01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Thermo Fisher Scientific's FY2011 10-K shows a year transformed by acquisitions.
Revenue rose 11% to $11.73 billiona, with pro forma organic growth of about 3% (the company cited weakness in academic and government markets in the second half). Operating income grew only 3% to $1.25 billion, and operating margin fell to 10.6% from 11.4%, driven by $124 million of higher acquisition-related charges and $93 million of higher amortization tied to the Phadia and Dionex deals. Net income of $1.33 billion was lifted by a $304 million after-tax gain from the sale of the Athena and Lancaster businesses, so underlying earnings from continuing operations were $1.02 billion, up about 2%.
Diluted EPS from continuing operations was $2.65b. The balance sheet is markedly more leveraged. Total assets rose to $26.8 billion, goodwill to $12.0 billion, and total debt to about $7.03 billion, versus $2.1 billion a year earlier, after roughly $5.7 billion of acquisition spending (Phadia for $3.5 billion net, and Dionex for $2.0 billion net).
Shareholders' equity fell slightly to $15.0 billion, partly due to $1.34 billionc of share repurchases. The company has about $650 million of buyback authorization left, and its covenant limit is a 3.5x debt-to-EBITDA ratio. Management says liquidity is sufficient for at least 24 months.
The filing also announces the initiation of a quarterly cash dividend of $0.13d per share, payable April 16, 2012, a notable shift in capital allocation for a company that had previously relied on buybacks. Management guided to a 2012 effective tax rate of 11.5% to 13.5%, and noted an expected 2013 medical device excise tax cost of $20 to $30 million a year. Key risks include European sovereign debt stress, currency exposure, dependence on academic and government funding, goodwill and intangible impairment risk (together about $13.3 billion), and the integration of large acquisitions.
02—Key points
Key Highlights
- Revenue grew 11% to $11.73 billion, mainly from the Phadia and Dionex acquisitions; pro forma revenue growth was 7% including acquisitions and about 3% at existing businesses.
- Operating margin declined to 10.6% from 11.4% because of higher acquisition-related charges ($124M) and amortization (+$93M), partly offset by productivity gains.
- Net income of $1.33B included a $304M after-tax gain from the sale of Athena Diagnostics and Lancaster Laboratories; income from continuing operations was $1.02B, up about 2%.
- Total debt rose to about $7.03B from $2.14B, funding roughly $5.7B of acquisitions, and the company's leverage covenant is 3.5x debt-to-EBITDA.
- The company initiated its first-ever quarterly cash dividend of $0.13 per share, payable April 16, 2012.
- Share repurchases totaled $1.34B in 2011, with $650M of authorization remaining at year-end.
- Management expects the 2012 effective tax rate to be 11.5% to 13.5%, and flagged weakness in academic and government demand (about a quarter of revenue) continuing into 2012.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Thermo Fisher Scientific kept $0.12.
- Revenue$11.56B100.0%
- Cost of revenue−$5.73B49.6%
- Gross profit$5.83B50.4%
- Operating costs−$4.57B39.6%
- Operating income$1.25B10.8%
- Interest, other & tax$79.1M0.7%
- Net income$1.33B11.5%
Where FY2011 revenue went
$11.56B- Cost of revenue: $5.73B, 50% of revenue
- SG&A: $3.11B, 27% of revenue
- Operating income: $1.25B, 11% of revenue
- R&D: $340.2M, 2.9% of revenue
- Other operating costs: $1.13B, 9.8% of revenue
Kept 11% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $11.56B$10.39B | +11.2% |
| Cost of Revenue | $5.73B$5.26B | +8.9% |
| Gross Profit | $5.83B$5.13B | +13.6% |
| R&D Expenses | $340.20M$284.40M | +19.6% |
| SG&A Expenses | $3.11B$2.73B | +13.8% |
| Operating Expenses | $10.31B$9.21B | +12.0% |
| Operating Income | $1.25B$1.19B | +5.3% |
| Interest Expense | $175.30M$84.70M | +107.0% |
| Net Income | $1.33B$1.04B | +28.4% |
| EPS (Basic) | $3.49$2.57 | +35.8% |
| EPS (Diluted) | $3.46$2.53 | +36.8% |
| Shares Outstanding (Basic) | 380.80M403.30M | −5.6% |
| Shares Outstanding (Diluted) | 384.80M409.40M | −6.0% |
05—Questions
Frequently Asked Questions
What drove the strong top-line growth in 2011, and how much was organic?
Most of the 11% increase to $11.73 billion came from acquisitions, primarily Phadia (allergy and autoimmune diagnostics) and Dionex (ion and liquid chromatography). Pro forma revenue, as if those deals had closed at the start of 2010, rose 7%. Excluding currency effects and other acquisitions, pro forma growth at existing businesses was about 3%, and management said academic and government demand weakened in the second half of 2011.
Why did operating margin fall even though revenue grew?
Operating margin fell to 10.6% from 11.4%, mainly due to $124 million of higher acquisition-related charges (including inventory step-up and transaction costs) and $93 million of higher amortization of acquired intangibles, both largely tied to Phadia and Dionex. Productivity gains and profit on incremental sales partly offset these.
How did the company's balance sheet and leverage change?
Total debt roughly tripled to about $7.03 billion, and total assets rose to $26.8 billion, with goodwill of $12.0 billion. Management says cash, short-term investments, operating cash flow and revolver/commercial paper capacity are sufficient for at least 24 months. The main constraint is the 3.5x debt-to-EBITDA covenant on the revolving credit facility.
Why does the reported net income differ so much from income from continuing operations?
Net income of $1.33 billion includes a one-time $304.8 million after-tax gain from selling the Athena and Lancaster businesses in April 2011. Income from continuing operations was $1.02 billion, so investors should focus on that figure, which is only modestly higher than the prior year.
What does the first dividend and continued buyback mean for shareholders?
The Board initiated a quarterly cash dividend of $0.13 per share, payable April 16, 2012 to holders of record on March 15, 2012, and intends to keep paying it. The company also repurchased $1.34 billion of stock in 2011 and retains $650 million of authorization, so it is returning capital through both dividends and buybacks while carrying higher debt.
06—Continue