What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-06 · 129 added, 120 removed, 280 unchanged (47% of the section changed)

32 unchanged sentences

However, the company saw a significant reduction in customer activity in several businesses by late March 2020 that materially adversely affected primarily the 2020 results of the Analytical Instruments segment and, to a lesser extent, some businesses within the company’s other three segments.

The negative impact has significantly lessened so far in 2021, but could worsen later in the year dependent on the success of global efforts to control the pandemic and economic activity ramping up.

The company believes the impacted businesses’ long-term prospects remain excellent given the company’s attractive markets served, its industry-leading position and proven growth strategy.

The negative impact has significantly lessened so far in 2021, but could worsen later in the year dependent on the success of global efforts to control and unwind from the pandemic and economic activity ramping up.

Several of the company’s businesses have had a significant increase in revenues due to sales of products and services addressing diagnosis and treatment of COVID-19, including test kits and, to a lesser extent, products and services for therapy and vaccine development and manufacturing.

While these positive impacts are expected to continue through 2021, the duration and extent of future revenues from such sales are uncertain and dependent primarily on customer testing as well as therapy and vaccine demand.

Sales in the second quarter of 2021 were $9.27 billion, an increase of $2.36 billion from the second quarter of 2020.

Sales in the third quarter of 2021 were $9.33 billion, an increase of $0.81 billion from the third quarter of 2020.

Excluding the effects of currency translation and acquisitions, revenues increased $0.59 billion (7%).

In the second quarter of 2021, total company operating income and operating income margin were $2.16 billion and 23.3%, respectively, compared with $1.39 billion and 20.1%, respectively, in 2020.

In the third quarter of 2021, total company operating income and operating income margin were $2.28 billion and 24.4%, respectively, compared with $2.43 billion and 28.5%, respectively, in 2020.

THERMO FISHER SCIENTIFIC INC.

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Overview (continued)

Net income increased to $1.83 billion in the second quarter of 2021 from $1.16 billion in the second quarter of 2020, primarily due to an increase in operating income, offset in part by an increase in the income tax provision.

During the first six months of 2021, the company’s cash flow from operations totaled $4.21 billion compared with $2.24 billion for 2020.

On January 15, 2021, the company acquired, within the Laboratory Products and Services segment, the Belgium-based European viral vector manufacturing business of Groupe Novasep SAS for approximately $834 million in net cash consideration.

Net income decreased slightly to $1.90 billion in the third quarter of 2021 from $1.93 billion in the third quarter of 2020, primarily due to a decrease in operating income, offset in part by an increase in the income tax provision.

During the first nine months of 2021, the company’s cash flow from operations totaled $6.86 billion compared with $4.95 billion for 2020.

The European viral vector manufacturing business provides manufacturing services for vaccines and therapies to biotechnology companies and large biopharma customers.

The acquisition expands the segment’s capabilities for cell and gene vaccines and therapies.

On February 25, 2021, the company acquired, within the Life Sciences Solutions segment, Mesa Biotech, Inc., a U.S.-based molecular diagnostic company, for approximately $406 million in net cash consideration and contingent consideration with an initial fair value of $65 million due upon the completion of certain milestones.

On February 25, 2021, the company acquired, within the Life Sciences Solutions segment, Mesa Biotech, Inc., a U.S.-based molecular diagnostic company, for $409 million in net cash consideration and contingent consideration with an initial fair value of $65 million due upon the completion of certain milestones.

Mesa Biotech has developed and commercialized a PCR based rapid point-of-care testing platform available for detecting infectious diseases including COVID-19.

The acquisition enables the company to accelerate the availability of reliable and accurate advanced molecular diagnostics at the point of care.

On September 30, 2021, the company assumed operating responsibility, within the Laboratory Products and Services segment, of a new state-of-the-art biologics manufacturing facility in Lengnau, Switzerland from CSL Limited to perform pharma services for CSL with capacity to serve other customers as well.

