10-QPeriod: Q1 FY2014

THERMO FISHER SCIENTIFIC INC. Quarterly Report for Q1 Ended Mar 29, 2014

Filed May 2, 2014For Securities:TMO

Summary

Thermo Fisher Scientific Inc. reported strong revenue growth in the first quarter of 2014, primarily driven by the significant acquisition of Life Technologies Corporation for $15.3 billion, which closed on February 3, 2014. This acquisition substantially reshaped the company's balance sheet, with a large increase in Goodwill and Acquisition-related Intangible Assets. Despite the massive integration effort, the company also completed a strategic divestiture of its sera and media, gene modulation, and magnetic beads businesses to GE Healthcare for $1.05 billion, a move necessary for antitrust approval of the Life Technologies deal, resulting in a substantial pre-tax gain. Financially, the quarter saw increased revenues and operating income, though the latter was heavily influenced by the gain on divestiture and acquisition-related charges. The company's cash flow from operations was significantly lower compared to the prior year due to the integration costs of Life Technologies, including equity award monetization and severance. However, the company maintained a strong liquidity position, with substantial cash and investments, and access to a revolving credit facility, which it believes are sufficient to meet its financial obligations for the foreseeable future.

Financial Highlights

56 data points
Beta

Revenue

$3.90B

41.5% Gross Margin

Net Income

$543.10M

13.9% Net Margin

EPS (Diluted)

$1.36

Total Assets

$46.13B

Cash & Equivalents

$1.50B

Free Cash Flow

-$3.50M

Financial Statements
Beta
Revenue$3.90B
Cost of Revenue$1.93B
Gross Profit$1.62B
R&D Expenses$149.70M
SG&A Expenses$1.18B
Operating Expenses$3.03B
Operating Income$875.50M
Interest Expense$117.80M
Net Income$543.10M
EPS (Basic)$1.38
EPS (Diluted)$1.36
Shares Outstanding (Basic)393.30M
Shares Outstanding (Diluted)398.40M

Key Highlights

  • 1Acquisition of Life Technologies Corporation for $15.3 billion completed on February 3, 2014, significantly expanding the Life Sciences Solutions segment.
  • 2Divestiture of sera and media, gene modulation, and magnetic beads businesses to GE Healthcare for $1.05 billion, resulting in a $757 million pre-tax gain.
  • 3Total revenues increased by 22.3% to $3.90 billion, largely driven by the Life Technologies acquisition.
  • 4Operating income surged to $875.5 million, significantly boosted by a $759 million gain on the sale of businesses and inclusion of Life Technologies' results.
  • 5Cash flow from operations decreased to $101.2 million from $298.3 million in the prior year, impacted by acquisition-related integration costs.
  • 6Total assets grew substantially to $46.13 billion from $31.86 billion, primarily due to the Life Technologies acquisition, with a significant increase in Goodwill and Acquisition-related Intangible Assets.
  • 7The company issued $5.00 billion in debt and $2.94 billion in common stock to partially fund the Life Technologies acquisition.

Frequently Asked Questions

The acquisition of Life Technologies Corporation for $15.3 billion on February 3, 2014, was the most significant event. It dramatically increased Thermo Fisher's total assets to $46.13 billion, primarily through a substantial rise in Goodwill and Acquisition-related Intangible Assets. While it drove a significant increase in revenues to $3.90 billion for the quarter, it also led to higher interest expenses due to assumed debt and substantial integration costs, which negatively impacted cash flow from operations.

Thermo Fisher sold its sera and media, gene modulation, and magnetic beads businesses to GE Healthcare for $1.05 billion. This transaction resulted in a pre-tax gain of approximately $757 million, which was a major contributor to the significant increase in operating income reported for the quarter. This divestiture was a condition for regulatory approval of the Life Technologies acquisition.

Despite the large acquisition and integration costs, Thermo Fisher maintained a strong liquidity position. As of March 29, 2014, the company held $1.52 billion in cash and cash equivalents and short-term investments. Additionally, it has access to a $1.5 billion revolving credit facility. Management believes these resources, along with future cash flow from operations, are sufficient to meet its financial needs for at least the next 24 months.

Management highlighted several key risks including the challenges of integrating the Life Technologies business, potential difficulties in realizing anticipated benefits and cost savings, and the risk of diverting management attention. Other risks mentioned involve competition, rapid technological change, general economic conditions, currency fluctuations, and potential intellectual property infringement claims, particularly those inherited from Life Technologies.