Thermo Fisher Scientific Reports Third Quarter 2019 Results

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

Three Months Ended

September 28,

% of

September 29,

% of

(In millions except per share amounts)

2019

Revenues

2018

Revenues

Revenues

$

6,272

$

5,920

Costs and Operating Expenses:

Cost of revenues (c)

3,384

54.0

%

3,181

53.7

%

Selling, general and administrative expenses (d)

1,230

19.6

%

1,183

20.0

%

Amortization of acquisition-related intangible assets

434

6.9

%

431

7.3

%

Research and development expenses

247

3.9

%

240

4.1

%

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

31

0.5

%

(27)

-0.5

%

5,326

84.9

%

5,008

84.6

%

Operating Income

946

15.1

%

912

15.4

%

Interest Income

52

41

Interest Expense

(164)

(162)

Other (Expense) Income, Net (f)

(12)

19

Income Before Income Taxes

822

810

Provision for Income Taxes (g)

(62)

(101)

Net Income

$

760

12.1

%

$

709

12.0

%

Earnings per Share:

Basic

$

1.89

$

1.76

Diluted

$

1.88

$

1.75

Weighted Average Shares:

Basic

401

402

Diluted

404

406

Reconciliation of Adjusted Operating Income and Adjusted Operating Margin

GAAP Operating Income (a)

$

946

15.1

%

$

912

15.4

%

Cost of Revenues Charges (Credits), Net (c)

5

0.1

%

(1)

0.0

%

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

7

0.1

%

(4)

-0.1

%

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

31

0.5

%

(27)

-0.5

%

Amortization of Acquisition-related Intangible Assets

434

6.9

%

431

7.3

%

Adjusted Operating Income (b)

$

1,423

22.7

%

$

1,311

22.1

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

760

$

709

Cost of Revenues Charges (Credits), Net (c)

5

(1)

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

7

(4)

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

31

(27)

Amortization of Acquisition-related Intangible Assets

434

431

Other Expense (Income), Net (f)

38

(5)

Benefit from Income Taxes (g)

(88)

(37)

Adjusted Net Income (b)

$

1,187

$

1,066

Reconciliation of Adjusted Earnings per Share

GAAP EPS (a)

$

1.88

$

1.75

Cost of Revenues Charges (Credits), Net of Tax (c)

0.01

0.00

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

0.01

(0.01)

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

0.10

(0.06)

Amortization of Acquisition-related Intangible Assets, Net of Tax

0.85

0.82

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

0.08

(0.01)

Provision for Income Taxes (g)

0.01

0.13

Adjusted EPS (b)

$

2.94

$

2.62

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities (a)

$

1,117

$

1,220

Purchases of Property, Plant and Equipment

(216)

(173)

Proceeds from Sale of Property, Plant and Equipment

6

3

Free Cash Flow

$

907

$

1,050

Segment Data

Three Months Ended

September 28,

% of

September 29,

% of

(In millions)

2019

Revenues

2018

Revenues

Revenues

Life Sciences Solutions

$

1,701

27.1

%

$

1,504

25.4

%

Analytical Instruments

1,358

21.7

%

1,333

22.5

%

Specialty Diagnostics

879

14.0

%

894

15.1

%

Laboratory Products and Services

2,619

41.8

%

2,470

41.7

%

Eliminations

(285)

-4.6

%

(281)

-4.7

%

Consolidated Revenues

$

6,272

100.0

%

$

5,920

100.0

%

Operating Income and Operating Margin

Life Sciences Solutions

$

586

34.5

%

$

495

32.9

%

Analytical Instruments

311

23.0

%

294

22.0

%

Specialty Diagnostics

223

25.3

%

223

25.0

%

Laboratory Products and Services

303

11.6

%

299

12.1

%

Subtotal Reportable Segments

1,423

22.7

%

1,311

22.1

%

Cost of Revenues (Charges) Credits, Net (c)

(5)

-0.1

%

1

0.0

%

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

(7)

-0.1

%

4

0.1

%

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

(31)

-0.5

%

27

0.5

%

Amortization of Acquisition-related Intangible Assets

(434)

-6.9

%

(431)

-7.3

%

GAAP Operating Income (a)

$

946

15.1

%

$

912

15.4

%

(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 2019 and 2018 include $5 and $2, respectively, of charges for the sale of inventories revalued at the date of acquisition. Reported results in 2018 also include $3 of credits to conform the accounting policies of recently acquired businesses with the company's accounting policies.

(d) 

Reported results in 2019 and 2018 include i) $6 and $10, respectively, of certain third-party expenses, principally transaction/integration costs related to acquisitions and ii) $1 and $11, respectively, of income associated with product liability litigation. Reported results in 2019 also include $2 of accelerated depreciation on fixed assets to be abandoned due to integration synergies and facility consolidations. Reported results in 2018 also include $3 of credits from changes in estimates of contingent acquisition consideration.

