Thermo Fisher Scientific Reports Second Quarter 2021 Results

Condensed Consolidated Statement of Income (unaudited) (a)(b)

Three Months Ended

July 3,

% of

June 27,

% of

(In millions except per share amounts)

2021

Revenues

2020

Revenues

Revenues

$

9,273

$

6,917

Costs and Operating Expenses:

Cost of revenues (c)

4,585

49.4

%

3,416

49.4

%

Selling, general and administrative expenses (d)

1,614

17.4

%

1,417

20.5

%

Amortization of acquisition-related intangible assets

449

4.8

%

417

6.1

%

Research and development expenses

343

3.7

%

264

3.8

%

Restructuring and other costs (e)

119

1.3

%

12

0.2

%

7,110

76.7

%

5,526

79.9

%

Operating Income

2,163

23.3

%

1,391

20.1

%

Interest Income

11

8

Interest Expense

(122)

(137)

Other Expense (f)

(5)

(9)

Income Before Income Taxes

2,047

1,253

Provision for Income Taxes (g)

(219)

(97)

Net Income

$

1,828

19.7

%

$

1,156

16.7

%

Earnings per Share:

Basic

$

4.65

$

2.92

Diluted

$

4.61

$

2.90

Weighted Average Shares:

Basic

393

395

Diluted

396

398

Reconciliation of Adjusted Operating Income and Adjusted Operating Margin

GAAP Operating Income (a)

$

2,163

23.3

%

$

1,391

20.1

%

Cost of Revenues Charges (c)

—

0.0

%

2

0.0

%

Selling, General and Administrative (Credits) Charges (d)

(42)

-0.4

%

42

0.6

%

Restructuring and Other Costs (e)

119

1.3

%

12

0.2

%

Amortization of Acquisition-related Intangible Assets

449

4.8

%

417

6.1

%

Adjusted Operating Income (b)

$

2,689

29.0

%

$

1,864

27.0

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

1,828

$

1,156

Cost of Revenues Charges (c)

—

2

Selling, General and Administrative (Credits) Charges (d)

(42)

42

Restructuring and Other Costs (e)

119

12

Amortization of Acquisition-related Intangible Assets

449

417

Other Expense (f)

8

25

Benefit from Income Taxes (g)

(142)

(104)

Adjusted Net Income (b)

$

2,220

$

1,550

Reconciliation of Adjusted Earnings per Share

GAAP Diluted EPS (a)

$

4.61

$

2.90

Cost of Revenues Charges, Net of Tax (c)

0.00

0.00

Selling, General and Administrative (Credits) Charges, Net of Tax (d)

(0.11)

0.08

Restructuring and Other Costs, Net of Tax (e)

0.23

0.03

Amortization of Acquisition-related Intangible Assets, Net of Tax

0.88

0.85

Other Expense, Net of Tax (f)

0.01

0.05

Benefit from Income Taxes (g)

(0.02)

(0.02)

Adjusted EPS (b)

$

5.60

$

3.89

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities (a)

$

2,227

$

1,886

Purchases of Property, Plant and Equipment

(540)

(269)

Proceeds from Sale of Property, Plant and Equipment

—

2

Free Cash Flow

$

1,687

$

1,619

Segment Data

Three Months Ended

July 3,

% of

June 27,

% of

(In millions)

2021

Revenues

2020

Revenues

Revenues

Life Sciences Solutions

$

3,557

38.4

%

$

2,602

37.6

%

Analytical Instruments

1,481

16.0

%

1,051

15.2

%

Specialty Diagnostics

1,235

13.3

%

988

14.3

%

Laboratory Products and Services

3,583

38.6

%

2,787

40.3

%

Eliminations

(583)

-6.3

%

(511)

-7.4

%

Consolidated Revenues

$

9,273

100.0

%

$

6,917

100.0

%

Operating Income and Operating Margin

Life Sciences Solutions

$

1,718

48.3

%

$

1,234

47.4

%

Analytical Instruments

280

18.9

%

135

12.9

%

Specialty Diagnostics

245

19.9

%

214

21.6

%

Laboratory Products and Services

446

12.4

%

281

10.1

%

Subtotal Reportable Segments

2,689

29.0

%

1,864

27.0

%

Cost of Revenues Charges (c)