The company expects to make fixed lease payments aggregating to $555 million (excluding renewals) from 2021 to 2041, with additional amounts dependent on the extent of revenues from customers of the facility other than CSL.

On April 15, 2021, the company entered into a definitive agreement under which it will acquire PPD, Inc.

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No further action by other PPD shareholders is required to approve the transaction.

The transaction is subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals.

On July 16, 2021, the company and PPD each received a request for additional information and documentary materials from the FTC, in connection with the FTC’s review of the proposed merger.

The effect of the Second Request is to extend the waiting period imposed under the HSR Act until the 30th day after substantial compliance by the company and PPD with the Second Request, unless the waiting period is terminated earlier by the FTC.

As of October 22, 2021, both the company and PPD had certified substantial compliance with the Second Request.

The transaction remains subject to the satisfaction of customary closing conditions, including termination of the HSR Act waiting period and receipt of applicable regulatory approvals outside the U.S.

Subject to the satisfaction of the required closing conditions, we continue to expect the merger to be completed by the end of 2021.

The company intends to finance the purchase price with cash on hand and the net proceeds from issuance of debt.

The company is currently evaluating future debt financings and the timing of such transactions is subject to market and other conditions.

The company also has available, but it does not currently expect to utilize, up to $6.5 billion of committed bridge financing.

The company intends to finance the purchase price with cash on hand and the net proceeds from issuances of debt, including the senior notes issued in October 2021.

The company is currently evaluating a future debt offering and the timing of such transaction is subject to market and other conditions.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements of the company’s Annual Report on Form 10-K for 2020, describe the significant accounting estimates and policies used in preparation of the consolidated financial statements.

There have been no significant changes in the company's critical accounting policies during the first six months of 2021.

There have been no significant changes in the company's critical accounting policies during the first nine months of 2021.

THERMO FISHER SCIENTIFIC INC.

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Results of Operations

Second Quarter 2021 Compared With Second Quarter 2020

Third Quarter 2021 Compared With Third Quarter 2020

Three Months Ended

(In millions) July 3,

2021 June 27,

(In millions) October 2,

2021 September 26,

Change Currency

11 unchanged sentences

$ 9,330 $ 8,521 $ 809 $ 105 $ 116 $ 588

Sales in the second quarter of 2021 increased $2.36 billion from the second quarter of 2020.

Aside from the effects of currency translation and acquisitions, revenues increased $1.92 billion (28%) primarily due to increased demand.

Sales of products that address COVID-19 testing and treatment increased $0.58 billion to $1.87 billion in the second quarter of 2021.

Conditions were very robust in each of the company’s end markets during the second quarter of 2021 driven by three factors:

strong fundamentals in the life sciences, strong economic activity globally and the role the industry is playing in the pandemic response.

Sales were particularly strong to academic and government, as well as industrial and applied customers, which were most affected in the second quarter of 2020 due to business disruptions related to the pandemic.

Sales to customers in pharma and biotech markets were very strong driven by underlying market dynamics and the company’s role in supporting customers across a wide range of therapeutic areas.

Sales to customers in diagnostics and healthcare markets were strong as customer demand for non-COVID-19 response products and services was approaching pre-pandemic levels.

Sales growth was strong in each of the company’s primary geographic areas during the second quarter of 2021.

In the second quarter of 2021, total company operating income and operating income margin were $2.16 billion and 23.3%, respectively, compared with $1.39 billion and 20.1%, respectively, in 2020.

The increase in operating income was primarily due to profit on higher sales and, to a lesser extent, favorable foreign currency exchange and sales mix, offset in part by strategic growth investments in 2021 to support the company’s near and long-term growth.

Sales in the third quarter of 2021 increased $809 million from the third quarter of 2020.

Aside from the effects of currency translation and acquisitions, revenues increased $588 million (7%) driven by higher demand.

Sales of products that address COVID-19 testing and treatment increased $0.08 billion to $2.05 billion in the third quarter of 2021.

