious to the Company. For purposes of this Section 1.3, no
act or failure to act by the Executive shall be considered "willful" unless it
is done, or omitted to be done, in bad faith and without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
1.4 "Good Reason" means the occurrence, without the Executive's
written consent, of any of the events or circumstances set forth in clauses (a)
through (g) below. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute Good Reason if,
prior to the Date of Termination specified in the Notice of Termination (each as
defined in Section 3.2(a)) given by the Executive in respect thereof, such event
or circumstance has been fully corrected and the Executive has been reasonably
compensated for any losses or damages resulting therefrom (provided that such
right of correction by the Company shall only apply to the first Notice of
Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties inconsistent in
any material respect with the Executive's position (including status, offices,
titles and reporting requirements), authority or responsibilities in effect
immediately prior to the earliest to occur of (i) the Change in Control Date,
(ii) the date of the execution by the Company of the initial written agreement
or instrument providing for the Change in Control or (iii) the date of the
adoption by the Board of Directors of a resolution providing for the Change in
Control (with the earliest to occur of such dates referred to herein as the
"Measurement Date") or a material diminution in such position, authority or
responsibilities;
(b) a reduction in the Executive's annual base salary as in
effect on the Measurement Date or as the same was or may be increased thereafter
from time to time;
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(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any life insurance, medical, health and accident or disability plan and any
vacation or automobile program or policy) (a "Benefit Plan") in which the
Executive participates or which is applicable to the Executive immediately prior
to the Measurement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan or
program, (ii) continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable than
the basis existing immediately prior to the Measurement Date (iii) award cash
bonuses to the Executive in amounts and in a manner substantially consistent
with past practice in light of the Company's financial performance or (iv)
continue to provide any material fringe benefit enjoyed by Executive immediately
prior to the Measurement Date;
(d) a change by the Company in the location at which the
Executive performs his principal duties for the Company to a new location that
is both (i) outside a radius of 50 miles from the Executive's principal
residence immediately prior to the Measurement Date and (ii) more than 30 miles
from the location at which the Executive performed his principal duties for the
Company immediately prior to the Measurement Date; or a requirement by the
Company that the Executive travel on Company business to a substantially greater
extent than required immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement from
any successor to the Company to assume and agree to perform this Agreement, as
required by Section 6.1;
(f) a purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3.2(a); or
(g) any failure of the Company to pay or provide to the
Executive any portion of the Executive's compensation or benefits due under any
Benefit Plan within seven days of the date such compensation or benefits are
due, or any material breach by the Company of this Agreement or any employment
agreement with the Executive.
The Executive's right to terminate his employment for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
1.5 "Disability" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
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2. Term of Agreement. This Agreement, and all rights and obligations of
the parties hereunder, shall take effect upon the Effective Date and shall
expire upon the first to occur of (a) the expiration of the Term (as defined
below) if a Change in Control has not occurred during the Term, (b) the date 18
months after the Change in Control Date, if the Executive is still employed by
the Company as of such later date, or (c) the fulfillment by the Company of all
of its obligations under Sections 4 and 5.2 if the Executive's employment with
the Company terminates within 18 months following the Change in Control Date.
"Term" shall mean the period commencing as of the Effective Date and continuing
in effect through December 31, 2003; provided, however, that commencing on
January 1, 2003 and each January 1, thereafter, the Term shall be automatically
extended for one additional year unless, not later than 90 days prior to the
scheduled expiration of the Term (or any extension thereof), the Company shall
have given the Executive written notice that the Term will not be extended.
3. Employment Status; Termination Following Change in Control.
3.1 Not an Employment Contract. The Executive acknowledges that this
Agreement does not constitute a contract of employment or impose on the Company
any obligation to retain the Executive as an employee and that this Agreement
does not prevent the Executive from terminating employment at any time. If the
Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder except as otherwise provided pursuant to
Section 1.2.
3.2 Termination of Employment.
(a) If the Change in Control Date occurs during the Term, any
termination of the Executive's employment by the Company or by the Executive
within 18 months following the Change in Control Date (other than due to the
death of the Executive) shall be communicated by a written notice to the other
party hereto (the "Notice of Termination"), given in accordance with Section 7.
Any Notice of Termination shall: (i) indicate the specific termination provision
(if any) of this Agreement relied upon by the party giving such notice, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the Date of
Termination (as defined below). The effective date of an employment termination
(the "Date of Termination") shall be the close of business on the date specified
in the Notice of Termination (which date may not be less than 15 days or more
than 120 days after the date of delivery of such Notice of Termination), in the
case of a termination other than one due to the Executive's death, or the date
of the Executive's death, as the case may be. In the event the Company fails to
satisfy the requirements of Section 3.2(a) regarding a Notice of Termination,
the purported termination of the Executive's employment pursuant to such Notice
of Termination shall not be effective for purposes of this Agreement.
(b) The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
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(c) Any Notice of Termination for Cause given by the Company
must be given within 90 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination
for Cause being given (and prior to any termination for Cause being effective),
the Executive shall be entitled to a hearing before the Board of Directors of
the Company at which he may, at his election, be represented by counsel and at
which he shall have a reasonable opportunity to be heard. Such hearing shall be
held on not less than 15 days prior written notice to the Executive stating the
Board of Directors' intention to terminate the Executive for Cause and stating
in detail the particular event(s) or circumstance(s) which the Board of
Directors believes constitutes Cause for termination.
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 90 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. Benefits to Executive.
4.1 Stock Acceleration. If the Change in Control Date occurs during
the Term, then, effective upon the Change in Control Date, (a) each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become immediately exercisable in full and will no longer be subject to a
right of repurchase by the Company and (b) each outstanding restricted stock
award shall be deemed to be fully vested and will no longer be subject to a
right of repurchase by the Company.
4.2 Compensation. If the Change in Control Date occurs during the
Term and the Executive's employment with the Company terminates within 18 months
following the Change in Control Date, the Executive shall be entitled to the
following benefits:
(a) Termination Without Cause or for Good Reason. If the
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 18
months following the Change in Control Date, then the Executive shall be
entitled to the following benefits:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
(1) the sum of (A) the Executive's base
salary through the Date of Termination, (B) the product of (x) the annual bonus
paid or payable (including any bonus or portion thereof which has been
earned but deferred) for the most recently completed fiscal year and (y) a
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fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(C) the amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not previously paid (the sum of the
amounts described in clauses (A), (B), and (C) shall be hereinafter referred
to as the "Accrued Obligations"); and
(2) the amount equal to (A) three multiplied by
(B) the sum of (x) the Executive's highest annual base salary in any twelve-
month period (on a rolling basis) during the five-year period prior to the
Change in Control Date and (y) the Executive's highest annual bonus in any
twelve-month period (on a rolling basis) during the five-year period prior to
the Change in Control Date.
(ii) for three years after the Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue to provide benefits
to the Executive and the Executive's family at least equal to those which would
have been provided to them if the Executive's employment had not been terminated
in accordance with the applicable Benefit Plans in effect on the Measurement
Date or, if more favorable to the Executive and his family, in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies; provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive a
particular type of benefits (e.g., health insurance benefits) from such employer
on terms at least as favorable to the Executive and his family as those being
provided by the Company, then the Company shall no longer be required to
provide those particular benefits to the Executive and his family;
(iii) to the extent not previously paid or provided,
the Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is eligible
to receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) for purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits to
which the Executive is entitled, the Executive shall be considered to have
remained employed by the Company until three years after the Date of
Termination.
(b) Resignation without Good Reason; Termination for Death or
Disability. If the Executive voluntarily terminates his employment with the
Company within 18 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 18 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his estate, if applicable), in a lump sum in cash within 30 days
after the Date of Termination, the Accrued Obligations and (ii) timely pay or
provide to the Executive the Other Benefits.
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(c) Termination for Cause. If the Company terminates the
Executive's employment with the Company for Cause within 18 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by the Executive, in each case to
the extent not previously paid, and (ii) timely pay or provide to the Executive
the Other Benefits.
4.3 Taxes.
(a) In the event that the Company undergoes a "Change in
Ownership or Control" (as defined below), and thereafter, the Executive becomes
eligible to receive "Contingent Compensation Payments" (as defined below) the
Company shall, as soon as administratively feasible after the Executive becomes
so eligible determine and notify the Executive (with reasonable detail regarding
the basis for its determinations) (i) which of the payments or benefits due to
the Executive following such Change in Ownership or Control constitute
Contingent Compensation Payments, (ii) the amount, if any, of the excise tax
(the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), by the Executive with respect to such
Contingent Compensation Payment and (iii) the amount of the "Gross-Up Payment"
(as defined below) due to the Executive with respect to such Contingent
Compensation Payment. Within 30 days after delivery of such notice to the
Executive, the Executive shall deliver a response to the Company (the "Executive
Response") stating either (A) that he agrees with the Company's determination
pursuant to the preceding sentence or (B) that he disagrees with such
determination, in which case he shall indicate which payment and/or benefits
should be characterized as a Contingent Compensation Payment, the amount of the
Excise Tax with respect to such Contingent Compensation Payment and the amount
of the Gross-Up Payment due to the Executive with respect to such Contingent
Compensation Payment. If the Executive states in the Executive Response that he
agrees with the Company's determination, the Company shall make the Gross-Up
Payment to the Executive within three business days following delivery to the
Company of the Executive Response. If the Executive states in the Executive
Response that he disagrees with the Company's determination, then, for a period
of 15 days following delivery of the Executive Response, the Executive and the
Company shall use good faith efforts to resolve such dispute. If such dispute is
not resolved within such 15-day period, such dispute shall be settled
exclusively by arbitration in Boston, Massachusetts, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The Company
shall, within three business days following delivery to the Company of the
Executive Response, make to the Executive those Gross-Up Payments as to which
there is no dispute between the Company and the Executive regarding whether they
should be made. The balance of the Gross-Up Payments shall be made within three
business days following the resolution of such dispute. The amount of any
payments to be made to the Executive following the resolution of such dispute
shall be increased by the amount of the accrued interest thereon computed at the
prime rate announced from time to time by The Wall Street Journal compounded
monthly from the date that such payments originally were due. In the event that
the Executive fails to deliver an Executive Response on or before the required
date, the Company's initial determination shall be final.
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(b) For purposes of this Section 4.3, the following terms
shall have the following respective meanings:
(i) "Change in Ownership or Control" shall mean a
change in the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company determined in
accordance with Section 280G(b)(2) of the Code.
(ii) "Contingent Compensation Payment" shall mean any
payment (or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Section 280G(c) of the Code) and that
is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a
Change in Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an amount equal to
the sum of (i) the amount of the Excise Tax payable with respect to a
Contingent Compensation Payment and (ii) the amount necessary to pay all
additional taxes imposed on (or economically borne by) the Executive (including
the Excise Taxes, state and federal income taxes and all applicable
withholding taxes) attributable to the receipt of such Gross-Up Payment.
For purposes of the preceding sentence, all taxes attributable to the
receipt of the Gross-Up Payment shall be computed assuming the application
of the maximum tax rates provided by law.
4.4 Outplacement Services. In the event the Executive is terminated
by the Company (other than for Cause, Disability or Death), or the Executive
terminates employment for Good Reason, within 18 months following the Change in
Control Date, the Company shall provide outplacement services through one or
more outside firms of the Executive's choosing up to an aggregate of $25,000,
with such services to extend until the earlier of (i) 12 months following the
termination of Executive's employment or (ii) the date the Executive secures
full time employment.
4.5 Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section
4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
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5. Disputes.
5.1 Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board of Directors of the Company and shall be in writing. Any denial by the
Board of Directors of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board of Directors shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 Expenses. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest
(regardless of the outcome thereof) by the Company, the Executive or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
6. Successors.
6.1 Successor to Company. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
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6.2 Successor to Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or his family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. Notice. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company, at
81 Wyman Street, Waltham, Massachusetts and to the Executive at the Executive's
principal residence as currently reflected on the Company's records (or to such
other address as either the Company or the Executive may have furnished to the
other in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the party for whom it is intended.
8. Miscellaneous.
8.1 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.2 Injunctive Relief. The Company and the Executive agree that any
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.3 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.4 Waivers. No waiver by the Executive at any time of any breach
of, or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
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8.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.6 Tax Withholding. Any payments provided for hereunder shall be
paid net of any applicable tax withholding required under federal, state or
local law.
8.7 Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein; and any prior agreement of the parties hereto
in respect of the subject matter contained herein is hereby terminated and
cancelled.
8.8 Amendments. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first set forth above.
THERMO ELECTRON CORPORATION
--------------------------------
By: Anne Pol
Title: Senior Vice President, Human Resources
EXECUTIVE
-----------------------------------
[Name]
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Exhibit B
Boards of Directors
1. Dreyfus Corporation
2. John Hancock Mutual Life Insurance Company
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EXHIBIT C
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SUMMARY OF TERMS*
RESTRICTED STOCK
- --------------------------------------------------------------------------------
Date of Award: Date approved by the Human Resources Committee of the
Board of Directors
Restrictions: Restricted shares may not be transferred or sold to
parties other than the Company until vested and
restrictions lapse
A stock certificate representing the award will be
held in "Escrow" until the restrictions have lapsed
Length of Restriction: January 2, 2002 (approximately three years from the
date of award)
Vesting Schedule: 100% on January 2, 2002
Purchase Price of Par Value (deemed satisfied by past services)
Restricted Shares:
Tax Treatment: Ordinary income is recognized on the value of the
shares either:
(see separate when they vest and restrictions lapse
memorandum regarding OR
tax consequences) on the date of grant (if a Section 83(b) election is
made within 30 days of date of grant)
Payment of Taxes: Check payable to employer Company, or "Stock
Witholding" from Restricted Shares awarded:
If tax collected when shares vest, amount withheld
will be limited to minimum statutory federal (28%)
and state rates, and statutory FICA rates up to
specified limits.
If tax collected upon Section 83(b) election, amoun
will be withheld at maximum federal (39.6%) and
state rates, and statutory FIC rates up to
specified limits.
Rights on Termination:
Voluntary or
Discharge (for cause).. Non-vested shares will be transferred back to the
Company and the recipient will have no further rights
to the shares
Death, Release, or Shares fully vest and are released from "Escrow"
Disability... net of shares required to satisfy tax withholding
requirements)
<PAGE>
Change of Control ... Shares fully vest upon change of control as defined in
the Company's Equity Incentive Plan and are released
from "Escrow" (net of shares required to satisfy tax
withholding requirements)
*This summary is qualified in its entirety by the terms and conditions of a
written and signed restricted stock agreement between the employee and the
Company.
================================================================================
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<PAGE>
EXHIBIT D
Grant ID # 21-0XXX
[A/7]
THERMO ELECTRON CORPORATION
EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Optionee
#### $$$$
Number of Shares of Exercise Price
Common Stock Subject Per Share
to the Option
Grant Date
We are pleased to inform you that, pursuant to the Thermo Electron
Corporation Equity Incentive Plan (the "Plan"), you have been granted the option
to acquire the number of shares of common stock, par value $1.00 per share (the
"Common Stock"), of Thermo Electron Corporation (the "Company"), specified
above, subject to the provisions of the Plan and the terms, conditions and
restrictions hereinafter set forth (the "Option"), to be exercisable any time
after the Grant Date specified above (the "Grant Date") and prior to the Option
Termination Date (as defined herein). Attached is a copy of the Plan which is
incorporated in this Stock Option Agreement (the "Agreement") by reference and
made a part hereof. The Option granted hereunder is intended to be a
non-statutory stock option and not a "qualified", "incentive", or "employee
stock purchase plan" stock option as those terms are defined in Sections 422,
422A and 423, respectively, of the Internal Revenue Code of 1954, as amended.
<PAGE>
1. Termination of Option. The Option shall terminate on the date which is
the earliest of (a) seven years after the Grant Date, (b) three months after the
date on which you cease to be a director or employee of the Company or a
subsidiary of the Company (the "Employment Termination Date"), or six months
after the Employment Termination Date if such cessation is a result of your
death, provided that immediately on the Employment Termination Date, the Option
shall terminate with respect to any Optioned Shares (as defined herein) as to
which the Transfer Restrictions (as defined herein) shall not have lapsed, or
(c) the date of the dissolution or liquidation of the Company. The date on which
the Option shall terminate in whole or in part as provided in this Section 1 is
hereinafter referred to as the "Option Termination Date."
2. Transfer Restrictions and Company Repurchase Option.
(a) Shares of Common Stock subject to the Option ("Optioned Shares")
and purchased upon exercise of the Option may not, without the prior written
consent of the Company, be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of, except by will or by the applicable laws of descent and
distribution or to the Company pursuant to the provisions of ARTICLE NINTH,
Section (9) of the Company's Restated Certificate of Incorporation, as amended
from time to time (the "Transfer Restrictions") unless and until the Transfer
Restrictions with respect to such Optioned Shares shall have lapsed as provided
herein. The Transfer Restrictions shall lapse in their entirety with respect to
one-fifth of the number of Optioned Shares specified on the first page of this
Agreement at the close of business on each of the first, second, third, fourth
and fifth anniversaries of the Grant Date which occurs prior to the Employment
Termination Date, provided you shall have remained continuously a director or
employee of the Company or a subsidiary of the Company since the Grant Date.
From and after the Employment Termination Date, no further lapsing of the
Transfer Restrictions shall occur, and thereupon the Company shall have the
right, exercisable in accordance with Section 2(b) hereof, to repurchase all or
any portion of the Optioned Shares purchased by you upon exercise of the Option
with respect to which the Transfer Restrictions shall not have lapsed, at a
price per share equal to the Exercise Price specified on the first page of this
Agreement (the "Exercise Price"). The right of the Company to repurchase
Optioned Shares at the Exercise Price as provided in this Section 2(a) is
hereinafter referred to as the "Company Repurchase Option".
(b) The Company may exercise the Company Repurchase Option by
mailing to you at your last address listed in the records of the Company or the
relevant subsidiary of the Company, or by delivering to you, a notice that it
has exercised the Company Repurchase Option and the number of Optioned Shares
with respect to which it has exercised the Company Repurchase Option, within six
(6) months after the date that the Company shall first have been entitled to
exercise the Company Repurchase Option (the "Repurchase Option Period"). Such
notice shall be accompanied by a check payable to you in the amount of the
Exercise Price times the number of Optioned Shares with respect to which the
Company has exercised the Company Repurchase Option. Upon exercise by the
Company of the Company Repurchase Option as provided herein, the certificate or
certificates representing the Optioned Shares, and representing shares of Common
2
<PAGE>
Stock or other shares (or other property) received in any Non-Cash Distribution
(as defined herein) in respect of such Optioned Shares, which have been
repurchased shall forthwith be released from the escrow arrangement provided for
in Section 4 hereof and transferred of record to the Company. The Company
Repurchase Option shall lapse and be of no further force or effect if it shall
not have been exercised prior to the expiration of the Repurchase Option Period.
3. No Assignment of Rights. Except for assignments or transfers by will
or the applicable laws of descent and distribution, your rights and interests
under this Agreement and the Plan may not be assigned or transferred in whole or
in part either directly or by operation of law or otherwise, including without
limitation by way of execution, levy, garnishment, attachment, pledge or
bankruptcy, and no such rights or interests shall be subject to any of your
obligations or liabilities.
4. Exercise of Option; Delivery and Deposit of Certificate(s). You (or in
the case of your death, your legal representative) may exercise the Option in
whole or in part by giving written notice to the Company on the form attached
hereto as Exhibit A (the "Exercise Notice") prior to the Option Termination
Date, accompanied by full payment for the Optioned Shares being purchased (a) in
cash or by certified or bank cashier's check payable to the order of the
Company, in an amount equal to the number of Optioned Shares being purchased
multiplied by the Exercise Price (the "Aggregate Exercise Price"), (b) in shares
of the Company's Common Stock (the "Tendered Shares") with a market value equal
to the Aggregate Exercise Price or (c) any combination of cash, certified or
bank cashier's check or Tendered Shares having a total value equal to the
Aggregate Exercise Price (such cash, check or Tendered Shares with such value
being referred to as the "Exercise Consideration"). However, Tendered Shares may
be surrendered as all or part of the Exercise Consideration only if you shall
have acquired such Tendered Shares more than six months prior to the date of
exercise and, if such Tendered Shares are then subject to Transfer Restrictions,
only with the prior written consent of the Company as provided in Section 2(a)
hereof. As a condition to such consent, the Company may require that a number of
Optioned Shares acquired by you upon your exercise of the Option equal to the
number of Tendered Shares surrendered upon such exercise shall be subject to the
Transfer Restrictions and the Company Repurchase Option to the same extent that
such Tendered Shares surrendered upon such exercise were so subject immediately
prior to such surrender. Receipt by the Company of the Exercise Notice and the
Exercise Consideration shall constitute the exercise of the Option or a part
thereof. As soon as reasonably practicable thereafter, the Company shall deliver
or cause to be delivered to you a certificate or certificates representing the
number of Optioned Shares purchased, registered in your name. If such
certificate(s) represent(s) Optioned Shares with respect to which the Transfer
Restrictions shall not have lapsed, such certificate(s) shall, immediately upon
your receipt thereof, be deposited by you, together with a stock power endorsed
in blank, in escrow with the Company. In addition, any certificate(s)
representing shares of Common Stock, or other property other than cash,
distributed (including pursuant to any stock split) in respect of Optioned
Shares purchased by you (a "Non-Cash Distribution") with respect to which the
Transfer Restrictions shall not have lapsed shall, immediately upon your receipt
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<PAGE>
thereof, be deposited by you, together with a stock power endorsed in blank (if
applicable), in escrow with the Company, and shall be subject to the Transfer
Restrictions and the Company Repurchase Option to the same extent as the
Optioned Shares in respect of which such Non-Cash Distribution was made. All
such deposited certificate(s) may have set forth thereon a legend or legends (in
addition to the legend referred to in Section 7 hereof) indicating that the
shares of Common Stock (or other property) represented by such certificate(s)
are subject to the Transfer Restrictions and, to the extent applicable, to the
Company Repurchase Option, as provided herein. All shares of Common Stock
delivered upon the exercise of the Option as provided herein shall be fully paid
and non-assessable.
5. Rights With Respect to Optioned Shares. Prior to the date the Option
is exercised, you shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Optioned Shares. Upon initial issuance to you
of a certificate or certificates representing Optioned Shares or shares (or
other property) received in any Non-Cash Distribution in respect of Optioned
Shares purchased by you, you shall have ownership of such shares (or other
property), including the right to vote and receive dividends, subject, however,
in the case of any such shares (or other property) with respect to which the
Transfer Restrictions shall not have lapsed, to the Transfer Restrictions and
the Company Repurchase Option, to the extent applicable, and to the other
restrictions and limitations imposed thereon pursuant to the Plan and this
Agreement and which may be now or hereafter imposed by the Restated Certificate
of Incorporation or the By-Laws of the Company.
6. Release of Optioned Shares. As soon as reasonably practicable after
the Transfer Restrictions shall have lapsed with respect to any Optioned Shares
purchased by you upon exercise of the Option, the Company shall deliver to you,
or your legal representative in the case of your death, the certificate or
certificates representing such shares and any shares (or other property)
received in any Non-Cash Distribution in respect of such shares, previously
deposited in escrow with the Company pursuant to Section 4 hereof, without any
legend referring to the Transfer Restrictions or the Company Repurchase Option.
7. Securities Laws. You hereby represent and warrant that you will not
transfer, sell or otherwise dispose of any Optioned Shares purchased by you
except in compliance with the Securities Act of 1933, as amended (the "Act"),
the rules and regulations thereunder and all applicable state securities laws
and the rules and regulations thereunder. You hereby acknowledge and agree that
any routine sales of the Optioned Shares purchased by you upon exercise of the
Option made in reliance upon Rule 144 under the Act may be made only in limited
amounts in accordance with the terms and conditions of that Rule. You also
acknowledge and agree that the certificate(s) representing Optioned Shares
delivered to you pursuant to Section 4 hereof may have set forth thereon a
legend indicating that such shares may be transferred, sold or otherwise
disposed of only after receipt by the Company of an opinion of counsel
reasonably satisfactory to it that the transfer, sale or other disposition will
not violate the Act or the regulations thereunder or any applicable state
securities laws or the regulations thereunder.
4
<PAGE>
8. Dilution and Other Adjustments. In the event of any stock dividend
payable in Common Stock or any split-up or contraction in the number of shares
of Common Stock occurring after the date of this Agreement and prior to the
exercise in full of the Option, the number of shares for which the Option may
thereafter be exercised and the Exercise Price shall be proportionately
adjusted. In the case of any reclassification or change of outstanding shares of
the Common Stock or in case of any consolidation or merger of the Company with
or into another company or in case of any sale or conveyance to another company
or entity of the property of the Company as a whole or substantially as a whole,
you shall, upon exercise of the Option, be entitled to receive shares of stock
or other securities in its place equivalent in kind and value to those shares
which you would have received if you had exercised the Option in full
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance and had continued to hold the Optioned Shares (together with all
other shares, stock and securities thereafter issued in respect thereof) to the
time of the exercise of the Option; provided, that if any recapitalization is to
be effected through an increase in the par value of the Common Stock without an
increase in the number of authorized shares and such new par value will exceed
the Exercise Price hereunder, the Company shall notify you of such proposed
recapitalization, and you shall then have the right, exercisable at any time
prior to such recapitalization becoming effective, to purchase all of the
Optioned Shares not theretofore purchased by you (anything in Section 1 hereof
to the contrary notwithstanding), but if you fail to exercise such right before
such recapitalization becomes effective, the Exercise Price hereunder shall be
appropriately adjusted. Upon dissolution or liquidation of the Company, the
Option shall terminate, but you (if at the time you are a director or employee
of the Company or a subsidiary of the Company) shall have the right, immediately
prior to such dissolution or liquidation, to purchase all or any portion of the
Optioned Shares not theretofore purchased by you. No adjustment provided for in
this Section 8 shall apply to any Optioned Shares purchased prior to the
effective date of such adjustment. No fraction of a share or fractional shares
shall be purchasable or deliverable under this Agreement, but in the event any
adjustment hereunder of the number of Optioned Shares shall cause such number to
include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares.
9. Reservation of Shares. The Company shall at all times during the term
of this Agreement reserve and keep available such number of shares of the Common
Stock as will be sufficient to satisfy the requirements of this Agreement and
shall pay all fees and expenses necessarily incurred by the Company in
connection with this Agreement and the issuance of Optioned Shares.
10. Taxes. If the Company, in its sole discretion, determines that the
Company or any subsidiary of the Company or any other person has incurred or
will incur any liability to withhold any federal, state or local income or other
taxes by reason of the grant of the Option, the issuance of Optioned Shares to
you upon the exercise thereof or the lapse of the Transfer Restrictions or the
Company Repurchase Option or any other restrictions upon the Optioned Shares,
5
<PAGE>
you will, promptly upon demand therefor by the Company or any such subsidiary of
the Company, pay to the Company or such subsidiary any amount requested by it
for the purpose of satisfying such liability. If the amount so requested is not
paid promptly, the Company may refuse to permit the issuance to you of Optioned
Shares and may, without further consent by you, cancel the Optioned Shares
issued to you.
You may satisfy the minimum statutory withholding tax requirement (the
"Obligation") arising from exercise of all or a part of the Option by making an
election (an "Election") to have the Company withhold from the number of shares
to be issued upon exercise of the Option, or to otherwise tender to the Company,
that number of shares of Common Stock having a value equal to the amount of the
Obligation. The value of the shares to be withheld or tendered shall be based
upon the closing price of the Common Stock on the New York Stock Exchange on the
date that the amount of the Obligation shall be determined (the "Tax Date").
Each Election must be made at the time the Option is exercised or the Tax Date,
whichever is later. The Committee may disapprove of any Election or may suspend
or terminate the right to make Elections. An Election is irrevocable.
If you are a Section 16(a) reporting person of the Company, the Election
will be subject to the following additional requirements:
(1) No Election shall be effective for a Tax Date that occurs within six
months of the date the Option is granted.
(2) An Election must be made six months prior to the Tax Date or must be
made during a period beginning on the third business day following
the date of release of publication of the Company's quarterly or
annual summary statements of sales and earnings and ending on the
12th business day following such date.
11. Determination of Rights. You hereby represent and warrant for
yourself, your personal representatives and beneficiaries, that as a condition
of the granting of the Option, any dispute or disagreement which may arise under
or as a result of or pursuant to the Plan or this Agreement shall be determined
by the Company's Board of Directors, in its sole discretion, and that any
decision made by it in good faith shall be conclusive on all parties. The
interpretation and construction by the Company's Board of Directors of any
provision of, and the determination of any question arising under, this
Agreement, the Plan, or any rule or regulation adopted pursuant to the Plan,
shall be final and conclusive.
12. Limitation of Employment Rights. The Option confers upon you no right
to continue in the employ of the Company and its subsidiaries or interferes in
any way with the right of the Company and its subsidiaries to terminate your
employment at any time.
6
<PAGE>
13. Communications. Any communication or notice required or permitted to
be given under this Agreement shall be in writing, and mailed by registered or
certified mail or delivered in hand, if to the Company to its Stock Option
Manager at 81 Wyman Street, Post Office Box 9046, Waltham, Massachusetts
02454-9046, and if to the Optionee, to the address set forth below, or such
other address, in each case, as the addressee shall last have furnished to the
communicating party.
<PAGE>
Please confirm your acceptance of the Option, your receipt of a copy of
the Plan and your acceptance of and agreement to the terms of the Plan and this
Agreement, by executing the enclosed copy of this letter and returning such copy
promptly under confidential cover to the Stock Option Manager of the Company, 81
Wyman Street, Post Office Box 9046, Waltham, Massachusetts 02454-9046.
THERMO ELECTRON CORPORATION
By
Name: Anne Pol
Title: Senior Vice President, Human
Resources
Accepted and agreed:
- -------------------------
Optionee
- -------------------------
- -------------------------
- -------------------------
- -------------------------
Home Address
7
<PAGE>
EXHIBIT E
THERMO ELECTRON CORPORATION
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this 25th day of September, 1997
("Agreement"), by and between Thermo Electron Corporation, a Delaware
corporation (the "Company"), and Dr. Richard F. Syron ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to, and activities on behalf of, the corporation; and
WHEREAS, uncertainties relating to the contained availability of adequate
directors and officers liability insurance ("D&O Insurance") and relating to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons so that they will
serve or continue to serve the Company free from undue concern that they will
not be so indemnified;
WHEREAS, Indemnitee is willing to serve, continue to serve and/or take on
additional service for or on behalf of the Company on the condition that he be
so indemnified and that such indemnification be so guaranteed;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to
service as a Director of the Company. This Agreement shall not impose any
obligation on the Indemnitee or the Company to continue the Indemnitee's
position with the Company beyond any period otherwise applicable.
<PAGE>
2. Indemnity. The Company shall indemnify, and shall advance Expenses (as
hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. General. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or other proceeding whether
civil, criminal, administrative or investigative. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement incurred by him or on his behalf in connection
with such action, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or other proceeding whether civil,
criminal, administrative or investigative or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4. Proceedings by or in the Right of the Company. In the case of any
action or suit by or in the right of the Company, indemnification shall be made
only (i) for Expenses or (ii) in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company is such
indemnification is permitted by Delaware law; provided, however, that
indemnification against Expenses shall nevertheless be made by the Company in
such event to the extent that the Court of Chancery of the State of Delaware, or
the court in which such action or suit shall have been brought or is pending,
shall determine to be proper despite the adjudication of liability but in view
of all the circumstances of the case.