—

0.0

%

(2)

0.0

%

Selling, General and Administrative Credits (Charges) (d)

42

0.4

%

(42)

-0.6

%

Restructuring and Other Costs (e)

(119)

-1.3

%

(12)

-0.2

%

Amortization of Acquisition-related Intangible Assets

(449)

-4.8

%

(417)

-6.1

%

GAAP Operating Income (a)

$

2,163

23.3

%

$

1,391

20.1

%

(a)

"GAAP" (reported) results were determined in accordance with U.S. generally accepted accounting principles (GAAP).

(b)

Adjusted results are non-GAAP measures and, for income measures, exclude certain charges to cost of revenues (see note (c) for details); certain credits/charges to selling, general and administrative expenses (see note (d) for details); amortization of acquisition-related intangible assets; restructuring and other costs (see note (e) for details); certain other gains or losses that are either isolated or cannot be expected to occur again with any predictability (see note (f) for details); and the tax consequences of the preceding items and certain other tax items (see note (g) for details).

(c)

Reported results in 2020 include accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations.

(d)

Reported results in 2021 and 2020 include certain third-party expenses, principally transaction/integration costs related to recent/terminated acquisitions. Reported results in 2021 also include $60 of credits for changes in estimates of contingent acquisition consideration.

(e)

Reported results in 2021 and 2020 include restructuring and other costs consisting principally of severance, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations. Reported results in 2021 also include $110 of charges for impairment of acquired technology.

(f) 

Reported results in 2021 include $6 of amortization of bridge loan commitments fees related to a pending acquisition and $2 of losses on investments.  Reported results in 2020 include $27 of costs for a subsequently terminated acquisition, primarily for amortization of bridge loan commitments fees and entering hedging contracts, offset in part by $2 of gains from investments.

(g)

Reported provision for income taxes in 2021 and 2020 includes incremental tax benefit for the pre-tax reconciling items between GAAP and adjusted net income. Reported results in 2021 also include $8 of incremental tax benefit from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes. Reported results in 2020 also include $2 of incremental tax benefit from audit settlements.

Notes:

Consolidated depreciation expense is $211 and $157 in 2021 and 2020, respectively.

Base Business Organic Revenue Growth

Three Months Ended

July 3, 2021

Revenue Growth

34

%

COVID-19 Response Revenue (a)

2

%

Base Business Revenue Growth

32

%

Acquisitions

0

%

Currency Translation

5

%

Base Business Organic Revenue Growth

27

%

(a) COVID-19 response revenue includes effects of COVID-19 response revenues from acquired businesses and foreign currency translation.

Condensed Consolidated Statement of Income (unaudited) (a)(b)

Six Months Ended

July 3,

% of

June 27,

% of

(In millions except per share amounts)

2021

Revenues

2020

Revenues

Revenues

$

19,179

$

13,147

Costs and Operating Expenses:

Cost of revenues (c)

9,142

47.7

%

6,781

51.6

%

Selling, general and administrative expenses (d)

3,157

16.5

%

2,668

20.3

%

Amortization of acquisition-related intangible assets

872

4.5

%

842

6.4

%

Research and development expenses

663

3.5

%

509

3.9

%

Restructuring and other costs (e)

133

0.7

%

50

0.4

%

13,967

72.8

%

10,850

82.5

%

Operating Income

5,212

27.2

%

2,297

17.5

%

Interest Income

23

44

Interest Expense

(247)

(263)

Other (Expense) Income (f)

(188)

3

Income Before Income Taxes

4,800

2,081

Provision for Income Taxes (g)

(635)

(137)

Net Income

$

4,165

21.7

%

$

1,944

14.8

%

Earnings per Share:

Basic

$

10.58

$

4.91

Diluted

$

10.50

$

4.87

Weighted Average Shares:

