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Thermo Fisher Scientific Annual Report, Year Ended Dec 31, 2004

Filing Date
Filed March 16, 2005
Period End
December 31, 2004
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 16, 2005. Cited figures are marked; the original filing is the authoritative source.

Thermo Electron Corporation (NYSE: TMO) reported a strong 2004 fiscal year, with revenues rising 16% to $2.206 billiona (about 4% organic growth, with the rest from currency and acquisitions).

Operating income improved to $237.5 millionb, a 10.8% margin versus 9.9% in 2003, largely because restructuring charges fell to $19.2 million from $45.3 million. Net income more than tripled to $361.8 million, but that figure is inflated by roughly $143.5 million of after-tax discontinued-operations income, including the sale of Spectra-Physics and tax-audit benefits. Income from continuing operations rose a more modest 25% to $218.4 million, and the effective tax rate fell to 15.8% thanks to a $33.8 million audit settlement benefit.

The company expects a normalized rate of about 29% in 2005. The company is now a pure-play instrument business with two segments: Life and Laboratory Sciences (71% of revenue, 14.3% margin) and Measurement and Control (29%, 8.4% margin). Balance sheet strength is solid, with $512 millionc in cash and short-term investments, $241 million of debt, and shareholders' equity of $2.67 billion.

Cash flow from operations was $264.5 milliond. The main forward-looking event is the agreed January 2005 purchase of Kendro Laboratory Products from SPX for $833.5 million, funded by up to $600 million of bridge financing plus existing cash, with a further $10-20 million of integration charges expected. Investors should watch the integration of Kendro, the pending patent-infringement suit from Applied Biosystems/MDS (which the filing says could have a material adverse effect if lost), and the Lemelson machine-vision patent claim.

02—Key points

Key Highlights

  1. Revenue grew 16% to $2.206 billion in 2004; organic growth was about 4%, with currency (+$92.1M) and acquisitions (+$134.4M net) contributing the rest.
  2. Operating margin expanded to 10.8% from 9.9%, driven mainly by restructuring charges falling to $19.2M from $45.3M.
  3. Net income of $361.8M (diluted EPS $2.17) is flattered by discontinued-operations gains; income from continuing operations was $218.4M (diluted EPS $1.31).
  4. Effective tax rate fell to 15.8% from 21.3% because of a $33.8M benefit from IRS audit settlements; management guides to about 29% for 2005.
  5. Strong liquidity: $512.3M in cash and short-term investments, $241.1M of debt (93% due 2007 or later), and no borrowings under the $250M revolver.
  6. Pending $833.5M acquisition of Kendro Laboratory Products (approx. $375M 2004 revenue), with up to $600M of bridge financing committed.
  7. Material litigation risk: Applied Biosystems/MDS patent suit over mass spectrometer systems, with potential treble damages and injunctive relief.

03—Questions

Frequently Asked Questions

  1. Why did net income more than triple while continuing operations grew only about 25%?

    Net income of $361.8M includes $143.5M of after-tax income from discontinued operations, mainly the $100.5M gain on disposal (Spectra-Physics sale and recognition of previously unrecognized tax assets) and $43.0M of discontinued income. Income from continuing operations, the more relevant measure of the core business, rose to $218.4M from $175.2M, with part of that improvement due to a one-time $33.8M tax benefit.

  2. How much of the 2004 growth was organic?

    Sales rose $306.6M to $2.206B. Currency translation contributed $92.1M and acquisitions, net of divestitures, contributed $134.4M. Organic growth was roughly $80.1M, or about 4%, driven mainly by higher demand in mass spectrometry, spectroscopy, and industrial and semiconductor markets.

  3. How will the Kendro acquisition affect the company's finances?

    Kendro is being acquired from SPX for $833.5M in cash, subject to a post-closing adjustment, and it generated about $375M of revenue in 2004. The company plans to fund it with up to $600M of 364-day bridge financing plus existing cash. Management expects $10-20M of integration charges expensed after closing, and the deal will add significant goodwill and debt to the balance sheet.

  4. What are the main risks investors should monitor?

    The most significant risks are the Applied Biosystems/MDS patent lawsuit, which the company says could materially affect its financial position if it loses, and the Lemelson Foundation machine-vision patent claim. Other risks include the cyclicality of Measurement and Control end markets (steel, cement, semiconductors), roughly 60% international revenue exposed to currency swings, goodwill of $1.51B that could be impaired, and the execution risk of integrating Kendro and the Thermo Electron brand transition.

  5. Does the company pay dividends or repurchase shares?

    No cash dividends have ever been paid, and none are expected in the foreseeable future. The company repurchased 8.4 million shares for $231.5M in 2004, but the Board's repurchase authorization had been substantially used up by year-end, with no repurchases in the fourth quarter.

04—Continue

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