(e)

Reported results in 2019 and 2018 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 net charges of $19 associated with sales of businesses in prior periods, including post-closing adjustments. Reported results in 2018 include $52 of credits from litigation and $1 of hurricane response costs.

(f)

Reported results in 2019 include $42 of losses on the early extinguishment of debt, and $1 of net charges for the settlement/curtailment of pension plans, offset in part by $5 of net gains from investments. Reported results in 2018 include $6 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) $93 and $89 of incremental tax benefit in 2019 and 2018, respectively, for the pre-tax reconciling items between GAAP and adjusted net income; ii) $5 and $5 in 2019 and 2018, respectively, of incremental tax provision from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes; and iii) $47 of incremental tax provision in 2018, 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 $141 and $132 in 2019 and 2018, respectively.

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

Nine Months Ended

September 28,

% of

September 29,

% of

(In millions except per share amounts)

2019

Revenues

2018

Revenues

Revenues

$

18,713

$

17,851

Costs and Operating Expenses:

Cost of revenues (c)

10,045

53.7

%

9,536

53.4

%

Selling, general and administrative expenses (d)

3,722

19.9

%

3,613

20.2

%

Amortization of acquisition-related intangible assets

1,285

6.8

%

1,316

7.4

%

Research and development expenses

741

4.0

%

716

4.0

%

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

(442)

-2.4

%

35

0.2

%

15,351

82.0

%

15,216

85.2

%

Operating Income

3,362

18.0

%

2,635

14.8

%

Interest Income

179

92

Interest Expense

(534)

(495)

Other Income, Net (f)

25

18

Income Before Income Taxes

3,032

2,250

Provision for Income Taxes (g)

(338)

(210)

Net Income

$

2,694

14.4

%

$

2,040

11.4

%

Earnings per Share:

Basic

$

6.73

$

5.07

Diluted

$

6.68

$

5.03

Weighted Average Shares:

Basic

400

402

Diluted

403

406

Reconciliation of Adjusted Operating Income and Adjusted Operating Margin

GAAP Operating Income (a)

$

3,362

18.0

%

$

2,635

14.8

%

Cost of Revenues Charges (c)

16

0.1

%

7

0.0

%

Selling, General and Administrative Charges, Net (d)

54

0.3

%

7

0.0

%

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

(442)

-2.4

%

35

0.2

%

Amortization of Acquisition-related Intangible Assets

1,285

6.8

%

1,316

7.4

%

Adjusted Operating Income (b)

$

4,275

22.8

%

$

4,000

22.4

%

Reconciliation of Adjusted Net Income

GAAP Net Income (a)

$

2,694

$

2,040

Cost of Revenues Charges (c)

16

7

Selling, General and Administrative Charges, Net (d)

54

7

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

(442)

35

Amortization of Acquisition-related Intangible Assets

1,285

1,316

Other Expense, Net (f)

31

4

Benefit from Income Taxes (g)

(91)

(215)

Adjusted Net Income (b)

$

3,547

$

3,194

Reconciliation of Adjusted Earnings per Share

GAAP EPS (a)

$

6.68

$

5.03

Cost of Revenues Charges, Net of Tax (c)

0.03

0.01

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

0.10

0.01

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

(0.62)

0.07

Amortization of Acquisition-related Intangible Assets, Net of Tax

2.50

2.54

Other Expense, Net of Tax (f)

0.06

0.01

Provision for Income Taxes (g)

0.05

0.20

Adjusted EPS (b)

$

8.80

$

7.87

Reconciliation of Free Cash Flow

GAAP Net Cash Provided by Operating Activities (a)

$

3,060

$

2,742

Purchases of Property, Plant and Equipment

(637)

(474)

Proceeds from Sale of Property, Plant and Equipment

18

6

Free Cash Flow

$

2,441

$

2,274

Segment Data

Nine Months Ended

September 28,

% of

September 29,

% of

(In millions)

2019

Revenues

2018

Revenues

Revenues

Life Sciences Solutions

$

5,018

26.8

%

$

4,572

25.6

%

Analytical Instruments

4,004

21.4

%

3,901

21.9

%

Specialty Diagnostics

2,779

14.9

%

2,773

15.5

%

Laboratory Products and Services

7,765

41.5

%

7,433

41.6

%

Eliminations

(853)

-4.6

%

(828)

-4.6

%

Consolidated Revenues

$

18,713

100.0

%

$

17,851

100.0

%

Operating Income and Operating Margin

Life Sciences Solutions

$

1,756

35.0

%

$

1,534

33.5

%

Analytical Instruments

879

22.0

%

831

21.3

%

Specialty Diagnostics

707

25.5

%

719

25.9

%

Laboratory Products and Services

933

12.0

%

916

12.3

%

Subtotal Reportable Segments

4,275

22.8

%

4,000

22.4

%

Cost of Revenues Charges (c)