Conditions were strong in each of the company’s end markets during the third quarter of 2021.

Sales were particularly strong in pharma and biotech driven by strong market dynamics, the company’s role in supporting customers across a wide range of therapeutic areas, and demand from biopharma customers as they continue to invest in their research and development pipelines.

Sales to customers in industrial and applied markets benefited from increased customer activity.

Customers in the academic and government market increased demand as a result of positive funding trends.

Sales to customers in diagnostics and healthcare markets were strong as customer demand for non-COVID-19 response products and services has nearly returned to pre-pandemic levels;

however, this strength was more than offset by lower COVID-19 testing year-over-year.

Sales growth was strong in Europe and the Asia-Pacific region and flat in North America during the third quarter of 2021.

In the third quarter of 2021, total company operating income and operating income margin were $2.28 billion and 24.4%, respectively, compared with $2.43 billion and 28.5%, respectively, in 2020.

The decrease in operating income was primarily due to sales mix and strategic growth investments in 2021 to support the company’s near and long-term growth, which were offset in part by profit on higher sales and productivity improvements.

The company’s references to strategic growth investments generally refer to targeted spending for enhancing commercial capabilities, including expansion of geographic sales reach and e-commerce platforms, marketing initiatives, expanded service and operational infrastructure, research and development projects and other expenditures to enhance the customer experience, as well as incentive compensation and recognition for employees.

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Productivity improvements are calculated net of inflationary cost increases.

In the second quarter of 2021, the company recorded restructuring and other costs of $77 million.

In the second quarter of 2020, the company recorded restructuring and other costs of $56 million.

In the third quarter of 2021, the company recorded restructuring and other costs of $77 million.

In the third quarter of 2020, the company recorded restructuring and other costs of $37 million.

See Note 12 for restructuring charges expected in future periods.

2 unchanged sentences

There have been no significant changes in measurement methods used to determine segment income.

The company’s references to individual businesses contributing to fluctuations in segment revenues refer to those fluctuations that drove notable changes in amount and/or percentage and are identified in decreasing order of magnitude.

THERMO FISHER SCIENTIFIC INC.

3 unchanged sentences

Three Months Ended

July 3, June 27,

October 2, September 26,

(Dollars in millions) 2021 2020 Change

14 unchanged sentences

Analytical Instruments

280 135 107 %

Specialty Diagnostics

310 398 (22) %

Laboratory Products and Services

2 unchanged sentences

Cost of Revenues Charges

Selling, General and Administrative (Credits) Charges

Selling, General and Administrative Charges (Credits)

Restructuring and Other Costs

6 unchanged sentences

24.4 % 28.5 %

Income from the company’s reportable segments increased 44% to $2.69 billion in the second quarter of 2021 due primarily to profit on higher sales and, to a lesser extent, favorable foreign currency exchange and sales mix, offset in part by strategic growth investments.

Income from the company’s reportable segments decreased 1% to $2.78 billion in the third quarter of 2021 due primarily to sales mix and strategic growth investments in 2021 to support the company’s near and long-term growth, which were offset in part by profit on higher sales and productivity improvements.

Life Sciences Solutions

Three Months Ended

July 3, June 27,

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 48.9 % 54.9 % -6.0 pt

Sales in the Life Sciences Solutions segment increased $955 million in the second quarter of 2021.

Sales in the Life Sciences Solutions segment increased $297 million in the third quarter of 2021.

Sales increased $148 million (4%) due to higher revenues at existing businesses and $90 million due to acquisitions.

The favorable effects of currency translation resulted in an increase in revenues of $59 million.

The increase in revenues at existing businesses was primarily driven by demand for biosciences products and bioproduction products.

The increase in operating income margin for the segment resulted primarily from profit on higher sales and, to a lesser extent, sales mix, offset in part by strategic growth investments.

The increase in revenues at existing businesses was primarily driven by demand for biosciences and bioproduction products.

The decrease in operating income margin for the segment resulted primarily from strategic growth investments and sales mix, offset in part by profit on higher sales.

