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Thermo Fisher Scientific Annual Report, Year Ended Dec 31, 2012

Filing Date
Filed February 27, 2013
Period End
December 31, 2012
Security
TMO
One revenue dollarkept$0.09
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 February 27, 2013. Cited figures are marked; the original filing is the authoritative source.

Thermo Fisher Scientific's FY2012 10-K shows a company that grew revenue to $12.51 billiona (up 8% from $11.56 billion), driven largely by the Phadia (Specialty Diagnostics) and Dionex (Analytical Technologies) acquisitions completed in 2011 and the One Lambda and Doe & Ingalls acquisitions in 2012.

On a pro forma basis, revenue grew about 3% including acquisitions and about 4% at existing businesses, with academic/government and industrial demand slowing to nominal growth in the second half of 2012. Operating income rose 19% to $1.48 billionb, with operating margin expanding to 11.8% from 10.8%, though GAAP results are heavily burdened by roughly $748 million of acquisition-related intangible amortization. Net income fell to $1.18 billion from $1.33 billion, largely because 2011 included a $305 million after-tax gain on the Athena and Lancaster divestitures, while income from continuing operations rose 23% to $1.26 billion.

Balance sheet and cash flow are the key investor considerations. Total debt was about $7.12 billionc at year-end, against $855 million of cash and short-term investments, and the company's leverage covenant caps Consolidated Leverage at 3.5x EBITDA. Operating cash flow was a strong $2.04 billion, which funded $1.08 billion of acquisitions, $315 million of capex, $1.15 billion of share repurchases and a newly initiated quarterly dividend.

Goodwill of $12.47 billiond and indefinite-lived tradenames of $1.34 billion represent a large share of total assets of $27.4 billion, so future impairment or integration shortfalls would be material. The effective tax rate fell to 0.9% in 2012 (aided by a Swedish tax rate cut and a $53 million deferred tax benefit), and management guides to a 5%-7% rate for 2013, which investors should treat as a non-recurring tailwind rather than a run-rate.

Looking ahead, management expects continued softness in academic and government and industrial markets, cites a 2.3% medical device excise tax beginning in 2013 (an estimated $20-25 million annual cost increase), projects about $80 million of new 2013 restructuring charges, and plans a $1 billion share repurchase program starting January 1, 2013. Risk disclosures emphasize government funding uncertainty tied to sequestration, currency exposure (2012 currency translation reduced revenue by $227 million), and dependence on acquisition integration.

02—Key points

Key Highlights

  1. Revenue rose 8% to $12.51 billion; pro forma growth was about 3% including acquisitions and about 4% at existing businesses, with academic/government and industrial demand slowing.
  2. Operating income increased 19% to $1.48 billion, lifting operating margin to 11.8% from 10.8%, though GAAP results include $748 million of acquisition-related amortization.
  3. Income from continuing operations rose 23% to $1.26 billion, but net income declined to $1.18 billion because 2011 included a $305 million after-tax gain on divestitures.
  4. Operating cash flow of $2.04 billion funded $1.08 billion of acquisitions, $315 million of capex, $1.15 billion of buybacks and a newly initiated quarterly dividend.
  5. Total debt of about $7.12 billion versus $855 million of cash and short-term investments; the revolver covenant caps leverage at 3.5x EBITDA.
  6. Goodwill ($12.47 billion) and indefinite-lived tradenames ($1.34 billion) make up a large share of $27.4 billion total assets, creating impairment risk if acquired businesses underperform.
  7. The 0.9% 2012 effective tax rate was flattered by one-time benefits; guidance of 5%-7% for 2013 is still very low, and the medical device excise tax adds $20-25 million in annual costs from 2013.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2012, Thermo Fisher Scientific kept $0.09.

  1. Revenue$12.51B100.0%
  2. Cost of revenue−$6.10B48.8%
  3. Gross profit$6.41B51.2%
  4. Operating costs−$4.93B39.4%
  5. Operating income$1.48B11.8%
  6. Interest, other & tax−$304.2M2.4%
  7. Net income$1.18B9.4%
Computed from 10-KFY2012filed February 27, 2013Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2012 revenue went

$12.51B
  • Cost of revenue: $6.10B, 49% of revenue
  • SG&A: $3.35B, 27% of revenue
  • Net income: $1.18B, 9.4% of revenue
  • R&D: $376.4M, 3.0% of revenue
  • Other operating costs: $1.20B, 9.6% of revenue
  • Interest, other & tax: $304.2M, 2.4% of revenue

Kept 9.4% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2012filed February 27, 2013
Revenue$12.51B51.2% Gross MarginNet Income$1.18B9.4% Net MarginEPS (Diluted)$3.21Total Assets$27.44BCash & Equivalents$805.60MFree Cash Flow$1.72B

Financial Statements

FY2012 against FY2011

Line itemFY2012FY2011Change
Revenue$12.51B$11.56B+8.2%
Cost of Revenue$6.10B$5.73B+6.4%
Gross Profit$6.41B$5.83B+10.0%
R&D Expenses$376.40M$340.20M+10.6%
SG&A Expenses$3.35B$3.11B+8.0%
Operating Expenses$11.03B$10.31B+7.0%
Operating Income$1.48B$1.25B+18.5%
Interest Expense$241.60M$175.30M+37.8%
Net Income$1.18B$1.33B−11.4%
EPS (Basic)$3.24$3.49−7.2%
EPS (Diluted)$3.21$3.46−7.2%
Shares Outstanding (Basic)363.80M380.80M−4.5%
Shares Outstanding (Diluted)366.60M384.80M−4.7%

05—Questions

Frequently Asked Questions

  1. Why did net income fall in 2012 even though operating income grew?

    Net income declined to $1.18 billion from $1.33 billion mainly because 2011 included a roughly $305 million after-tax gain from selling Athena Diagnostics and Lancaster Laboratories, while 2012 included a $61 million after-tax loss on the laboratory workstations divestiture. Income from continuing operations actually rose 23% to $1.26 billion.

  2. How much of Thermo Fisher's growth came from acquisitions versus existing businesses?

    Reported revenue growth of $951 million came largely from acquisitions, including Phadia and Dionex. On a pro forma basis, existing businesses grew about 4% ($474 million), while acquisitions added about $156 million and currency translation reduced revenue by $227 million. Organic growth slowed in academic, government and industrial markets during the second half of 2012.

  3. Is the company's balance sheet risky given its acquisitions?

    Leverage is meaningful: about $7.12 billion of debt against roughly $855 million of cash, with a 3.5x leverage covenant. Goodwill and intangibles are large relative to equity of $15.5 billion, so impairments would be a risk if acquired businesses (notably ImmunoDiagnostics, with only a 9% fair value cushion) fail to meet forecasts. Management states current cash flow and credit capacity are sufficient for at least the next 24 months.

  4. What should investors expect for taxes and capital returns in 2013?

    The effective tax rate is guided to 5%-7% for 2013, well below the 9.7% in 2011, though 2012's 0.9% rate was boosted by one-time items such as a lower Swedish tax rate. Management plans a $1 billion share repurchase program beginning January 1, 2013, and has been paying a quarterly dividend since February 2012 ($0.13 per quarter, raised to $0.15 in Q4 2012).

06—Continue

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