Thermo Fisher Scientific Reports Second Quarter 2020 Results

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

Three Months Ended

June 27,

% of

June 29,

% of

(In millions except per share amounts)

2020

Revenues

2019

Revenues

Revenues

$

6,917

$

6,316

Costs and Operating Expenses:

Cost of revenues (c)

3,416

49.4

%

3,368

53.3

%

Selling, general and administrative expenses (d)

1,417

20.5

%

1,261

20.0

%

Amortization of acquisition-related intangible assets

417

6.1

%

429

6.8

%

Research and development expenses

264

3.8

%

246

3.9

%

Restructuring and other costs (income), net (e)

12

0.2

%

(484)

-7.7

%

5,526

79.9

%

4,820

76.3

%

Operating Income

1,391

20.1

%

1,496

23.7

%

Interest Income

8

60

Interest Expense

(137)

(181)

Other (Expense) Income, Net (f)

(9)

18

Income Before Income Taxes

1,253

1,393

Provision for Income Taxes (g)

(97)

(274)

Net Income

$

1,156

16.7

%

$

1,119

17.7

%

Earnings per Share:

Basic

$

2.92

$

2.80

Diluted

$

2.90

$

2.77

Weighted Average Shares:

Basic

395

400

Diluted

398

403

Reconciliation of Adjusted
Operating Income and
Adjusted Operating Margin

GAAP Operating Income (a)

$

1,391

20.1

%

$

1,496

23.7

%

Cost of Revenues Charges, Net (c)

2

0.0

%

5

0.1

%

Selling, General and Administrative Charges, Net (d)

42

0.6

%

36

0.6

%

Restructuring and Other Costs (Income), Net (e)

12

0.2

%

(484)

-7.7

%

Amortization of Acquisition-related Intangible Assets

417

6.1

%

429

6.8

%

Adjusted Operating Income (b)

$

1,864

27.0

%

$

1,482

23.5

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

1,156

$

1,119

Cost of Revenues Charges, Net (c)

2

5

Selling, General and Administrative Charges, Net (d)

42

36

Restructuring and Other Costs (Income), Net (e)

12

(484)

Amortization of Acquisition-related Intangible Assets

417

429

Other Expense (Income), Net (f)

25

—

(Benefit from) Provision for
Income Taxes (g)

(104)

122

Adjusted Net Income (b)

$

1,550

$

1,227

Reconciliation of Adjusted Earnings
per Share

GAAP EPS (a)

$

2.90

$

2.77

Cost of Revenues Charges, Net of Tax (c)

0.00

0.01

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

0.08

0.07

Restructuring and Other Costs (Income),
Net of Tax (e)

0.03

(0.74)

Amortization of Acquisition-related Intangible Assets, Net of Tax

0.85

0.84

Other Expense (Income), Net of Tax (f)

0.05

0.00

(Benefit from) Provision for Income Taxes (g)

(0.02)

0.09

Adjusted EPS (b)

$

3.89

$

3.04

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities
(a)

$

1,886

$

1,294

Purchases of Property, Plant and Equipment

(269)

(220)

Proceeds from Sale of Property, Plant and Equipment

2

6

Free Cash Flow

$

1,619

$

1,080

Segment Data

Three Months Ended

June 27,

% of

June 29,

% of

(In millions)

2020

Revenues

2019

Revenues

Revenues

Life Sciences Solutions

$

2,602

37.6

%

$

1,710

27.1

%

Analytical Instruments

1,051

15.2

%

1,324

21.0

%

Specialty Diagnostics

988

14.3

%

943

14.9

%

Laboratory Products and
Services

2,787

40.3

%

2,633

41.7

%

Eliminations

(511)

-7.4

%

(294)

-4.7

%

Consolidated Revenues

$

6,917

100.0

%

$

6,316

100.0

%

Operating Income and Operating Margin

Life Sciences Solutions

$

1,234

47.4

%

$

609

35.6

%

Analytical Instruments

135

12.9

%

286

21.6

%

Specialty Diagnostics

214

21.6

%

242

25.7

%

Laboratory Products and Services

281

10.1

%

345

13.1

%

Subtotal Reportable
Segments

1,864

27.0

%

1,482

23.5

%

Cost of Revenues Charges, Net (c)

(2)

0.0

%

(5)

-0.1

%

Selling, General and
Administrative Charges,
Net (d)

(42)

-0.6

%

(36)

-0.6

%

Restructuring and Other (Costs) Income, Net (e)

(12)

-0.2

%

484

7.7

%

Amortization of
Acquisition-related
Intangible Assets

(417)

-6.1

%

(429)

-6.8

%

GAAP Operating Income (a)

$

1,391

20.1

%

$

1,496

23.7

%

(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, net (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 $2 of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations. Reported results in 2019 include $5 of charges
for the sale of inventories revalued at the date of acquisition.