THERMO FISHER SCIENTIFIC INC.

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Three Months Ended

July 3, June 27,

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 17.8 % 12.8 % 5.0 pt

Sales in the Analytical Instruments segment increased $430 million in the second quarter of 2021.

Sales in the Analytical Instruments segment increased $140 million in the third quarter of 2021.

Sales increased $126 million (9%) due to higher revenues at existing businesses.

The favorable effects of currency translation resulted in an increase in revenues of $14 million.

The increase in revenues at existing businesses was due to increased demand for products sold by each of the segment’s primary businesses with particular strength in chromatography and mass spectrometry instruments as well as materials and structural analysis instruments.

The increase in operating income margin for the segment was primarily due to profit on higher sales and, to a lesser extent, productivity improvements, offset in part by strategic growth investments and, to a lesser extent, sales mix.

The increase in revenues at existing businesses was due to increased demand for materials and structural analysis instruments and, to a lesser extent, chromatography and mass spectrometry instruments.

The increase in operating income margin for the segment was primarily due to a $108 million charge in 2020 related to a long-term supply contract (discussed in Note 8), profit on higher sales and productivity improvements, offset in part by strategic growth investments.

Specialty Diagnostics

Three Months Ended

July 3, June 27,

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 22.7 % 27.9 % -5.2 pt

Sales in the Specialty Diagnostics segment increased $247 million in the second quarter of 2021.

Sales increased $210 million (21%) due to higher revenues at existing businesses.

Sales in the Specialty Diagnostics segment decreased $68 million in the third quarter of 2021.

Sales decreased $75 million (-5%) due to lower revenues at existing businesses.

The favorable effects of currency translation resulted in an increase in revenues of $7 million.

The increase in revenues at existing businesses was due to higher demand in each of the segment’s primary businesses with particular strength in sales of immunodiagnostics products and products sold through the segment's healthcare market channel business.

The decrease in operating income margin for the segment was primarily due to inflationary cost increases, net of productivity improvements, and strategic growth investments, offset in part by profit on higher sales and sales mix.

The decrease in revenues at existing businesses was due to decreased demand for COVID-19 testing products, offset in part by increased demand for clinical diagnostics and immunodiagnostics products and transplant diagnostics products.

The decrease in operating income margin for the segment was primarily due to strategic growth investments, sales mix and the decrease in sales, offset in part by a $13 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1).

Laboratory Products and Services

Three Months Ended

July 3, June 27,

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 11.0 % 11.4 % -0.4 pt

Sales in the Laboratory Products and Services segment increased $796 million in the second quarter of 2021.

Sales in the Laboratory Products and Services segment increased $375 million in the third quarter of 2021.

Sales increased $320 million (10%) due to higher revenues at existing businesses and $26 million due to an acquisition.

The favorable effects of currency translation resulted in an increase in revenues of $29 million.

The increase in revenues at existing businesses was primarily due to increased demand in each of the segment’s principal businesses with particular strength in products sold through its research and safety market channel business.

The increase in operating income margin for the segment was primarily due to profit on higher sales and sales mix, offset in part by strategic growth investments.

Other Expense

The company reported other expense of $5 million in the second quarter of 2021 compared to other expense of $9 million in the second quarter of 2020.

In 2021, other expense includes $6 million for amortization of bridge loan commitment fees related to the pending acquisition of PPD.

In 2020, other expense includes $27 million of costs for a subsequently terminated acquisition, primarily for amortization of bridge loan commitment fees and entering into currency hedging contracts.

The increase in revenues at existing businesses was primarily due to increased demand in each of the segment’s principal businesses:

the research and safety market channel, the pharma services business and the lab products business.

The decrease in operating income margin for the segment was primarily due to strategic growth investments, substantially offset by profit on higher sales and a $20 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1).

Other Income/Expense

The company reported other income of $14 million in the third quarter of 2021 compared to other expense of $39 million in the third quarter of 2020.

