10-QPeriod: Q2 FY2006

THERMO FISHER SCIENTIFIC INC. Quarterly Report for Q2 Ended Apr 1, 2006

Filed May 5, 2006For Securities:TMO

Summary

Thermo Fisher Scientific Inc. (TMO) reported first-quarter 2006 results with a notable 22% increase in revenue to $684.3 million, driven significantly by acquisitions, which contributed 17% to revenue growth. While overall revenue saw a 10% organic increase excluding acquisitions and currency impacts, the company's operating income margin slightly decreased to 9.9% from 10.7% in the prior year. This margin compression is primarily attributed to higher amortization expenses related to recent acquisitions and increased restructuring costs. Despite the margin pressure, the company demonstrated solid operational cash flow of $31.9 million. Management expressed confidence in the company's liquidity, citing sufficient existing cash, investments, and credit facilities to meet anticipated capital requirements for at least the next 24 months. The company is actively managing restructuring efforts, including plant consolidations, with ongoing evaluations for further cost-saving measures.

Key Highlights

  • 1Revenue increased by 22% year-over-year to $684.3 million, with acquisitions contributing significantly to growth.
  • 2Operating income grew to $67.8 million, but the operating income margin declined to 9.9% from 10.7% due to higher amortization and restructuring costs.
  • 3Net income from continuing operations slightly decreased to $43.6 million from $45.6 million, impacted by higher interest expenses and an increased effective tax rate.
  • 4Cash flow from operating activities remained strong at $31.9 million.
  • 5The company adopted SFAS No. 123R, which requires the expensing of stock-based compensation, resulting in a $5.3 million pre-tax expense for the quarter.
  • 6The company is actively managing restructuring initiatives, including a planned plant closure and consolidation, with expected charges of approximately $8 million in Q2 and Q3 2006.
  • 7Management anticipates that existing resources and credit facilities are sufficient to meet capital requirements for the foreseeable future (at least 24 months).

Frequently Asked Questions

Revenue grew by 22% to $684.3 million, primarily driven by strategic acquisitions, which accounted for 17% of the growth. Organic revenue growth, excluding acquisitions and currency impacts, was still a healthy 10%.

The operating income margin decreased from 10.7% to 9.9%. This was mainly due to an increase in amortization expenses related to acquisition-related intangible assets and higher restructuring costs associated with ongoing integration and consolidation efforts.

The company adopted SFAS No. 123R, requiring the expensing of stock-based compensation. This resulted in $5.3 million of pre-tax stock-based compensation expense in Q1 2006, which decreased both basic and diluted earnings per share by $0.02. This also shifted $4.3 million of tax benefits from stock option exercises from operating cash flow to financing cash flow.

Thermo Fisher Scientific expressed confidence in its liquidity. They believe that current cash, investments, future operating cash flow, and available borrowing capacity under their credit facilities are sufficient to meet their capital requirements for at least the next 24 months.