(d) 

Reported results in 2020 and 2019 include i) $42 and $37, respectively, of certain third-party expenses, principally transaction/integration costs related to recent/pending acquisitions and a divestiture.
Reported results in 2019 also include $3 of credits from changes in estimates of contingent acquisition consideration offset in part by $2 of accelerated depreciation on fixed assets to be abandoned
due to integration synergies and facility consolidations.

(e)

Reported results in 2020 and 2019 include restructuring and other costs, net, consisting principally of severance, abandoned facility and other expenses of headcount reductions within several businesses
and real estate consolidations. Reported results in 2019 include $505 of gain on the sale of the Anatomical Pathology business and $6 of charges for impairment of acquired technology in development.

(f)

Reported results in 2020 include $27 of costs for the Qiagen acquisition, primarily for amortization of bridge loan commitments fees and entering hedging contracts, offset in part by $2 of gains from investments.
Reported results in 2019 include $1 of net gains from investments and $1 of net charges for the settlement/curtailment of pension plans. 

(g) 

Reported provision for income taxes includes i) $102 and $(86) of incremental tax benefit (provision) in 2020 and 2019, respectively, for the pre-tax reconciling items between GAAP and adjusted net income; ii)
$2 in 2020 of incremental tax benefit from audit settlements; iii) $7 in 2019 of incremental tax provision from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes; and iv) $29 of
incremental tax provision in 2019, principally to adjust the impacts of U.S. tax reform legislation based on new guidance/regulations issued during the period.

Notes: 
Consolidated depreciation expense is $157 and $142 in 2020 and 2019, respectively.

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

Six Months Ended

June 27,

% of

June 29,

% of

(In millions except per share amounts)

2020

Revenues

2019

Revenues

Revenues

$

13,147

$

12,441

Costs and Operating Expenses:

Cost of revenues (c)

6,781

51.6

%

6,661

53.5

%

Selling, general and administrative expenses (d)

2,668

20.3

%

2,492

20.0

%

Amortization of acquisition-related intangible assets

842

6.4

%

851

6.8

%

Research and development expenses

509

3.9

%

494

4.0

%

Restructuring and other costs (income), net (e)

50

0.4

%

(473)

-3.8

%

10,850

82.5

%

10,025

80.6

%

Operating Income

2,297

17.5

%

2,416

19.4

%

Interest Income

44

127

Interest Expense

(263)

(370)

Other Income, Net (f)

3

37

Income Before Income Taxes

2,081

2,210

Provision for Income Taxes (g)

(137)

(276)

Net Income

$

1,944

14.8

%

$

1,934

15.5

%

Earnings per Share:

Basic

$

4.91

$

4.84

Diluted

$

4.87

$

4.80

Weighted Average Shares:

Basic

396

400

Diluted

399

403

Reconciliation of Adjusted
Operating Income and Adjusted
Operating Margin

GAAP Operating Income (a)

$

2,297

17.5

%

$

2,416

19.4

%

Cost of Revenues Charges (c)

4

0.0

%

11

0.1

%

Selling, General and Administrative Charges, Net (d)

48

0.4

%

47

0.4

%

Restructuring and Other Costs (Income), Net (e)

50

0.4

%

(473)

-3.8

%

Amortization of Acquisition-related Intangible Assets

842

6.4

%

851

6.8

%

Adjusted Operating Income (b)

$

3,241

24.7

%

$

2,852

22.9

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

1,944

$

1,934

Cost of Revenues Charges (c)

4

11

Selling, General and Administrative Charges, Net (d)

48

47

Restructuring and Other Costs (Income), Net (e)

50

(473)

Amortization of Acquisition-related Intangible Assets

842

851

Other Expense (Income), Net (f)

39

(7)

Benefit from Income Taxes (g)

(202)

(3)

Adjusted Net Income (b)

$

2,725

$

2,360

Reconciliation of Adjusted Earnings per Share

GAAP EPS (a)

$

4.87

$

4.80

Cost of Revenues Charges, Net of Tax (c)

0.01

0.02

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

0.10

0.09

Restructuring and Other Costs (Income), Net of Tax (e)

0.10

(0.72)

Amortization of Acquisition-related Intangible Assets, Net of Tax

1.67

1.64

Other Expense (Income), Net of Tax (f)

0.07

(0.01)

Provision for Income Taxes (g)

0.01

0.03

Adjusted EPS (b)

$

6.83

$

5.85

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities (a)

$

2,242

$

1,943

Purchases of Property, Plant and Equipment

(522)

(421)

Proceeds from Sale of Property, Plant and Equipment

6

12

Free Cash Flow

$

1,726

$

1,534

Segment Data

Six Months Ended

June 27,

% of

June 29,

% of

(In millions)

2020

Revenues

2019

Revenues

Revenues

Life Sciences Solutions

$

4,376

33.3

%

$

3,317

26.7

%

Analytical Instruments

2,152

16.4

%

2,646

21.3

%

Specialty Diagnostics

1,946

14.8

%

1,900

15.3

%

Laboratory Products and Services

5,517

42.0

%

5,146

41.4

%

Eliminations

(844)

-6.5

%

(568)

