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Thermo Fisher Scientific Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed March 2, 2004
Period End
December 31, 2003
Security
TMO
In the record · 2016–202610-K1110-Q338-K153

TMO filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 153 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Aug ’17Aug ’17
  2. Material agreement8-K · Oct ’19Oct ’19
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Leadership change8-K · Jan ’26Jan ’26

01—Abstract

Summary

Summary of the 10-K filed March 2, 2004. Cited figures are marked; the original filing is the authoritative source.

Thermo Electron Corporation (NYSE: TMO) reported essentially flat 2003 results, with revenue of $2.097 billiona versus $2.086 billion in 2002.

Reported growth was driven by a $120.8 millionb favorable currency translation effect, while underlying sales fell about 5% on weaker demand, particularly in Measurement and Control and Optical Technologies. Operating income rose to $184.8 million (8.8% margin) from $155.5 million (7.5%), helped by roughly $58 million of annualized cost savings from restructuring and facility consolidation. Net income fell to $200.0 million from $309.7 million, but that comparison is distorted by large 2002 gains from FLIR and discontinued operations.

Income from continuing operations declined to $172.7 millionc from $194.4 million, mainly because investment gains dropped by about $88 million. Management points to early signs of recovery: Life and Laboratory Sciences grew sales 7% and Optical Technologies backlog rose 11% in Q4. Year-end backlog grew to $425 million from $381 million.

The company also completed the December 31, 2003 acquisition of Jouan SA (about $94 milliond in 2003 revenue) and LMSi, and it cut debt substantially, reducing outstanding debt to $275.5 million from roughly $700 million. Cash and short-term investments fell to $418.2 million, and management expects the effective tax rate in 2004 to rise to 28% to 29%, up from 21% in 2003 due to one-time benefits that will not recur. For investors, the key issues are whether the top-line recovery holds in 2004, whether margins can keep improving beyond the cost savings already in hand, and how much of 2003 earnings quality reflects non-recurring items such as investment gains, tax benefits, and discontinued operations gains.

The company also faces an unresolved IRS examination and a material Lemelson patent lawsuit, both of which could affect future results. Goodwill of $1.6 billion, about 46% of total assets, is an ongoing impairment risk if the cyclical downturn in Optical Technologies and Measurement and Control persists.

02—Key points

Key Highlights

  1. Revenue of $2.097B, up 0.5% reported; organic sales declined about 5%, offset by $120.8M of favorable currency translation
  2. Operating income rose 19% to $184.8M, and operating margin improved to 8.8% from 7.5%, aided by about $58M in annualized cost savings
  3. Net income fell to $200.0M from $309.7M, largely due to lower gains on FLIR and Thoratec share sales and 2002 discontinued-operations gains
  4. Life and Laboratory Sciences (61.6% of revenue) grew 7%; Optical Technologies revenue fell 18% but its Q4 sales rose sequentially and backlog grew 11%
  5. Debt reduced sharply: outstanding debt fell to $275.5M, with 82% due in 2007 or later; cash and short-term investments were $418.2M
  6. Acquired Jouan SA on December 31, 2003 (about $94M in annual revenue) and LMSi; 2004 effective tax rate guided to 28%-29% versus 21.0% in 2003
  7. Year-end backlog of $425.4M, up 12% from $380.6M, with management expecting virtually all of it to ship in 2004

03—Questions

Frequently Asked Questions

  1. Did Thermo Electron's underlying business grow in 2003?

    No. Reported revenue was nearly flat at $2.097B versus $2.086B, but excluding a $120.8M currency benefit, acquisitions, and divestitures, sales fell about 5% on weaker demand. Management described Q4 2003 as a possible turning point, with Life and Laboratory Sciences up year over year and Optical Technologies up sequentially.

  2. Why did net income fall so sharply in 2003?

    Net income dropped to $200.0M from $309.7M mainly because 2002 included large gains from selling FLIR shares ($111.4M pre-tax) and a $115.4M after-tax gain from discontinued operations. In 2003, investment gains were only $35.5M and discontinued operations contributed $27.3M. Income from continuing operations fell less sharply, to $172.7M from $194.4M.

  3. Is the 2003 tax rate of 21% sustainable?

    Not according to management. The 21.0% rate included about 5.8 points of one-time benefits, including a $9.0M valuation allowance reversal and a $3.7M benefit from a business sale. Management expects a 28%-29% effective tax rate in 2004, which will reduce earnings growth unless operations improve.

  4. What are the main risks to investors beyond the earnings trend?

    Key risks include goodwill of about $1.6B that could be impaired if cyclical segments (Measurement and Control goodwill $414M; Optical Technologies $122M) keep declining; an unresolved IRS examination for 1997-2000 with unfavorable outcomes requiring cash; the Lemelson Foundation patent suit, which management says could have a material adverse effect; and about 56% of revenue coming from international markets, creating currency exposure.

04—Continue

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