5. Indemnification for Expenses of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporation Status, a party to and is
successful, on the merits or otherwise, in any action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative, he
shall be indemnified against all Expenses incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful but is successful,
on the merits or otherwise, as to one or more but less than all claims, issues
or matters in such action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or other proceeding whether
civil, criminal, administrative or investigative, the Company shall indemnify
Indemnitee against all Expenses incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter by
dismissal, or withdrawal with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
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<PAGE>
6. Advance of Expenses. The Company shall advance all Expenses incurred by
or on behalf of Indemnitee in connection with any action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative
within twenty (20) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such action, suit,
arbitration, alternative dispute resolution mechanism, investigation,
administrative hearing or other proceeding whether civil, criminal,
administrative or investigative. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses, which undertaking shall be
accepted by or on behalf of the Company without reference to the financial
ability of Indemnitee to make repayment.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 7(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee (unless Indemnitee shall
request that such determination be made by the Board or the stockholders, in
which case the determination shall be made in the manner provided below in
clauses (ii) or (iii)); (ii) if a Change of Control shall not have occurred, (A)
by the Board by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board consisting
of Disinterested Directors is not obtainable or, even if obtainable, such quorum
of Disinterest Directors so directs, by Independent Counsel in a written opinion
to the Board, a copy of which shall be delivered to Indemnitee or (C) by the
stockholders of the Company; or (iii) as provided in Section 8(b) of this
Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
3
<PAGE>
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorney's fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 7(b) of this Agreement, the
Independent Counsel shall be selected as provided in this Section 7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within 7 days after such written notice of selection shall
have been given, deliver to the Company or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that the Indepedent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 14 of this Agreement, and the
objection shall set forth with particularly the factual basis of such assertion.
If such written objection is made, the Independent Counsel so selected may not
serve as Independent Counsel unless and until a court has determined that such
objection is without merit. If, within twenty (20) days after submission by
Indemnitee of a written request for indemnification pursuant to Section 7(a)
hereof, no Independent Counsel shall have been selected or if selected, shall
have been objected to, in accordance with this Section 7(c), whether the Company
or Indemnitee may petition the Court of Chancery of the State of Delaware or
other court of competent jurisdiction for resolution of any objection which
shall have been made by the Company or Indemnitee to the other's selection by
the Court or by such other person as the Court shall designate, and the person
with respect to whom an objection is favorably resolved or the person so
appointed shall act as Independent Counsel in connection with acting pursuant to
Section 7(b) hereof. The Company shall pay any and all reasonable fees and
expenses incident to the procedures of this Section 7(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
9(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieve
of any further responsibility in such capacity (subject to the applicable
standards of professional conduct then prevailing).
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<PAGE>
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification hereunder, the person, persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 7(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) If the person, persons or entity empowered or selected under Section 7
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made such determination within sixty (60) days after receipt by
the Company of the request therefor, the requisite determination of entitlement
to indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 60-day period may be extended for a reasonable
time, not to exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 8(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 7(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such determination is made
thereat, or (B) a special meeting of stockholders is called within fifteen (15)
days after such receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days after having been so
called and such determination is made thereat, or (ii) if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 7(b) of this Agreement.
(c) The termination of any action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or other proceeding
whether civil, criminal, administrative or investigative or of any claim, issue
or matter therein by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal action or
proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
5
<PAGE>
9. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 7 of
this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6
of this Agreement, (iii) the determination of entitlement to indemnification is
to be by Independent Counsel pursuant to Section 7(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
ninety (90) days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within one hundred
eighty (180) days following the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 9(a). The Company shall not
oppose Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 9 the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
6
<PAGE>
(e) In the event that Indemnitee, pursuant to this Section 9, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indentified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
10. Security. To the extent requested by the Indemnitee and approved by
the Board, the Company may at any time and from time to time provide security to
the Indemnitee for the Company's obligations hereunder through an irrevocable
bank line of credit, funded trust or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under applicable law, the
Company's certificate of incorporation or by-laws, any other agreement, a vote
of stockholders or a resolution of directors, or otherwise. This Agreement shall
continue until and terminate upon the later of (a) ten (10) years after the date
that Indemnitee shall have ceased to serve as a director or executive officer of
the Company or fiduciary of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of all pending actions,
suits, arbitrations, alternative dispute resolution mechanisms, investigations,
administrative hearings or other proceedings whether civil, criminal,
administrative or investigative in respect of which Indemnitee is granted rights
of indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 9 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
(b) To the extent that the Company maintains D&O Insurance, Indemnitee
shall be covered by such D&O Insurance in accordance with its terms to the
maximum extent of the coverage available for any Director under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
7
<PAGE>
12. Severability; Reformation. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any action, suit or proceeding, or any claim therein, initiated,
brought or made by him (i) against the Company, unless a Change in Control shall
have occurred, or (ii) against any person other than the Company, unless
approved in advance by the Board.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
8
<PAGE>
(b) "Corporate Status" describes the status of a person who is or was or
has agreed to become a director of the Company, or is or was an officer or
fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not and
was not a party to the action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, deliver service
fees, and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend or
investigating an action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither currently is, nor in
the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party or (ii) any other party
to the action, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's Rights under this Agreement.
15. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
9
<PAGE>
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any matter which may be
subject to indemnification or advancement of Expenses covered hereunder;
provided, however, that the failure to give any such notice shall not disqualify
the indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to: The address shown beneath
his or her signature on
the last page hereof
(b) If to the Company to: Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02254-9046
Attn: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Delaware.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Attest: THERMO ELECTRON CORPORATION
By: By:
----------------------------------- -----------------------------------
Sandra L. Lambert George N. Hatsopoulos
Secretary Chief Executive Officer
INDEMNITEE
---------------------------------------
Richard F. Syron
Address:
Exhibit 10.60 Description of Severance Arrangements for Certain Officers of
Thermo Electron
The Human Resources Committee of the Board of Directors of Thermo Electron has
approved severance arrangements for certain of its officers. Mr. Brian Holt,
Chief Operating Officer, Energy and Environment, and Mr. Theo Melas-Kyriazi,
Chief Financial Officer and Vice President, will each receive a severance
payment of two times his base salary upon termination of his employment with
Thermo Electron, unless his employment is terminated for cause or he terminates
his employment voluntarily.
Exhibit 13
Thermo Electron Corporation
Consolidated Financial Statements
1999
<PAGE>
<TABLE>
<CAPTION>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Statement of Operations
<S> <C> <C> <C>
(In thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------- ------------ ------------ -----------
Revenues (Note 14) $2,471,193 $2,055,805 $1,979,602
---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 1,378,494 1,127,253 1,058,331
Selling, general, and administrative expenses 673,004 543,226 511,910
Research and development expenses 171,100 128,021 123,890
Restructuring and other unusual costs (income), net (Note 11) 149,589 23,583 (10,957)
---------- ---------- ----------
2,372,187 1,822,083 1,683,174
---------- ---------- ----------
Operating Income 99,006 233,722 296,428
Gain on Issuance of Stock by Subsidiaries (Note 9) - 18,583 63,479
Other Income (Expense), Net (Note 10) (61,520) 2,188 (6,786)
---------- ---------- ----------
Income from Continuing Operations Before Income Taxes, Minority 37,486 254,493 353,121
Interest, and Extraordinary Items
Income Tax Provision (Note 8) 33,073 104,571 131,970
Minority Interest Expense 18,993 35,246 46,486
---------- ---------- ----------
Income (Loss) from Continuing Operations Before Extraordinary Items (14,580) 114,676 174,665
Income (Loss) from Discontinued Operations (net of income tax (111,462) 66,785 64,663
provision (benefit) and minority interest of $(71,679), $74,885,
and $70,683; Note 17)
Provision for Loss on Disposal of Discontinued Operations (50,000) - -
(including income tax provision of $174,000; Note 17) ---------- ---------- ----------
Income (Loss) Before Extraordinary Items (176,042) 181,461 239,328
Extraordinary Items (net of provision for income taxes and minority 1,469 440 -
interest of $900 and $470; Note 5) ---------- ---------- ----------
Net Income (Loss) $ (174,573) $ 181,901 $ 239,328
========== ========== ==========
Earnings (Loss) per Share from Continuing Operations Before
Extraordinary Items (Note 15)
Basic $ (.09) $ .71 $ 1.15
========= ========== ==========
Diluted $ (.11) $ .67 $ 1.05
========= ========== ==========
Earnings (Loss) per Share (Note 15)
Basic $ (1.10) $ 1.12 $ 1.57
========= ========== ==========
Diluted $ (1.13) $ 1.08 $ 1.41
========= ========== ==========
Weighted Average Shares (Note 15)
Basic 157,987 161,866 152,489
========== ========== ==========
Diluted 157,987 162,973 176,082
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Balance Sheet
(In thousands) 1999 1998
- --------------------------------------------------------------------------------- ------------ -----------
Assets
Current Assets:
Cash and cash equivalents $ 281,760 $ 268,340
Short-term available-for-sale investments, at quoted market value 555,501 1,059,069
(amortized cost of $545,639 and $1,053,419; Note 2)
Accounts receivable, less allowances of $33,699 and $26,938 574,126 486,966
Unbilled contract costs and fees 18,575 14,831
Inventories (Note 11) 373,141 330,507
Deferred tax asset (Note 8) 160,959 86,835
Other current assets 35,795 27,833
Net assets of discontinued operations (Note 17) 517,350 652,002
---------- ----------
2,517,207 2,926,383
---------- ----------
Property, Plant, and Equipment, at Cost, Net (Note 11) 510,647 534,249
---------- ----------
Long-term Available-for-sale Investments, at Quoted Market Value 40,165 48,155
(amortized cost of $38,064 and $51,907; Note 2) ---------- ----------
Other Assets (Note 3) 207,732 125,262
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes 3, 8, and 11) 1,227,335 1,123,294
---------- ----------
Long-term Net Assets of Discontinued Operations (Note 17) 678,756 663,717
---------- ----------
$5,181,842 $5,421,060
========== ==========
3
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1999 1998
- --------------------------------------------------------------------------------- ------------ -----------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term obligations and current maturities of long-term obligations $ 302,962 $ 100,433
(Note 5)
Advance payable to affiliates (Note 5) 115,009 105,475
Accounts payable 156,573 123,956
Accrued payroll and employee benefits 89,184 76,717
Accrued income taxes 85,407 83,406
Accrued installation and warranty costs 44,198 43,231
Deferred revenue 47,440 47,441
Other accrued expenses (Notes 3 and 11) 225,576 182,714
---------- ----------
1,066,349 763,373
---------- ----------
Deferred Income Taxes (Note 8) 81,759 85,859
---------- ----------
Other Deferred Items 81,304 68,432
---------- ----------
Long-term Obligations (Note 5):
Senior convertible obligations 172,500 187,042
Senior notes 150,000 150,000
Subordinated convertible obligations 1,209,305 1,416,052
Nonrecourse tax-exempt obligations - 15,500
Other (includes $10,000 due to affiliated company in 1998) 34,169 39,988
---------- ----------
1,565,974 1,808,582
---------- ----------
Minority Interest 364,278 399,512
---------- ----------
Commitments and Contingencies (Note 6)
Common Stock of Subsidiary Subject to Redemption (at redemption value; Note 1) 7,692 40,500
---------- ----------
Shareholders' Investment (Notes 4 and 7):
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 350,000,000 shares authorized; 167,432,776 167,433 166,971
and 166,970,806 shares issued
Capital in excess of par value 1,052,837 1,033,799
Retained earnings 1,041,968 1,216,541
Treasury stock at cost, 10,955,798 and 8,477,707 shares (189,646) (151,643)
Deferred compensation (3,190) -
Accumulated other comprehensive items (Note 16) (54,916) (10,866)
---------- ----------
2,014,486 2,254,802
---------- ----------
$5,181,842 $5,421,060
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------ ------------- ------------ -----------
Operating Activities
Net income (loss) $ (174,573) $ 181,901 $ 239,328
Adjustments to reconcile net income (loss) to income
(loss) from continuing operations:
(Income) loss from discontinued operations (Note 17) 111,462 (66,785) (64,663)
Provision for loss on disposal of discontinued operations 50,000 - -
----------- ---------- ----------
Income (loss) from continuing operations (13,111) 115,116 174,665
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 113,641 96,147 86,093
Noncash restructuring and other unusual costs (income), 148,565 3,226 (9,700)
net (Note 11)
Provision for losses on accounts receivable 8,626 5,002 4,981
Minority interest expense 18,993 35,246 46,486
Equity in (earnings) loss of unconsolidated subsidiaries 7,274 (150) 341
Change in deferred income taxes (61,285) (13,525) 29,628
Gain on issuance of stock by subsidiaries (Note 9) - (18,583) (63,479)
Gain on sale of businesses and termination of (13,462) - (2,210)
operating contract (Note 11)
Gain on investments, net (1,537) (12,812) (5,015)
Extraordinary items, net of income taxes and (1,469) (440) -
minority interest (Note 5)
Other noncash items, net 18,902 20,715 (758)
Changes in current accounts, excluding the effects
of acquisitions and dispositions:
Accounts receivable (27,311) (1,112) (19,842)
Inventories 15,182 10,490 10,829
Other current assets (7,714) 9,122 42,175
Accounts payable 14,153 (9,320) (9,099)
Other current liabilities (2,526) 38,655 (78,902)
----------- ---------- ----------
Net cash provided by continuing operations 216,921 277,777 206,193
Net cash provided by discontinued operations 120,200 50,685 62,826
----------- ---------- ----------
Net cash provided by operating activities 337,121 328,462 269,019
----------- ---------- ----------
Investing Activities
Acquisitions, net of cash acquired (Note 3) (357,563) (173,685) (494,103)
Acquisition of minority interests of subsidiaries (Note 17) (43,176) - -
Payment to affiliated company for prior year acquisition - (19,117) -
Refund of acquisition purchase price (Note 3) 8,969 - 36,132
Proceeds from sale of businesses and termination of 15,714 750 7,035
operating contract (Note 11)
Purchases of available-for-sale investments (551,368) (1,905,224) (830,337)
Proceeds from sale of available-for-sale investments 281,451 134,472 43,145
Proceeds from maturities of available-for-sale investments 794,288 1,505,494 1,353,983
5
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------ ------------- ------------ -----------
Investing Activities (continued)
Purchases of property, plant, and equipment $ (87,217) $ (86,528) $ (55,035)
Proceeds from sale of property, plant, and equipment 6,798 12,058 8,656
Advance (to) from affiliates 9,539 (50,912) 19,049
Increase in other assets (8,357) (7,031) (4,009)
Other 14,437 14,600 7,288
----------- ---------- ----------
Net cash provided by (used in) continuing operations 83,515 (575,123) 91,804
Net cash used in discontinued operations (157,083) (57,193) (411,632)
----------- ---------- ----------
Net cash used in investing activities (73,568) (632,316) (319,828)
----------- ---------- ----------
Financing Activities
Net proceeds from issuance of long-term obligations (Note 5) 16,813 393,196 272,982
Repayment of long-term obligations (69,267) (58,237) (57,371)
Net proceeds from issuance of Company and subsidiary 14,929 384,686 129,729
common stock (Notes 7 and 9)
Purchases of Company and subsidiary common stock and (190,412) (470,639) (121,555)
subordinated convertible debentures (Note 5)
Increase (decrease) in short-term notes payable 25,043 (8,948) (23,346)
Other (7,429) (23,200) 12,683
----------- ---------- ----------
Net cash provided by (used in) continuing operations (210,323) 216,858 213,122
Net cash provided by (used in) discontinued operations (76,560) (114,680) 24,628
----------- ---------- ----------
Net cash provided by (used in) financing activities (286,883) 102,178 237,750
----------- ---------- ----------
Exchange Rate Effect on Cash in Continuing Operations (14,419) 6,138 (4,094)
Exchange Rate Effect on Cash in Discontinued Operations (1,706) (1,372) (3,671)
----------- ---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (39,455) (196,910) 179,176
Cash and Cash Equivalents at Beginning of Year 396,670 593,580 414,404
----------- ---------- ----------
357,215 396,670 593,580
Cash of Discontinued Operations at End of Year (75,455) (128,330) (87,968)
----------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 281,760 $ 268,340 $ 505,612
=========== ========== ==========
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------- ------------ ------------ -----------
Comprehensive Income
Net Income (Loss) $ (174,573) $ 181,901 $ 239,328
---------- ---------- ----------
Other Comprehensive Items (Note 16):
Foreign currency translation adjustment (50,484) 24,117 (36,887)
Unrealized gains (losses) on available-for-sale 6,434 (9,129) 1,932
investments, net of reclassification adjustment ---------- ---------- ----------
(44,050) 14,988 (34,955)
Minority interest 9,295 (5,851) 10,356
---------- ---------- ----------
(34,755) 9,137 (24,599)
---------- ---------- ----------
$ (209,328) $ 191,038 $ 214,729
========== ========== ==========
Shareholders' Investment
Common Stock, $1 Par Value:
Balance at beginning of year $ 166,971 $ 159,206 $ 149,997
Public offering of Company common stock (Note 7) - 7,475 -
Issuance of stock under employees' and directors' stock plans 462 290 866
Conversions of convertible obligations - - 8,343
---------- ---------- ----------
Balance at end of year 167,433 166,971 159,206
---------- ---------- ----------
Capital in Excess of Par Value:
Balance at beginning of year 1,033,799 843,709 801,793
Public offering of Company common stock (Note 7) - 282,655 -
Activity under employees' and directors' stock plans 4,093 (3,285) 13,185
Tax benefit related to employees' and directors' stock plans 1,645 10,938 5,456
Conversions of convertible obligations - - 164,537
Effect of majority-owned subsidiaries' equity transactions 13,300 (100,218) (141,262)
---------- ---------- ----------
Balance at end of year 1,052,837 1,033,799 843,709
---------- ---------- ----------
Retained Earnings:
Balance at beginning of year 1,216,541 1,034,640 795,312
Net income (loss) (174,573) 181,901 239,328
---------- ---------- ----------
Balance at end of year 1,041,968 1,216,541 1,034,640
---------- ---------- ----------
Treasury Stock:
Balance at beginning of year (151,643) (3,839) (570)
Purchases of Company common stock (44,758) (148,132) -
Activity under employees' and directors' stock plans 6,755 328 (3,269)
---------- ---------- ----------
Balance at end of year $ (189,646) $ (151,643) $ (3,839)
---------- ---------- ----------
7
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------- ------------ ------------ -----------
Deferred Compensation:
Balance at beginning of year $ - $ - $ (58)
Activity under employees' stock plans (Note 4) (4,120) - -
Amortization of deferred compensation 930 - 58
---------- ---------- ----------
Balance at end of year (3,190) - -
---------- ---------- ----------
Accumulated Other Comprehensive Items (Note 16):
Balance at beginning of year (10,866) (25,854) 9,101
Other comprehensive items (44,050) 14,988 (34,955)
---------- ---------- ----------
Balance at end of year (54,916) (10,866) (25,854)
---------- ---------- ----------
$2,014,486 $2,254,802 $2,007,862
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Electron Corporation and its subsidiaries (the Company or the
Registrant) is a global leader in the development, manufacture, and sale of
measurement and detection instruments used in virtually every industry to
monitor, collect, and analyze data that provide knowledge for the user. For
example, the Company's powerful analysis technologies help researchers sift
through data to make the discoveries that will fight disease or prolong life;
allow manufacturers to fabricate ever-smaller components required to increase
the speed and quality of communications; or monitor and control industrial
processes on-line to ensure that critical quality standards are met efficiently
and safely. The Company also operates nonutility power generation facilities
using clean combustion technologies.
Principles of Consolidation
The accompanying financial statements include the accounts of Thermo
Electron and its majority- and wholly owned subsidiaries. The Company's
majority-owned public and privately held subsidiaries are listed in Note 9. All
material intercompany accounts and transactions have been eliminated. The
Company accounts for investments in businesses in which it owns between 20% and
50% using the equity method.
Presentation
In January 2000, the Company modified its proposed reorganization
involving the Company and certain of its subsidiaries. As part of this
reorganization, the Company plans to spin-off or sell several of its businesses
and to take private all of its remaining majority-owned subsidiaries except for
Spectra-Physics Lasers, Inc. The results of operations of the businesses to be
spun-off and the majority of the businesses to be sold have been classified as
discontinued operations in the accompanying financial statements (Note 17).
In addition, certain amounts in 1998 and 1997 have been reclassified to
conform to the presentation in the 1999 financial statements.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal year 1997 included 53 weeks.
Revenue Recognition
The Company generally recognizes revenues upon shipment of its products
and recognizes services contract revenues ratably over the term of the contract.
The Company provides a reserve for its estimate of warranty and installation
costs at the time of shipment. Deferred revenue in the accompanying balance
sheet consists primarily of unearned revenue on service contracts. Substantially
all of the deferred revenue in the accompanying 1999 balance sheet will be
recognized within one year.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a price
in excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not engaged
principally in research and development, the Company records the increase as a
gain.
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary, by the
subsidiary's parent, or by the Company, gain recognition does not occur on
issuances subsequent to the date of a repurchase until such time as shares have
been issued in an amount equivalent to the number of repurchased shares. Such
transactions are reflected as equity transactions, and the net effect of these
transactions is reflected in the accompanying statement of comprehensive income
and shareholders' investment as "Effect of majority-owned subsidiaries' equity
transactions."
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings (Loss) per Share
Basic earnings (loss) per share have 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, diluted earnings (loss) per share
have 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 15).
Cash and Cash Equivalents
Cash equivalents consists principally of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities purchased with an original maturity of three months or
less. These investments are carried at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or net realizable value and include materials, labor,
and manufacturing overhead. The components of inventories are as follows:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ------------ ----------
Raw Materials and Supplies $177,153 $149,445
Work in Progress 66,746 62,307
Finished Goods 129,242 118,755
-------- --------
$373,141 $330,507
======== ========
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings and improvements, 3 to 40
years; electricity generating facilities, 25 years; machinery and equipment, 1
to 20 years; and leasehold improvements, the shorter of the term of the lease or
the life of the asset. Property, plant, and equipment consists of the following:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ------------ ----------
Land $ 51,293 $ 43,352
Buildings 168,487 137,285
Electricity Generating Facilities and, in 1998, 236,500 331,319
Coal-beneficiation Facility (Note 11)
Machinery, Equipment, and Leasehold Improvements 300,163 259,137
-------- --------
756,443 771,093
Less: Accumulated Depreciation and Amortization 245,796 236,844
-------- --------
$510,647 $534,249
======== ========
Other Assets
Other assets in the accompanying balance sheet include intangible assets,
notes receivable, deferred debt expense, prepaid pension costs, and other
assets, including in 1999, an investment in FLIR Systems, Inc. common stock
(Note 3). Intangible assets include the costs of acquired trademarks, patents,
product technology, and other specifically identifiable intangible assets and
are being amortized using the straight-line method over their estimated useful
lives, which range from 3 to 20 years. Intangible assets were $52.1 million and
$39.7 million, net of accumulated amortization of $37.4 million and $31.8
million, at year-end 1999 and 1998, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $152.2 million and $118.0 million at year-end 1999
and 1998, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. Such events or circumstances generally include the
occurrence of operating losses or a significant decline in earnings associated
with the acquired business or asset. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. The Company assesses cash flows before interest
charges and when impairment is indicated, writes the asset down to fair value.
If quoted market values are not available, the Company estimates fair value by
calculating the present value of future cash flows. If impairment has occurred,
any excess of carrying value over fair value is recorded as a loss.
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Common Stock of Subsidiary Subject to Redemption
In April 1997, ThermoLase completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing ThermoLase
common stock and $3.00 (in cash or ThermoLase common stock) for a new unit
consisting of one share of ThermoLase common stock and one redemption right. The
redemption right entitles the holder to sell the related share of common stock
to ThermoLase for $20.25 during the period from April 3, 2001, through April 30,
2001. The redemption right will expire if the closing price of ThermoLase common
stock is at least $26.00 for 20 of any 30 consecutive trading days. In
connection with this offer, ThermoLase issued in April 1997, 2,000,000 units in
exchange for 2,261,706 shares of its common stock and $0.5 million in cash, net
of expenses. As a result of these transactions, $40.5 million was reclassified
in 1997 from "Shareholders' investment" and "Minority interest" to "Common stock
of subsidiary subject to redemption," based on the issuance of the 2,000,000
redemption rights, each carrying a maximum liability of $20.25. During 1999, the
Company purchased 1,620,127 of ThermoLase's redemption rights. The remaining
379,873 redemption rights outstanding have a redemption value of $7.7 million at
January 1, 2000. As a result of the Company entering into a definitive agreement
and plan of merger with ThermoLase (Note 17), the ThermoLase units will be
modified at the effective date of the merger to consist of a fractional share of
Company common stock, which would be redeemable in April 2001 for $20.25. These
redemption rights are guaranteed on a subordinated basis by the Company through
the date of the merger.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of operations and are not material for the three years presented.
Forward Contracts and Interest Rate Swap Agreements
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. These contracts
principally hedge transactions denominated in U.S. dollars, British pounds
sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish
krona, and Netherlands guilders. The purpose of the Company's foreign currency
hedging activities is to protect the Company's local currency cash flows related
to these commitments from fluctuations in foreign exchange rates. Gains and
losses arising from forward foreign exchange contracts are recognized as offsets
to gains and losses resulting from the transactions being hedged.
Thermo Ecotek has interest rate swap agreements that convert its variable
rate obligations to fixed rate obligations (Note 5). Interest rate swap
agreements are accounted for under the accrual method. Amounts to be received
from or paid to the counterparties of the agreements are accrued during the
period to which the amounts relate and are reflected as interest expense. The
related amounts payable to the counterparties are included in other accrued
expenses in the accompanying balance sheet. The fair value of the swap
agreements is not recognized in the accompanying financial statements since the
agreements are accounted for as hedges.
The Company does not generally enter into speculative foreign currency or
interest swap agreements. See Note 11 for the effect of a majority-owned
subsidiary's early adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission (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
12
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
installation and/or upon customer acceptance. SAB 101 requires that companies
conform their revenue recognition practices to the requirements therein during
the first quarter of calendar 2000 through recording a cumulative net of tax
effect of the change in accounting. The Company has not completed the analysis
to determine the effect that SAB 101 will have 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 (Note 17).
Actual results could differ from those estimates.
2. Available-for-sale Investments
The Company's debt and marketable equity securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded in the "Accumulated other comprehensive items"
component of shareholders' investment.
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major security
type are as follows:
(In thousands) Gross Gross
Market Cost Unrealized Unrealized
Value Basis Gains Losses
- -------------------------------------------------- ------------- ------------- ------------- -------------
1999
Corporate Bonds $ 319,065 $ 320,058 $ 183 $ (1,176)
Government-agency Securities 187,722 188,162 21 (461)
Other 88,879 75,483 14,750 (1,354)
---------- ---------- ---------- ----------
$ 595,666 $ 583,703 $ 14,954 $ (2,991)
========== ========== ========== ==========
1998
Corporate Bonds $ 698,607 $ 696,501 $ 2,252 $ (146)
Government-agency Securities 285,001 284,506 499 (4)
Other 123,616 124,319 6,238 (6,941)
---------- ---------- ---------- ----------
$1,107,224 $1,105,326 $ 8,989 $ (7,091)
========== ========== ========== ==========
Short- and long-term available-for-sale investments in the accompanying
1999 balance sheet include equity securities of $47.2 million and debt
securities of $447.6 million with contractual maturities of one year or less,
$94.3 million with contractual maturities of more than one year through five
years, and $6.6 million with contractual maturities of more than five years.
Actual maturities may differ from contractual maturities as a result of the
Company's intent to sell these securities prior to maturity and as a result of
put and call features of the securities that enable either the Company, the
issuer, or both to redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. The net gain on the sale of
available-for-sale investments resulted from gross realized gains of $7.6
million, $13.6 million, and $5.1 million and gross realized losses of $6.1
million, $0.8 million, and $0.1 million in 1999, 1998, and 1997, respectively.
13
<PAGE>
3. Acquisitions
In February 1999, Thermo Instrument Systems Inc. acquired 17,494,684
shares (or approximately 99%) of Spectra-Physics AB, a Stockholm Stock
Exchange-listed company, for approximately 160 Swedish krona per share
(approximately $20 per share) in completion of Thermo Instrument's cash tender
offer to acquire all of the outstanding shares of Spectra-Physics. In March
2000, Thermo Instrument completed the acquisition of the remaining
Spectra-Physics shares outstanding pursuant to the compulsory acquisition rules
applicable to Swedish companies. As part of the acquisition of Spectra-Physics,
Thermo Instrument acquired Spectra-Physics' majority-owned public subsidiary,
Spectra-Physics Lasers, Inc. (SPLI). The aggregate purchase price was
approximately $351.5 million, including related expenses. On the date of
acquisition, Spectra-Physics had $39.1 million of cash, which included $30.5
million held by SPLI. The accompanying balance sheet as of January 1, 2000,
includes $1.9 million accrued for the purchase of the remaining Spectra-Physics
shares outstanding that were purchased in March 2000. Spectra-Physics
manufactures a wide range of laser-based instrumentation systems, primarily for
the process-control, industrial measurement, construction, research, commercial,
and government markets. Spectra-Physics had revenues of approximately $442
million in 1998, with operations throughout North America and Europe, and a
presence in the Pacific Rim.
In connection with the acquisition of Spectra-Physics, Thermo Instrument
acquired 4,162,000 shares of FLIR common stock. FLIR designs, manufactures, and
markets thermal imaging and broadcast camera systems that detect infrared
radiation or heat emitted directly by all objects and materials. Thermo
Instrument accounts for its investment in FLIR using the equity method with a
one quarter lag to ensure the availability of FLIR's operating results in time
to enable Thermo Instrument to include its pro rata share of FLIR's results with
its own. During FLIR's first calendar quarter of 1999, FLIR recorded a loss in
connection with a pooling-of-interests transaction and certain restructuring
actions. Thermo Instrument has recorded its pro rata share of this loss, $5.1
million, in equity in earnings (loss) of unconsolidated subsidiaries, a
component of other income (expense), net in the accompanying 1999 statement of
operations. In addition, as a result of the pooling consummated by FLIR and
related issuance of FLIR shares in March 1999, Thermo Instrument's pro rata
share of FLIR's equity decreased to 29.4% from 34.6% prior to the transaction.
This decrease totaled $6.0 million and has been recorded as a loss in equity in
earnings (loss) of unconsolidated subsidiaries in the accompanying 1999
statement of operations, pursuant to Securities and Exchange Commission SAB 51.
The investment in FLIR is included in other assets in the accompanying balance
sheet.
In 1999, in addition to the acquisition of Spectra-Physics, the Company
and its majority-owned subsidiaries made several other acquisitions for $45.2
million in cash, net of cash acquired, subject to certain post-closing
adjustments. To date, no information has been gathered that would cause the
Company to believe that the post-closing adjustments will be material.
In 1998, the Company's majority-owned subsidiaries made several
acquisitions for $173.7 million in cash, net of cash acquired.
In March 1997, Thermo Instrument acquired Life Sciences International PLC,
a London Stock Exchange-listed company. The aggregate purchase price for Life
Sciences was $442.8 million, net of $55.8 million of cash acquired. The purchase
price includes the repayment of $105.0 million of Life Sciences' bank debt. Life
Sciences manufactures laboratory science equipment, appliances, instruments,
consumables, and reagents for the research, clinical, and industrial markets.