Basic

394

396

Diluted

397

399

Reconciliation of Adjusted Operating Income and Adjusted Operating Margin

GAAP Operating Income (a)

$

5,212

27.2

%

$

2,297

17.5

%

Cost of Revenues Charges (c)

8

0.0

%

4

0.0

%

Selling, General and Administrative (Credits) Charges (d)

(26)

-0.1

%

48

0.4

%

Restructuring and Other Costs (e)

133

0.7

%

50

0.4

%

Amortization of Acquisition-related Intangible Assets

872

4.5

%

842

6.4

%

Adjusted Operating Income (b)

$

6,199

32.3

%

$

3,241

24.7

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

4,165

$

1,944

Cost of Revenues Charges (c)

8

4

Selling, General and Administrative (Credits) Charges (d)

(26)

48

Restructuring and Other Costs (e)

133

50

Amortization of Acquisition-related Intangible Assets

872

842

Other Expense (f)

205

39

Benefit from Income Taxes (g)

(272)

(202)

Adjusted Net Income (b)

$

5,085

$

2,725

Reconciliation of Adjusted Earnings per Share

GAAP Diluted EPS (a)

$

10.50

$

4.87

Cost of Revenues Charges, Net of Tax (c)

0.01

0.01

Selling, General and Administrative (Credits) Charges, Net of Tax (d)

(0.09)

0.10

Restructuring and Other Costs, Net of Tax (e)

0.26

0.10

Amortization of Acquisition-related Intangible Assets, Net of Tax

1.72

1.67

Other Expense, Net of Tax (f)

0.44

0.07

(Benefit from) Provision for Income Taxes (g)

(0.03)

0.01

Adjusted EPS (b)

$

12.81

$

6.83

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities (a)

$

4,205

$

2,242

Purchases of Property, Plant and Equipment

(1,168)

(522)

Proceeds from Sale of Property, Plant and Equipment

5

6

Free Cash Flow

$

3,042

$

1,726

Segment Data

Six Months Ended

July 3,

% of

June 27,

% of

(In millions)

2021

Revenues

2020

Revenues

Revenues

Life Sciences Solutions

$

7,760

40.5

%

$

4,376

33.3

%

Analytical Instruments

2,868

15.0

%

2,152

16.4

%

Specialty Diagnostics

2,850

14.9

%

1,946

14.8

%

Laboratory Products and Services

7,180

37.4

%

5,517

42.0

%

Eliminations

(1,479)

-7.8

%

(844)

-6.5

%

Consolidated Revenues

$

19,179

100.0

%

$

13,147

100.0

%

Operating Income and Operating Margin

Life Sciences Solutions

$

3,997

51.5

%

$

1,909

43.6

%

Analytical Instruments

552

19.3

%

306

14.2

%

Specialty Diagnostics

673

23.6

%

450

23.1

%

Laboratory Products and Services

977

13.6

%

576

10.4

%

Subtotal Reportable Segments

6,199

32.3

%

3,241

24.7

%

Cost of Revenues Charges (c)

(8)

0.0

%

(4)

0.0

%

Selling, General and Administrative Credits (Charges) (d)

26

0.1

%

(48)

-0.4

%

Restructuring and Other Costs (e)

(133)

-0.7

%

(50)

-0.4

%

Amortization of Acquisition-related Intangible Assets

(872)

-4.5

%

(842)

-6.4

%

GAAP Operating Income (a)

$

5,212

27.2

%

$

2,297

17.5

%

(a)

"GAAP" (reported) results were determined in accordance with U.S. generally accepted accounting principles (GAAP).

(b)

Adjusted results are non-GAAP measures and, for income measures, exclude certain charges to cost of revenues (see note (c) for details); certain credits/charges to selling, general and administrative expenses (see note (d) for details); amortization of acquisition-related intangible assets; restructuring and other costs (see note (e) for details); certain other gains or losses that are either isolated or cannot be expected to occur again with any predictability (see note (f) for details); and the tax consequences of the preceding items and certain other tax items (see note (g) for details).