In 2021, other income includes $25 million of gains on investments, offset in part by $20 million for amortization of bridge loan commitment fees related to the pending acquisition of PPD.

In 2020, other expense includes

THERMO FISHER SCIENTIFIC INC.

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Results of Operations (continued)

$37 million of costs for a terminated acquisition, primarily for amortization of bridge loan commitment fees and entering into currency hedging contracts.

Provision for Income Taxes

The company's effective tax rate was 10.7% for the second quarter of 2021.

During the quarter, the company recorded a $162 million income tax benefit on an intra-entity transfer of assets.

The company's effective tax rate was 12.5% for the third quarter of 2021.

During the quarter, the company recorded a $96 million income tax benefit related to a capital loss resulting from certain intra-entity transactions.

The company expects its effective tax rate for all of 2021 will be between 11% and 13% based on currently forecasted rates of profitability in the countries in which the company conducts business and expected generation of foreign tax credits.

Due primarily to the non-deductibility of intangible asset amortization for tax purposes, the company’s cash payments for income taxes are higher than its income tax expense for financial reporting purposes and are expected to total approximately $1.9 billion in 2021.

In the second quarter of 2020, the company’s effective tax rate was 7.8%.

In 2020, the company implemented foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S.

income tax expense.

In the third quarter of 2020, the company’s effective tax rate was 14.2%.

The company has operations and a taxable presence in approximately 50 countries outside the U.S.

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income tax provision among many countries, the company believes that a change in the statutory tax rate in any individual country is not likely to materially affect the company’s income tax provision or net income, aside from any resulting one-time adjustment to the company’s deferred tax balances to reflect a new rate.

First Six Months of 2021 Compared With First Six Months of 2020

Six Months Ended

(In millions) July 3,

2021 June 27,

First Nine Months of 2021 Compared With First Nine Months of 2020

Nine Months Ended

(In millions) October 2,

2021 September 26,

Change Currency

11 unchanged sentences

$ 28,509 $ 21,668 $ 6,841 $ 691 $ 341 $ 5,809

Sales in the first six months of 2021 increased $6.03 billion from the first six months of 2020.

Sales in the first nine months of 2021 increased $6.84 billion from the first nine months of 2020.

Aside from the effects of currency translation and acquisitions, revenues increased $5.81 billion (27%) primarily due to increased demand.

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The company's fourth quarter of 2021 will have four fewer selling days than the corresponding 2020 quarter.

Sales of products that address COVID-19 testing and treatment increased $3.26 billion to $4.72 billion in the first six months of 2021.

Sales to customers in each of the company’s primary end markets grew with particular strength in the diagnostics and healthcare industry.

Sales of products that address COVID-19 testing and treatment increased $3.34 billion to $6.78 billion in the first nine months of 2021.

Sales to customers in each of the company’s primary end markets grew.

Sales growth was strong in each of the company’s primary geographic areas.

In the first six months of 2021, total company operating income and operating income margin were $5.21 billion and 27.2%, respectively, compared with $2.30 billion and 17.5%, respectively, in the first six months of 2020.

In the first nine months of 2021, total company operating income and operating income margin were $7.49 billion and 26.3%, respectively, compared with $4.72 billion and 21.8%, respectively, in the first nine months of 2020.

The increase in operating income was primarily due to profit on higher sales and, to a lesser extent, sales mix, offset in part by strategic growth investments.

In the first six months of 2021, the company recorded restructuring and other costs of $115 million (Note 12).

In the first six months of 2020, the company recorded restructuring and other costs of $102 million.

In the first nine months of 2021, the company recorded restructuring and other costs of $192 million (Note 12).

In the first nine months of 2020, the company recorded restructuring and other costs of $65 million.

THERMO FISHER SCIENTIFIC INC.