In 1997, in addition to the acquisition of Life Sciences, the Company's
majority-owned subsidiaries made several other acquisitions for an aggregate of
$51.3 million in cash, net of cash acquired, the issuance of subsidiary stock
options valued at $1.7 million, and $19.1 million, which was paid in the first
quarter of 1998.
These acquisitions have been accounted for using the purchase method of
accounting, and the acquired companies' results have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of these acquisitions exceeded the estimated fair value of
the acquired net assets by $688.0 million, which is being amortized principally
over 40 years. Allocation of the purchase price for these acquisitions was based
on estimates of the fair value of the net assets acquired and, for acquisitions
completed in 1999,
14
<PAGE>
3. Acquisitions (continued)
is subject to adjustment upon finalization of the purchase price allocation. The
Company has gathered no information that indicates the final purchase price
allocations will differ materially from the preliminary estimates. Pro forma
data is not presented since the acquisitions were not material to the Company's
results of operations.
In connection with these acquisitions, the Company has undertaken
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1997 is as follows:
1997 Acquisitions
--------------------------------------
Abandonment
of Excess Pre-1997
(In thousands) Severance Facilities Other Acquisitions Total
- --------------------------------- -------------- -------------- ------------- -------------- -------------
Balance at December 28, 1996 $ - $ - $ - $ 20,412 $ 20,412
Reserves established 9,258 2,910 2,401 - 14,569
Increases in reserves - - - 10,010 10,010
related to 1996
acquisitions
Usage (5,005) (309) (337) (13,716) (19,367)
Decrease due to finalization of (8) - - (4,869) (4,877)
restructuring plans, recorded
as a decrease in cost in
excess of net assets of
acquired companies
Currency translation 20 3 69 (156) (64)
-------- -------- ------- -------- --------
Balance at January 3, 1998 4,265 2,604 2,133 11,681 20,683
Reserves established 1,078 791 30 - 1,899
Usage (3,919) (1,030) (577) (2,257) (7,783)
Decrease due to finalization (608) (63) (1,346) (1,004) (3,021)
of restructuring plans,
recorded as a decrease in
cost in excess of net assets
of acquired companies
Currency translation (22) 54 49 191 272
-------- -------- ------- -------- --------
Balance at January 2, 1999 794 2,356 289 8,611 12,050
Usage (716) (871) - (855) (2,442)
Currency translation (55) (65) (41) (319) (480)
-------- -------- ------- -------- --------
Balance at January 1, 2000 $ 23 $ 1,420 $ 248 $ 7,437 $ 9,128
======== ======== ======= ======== ========
15
<PAGE>
3. Acquisitions (continued)
The principal accrued acquisition expenses for pre-1997 acquisitions were
for severance and abandoned facilities, primarily from the 1996 acquisition of
the Scientific Instruments Division of Fisons plc (Fisons). In 1996 and 1997,
Thermo Instrument established reserves for severance for 542 employees of Fisons
and for lease obligations for Fisons' former headquarters in Uxbridge, England,
and a Fisons operating facility in Hayworth, England, with obligations through
2007. The Company finalized its restructuring plans for the 1996 acquisitions in
1997.
The principal acquisition expenses for 1997 acquisitions were severance
for 385 employees across all functions and for abandoned facilities, primarily
at the Life Sciences acquisition. The facilities primarily include 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 of Life Sciences. The Company finalized its restructuring
plans for the 1997 acquisitions in 1998.
A summary of accrued acquisition expenses for acquisitions completed
during 1998 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Reserves established $ 3,937 $ 2,083 $ 468 $ 6,488
Usage (1,588) (418) (247) (2,253)
Currency translation 9 (33) 23 (1)
-------- -------- -------- --------
Balance at January 2, 1999 2,358 1,632 244 4,234
Reserves established 989 1,464 616 3,069
Usage (1,939) (1,479) (752) (4,170)
Decrease due to finalization of (1,055) (466) - (1,521)
restructuring plans, recorded as a
decrease in cost in excess of net assets
of acquired companies
Currency translation (72) 34 (25) (63)
-------- -------- -------- --------
Balance at January 1, 2000 $ 281 $ 1,185 $ 83 $ 1,549
======== ======== ======== ========
The principal acquisition expenses for 1998 acquisitions were for
severance for 216 employees across all functions and for abandoned facilities,
primarily at Thermo Sentron's acquisition of the product monitoring businesses
of Graseby Limited. The abandoned facilities at the product monitoring
businesses include two operating facilities in North America with leases
expiring in 2001. The amounts captioned as "other" in 1998 primarily represent
relocation costs. The Company finalized its restructuring plans for the 1998
acquisitions in 1999.
16
<PAGE>
3. Acquisitions (continued)
A summary of accrued acquisition expenses for acquisitions completed
during 1999 is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Reserves established $ 9,186 $ 2,247 $ 3,642 $ 15,075
Usage (3,899) (71) (957) (4,927)
Currency translation (303) (111) (74) (488)
-------- -------- -------- --------
Balance at January 1, 2000 $ 4,984 $ 2,065 $ 2,611 $ 9,660
======== ======== ======== ========
The principal acquisition expenses for 1999 acquisitions are severance for
approximately 175 employees across all functions and for abandoned facilities,
primarily at Spectra-Physics. The abandoned facilities at Spectra-Physics
include operating facilities in Sweden, Germany, and France with obligations
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 year-end
1999 include 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.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others. These plans permit the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted stock,
stock options, stock bonus shares, or performance-based shares. The option
recipients and the terms of options granted under these plans are determined by
the Board Committee. Generally, options outstanding under these plans are
exercisable immediately, but are subject to certain transfer restrictions and
the right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights may lapse over periods ranging from zero to ten years,
depending on the term of the option, which may range from three to twelve years.
Nonqualified options are generally granted at fair market value, although the
Board Committee has discretion to grant options at a price at or above 85% of
the fair market value on the date of grant. Incentive stock options must be
granted at not less than the fair market value of the Company's stock on the
date of grant. Generally, stock options have been granted at fair market value.
The Company also has a directors' stock option plan that provides for the annual
grant of stock options of the Company to outside directors pursuant to a formula
approved by the Company's shareholders. Options awarded under this plan are
immediately exercisable and expire three to seven years after the date of grant.
In addition to the Company's stock-based compensation plans, certain officers
and key employees may also participate in stock-based compensation plans of the
Company's majority-owned subsidiaries.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the
17
<PAGE>
4. Employee Benefit Plans (continued)
exchange offer. Holders of options to acquire 1,513,000 shares at a weighted
average exercise price of $36.15 per share elected to participate in this
exchange and, as a result, received options to purchase 756,000 shares of
Company common stock at $18.08 per share, which are included in the 1998 grants
in the table below. The other terms of the new options are the same as the
exchanged options except that the holders could not sell shares purchased
pursuant to such new options for six months from the exchange date. The options
exchanged were canceled by the Company.
In 1999, the Company awarded 193,000 shares of restricted Company common
stock to certain key employees. The shares had an aggregate value of $3.5
million and generally vest over three years, assuming continued employment, with
certain exceptions. Also in 1999, certain of the Company's majority-owned
subsidiaries awarded shares of restricted common stock of their respective
companies. The shares of subsidiary common stock have the same terms as the
Company's restricted common stock and had an aggregate value of $0.6 million.
The Company has recorded the fair value of the restricted stock as deferred
compensation in the accompanying balance sheet and is amortizing such amount
over the vesting period.
A summary of the Company's stock option activity is as follows:
1999 1998 1997
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Number Number Number
of of of
(Shares in thousands) Shares Shares Shares
- ---------------------------------------------- -------- ---------- -------- ---------- --------- ---------
Options Outstanding, Beginning of Year 9,913 $22.38 8,831 $24.19 8,421 $21.24
Granted 3,406 16.83 3,554 23.64 1,401 37.06
Assumed in mergers with subsidiaries 1,612 11.61 - - - -
(Note 17)
Exercised (382) 12.57 (625) 15.96 (744) 13.37
Forfeited (921) 27.99 (334) 33.38 (247) 29.45
Canceled due to exchange - - (1,513) 36.15 - -
------ ------ ------
Options Outstanding, End of Year 13,628 $19.61 9,913 $22.38 8,831 $24.19
====== ====== ====== ====== ====== ======
Options Exercisable 13,628 $19.61 9,909 $22.38 8,821 $24.18
====== ====== ====== ====== ====== ======
Options Available for Grant 4,756 3,417 5,132
====== ====== ======
A summary of the status of the Company's stock options at January 1, 2000,
is as follows:
Options Outstanding and Exercisable
----------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- -------------------------------------------------- --------------- ------------------- -------------------
$ 6.65 - $15.85 3,419 5.8 years $11.29
15.86 - 25.06 8,295 5.6 years 19.01
25.07 - 34.27 545 6.0 years 32.80
34.28 - 43.48 1,369 8.8 years 38.78
------
$ 6.65 - $43.48 13,628 6.0 years $19.61
======
18
<PAGE>
4. Employee Benefit Plans (continued)
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase plan sponsored by the Company.
Under this program, shares of the Company's common stock may be purchased at 85%
of the lower of the fair market value at the beginning or end of the period, and
the shares purchased are subject to a one-year resale restriction. Prior to the
1998 plan year, shares of the Company's common stock could be purchased at the
end of a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased were subject to a six-month resale restriction.
Shares are purchased through payroll deductions of up to 10% of each
participating employee's gross wages. Participants of employee stock purchase
programs sponsored by the Company's majority-owned public subsidiaries may also
elect to purchase shares of the common stock of the subsidiary at which they are
employed under the same general terms described above. During 1999 and 1997, the
Company issued 415,000 shares and 243,000 shares, respectively, of its common
stock under this plan. No shares of Company common stock were issued under this
plan during 1998.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after 1994 under the Company's stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method set forth
under SFAS No. 123, the effect on certain financial information of the Company
would have been as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------ ---------- ----------- ----------
Income (Loss) from Continuing Operations Before Extraordinary Items:
As reported $ (14,580) $ 114,676 $ 174,665
Pro forma (27,279) 105,203 168,331
Basic Earnings (Loss) per Share from Continuing Operations Before
Extraordinary Items:
As reported (.09) .71 1.15
Pro forma (.17) .65 1.10
Diluted Earnings (Loss) per Share from Continuing Operations Before
Extraordinary Items:
As reported (.11) .67 1.05
Pro forma (.19) .62 1.01
Net Income (Loss):
As reported $(174,573) $ 181,901 $ 239,328
Pro forma (201,186) 158,602 224,337
Basic Earnings (Loss) per Share:
As reported (1.10) 1.12 1.57
Pro forma (1.27) .98 1.47
Diluted Earnings (Loss) per Share:
As reported (1.13) 1.08 1.41
Pro forma (1.29) .94 1.32
19
<PAGE>
4. Employee Benefit Plans (continued)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $5.61,
$8.13, and $15.14 in 1999, 1998, and 1997, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Volatility 32% 29% 26%
Risk-free Interest Rate 5.6% 4.8% 6.2%
Expected Life of Options 3.9 years 4.7 years 6.5 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) Savings Plan
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. For this plan, the Company contributed and charged to
expense $7.1 million, $5.6 million, and $7.7 million in 1999, 1998, and 1997,
respectively.
Defined Benefit Pension Plans
Two of the Company's German subsidiaries and one of its U.K. subsidiaries
have defined benefit pension plans covering substantially all full-time
employees at the respective subsidiaries. One of the German subsidiaries' plans
is unfunded. Net periodic benefit costs for the plans in aggregate included the
following components:
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ----------
Service Cost $ 2,639 $ 2,859 $ 3,104
Interest Cost on Benefit Obligation 3,899 4,414 4,188
Expected Return on Plan Assets (5,264) (6,616) (6,406)
Recognized Net Actuarial Gain (34) (39) (45)
Amortization of Unrecognized Gain (23) (50) (67)
Amortization of Unrecognized Initial Obligation 41 43 44
------- ------- -------
$ 1,258 $ 611 $ 818
======= ======= =======
20
<PAGE>
4. Employee Benefit Plans (continued)
The activity under the Company's defined benefit plans is as follows:
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 77,013 $ 62,584
Service cost 2,639 2,859
Interest cost 3,899 4,414
Benefits paid (1,876) (1,794)
Actuarial (gain) loss (5,288) 6,957
Currency translation (4,625) 1,993
-------- --------
Benefit obligation, end of year 71,762 77,013
-------- --------
Change in Plan Assets:
Fair value of plan assets, beginning of year 79,893 68,676
Company contributions 186 186
Benefits paid (1,482) (1,391)
Actual return on plan assets 13,981 11,144
Currency translation (3,185) 1,278
------- -------
Fair value of plan assets, end of year 89,393 79,893
------- -------
Funded Status 17,631 2,880
Unrecognized Net Actuarial Gain (14,595) (967)
Unrecognized Initial Obligation 155 226
-------- --------
Prepaid Pension Costs $ 3,191 $ 2,139
======== ========
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 $17.7 million, $14.6 million,
and $5.2 million, respectively, at year-end 1999 and $19.1 million, $16.4
million, and $5.7 million, respectively, at year-end 1998.
The weighted average rates used to determine the net periodic pension
costs were as follows:
1999 1998 1997
- -------------------------------------------------------------------- -------------- ----------- ----------
Discount Rate 5.1% 7.0% 8.2%
Rate of Increase in Salary Levels 4.4% 6.3% 7.7%
Expected Long-term Rate of Return on Assets 6.9% 9.7% 9.7%
Other Retirement Plans
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 $7.6 million,
$6.8 million, and $5.5 million in 1999, 1998, and 1997, respectively.
21
<PAGE>
5. Long-term Obligations and Other Financing Arrangements
(In thousands except per share amounts) 1999 1998
- ---------------------------------------------------------------------------------- ------------ ----------
4 1/2% Senior Convertible Debentures, Due 2003, Convertible Into Shares $ 172,500 $ 172,500
of Thermo Instrument at $34.46 per Share
3 3/4% Senior Convertible Debentures, Due 2000, Convertible Into Shares - 14,542
of Thermo Instrument at $13.55 per Share
7 5/8% Senior Notes, Due 2008 150,000 150,000
4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $37.80 per Share 568,837 585,000
4% Subordinated Convertible Debentures, Due 2005, Convertible Into 247,000 250,000
Shares of Thermo Instrument at $35.65 per Share
5% Subordinated Convertible Debentures, Due 2000, Convertible Into 60,731 67,631
Shares of ThermoQuest at $16.50 per Share
5% Subordinated Convertible Debentures, Due 2000, Convertible Into 60,530 71,155
Shares of Thermo Optek at $13.94 per Share
Noninterest-bearing Subordinated Convertible Debentures, Due 2003, 31,565 31,565
Convertible Into Shares of Thermedics at $32.68 per Share
2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 15,859 15,859
Shares of Thermedics at $14.93
3 3/4% Subordinated Convertible Debentures, Due 2000, Convertible Into - 5,250
Shares of Thermo Voltek at $7.83 per Share
4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 111,335 111,850
Shares of Thermo TerraTech at $15.90 per Share
4 7/8% Subordinated Convertible Debentures, Due 2000, Convertible Into 33,650 34,525
Shares of ThermoRetec at $17.92 per Share
2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible Into 5,042 6,999
Shares of Thermo EuroTech at $5.25 per Share
3 1/4% Senior Convertible Debentures, Due 2007, Convertible Into Shares 78,948 78,948
of ThermoTrex at $27.00 per Share
4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 106,775 110,500
Shares of ThermoLase at $17.39 per Share
Noninterest-bearing Subordinated Convertible Debentures, Due 2001, 1,820 1,820
Convertible Into Shares of Thermo Ecotek at $13.56 per Share
4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 42,124 44,950
Shares of Thermo Ecotek at $16.50 per Share
8.3% Tax-exempt Obligation, Payable in Semiannual Installments, with 18,700 27,200
Final Payment in 2000
6.0% Tax-exempt Obligation, Payable in Semiannual Installments, with 1,000 10,400
Final Payment in 2000
Other 49,319 55,714
---------- ----------
1,755,735 1,846,408
Less: Current Maturities 189,761 37,826
---------- ----------
$1,565,974 $1,808,582
========== ==========
22
<PAGE>
5. Long-term Obligations and Other Financing Arrangements (continued)
The debentures that are convertible into subsidiary common stock have been
issued by the respective subsidiaries and are guaranteed by the Company, on a
subordinated basis in most cases. Outstanding debentures issued by the
subsidiaries that will be taken private in transactions in which the
consideration to be paid to stockholders of the subsidiary is Company common
stock will remain outstanding and will continue to be guaranteed by the Company.
These debentures will become convertible into the Company's common stock.
Outstanding debentures issued by the subsidiaries that will be taken private in
transactions in which the consideration to be paid to stockholders of the
subsidiary is cash will become convertible into the same cash consideration as
is payable in the merger transaction. Holders of such debentures will have the
right to cause the debentures to be redeemed 90 days following the effective
date of the merger (Note 17). All such debentures have been classified as
obligations of the Company's continuing operations in the accompanying balance
sheet. Debentures that the holders will have the right to redeem following the
respective mergers have been classified as current. 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 of debt
of the Company's continuing operations has been made to discontinued operations.
In the event of a change in control of the Company (as defined in the
related fiscal agency agreement) that has not been approved by the continuing
members of the Company's Board of Directors, each holder of the 4 1/4%
subordinated convertible debentures issued by the Company will have the right to
require the Company to buy all or part of the holder's debentures, at par value
plus accrued interest, within 50 calendar days after the date of expiration of a
specified approval period.
In October 1998, the Company issued and sold $150.0 million principal
amount of 7 5/8% senior notes due 2008. Proceeds of $138.0 million were net of
$10.4 million incurred on treasury rate lock agreements entered into by the
Company to hedge the interest rate on the notes and other associated costs. As a
result of the rate lock agreements and associated costs, the effective interest
rate on the senior notes is 8.87%.
Tax-exempt obligations represent obligations issued by the California
Pollution Control Financing Authority, the proceeds of which were used to
finance two alternative-energy facilities (Delano I and Delano II) located in
Delano, California. The obligations are credit-enhanced by a letter of credit
issued by a bank group. As required by the financing bank group, Thermo Ecotek
entered into interest rate swap agreements that effectively convert these
obligations from floating rates to the fixed rates shown in the table above.
These swaps have terms expiring in 2000, commensurate with the final maturity of
the debt. During 1999 and 1998, the average variable rate received under the
interest rate swap agreements was 3.0% and 3.5%, respectively. The notional
amount of the swap agreements was $21.2 million and $41.5 million at year-end
1999 and 1998, respectively. The interest rate swap agreements are with a
different counterparty than the holders of the underlying debt. Management
believes that any credit risk associated with these swaps is remote.
The annual requirements for long-term obligations are as follows:
(In thousands)
- ----------------------------------------------------------------------------------------------- ----------
2000 $ 189,761
2001 14,120
2002 7,806
2003 907,433
2004 149,644
2005 and thereafter 486,971
----------
$1,755,735
==========
See Note 13 for fair value information pertaining to the Company's
long-term obligations.
23
<PAGE>
5. Long-term Obligations and Other Financing Arrangements (continued)
Short-term obligations and current maturities of long-term obligations in
the accompanying balance sheet includes $113.2 million and $62.6 million in 1999
and 1998, 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 3.4% and 3.7% at year-end 1999 and 1998,
respectively.
Unused lines of credit were $162 million as of year-end 1999.
During 1999, the Company repurchased $16.2 million principal amount of its
4 1/4% subordinated convertible debentures for $13.6 million in cash, resulting
in an extraordinary gain of $1.5 million, net of taxes of $0.9 million. During
1998, certain majority-owned subsidiaries of Thermo Instrument repurchased $14.3
million principal amount of their subordinated convertible debentures for $13.3
million in cash, resulting in an extraordinary gain of $0.4 million, net of
taxes and minority interest of $0.5 million.
The Company has a cash management arrangement in which its subsidiaries
participate, including certain operating units of discontinued operations.
Amounts invested in this arrangement that will be retained by the discontinued
operations at disposal have been classified as "advance payable to affiliates"
in the accompanying balance sheet.
Long-term net assets of discontinued operations in 1999 and 1998 include
$153.0 million principal amount of 4 1/2% subordinated debentures convertible
into shares of Thermo Fibertek at $12.10 per share due in 2004. The net assets
of discontinued operations at year-end 1999 and 1998 also reflect $49.2 million
and $53.8 million, respectively, of redeemable stock obligations of Thermo
Fibergen, redeemable in September 2000 or 2001. The Company will remain a
guarantor of these obligations following the spin off of Thermo Fibertek and its
Thermo Fibergen subsidiary (Note 17). In addition, long-term net assets of
discontinued operations reflect $58.0 million and $70.0 million principal amount
of 4 3/4% subordinated convertible debentures of Thermo Cardiosystems at
year-end 1999 and 1998, respectively. These obligations, which are convertible
into shares of Thermo Cardiosystems common stock at $31.415 per share and are
due in 2004, will either remain outstanding if the debentures become convertible
into another publicly traded stock or will be redeemable at the option of the
debenture holder following a merger of Thermo Cardiosystems with another entity,
if the business is sold for other consideration (Note 17).
6. Commitments and Contingencies
Operating Leases
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of operations
includes expenses from operating leases of $58.1 million, $53.3 million, and
$47.2 million in 1999, 1998, and 1997, respectively. Future minimum payments due
under noncancelable operating leases at January 1, 2000, are $41.6 million in
2000, $36.5 million in 2001, $31.8 million in 2002, $28.4 million in 2003, $22.8
million in 2004, and $84.3 million in 2005 and thereafter. Total future minimum
lease payments are $245.4 million.
Letters of Credit
Outstanding letters of credit, principally relating to performance bonds,
totaled $89 million at January 1, 2000.
Litigation and Related Contingencies
Continuing Operations
ThermoQuest's Finnigan Corporation subsidiary has filed complaints against Bruker-Franzen Analytik
GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents
owned by Finnigan. The patents pertain to methods used in ion-trap mass spectrometers. The complaint
was filed in the U.S. District Court for the District of Massachusetts. Finnigan has asked for damages
to compensate for the infringement, and for injunctions against further infringement.
24
<PAGE>
6. Commitments and Contingencies (continued)
The District Court action was stayed pending completion of a parallel
investigation by the United States International Trade Commission (ITC). In
April 1998, the ITC determined that the defendants did not engage in unfair
practices in U.S. import trade with respect to the Finnigan patents, and that
the Finnigan patents are invalid and/or not infringed. Finnigan appealed the
ITC's determination with respect to one of its patents to the United States
Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in
June 1999 affirming the ITC's determination of noninfringement but reversing the
ITC's determination of invalidity.
Bruker presented counterclaims in the ITC investigation. The counterclaims
were removed to the District Court in Massachusetts and also stayed. These
claims allege that the Finnigan patents are invalid and unenforceable and are
not infringed by the mass spectrometers manufactured by Bruker. They also allege
that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in
unfair competition by attempting to maintain a monopoly position and restrain
trade through enforcement of allegedly fraudulently obtained patents. Bruker has
asked for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
The stays on both cases in the District Court in Massachusetts have been
lifted and the cases are proceeding in the District Court.
In February 1999, Finnigan filed complaints against Bruker-Franzen
Analytik GmbH and Hewlett-Packard GmbH, in District Court in Dusseldorf,
Germany, for violation of four German patents owned by Finnigan. The patents
pertain to methods used in ion-trap mass spectrometers. Bruker and
Hewlett-Packard have challenged the validity of these patents in Federal Patent
Court in Munich. Bruker has filed a complaint against Finnigan in District Court
in Dusseldorf for alleged violation of two German patents owned by Bruker.
Discontinued Operations
Trex Medical is a defendant in a lawsuit brought by Fischer Imaging
Corporation, which alleges that the prone breast-biopsy systems of the Lorad
division of Trex Medical infringe Fischer's patents on a precision mammographic
needle-biopsy system and a motorized mammographic biopsy apparatus. Lorad's
cumulative revenues from these products totaled approximately $160 million
through January 1, 2000.
Thermo Coleman has been named as a defendant in a lawsuit initiated by
certain former employees. This suit was filed under the "qui tam" provisions of
the Federal False Claims Act (the Act), which permit an individual to bring suit
in the name of the United States and, if the United States obtains a judgment
against the defendant, to share in any recovery. The suit alleges, among other
things, that Thermo Coleman violated the Act as a result of its performance of
certain support-service functions under a subcontract from a third party, which,
in turn, contracted directly with the U.S. government. The complaint seeks an
order requiring Thermo Coleman to cease and desist from such allegedly improper
practices, the award of treble damages in an unspecified amount, plus other
penalties. The amount of billings under the contract activities in question were
approximately $7.6 million. The U.S. government has decided not to intervene in
the lawsuit.
The Company intends to vigorously defend these matters. In the opinion of
management, the ultimate liability for all such matters will not be material to
the Company's financial position, but an unfavorable outcome in one or more of
the matters described above could materially affect the results of operations or
cash flows for a particular quarter or annual period.
25
<PAGE>
7. Common Stock
In April 1998, the Company sold 7,475,000 shares of its common stock at
$40.625 per share for net proceeds of $290.1 million.
During 1998 and 1999, in a series of transactions with an institutional
counterparty, the Company sold put options and purchased call options. No cash
was exchanged as a result of these transactions. The Company has a remaining
maximum potential obligation under the put options to purchase 2,367,000 shares
of its common stock at a weighted average exercise price of $14.06 for an
aggregate of $33.3 million. These put and call options are exercisable only at
maturity and expire between April and May 2000. The Company has 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. Under the remaining call
options, the Company has the right, but not the obligation, to purchase from the
counterparty 1,183,500 shares of its common stock at an average price per share
of $14.76 in 2000. The Company may, from time to time, enter into additional put
and call option arrangements. During 1999, the Company purchased 1,536,000
shares of its common stock under the put options for $24.6 million. During 1999
and January 2000, put options for 1,798,000 shares expired.
At January 1, 2000, the Company had reserved 33,470,602 unissued shares of
its common stock for possible issuance under stock-based compensation plans, for
possible conversion of the Company's convertible debentures, and for possible
exchange of certain subsidiaries' convertible obligations into common stock of
the Company.
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.
26
<PAGE>
8. Income Taxes
The components of income from continuing operations before income taxes,
minority interest, and extraordinary items are as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Domestic $ (47,512) $168,764 $283,200
Foreign 84,998 85,729 69,921
--------- -------- --------
$ 37,486 $254,493 $353,121
========= ======== ========
The components of the income tax provision for continuing operations are
as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Currently Payable:
Federal $ 22,705 $ 49,747 $72,703
Foreign 40,417 34,309 26,965
State 7,589 11,026 12,878
--------- -------- -------
70,711 95,082 112,546
--------- -------- -------
Net Deferred (Prepaid):
Federal (33,636) 9,448 13,092
Foreign 520 (770) 4,114
State (4,522) 811 2,218
--------- -------- -------
(37,638) 9,489 19,424
--------- -------- -------
$ 33,073 $104,571 $131,970
========= ======== ========
The income tax provision included in the accompanying statement of
operations was as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ----------
Continuing Operations $ 33,073 $104,571 $131,970
Discontinued Operations (23,452) 66,109 42,743
Loss on Disposal of Discontinued Operations 174,000 - -
--------- -------- --------
$ 183,621 $170,680 $174,713
========= ======== ========
The Company and its majority-owned subsidiaries receive a tax deduction
upon the exercise of nonqualified stock options by employees for the difference
between the exercise price and the market price of the underlying common stock
on the date of exercise. The provision for income taxes that is currently
payable does not reflect $2.7 million, $12.9 million, and $7.5 million of such
benefits of the Company and its majority-owned subsidiaries that have been
allocated to capital in excess of par value, directly or through the effect of
majority-owned subsidiaries' equity transactions, in 1999, 1998, and 1997,
respectively. In addition, the provision for income taxes that is currently
payable does not reflect $3.5 million, $4.4 million, and $2.4 million of tax
benefits used to reduce cost in excess of net assets of acquired companies in
1999, 1998, and 1997, respectively.
27
<PAGE>
8. Income Taxes (continued)
The income tax provision 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 income taxes,
minority interest, and extraordinary items due to the following:
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------- ----------- ------------ ----------
Income Tax Provision at Statutory Rate $ 13,120 $ 89,073 $123,592
Increases (Decreases) Resulting From:
Foreign sales corporation (3,558) (2,981) (3,065)
Federal tax credits (3,697) - -
Gain on issuance of stock by subsidiaries - (6,504) (13,104)
State income taxes, net of federal tax 1,996 7,720 9,844
Amortization and write-off of cost in excess of net assets 16,648 8,713 5,476
of acquired companies
Foreign tax rate and tax law differential 6,771 1,017 6,210
Nondeductible expenses 2,264 4,930 1,264
Losses not benefited 1,235 - -
Other, net (1,706) 2,603 1,753
-------- ----------- --------
$ 33,073 $ 104,571 $131,970
======== ========= ========
Deferred tax asset in the accompanying balance sheet consists of the
following:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ------------ ----------
Deferred Tax Asset (Liability):
Net operating loss and credit carryforwards $ 84,100 $ 57,131
Reserves and accruals 75,190 44,715
Depreciation (66,795) (74,501)
Inventory basis difference 28,613 25,221
Accrued compensation 13,922 12,043
Intangible assets 2,263 (10,049)
Other, net (14,969) 2,474
-------- --------
122,324 57,034
Less: Valuation allowance 43,124 56,058
-------- --------
$ 79,200 $ 976
======== ========
The valuation allowance primarily relates to the uncertainty surrounding
the realization of tax loss and credit carryforwards. During 1999, the valuation
allowance decreased primarily due to the expiration of acquired foreign net
operating loss carryforwards. Any tax benefit resulting from the use of acquired
loss carryforwards is used to reduce cost in excess of net assets of acquired
companies.
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<PAGE>
8. Income Taxes (continued)
At year-end 1999, the Company had federal, state, and foreign net
operating loss carryforwards of $8 million, $143 million, and $116 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 2000 through 2014. Of the foreign net operating loss
carryforwards, $60 million expire in the years 2000 through 2009, and the
remainder do not expire. Substantially all of the foreign capital loss
carryforwards do not expire.
The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
its domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the Company
does not expect this basis difference to become subject to tax at the parent
level. The Company believes it can implement certain tax strategies to recover
its investment in its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on $400
million of undistributed earnings of foreign subsidiaries that could be subject
to taxation if remitted to the U.S. because the Company plans to keep these
amounts permanently reinvested overseas.
9. Transactions in Stock of Subsidiaries
Gain on issuance of stock by subsidiaries in the accompanying statement of
operations results primarily from the following transactions:
1998
Initial public offering of 3,300,000 shares of ONIX Systems common stock
at $14.50 per share for net proceeds of $43.7 million resulted in a gain of
$10.0 million that was recorded by Thermo Instrument.
Public offering of 2,450,000 shares of Thermo BioAnalysis common stock at
$18.125 per share for net proceeds of $41.5 million resulted in a gain of $5.9
million that was recorded by Thermo Instrument.
Conversion of $1.8 million of Thermo Optek 5% subordinated convertible
debentures, convertible at $13.94 per share, into 127,646 shares of Thermo Optek
common stock resulted in a gain of $0.9 million that was recorded by Thermo
Instrument.
Conversion of $4.0 million of ThermoQuest 5% subordinated convertible
debentures, convertible at $16.50 per share, into 239,393 shares of ThermoQuest
common stock resulted in a gain of $1.8 million that was recorded by Thermo
Instrument.