-4.7

%

Consolidated Revenues

$

13,147

100.0

%

$

12,441

100.0

%

Operating Income and
Operating Margin

Life Sciences Solutions

$

1,909

43.6

%

$

1,170

35.3

%

Analytical Instruments

306

14.2

%

568

21.4

%

Specialty Diagnostics

450

23.1

%

484

25.5

%

Laboratory Products and Services

576

10.4

%

630

12.2

%

Subtotal Reportable Segments

3,241

24.7

%

2,852

22.9

%

Cost of Revenues Charges (c)

(4)

0.0

%

(11)

-0.1

%

Selling, General and Administrative Charges, Net (d)

(48)

-0.4

%

(47)

-0.4

%

Restructuring and Other (Costs) Income, Net (e)

(50)

-0.4

%

473

3.8

%

Amortization of
Acquisition-related
Intangible Assets

(842)

-6.4

%

(851)

-6.8

%

GAAP Operating Income (a)

$

2,297

17.5

%

$

2,416

19.4

%

(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, net (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 $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. Reported results in 2019 include $11 of charges for the sale of inventories revalued at the date of acquisition.

(d)

Reported results in 2020 and 2019 include i) $48 and $48, respectively, of certain third-party expenses, principally transaction/integration costs related to recent/pending acquisitions and
a divestiture. Reported results in 2019 also include $3 of credits from changes in estimates of contingent acquisition consideration offset in part by $2 of accelerated depreciation on fixed
assets to be abandoned due to integration synergies and facility consolidations.

(e)

Reported results in 2020 and 2019 include restructuring and other costs, net, consisting principally of severance, abandoned facility and other expenses of headcount reductions within
several businesses and real estate consolidations. Reported results in 2019 include $505 of gain on sale of the Anatomical Pathology business and $6 of charges for impairment of acquired
technology in development.

(f)

Reported results in 2020 include $44 of costs for the Qiagen 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. Reported results in 2019 include $8 of gains from investments and $1 of net charges for the
settlement/curtailment of pension plans.

(g)

Reported provision for income taxes includes i) $206 and $16 of incremental tax benefit in 2020 and 2019, respectively, for the pre-tax reconciling items between GAAP and adjusted net
income; ii) $6 and $11 in 2020 and 2019, respectively, of incremental tax provision from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes; iii) $2 in 2020
of incremental tax benefit from audit settlements; and iv) $2 of incremental tax provision in 2019, to adjust the impacts of U.S. tax reform legislation based on new guidance/regulations issued
during the period.

Notes:
Consolidated depreciation expense is $306 and $275 in 2020 and 2019, respectively.

Condensed Consolidated Balance Sheet (unaudited)

June 27,

December 31,

(In millions)

2020

2019

Assets

Current Assets:

Cash and cash equivalents

$

5,818

$

2,399

Accounts receivable, net

4,478

4,349

Inventories

3,648

3,370

Other current assets

1,831

1,775

Total current assets

15,775

11,893

Property, Plant and Equipment, Net

4,887

4,749

Acquisition-related Intangible Assets

13,170

14,014

Other Assets

2,061

2,011

Goodwill

25,700

25,714

Total Assets

$

61,593

$

58,381

Liabilities and Shareholders' Equity

Current Liabilities:

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

$

675

$

676

Other current liabilities

5,338

5,521

Total current liabilities

6,013

6,197

Other Long-term Liabilities

5,067

5,433

Long-term Obligations

20,638

17,076

Total Shareholders' Equity

29,875

29,675

Total Liabilities and Shareholders' Equity

$

61,593

$

58,381

Condensed Consolidated Statement of Cash Flows (unaudited)

Six Months Ended

June 27,

June 29,

(In millions)

2020

2019

Operating Activities

Net income

$

1,944

$

1,934

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

Depreciation and amortization

1,148

1,126

Change in deferred income taxes

(318)

(392)

Gain on sales of businesses

—

(505)

Other non-cash expenses, net

202

144

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

(734)

(364)

Net cash provided by operating activities

2,242

1,943

Investing Activities

Acquisitions, net of cash acquired

(3)

(1,686)

Purchases of property, plant and equipment

(522)

(421)

Proceeds from sale of property, plant and equipment

6

12

Proceeds from sale of business, net of cash divested

—

1,126

Other investing activities, net

—

19

Net cash used in investing activities

(519)

(950)

Financing Activities

Net proceeds from issuance of debt

3,464

—

Repayment of debt

(2)

(3)

Net proceeds from issuance of commercial paper

383

1,895

Repayment of commercial paper

(387)

(1,855)

Purchases of company common stock

(1,500)

(750)

Dividends paid

(163)

(144)

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

125

122

Other financing activities, net

(121)

—

Net cash provided by (used in) financing activities

1,799

(735)

Exchange Rate Effect on Cash

(107)

(61)

Increase in Cash, Cash Equivalents and Restricted Cash

3,415

197

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

2,422

2,117

Cash, Cash Equivalents and Restricted Cash at End of Period

$

5,837

$

2,314

Free Cash Flow (a)

$

1,726

$

1,534

(a) 

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