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Segment Results

Six Months Ended

July 3, June 27,

Nine Months Ended

October 2, September 26,

(Dollars in millions) 2021 2020 Change

16 unchanged sentences

Laboratory Products and Services

1,360 931 46 %

Subtotal Reportable Segments

4 unchanged sentences

Amortization of Acquisition-related Intangible Assets

(1,295) (1,256)

Consolidated Operating Income

4 unchanged sentences

26.3 % 21.8 %

Income from the company’s reportable segments increased 91% to $6.20 billion in the first six months of 2021 due primarily to profit on higher sales and, to a lesser extent, sales mix, offset in part by strategic growth investments.

Income from the company’s reportable segments increased 49% to $8.98 billion in the first nine months of 2021 due primarily to profit on higher sales and, to a lesser extent, sales mix, offset in part by strategic growth investments.

Life Sciences Solutions

Six Months Ended

July 3, June 27,

Nine Months Ended

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 50.7 % 48.6 % 2.1 pt

Sales in the Life Sciences Solutions segment increased $3.38 billion in the first six months of 2021.

Sales in the Life Sciences Solutions segment increased $3.68 billion in the first nine months of 2021.

Sales increased $3.20 billion (41%) due to higher revenues at existing businesses and $185 million due to acquisitions.

The favorable effects of currency translation resulted in an increase in revenues of $300 million.

The increase in revenues at existing businesses was driven by a combination of increased demand for testing to diagnose COVID-19 with higher sales of genetic sciences products and biosciences products and strong demand in each of the segment’s businesses.

The increase in revenues at existing businesses was driven by a combination of increased demand for testing to diagnose COVID-19 with higher sales of biosciences products and genetic sciences products and strong demand in each of the segment’s businesses.

The increase in operating income margin for the segment resulted primarily from profit on higher sales and, to a lesser extent, sales mix, offset in part by strategic growth investments.

4 unchanged sentences

Analytical Instruments

Six Months Ended

July 3, June 27,

Nine Months Ended

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 18.8 % 13.7 % 5.1 pt

Sales in the Analytical Instruments segment increased $716 million in the first six months of 2021.

Sales in the Analytical Instruments segment increased $856 million in the first nine months of 2021.

Sales increased $746 million (21%) due to higher revenues at existing businesses.

1 unchanged sentence

The increase in operating income margin for the segment was primarily due to profit on higher sales and, to a lesser extent, a $108 million charge in 2020 related to a long-term supply contract (discussed in Note 8) and productivity improvements in 2021, offset in part by strategic growth investments and, to a lesser extent, sales mix.

Specialty Diagnostics

Six Months Ended

July 3, June 27,

Nine Months Ended

October 2, September 26,

(Dollars in millions) 2021 2020 Change

1 unchanged sentence

Operating Income Margin 23.3 % 25.1 % -1.8 pt

Sales in the Specialty Diagnostics segment increased $904 million in the first six months of 2021.

Sales in the Specialty Diagnostics segment increased $836 million in the first nine months of 2021.

Sales increased $760 million (23%) due to higher revenues at existing businesses.

The favorable effects of currency translation resulted in an increase in revenues of $76 million.

The increase in revenues at existing businesses was due to higher demand primarily driven by products addressing treatment of COVID-19, with particular strength in sales of products sold through the segment's healthcare market channel business, and to a lesser extent, microbiology products.

The increase in operating income margin for the segment was primarily due to profit on higher sales, offset in part by inflationary cost increases, net of productivity improvements and sales mix.

The increase in revenues at existing businesses was due to higher demand primarily driven by products addressing treatment of COVID-19, with particular strength in sales of products sold through the segment's healthcare market channel, and to a lesser extent, clinical diagnostics and immunodiagnostics products.

The decrease in operating income margin for the segment was primarily due to inflationary cost increases, net of productivity improvements, sales mix and strategic investments, offset in part by profit on higher sales and, to a lesser extent, a $13 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1).

Laboratory Products and Services

Six Months Ended

July 3, June 27,

Nine Months Ended

October 2, September 26,

(Dollars in millions) 2021 2020 Change

4 unchanged sentences

The favorable effects of currency translation resulted in an increase in revenues of $228 million.