1997
Initial public offering of 2,671,292 shares of Thermedics Detection common
stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain
of $17.1 million that was recorded by Thermedics.
Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share
for net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest
5% subordinated convertible debentures, convertible at $16.50 per share, into
949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million
and $7.8 million, respectively, that were recorded by Thermo Instrument.
Initial public offering of 2,300,000 shares of Metrika Systems common
stock at $15.50 per share for net proceeds of $32.5 million resulted in a gain
of $13.2 million that was recorded by Thermo Instrument.
Private placements of 1,639,640 shares of ONIX Systems common stock at
$14.25 per share for net proceeds of $22.0 million resulted in a gain of $7.9
million that was recorded by Thermo Instrument.
Initial public offering of 1,139,491 shares of Thermo Vision common stock
at $7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3
million that was recorded by Thermo Instrument.
Conversion of $13.1 million and $3.2 million of Thermo Optek 5%
subordinated convertible debentures, convertible at $14.85 per share and $13.94
per share, respectively, into 1,111,316 shares of Thermo Optek common stock
resulted in a gain of $3.2 million that was recorded by Thermo Instrument.
29
<PAGE>
9. Transactions in Stock of Subsidiaries (continued)
The Company's ownership percentage in these subsidiaries changed primarily
as a result of the transactions listed above, purchases of shares of certain
majority-owned subsidiaries' stock by the Company or its direct subsidiaries,
certain subsidiaries' purchases of their own stock, the issuance of
subsidiaries' stock by the Company or by the subsidiaries under stock-based
compensation plans or in other transactions, the conversion of convertible
obligations held by the Company, its subsidiaries, or by third parties, and the
issuance of subsidiaries' stock in connection with acquisitions.
The Company's ownership percentages at year end were as follows:
1999 1998 1997
----------------------------------------------------------------------- ---------- ---------- ---------
Thermedics Inc. 76% 74% 58%
Thermedics Detection Inc. (a) 89% 88% 76%
Thermo Cardiosystems Inc. (a) 60% 60% 59%
Thermo Sentron Inc. (a) 87% 86% 78%
Thermo Voltek Corp. (a) 100% 69% 68%
Thermo Ecotek Corporation 94% 94% 88%
Thermo Trilogy Corporation (b) 80% 80% 87%
Thermo Fibertek Inc. 91% 91% 90%
Thermo Fibergen Inc. (a) 74% 73% 71%
Thermo Instrument Systems Inc. 88% 85% 82%
Metrika Systems Corporation (a) 79% 76% 60%
ONIX Systems Inc. (a) 82% 81% 87%
Thermo BioAnalysis Corporation (a) 88% 84% 78%
Thermo Optek Corporation (a) 95% 95% 92%
ThermoQuest Corporation (a) 91% 90% 88%
ThermoSpectra Corporation (a) 100% 92% 83%
Thermo Vision Corporation (a) 81% 80% 80%
Spectra-Physics Lasers, Inc. (c) 80% - -
Thermo Power Corporation 100% 79% 69%
ThermoLyte Corporation (b) 100% 98% 78%
Thermo TerraTech Inc. 87% 86% 82%
The Randers Killam Group Inc. (a) 96% 96% 96%
ThermoRetec Corporation (a) 72% 71% 70%
Thermo EuroTech N.V. (a)(b) 89% 89% 56%
ThermoTrex Corporation 80% 64% 55%
ThermoLase Corporation (a) 85% 80% 70%
Trex Medical Corporation (a) 79% 77% 79%
Trex Communications Corporation (b) 100% 69% 78%
Thermo Coleman Corporation (b) 100% 87% 100%
Thermo Information Solutions Inc. (a)(b) 100% 79% 79%
(a) Reflects combined ownership by direct parent company and Thermo Electron.
(b) Majority-owned privately held subsidiary. (c) Acquired indirectly as part of
Thermo Instrument's acquisition of Spectra-Physics (Note 3).
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<PAGE>
10. Other Income (Expense), Net
The components of other income (expense), net, in the accompanying
statement of operations are as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ---------- ----------
Interest Income $ 43,915 $78,313 $ 72,704
Interest Expense (96,992) (90,329) (84,214)
Equity in Earnings (Loss) of Unconsolidated Subsidiaries (7,274) 150 (341)
Gain on Investments, Net 1,537 12,812 5,015
Other Income (Expense), Net (2,706) 1,242 50
-------- ------- --------
$(61,520) $ 2,188 $ (6,786)
======== ======= ========
11. Restructuring and Other Unusual Costs, Net
1999
Continuing Operations
During 1999, the Company's continuing operations recorded restructuring
and related costs of $161.9 million and other nonoperating charges of $20.5
million in connection with broad scale restructuring actions affecting a number
of business units. Restructuring and other unusual costs, net include $162.8
million of restructuring costs, $13.2 million of other unusual income, net, $9.4
million of inventory provisions, and a revenue reversal of $2.8 million
resulting from a dispute with a utility customer. The inventory provisions are
included in cost of revenues. Other nonoperating charges include $19.1 million
of other expense, net and $1.4 million of income tax expense.
The Company's continuing operations recorded charges by segment for 1999
as follows:
(In thousands) Life Sciences Optical Measurement Power Corporate Total
Technologies and Control Generation
- --------------------- -------------- ------------- ------------- ------------- -------------- ------------
Revenues $ - $ - $ - $ 2,832 $ - $ 2,832
Cost of Revenues - 3,156 6,270 - - 9,426
Restructuring and (326) 1,717 30,210 112,243 5,745 149,589
Other Unusual Costs, Net
Other Expense, Net - 13,382 - 2,125 3,609 19,116
Income Tax Expense - - 1,409 - - 1,409
--------- -------- -------- -------- --------- --------
$ (326) $ 18,255 $ 37,889 $117,200 $ 9,354 $182,372
========= ======== ======== ======== ========= ========
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<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
The components of restructuring and related costs by segment are as
follows:
Life Sciences
During 1999, the Life Sciences segment settled certain severance matters
for less than had been previously accrued and, as a result, reversed $0.3
million of previously established reserves.
Optical Technologies
The Optical Technologies segment recorded $18.3 million of restructuring
and related costs in 1999. The Optical Technologies segment recorded an
adjustment to cost of revenues of $3.2 million relating to the sale of
inventories that were revalued at the date of the acquisition of SPLI.
Restructuring costs of $1.7 million were primarily for abandoned lease costs for
manufacturing facilities in the United Kingdom with lease obligations through
2000, and other facility costs.
Prior to its acquisition by Thermo Instrument, SPLI elected early adoption
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Company has not elected early adoption of SFAS No. 133, although it must
adopt the statement no later than the first quarter of 2001. Under SFAS No. 133,
SPLI is permitted under certain conditions to enter foreign exchange contracts
to hedge anticipated transactions without recording gains and losses on such
contracts in income. Such contracts are deemed speculative hedges under SFAS No.
52, "Foreign Currency Translation," and must be marked to market with the
resulting gain or loss reported as a component of the Company's results of
operations. During 1999, Thermo Instrument recorded a loss on foreign exchange
contracts entered into by SPLI of $2.3 million, which is included in other
expense in the accompanying statement of operations. The Company's results may
continue to be affected by such transactions during 2000.
The Company recorded other unusual charges of $11.1 million relating to
Thermo Instrument's equity investment in FLIR (Note 3). This charge was recorded
to equity in loss of unconsolidated subsidiaries, a component of other expense
in the accompanying statement of operations.
Measurement and Control
During 1999, the Measurement and Control segment recorded restructuring
and related costs of $37.9 million as a result of the actions detailed below.
The Company recorded restructuring and related costs of $32.4 million,
including restructuring costs of $30.1 million, a tax asset write-off of $1.4
million, and inventory provisions of $0.9 million, related to a decision to sell
its power electronics and test equipment business. The planned sale of the power
electronics and test equipment businesses followed a period of declining sales
and profitability in these units. These businesses are dependent on the cyclical
nature of the semiconductor industry and have lower growth prospects than other
businesses held by the Company. As a result, the Company decided to sell these
units. Restructuring costs include $28.5 million to write off related cost in
excess of net assets of acquired companies to reduce the carrying value of the
business to the estimated proceeds from its sale. In addition, restructuring
costs include a charge of $1.6 million recorded to write off the Company's
remaining net investment in a subsidiary of the power electronics and test
equipment business, which the Company transferred to a buyer in consideration
for a release from certain contractual obligations, primarily ongoing lease
obligations. The tax write-off represents a deferred tax asset that will not be
realized as a result of exiting this business. The inventory provisions result
from exiting and reengineering certain product lines. Unaudited revenues and
operating losses, excluding restructuring and related costs, of the power
electronics and test equipment business were $28.2 million and $0.5 million,
respectively, for 1999, and net assets totaled $17.5 million at year-end 1999.
The Company also recorded other unusual nonoperating costs of $0.3 million in
1999 at the power electronics and test equipment segment.
The Measurement and Control segment's unusual charges also include a
charge to cost of revenues of $3.5 million relating to the sale of inventories
at certain Spectra-Physics units that were revalued at the date of its
acquisition, and $1.9 million for inventories deemed excessive based on recent
low demand at its quality assurance and security products business.
32
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
The Measurement and Control segment also recorded $0.1 million of
restructuring income in 1999, primarily reversals of previously established
severance accruals.
Power Generation
During 1999, Thermo Ecotek recorded $125.8 million of restructuring costs,
$13.5 million of unusual income, a reversal of revenue of $2.8 million, and
other charges of $2.1 million, as a result of the actions detailed below.
Following significant investments of resources in attempts to correct
operational problems, in May 1999, Thermo Ecotek made a decision to cease
further efforts and hold for sale or disposal its Gillette, Wyoming,
coal-beneficiation facility. As a result, Thermo Ecotek recorded a restructuring
charge of $68.0 million, including $63.3 million to write down the plant and
related equipment to a nominal salvage value, $4.4 million for estimated land
reclamation costs and demolition, and $0.3 million of other exit costs,
primarily abandoned-facility payments. Thermo Ecotek recorded $1.5 million of
minority interest income, representing a minority partner's share of these
charges. Revenues of this facility were nominal during the period it operated.
The facility had unaudited operating losses, excluding restructuring costs, of
$7.6 million in 1999. Thermo Ecotek expects to dispose of the plant or undertake
salvage and reclamation activities in 2000.
The power-sales agreement for Thermo Ecotek's Delano facilities called for
fixed contract rates through September 2000. In anticipation of a decline in
rates, in May 1999, Thermo Ecotek entered into an agreement to terminate the
power-sales agreement for its Delano facilities, effective December 31, 1999.
The terms of the agreement call for Thermo Ecotek to receive payments in lieu of
operating under its current agreement. Thermo Ecotek recorded a restructuring
charge of $51.0 million as a result of entering into the new agreement,
including $47.5 million to write down the plant and related assets to the
present value of its estimated future cash flows, $2.4 million related to a loss
on the cancelation of the facility's primary fuel contract, and $1.1 million to
write off cost in excess of net assets of acquired companies.
Pacific Gas & Electric (PG&E), the customer under a long-term power-sales
agreement at Thermo Ecotek's Woodland, California, plant, has interpreted the
terms of such agreement to permit PG&E to cease payment of fixed contract rates
effective July 1, 1999, and to thereafter purchase power at avoided cost rates.
Although Thermo Ecotek contests this interpretation and is considering its
alternatives concerning this dispute, Thermo Ecotek recorded a restructuring
charge of $3.8 million during 1999, representing impairment of its net
investment in the Woodland facility as a result of PG&E's decision to cease
making payments of fixed contract rates.
Thermo Ecotek also recorded other restructuring costs of $3.0 million
during 1999. These costs included $1.5 million to write off a power plant that
is held for sale, $0.7 million for abandoned assets, $0.4 million for unrecouped
development costs associated with a project sold to a joint venture partner,
$0.2 million for severance for three employees, and $0.2 million of other costs.
Thermo Ecotek believes that the salvage value of the power plant held for sale,
if any, is nominal.
Unusual income of $13.5 million resulted from the termination of the
power-sales agreement for its Gorbell facility in Athens, Maine. The income
represents the proceeds from the termination agreement, net of facility closure
costs including lease and fuel cancellation payments. The Gorbell facility's
revenues and operating income before the effect of the contract termination were
$7.7 million and $1.3 million, respectively, in 1999.
A dispute arose during 1999 between Thermo Ecotek and Southern California
Edison (SCE), the utility that purchases the output of Thermo Ecotek's Delano
plants. SCE interpreted the terms of its contract with the Delano facilities to
permit it to pay a reduced rate in 1999 for power output during nonpeak periods,
as defined. Although Thermo Ecotek contests this interpretation, SCE has
adjusted its recent payments to reflect the lower rates for all of 1999. As a
result, Thermo Ecotek has established a reserve through a reduction in revenues
totaling $2.8 million for amounts in dispute with SCE and is considering its
alternatives with respect to this claim.
33
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
In 1999, Thermo Ecotek also recorded a nonoperating charge of $2.1 million
representing the write-down of available-for-sale investments representing an
equity interest of its minority partner in the Gillette, Wyoming, facility due
to impairment that Thermo Ecotek deemed permanent based on stock prices at that
time. This amount is included in gain on investments, net, a component of other
expense in the accompanying statement of operations.
Corporate
During 1999, the Company recorded $9.4 million of restructuring and
related costs. Restructuring costs of $5.8 million consist of $4.9 million for
severance costs for seven senior-level employees and $0.9 million of legal and
advisory costs related to the Company's reorganization. The Company also
recorded $3.6 million of other nonoperating charges to write down
available-for-sale investments due to impairment that the Company deemed
permanent based upon market prices. These charges are included in gain on
investments, net, a component of other expense in the accompanying statement of
operations.
General
During 1998, the Company's continuing operations announced restructuring
actions that included plans for the termination of 729 employees. As of January
2, 1999, the continuing operations had terminated 500 employees. The
restructuring actions in 1999 included plans for the termination of an
additional 41 employees. During 1999, 225 employees were terminated in
connection with the restructuring plans announced in 1998 and 1999.
Discontinued Operations
The 1999 charges for restructuring and related actions undertaken by the
Company's discontinued operations totaled $273.7 million and are included in
loss from discontinued operations, net of income taxes and minority interest, in
the accompanying statement of operations.
ThermoTrex
During 1999, ThermoTrex announced restructuring actions at its Trex
Medical and ThermoLase subsidiaries. In connection with these actions,
ThermoTrex recorded restructuring and related costs of $97.9 million in 1999,
including restructuring costs of $71.9 million, inventory and warranty
provisions of $18.7 million, provisions for uncollectible accounts receivable of
$1.6 million, and other nonoperating charges of $5.7 million.
During 1999, Trex Medical recorded $27.3 million of restructuring and
related costs, including restructuring costs of $10.9 million and inventory and
warranty provisions of $16.3 million. The restructuring costs incurred primarily
related to the consolidation of certain facilities in an effort to reduce costs
and, to a lesser extent, actions in other operations. Trex Medical consolidated
its four domestic manufacturing facilities into two facilities. Restructuring
costs include $3.7 million for facility-closing costs, net of assumed sublease
income; $3.6 million of severance for 348 employees across all functions; $2.0
million to write off leasehold improvements at facilities to be closed and to
write down fixed assets to their estimated disposal value; and $1.6 million for
employee retention incentives for employees in facilities being closed that are
being accrued ratably through the date on which their services will no longer be
required.
In August 1999, Trex Medical received notification from the Food and Drug
Administration (FDA) denying its 510(k) filing for its digital mammography
system. In September, Trex Medical received a letter from the FDA indicating
that the FDA believes that a pre-market approval (PMA) application, followed up
by significant post-approval screening trials, may be the more viable option for
obtaining market clearance for digital mammography systems. A PMA is generally
more burdensome than a 510(k), because it applies to devices considered to be of
higher risk. In light of the FDA's guidance, Trex Medical may incorporate the
data that formed the basis of its 510(k) application into a PMA application for
submission to the FDA. Trex Medical expects to implement various design and
34
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
engineering changes that may require additional preapproval clinical trials.
There can be no assurance regarding the timing or results of the submission of a
new filing to the FDA or such clinical trials. Trex Medical recorded costs of
$13.7 million to establish inventory provisions and to terminate purchase
commitments for products that have become obsolete due to planned product
changes or excess as a result of a recent decline in demand. The largest
component of the inventory charge was recorded as a result of the decision by
the FDA to deny Trex Medical's application to market its digital mammography
system and resulting design changes expected to be made to the system.
Provisions resulting from other planned product and technology changes and
decreased demand for certain other products are also principal components of the
inventory charge. Warranty provisions of $2.6 million were recorded for
estimated costs to address certain product warranty issues, including costs
associated with corrective actions to be taken with respect to certain
previously sold mammography products.
During 1998, ThermoLase initiated certain restructuring activities,
including the announced closure of three domestic spas and the termination of a
joint venture that operated its spa in France following unsuccessful efforts to
reduce operating costs. Two of the domestic spas were closed during the fourth
quarter of 1998. In 1999, ThermoLase closed the third spa, as well as two
additional spas. Also during 1999, ThermoLase sold its remaining nine day spas,
as well as the stock in its destination spa, The Greenhouse Spa, Inc. ThermoLase
made the decision to sell The Greenhouse Spa due to a high cost structure and
demand that did not meet expectations. In connection with the sale and closures
announced in 1999, as well as other actions, ThermoLase recorded restructuring
and related costs of $67.9 million, including restructuring costs of $60.6
million, inventory provisions of $2.3 million, provisions for uncollectible
accounts receivable of $1.6 million, and an investment write-down of $3.4
million. Restructuring costs include a $19.9 million loss on the sale of its spa
businesses; $17.4 million for the write-off of leasehold improvements and
equipment pertaining to the hair-removal business; $11.7 million for ongoing
lease obligations, net of assumed sublease income; $10.4 million of estimated
costs to terminate certain other obligations related to the ThermoLase
hair-removal business (primarily payments to licensees and joint venture
partners to sever relationships and terminate agreements); $0.4 million for
losses on laser purchase commitments; $0.3 million to write down investments in
international joint ventures; and $0.5 million for other related costs. The
inventory provisions were for certain branded product lines at ThermoLase's
Creative Beauty Innovations, Inc. subsidiary that have been discontinued, and
the investment write-down was to reduce the carrying value of ThermoLase's
investment in a privately held company to its estimated disposal value.
ThermoTrex and the Company recorded aggregate restructuring costs of $62.7
million during 1999, representing a write-off of cost in excess of net assets of
acquired companies. Of the total write-off, $59.3 million was to write off cost
in excess of net assets of acquired companies that arose from repurchases of
ThermoLase common stock. This asset has become impaired as a result of
continuing losses at ThermoLase and a decision to exit its principal business.
The balance of the write off was recorded by ThermoTrex as a result of a
decision to hold for sale its Trex Communications subsidiary, and represents a
reduction in the carrying value of Trex Communications to the amount of expected
proceeds from its sale. Trex Communications designs and markets interactive
information, voice-response, and call automation systems and manufactures
ground-based satellite communication systems. Trex Communications' Computer
Communications Specialists, Inc. subsidiary was sold in December 1999, and Trex
Communications was sold in February 2000 primarily because these businesses
would have required levels of investment in order to expand that exceeded
amounts that ThermoTrex was willing to make available. In addition, ThermoTrex
provided a reserve of $2.3 million for impairment of a note receivable from an
unaffiliated company and $0.4 million of other restructuring costs.
35
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
Thermo TerraTech
In May 1999, Thermo TerraTech announced that its majority-owned
subsidiaries plan to sell several businesses. The businesses proposed to be sold
include the used-oil processing operation of Thermo EuroTech, N.V.; three
soil-recycling facilities of ThermoRetec, in addition to the sites previously
announced; and the Randers division, BAC Killam Inc., and E3-Killam Inc.
businesses of The Randers Killam Group Inc., which provide engineering and
construction services. Thermo TerraTech decided to sell these businesses because
of low growth or profitability. In connection with these actions, Thermo
TerraTech recorded $58.3 million of restructuring and related costs, including
restructuring costs of $56.5 million, a tax asset write-off of $1.1 million, and
an inventory provision of $0.7 million. Restructuring costs include $22.2
million to write down cost in excess of net assets of acquired companies to
reduce the carrying value of the businesses proposed to be sold to the estimated
proceeds from their sale; $20.3 million to write down fixed assets to their
estimated disposal value; $4.6 million for ongoing lease costs for facilities
that will be exited in connection with the sale of certain businesses; $2.5
million for estimated land reclamation costs; $1.9 million to write off the
cumulative foreign translation adjustment related to Thermo EuroTech's used-oil
processing business; $1.8 million to write off intangible assets related to
license acquisition costs at the used-oil processing business; $0.6 million for
severance costs for 42 employees across all functions; and $0.4 million to write
off other current assets associated with the businesses. The tax asset write-off
represents a deferred tax asset that will not be realized as a result of selling
Thermo EuroTech's used-oil processing business. The inventory provision also
relates to exiting this business. The write-down of fixed assets principally
relates to special purpose equipment in the used-oil processing and
soil-recycling businesses. In connection with the actions discussed above, the
Company also recorded $1.7 million to write down cost in excess of net assets of
acquired companies that arose in connection with the Company's prior repurchases
of Thermo EuroTech common stock. The write off is a result of continuing losses
and a decision to exit Thermo EuroTech's principal business. During January
2000, Thermo TerraTech sold the Randers division for an aggregate sales price of
$0.5 million, resulting in a loss of $2.2 million, which was recorded in 1999.
Thermo Power
Thermo Power undertook certain restructuring actions during 1999, which
included a decision to divest of its ThermoLyte subsidiary, as well as a
decision to outsource certain manufacturing and warranty functions and reduce
staffing levels at certain other subsidiaries. ThermoLyte distributes specialty
lighting products for the automotive, sporting goods, and marine markets. Thermo
Power made the decision to divest ThermoLyte in response to a lower than
expected market for gas-fueled lighting products. In addition, Thermo Power
wrote down certain assets at its Peek plc sales and service subsidiaries located
in Malaysia and Croatia that have become impaired due to business conditions in
those regions. In connection with these actions, Thermo Power recorded
restructuring and related costs of $13.8 million, including $10.1 million of
restructuring costs, inventory provisions of $3.0 million, costs for outsourcing
certain warranty repairs of $0.5 million, and a provision for uncollectible
accounts receivable of $0.2 million. Restructuring costs include $4.1 million
for the write-off of cost in excess of net assets of acquired companies, of
which $2.9 million was to reduce the carrying value of ThermoLyte to the
estimated proceeds from its sale and $1.2 million was to reduce the carrying
value of Thermo Power's investment in its Peek subsidiaries located in Malaysia
and Croatia due to projected undiscounted cash flows from their operations being
insufficient to recover its investment. In addition, restructuring costs include
$2.3 million of severance costs for 133 employees across all functions; $1.9
million for the write-down of certain fixed assets, principally at operations
being exited; $1.6 million for lease costs at facilities being abandoned, and
$0.2 million of other costs. Inventory provisions represent a write-down of
inventories to estimated salvage value and consist of $1.9 million for raw
materials for product lines being outsourced, $1.0 million for a discontinued
product line, and $0.1 million for inventories at Peek's subsidiaries located in
Malaysia and Croatia.
36
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
Thermo Fibertek
During 1999, Thermo Fibertek recorded $2.3 million of restructuring costs
and $7.3 million of unusual income, net. Restructuring costs consist of $1.3
million of severance costs for 24 employees across all functions and $1.0
million to terminate distributor agreements. Thermo Fibertek recorded unusual
income of $11.0 million from a gain on the sale of its Thermo Wisconsin, Inc.
subsidiary. Thermo Fibertek decided to sell Thermo Wisconsin to divest of a
non-strategic, cyclical operating unit that serves the graphics arts industry.
In addition, Thermo Fibertek recorded $2.8 million of unusual costs relating to
impairment of a note receivable secured by a tissue mill. In the second quarter
of 1999, Thermo Fibertek entered into a nonbinding letter of intent with a third
party to dispose of this asset for an amount in excess of the carrying value.
Subsequently, however, the third party elected not to proceed with the
transaction and Thermo Fibertek has written the asset down to its estimated
recoverable value. Thermo Fibertek also recorded other unusual costs of $0.9
million, consisting of $0.5 million for the expected settlement of a legal
dispute, $0.3 million for the impairment of a building held for disposal, and
$0.1 million of other unusual costs.
Thermo Coleman
During 1999, Thermo Coleman recorded $17.3 million of restructuring and
related costs and $7.1 million of unusual income. Restructuring and related
costs were recorded as a result of a decision to exit certain businesses through
sale or closure. The businesses being exited include a unit that develops and
markets information technology products and services and a business that
develops and manufactures coherent laser radar equipment. These businesses will
require significant investment to expand. Restructuring costs include $10.5
million to write off cost in excess of net assets of acquired companies, $2.3
million for the write down of fixed assets, $3.8 million of inventory
provisions, a $0.4 million provision for a note receivable, and $0.3 million
related to a loss on disposal of a business unit at its Thermo Information
Solutions subsidiary. The charges reduce the carrying values of the businesses
to the estimated proceeds from their sale. The unusual income of $7.1 million
represents a gain on the sale of its LiveOnTheNet.com subsidiary. This business
performs Webcasting and Web page development, hosting and advertising.
Other
In May 1999, a jury in the superior court of the state of Rhode Island
rendered a verdict against the Company in connection with an installation in
1985 of a wastewater treatment system by a subsidiary of the Company. The
plaintiff has submitted a brief to the court that sets forth a computation of
prejudgment interest on the damages that, if approved by the court, would bring
the total amount of the award to approximately $21 million, subject to
additional interest accruals from May 1999. The Company believes that both the
verdict and the interest computation are in error and has opposed the
plaintiff's motion. The Company recorded a charge of $21 million for this matter
in the second quarter of 1999.
During 1999, the Company also decided to hold for sale its Peter
Brotherhood, Ltd. subsidiary, which manufactures steam turbines and compressors.
The Company recorded an $8.4 million write-down of fixed assets to reduce the
carrying value of the business unit to the estimated proceeds from its sale.
Thermo Trilogy recorded $4.0 million of restructuring and related costs,
including $3.5 million of inventory provisions for product deemed excess based
on recent demand, following a downturn in its sales of biopesticides, $0.4
million for severance for 14 employees, and $0.1 million of other costs.
Thermedics recorded unusual costs of $0.8 million, primarily investment
banking fees.
37
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
1998
Continuing Operations
During 1998, the Company's continuing operations recorded restructuring
and related costs of $32.5 million as described below, including restructuring
and other unusual costs of $23.6 million, inventory write-downs of $8.6 million,
and other costs of $0.3 million. The inventory write-downs are included in cost
of revenues in the accompanying statement of operations. The charges occurred as
a result of an economic crisis in Asia; a related downturn in the semiconductor
industry; and depressed prices in the oil, petrochemical, and natural resources
industries.
Life Sciences
During 1998, the Life Sciences segment recorded restructuring and related
costs of $9.0 million. Restructuring costs consist of $4.6 million related to
severance costs for 190 employees across all functions and $1.3 million of
facility-closing costs including $1.2 million of asset write-downs and $0.1
million of lease costs for facilities in the United Kingdom with obligations
through 1999. In addition, the Company recorded a write-down of inventories
totaling $2.8 million related to discontinuing several low-margin product lines
and the disposal of inventories at a manufacturing facility being closed. The
Company also recorded a charge of $0.3 million for its share of restructuring
costs at a joint venture as a reduction in the Company's equity in earnings of
unconsolidated subsidiaries, which is included in other expense in the
accompanying statement of operations.
Optical Technologies
The Optical Technologies segment recorded restructuring and related costs
of $17.7 million in 1998. Restructuring costs of $12.4 million consist of $9.2
million related to severance costs for 419 employees across all functions, $2.2
million for facility-closing costs for facilities in the United Kingdom, a loss
of $0.4 million related to the sale of a division, and $0.6 million of other
costs. The $2.2 million of facility-closing costs include $1.4 million for lease
payments on abandoned facilities with lease obligations through 2000 and $0.8
million to write down related fixed assets. The Company also recorded inventory
write-downs of $5.3 million related to discontinuing certain product lines and
increased excess and obsolescence reserves associated with lower product demand.
Measurement and Control
The Measurement and Control segment recorded restructuring and related
costs of $5.4 million in 1998. Restructuring costs of $3.3 million consist of
$2.3 million related to severance costs for 171 employees across all functions,
$0.8 million for the write off of cost in excess of net assets of acquired
businesses for an operating unit that was closed, and $0.2 million of
facility-closing costs, primarily write-downs of fixed assets at abandoned
facilities. The Company also recorded $0.5 million of inventory write-downs,
primarily for products deemed excess based on recent demand.
In addition, five former employees of Thermo Instrument's Epsilon
Industrial, Inc. subsidiary had sought damages in an arbitration proceeding for
alleged breaches of agreements entered into with such employees prior to
Epsilon's acquisition by Thermo Instrument. The arbitrators rendered a decision
with respect to such claims during 1998, and the Company recorded $1.6 million
of unusual costs related to the resolution of this matter in 1998.
Corporate
During 1998 the Company recorded $0.4 million of other restructuring and
unusual costs.
38
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
Discontinued Operations
The 1998 charges for restructuring and related actions undertaken by the
Company's discontinued operations totaled $27.8 million and are included in
income from discontinued operations, net of income taxes and minority interest,
in the accompanying statement of operations.
ThermoTrex
ThermoLase recorded restructuring and related costs of $17.0 million
during 1998, including $6.9 million for the write-off of a tax asset.
Restructuring costs of $8.2 million recorded during 1998 consist of $4.6 million
related to the closure of three Spa Thira locations and $3.6 million in
connection with the closure of another spa that was operated under a joint
venture agreement, primarily to liquidate the joint venture and to write-off
ThermoLase's remaining investment. The decision to close the spas followed
unsuccessful efforts to reduce operating losses in these facilities. The $4.6
million of restructuring costs included $2.4 million for the write-off of
leasehold improvements and related spa assets and $2.2 million primarily for
abandoned-facility payments. ThermoLase also recorded restructuring costs of
$1.9 million related to certain actions, including the relocation of its
headquarters from California to Texas, where it maintains another facility. The
relocation of ThermoLase's headquarters occurred in an effort to reduce costs.
This amount included $1.1 million for severance for 40 terminated employees and
$0.8 million for the write-off of fixed assets no longer of use. In addition,
ThermoLase also recorded a charge of $6.9 million to write off certain tax
assets, primarily loss carryforwards due to uncertainty concerning their
realization as a result of ThermoLase's recent operating results.
Thermo TerraTech
Thermo TerraTech recorded restructuring costs of $10.2 million during
1998. Of these restructuring costs, $9.2 million was recorded by ThermoRetec, in
connection with the closure of two soil-recycling facilities. The decision to
close these facilities resulted from a downturn in operating results that Thermo
TerraTech believes was due in part to relaxed enforcement of state rules
concerning disposal of contaminated soil and an increase in disposal
alternatives. The costs included a $6.3 million write-down of fixed assets to
their estimated disposal value of $0.9 million and a $1.9 million write-off of
intangible assets, including $0.7 million of cost in excess of net assets of
acquired companies, $1.0 million for ongoing lease costs and severance for 13
employees, 6 of whom were terminated in 1998, as well as other closure costs. In
addition, Thermo TerraTech recorded $1.0 million of restructuring costs for
abandoned-facility payments relating to the consolidation of the facilities of
another business. The consolidation of facilities occurred in an effort to
reduce costs.
