Why did operating income drop so sharply in 2001?

Operating income fell to $34.2 million from $266.0 million mainly because of $161.6 million of restructuring and related charges, including $26.1 million booked in cost of revenues, tied to the telecom and semiconductor downturn and integration actions. The 2000 results had been boosted by $126.3 million of gains on business sales, which did not recur.

How strong is the balance sheet and can the company meet its debt obligations?

The company had $1.04 billion of cash and short-term investments against $1.20 billion of total long-term obligations, of which $470 million is due in 2002. Most of the 2002 maturities are the convertible debentures being redeemed in March 2002. Management says existing resources are sufficient for at least the next 24 months, and total assets are $3.83 billion against $1.91 billion of shareholders' investment.

What are the key risks an investor should watch?

Key risks include the sharp decline in Optical Technologies and Measurement and Control backlogs; ongoing exposure to the Thoratec share price, since further declines could change the ultimate loss on discontinued operations; $207.8 million of guarantees, including the Kadant debentures; litigation such as the Lemelson and Rockwell patent suits and the Peek and Fischer matters; roughly $1.3 billion of goodwill that requires impairment testing under SFAS 142; and the challenge of integrating previously autonomous operations.

TMO 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 15, 2002. Cited figures are marked; the original filing is the authoritative source.

Thermo Electron Corporation (NYSE: TMO) closed fiscal 2001 with revenues of $2.19 billion^a, down about 4% from $2.28 billion in 2000, and a near-breakeven net loss of $0.8 million, compared with a $36.1 million loss in 2000.

Operating income fell sharply to $34.2 million^b from $266.0 million, largely because of $161.6 million in restructuring and related charges tied to a slowdown in telecommunications, semiconductor and other industrial markets. Excluding unusual items, the company says segment income was $232.4 million in 2001 versus $252.5 million in 2000. Continuing revenues grew about 5% organically excluding acquisitions, divestitures and currency, but the Optical Technologies and Measurement and Control backlogs fell 33% and 21%, respectively, which signals weaker near-term revenue.

The filing describes a company completing a multi-year reorganization that converted Thermo Electron from a holding company of publicly traded subsidiaries into an integrated instrument company organized into three segments: Life Sciences, Optical Technologies and Measurement and Control. The company took private its remaining public subsidiaries, spun off Kadant and Viasys Healthcare, and sold noncore businesses. Spectra-Physics was brought to 93.6%^c ownership and then merged in February 2002.

Investors should weigh the cleaner structure and cost-reduction plan (about $63 million^d in annualized savings) against meaningful balance-sheet and contingent items: $468 million of subordinated convertible debentures being redeemed in March 2002, roughly $207.8 million in guarantees (including $153 million of Kadant debentures), a Thoratec share position whose value is exposed to market swings, and several pending lawsuits. Liquidity remains solid, with $1.04 billion in cash and short-term investments against $1.20 billion of long-term obligations (of which $470 million is due in 2002).

Total assets declined to $3.83 billion, and shareholders' investment fell to $1.91 billion after the spinoffs and $511 million of share and debt repurchases. Management believes existing resources are sufficient for at least the next 24 months, and it authorized an additional $100 million repurchase program in March 2002.

02—Key points

Key Highlights

Revenue of $2.188 billion in 2001, down 4% from $2.281 billion in 2000; organic growth excluding acquisitions, divestitures and currency was about 5%.
Net loss of $0.8 million (EPS of $0.00) versus a $36.1 million loss in 2000; income from continuing operations was $49.6 million, or $0.27 per diluted share.
Operating income fell to $34.2 million from $266.0 million, driven by $161.6 million of restructuring and unusual charges in 2001 versus net unusual income of about $67 million in 2000.
Backlog declined to $432.6 million from $556.4 million; Optical Technologies backlog fell 33% and Measurement and Control fell 21%, pointing to weaker near-term revenue in those segments.
Completed reorganization: spun off Kadant (August 2001) and Viasys Healthcare (November 2001), took private remaining public subsidiaries, and merged Spectra-Physics in February 2002, leaving continuing operations as a pure instrument company.
Cash and short-term investments of $1.04 billion; $511 million spent repurchasing securities in 2001; $468 million of convertible debentures called for redemption in March 2002.
Contingent exposures include $207.8 million of guarantees (including $153 million of Kadant debentures), patent suits from Lemelson and Rockwell, and a Thoratec stock position that drives the value of discontinued operations.

03—Questions

Frequently Asked Questions

Why did operating income drop so sharply in 2001?
Operating income fell to $34.2 million from $266.0 million mainly because of $161.6 million of restructuring and related charges, including $26.1 million booked in cost of revenues, tied to the telecom and semiconductor downturn and integration actions. The 2000 results had been boosted by $126.3 million of gains on business sales, which did not recur.
Is the reorganization complete, and what does the company look like now?
The reorganization was substantially completed in February 2002 with the Spectra-Physics merger. Continuing operations now consist solely of instrument businesses in three segments (Life Sciences, Optical Technologies and Measurement and Control), with about 12,000 employees. Starting in Q1 2002, the Spectroscopy division moves into a renamed Life and Laboratory Sciences sector, and Temperature Control moves into Measurement and Control.
How strong is the balance sheet and can the company meet its debt obligations?
The company had $1.04 billion of cash and short-term investments against $1.20 billion of total long-term obligations, of which $470 million is due in 2002. Most of the 2002 maturities are the convertible debentures being redeemed in March 2002. Management says existing resources are sufficient for at least the next 24 months, and total assets are $3.83 billion against $1.91 billion of shareholders' investment.
What are the key risks an investor should watch?
Key risks include the sharp decline in Optical Technologies and Measurement and Control backlogs; ongoing exposure to the Thoratec share price, since further declines could change the ultimate loss on discontinued operations; $207.8 million of guarantees, including the Kadant debentures; litigation such as the Lemelson and Rockwell patent suits and the Peek and Fischer matters; roughly $1.3 billion of goodwill that requires impairment testing under SFAS 142; and the challenge of integrating previously autonomous operations.

04—Continue

← View all 10-K filings