10-QPeriod: Q3 FY2005

THERMO FISHER SCIENTIFIC INC. Quarterly Report for Q3 Ended Jul 2, 2005

Filed August 4, 2005For Securities:TMO

Summary

Thermo Fisher Scientific Inc. (TMO) reported financial results for the second quarter and first six months ended July 2, 2005, marked by significant acquisition activity and revenue growth. The company successfully integrated several acquisitions, including Kendro Laboratory Products, Rupprecht and Patashnick Co., Inc., and Niton LLC, which contributed to a reported revenue increase of 24% year-over-year for the second quarter. Despite the growth, operating income margin saw a decrease due to higher amortization expenses related to acquisition-related intangible assets and charges for revalued inventories. The company's strategic focus on expanding its Life and Laboratory Sciences and Measurement and Control segments remains a key theme. Operationally, Thermo Fisher Scientific generated solid cash flow from operations, although it was lower than the prior year's comparable period, primarily due to increased investment in working capital. The company has secured significant debt financing, including a new $250 million senior notes issuance and a revolving credit facility, to support its strategic initiatives and manage its capital structure. Management expresses confidence in its liquidity position, citing existing cash, future operational cash flow, and available credit facilities to meet foreseeable capital requirements.

Key Highlights

  • 1Thermo Fisher Scientific Inc. reported a 24% increase in second-quarter revenues compared to the prior year, driven by strategic acquisitions and organic growth.
  • 2The company completed the acquisitions of Kendro Laboratory Products, Rupprecht and Patashnick Co., Inc., and Niton LLC, significantly expanding its Life and Laboratory Sciences and Measurement and Control segments.
  • 3Operating income margin decreased to 8.1% in Q2 2005 from 11.2% in Q2 2004, largely due to increased amortization of acquisition-related intangible assets and inventory revaluation charges.
  • 4Net income from continuing operations increased to $56.8 million in the second quarter from $50.6 million in the prior year, supported by gains on investment sales.
  • 5Cash flow from operations for the first six months of 2005 was $89.0 million, down from $105.1 million in the same period of 2004, attributed to higher working capital investments.
  • 6The company secured new debt financing, including a $250 million senior notes issuance and a revolving credit facility, to support its growth and acquisition strategy.
  • 7Thermo Fisher Scientific continues to manage its debt profile, with 65% of outstanding debt due in 2007 and thereafter as of July 2, 2005.

Frequently Asked Questions

Revenue growth was driven by a combination of strategic acquisitions, including Kendro, Rupprecht and Patashnick, and Niton, as well as a 7% increase in organic revenue due to higher demand across the company's principal businesses and some price increases. Favorable currency translations also contributed to the reported revenue increase.

The operating income margin decreased primarily due to a $13.5 million increase in amortization expense for acquisition-related intangible assets and an $11.1 million increase in charges to cost of revenues, mainly related to the sale of inventories revalued at the acquisition date. These factors more than offset the higher profitability from increased revenues.

The company utilized a combination of strategies, including short-term bridge financing, existing cash balances, and new debt issuances. Specifically, they issued $250 million in 5% senior notes due 2015 and obtained a 175 million euro revolving credit facility to refinance bridge loans and manage capital. The Kendro acquisition, in particular, was significantly funded by these measures.

Thermo Fisher Scientific expressed confidence in its liquidity, citing its existing cash and short-term investments, anticipated future cash flow from operations, and available borrowings under its revolving credit agreement. Management believes these resources will be sufficient to meet capital requirements for at least the next 24 months.