Other
During 1998, Thermo Power recorded restructuring and other unusual costs
of $1.0 million relating to a loss on discontinuance and subsequent sale of its
engines business. The Company's wholly owned SensorMedics subsidiary recorded
restructuring costs of $0.8 million, primarily for severance, in connection with
the reorganization of a subsidiary in the Netherlands. The 1998 amount also
included a gain of $1.4 million from the sale of a business at Thermo
Information Solutions and restructuring and other unusual costs of $0.2 million.
39
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
1997
Continuing Operations
During 1997, the Company's continuing operations recorded restructuring
and other unusual income, net, of $11.0 million and inventory provisions of $4.4
million, as described below.
Life Sciences
In connection with Thermo Instrument's acquisition of Life Sciences, the
Life Sciences segment recorded an adjustment to cost of revenues of $2.9 million
relating to the sale of inventories that were revalued at the date of its
acquisition.
Optical Technologies
In December 1997, ThermoSpectra sold its Linac business for $5.0 million
in cash and $2.1 million in equity securities, resulting in a gain of $2.3
million. ThermoSpectra also recorded $1.0 million of restructuring costs,
representing severance costs for 40 employees, and $0.8 million of inventory
provisions related to a decision to discontinue an underperforming product line.
In addition, in connection with Thermo Instrument's acquisition of Life
Sciences, this segment recorded an adjustment to cost of revenues of $0.7
million relating to the sale of inventories that were revalued at the date of
its acquisition.
Power Generation
During 1997, the Company settled two legal cases in which it was a
defendant concerning development of a proposed waste-to-energy facility and
development and construction of an alternative-energy facility. These matters
were settled for amounts less than the damages that had been sought by the
plaintiffs and less than the amounts that had been reserved by the Company. As a
result, the Company reversed $9.7 million of reserves previously established for
these matters, which is included in restructuring and other unusual costs in
1997.
Discontinued Operations
The 1997 charges for restructuring and related actions undertaken by the
Company's discontinued operations totaled $12.3 million and are included in
income from discontinued operations, net of income taxes and minority interest,
in the accompanying statement of operations.
Thermo TerraTech
Thermo TerraTech recorded restructuring costs of $7.8 million in 1997 to
write down certain capital equipment and intangible assets, including cost in
excess of net assets of acquired companies, in response to a severe downturn in
ThermoRetec's soil-remediation business that resulted in the disposal of two
soil-remediation sites in Virginia and Florida during 1997 and reduced cash
flows at sites in Maryland and New York, such that analysis indicated that the
investment in these assets would not be recovered. The charge included the
write-off of $2.2 million of cost in excess of net assets of acquired companies
and $0.2 million of fixed assets at facilities being closed, as well as the
write-off of $2.6 million of other intangibles and $2.5 million of fixed assets
at facilities remaining open. In addition, Thermo TerraTech incurred $0.3
million of other costs. The fair value of assets held for sale or disposal was
determined based on estimated disposal value. The fair value of assets held for
use was determined based on a cash flow analysis.
40
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
Other
In 1997, the Company's discontinued operations also recorded $3.1 million
of restructuring and other unusual costs, primarily severance, at several
businesses and $1.4 million at Trex Communications for the write-off of
in-process technology relating to an acquisition. This amount represents the
portion of the purchase price allocated to technology in development at the
acquired business.
The following tables summarize the cash components of the Company's
restructuring plans. The noncash components and other amounts reported as
restructuring and unusual costs (income), net in the accompanying statement of
operations have been summarized in the notes to the tables.
Continuing Operations
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
1997 Restructuring Plans
Costs incurred in 1997 (a) $ 953 $ - $ - $ 953
1997 usage (709) - - (709)
Currency translation - - - -
--------- --------- --------- ---------
Balance at January 3, 1998 (b) 244 - - 244
1998 usage (244) - - (244)
Currency translation - - - -
--------- --------- --------- ---------
Balance at January 2, 1999, and $ - $ - $ - $ -
January 1, 2000 ========= ========= ========= =========
1998 Restructuring Plans
Costs incurred in 1998 (c) $ 15,700 $ 1,656 $ 1,420 $ 18,776
1998 usage (6,630) (418) (670) (7,718)
Currency translation 211 25 26 262
--------- --------- --------- ---------
Balance at January 2, 1999 (d) 9,281 1,263 776 11,320
Costs incurred in 1999 (e) 1,486 1,280 652 3,418
1999 usage (7,205) (2,046) (838) (10,089)
Reversal of reserves (f) (2,101) (217) - (2,318)
Currency translation (568) (55) (26) (649)
--------- --------- --------- ---------
Balance at January 1, 2000 $ 893 $ 225 $ 564 $ 1,682
========= ========= ========= =========
1999 Restructuring Plans
Costs incurred in 1999 (g) $ 4,127 $ 324 $ 7,853 $ 12,304
1999 Usage (287) - (2,115) (2,402)
--------- --------- --------- ---------
Balance at January 1, 2000 (h) $ 3,840 $ 324 $ 5,738 $ 9,902
========= ========= ========= =========
41
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
(a) Reflects restructuring costs of $1.0 million in the Optical Technologies
segment. Excludes a $9.7 million reversal of litigation reserves at the
Power Generation segment and a $2.3 million gain on sale of business in the
Optical Technologies segment.
(b) The balance of accrued severance at year-end 1997 represents amounts for
planned severances in the Optical Technologies segment, which occurred in
1998.
(c) Reflects restructuring costs of $5.9 million, $12.4 million, $4.9 million,
and $0.4 million in the Life Sciences, Optical Technologies, and Measurement
and Control segments; and the corporate headquarters, respectively. Excludes
noncash charges of $1.1 million, $1.1 million, and $1.0 million in the Life
Sciences, Optical Technologies, and Measurement and Control segments,
respectively, and $1.6 million of cash costs in the Measurement and Control
segment related to an arbitration matter, which was paid in 1998.
(d) The balance of accrued severance at year-end 1998 represents amounts for
planned severances principally in the Life Sciences and Optical Technologies
segments, substantially all of which occurred in 1999. The balance of
accrued abandoned-facility costs represents lease costs that will be paid
through 2000. The balance of accrued other costs represents exit costs at
the Optical Technologies segment for costs that will be paid through 2000.
(e) Reflects restructuring costs of $3.1 million and $0.3 million in the Optical
Technologies and Measurement and Control segments, respectively. Excludes a
noncash charge of $0.1 million in the Measurement and Control segment.
(f) Reflects reversals of previously recorded restructuring costs of $0.3
million, $1.4 million, and $0.6 million in the Life Sciences, Optical
Technologies, and Measurement and Control segments, respectively.
(g) Reflects restructuring costs, net, of $1.7 million, $29.9 million, $125.7
million, and $5.7 million in the Optical Technologies, Measurement and
Control, and Power Generation segments; and the corporate headquarters,
respectively, and a $0.3 million reversal of restructuring charges in the
Life Sciences segment. Excludes noncash charges, net, of $30.2 million,
$118.2 million, and $0.9 million in the Measurement and Control and Power
Generation segments and the corporate headquarters, respectively. Also
excludes an unusual gain of $13.5 million at the Power Generation segment
and unusual costs of $0.3 million at the Measurement and Control segment.
(h) The balance of accrued severance at year-end 1999 represents severance
obligations, principally at the Company's corporate headquarters. These
payments will occur primarily through the first half of 2000. The balance of
accrued abandoned-facility costs represents lease costs that will be paid
during 2000. The balance of accrued other costs primarily represents land
reclamation and fuel contract cancellation costs at the Power Generation
segment, which are expected to be paid in 2000.
42
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
Discontinued Operations
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
1997 Restructuring Plans
Costs incurred in 1997 (a) $ 2,107 $ 485 $ 795 $ 3,387
1997 usage (1,737) (444) (386) (2,567)
Currency translation - - 6 6
--------- --------- --------- ---------
Balance at January 3, 1998 (b) 370 41 415 826
1998 usage (370) (41) (376) (787)
Currency translation - - (5) (5)
--------- --------- --------- ---------
Balance at January 2, 1999 - - 34 34
1999 usage - - (34) (34)
--------- --------- --------- ---------
Balance at January 1, 2000 $ - $ - $ - $ -
========= ========= ========= =========
1998 Restructuring Plans
Costs incurred in 1998 (c) $ 2,170 $ 4,279 $ 2,552 $ 9,001
1998 usage (1,020) (121) (2,100) (3,241)
--------- --------- --------- ---------
Balance at January 2, 1999 (d) 1,150 4,158 452 5,760
1999 usage (550) (1,550) (376) (2,476)
Transfers to 1999 plans (e) - (1,141) (76) (1,217)
Reversal of reserves (f) (300) - - (300)
Currency translation (102) - - (102)
--------- --------- --------- ---------
Balance at January 1, 2000 $ 198 $ 1,467 $ - $ 1,665
========= ========= ========= =========
1999 Restructuring Plans
Costs incurred in 1999 (g) $ 8,934 $ 20,328 $ 18,343 $ 47,605
Transfers from 1998 plans (e) - 1,141 76 1,217
1999 Usage (5,472) (2,374) (8,438) (16,284)
Reversal of reserves (h) (438) - - (438)
Currency translation (342) (95) (238) (675)
--------- --------- --------- ---------
Balance at January 1, 2000 (i) $ 2,682 $ 19,000 $ 9,743 $ 31,425
========= ========= ========= =========
43
<PAGE>
11. Restructuring and Other Unusual Costs, Net (continued)
(a) Excludes noncash charges of $8.9 million.
(b) The balance of accrued severance at year-end 1997 represents amounts for
planned severances at SensorMedics, which occurred in 1998. The balance of
accrued other costs at year-end 1997 represents exit costs at Thermo
Fibertek and Peter Brotherhood, which were substantially expended in 1998.
(c) Excludes noncash charges of $13.3 million and $1.4 million of gain on sale
of business.
(d) The balance of accrued severance at year-end 1998 represents
amounts for planned severances principally at SensorMedics, which were substantially paid in 1999. The
balance of accrued abandoned-facility costs represents lease costs that will
be paid through 2008. The balance of accrued other costs represents exit
costs primarily at ThermoLase, which were paid in 1999.
(e) A favorable resolution in 1999 of lease obligations at facilities exited by
ThermoLase under its 1998 plan reduced the cost of ThermoLase's 1999 plan to
exit certain other facilities.
(f) Reflects a reversal of previously accrued severance costs at SensorMedics.
(g) Excludes noncash charges of $181.2 million, principally at ThermoTrex and
Thermo TerraTech.
(h) Reflects a reversal of previously accrued severance costs
at Thermo Power.
(i) The balance of accrued severance at year-end 1999 represents amounts for planned severances,
principally at Thermo Power and Trex Medical. These payments will occur
primarily through the first half of 2000. The balance of accrued
abandoned-facility costs represents lease costs that will be paid through
2014.
12. Supplemental Cash Flow Information
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Cash Paid For
Interest $ 65,653 $ 54,135 $ 84,637
Income taxes 71,637 88,726 109,517
Noncash Activities
Conversions of Company and subsidiary convertible obligations $ 9,277 $ 11,911 $ 242,313
========== ========== ==========
Issuance of subsidiary subordinated convertible debentures in $ - $ 15,859 $ -
connection with exchange offer ========== ========== ==========
Exchange of subsidiary common stock for common stock of $ - $ 40,500 $ -
========== ========== ==========
subsidiary subject to redemption
Fair value of assets of acquired companies $ 622,955 $ 235,902 $ 694,675
Cash paid for acquired companies (398,372) (182,406) (551,075)
Issuance of short- and long-term obligations for acquired company (14,852) - -
Issuance of subsidiary stock options for acquired company - - (1,693)
Amount payable for acquired company - - (19,117)
---------- ---------- ----------
Liabilities assumed of acquired companies $ 209,731 $ 53,496 $ 122,790
========== ========== ==========
44
<PAGE>
13. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, short-term
obligations and current maturities of long-term obligations, advance payable to
affiliates, accounts payable, long-term obligations, common stock of subsidiary
subject to redemption, forward foreign exchange contracts, and interest rate
swaps. The carrying amounts of cash and cash equivalents, accounts receivable,
short-term obligations and current maturities of long-term obligations
(excluding convertible obligations), advance payable to affiliates, and accounts
payable approximate fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices (Note 2).
The carrying amount and fair value of the Company's long-term obligations,
common stock of subsidiary subject to redemption, and off-balance-sheet
financial instruments are as follows:
1999 1998
------------------------ --------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- -------------------------------------------------------- ------------ ------------ ----------- -----------
Current Maturities of Convertible Obligations $ 155,081 $ 152,103 $ - $ -
=========== =========== ========== ===========
Long-term Obligations:
Convertible obligations $ 1,381,805 $ 1,110,626 $1,603,094 $ 1,387,049
Other 184,169 183,217 205,488 213,452
----------- ----------- ---------- -----------
$ 1,565,974 $ 1,293,843 $1,808,582 $ 1,600,501
=========== =========== ========== ===========
Common Stock of Subsidiary Subject to Redemption $ 7,692 $ 6,553 $ 40,500 $ 32,250
=========== =========== ========== ===========
Off-balance-sheet Financial Instruments:
Forward foreign exchange contracts payable $ 400 $ 883
Interest rate swaps receivable $ 171 $ 989
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the respective
year ends. The fair value of common stock of subsidiary subject to redemption
was determined based upon quoted market prices.
The notional amounts of forward foreign exchange contracts outstanding,
excluding the contracts at SPLI discussed below, totaled $76.2 million and $31.6
million at year-end 1999 and 1998, respectively. Additionally, the notional
amount of the Company's interest rate swap agreements was $21.2 million and
$41.5 million at year-end 1999 and 1998, respectively (Note 5). The fair value
of such contracts and swap agreements is the estimated amount that the Company
would pay or receive upon termination of the contract, taking into account the
change in foreign exchange rates on forward foreign exchange contracts, and
market interest rates and the creditworthiness of the counterparties on interest
rate swap agreements. The forward foreign exchange contracts of SPLI that are
not hedges of firm commitments are recorded in the accompanying balance sheet at
fair value. The fair value of these contracts was $2.0 million at year-end 1999
and is included in other deferred items in the accompanying balance sheet (Note
11).
45
<PAGE>
14. Business Segment and Geographical Information
The Company's businesses are managed in four segments:
- Life Sciences: systems for drug discovery and medical diagnosis and for chemical
analysis at ultratrace levels;
- Optical Technologies: optical and energy-based analytical systems; high-power laser
systems; and industrial imaging, inspection, and measurement instruments;
- Measurement and Control: on-line systems for industrial process and quality control,
field-measurement instruments, and real-time sensors; and
- Power Generation: independent electric power generation.
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Business Segment Information
Revenues:
Life Sciences $ 762,843 $ 703,523 $ 665,065
Optical Technologies 802,008 677,079 715,296
Measurement and Control 747,336 518,616 457,228
Power Generation 176,573 174,899 168,112
Intersegment (a) (17,567) (18,312) (26,099)
---------- ---------- ----------
$2,471,193 $2,055,805 $1,979,602
========== ========== ==========
Income from Continuing Operations Before Income Taxes, Minority
Interest, and Extraordinary Items:
Life Sciences (b) $ 117,147 $ 101,065 $ 107,919
Optical Technologies (c) 83,546 74,859 98,804
Measurement and Control (d) 18,542 45,992 59,897
Power Generation (e) (82,902) 42,401 60,945
---------- ---------- ----------
Total Segment Income (f) 136,333 264,317 327,565
Corporate and Other (g) (98,847) (9,824) 25,556
---------- ---------- ----------
$ 37,486 $ 254,493 $ 353,121
========== ========== ==========
Total Assets:
Life Sciences $1,152,372 $1,224,230 $1,068,014
Optical Technologies 1,072,465 943,881 953,933
Measurement and Control 951,833 729,300 654,016
Power Generation 373,785 445,097 432,880
Corporate (h) 1,631,387 2,078,552 1,852,203
---------- ---------- ----------
$5,181,842 $5,421,060 $4,961,046
========== ========== ==========
Depreciation and Amortization:
Life Sciences $ 30,573 $ 28,816 $ 25,856
Optical Technologies 32,798 26,442 26,334
Measurement and Control 25,960 18,179 13,285
Power Generation 22,147 20,962 19,201
Corporate 2,163 1,748 1,417
---------- ---------- ----------
$ 113,641 $ 96,147 $ 86,093
========== ========== ==========
46
<PAGE>
14. Business Segment and Geographical Information (continued)
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------- ------------- -------------- ------------
Capital Expenditures:
Life Sciences $ 14,490 $ 15,815 $ 10,645
Optical Technologies 28,223 12,722 11,066
Measurement and Control 12,705 7,173 11,018
Power Generation 25,979 48,197 20,973
Corporate 5,820 2,621 1,333
---------- ----------- ----------
$ 87,217 $ 86,528 $ 55,035
========== =========== ==========
Geographical Information
Revenues (i):
United States $1,699,183 $ 1,402,254 $1,341,488
England 339,151 316,326 311,391
Other 779,396 608,188 593,263
Transfers among geographical areas (a) (346,537) (270,963) (266,540)
---------- ----------- ----------
$2,471,193 $ 2,055,805 $1,979,602
========== =========== ==========
Long-lived Assets (j):
United States $ 439,998 $ 481,884 $ 463,025
Sweden 66,339 93 754
Other 88,044 65,941 64,552
---------- ----------- ----------
$ 594,381 $ 547,918 $ 528,331
========== =========== ==========
Export Sales Included in United States Revenues Above (k) $ 435,558 $ 402,104 $ 400,524
========== =========== ==========
(a) Intersegment sales and transfers among geographical areas are accounted for
at prices that are representative of transactions with unaffiliated parties.
(b) Includes restructuring and other unusual income of $0.3 million in 1999 and
restructuring and other unusual costs of $5.9 million in 1998. Includes
charges of $2.8 million and $2.9 million in 1998 and 1997, respectively,
primarily for the sale of inventories revalued in connection with
acquisitions and other inventory provisions.
(c) Includes restructuring and other unusual costs of $1.7 million and $12.4
million in 1999 and 1998, respectively, and restructuring costs and other
unusual income, net, of $1.3 million in 1997. Includes charges of $3.2
million, $5.3 million, and $1.5 million in 1999, 1998, and 1997,
respectively, primarily for the sale of inventories revalued in connection
with acquisitions and other inventory provisions.
(d) Includes restructuring and other unusual costs of $30.2 million and $4.9
million in 1999 and 1998, respectively. Includes charges of $6.3 million and
$0.5 million in 1999 and 1998, respectively, primarily for the sale of
inventories revalued in connection with acquisitions and other inventory
provisions.
(e) Includes restructuring and other unusual costs, net, of $112.2 million and a
revenue reversal of $2.8 million in 1999 and restructuring and other unusual
income of $9.7 million in 1997.
(f) Segment income is income before corporate general and administrative
expenses, other income and expense, minority interest expense, income taxes,
and extraordinary items.
(g) Includes corporate general and administrative expenses, other income and
expense (Note 10), and gain on issuance of stock by subsidiaries. Includes
restructuring and unusual costs of $5.7 million at the Company's
headquarters and other expense of $3.6 million for impairment of investments
in 1999.
(h) Primarily cash and cash equivalents, short- and long-term investments, and
property and equipment at the Company's headquarters.
(i) Revenues are attributed to countries based on selling location.
(j) Includes property, plant, and equipment, net and other long-term tangible assets.
(k) In general, export revenues are denominated in U.S. dollars.
47
<PAGE>
15. Earnings (Loss) per Share
(In thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------- ------------ ------------ -----------
Basic
Income (Loss) from Continuing Operations Before Extraordinary Items $ (14,580) $ 114,676 $ 174,665
Income (Loss) from Discontinued Operations (111,462) 66,785 64,663
Provision for Loss on Disposal of Discontinued Operations (50,000) - -
Extraordinary Items 1,469 440 -
--------- --------- ---------
Net Income (Loss) $(174,573) $ 181,901 $ 239,328
--------- --------- ---------
Weighted Average Shares 157,987 161,866 152,489
--------- --------- ---------
Basic Earnings (Loss) per Share:
Continuing operations before extraordinary items $ (.09) $ .71 $ 1.15
Discontinued operations (1.02) .41 .42
Extraordinary items .01 - -
--------- --------- ---------
$ (1.10) $ 1.12 $ 1.57
======== ========= =========
Diluted
Income (Loss) from Continuing Operations Before Extraordinary Items $ (14,580) $ 114,676 $ 174,665
Income (Loss) from Discontinued Operations (111,462) 66,785 64,663
Provision for Loss on Disposal of Discontinued Operations (50,000) - -
Extraordinary Items 1,469 440 -
--------- --------- ---------
Net Income (Loss) (174,573) 181,901 239,328
Effect of:
Convertible obligations - - 18,814
Majority-owned subsidiaries' dilutive securities - continuing (3,071) (4,871) (8,853)
operations
Majority-owned subsidiaries' dilutive securities - discontinued (145) (235) (1,072)
operations --------- --------- ---------
Income (Loss) Available to Common Shareholders, as Adjusted $(177,789) $ 176,795 $ 248,217
--------- --------- ---------
Weighted Average Shares 157,987 161,866 152,489
Effect of:
Convertible obligations - - 21,596
Stock options - 1,107 1,997
--------- --------- ---------
Weighted Average Shares, as Adjusted 157,987 162,973 176,082
--------- --------- ---------
Diluted Earnings (Loss) per Share:
Continuing operations before extraordinary items $ (.11) $ .67 $ 1.05
Discontinued operations (1.02) .41 .36
Extraordinary items .01 - -
--------- --------- ---------
$ (1.13) $ 1.08 $ 1.41
========= ========= =========
48
<PAGE>
15. Earnings (Loss) per Share (continued)
Options to purchase 12,200,000, 3,845,000, and 1,160,000 shares of common
stock were not included in the computation of diluted earnings (loss) per share
for 1999, 1998, and 1997, 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 (loss) per share for 1999 and 1998
excludes the effect of assuming the conversion of the Company's $568.8 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 (loss) per share for 1999 excludes the effect of
assuming the repurchase of 2,367,000 shares of Company common stock at a
weighted average exercise price of $14.06 per share in connection with put
options (Note 7), because the effect would be antidilutive.
16. Comprehensive Income
Comprehensive income combines net income (loss) and "other comprehensive
items," which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments.
Accumulated other comprehensive items in the accompanying balance sheet
consists of the following:
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Cumulative Translation Adjustment $(62,604) $(12,120)
Net Unrealized Gains on Available-for-sale Investments 7,688 1,254
-------- --------
$(54,916) $(10,866)
======== ========
Unrealized gains (losses) on available-for-sale investments, a component
of other comprehensive items in the accompanying statement of comprehensive
income and shareholders' investment, includes the following:
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Unrealized Holding Gains (Losses) Arising During the Year (net $7,356 $ (1,442) $ 4,941
of income tax provision (benefit) of $4,246, $(603), and $3,124)
Reclassification Adjustment for Gains Included in Net Income (922) (7,687) (3,009)
(Loss) (net of income tax provision of $615, $5,125, and $2,006) ------ -------- --------
Net Unrealized Gains (Losses) (net of income tax provision $6,434 $ (9,129) $ 1,932
(benefit) of $3,631, $(5,728), and $1,118) ====== ======== ========
17. 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 continuing Thermo Electron
will focus on its core business of measurement and detection instruments. This
business consists of Thermo Instrument and its subsidiaries, Thermedics
Detection, and Thermo Sentron. The Company's plans also include spinning off as
a dividend to Company shareholders Thermo Fibertek and a newly created medical
products company that will focus on patient monitoring and respiratory
equipment.
49
<PAGE>
17. Proposed Reorganization and Discontinued Operations (continued)
In addition to the majority-owned subsidiaries the Company had previously
announced its intention to repurchase, the Company intends to repurchase the
publicly-traded shares it does not already own in Thermo Optek, ThermoQuest,
Thermo BioAnalysis, Metrika Systems, ONIX Systems, Thermo Instrument, and
Thermedics. The Company also announced the terms of its previously announced
repurchases of Thermo Sentron, Thermedics Detection, and Thermo Ecotek.
Because Thermo Instrument owns more than 90% of the outstanding shares of
Thermo Optek and ThermoQuest common stock, each of these companies is expected
to be repurchased through a short-form merger at $15.00 and $17.00 per share,
respectively. Also, Thermo Instrument intends to conduct 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%. If the tender offers are
successful, each of these companies would then be spun into Thermo Instrument
through a short-form merger at the same prices as the tender offers.
Thermedics has commenced 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%. If
the tender offers are successful, each of these companies would then be spun
into Thermedics through a short-form merger at the same prices as the tender
offers.
The Company also plans to conduct 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 Thermo Electron 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 SEC of necessary filings related to the
medical products company, final Company Board of Directors approvals, 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 Optek, ThermoQuest, and Thermo Ecotek will
require review by the SEC of necessary filings. The tender offers for Thermo
BioAnalysis, Metrika Systems, ONIX Systems, Thermedics Detection, and Thermo
Sentron, as well as 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 Thermo Instrument's,
Thermedics', and/or the Company's (as applicable) equity ownership of each of
the companies to be repurchased reaches at least 90%; and other customary
conditions.
The short-form mergers for Thermo Optek, ThermoQuest, and Thermo Ecotek
are expected to be completed by the end of the second quarter of 2000. Thermo
Instrument and Thermedics expect to conduct their respective tender offers
during the second quarter of 2000. The Company expects to conduct the exchange
offers for Thermo Instrument and Thermedics during the second quarter of 2000.
In March 1999, Thermedics acquired, through a merger, all of the
outstanding shares of Thermo Voltek common stock that Thermedics and the Company
did not already own. Subsequent to this transaction, Thermedics and the Company
owned approximately 97% and 3%, respectively, of the outstanding common stock of
Thermo Voltek, which ceased to be publicly traded.
50
<PAGE>
17. Proposed Reorganization and Discontinued Operations (continued)
In May 1999, Thermo Power entered into a definitive agreement and plan of
merger with the Company pursuant to which the Company would acquire, for $12.00
per share in cash, all of the outstanding shares of common stock of Thermo Power
not already owned by the Company. This merger was completed in October 1999 and
the common stock of Thermo Power has ceased to be publicly traded.
In May 1999, ThermoSpectra entered into a definitive agreement and plan of
merger with Thermo Instrument pursuant to which Thermo Instrument would acquire,
for $16.00 per share in cash, all of the outstanding shares of common stock of
ThermoSpectra not already owned by Thermo Instrument or the Company. This merger
was completed in December 1999. In July 1999, Thermo Vision entered into a
definitive agreement and plan of merger with Thermo Instrument pursuant to which
Thermo Instrument would acquire, 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. This merger was completed in January 2000.
ThermoSpectra's and Thermo Vision's common stock have ceased to be publicly
traded.
In October 1999, Thermo TerraTech 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, Thermo TerraTech shareholders would receive Company
common stock valued between $7.25 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 and Randers Killam 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. These mergers are expected to be completed in the second
quarter of 2000.
In December 1999, ThermoLase 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
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 (Note 1)
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
second 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
.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 second quarter of 2000.
51
<PAGE>
17. Proposed Reorganization and Discontinued Operations (continued)
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. In accordance with the provisions of APB No. 30 concerning
reporting the effects of disposal of a segment of a business, the Company has
classified the results of these businesses, as well as the results of the
businesses being spun off as dividends (collectively, "the discontinued
businesses"), as discontinued in the accompanying statement of operations. In
addition, the net assets of the discontinued businesses were classified as net
assets of discontinued operations in the accompanying balance sheet. Current net
assets of discontinued operations primarily consisted of cash, inventories, and
accounts receivable net of certain liabilities, primarily accrued expenses and
accounts payable. Long-term net assets of discontinued operations primarily
consisted of machinery and equipment and cost in excess of net assets of
acquired companies. In addition, long-term net assets of discontinued operations
include subordinated convertible debentures of Thermo Cardiosystems and Thermo
Fibertek (Note 5).
Summary operating results of the discontinued businesses were as follows:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Revenues $1,832,557 $1,811,791 $1,578,718
Costs and Expenses 2,016,346 1,674,775 1,443,372
---------- ---------- ----------
Income (Loss) from Discontinued Operations Before Income (183,789) 137,016 135,346
Taxes, Minority Interest, and Extraordinary Items
Income Tax (Provision) Benefit 23,452 (66,109) (42,743)
Minority Interest (Expense) Income 48,227 (8,776) (27,940)
---------- ---------- ----------
Income (Loss) from Discontinued Operations Before (112,110) 62,131 64,663
Extraordinary Items
Extraordinary Items, Net of Income Taxes and Minority Interest 648 4,654 -
---------- ---------- ----------
Income (Loss) from Discontinued Operations $ (111,462) $ 66,785 $ 64,663
========== ========== ==========
The Company expects proceeds in 2000 from the sale of businesses of
approximately $1 billion. In 1999, the Company recorded a charge of $50 million,
including a provision for income taxes of $174 million, for the estimated loss
on disposal of the discontinued businesses. The charge was net of $42 million of
income, representing the estimated net of tax operating results of the
discontinued businesses through the expected dates of disposition. The charge
was determined using management's best estimate of the selling prices of the
businesses and their estimated results through the dates of sale. It is
reasonably possible that such amounts could differ materially in the near term
from the amounts estimated in the accompanying statement of operations. Any
difference from the amounts recorded would be reported as an adjustment to the
loss on disposal of discontinued operations. 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 these businesses by the end of 2000. The Company expects to
complete the spinoffs of Thermo Fibertek and the medical products company by
that time or shortly thereafter.
52
<PAGE>
18. Unaudited Quarterly Information
(In thousands except per share amounts)
1999 First (a) Second (b) Third (c) Fourth (d)
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
Revenues $555,750 $632,166 $624,292 $ 658,985
Gross Profit 243,638 281,183 276,832 291,046
Income (Loss) from Continuing Operations Before 18,069 (86,351) 31,412 22,290
Extraordinary Items
Income (Loss) Before Extraordinary Items 28,299 (235,188) 36,329 (5,482)
Net Income (Loss) (e) 28,299 (235,188) 36,329 (4,013)
Earnings (Loss) per Share from Continuing Operations:
Basic .11 (.55) .20 .14
Diluted .11 (.55) .19 .13
Earnings (Loss) per Share (e):
Basic .18 (1.49) .23 (.03)
Diluted .17 (1.49) .22 (.04)
1998 First Second Third (f) Fourth
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
Revenues $499,870 $493,060 $518,658 $ 544,217
Gross Profit 229,273 229,637 227,000 242,642
Income from Continuing Operations Before Extraordinary 35,135 40,933 13,774 24,834
Items
Income Before Extraordinary Items 65,493 61,785 17,418 36,765
Net Income (g) 65,493 61,785 17,582 37,041
Earnings per Share from Continuing Operations (g):
Basic .22 .25 .08 .16
Diluted .20 .23 .08 .15
Earnings per Share:
Basic .41 .37 .11 .23
Diluted .37 .34 .10 .23
(a) Reflects restructuring and related costs, net, of $6.2 million from
continuing operations and restructuring and related income, net,
of $2.1 million from discontinued operations.
(b) Reflects restructuring and related costs, net, of $176.1 million and
$267.7 million from continuing operations and discontinued operations,
respectively.
(c) Reflects restructuring and related income, net, of $4.6 million from
continuing operations and restructuring and related costs, net, of $12.5
million from discontinued operations.