The increase in operating income margin for the segment was primarily due to profit on higher sales and, to a lesser extent, acquisitions, offset in part by strategic growth investments.

Other Income/Expense

The company reported other (expense) income of $(188) million and $3 million in the first six months of 2021 and 2020, respectively.

In 2021, other expense includes $197 million of losses on the early extinguishment of debt and $6 million for amortization of bridge loan commitment fees related to the pending acquisition of PPD.

In 2020, other income was reduced by

The increase in operating income margin for the segment was primarily due to profit on higher sales and, to a lesser extent, acquisitions, sales mix and a $20 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1), offset in part by strategic growth investments.

THERMO FISHER SCIENTIFIC INC.

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Results of Operations (continued)

$44 million of costs for a subsequently terminated acquisition, primarily for entering into currency hedging contracts and amortization of loan commitment fees.

Other Expense

The company reported other expense of $174 million and $36 million in the first nine months of 2021 and 2020, respectively.

In 2021, other expense includes $197 million of losses on the early extinguishment of debt and $26 million for amortization of bridge loan commitment fees related to the pending acquisition of PPD, offset in part by $23 million of gains on investments.

In 2020, other expense includes $81 million of costs related to a terminated acquisition, primarily for entering into currency hedging contracts and amortization of loan commitment fees.

Provision for Income Taxes

The company recorded a $635 million provision for income taxes in the first six months of 2021.

During the second quarter of 2021, the company recorded a $162 million income tax benefit on an intra-entity transfer of assets.

The company recorded a $137 million provision for income taxes in the first six months of 2020.

The company recorded a $906 million provision for income taxes in the first nine months of 2021.

During the second and third quarters of 2021, the company recorded income tax benefits on intra-entity transactions totaling $258 million.

The company recorded a $456 million provision for income taxes in the first nine months of 2020.

In the second quarter of 2020, the company implemented foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S.

3 unchanged sentences

Liquidity and Capital Resources

Consolidated working capital (current assets less current liabilities) was $12.34 billion at July 3, 2021, compared with $11.65 billion at December 31, 2020.

Included in working capital were cash and cash equivalents of $7.02 billion at July 3, 2021 and $10.33 billion at December 31, 2020.

First Six Months of 2021

Cash provided by operating activities during the first six months of 2021 was $4.21 billion.

Consolidated working capital (current assets less current liabilities) was $16.97 billion at October 2, 2021, compared with $11.65 billion at December 31, 2020.

Included in working capital were cash and cash equivalents of $12.03 billion at October 2, 2021 and $10.33 billion at December 31, 2020.

First Nine Months of 2021

Cash provided by operating activities during the first nine months of 2021 was $6.86 billion.

Cash provided by income was offset in part by investments in working capital.

1 unchanged sentence

An increase in inventories used cash of $916 million, primarily to support growth in sales.

Changes in other assets and other liabilities used cash of $1.06 billion primarily due to the timing of payments for compensation and income taxes.

Cash payments for income taxes increased to $1.27 billion during the first six months of 2021, compared with $320 million in the first six months of 2020.

During the first six months of 2021, the company’s investing activities used $2.62 billion of cash.

Changes in other assets and other liabilities used cash of $582 million primarily due to the timing of payments for interest and compensation.

Cash payments for income taxes increased to $1.56 billion during the first nine months of 2021, compared with $656 million in the first nine months of 2020.

During the first nine months of 2021, the company’s investing activities used $3.24 billion of cash.

Acquisitions used cash of $1.52 billion.

The company's investing activities also included the purchase of $1.69 billion of property, plant and equipment for capacity and capability investments.

The company’s financing activities used $4.93 billion of cash during the first six months of 2021.

The company’s financing activities used $1.89 billion of cash during the first nine months of 2021.

Repayment of senior notes used cash of $2.81 billion.