(c)

Reported results in 2021 include charges for the sale of inventories revalued at the date of acquisition. Reported results in 2020 include $2 of charges to conform the accounting policies of a recently acquired business with the company's accounting policies and $2 of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations.

(d)

Reported results in 2021 and 2020 include certain third-party expenses, principally transaction/integration costs related to recent/terminated acquisitions. Reported results in 2021 also include $58 of credits for changes in estimates of contingent acquisition consideration.

(e)

 Reported results in 2021 and 2020 include restructuring and other costs consisting principally of severance, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations. Reported results in 2021 also include $110 of charges for impairment of acquired technology and $13 of charges for compensation contractually due to employees of acquired businesses at the date of acquisition.

(f)

Reported results in 2021 include $197 of losses on the early extinguishment of debt, $6 of amortization of bridge loan commitments fees related to a pending acquisition and $2 of losses on investments.  Reported results in 2020 include $44 of costs for a subsequently terminated acquisition, primarily for entering hedging contracts and amortization of bridge loan commitments fees; and $1 of net charges for the settlement/curtailment of pension plans, offset in part by $6 of gains from investments.

(g)

Reported provision for income taxes in 2021 and 2020 includes incremental tax benefit for the pre-tax reconciling items between GAAP and adjusted net income and $12 and $(6) of incremental tax benefit (provision), respectively, from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes. Reported results in 2020 also include $2 of incremental tax benefit from audit settlements.

Notes:

Consolidated depreciation expense is $409 and $306 in 2021 and 2020, respectively.

Condensed Consolidated Balance Sheet (unaudited)

July 3,

December 31,

(In millions)

2021

2020

Assets

Current Assets:

Cash and cash equivalents

$

7,023

$

10,325

Accounts receivable, net

5,476

5,741

Inventories

4,625

4,029

Other current assets

2,136

1,862

Total current assets

19,260

21,957

Property, Plant and Equipment, Net

6,560

5,912

Acquisition-related Intangible Assets, Net

12,390

12,685

Other Assets

2,584

2,457

Goodwill

26,904

26,041

Total Assets

$

67,698

$

69,052

Liabilities and Shareholders' Equity

Current Liabilities:

Short-term obligations and current maturities of long-term obligations

$

4

$

2,628

Other current liabilities

6,921

7,676

Total current liabilities

6,925

10,304

Other Long-term Liabilities

5,146

5,134

Long-term Obligations

18,773

19,107

Total Shareholders' Equity

36,854

34,507

Total Liabilities and Shareholders' Equity

$

67,698

$

69,052

Condensed Consolidated Statement of Cash Flows (unaudited)

July 3,

June 27,

(In millions)

2021

2020

Operating Activities

Net income

$

4,165

$

1,944

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,281

1,148

Change in deferred income taxes

(307)

(318)

Other non-cash expenses, net

513

202

Changes in assets and liabilities, excluding the effects of acquisitions and disposition

(1,447)

(734)

Net cash provided by operating activities

4,205

2,242

Investing Activities

Acquisitions, net of cash acquired

(1,425)

(3)

Purchases of property, plant and equipment

(1,168)

(522)

Proceeds from sale of property, plant and equipment

5

6

Other investing activities, net

(36)

—

Net cash used in investing activities

(2,624)

(519)

Financing Activities

Net proceeds from issuance of debt

—

3,464

Repayment of debt

(2,805)

(2)

Net proceeds from issuance of commercial paper

—

383

Repayment of commercial paper

—

(387)

Purchases of company common stock

(2,000)

(1,500)

Dividends paid

(190)

(163)

Net proceeds from issuance of company common stock under employee stock plans

72

125

Other financing activities, net

(3)

(121)

Net cash (used in) provided by financing activities

(4,926)

1,799

Exchange Rate Effect on Cash

44

(107)

(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

(3,301)

3,415

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

10,336

2,422

Cash, Cash Equivalents and Restricted Cash at End of Period

$

7,035

$

5,837

Free Cash Flow (a)

$

3,042

$

1,726

(a) 

Free cash flow is net cash provided by operating activities less net purchases of property, plant and equipment.