(d) Reflects restructuring and related costs, net, of $4.7 million from
continuing operations and restructuring and related income, net, of
$4.4 million from discontinued operations.
(e) Reflects extraordinary items, net of taxes, of $1.5 million in the fourth quarter.
(f) Reflects restructuring and related costs, net, of $30.8 million and $26.3 million from
continuing operations and discontinued operations, respectively.
(g) Reflects extraordinary items, net of taxes and minority interest, of $0.1
million and $0.3 million in the third and fourth quarters, respectively.
53
<PAGE>
To the Shareholders and Board of Directors of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of January 1,
2000, and January 2, 1999, and the related consolidated statements of
operations, cash flows, and comprehensive income and shareholders' investment
for each of the three years in the period ended January 1, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 1, 2000, and January 2,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended January 1, 2000, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 17, 2000 (except with respect to the matters
discussed in Note 17, as to which the date is March 7, 2000)
54
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
Overview
The Company develops and manufactures a broad range of products that are
sold worldwide. The Company expands the product lines and services it offers by
developing and commercializing its own core technologies and by making strategic
acquisitions of complementary businesses. In January 2000, the Company announced
a major reorganization plan under which it will focus on its core measurement
and detection instrument businesses. The Company will also retain its Thermo
Ecotek subsidiary for the near term as it explores the best way to exit this
business while maximizing shareholder value (Note 17). As part of this
reorganization, the Company plans to spin off in the form of a dividend its
Thermo Fibertek paper recycling subsidiary and a medical products company that
develops, manufactures, and markets cardio-respiratory and neurologic monitoring
and diagnostic equipment. In addition, the Company plans to divest the remaining
businesses in the former Biomedical and Emerging Technologies and Resource
Recovery segments, as well as the Company's Thermo TerraTech environmental
services businesses and its Thermo Power subsidiary, both from the former Energy
and Environment segment. The results of these businesses, including the units
that will be spun off, have been presented as discontinued operations in the
accompanying financial statements. The Company's continuing operations fall into
four business segments: Life Sciences, Optical Technologies, Measurement and
Control, and Power Generation.
An important component of the Company's strategy is to establish leading
positions in its markets through the application of proprietary technology,
whether developed internally or acquired. Another component that has
historically contributed to the growth of the Company's segment income (as
defined in the results of operations below), has been the ability to identify
attractive acquisition opportunities, complete those acquisitions, and derive a
growing income contribution from the newly acquired businesses as they are
integrated into the Company's business segments and their profitability
improves.
Although the Company's four segments are diversified in terms of
technology, product offerings, and geographic markets served, the future
financial performance of the Company as a whole will be largely affected by the
strength of worldwide economies and the continued adoption and diligent
enforcement of health, safety, and environmental regulations and standards,
among other factors.
Results of Operations
1999 Compared With 1998
Continuing Operations
Sales in 1999 were $2.47 billion, an increase of $415.4 million, or 20%,
over 1998. Segment income decreased to $292.4 million in 1999 from $296.1
million in 1998, excluding restructuring and other unusual costs, net, of $143.8
million and $23.2 million in 1999 and 1998, respectively, described below, and
inventory and other provisions of $12.3 million and $8.6 million in 1999 and
1998, respectively. Operating income, including these items, was $99.0 million
in 1999, compared with $233.7 million in 1998. Restructuring actions at the
Company's continuing operations in 1999 occurred principally as a result of
exiting certain operations with low current or expected profitability and did
55
<PAGE>
1999 Compared With 1998 (continued)
not include significant cost reduction measures. Restructuring actions
undertaken in 1998 were substantially completed in 1999 and resulted in
annualized cost savings of approximately $29 million, including $8 million in
the Life Sciences segment, $16 million in the Optical Technologies segment, and
$5 million in the Measurement and Control segment, beginning primarily in the
second half of 1999. The Company's discontinued operations also undertook
significant restructuring actions during 1999 (Note 11).
Life Sciences
Sales from the Life Sciences segment increased 8% to $762.8 million in
1999. Sales increased by $59.6 million due to acquisitions. The unfavorable
effects of currency translation, due to the strengthening of the U.S. dollar
relative to foreign currencies in countries in which businesses within the Life
Sciences segment operate, decreased revenues by $9.9 million in 1999. Excluding
the effect of acquisitions and currency translation, revenues increased $9.6
million. Revenues at Thermo BioAnalysis' existing operations increased $17.3
million due to higher demand in Asia and the expansion of its sales and
distribution channels. This increase was offset in part by lower revenues at
ThermoQuest, primarily due to a $5.8 million decline in revenues in Asia as a
result of lower shipments to Japan, and $3.2 million of lower demand for its
Fourier-transform mass spectrometers, offset in part by increased demand for
other mass spectrometers.
Segment income margin (segment income divided by revenues), excluding
unusual income of $0.3 million in 1999 and restructuring costs of $5.9 million
in 1998, was relatively unchanged at 15.3% in 1999 and 15.2% in 1998. In 1998,
segment income was reduced by inventory provisions of $2.8 million. Excluding
the inventory provisions in 1998, segment income margin was 15.6%. The decrease
in segment income margin in 1999 resulted from higher selling costs including
the expansion of selling efforts in China and India. Unusual income of $0.3
million in 1999 was the reversal of previously recorded restructuring costs, and
the restructuring costs recorded in 1998 were primarily for severance and
abandoned-facility payments (Note 11).
Optical Technologies
Sales from the Optical Technologies segment increased 18% to $802.0
million in 1999. Sales increased by $147.7 million due to acquisitions,
primarily Spectra-Physics Lasers, Inc. (SPLI), in which Thermo Instrument
acquired a majority interest in February 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, decreased
revenues by $8.2 million in 1999. Excluding the effect of acquisitions and
currency translation, revenues decreased $14.6 million. The decrease in revenues
was primarily due to a $21.3 million decline in revenues at ThermoSpectra's
existing businesses as a result of a continued downturn in the semiconductor
industry in the first half of 1999. ThermoSpectra's existing businesses had
modest revenue growth in the last half of 1999. Revenues from Thermo Optek's
existing operations increased $7.2 million, primarily due to increased demand
from the semiconductor industry and higher sales of its V150 molecular-beam
epitaxy (MBE) systems.
Segment income margin, excluding restructuring costs of $1.7 million and
$12.4 million in 1999 and 1998, respectively, decreased to 10.6% in 1999 from
12.9% in 1998. Excluding a charge for the sale of inventories revalued at the
date of acquisition of $3.2 million in 1999 and inventory provisions of $5.3
million in 1998, segment income margin was 11.0% and 13.7% in 1999 and 1998,
respectively. Segment income margin decreased due to the inclusion of SPLI. The
segment income margin for SPLI was 4.9% in 1999, excluding a charge for the sale
of inventories revalued at the date of acquisition. SPLI experienced a decline
in sales from its prior-year preacquisition results and undertook restructuring
actions in 1999. In addition, segment income margin decreased due to higher
research and development expenses for new products including Thermo Optek's V150
MBE system. The restructuring costs in both years in this segment were
employee-related costs including severance, pension, and relocation costs, as
well as abandoned-facility payments.
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<PAGE>
1999 Compared With 1998 (continued)
Measurement and Control
Sales increased 44% to $747.3 million in the Measurement and Control
segment in 1999. Sales increased by $299.8 million due to acquisitions,
primarily that of Spectra-Physics AB's wholly owned businesses, acquired in
February 1999. The unfavorable effects of currency translation, due to the
strengthening of the U.S. dollar relative to foreign currencies in countries in
which the segment operates, caused revenues to decrease by $5.8 million in 1999.
Excluding the effect of acquisitions and currency translation, revenues
decreased $65.3 million. Revenues from ONIX Systems' existing operations
decreased $19.2 million, primarily as a result of reduced discretionary capital
spending by companies in the process control industry and by the oil and gas
production sector. Energy prices declined precipitously in 1998 and, while
prices have rebounded in 1999, capital equipment spending has not returned to
prior levels. In addition, lower prices for natural resources in the first half
of 1999 reduced spending in that industry during all of 1999. Revenues from
Metrika Systems' existing operations decreased $11.9 million, primarily due to a
reduction in spending by raw-material producers, particularly in the cement
sector due to depressed pricing. Revenues from this segment's quality assurance
and safety products business decreased $13.9 million, and revenues at its power
electronics and test equipment business decreased $9.7 million due to lower
demand and the sale of a business unit which had revenues of $4.7 million in
1998. The decline in sales of quality assurance and security products resulted
from lower demand for near-infrared analyzers and ultratrace chemical detectors
and, to a lesser extent, explosives detection devices following completion in
early 1998 of a contract with the Federal Aviation Administration (FAA). 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. The decline in demand for power
electronics and test equipment resulted from softness in the semiconductor
industry 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. The
balance of the decrease in revenues from existing operations resulted from lower
sales of precision weighing and inspection equipment in markets outside of North
America and lower demand for nuclear-sensing products.
Segment income margin, excluding restructuring and unusual costs of $30.2
million and $4.9 million in 1999 and 1998, respectively, decreased to 6.5% in
1999 from 9.8% in 1998. Excluding a $3.5 million charge for the sale of
inventories revalued at the date of acquisition in 1999 and provisions for
inventory of $2.8 million and $0.5 million in 1999 and 1998, respectively,
segment income margin was 7.4% and 9.9% in 1999 and 1998, respectively. Segment
income margin decreased due primarily to the decline in revenues at certain
businesses described above. In addition, the businesses of Spectra-Physics that
are reported in this segment had an operating income margin of 8.5%, excluding a
charge for the sale of inventories revalued at the date of acquisition. In 1999,
this segment incurred a restructuring charge of $30.4 million in connection with
the planned sale of its power electronics and test equipment business. The
charge primarily represents a reduction in the carrying value of this business
to the expected proceeds from its sale. The restructuring costs in 1998 include
severance and abandoned-facility payments, $1.6 million related to the
resolution of an arbitration proceeding, and $0.8 million of a write-off of cost
in excess of net assets of acquired companies for an operating unit that was
closed (Note 11).
Power Generation
Sales from the Power Generation segment, which represents the Company's
Thermo Ecotek subsidiary, were $176.6 million in 1999, compared with $174.9
million in 1998. Revenues increased $6.5 million from the acquisition of a power
facility in Germany in September 1999, $4.8 million from the acquisition of a
gas gathering system and two gas processing facilities in May 1999, $4.7 million
from peak period operation of new California facilities, and $3.5 million from
the expansion of the Czech Republic plant. These increases were offset in part
by a reduction in revenues of $15.1 million at Thermo Ecotek's Mendota and
Woodland plants due to the conclusion of their fixed price contract periods and
by a $2.3 million decline in revenues as a result of an agreement to terminate a
power-sales agreement for
57
<PAGE>
1999 Compared With 1998 (continued)
a plant in Maine. The 1999 and 1998 periods included revenues of $1.1 million
and $1.9 million, respectively, of developer fees for the transfer to third
parties of rights to two power-sales agreements. During 1999, a dispute arose
between Thermo Ecotek and Southern California Edison (SCE), the utility that
purchases the output of Thermo Ecotek's Delano, California, plants. SCE
interpreted that the terms of its contract with the Delano facilities permit it
to pay a reduced rate in 1999 for power output during nonpeak periods, as
defined. Although Thermo Ecotek contests this interpretation, SCE has adjusted
its recent payments to reflect the lower rates for all of 1999. As a result,
Thermo Ecotek's revenues in 1999 were lowered by $2.8 million. Thermo Ecotek is
considering its alternatives with respect to this claim. As noted below, the
periods during which Thermo Ecotek received fixed rates for power at its four
principal California facilities ended in 1999. The change from fixed rates to
avoided cost rates under the terms of the contracts, as discussed below, will
have a significant adverse effect on Thermo Ecotek's revenues and profitability.
Segment income margin, excluding restructuring and unusual costs, net, of
$112.2 million in 1999, was 16.6% in 1999 and 24.2% in 1998. Had the dispute
with SCE described above not occurred, Thermo Ecotek's segment income margin in
1999 would have been 18.2%. The decrease in segment income margin resulted in
part from $8.8 million of lower profits at Thermo Ecotek's Mendota plant due to
the facility reaching the end of its fixed price contract period. In addition,
Thermo Ecotek had $0.8 million lower income from fees in 1999, as described
above in the discussion of revenues. Restructuring and unusual costs, net at
Thermo Ecotek of $112.2 million resulted principally from a decision to close
its coal-beneficiation facility and from impairment of its Delano facilities
following an agreement to terminate their power-sales agreements. The net
expense includes $13.5 million of unusual income associated with terminating the
power-sales agreement for Thermo Ecotek's Gorbell facility in Maine (Note 11).
The Gorbell facility's revenues and operating income in 1999, before the effect
of the contract termination, were $7.7 million and $1.3 million, respectively.
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 require Pacific Gas & Electric (PG&E), in the case of Mendota and
Woodland, and 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, although Thermo Ecotek believes that this change to avoided cost
rates occurred six months earlier than the power-sales agreements provided.
Thermo Ecotek is considering its alternatives concerning this dispute. 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 and
$30.1 million in 1998. The results of the Woodland facility were approximately
breakeven in both periods, 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 1999 revenues and operating income were affected by
the transition to avoided cost rates. The plant's revenues and operating income
were $21.0 million and $0.5 million, respectively in 1999, and $30.0 million and
$9.3 million, respectively in 1998. 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. As a result of reaching this agreement, Thermo
Ecotek expects that the results of the Delano facilities will be reduced to
breakeven or a nominal loss in 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 avoided cost rates for all of 1999 at its
58
<PAGE>
1999 Compared With 1998 (continued)
four principal California plants, revenues would have been approximately $64
million lower. In anticipation of these expected declines in revenues and
operating income, Thermo Ecotek may continue to explore other options for its
biomass facilities, including disposal or repowering.
Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense
As a result of the sale of stock by subsidiaries and the issuance of stock
upon conversion of convertible debentures, the Company recorded gains of $18.6
million in 1998. See Notes 1 and 9 of Notes to Consolidated Financial Statements
for a more complete description of these transactions. The Company recorded
minority interest expense of $19.0 million and $35.2 million in 1999 and 1998,
respectively. Minority interest expense decreased in 1999 primarily as a result
of restructuring and other unusual costs at the Company's majority-owned
subsidiaries. Minority interest expense in 1998 includes $3.3 million related to
gains recorded by a majority-owned subsidiary of the Company as a result of the
sale of stock by its subsidiaries and the issuance of stock by its subsidiaries
upon conversion of convertible debentures.
Other Income (Expense), Net
The Company reported other expense, net, of $61.5 million in 1999, and
other income, net, of $2.2 million in 1998. Other income (expense), net includes
interest income, interest expense, equity in earnings (losses) of unconsolidated
subsidiaries, gains on investments, net, and other income (expense), net (Note
10). Interest income decreased to $43.9 million in 1999 from $78.3 million in
1998. 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 increased to $97.0 million in
1999 from $90.3 million in 1998, as a result of the October 1998 issuance of
$150.0 million principal amount of senior notes (Note 5), offset in part by the
repayment of $69.3 million of long-term obligations in 1999.
The Company incurred a loss of $7.3 million in 1999 from its equity in the
results of unconsolidated subsidiaries, including $11.1 million of unusual
charges related to Thermo Instrument's investment in FLIR (Note 3). Excluding
the unusual charges, equity in earnings of unconsolidated subsidiaries increased
to $3.8 million in 1999 from $0.2 million in 1998, principally as a result of
earnings from FLIR. During 1999, gain on investments, net decreased to $1.5
million from $12.8 million in 1998, due to the sale in 1998 of certain equity
securities that resulted in a gain. In 1999, other expense, net also includes
$2.3 million of losses on foreign exchange contracts (Note 11).
Income Taxes
The Company's effective tax rate was 88% and 41% in 1999 and 1998,
respectively. Excluding nontaxable gains from issuance of subsidiary stock in
1998, the Company's effective tax rate was 44%. The effective tax rates vary
from the statutory federal income tax rate primarily due to state income taxes
and nondeductible expenses, including in 1999, the write-off of cost in excess
of net assets of acquired companies. Excluding the write-off of cost in excess
of net assets of acquired companies, the Company's tax rate was 60% in 1999. The
effective tax rate increased due to the larger relative effect of nondeductible
expenses and foreign losses not benefited due to lower income levels as a result
of restructuring actions in 1999.
Contingent Liabilities
At year-end 1999, the Company was contingently liable with respect to
certain lawsuits (Note 6). In the opinion of management, the ultimate liability
for all such matters will not be material to the Company's financial position,
but an unfavorable outcome in one or more of the matters described above could
materially affect the results of operations or cash flows for a particular
quarter or annual period.
59
<PAGE>
1999 Compared With 1998 (continued)
Discontinued Operations
The Company's discontinued operations incurred a loss of $111.5 million in
1999 and had income of $66.8 million in 1998. The amounts in both periods are
net of taxes and minority interest. Excluding restructuring and unusual charges
(Note 11), the discontinued operations had income of $54.2 million and $81.8
million in 1999 and 1998, respectively, net of income taxes and minority
interest. The decrease resulted primarily from a decrease in gain on issuance of
stock by subsidiaries in 1999. In addition, Trex Medical and Thermo Coleman
incurred losses in 1999, compared with profitable operations in 1998. Trex
Medical lost a significant customer in the fourth quarter of 1998 and had lower
demand for general purpose X-ray and radiographic/fluoroscopic systems. Thermo
Coleman had losses at two business units in its Thermo Information Solutions'
subsidiary that were sold prior to year end. These decreases in income were
offset in part by higher income at the Company's biomedical units other than
Trex Medical.
The Company recorded a provision in 1999 of $50 million for the estimated
loss on the disposal of discontinued operations. This amount includes a tax
provision of $174 million. The provision for loss on disposal is reduced by an
estimate of the earnings of the discontinued operations of $42 million, net of
tax and minority interest, through the expected dates of disposal. The charge
was determined using management's best estimate of the selling prices of the
businesses and their estimated results through the dates of disposal. While the
Company is not currently aware of any known trends, events, or uncertainties
involving discontinued operations, it is reasonably possible that such amounts
could differ materially from the amounts estimated in the accompanying statement
of operations. Any difference from the amounts recorded would be reported as an
adjustment to the loss on disposal of discontinued operations.
1998 Compared With 1997
Continuing Operations
Sales in 1998 were $2.06 billion, an increase of $76.2 million, or 4%,
over 1997. Segment income, excluding inventory provisions of $8.6 million and
restructuring and other unusual costs, net, of $23.2 million in 1998 and a
charge for the sale of inventories revalued at the date of acquisition of $3.6
million, inventory provisions of $0.8 million, and restructuring costs and other
unusual income, net, of $11.0 million in 1997, described below, decreased to
$296.1 million in 1998 from $321.0 million in 1997. Operating income, including
inventory provisions and restructuring and other unusual costs, net, was $233.7
million in 1998, compared with $296.4 million in 1997. The restructuring actions
commenced in 1998 included consolidation of facilities and reductions in head
count and were substantially completed by mid-1999. These actions resulted in
annualized cost savings of approximately $29 million, including $8 million in
the Life Sciences segment, $16 million in the Optical Technologies segment, and
$5 million in the Measurement and Control segment, beginning primarily in the
second half of 1999.
Life Sciences
Sales from the Life Sciences segment increased 6% to $703.5 million in
1998. Sales increased by $59.0 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 Life Sciences segment
operates, decreased revenues by $4.6 million in 1998. Excluding the effect of
acquisitions and currency translation, revenues decreased $15.9 million.
Revenues from ThermoQuest's existing operations decreased $15.5 million,
primarily as a result of a decline in sales to customers in Asia of $7.8 million
due to unstable economic conditions in that region and heightened competition in
two of its product lines.
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<PAGE>
1998 Compared With 1997 (continued)
Segment income margin, excluding restructuring costs of $5.9 million in
1998, decreased to 15.2% in 1998 from 16.2% in 1997. Excluding inventory
provisions of $2.8 million in 1998 and charges for the sale of inventories
revalued at the date of acquisition of $2.9 million in 1997, segment income
margin was 15.6% and 16.7% in 1998 and 1997, respectively. Segment income margin
decreased due to increased selling costs including the opening of eight sales
and service offices in 1998 and the last half of 1997 at Thermo BioAnalysis. The
restructuring costs in 1998 were primarily severance and abandoned-facility
payments (Note 11).
Optical Technologies
Sales from the Optical Technologies segment decreased 5% to $677.1 million
in 1998. Sales increased by $33.7 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 $7.1 million in 1998. Excluding the effects of
acquisitions and currency translation, revenues decreased $64.8 million.
Revenues decreased at Thermo Optek by $34.3 million primarily due to lower sales
to Asia and, to a lesser extent, the semiconductor industry. Revenues from
ThermoSpectra's existing operations decreased $21.4 million, primarily due to a
downturn in the semiconductor industry. In addition, revenues from Thermo Vision
decreased due to the slowdown in the semiconductor industry and the economic
crisis in Asia.
Segment income margin, excluding restructuring costs of $12.4 million in
1998 and restructuring costs and unusual income, net, of $1.3 million in 1997,
decreased to 12.9% in 1998 from 13.6% in 1997. Excluding inventory provisions of
$5.3 million and $0.8 million in 1998 and 1997, respectively, and charges for
the sale of inventories revalued at the date of acquisition of $0.7 million in
1997, segment income margin was 13.7% in 1998 and 13.8% in 1997. The
restructuring costs in 1998 were primarily severance and abandoned-facility
payments. The restructuring costs and unusual income, net in 1997 included a
gain on the sale of a business of $2.2 million and $0.9 million of severance
costs (Note 11).
Measurement and Control
Sales increased 13% in the Measurement and Control segment in 1998 to
$518.6 million. Sales increased by $88.5 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 $3.2 million in 1998. Excluding the effect of
acquisitions and currency translation, revenues decreased $23.9 million. Sales
of quality assurance and safety products decreased $11.0 million, due in part to
$6.6 million of shipments of quality assurance systems in 1997 for the
fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its
existing installed base. In addition, sales of explosives-detection systems
decreased by $2.1 million in 1998, following completion of a contract to provide
security systems to the FAA. Sales of power electronics and test equipment
decreased $6.7 million due to lower demand from the semiconductor industry. In
addition, revenues decreased at other businesses primarily due to lower demand
in international markets.
Segment income margin, excluding restructuring and unusual costs of $4.9
million in 1998, decreased to 9.8% in 1998 from 13.1% in 1997. Excluding
inventory provisions of $0.5 million in 1998, segment income was 9.9% in 1998.
The decrease resulted from lower sales in certain existing businesses and lower
operating margins at acquired businesses. The restructuring and unusual costs in
1998 were primarily severance and abandoned-facility payments as well as a
charge of $1.6 million for the resolution of an arbitration proceeding and $0.8
million for the write-off of cost in excess of net assets of acquired businesses
relating to an operating unit that was closed (Note 11).
Power Generation
Sales from the Power Generation segment increased to $174.9 million in
1998 from $168.1 million in 1997, primarily due to the inclusion of $8.4 million
of revenues from newly acquired power operations in the Czech Republic and
higher contractual energy rates at certain facilities. In addition, the 1998
period included $1.9 million of
61
<PAGE>
1998 Compared With 1997 (continued)
developer fees received for the transfer of Thermo Ecotek's rights to certain
power-generating equipment, while the 1997 period included $8.2 million of
revenue from a contractual settlement with a utility, relating to a cogeneration
facility Thermo Ecotek had planned to develop and construct on Staten Island,
New York.
Segment income margin, excluding unusual income of $9.7 million in 1997
described below, was 24.2% in 1998 and 30.5% in 1997. The decrease resulted
primarily from the inclusion in 1997 of $8.2 million of segment income from the
contractual settlement with a utility. In addition, Thermo Ecotek's
coal-beneficiation facility in Gillette, Wyoming, began operations in April 1998
and ceased operations in May 1999. In 1998, the facility's losses totaled $7.6
million due to operational issues that led to its closure. The decrease in
segment income at Thermo Ecotek was offset in part by higher contractual energy
rates at certain facilities and fee income of $1.9 million described above.
During 1997, the Company settled two legal cases in which it was a
defendant, concerning development of a proposed waste-to-energy facility and
development and construction of an alternative-energy facility. These matters
were settled for amounts less than the damages that had been sought by the
plaintiffs and less than the amounts that had been reserved by the Company. As a
result, in 1997, the Company reversed $9.7 million of reserves previously
established for these matters (Note 11).
Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense
As a result of the sale of stock by subsidiaries and the issuance of stock
by subsidiaries upon conversion of convertible debentures, the Company recorded
gains of $18.6 million in 1998 and $63.5 million in 1997. Minority interest
expense decreased to $35.2 million in 1998 from $46.5 million in 1997. Minority
interest expense includes $3.3 million in 1998 and $15.7 million in 1997 related
to gains recorded by the Company's majority-owned subsidiaries as a result of
the sale of stock and the issuance of stock upon conversion of convertible
debentures, by their subsidiaries. Minority interest expense decreased primarily
as a result of lower income at the Company's majority-owned subsidiaries.
Other Income (Expense), Net
The Company reported other income, net, of $2.2 million in 1998, and other
expense, net, of $6.8 million in 1997 (Note 10). Interest income increased to
$78.3 million in 1998 from $72.7 million in 1997 due to the investment of the
net proceeds of $290.1 million from an equity offering in April 1998, offset in
part by cash expended for the purchase of subsidiary securities and, to a lesser
extent, acquisitions. Interest expense increased to $90.3 million in 1998 from
$84.2 million in 1997, primarily due to the October 1998 issuance of $150.0
million principal amount of senior notes (Note 5) and the January 1998 issuance
by Thermo Instrument of $250.0 million principal amount of 4% subordinated
convertible debentures. These factors were offset in part by the repayment of
$58.2 million of long-term obligations in 1998. Gain on investments increased to
$12.8 million in 1998 from $5.0 million in 1997, due to the sale in 1998 of
certain equity securities.
Income Taxes
Excluding nontaxable gains from issuance of subsidiary stock, the
Company's effective tax rates were 44% and 46% in 1998 and 1997, respectively.
The effective tax rates exceeded the statutory federal income tax rate primarily
due to nondeductible expenses and state income taxes.
Discontinued Operations
The Company's discontinued operations had income of $66.8 million and
$64.7 million in 1998 and 1997, respectively, net of taxes and minority
interest. Excluding restructuring and unusual charges, the discontinued
operations had income of $81.8 million and $70.1 million in 1998 and 1997,
respectively, net of income taxes and minority interest.
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<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $1.45 billion at January 1, 2000,
compared with $2.16 billion at January 2, 1999. Included in working capital were
cash, cash equivalents, and short-term available-for-sale investments of $837.3
million at January 1, 2000, compared with $1.33 billion at January 2, 1999. In
addition, the Company had $40.2 million of long-term available-for-sale
investments at January 1, 2000, compared with $48.2 million at January 2, 1999.
Of the total $877.4 million of cash, cash equivalents, and short- and long-term
available-for-sale investments at January 1, 2000, $852.7 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 $337.1 million during 1999,
including $216.9 million from continuing operations. Accounts payable increased
by $14.2 million in 1999, primarily at the Power Generation segment. Cash of
$27.3 million was used to fund an increase in accounts receivable, primarily due
to increases in the Life Sciences and Power Generation segments. The increase in
accounts receivable in the Life Sciences segment resulted from a concentration
of fourth quarter 1999 shipments occurring in December due to delays from the
implementation of a new management information system in one business unit and
higher revenues compared with the fourth quarter of the prior year in another
business unit. The increase in accounts payable and accounts receivable at the
Power Generation segment resulted from increased business activity in a gas
gathering and processing business that commenced operations in 1999. Cash of
$15.2 million was provided by a decrease in inventories, primarily due to a
reduction in inventories at Spectra-Physics from its date of acquisition. In
connection with certain restructuring actions undertaken by the Company's
continuing operations during 1999, the Company had accrued $11.6 million for
restructuring costs at year-end 1999. The Company expects to pay this amount,
which primarily represents land reclamation costs and severance, during 2000. In
addition, at year-end 1999, the Company had accrued $20.3 million for
acquisition expenses. The Company expects to pay $5.3 million, representing
severance obligations, primarily over the next three to six months. The balance,
which primarily represents abandoned-facility payments, will be paid over the
remaining terms of the leases through 2014.
During 1999, the Company's primary investing activities, excluding
available-for-sale investments activity, included acquisitions and the purchase
of property, plant, and equipment. The Company's continuing operations expended
$357.6 million, net of cash acquired, for acquisitions and expended $87.2
million for purchases of property, plant, and equipment. Two of the Company's
majority-owned subsidiaries acquired all of the outstanding shares of Thermo
Voltek and ThermoSpectra for aggregate cash expenditures of $43.2 million. In
January 2000, Thermo Instrument acquired all of the outstanding stock of Thermo
Vision that it did not already own for approximately $11 million. The Company
expects to expend cash of approximately $325 million in 2000 for the planned
repurchases of the public shares that it does not already own of certain
majority-owned subsidiaries (Note 17). During 1999, investing activities of the
Company's discontinued operations used $157.1 million of cash, primarily
including $69.2 million for the acquisition of shares held by minority interests
in Thermo Power as well as two privately held subsidiaries, $53.9 million for
property, plant, and equipment, and $44.9 million for acquisitions.
The Company's financing activities used $286.9 million of cash during
1999, including $210.3 million for continuing operations. During 1999, the
Company expended $58.4 million to purchase shares of its common stock and
debentures. In addition, the Company and certain of its majority-owned
subsidiaries included in continuing operations expended $132.0 million to
purchase shares of common stock and debentures of certain of the Company's
majority-owned subsidiaries. These purchases were made pursuant to
authorizations by the Company's and certain majority-owned subsidiaries' Boards
of Directors. As of January 1, 2000, $73.5 million remained under the Company's
authorization, $37.6 million remained under authorizations of the Company's
majority-owned subsidiaries included in continuing operations, and $25.1 million
remained under the authorizations of the Company's majority-owned subsidiaries
included in discontinued operations. The Company's majority-owned subsidiaries
do not expect to purchase additional amounts of their securities as a result of
the announced plans to take them private or, in two instances, sell them. The
financing activities of discontinued operations primarily included $68.7 million
for repurchases of their stock and debentures and redemption of subsidiary
shares.
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<PAGE>
Liquidity and Capital Resources (continued)
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 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.
The Company has, from time to time, sold put options for shares of its
common stock to an institutional counterparty. As of March 22, 2000, the Company
had a maximum potential obligation under such arrangements to purchase 2,367,000
shares of its common stock for an aggregate of $33.3 million. The put options
are exercisable only at maturity, expire between April and May 2000, and have a
weighted average exercise price per share of $14.06. The Company has 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.
The Company expects cash proceeds of approximately $1 billion from the
sale of businesses in 2000, including $104 million for businesses sold through
March 22, 2000.
The Company has no material commitments for purchases of property, plant,
and equipment and expects that for 2000 such expenditures will approximate the
current level of expenditures.
Market Risk
The Company is exposed to market risk from changes in interest rates,
foreign currency exchange rates, and equity prices, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing activities.
Additionally, the Company uses short-term forward contracts to manage certain
exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. The Company does not
engage in extensive foreign currency hedging activities; however, the purpose of
the Company's foreign currency hedging activities is to protect the Company's
local currency cash flows related to these commitments from fluctuations in
foreign exchange rates. The Company's forward foreign exchange contracts
principally hedge transactions denominated in U.S. dollars, British pounds
sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish
krona, and Netherlands guilders. Gains and losses arising from forward contracts
are recognized as offsets to gains and losses resulting from the transactions
being hedged. The Company generally does not enter into speculative foreign
currency agreements. See Note 11 for the effect of a majority-owned subsidiary's
early adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities."