Issuance of debt provided $3.12 billion of cash.

The company’s financing activities also included the repurchase of $2.00 billion of the company's common stock and the payment of $292 million in cash dividends.

On November 5, 2020, the Board of Directors replaced the existing authorization to repurchase the company’s common stock with a new authorization to repurchase up to $2.50 billion of the company’s common stock.

At August 6, 2021, authorization remained for $500 million of future repurchases of the company’s common stock.

The company's commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially between December 31, 2020 and July 3, 2021 except for the agreement to acquire PPD, discussed in Note 2.

On November 5, 2020, the Board of Directors authorized the repurchase of up to $2.50 billion of the company’s common stock.

On September 23, 2021 the Board of Directors replaced the existing authorization to repurchase the company’s common stock, of which $500 million was remaining, with a new authorization to repurchase up to $3.00 billion of the company’s common stock.

At November 4, 2021, authorization remained for $3.00 billion of future repurchases of the company’s common stock.

As discussed in Note 7, early in October 2021, the company issued senior notes for net proceeds of $11.83 billion.

The company's commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially between December 31, 2020 and October 2, 2021 except for the agreement to acquire PPD, discussed in Note 2.

The company expects that for all of 2021, expenditures for property, plant and equipment, net of disposals, will be between $2.5 and $2.7 billion.

As of July 3, 2021, the company’s short-term debt totaled $4 million.

As of October 2, 2021, the company’s short-term debt totaled $19 million.

The company has a revolving credit facility with a bank group that provides up to $3.00 billion of unsecured multi-currency revolving credit (Note 7).

If the company borrows under this facility, it intends to leave undrawn an amount equivalent to outstanding commercial paper to provide a source of funds in the event that commercial paper markets are not available.

As of July 3, 2021, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by approximately $4 million as a result of outstanding letters of credit.

As of October 2, 2021, no borrowings were outstanding

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (continued)

under the company’s revolving credit facility, although available capacity was reduced by approximately $4 million as a result of outstanding letters of credit.

Approximately half of the company’s cash balances and cash flows from operations are from outside the U.S.

7 unchanged sentences

cash balances for the foreseeable future.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (continued)

The company believes that its existing cash and cash equivalents and its future cash flow from operations together with available borrowing capacity under its revolving credit agreement and bridge loan agreement will be sufficient to meet the cash requirements of its existing businesses for the foreseeable future, including at least the next 24 months and to fund the pending PPD acquisition.

First Six Months of 2020

Cash provided by operating activities was $2.24 billion during the first six months of 2020.

The company believes that its existing cash and cash equivalents and its future cash flow from operations together with available borrowing capacity under its revolving credit agreement will be sufficient to meet the cash requirements of its existing businesses for the foreseeable future, including at least the next 24 months and to fund the pending PPD acquisition.

First Nine Months of 2020

Cash provided by operating activities was $4.95 billion during the first nine months of 2020.

Cash provided by income was offset in part by investments in working capital.

Increases in accounts receivable and inventories used cash of $858 million and $427 million, respectively, primarily to support growth in sales.

Changes in other assets and other liabilities provided cash of $303 million primarily due to the timing of payments for compensation and income taxes.

Changes in other assets and other liabilities provided cash of $1.04 billion primarily due to the timing of payments for compensation and income taxes.

Cash payments for income taxes totaled $656 million.

During the first six months of 2020, the company’s investing activities used $519 million of cash, principally for the purchase of property, plant and equipment.

The company’s financing activities provided $1.80 billion of cash during the first six months of 2020.

During the first nine months of 2020, the company’s investing activities used $884 million of cash, principally for the purchase of property, plant and equipment.

The company’s financing activities provided $1.01 billion of cash during the first nine months of 2020.

Issuance of senior notes provided cash of $3.46 billion.

Repayment of senior notes used cash of $712 million.

The company’s financing activities also included the repurchase of $1.50 billion of the company’s common stock and the payment of $250 million in cash dividends.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis