10-QPeriod: Q3 FY2007

THERMO FISHER SCIENTIFIC INC. Quarterly Report for Q3 Ended Sep 29, 2007

Filed November 1, 2007For Securities:TMO

Summary

Thermo Fisher Scientific Inc. reported strong revenue growth for the third quarter and first nine months of 2007, largely driven by the significant merger with Fisher Scientific International Inc. completed in late 2006. Consolidated revenues for the third quarter reached $2.40 billion, a substantial increase from $724.9 million in the prior year's comparable quarter. For the nine-month period, revenues climbed to $7.13 billion from $2.12 billion in the same period last year. While operating income saw a significant increase to $254 million in Q3 2007 from $75 million in Q3 2006, the operating margin remained relatively stable year-over-year. The company experienced a notable decrease in its effective tax rate to 7.1% in Q3 2007, significantly benefiting from a one-time tax credit related to enacted reductions in tax rates in the UK, Denmark, and Germany. This, combined with higher operating income, led to a substantial increase in net income from $48.8 million in Q3 2006 to $218.5 million in Q3 2007.

Key Highlights

  • 1Revenue growth was substantial, driven by the Fisher Scientific merger, with Q3 2007 revenues at $2.40 billion and nine-month revenues at $7.13 billion.
  • 2Operating income increased significantly to $254 million in Q3 2007 from $75 million in Q3 2006.
  • 3Net income rose sharply from $48.8 million in Q3 2006 to $218.5 million in Q3 2007, aided by a favorable tax rate.
  • 4The effective tax rate decreased significantly to 7.1% in Q3 2007 due to one-time benefits from international tax rate reductions.
  • 5The company completed several strategic acquisitions in 2007, including Spectronex AG, Flux AG, and the instrument sales business of Davis Inotek Instruments, LLC, to broaden its offerings.
  • 6Cash flow from operations saw a significant increase to $948 million for the first nine months of 2007, up from $200 million in the prior year.
  • 7The company is actively repurchasing its common stock, with $460 million remaining under its authorized repurchase program as of September 29, 2007.

Frequently Asked Questions

The primary driver of Thermo Fisher Scientific's revenue growth was the successful integration of the Fisher Scientific International Inc. merger, which significantly expanded the company's scale and market presence. Additionally, increased demand in existing businesses and favorable currency translations contributed to the revenue uplift.

The merger with Fisher Scientific significantly boosted Thermo Fisher's reported operating income and net income due to the combined entity's larger revenue base. However, the company also incurred higher amortization expenses related to acquisition-related intangible assets stemming from the merger and other acquisitions. The overall operating margin remained relatively stable, but the bottom line benefited from scale and a lower effective tax rate.

Thermo Fisher Scientific reported a strong operational cash flow and substantial working capital. The company believes its existing cash reserves, future operating cash flow, and available borrowing capacity under its revolving credit agreement are sufficient to meet its working capital requirements for at least the next 24 months. They also continue to engage in share repurchases.

The company is involved in ongoing litigation, notably a patent infringement lawsuit concerning its mass spectrometer systems. While management believes its current accruals for environmental costs are adequate, an unfavorable outcome in certain legal proceedings could materially affect financial results. The company also faces risks related to technological obsolescence, integration challenges from acquisitions, intellectual property protection, and general economic conditions.