64
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market Risk (continued)
Interest Rates
Certain of the Company's short- and long-term available-for-sale
investments, long-term obligations, and interest rate swap agreements are
sensitive to changes in interest rates. Interest rate changes would result in a
change in the fair value of these financial instruments due to the difference
between the market interest rate and the rate at the date of purchase or
issuance of the financial instrument. A 10% decrease in year-end 1999 and 1998
market interest rates would result in a negative impact to the Company of $35
million and $131 million, respectively, on the net fair value of its
interest-sensitive financial instruments.
Foreign Currency Exchange Rates
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling,
Netherlands guilders, Swedish krona, French francs, and German marks. The effect
of a change in foreign exchange rates on the Company's net investment in foreign
subsidiaries is reflected in the "Accumulated other comprehensive items"
component of shareholders' investment. A 10% depreciation in year-end 1999 and
1998 functional currencies, relative to the U.S. dollar, would result in a
reduction of shareholders' investment of $41 million and $66 million,
respectively.
The fair value of forward foreign exchange contracts is sensitive to
changes in foreign currency exchange rates. The fair value of forward foreign
exchange contracts is the estimated amount that the Company would pay or receive
upon termination of the contract, taking into account the change in foreign
currency exchange rates. A 10% depreciation in year-end 1999 and 1998 foreign
currency exchange rates related to the Company's contracts would result in an
increase in the unrealized loss on forward foreign exchange contracts of $10.5
million and $1.6 million, respectively. Since the Company uses forward foreign
exchange contracts as hedges of firm purchase and sale commitments, the
unrealized gain or loss on forward foreign currency exchange contracts resulting
from changes in foreign currency exchange rates would be offset by a
corresponding change in the fair value of the hedged item.
Certain of the Company's cash and cash equivalents are denominated in
currencies other than the functional currency of the depositor and are sensitive
to changes in foreign currency exchange rates. A 10% depreciation in the related
year-end 1999 and 1998 foreign currency exchange rates would result in a
negative impact of $1.1 million and $1.6 million, respectively, on the Company's
net income.
Equity Prices
The Company's available-for-sale investment portfolio includes equity
securities that are sensitive to fluctuations in price. In addition, the
Company's and its subsidiaries' convertible obligations are sensitive to
fluctuations in the price of Company or subsidiary common stock into which the
obligations are convertible. Changes in equity prices would result in changes in
the fair value of the Company's available-for-sale investments and convertible
obligations due to the difference between the current market price and the
market price at the date of purchase or issuance of the financial instrument. A
10% increase in the year-end 1999 and 1998 market equity prices would result in
a negative impact to the Company of $20 million and $40 million, respectively,
on the net fair value of its price-sensitive equity financial instruments,
principally its convertible obligations.
The Company's common stock of subsidiary subject to redemption is
sensitive to fluctuations in the price of the underlying ThermoLase redeemable
common stock. The holder of a redemption right may require the Company to redeem
one share of ThermoLase common stock at $20.25 per share during the period from
April 3, 2001, through April 30, 2001. If the underlying common stock is trading
on the open market at a price that is less than the redemption price on the
redemption date, then the holders of redemption rights would more likely than
not exercise their redemption rights. In the event all redemption rights are
exercised, the Company would use $7.7 million in cash to settle redemption
obligations (Note 1).
65
<PAGE>
Market Risk (continued)
In addition, changes in equity prices would result in changes in the fair
value of common stock of subsidiary subject to redemption due to the difference
between the current market price and the price at the date of issuance of the
underlying financial instruments, subsidiary common stock and redemption rights.
Since the market price of redemption rights generally fluctuates in the opposite
direction of fluctuations in the market price of the redeemable common stock,
the effect of a 10% increase in the market price of the redeemable common stock
on the fair value of common stock of subsidiary subject to redemption would be
negated in part by a decrease in the market price of redemption rights.
Year 2000
The Company has completed its year 2000 initiatives, which included: (i)
testing and upgrading significant information technology systems and facilities;
(ii) testing and developing upgrades, where necessary, for the Company's current
products and certain discontinued products; (iii) assessing the year 2000
readiness of its key suppliers, vendors, and customers; and (iv) developing
contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The Company's total
external costs relating to year 2000 remediation were approximately $7 million.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
66
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Thermo Electron wishes to caution readers that
the following important factors, among others, in some cases have affected, and
in the future could affect, Thermo Electron's actual results and could cause its
actual results in 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, Thermo Electron.
Thermo Electron is in the midst of a corporate reorganization that is very
complex. On January 31, 2000, Thermo Electron announced that its Board of
Directors had authorized its management to proceed with a major reorganization
of the operations of Thermo Electron and its subsidiaries. As part of this
reorganization, Thermo Electron plans to:
- acquire the public minority interest in all but one of its subsidiaries that have minority investors,
- spin off its separation technologies and fiber-based products business and its medical products business, and
- sell a variety of non-core businesses.
The primary goal of the reorganization is for Thermo Electron and each of
its spun-off subsidiaries to focus on their respective core businesses. This
reorganization process is time-consuming and expensive, and consumes management
resources. The successful completion of the reorganization depends on many
factors that are not in Thermo Electron's control. For example, completion of
some of the transactions requires the approvals of various boards of directors,
and in some instances, special committees of such boards of directors and/or the
stockholders of the target companies, as well as completion of review by the
Securities and Exchange Commission and receipt of fairness opinions, in some
instances, from one or more investment banking firms. Completion of the
transactions involving tender offers and subsequent short-form mergers requires
receipt of acceptances from enough minority shareholders so that the applicable
parent companies' ownership in the subsidiary reaches at least 90 percent, SEC
clearance of necessary filings, and other customary conditions. Completion of
the spinoffs requires receipt of a favorable ruling from the Internal Revenue
Service regarding the tax treatment of the spinoffs, SEC clearance of necessary
filings, final Thermo Electron board action, and other customary conditions.
Completion of the proposed sales of businesses is time-consuming and will
consume management resources. This could adversely affect performance of the
businesses to be sold or could result in the loss of key employees, which in
turn could adversely affect expected proceeds from the sales. The failure to
complete these transactions in a timely manner would have an adverse effect on
Thermo Electron.
Thermo Electron may not be able to complete pending or future
acquisitions, and it may not be able to integrate any acquired businesses into
its existing business or make the acquired businesses profitable. One of Thermo
Electron's strategies is to supplement its internal growth by acquiring
businesses and technologies that complement or augment Thermo Electron's
existing product lines. Some of the businesses acquired by Thermo Electron have
had low levels of profitability. In addition, businesses Thermo Electron may
seek to acquire may also be marginally profitable or unprofitable. For these
acquired businesses to achieve acceptable levels of profitability, Thermo
Electron must change operations and improve market penetration. Thermo Electron
may not be successful in this regard. Promising acquisitions are difficult to
identify and complete for many reasons, including competition among buyers, the
need for regulatory approvals, including antitrust approvals, and the high
valuations of businesses resulting from historically high stock prices.
Additionally, Thermo Electron may have to pay, and has paid, substantial
premiums over the fair value of the net assets of the companies it acquires.
Thermo Electron has acquired significant intangible assets, including
approximately $1.2 billion of cost in excess of net assets of acquired
companies, or goodwill, currently recorded on its balance sheet. Additional
goodwill will be recorded in 2000 as a result of Thermo Electron's plans to
acquire the minority interests in certain of its publicly traded subsidiaries.
The realization of this asset will depend on the future cash flows of the
acquired businesses, which in turn depends on, among other factors, how well
Thermo Electron has identified these acquired businesses as desirable
acquisition candidates and how well Thermo Electron can integrate these acquired
businesses. In order to finance its acquisitions, Thermo Electron may have to
raise additional funds, either through public or private financings. Any
financing, if available at all, may be on unfavorable terms.
67
<PAGE>
Uncertainty of Growth. Some of the markets in which Thermo Electron
competes have been flat or declining over the past several years. Thermo
Electron has pursued a number of potential growth strategies, including
acquiring complementary businesses; developing new applications for its
technologies; and strengthening its presence in selected geographic markets.
Thermo Electron may not be able to successfully implement these strategies, and
these strategies may not result in growth of Thermo Electron's business.
Thermo Electron's significant international operations involve many risks.
International revenues account for a substantial portion of Thermo Electron's
revenues, and Thermo Electron plans to continue expanding its presence in
international markets. In 1999, Thermo Electron's international revenues from
continuing operations (including export revenues from the U.S.) accounted for
approximately 63% of its total revenues. International revenues are subject to
many risks, including the following:
- changes in exchange rates may adversely affect product demand and the
profitability in U.S. dollars of products and services provided by
Thermo Electron in foreign markets, where payment for Thermo Electron's
products and services is made in the local currency;
- Thermo Electron may find it hard to enforce agreements and collect
receivables using a foreign country's legal system;
- foreign customers may have longer payment cycles;
- foreign countries may impose additional withholding taxes or otherwise
tax Thermo Electron's foreign income, impose tariffs, or adopt other
restrictions on foreign trade;
- U.S. export licenses may be difficult to obtain;
- intellectual property rights may be harder to enforce in foreign countries;
- foreign countries may have unexpected changes in regulatory requirements;
- Thermo Electron may have difficulty managing and staffing its foreign
operations due to, among other factors, language and cultural
differences;
- foreign countries in which Thermo Electron operates may be characterized by unpredictable
political instability; and
- Thermo Electron's revenues could be affected by seasonal reductions in
business activity in some foreign countries.
Of these factors, the exchange rate fluctuations, in particular, have had
and may in the future have an adverse impact on Thermo Electron's business and
results of operations. The effects of foreign currency translation are disclosed
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
A portion of Thermo Electron's revenues comes from exports to Asia. Some
Asian countries experienced a severe economic crisis in the late 1990s,
involving sharply reduced economic activity and liquidity, volatile
foreign-currency-exchange and interest rates, and unstable stock markets. Thermo
Electron's export sales to Asia were adversely affected by these unstable
economic conditions in Asia in 1998 and early 1999 and future export sales to
Asia and other parts of the world may be adversely affected by unstable economic
conditions in those regions.
68
<PAGE>
Thermo Electron must develop new products, adapt to rapid technological
change, and respond to introductions of new products in order to remain
competitive. Thermo Electron's growth strategy includes significant investment
in product development, and it intends to increase spending in the area of
research and development. In addition, the markets for Thermo Electron's
products are characterized by rapid and significant technological change,
evolving industry standards, and frequent new product introductions and
enhancements. Many of Thermo Electron's products and products under development
are technologically innovative and require significant planning, design,
development and testing at the technological, product, and manufacturing-process
levels. These activities require significant investment by Thermo Electron. In
addition, products in Thermo Electron's markets undergo rapid and significant
technological change due to quickly changing industry standards and the
introduction of new products and technologies that make existing products and
technologies uncompetitive or obsolete. Some competitors may adapt more quickly
to new technologies and changes in customer requirements than Thermo Electron
can. The products currently being developed by Thermo Electron, or those to be
developed in the future, may not be technologically feasible or accepted by the
marketplace, and Thermo Electron's products or technologies could become
uncompetitive or obsolete. Failure of Thermo Electron to successfully develop
new products could have an adverse effect on its business and results of
operations.
Changes in governmental regulations may adversely affect demand for Thermo
Electron's products. Thermo Electron competes in many markets in which its
customers must comply with federal, state, local, and foreign regulations, such
as environmental, health and safety, and food and drug regulations. Thermo
Electron develops, configures, and markets its products to meet customer needs
created by those regulations. These regulations may change in response to new
scientific evidence or political or economic considerations. Any significant
change in regulations could adversely affect demand for Thermo Electron's
products. For example, demand for Thermo Electron's Thermo Voltek Corp.
subsidiary's electromagnetic compatibility test products was adversely affected
in 1997 and thereafter as a result of the declining influence of IEC 801, the
European Union directive on electromagnetic compatibility that took effect on
January 1, 1996.
Demand for some Thermo Electron products depends on the capital spending
policies of its customers and on government funding policies. Thermo Electron's
customers include manufacturers of semiconductors and of products incorporating
semiconductors, pharmaceutical and chemical companies, laboratories,
universities, healthcare providers, government agencies, and public and private
research institutions. The capital spending policies of these entities are based
on many factors, including public policy spending priorities, available
resources, and economic cycles, and can have a significant effect on the demand
for Thermo Electron's products. For example, a reduction in discretionary
capital spending by petrochemical, oil and gas, and mining companies, due to
difficult market conditions, has adversely affected Thermo Electron's businesses
operating in the process control industry. Similarly, softness in the
semiconductor industry has resulted in lower revenues at some Thermo Electron
businesses. Also, Thermo Electron's Thermedics Detection Inc. subsidiary has
experienced lower demand for its detection instruments as a result a shift in
the process of recycling plastic containers in Europe, from sanitizing and
reusing recyclables to melting and re-forming plastic containers.
Obtaining and enforcing patent protection for Thermo Electron's
proprietary products, processes and technologies can be difficult and expensive.
Patent and trade secret protection is crucial to Thermo Electron because
developing and marketing new technologies and products is time-consuming and
expensive. Thermo Electron owns many U.S. and foreign patents, and intends to
apply for additional patents as appropriate to cover its products. Patents may
not be issued from any pending or future patent applications owned by or
licensed to Thermo Electron. The claims allowed under any issued patents may not
be broad enough to protect Thermo Electron's technology.
69
<PAGE>
Any legal proceedings brought by Thermo Electron to protect its
proprietary rights could be very expensive. In addition, any issued patents
owned by or licensed to Thermo Electron may be challenged, invalidated, or
circumvented, and the rights granted under those patents may not provide
competitive advantages to Thermo Electron. Defending infringement and/or
invalidity claims would be expensive and divert management's attention. In
addition, those claims could result in awards of substantial damages, which
could have a significant adverse impact on Thermo Electron's results of
operations, and/or injunctive or other equitable relief, which could effectively
block Thermo Electron's ability to make, use, or sell its products and services
in the United States or abroad.
70
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Selected Financial Information
(In millions except per share amounts) 1999 (a) 1998 (b) 1997 1996 (c) 1995
- ------------------------------------------------- ----------- ---------- ----------- ---------- ----------
Statement of Operations Data
Revenues $2,471.2 $2,055.8 $1,979.6 $1,573.0 $1,059.1
Gross Profit 1,092.7 928.6 921.3 710.5 489.3
Operating Income 99.0 233.7 296.4 183.2 136.1
Income (Loss) from Continuing Operations Before (14.6) 114.7 174.7 164.2 76.2
Extraordinary Items
Income (Loss) Before Extraordinary Items (176.0) 181.5 239.3 190.8 139.6
Net Income (Loss) (174.6) 181.9 239.3 190.8 139.6
Earnings (Loss) per Share From Continuing
Operations:
Basic (.09) .71 1.15 1.16 .60
Diluted (.11) .67 1.05 1.03 .55
Earnings (Loss) per Share:
Basic (1.10) 1.12 1.57 1.35 1.10
Diluted (1.13) 1.08 1.41 1.17 .95
Balance Sheet Data
Working Capital $1,450.9 $2,163.0 $2,002.0 $2,218.6 $1,317.1
Total Assets 5,181.8 5,421.1 4,961.0 4,546.9 3,248.0
Long-term Obligations 1,566.0 1,808.6 1,518.7 1,531.7 1,079.8
Minority Interest 364.3 399.5 464.2 364.2 200.9
Common Stock of Subsidiaries Subject to 7.7 40.5 40.5 2.6 -
Redemption
Shareholders' Investment 2,014.5 2,254.8 2,007.9 1,755.6 1,311.3
(a) Reflects a $182.4 million pretax charge for restructuring and related costs,
consisting of restructuring and unusual costs, net, of $168.7 million,
inventory provisions of $9.4 million, and other expenses of $4.3 million.
(b) Reflects the issuance of $150.0 million principal amount of the Company's
notes and the Company's public offering of common stock for net proceeds of
$290.1 million.
(c) Reflects the issuance of $585.0 million principal amount of the Company's convertible debentures.
71
<PAGE>
Thermo Electron Corporation 1999 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the New York Stock Exchange under
the symbol TMO. The following table sets forth the high and low sale prices of
the Company's common stock for 1999 and 1998, as reported in the consolidated
transaction reporting system.
1999 1998
-------------------- --------------------
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
First $18 3/16 $13 3/8 $44 1/4 $36 5/8
Second 20 1/16 12 11/16 41 15/16 30 3/4
Third 19 11/16 15 3/4 35 3/16 14 3/16
Fourth 15 7/8 13 20 1/16 13 9/16
As of January 28, 2000, the Company had 8,258 holders of record of its
common stock. This does not include holdings in street or nominee names. The
closing market price on the New York Stock Exchange for the Company's common
stock on January 28, 2000, was $16 1/4 per share.
Common stock of the Company's following majority-owned public subsidiaries is traded on the
American Stock Exchange: Thermedics Inc. (TMD), Thermedics Detection Inc. (TDX), Thermo Cardiosystems
Inc. (TCA), Thermo Sentron Inc. (TSR), Thermo Ecotek Corporation (TCK), Thermo Fibertek Inc. (TFT),
Thermo Fibergen Inc. (TFG), Thermo Instrument Systems Inc. (THI), Metrika Systems Corporation (MKA),
ONIX Systems Inc. (ONX), Thermo BioAnalysis Corporation (TBA), Thermo Optek Corporation (TOC),
ThermoQuest Corporation (TMQ), Thermo TerraTech Inc. (TTT), The Randers Killam Group Inc. (RGI),
ThermoRetec Corporation (THN), ThermoTrex Corporation (TKN), ThermoLase Corporation (TLZ), and Trex
Medical Corporation (TXM). Common stock of the Company's majority-owned Spectra-Physics Lasers, Inc.
(SPLI) subsidiary is traded on the NASDAQ National Market System.
Shareholder Services
Shareholders of Thermo Electron Corporation who desire information about
the Company are invited to contact the Investor Relations Department, Thermo
Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046, (781) 622-1111. A mailing list is maintained to enable shareholders
whose stock is held in street name, and other interested individuals, to receive
Company information as quickly as possible. Company information is available
from Thermo Electron's Internet site (http://www.thermo.com).
Stock Transfer Agent
BankBoston N.A. is the stock transfer agent and maintains shareholder
activity records. The agent will respond to questions on issuance of stock
certificates, change of ownership, lost stock certificates, and change of
address. For these and similar matters, please direct inquiries to: BankBoston
N.A., c/o Boston EquiServe Limited Partnership, P.O. Box 8040, Boston,
Massachusetts 02266-8040, (781) 575-3120.
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended January
1, 2000, as filed with the Securities and Exchange Commission, may be obtained
at no charge by writing to the Investor Relations Department, Thermo Electron
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
</TABLE>
Exhibit 21
THERMO ELECTRON CORPORATION
Subsidiaries of the Registrant
As of February 23, 2000, Thermo Electron Corporation owned the following
companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Coleman Corporation Delaware 100
Coleman Research Corporation Florida 100
Coleman Services Incorporated Delaware 100
MetricVision Inc. Delaware 90
Thermo Information Solutions Inc. Delaware 100
Tera Systemes S.AR.L. France 100
Thermo Info France S.A. France 100
Thermo Info UK Limited England 100
Open Connections Holdings Limited England 100
TIS Holdings, Inc. New Hampshire 100
Peter Brotherhood Holdings Ltd. England 100
Aircogen Ltd. England 80
Peter Brotherhood Limited England 100
LastStep Ltd. England 100
Link Control Technology Ltd. England 100
Peter Brotherhood Pension Fund Trustees Ltd. England 100
Thermo Electron Realty Limited England 100
Thermo Holdings Limited England 100
Thermo Electron, S.A. de C.V. Mexico 100
Thermo Biomedical Inc. Delaware 100
SensorMedics Corporation Delaware 100
SensorMedics B.V. Netherlands 100
SensorMedics (Deutschland) GmbH Germany 100
Nicolet Biomedical Inc. California 100
Eden Medical Electronics, Inc. Delaware 100
Grason-Stadler, Inc. Massachusetts 100
Neuroscience Limited England 100
Nicolet Biomedical Japan Inc. Japan 100
Nicolet Biomedical Ltd. England 100
Nicolet Biomedical S.A.R.L. France 100
Nicolet - EME GmbH Germany 100
Nicolet Vascular Inc. Delaware 100
ILS, Inc. Delaware 100
IMEX International, Inc. Colorado 100
Bear Medical Systems Inc. Delaware 100
Bird Medical Technologies, Inc. California 100
Bird Products Corporation California 100
Bird Life Design Corporation California 100
Stackhouse, Inc. California 100
Medical Data Electronics, Inc. Delaware 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Gulf Precision, Inc. Arizona 100
Seeley Enterprises, Inc. New Mexico 100
ITC Holdings Inc. Delaware 100
Loftus Furnace Company Pennsylvania 100
Met-Therm, Inc. Ohio 100
NAPCO, Inc. Connecticut 100
Nicolet Biomedical of California Inc. California 100
North East Surgical Tool Corp. Massachusetts 100
North Carbondale Minerals, Inc. California 100
Thermo WI, Inc. Wisconsin 100
Perfection Heat Treating Company Michigan 100
San Marcos Resource Recovery, Inc. California 100
Southern Ocean County Resource Recovery, Inc. New Jersey 100
Staten Island Cogeneration Corporation New York 100
TE Great Lakes Inc. Michigan 100
TEC Cogeneration Inc. Florida 100
South Florida Cogeneration Associates Florida 50*
TEC Energy Corporation California 100
North County Resource Recovery Associates California 100*
(50% of which is owned directly by
San Marcos Resource Recovery, Inc.)
Tecomet Inc. Massachusetts 100
Thermo Digital Technologies Corporation Delaware 100
Thermo Digital Technologies L.L.C. Delaware 100
Thermo Electron Export Inc. Barbados 100
(equally owned among TMO, TMD, TCA, TCK, TFT, THI, THP, TTT,
TVL, TLZ, THS, TBA, TOC, TMQ and TXM )
Thermo Electron (London) Ltd. England 50*
Thermo Finance (UK) Limited England 100
Thermo Foundation, Inc. Massachusetts 100
TMO THI Holdings Inc. Delaware 100
Thermo Leasing Corporation Delaware 100
Thermo Capital Company LLC Delaware 50
ThermoTrex Acquisition Corporation Delaware 100
ThermoLase Acquisition Corporation Delaware 100
TMO, Inc. Massachusetts 100
TMOI Inc. Delaware 100
TMOTFG Holdings Corp. Delaware 100
TTT Acquisition Corporation Delaware 100
Retec Acquisition Corporation Delaware 100
RK Acquisition Corporation Delaware 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermedics Inc. Massachusetts 75.72
MWW Dreiundzwanzigste Vermogensverwaltungs GmbH Germany 100
Erich Jaeger GmbH Germany 100
HMS Health Management Systems GmbH Germany 100
Erich Jaeger Gesellschaft m.b.H. Austria 100
Erich Jaeger (U.K.) Ltd. England 100
Erich Jaeger S.A.R.L. France 100
Erich Jaeger B.V. Netherlands 100
Erich Jaeger Benelux B.V. Netherlands 100
Erich Jaeger, Inc. Delaware 100
TMO TCA Holdings, Inc. Delaware 100
Corpak Inc. Massachusetts 100
Walpak Company Illinois 100
Thermedics Detection Inc. Massachusetts 83.61
(additionally, 5.33% of the shares are owned
directly by Thermo Electron Corporation)
Detection Securities Corporation Massachusetts 100
Orion Research, Inc. Massachusetts 100
Advanced Sensor Technology Massachusetts 100
Orion Research Limited England 100
Orion Research Puerto Rico, Inc. Delaware 100
Russell pH Limited Scotland 100
Rutter & Co. Netherlands 100
Rutter Instrumentation S.A.R.L. France 90
Systech B.V. Netherlands 50
ThermedeTec Corporation Delaware 100
Thermedics Detection de Argentina S.A. Argentina 100
(1% of which shares are owned
directly by Thermedics Detection Inc.)
Thermedics Detection de Mexico, S.A. de C.V. Mexico 100
(1% of which shares are owned
directly by Thermedics Detection Inc.)
Thermedics Detection GmbH Germany 100
Thermedics Detection Limited England 100
Thermedics Detection Scandinavia AS Norway 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Sentron Inc. Delaware 74.15
(additionally, 12.42% of the shares are owned
directly by Thermo Electron Corporation)
Allen Coding Systems Limited England 100
Allen Coding Corporation Delaware 100
Goring Kerr Limited England 100
Best Checkweighers Limited England 100
Intertest (UK) Limited England 100
Goring Kerr Detection Limited England 100
Goring Kerr (NZ) Limited New Zealand 100
Graseby Product Monitoring GmbH Germany 100
Goring Kerr Inc. New York 100
Ramsey France S.A.R.L. France 100
Ramsey Ingenieros S.A. Spain 100
Ramsey Italia S.R.L. Italy 100
Tecno Europa Elettromeccanica S.R.L. Italy 100
Ramsey Technology Inc. Massachusetts 100
Xuzhou Ramsey Technology Development Co., Limited China 50*
Thermo Sentron Australia Pty. Ltd.. Australia 100
Thermo Sentron B.V. Netherlands 100
Thermo Sentron Canada Inc. Canada 100
Thermo Sentron GmbH Germany 100
Thermo Sentron Limited England 100
Hitech Electrocontrols Limited England 100
Hitech Licenses Ltd. England 100
Hitech Metal Detectors Ltd. England 100
Westerland Engineering Ltd. England 100
Thermo Sentron SEC Corporation Massachusetts 100
Thermo Sentron (South Africa) Pty. Ltd. South Africa 100
Thermo Voltek Corp. Delaware 97.00
(additionally, 3% of the shares are owned
directly by Thermo Electron Corporation)
Thermo Voltek Europe B.V. Netherlands 100
Comtest Instrumentation, B.V. Netherlands 100
Comtest Italia S.R.L. Italy 95
(additionally 5% of the shares are owned
directly by Thermo Voltek Corp.)
Comtest Limited England 100
Milmega Limited England 100
TVL Securities Corporation Delaware 100
UVC Realty Corp. New York 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Cardiosystems Inc. Massachusetts 60.07
(additionally, 0.04% of the shares are owned
directly by Thermo Electron Corporation)
International Technidyne Corporation Delaware 100
International Technidyne Corporation Limited England 100
Nimbus Inc. Massachusetts 100
TCA Securities Corporation Massachusetts 100
Thermo Administrative Services Corporation Delaware 100
Thermo Amex Management Company Inc. Delaware 100
Thermo Amex Finance, L.P. Delaware 99*
Thermo Amex Convertible Growth Fund I., L.P. Delaware 99*
Thermo Ecotek Corporation Delaware 93.66
Central Valley Fuels Management Inc. Delaware 100
Delano Energy Company Inc. Delaware 100
Eco Fuels Inc. Wyoming 100
Independent Power Services Corporation Nevada 100
KFP Operating Company, Inc. Delaware 100
Lake Worth Generation Corporation Delaware 100
Lake Worth Generation LLC Delaware 100
Mountainview Power Company Delaware 100
Mountainview Power Company LLC Delaware 100
Riverside Canal Power Company California 100
SFS Corporation New Hampshire 100
TCK Fuels Inc. Delaware 100
KFx Fuel Partners, L.P. Delaware 95*
(2% of which is owned
directly by Eco Fuels Inc.)
TES Securities Corporation Delaware 100
Thermendota, Inc. California 100
Mendota Biomass Power, Ltd. California 60
(additionally 40% of the shares are owned
directly by Thermo Ecotek Corporation)
MBPL Agriwaste Corporation California 100
Thermo Ecotek International Holdings Inc. Cayman Islands 100
Thermo Ecotek Europe Holdings B.V. Netherlands 100
Gouripore Power Company Pvt. Ltd. India 83%
EMD Ventures B.V. Netherlands 65*
Kraftwerk, Premnitz GmbH & Co KG Germany 100
EMD Pribram sro Czech Republic 50*
Magnicon B.V. Netherlands 50
(additionally 50 of the shares are owned
directly by Thermo Ecotek Europe Holdings B.V.)
ECS sro Czech Republic 50*
EuroEnergy Group B.V. Netherlands 50*
Thermo EuroVentures sro Czech Republic 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Ecotek International Inc. Cayman Islands 100
TCK Cogeneration Dominicana Inc. Cayman Islands 100
(1% of which shares are owned directly by Thermo Ecotek International
Holdings Inc.)
TCK Dominicana Holdings Inc. Cayman Islands 100
(1% of which shares are owned directly by
Thermo Ecotek International Holdings Inc.)
Thermo Electron of Maine, Inc. Maine 100
Gorbell/Thermo Electron Power Company Maine 80*
Thermo Electron of New Hampshire, Inc. New Hampshire 100
Hemphill Power and Light Company New Hampshire 66*
Thermo Electron of Whitefield, Inc. New Hampshire 100
Whitefield Power and Light Company New Hampshire 100*
(39% of which is owned
directly by SFS Corporation)
Star Natural Gas Company Delaware 95
Star/RESC LLC Texas 75
Star Field Services Company Delaware 100
Totem Gas Storage Company LLC Colorado 90
Thermo Fuels Company, Inc. California 100
Thermo Trilogy Corporation Delaware 80.03
Thermo Trilogy International Holdings, Inc. Cayman Islands 100
AgriSense-BCS, Ltd. England 100
P J Margo Pvt. Ltd. India 50*
AgriDyne Technologies S.A. de C.V. Mexico 100
Ulna Incorporated California 100
Woodland Biomass Power, Inc. California 100
Woodland Biomass Power, Ltd. California 100*
(.1% of which is owned directly
by Thermo Ecotek Corporation)
Thermo Electron Foundation, Inc. Massachusetts 100
Thermo Electron Metallurgical Services, Inc. Texas 100
Thermo Finance Company B.V. Netherlands 100
Thermo Fibertek Inc. Delaware 90.98
AES Equipos y Sistemas S.A. de C.V. Mexico 100
ArcLine Products, Inc. New York 100
Fibertek Construction Company, Inc. Maine 100
Thermo AES Canada Inc. Canada 100
Thermo Black Clawson Inc. Delaware 100
Thermo Black Clawson (China) China 100
Thermo Black Clawson S.A. France 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Fibertek Holdings Limited England 100
Thermo Black Clawson Limited England 100
Thermo Fibertek U.K. Limited England 100
D.S.T. Pattern Engineering Company Limited England 100
Vickerys Limited England 100
Winterburn Limited England 100
Thermo Web Systems, Inc. Massachusetts 100
Fiberprep Inc. Delaware 95
(31.05% of which shares are owned
directly by E. & M. Lamort, S.A.)