(16)

-0.1

%

(7)

0.0

%

Selling, General and Administrative Charges, Net (d)

(54)

-0.3

%

(7)

0.0

%

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

442

2.4

%

(35)

-0.2

%

Amortization of Acquisition-related Intangible Assets

(1,285)

-6.8

%

(1,316)

-7.4

%

GAAP Operating Income (a)

$

3,362

18.0

%

$

2,635

14.8

%

(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 2019 and 2018 include $16 and $10 respectively, of charges for the sale of inventories revalued at the date of acquisition. Reported results in 2018 also include $3 of credits to conform the accounting policies of recently acquired businesses with the company's accounting policies.

(d)

Reported results in 2019 and 2018 include i) $54 and $22, respectively, of certain third-party expenses, principally transaction/integration costs related to acquisitions and a divestiture, ii) $1 and $11, respectively, of income associated with product liability litigation and iii) $3 and $4 of credits from changes in estimates of contingent acquisition consideration. Reported results in 2019 also include $4 of accelerated depreciation on fixed assets to be abandoned due to integration synergies and facility consolidations.

(e)

Reported results in 2019 and 2018 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 $486 of gain principally on sale of the Anatomical Pathology business and $6 of charges for impairment of acquired technology in development. Reported results in 2018 include $46 of net credits from litigation and $5 of hurricane response costs.

(f)

Reported results in 2019 include $42 of losses on the early extinguishment of debt and $2 of net charges for the settlement/curtailment of pension plans offset in part by $13 of gains from investments. Reported results in 2018 include $2 of net gains from investments, $3 of losses on the early extinguishment of debt and $3 of net charges for the settlement/curtailment of pension plans.

(g)

Reported provision for income taxes includes i) $109 and $297 of incremental tax benefit in 2019 and 2018, respectively, for the pre-tax reconciling items between GAAP and adjusted net income; ii) $16 and $14 in 2019 and 2018, respectively, of incremental tax provision from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes; and iii) $2 and $68 of incremental tax provision in 2019 and 2018, respectively, 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 $416 and $393 in 2019 and 2018, respectively.

Condensed Consolidated Balance Sheet (unaudited)

September 28,

December 31,

(In millions)

2019

2018

Assets

Current Assets:

Cash and cash equivalents

$

1,273

$

2,103

Accounts receivable, net

4,384

4,136

Inventories

3,308

3,005

Other current assets

1,549

1,381

Total current assets

10,514

10,625

Property, Plant and Equipment, Net

4,420

4,165

Acquisition-related Intangible Assets

14,311

14,978

Other Assets

1,860

1,117

Goodwill

25,624

25,347

Total Assets

$

56,729

$

56,232

Liabilities and Shareholders' Equity

Current Liabilities:

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

$

661

$

1,271

Other current liabilities

5,183

4,876

Total current liabilities

5,844

6,147

Other Long-term Liabilities

5,138

4,780

Long-term Obligations

16,392

17,719

Total Shareholders' Equity

29,355

27,586

Total Liabilities and Shareholders' Equity

$

56,729

$

56,232

Condensed Consolidated Statement of Cash Flows (unaudited)

Nine Months Ended

September 28,

September 29,

(In millions)

2019

2018

Operating Activities

Net income

$

2,694

$

2,040

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

Depreciation and amortization

1,701

1,709

Change in deferred income taxes

(356)

(317)

Gain on sales of businesses

(486)

—

Other non-cash expenses, net

261

214

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

(754)

(904)

Net cash provided by operating activities

3,060

2,742

Investing Activities

Acquisitions, net of cash acquired

(1,687)

(59)

Purchases of property, plant and equipment

(637)

(474)

Proceeds from sale of property, plant and equipment

18

6

Proceeds from sale of business, net of cash divested

1,128

—

Other investing activities, net

30

(5)

Net cash used in investing activities

(1,148)

(532)

Financing Activities

Net proceeds from issuance of debt

—

690

Repayment of debt

(1,702)

(2,048)

Net proceeds from issuance of commercial paper

2,581

3,378

Repayment of commercial paper

(2,578)

(3,842)

Purchases of company common stock

(750)

(250)

Dividends paid

(221)

(198)

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

115

97

Other financing activities, net

(49)

(51)

Net cash used in financing activities

(2,604)

(2,224)

Exchange Rate Effect on Cash

(120)

(236)

Decrease in Cash, Cash Equivalents and Restricted Cash

(812)

(250)

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

2,117

1,361

Cash, Cash Equivalents and Restricted Cash at End of Period

$

1,305

$

1,111

Free Cash Flow (a)

$

2,441

$

2,274

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