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Thermo Fisher Scientific Inc. (TMO)

Analysis of Property, Plant and Equipment

Advanced level

Accounting Policy on Property, Plant and Equipment

Property, plant and equipment are recorded at cost. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Thermo Fisher provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 25 to 40 years; machinery and equipment (including software), 3 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is reflected in the accompanying statement of income.

Depreciation and amortization expense of property, plant and equipment was $526 million, $439 million and $380 million in 2018, 2017 and 2016, respectively.

Source: 10-K (filing date: 2019-02-27).

Property, Plant and Equipment Disclosure

Thermo Fisher Scientific Inc., balance sheet: property, plant and equipment

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Land 397  401  306  276  282 
Buildings and improvements 1,729  1,662  1,154  1,051  955 
Machinery, equipment and leasehold improvements 4,694  4,276  2,956  2,787  2,632 
Property, plant and equipment, at cost 6,820  6,339  4,416  4,114  3,869 
Accumulated depreciation and amortization (2,655) (2,292) (1,838) (1,665) (1,442)
Property, plant and equipment, net 4,165  4,047  2,578  2,449  2,427 

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

Item Description The company
Property, plant and equipment, at cost Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Thermo Fisher Scientific Inc.’s property, plant and equipment, at cost increased from 2016 to 2017 and from 2017 to 2018.
Property, plant and equipment, net Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Thermo Fisher Scientific Inc.’s property, plant and equipment, net increased from 2016 to 2017 and from 2017 to 2018.

Asset Age Ratios (Summary)

Thermo Fisher Scientific Inc., asset age ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Average age ratio 41.34% 38.60% 44.71% 43.39% 40.21%
Estimated total useful life (years) 12 14 11 10 10
Estimated age, time elapsed since purchase (years) 5 5 5 4 4
Estimated remaining life (years) 7 8 6 6 6

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

Asset age ratio Description The company
Average age ratio As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. Thermo Fisher Scientific Inc.’s average age ratio of depreciable property, plant and equipment improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. Thermo Fisher Scientific Inc.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Thermo Fisher Scientific Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Estimated remaining life Thermo Fisher Scientific Inc.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Average Age

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation and amortization 2,655  2,292  1,838  1,665  1,442 
Property, plant and equipment, at cost 6,820  6,339  4,416  4,114  3,869 
Land 397  401  306  276  282 
Asset Age Ratio
Average age1 41.34% 38.60% 44.71% 43.39% 40.21%

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

2018 Calculations

1 Average age = 100 × Accumulated depreciation and amortization ÷ (Property, plant and equipment, at cost – Land)
= 100 × 2,655 ÷ (6,820 – 397) = 41.34%

Asset age ratio Description The company
Average age As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. Thermo Fisher Scientific Inc.’s average age ratio of depreciable property, plant and equipment improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.

Estimated Total Useful Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, at cost 6,820  6,339  4,416  4,114  3,869 
Land 397  401  306  276  282 
Depreciation and amortization expense of property, plant and equipment 526  439  380  373  353 
Asset Age Ratio (Years)
Estimated total useful life1 12 14 11 10 10

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

2018 Calculations

1 Estimated total useful life = (Property, plant and equipment, at cost – Land) ÷ Depreciation and amortization expense of property, plant and equipment
= (6,820 – 397) ÷ 526 = 12

Asset age ratio Description The company
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. Thermo Fisher Scientific Inc.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Estimated Age, Time Elapsed since Purchase

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation and amortization 2,655  2,292  1,838  1,665  1,442 
Depreciation and amortization expense of property, plant and equipment 526  439  380  373  353 
Asset Age Ratio (Years)
Time elapsed since purchase1 5 5 5 4 4

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

2018 Calculations

1 Time elapsed since purchase = Accumulated depreciation and amortization ÷ Depreciation and amortization expense of property, plant and equipment
= 2,655 ÷ 526 = 5

Asset age ratio Description The company
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Thermo Fisher Scientific Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Estimated Remaining Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, net 4,165  4,047  2,578  2,449  2,427 
Land 397  401  306  276  282 
Depreciation and amortization expense of property, plant and equipment 526  439  380  373  353 
Asset Age Ratio (Years)
Estimated remaining life1 7 8 6 6 6

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).

2018 Calculations

1 Estimated remaining life = (Property, plant and equipment, net – Land) ÷ Depreciation and amortization expense of property, plant and equipment
= (4,165 – 397) ÷ 526 = 7

Asset age ratio Description The company
Estimated remaining life Thermo Fisher Scientific Inc.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.