Fiberprep Securities Corporation Delaware 100
TMO Lamort Holdings Inc. Delaware 100
E. & M. Lamort, S.A. France 100
Lamort Equipementos Industrials Ltda. Brazil 60*
Lamort GmbH Germany 100
Lamort Iberica S.A. Spain 100
Lamort Italia S.R.L. Italy 100
Lamort Paper Services Ltd. England 100
Nordiska Lamort Lodding A.B. Sweden 100
Thermo Fibergen Inc. Delaware 73.58
(additionally 0.11% of the shares are owned
directly by Thermo Electron Corporation)
Fibergen Securities Corporation Massachusetts 100
GranTek Inc. Wisconsin 100
Next Fiber Products Inc. Delaware 51*
Thermo Instrument Systems Inc. Delaware 87.74
Analytical Instrument Development, Inc. Pennsylvania 100
Eberline Instrument Company Limited England 100
Eberline Instrument Corporation New Mexico 100
Epsilon Industrial Inc. Texas 100
Gas Tech Inc. California 100
Gas Tech Partnership California 50*
Gastech Instruments Canada Ltd. Canada 100
Life Sciences International Limited England 100
Comdata Services Limited England 100
Lipshaw Limited England 100
Luckham Limited England 100
Phicom Limited England 100
Southions Investments Limited England 100
Sungei Puntar Rubber Estate Limited England 100
Westions Limited England 100
Whale Scientific Limited England 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Helmet Securities Limited England 100
Life Sciences International Kft Hungary 100
Life Sciences International, Inc. Pennsylvania 100
LSI (US) Inc. Delaware 100
LSI North America Service Inc. Delaware 100
Life Sciences International Holdings BV Netherlands 100
Life Sciences International (Poland) SP z O.O Poland 100
Britlowes Limited England 100
Commendstar Limited England 100
Consumer & Video Holdings Limited England 100
Video Communications Limited England 100
Greensecure Projects Limited England 100
Labsystems Europe SA Spain 100
Labsystems Ges mbH Austria 100
Omnigene Limited England 58.50
Shenbridge Limited England 100
Southern Instruments Holdings Limited England 100
Metrika Systems Corporation Delaware 70.46
(additionally 8.47% of the shares are owned
directly by Thermo Electron Corporation)
Gamma-Metrics Minerals Pty Ltd. South Australia 100
Radiometrie RM GmbH Germany 100
Radiometrie S.A. France 100
Gamma-Metrics California 100
MF Physics Corporation Delaware 100
Radiometrie Corporation Delaware 100
DMC Mess & Regeltechnik GmbH Germany 100
Radiometrie U.S.A., Inc. California 100
Radiometrie Limited England 100
National Nuclear Corporation California 100
Thermo Nucleonics LLC Delaware 51
(additionally, 49% of the shares are owned
directly by TBA Nucleonics Holding Corporation)
ESM Eberline Instruments Strahlen - und Umweltmesstechnik Germany 100
GmbH
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
ONIX Systems Inc. Delaware 80.27
(additionally, 2.05% of the shares are owned
directly by Thermo Electron Corporation)
Brandt Instruments, Inc. Delaware 100
CAC Inc. Delaware 100
Flow Automation Inc. Texas 100
Lots 82 and 83, Inc. Louisiana 100
Mid-South Power Systems, Inc. Louisiana 100
Mid-South Controls & Services, Inc. Louisiana 100
Thermo Instrument Controls de Mexico, S.A. de C.V. Mexico 100
(1% of which shares are owned directly
by ONIX Systems Inc.)
ONIX Process Analysis Inc. Texas 100
OnIX Holdings Limited England 100
CAC UK Limited England 100
ONIX Measurement Limited England 100
ONIX Process Analysis Limited England 100
Polysonics, Inc. Texas 100
TN Spectrace Europe B.V. Netherlands 100
TN Technologies Inc. Texas 100
Kay-Ray/Sensall, Inc. Delaware 100
TN Technologies Canada Inc. Canada 100
Westronics Inc. Texas 100
Optek-Nicolet Holdings Inc. Wisconsin 100
Thermo Optek Corporation Delaware 93.15
(additionally, 2.05% of the shares are owned
directly by Thermo Electron Corporation)
Diametrix Detectors, Inc. Delaware 100
FI Instruments Inc. Delaware 100
Gebruder Haake GmbH Germany 100
RHEO S.A. France 100
SWO Polymertechnik GmbH Germany 100
HAAKE Instruments Inc. Delaware 100
Scintag, Inc. California 100
Spectronic Instruments, Inc. Delaware 100
SLM International Inc. Illinois 100
Thermo Jarrell Ash Corporation Massachusetts 100
A.R.L. Applied Research Laboratories S.A. Switzerland 100
Fisons Instruments (Proprietary) Limited South Africa 100
Thermo Optek Wissenschaftliche Gerate GesmbH Austria 100
Baird Do Brazil Representacoes Ltda. Brazil 100
Beijing Baird Analytical Instrument Technology Co. China 100
Limited
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Cahn Instrument Corporation Wisconsin 100
Mattson Instruments Limited England 100
Thermo Optek Limited England 100
Norlab Instruments Ltd. England 100
Thermo Elemental Limited England 100
Unicam Limited England 100
Unicam Export Limited England 100
Unicam Italia SpA Italy 100
Unicam S.A. Belgium 100
Thermo Instruments Nordic AB Sweden 100
Thermo Instruments Nordic AS Norway 100
Nicolet Instrument Corporation Wisconsin 100
Nicolet Japan K.K. Japan 100
Spectra-Tech, Inc. Wisconsin 100
Nicolet Instrument GmbH Germany 100
Optek Securities Corporation Massachusetts 100
Planweld Holding Limited England 100
Nicolet Instrument Limited England 100
Hilger Analytical Limited England 100
Thermo Electron Limited England 100
Thermo Instrument Systems Japan Holdings, Inc. Delaware 100
Nippon Jarrell-Ash Company, Ltd. Japan 100
Thermo Instruments (Canada) Inc. Canada 100
Fisons Instruments Inc. Canada 100
Unicam Analytical Inc. Canada 100
Thermo Optek S.A.R.L. France 100
Thermo Optek Holding B.V. Netherlands 100
Baird Europe B.V. Netherlands 100
Baird France S.A.R.L. France 100
VG Systems Limited England 100
VG Elemental Limited England 100
Tein Benelux B.V. Netherlands 100
Thermo Optek Materials Analysis (S.E.A.) Pte Limited Singapore 100
ThermoSpectra Corporation Delaware 90.35
(additionally, 9.65% of the shares are owned
directly by Thermo Electron Corporation)
Gould Instrument Systems, Inc. Ohio 100
Gould & Nicolet S.A. France 95
(additionally, 5% of the shares are owned directly
by
ThermoSpectra Corporation)
Kevex X-Ray Inc. Delaware 100
Neslab Instruments Europa BV Netherlands 100
Neslab Instruments, Inc. New Hampshire 100
Neslab Instruments Limited England 100
Nicolet Instrument Technologies Inc. Wisconsin 100
<PAGE>
20
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
NORAN Instruments Inc. Wisconsin 100
ThermoMicroscopes Corp. California 100
ThermoMicroscopes S.A. Switzerland 100
PSI Virgin Islands Incorporated U.S. Virgin Islands 100
Sierra Research and Technology, Inc. Delaware 100
ThermoSpectra B.V. Netherlands 100
Nicolet Technologies B.V. Netherlands 100
Bakker Electronics Limited England 100
NORAN Instruments B.V. Netherlands 100
ThermoSpectra GmbH Germany 100
Gould Nicolet Messtechnik GmbH Germany 100
NORAN Instruments GmbH Germany 100
ThermoMicroscopes GmbH Germany 100
ThermoSpectra Limited England 100
Nicolet Technologies Ltd. England 100
Spectrace Instruments Inc. California 100
TMO THI Acquisition Corp. Delaware 100
Thermo Electron Sweden Forvaltning AB Sweden 100
Spectra-Physics AB Sweden 99
Spectra-Physics Holdings USA, Inc. Delaware 100
Spectra Precision, Inc. Delaware 100
Spectra Precision USA, Inc. Delaware 100
Spectra Precision Software, Inc. Georgia 100
Spectra Precision B.V.B.A. Belgium 100
Spectra Precision K.K. Japan 100
Spectra Precision Ltd. England 100
Spectra Precision Pty. Ltd. Australia 100
SPHM, Inc. Delaware 100
Spectra Precision de Mexico S.A. De C.V. Mexico 100
SPSE Inc. Delaware 100
Pharos Holdings, Inc. Delaware 100
BLH Electronics, Inc. Delaware 100
Pharos de Costa Rica S.A. Costa Rica 100
Automatic Power, Inc. Delaware 100
Spectra-Physics VisionTech, Inc. Delaware 100
Pharos Tech, Inc. Delaware 100
Spectra-Physics Lasers, Inc. Delaware 80.4
Opto Power Corporation Delaware 100
Spectra-Physics Laser Data Systems, Inc. Delaware 100
Spectra-Physics France S.A. France 100
Spectra-Physics GmbH Germany 100
Spectra-Physics K.K. Japan 100
Spectra-Physics Lasers B.V. Netherlands 100
Spectra-Physics Lasers Ltd. England 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Spectra-Physics Foreign Sales Corp. Barbados 100
Spectra-Physics Credit Corporation Delaware 100
Spectra-Physics Canada Ltd. Canada 100
Spectra-Physics Holdings Plc England 100
AB Pharos Marine Ltd. England 100
Pharos Marine Pte Ltd. Singapore 100
Automatic Power Ltd. England 100
Continental Satellite TV Ltd. England 100
Spectra-Physics Holdings S.A. France 100
Spectra Precision S.A. France 90
(additionally, 10% owned by Spectra Precision AB)
Nobel Electronique S.A.R.L. France 100
Spectra Precision Europe Holdings B.V. Netherlands 100
Spectra Precision B.V. Netherlands 100
Spectra-Physics Holdings GmbH Germany 100
ZSP Geodatische Systeme GmbH Germany 25
(25% of total outstanding stock represents 100%
of the voting stock)
Spectra Precision GmbH Germany 100
BLH SR-4 Sensoren GmbH Germany 100
Spectra Precision Kaiserslautern GmbH Germany 100
Spectra-Physics S.R.L. Italy 100
Spectra Precision AB Sweden 100
Spectra Precision Scandinavia AB Sweden 100
Spectra Precision of Canada Ltd. Canada 100
Spectra Precision Handelsges, mbH Austria 100
Geotronics S.A. Spain 100
Spectra Precision S.A. France 100
Nobel Elektronik AB Sweden 100
Nobel Elektroniikka Oy AB Finland 100
Nobel Elektronikk A/S Norway 100
AB Givareteknik Sweden 100
Nobel Systems Ltd. England 100
AB Pharos Marine Sweden 100
Pharos AB Sweden 100
Spectra-Physics Industri AB Sweden 100
Permanova Lasersystem AB Sweden 100
Chemtronics AB Sweden 100
Spectra-Physics Vision Tech Oy Finland 100
Spectra-Physics Vision Tech KK Japan 100
Spectra Precision (Asia) Pte. Ltd. Singapore 100
Quest-Finnigan Holdings Inc. Virginia 100
Quest-TSP Holdings Inc. Delaware 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
ThermoQuest Corporation Delaware 90.32
(43.9% of which shares are owned
directly by Quest-Finnigan Holdings Inc.)
(additionally, 0.32% of the shares are owned directly
by Thermo Electron Corporation)
Denley Instruments Limited England 100
E-C Apparatus Limited England 100
Finnigan FT/MS Inc. Delaware 100
Finnigan Corporation Delaware 100
Finnigan Instruments, Inc. New York 100
Finnigan International Sales, Inc. California 100
Finnigan MAT China, Inc. California 100
Finnigan MAT (Delaware), Inc. Delaware 100
Finnigan MAT Instruments, Inc. Nevada 100
Finnigan MAT International Sales, Inc. California 100
Finnigan MAT (Nevada), Inc. Nevada 100
Finnigan MAT GmbH Germany 100
ThermoQuest Analytische Systeme GmbH Germany 100
Finnigan MAT S.R.L. Italy 100
Thermo Separation Products S.R.L. Italy 100
Masslab Limited England 100
H.D. Technologies Limited England 100
Thermo Instruments Australia Pty. Limited Australia 100
ThermoQuest Ltd. England 100
Finnigan Properties, Inc. California 100
Forma Scientific, Inc. Delaware 100
International Equipment Company Delaware 100
International Equipment Company Limited England 100
Savant Instruments, Inc. New York 100
Forma Scientific Limited England 100
Hypersil Inc. Delaware 100
Hypersil Limited England 100
Hypersil S.A. France 100
Life Sciences International (Hong Kong) Limited Hong Kong 100
Life Sciences (Europe) Limited England 100
Life Sciences International (UK) Limited England 100
Kenbury Limited England 100
Savant Instruments Limited England 100
TMQ SEG (Hong Kong) Limited Hong Kong 100
ThermoQuest B.V. Netherlands 100
Thermo Separation Products B.V. B.A. Belgium 100
ThermoQuest France S.A. France 100
Finnigan Automass S.A. France 100
Thermo Separation Products S.A. France 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
ThermoQuest Italia S.p.A. Italy 100
ThermoQuest Spain S.A. Spain 100
ThermoQuest Wissenschaftliche Gerate GmbH Austria 100
Thermo Separation Products AG Switzerland 100
Thermo Separation Products Inc. Delaware 100
ThermoQuest K.K. Japan 100
Thru-Put Systems, Inc. Florida 100
RealFlex Systems Inc. Texas 100
SID Instruments Inc. Delaware 100
FI S.A. France 100
Fisons Instruments BV Netherlands 100
Fisons Instruments NV Belgium 100
Fisons Instruments K.K. Japan 100
NK Instruments Inc. Delaware 100
Thermo Capillary Electrophoresis Inc. Delaware 100
Thermo Haake Ltd. England 100
Thermo Haake (U.K.) Limited England 100
Thermo Instrumentos Cientificos S.A. Spain 100
Thermo BioAnalysis Corporation Delaware 67.22
(4.1% of which shares are owned directly by
Quest-TSP Holdings Inc. and 1.8% of which shares
are owned directly by Quest-Finnigan Holdings Inc.
Additionally, 20.80% of the shares are owned directly by
Thermo Electron Corporation)
BioStar, Inc. Delaware 100
Data Medical Associates, Inc. Texas 100
DMA Latinoamericana S.A. de C.V. Mexico 50*
Labsystems (SEA) Pte. Ltd. Singapore 100
Fastighets AB Skrubba Sweden 100
Dynex Technologies spol. s.r.o. Czech Republic 100
DYNEX Technologies (Asia) Inc. Delaware 100
DYNEX Technologies Inc. Virginia 100
DYNEX Technologies GmbH Germany 100
Hybaid Limited England 100
Hybaid BV Netherlands 100
Thermo Labsystems B.V. Netherlands 100
Labsystems Inc. Delaware 100
Thermo BioAnalysis Japan K.K. Japan 100
Labsystems OY Finland 100
Biosystems OY Finland 100
Konelab OY Finland 100
AO Analytical Systems Russia 100
Konelab S.A. France 100
Konelab GmbH Germany 100
Labsystems (Hong Kong) Limited Hong Kong 99
Labsystems BTD China 67
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Labsystems LHD China 90
Labsystems Lenpipette Russia 95
Labsystems Pakistan (Private) Ltd Pakistan 33.50
Labsystems Sweden AB Sweden 100
Labsystems (UK) Limited England 100
Life Sciences International SNC France 100
Shandon France SA France 100
Shandon Scientific Limited England 100
Anglia Scientific Instruments Limited England 100
Shandon Southern Instruments Limited England 100
Life Sciences International (Benelux) B.V. Netherlands 100
Shandon Inc. Pennsylvania 100
E-C Apparatus Corporation Florida 100
Whale Scientific Corporation Colorado 100
ALKO Diagnostic Corporation Massachusetts 100
TBA Nucleonics Holding Corporation Delaware 100
TBA Securities Corporation Massachusetts 100
Shandon GmbH Germany 100
Thermo BioAnalysis GmbH Germany 100
Hybaid GmbH Germany 100
Angewandte Gentechnologie Systems GmbH Germany 100
Interactiva Biotechnologie GmbH Germany 100
Labsystems GmbH Germany 100
Thermo LabSystems Vertriebs GmbH Germany 100
Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100
Thermo BioAnalysis Holdings, Limited England 100
Thermo Fast U.K. Limited England 100
Dynex Technologies Limited England 100
Thermo BioAnalysis Limited England 100
Thermo LabSystems Limited England 100
Thermo BioAnalysis S.A. France 100
Thermo LabSystems S.A.R.L. France 100
Labsystems S.A.R.L. France 100
Thermo LabSystems (Australia) Pty Limited Australia 100
Thermo LabSystems Inc. Massachusetts 100
BioAnalysis Labsystems, S.A. Spain 100
Trace Scientific Limited Australia 100
Trace BioSciences Pty. Ltd. Australia 100
Trace BioSciences NZ Limited New Zealand 99
Trace America, Inc. Florida 100
Herbos Dijaganosticka Croatia 50
Shanghai Long March Chiron Trace Medical Science Co. China 22*
Ltd.
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo Environmental Instruments Inc. California 100
Andersen Instruments Inc. Delaware 100
Andersen Instruments Limited England 100
ESM Andersen Instruments GmbH Germany 100
MIE Corporation Massachusetts 100
Thermo Instruments do Brasil Ltda. Brazil 100
(1% of which shares are owned directly
by Thermo Jarrell Ash Corporation)
Van Hengel Holding B.V. Netherlands 100
Thermo Instrument Systems B.V. Netherlands 100
Euroglas B.V. Netherlands 100
Mesure de Traces S.A. Netherlands 100
ThIS Automation B.V. Netherlands 100
This Analytical B.V. Netherlands 100
This Gas Analysis B.V. Netherlands
This Lab Systems B.V. Netherlands 100
This Scientific B.V. Netherlands 100
Thermo Instruments GmbH Germany 100
Thermo Jarrell Ash, S.A. Spain 100
Thermo Vision Corporation Delaware 97.10
(additionally, 2.90% of the shares are owned
directly by Thermo Electron Corporation)
CID Technologies Inc. New York 100
Centro Vision Inc. Delaware 100
Hilger Crystals Limited England 100
Laser Science, Inc. Delaware 100
Oriel Instruments Corporation Delaware 100
Thermo Vision Opticon Corporation Delaware 100
Thermo Power Corporation Massachusetts 100
NuTemp, Inc. Illinois 100
Peek Limited Scotland 100
Peek Data Limited England 100
Peek Group Services Limited England 100
Dubilier Warminster Limited England 100
International Resistance Co Limited England 100
Minicircuits Limited England 100
Peek International Limited England 100
Peek Corporation Delaware 100
Peek Traffic Inc. Delaware 100
Peek Traffic Systems Inc. Florida 100
Saratec Measurement Inc. Florida 100
Signal Control Company Delaware 100
Signal Maintenance, Inc. Delaware 100
StreeterAmet Inc. Delaware 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Peek Traffic USA Inc. Florida 100
Peek Traffic GmbH Germany 100
Peek International B.V. Netherlands 100
Peek Projects BV Netherlands 100
Peek Promet doo Croatia 100
Peek Traffic A.B. Sweden 100
Linne Trafiksystems AB Sweden 100
Peek Trafikk AS Norway 100
Peek Parking Systems AB Sweden 100
Peek Trafik a-s Denmark 100
Peek Traffic B.V. Netherlands 100
Peek Limited Hong Kong 100
Peek Trafikk Sendirian Bermad Malaysia 100
Peek Traffic (Thailand) Limited Thailand 100
Sichuan Modern Control System Engineering China 41*
Company Limited
Peek Traffic OY Finland 100
Peek Investments, Limited England 100
Dubilier America, Inc. Delaware 100
Automatic Connector Inc. New York 100
Peek Systems Limited England 100
Sotwell Limited England 100
Peek Technology Limited England 100
Peek Traffic Limited England 100
GK Instruments Limited England 100
Sarasota Traffic Limited England 100
Streeteramet Limited England 100
Weighwrite Limited England 100
Radley Services Limited England 100
Atest Electronics Limited England 100
Bartsign Limited England 100
Greenpar Holdings Limited England 100
Helvetia Automatic Products Limited England 100
Peek Field Services Limited England 100
Peek Traffic Systems B.V. Netherlands 100
Radley (1) Limited England 100
Smartways Limited England 100
Tollstar Limited England 100
Tecogen Securities Corporation Massachusetts 100
T-Lyte Corporation Delaware 98
Optronics, Inc. Oklahoma 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo TerraTech Inc. Delaware 87.86
Holcroft (Canada) Limited Canada 100
Holcroft Corporation Delaware 100
Holcroft GmbH Germany 100
Metallurgical, Inc. Minnesota 100
Cal-Doran Metallurgical Services, Inc. California 100
Metal Treating Inc. Wisconsin 100
Normandeau Associates, Inc. New Hampshire 100
TMA/Hanford, Inc. Washington 100
The Randers Killam Group Inc. Delaware 94.78
(additionally, 0.99% of the shares are owned
directly by Thermo Electron Corporation)
Clark-Trombley Consulting Engineers, Inc. Michigan 100
Randers Engineering, Inc. Michigan 100
Randers Engineering of Massachusetts, Inc. Michigan 100
Randers Group Property Corporation Michigan 100
Redeco Incorporated Michigan 100
Viridian Technology Incorporated Michigan 100
The Killam Group, Inc. Delaware 100
CarlanKillam Consulting Group, Inc. Florida 100
CarlanKillam Consulting Group of Alabama, Inc. Alabama 100
Thermo Consulting & Design Inc. Delaware 100
Engineering Technology and Knowledge Corporation Delaware 100
Elson T. Killam Associates, Inc. New Jersey 100
BAC Killam Inc. New York 100
N.H. Bettigole Co., Inc. Delaware 100
CarlanKillam Construction Services, Inc. Florida 100
Duncan, Lagnese and Associates, Incorporated Pennsylvania 100
E3-Killam, Inc. New York 100
Killam Associates, Inc. Ohio 100
Killam Management and Operational Services, New Jersey 100
Inc.
Fellows, Read & Associates, Inc. New Jersey 100
Killam Associates, New England Inc. Delaware 100
George A. Schock & Associates, Inc. New Jersey 100
Jennison Engineering, Inc. Vermont 100
Thermo Analytical Inc. Delaware 100
Skinner & Sherman, Inc. Massachusetts 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Thermo EuroTech (Delaware) Inc. Delaware 83.9
(additionally, 16.1% of the shares are owned
directly by Thermo Electron Corporation)
Thermo EuroTech N.V. Netherlands 91
Thermo EuroTech Ireland Ltd. Ireland 100
Green Sunrise Holdings Ltd. Ireland 70
AutoRod Ltd. Ireland 100
Green Sunrise Industries Ltd. Ireland 100
GreenStar Recycling Ltd. Ireland 100
Pipe & Drain Services Ltd. Ireland 100
Dempsey Drums Ltd. Ireland 100
GreenStar Products Ltd. Ireland 70
Grond- & Watersaneringstechniek Nederland B.V. Netherlands 100
Refining & Trading Holland B.V. Netherlands 100
ThermoRetec Corporation Delaware 69.69
(additionally, 1.95% of the shares are owned
directly by Thermo Electron Corporation)
Benchmark Environmental Corporation New Mexico 100
Eberline Holdings Inc. Delaware 100
Eberline Analytical Corporation New Mexico 100
Thermo Hanford Inc. Delaware 100
TMA/NORCAL Inc. California 100
ThermoRetec Construction Corporation Virginia 100
ThermoRetec Resource Planning & Management Systems Connecticut 100
Corporation
ThermoRetec Consulting Corporation Delaware 100
GeoWest Golden Inc. Colorado 100
GeoWest TriTechnics of Ohio, LLC Colorado 100
Retec North Carolina, Inc. North Carolina 100
Retec Engineering P.C. New York 100
RETEC Thermal, Inc. Delaware 100
Thermo Fluids Inc. Delaware 100
TPS Technologies Inc. Florida 100
TPST Soil Recyclers of California Inc. California 100
California Hydrocarbon, Inc. Nevada 100
TPST Soil Recyclers of Maryland Inc. Maryland 100
Todds Lane Limited Partnership Maryland 100*
(1% of which is owned directly
by TPS Technologies Inc.)
TPST Soil Recyclers of New York Inc. New York 100
TPST Soil Recyclers of Oregon Inc. Oregon 100
TPST Soil Recyclers of South Carolina Inc. Delaware 100
TPST Soil Recyclers of Virginia Inc. Delaware 100
TPST Soil Recyclers of Washington Inc. Washington 100
<PAGE>
NAME STATE OR REGISTRANT'S
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
TRI Oak Ridge Inc. Delaware 100
TRI Oak Ridge LLC Delaware 50
(additionally, 50% of the shares are owned
directly by Coleman Services Incorporated)
TRUtech L.L.C. Delaware 47.5*
Thermo Securities Corporation Delaware 100
Thermo Technology Ventures Inc. Idaho 100
Plasma Quench Investment Limited Partnership Delaware 60*
ThermoTrex Corporation Delaware 80.13
ThermoLase Corporation Delaware 70.57
(additionally, 13.82% of the shares are owned
directly by Thermo Electron Corporation)
Creative Beauty Innovations, Inc. Texas 100
ThermoLase England L.L.C. Delaware 46*
ThermoLase (Scotland) Ltd. Scotland 100
ThermoLase (Ireland) Ltd. Ireland 100
ThermoLase UK Limited England 100
ThermoLase Iberica, S.A. Spain 100
ThermoLase (South Africa) Ltd. South Africa 100
ThermoLase International L.L.C. Delaware 100
ThermoLase Japan L.L.C. Wyoming 50*
ThermoTrex East Inc. Massachusetts 100
Trex Medical Corporation Delaware 71.55
(additionally, 7.01% of the shares are owned
directly by Thermo Electron Corporation)
Trex Medical Systems Corporation Delaware 100
Trex Trophy Dental Inc. Virginia 100
Trex Medical France S.A. France 100
Trophy Radiologie S.A. France 100
Stephan'X S.A. France 100
SCI Boucher Debard Baudry Guillot France 100
Trophy Benelux S.A. Belgium 100
Trophy Radiologie Italia S.R.L. Italy 100
Trophy Radiologie Japan KK Japan 100
Trophy Radiologie GmbH Germany 100
P.T. Trophy Rajawali Indonesia Indonesia 51
Trophy Radiologia Espana SA Spain 100
Trophy Rontgen SAS Turkey 77
Trophy Radiologie U.K. Ltd. England 100
*Joint Venture/Partnership
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 17, 2000 (except with respect to the
matters discussed in Note 17, as to which the date is March 7, 2000), included
in or incorporated by reference into Thermo Electron Corporation's Annual Report
on Form 10-K for the year ended January 1, 2000, into the Company's previously
filed Registration Statement No. 33-00182 on Form S-8, Registration Statement
No. 33-8993 on Form S-8, Registration Statement No. 33-8973 on Form S-8,
Registration Statement No. 33-16460 on Form S-8, Registration Statement No.
33-16466 on Form S-8, Registration Statement No. 33-25052 on Form S-8,
Registration Statement No. 33-37865 on Form S-8, Registration Statement No.
33-37867 on Form S-8, Registration Statement No. 33-36223 on Form S-8,
Registration Statement No. 33-52826 on Form S-8, Registration Statement No.
33-52804 on Form S-8, Registration Statement No. 33-52806 on Form S-8,
Registration Statement No. 33-52800 on Form S-8, Registration Statement No.
33-37868 on Form S-8, Registration Statement No. 33-43706 on Form S-3,
Registration Statement No. 33-45603 on Form S-3, Registration Statement No.
33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8,
Registration Statement No. 33-54347 on Form S-8, Registration Statement No.
33-54453 on Form S-8, Registration Statement No. 333-00197 on Form S-3,
Registration Statement No. 033-65237 on Form S-8, Registration Statement No.
033-61561 on Form S-8, Registration Statement No. 033-58487 on Form S-8,
Registration Statement No. 333-01277 on Form S-3, Registration Statement No.
333-01809 on Form S-3, Registration Statement No. 333-01893 on Form S-3,
Registration Statement No. 333-19549 on Form S-3, Registration Statement No.
333-19535 on Form S-8, Registration Statement No. 333-19633-01 on Form S-3,
Registration Statement No. 333-34909-01 on Form S-3, Registration Statement No.
333-14265 on Form S-8, Registration Statement No. 333-62957 on Form S-3,
Registration Statement No. 333-90761 on Form S-8, Registration Statement No.
333-90823 on Form S-8, Registration Statement No. 333-94627 on Form S-8, and
Registration Statement No. 333-32035-01 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
March 21, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO ELECTRON CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 281,760
<SECURITIES> 555,501
<RECEIVABLES> 607,825
<ALLOWANCES> 33,699
<INVENTORY> 373,141
<CURRENT-ASSETS> 2,517,207
<PP&E> 756,443
<DEPRECIATION> 245,796
<TOTAL-ASSETS> 5,181,842
<CURRENT-LIABILITIES> 1,066,349
<BONDS> 1,565,974
0
0
<COMMON> 167,433
<OTHER-SE> 1,847,053
<TOTAL-LIABILITY-AND-EQUITY> 5,181,842
<SALES> 2,471,193
<TOTAL-REVENUES> 2,471,193
<CGS> 1,378,494
<TOTAL-COSTS> 1,378,494
<OTHER-EXPENSES> 328,689
<LOSS-PROVISION> 8,626
<INTEREST-EXPENSE> 96,992
<INCOME-PRETAX> 37,486
<INCOME-TAX> 33,073
<INCOME-CONTINUING> (14,580)
<DISCONTINUED> (161,462)
<EXTRAORDINARY> 1,469
<CHANGES> 0
<NET-INCOME> (174,573)
<EPS-BASIC> (1.10)
<EPS-DILUTED> (1.13)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO ELECTRON CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 268,340
<SECURITIES> 1,059,069
<RECEIVABLES> 513,904
<ALLOWANCES> 26,938
<INVENTORY> 330,507
<CURRENT-ASSETS> 2,926,383
<PP&E> 771,093
<DEPRECIATION> 236,844
<TOTAL-ASSETS> 5,421,060
<CURRENT-LIABILITIES> 763,373
<BONDS> 1,798,582
0
0
<COMMON> 166,971
<OTHER-SE> 2,087,831
<TOTAL-LIABILITY-AND-EQUITY> 5,421,060
<SALES> 2,055,805
<TOTAL-REVENUES> 2,055,805
<CGS> 1,127,253
<TOTAL-COSTS> 1,127,253
<OTHER-EXPENSES> 151,604
<LOSS-PROVISION> 5,002
<INTEREST-EXPENSE> 90,329
<INCOME-PRETAX> 254,493
<INCOME-TAX> 104,571
<INCOME-CONTINUING> 114,676
<DISCONTINUED> 66,785
<EXTRAORDINARY> 440
<CHANGES> 0
<NET-INCOME> 181,901
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMO ELECTRON CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 3, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 505,612
<SECURITIES> 790,343
<RECEIVABLES> 465,643
<ALLOWANCES> 25,796
<INVENTORY> 313,114
<CURRENT-ASSETS> 2,796,096
<PP&E> 697,786
<DEPRECIATION> 187,719
<TOTAL-ASSETS> 4,961,046
<CURRENT-LIABILITIES> 794,134
<BONDS> 1,508,687
0
0
<COMMON> 159,206
<OTHER-SE> 1,848,656
<TOTAL-LIABILITY-AND-EQUITY> 4,961,046
<SALES> 1,979,602
<TOTAL-REVENUES> 1,979,602
<CGS> 1,058,331
<TOTAL-COSTS> 1,058,331
<OTHER-EXPENSES> 112,933
<LOSS-PROVISION> 4,981
<INTEREST-EXPENSE> 84,214
<INCOME-PRETAX> 353,121
<INCOME-TAX> 131,970
<INCOME-CONTINUING> 174,665
<DISCONTINUED> 64,663
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239,328
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.41
</TABLE>
