THERMO FISHER SCIENTIFIC Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements, including without limitation statements regarding: projections of revenues, expenses, earnings, margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position; cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions or divestitures; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; any potential impact of the COVID-19 pandemic on the company's business; and any other statements that address events or developments thatThermo Fisher intends or believes will or may occur in the future. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. While the company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the company's estimates change, and readers should not rely on those forward-looking statements as representing the company's views as of any date subsequent to the date of the filing of this Quarterly Report. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth under the caption "Risk Factors" in the company's Annual Report on Form 10-K for the year endedDecember 31, 2020 (which is on file with theSEC ) as updated under the heading "Risk Factors" in Part II, Item 1A of this report on Form 10-Q. Important factors that could cause actual results to differ materially from those indicated by forward-looking statements include risks and uncertainties relating to: the duration and severity of the COVID-19 pandemic; the need to develop new products and adapt to significant technological change; implementation of strategies for improving growth; general economic conditions and related uncertainties, dependence on customers' capital spending policies and government funding policies; the effect of economic and political conditions and exchange rate fluctuations on international operations; use and protection of intellectual property; the effect of changes in governmental regulations; any natural disaster, public health crisis or other catastrophic event; and the effect of laws and regulations governing government contracts, as well as the possibility that expected benefits related to recent or pending acquisitions, including our pending acquisition of PPD, Inc., may not materialize as expected.
Overview
The company develops, manufactures and sells a broad range of products that are sold worldwide. The company expands the product lines and services it offers by developing and commercializing its own technologies and by making strategic acquisitions of complementary businesses. The company's operations fall into four segments (Note 4): Life Sciences Solutions, Analytical Instruments,Specialty Diagnostics and Laboratory Products and Services. The company mobilized in early 2020 to support the COVID-19 pandemic response with products and services that help analyze, diagnose and protect from the virus. However, the company saw a significant reduction in customer activity in several businesses by lateMarch 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 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 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 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. 23 --------------------------------------------------------------------------------THERMO FISHER SCIENTIFIC INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview (continued) 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. OnJanuary 15, 2021 , the company acquired, within the Laboratory Products and Services segment, theBelgium -based European viral vector manufacturing business of Groupe Novasep SAS for$834 million in net cash consideration. 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. OnFebruary 25, 2021 , the company acquired, within the Life Sciences Solutions segment,Mesa Biotech, Inc. , aU.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. OnSeptember 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. OnApril 15, 2021 , the company entered into a definitive agreement under which it will acquire PPD, Inc. for$47.50 per share for a total cash purchase price of$17.4 billion plus the assumption of approximately$3.5 billion of net debt. PPD provides a broad range of clinical research and specialized laboratory services to enable customers to accelerate innovation and increase drug development productivity. In 2020, PPD generated revenue of$4.7 billion . Upon close of the transaction, PPD will become part of the Laboratory Products and Services Segment. Shareholders holding in aggregate approximately 60% of the issued and outstanding shares of common stock of PPD onApril 15, 2021 , have approved the transaction by written consent. No further action by other PPD shareholders is required to approve the transaction. OnJuly 16, 2021 , the company and PPD each received a request for additional information and documentary materials from theFTC , in connection with theFTC'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 theFTC . As ofOctober 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 theU.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 issuances of debt, including the senior notes issued inOctober 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 nine months of 2021. 24 --------------------------------------------------------------------------------THERMO FISHER SCIENTIFIC INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Third Quarter 2021 Compared With Third Quarter 2020 Three Months Ended October 2, September 26, Total Currency Acquisitions/ (In millions) 2021 2020 Change Translation Divestitures Operations Revenues Life Sciences Solutions$ 3,721 $ 3,424 $ 297 $ 59 $ 90$ 148 Analytical Instruments 1,476 1,336 140 14 - 126 Specialty Diagnostics 1,362 1,430 (68) 7 - (75) Laboratory Products and Services 3,487 3,112 375 29 26 320 Eliminations (716) (781) 65 (4) - 69 Consolidated Revenues$ 9,330 $ 8,521 $ 809 $ 105 $ 116$ 588 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 inEurope and theAsia-Pacific region and flat inNorth 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. The company's references throughout this discussion to productivity improvements generally refer to improved cost efficiencies from its Practical Process Improvement (PPI) business system including reduced costs resulting from implementing continuous improvement methodologies, global sourcing initiatives, a lower cost structure following restructuring actions, including headcount reductions and consolidation of facilities, and low cost region manufacturing. Productivity improvements are calculated net of inflationary cost increases. 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. Segment Results Note 4 to the Consolidated Financial Statements of the company's Annual Report on Form 10-K for 2020, describes the company's measurement of segment income. 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. 25 --------------------------------------------------------------------------------THERMO FISHER SCIENTIFIC INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
Three Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues
Life Sciences Solutions $ 3,721 $ 3,424 9 %
Analytical Instruments 1,476 1,336 10 %
Specialty Diagnostics 1,362 1,430 (5) %
Laboratory Products and Services 3,487 3,112 12 %
Eliminations (716) (781) (8) %
Consolidated Revenues $ 9,330 $ 8,521 9 %
Segment Income
Life Sciences Solutions $ 1,821 $ 1,879 (3) %
Analytical Instruments 264 171 54 %
Specialty Diagnostics 310 398 (22) %
Laboratory Products and Services 383 355 8 %
Subtotal Reportable Segments 2,778 2,803 (1) %
Cost of Revenues Charges - (1)
Selling, General and Administrative Charges (Credits) (59) 55
Restructuring and Other Costs (18) (17)
Amortization of Acquisition-related Intangible Assets (423) (414)
Consolidated Operating Income $ 2,278 $ 2,426 (6) %
Reportable Segments Income Margin 29.8 % 32.9 %
Consolidated Operating Income Margin 24.4 % 28.5 %
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
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 3,721 $ 3,424 9 %
Operating Income Margin 48.9 % 54.9 % -6.0 pt
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 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.
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THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
Analytical Instruments
Three Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 1,476 $ 1,336 10 %
Operating Income Margin 17.8 % 12.8 % 5.0 pt
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 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
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 1,362 $ 1,430 (5) %
Operating Income Margin 22.7 % 27.9 % -5.2 pt
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 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
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 3,487 $ 3,112 12 %
Operating Income Margin 11.0 % 11.4 % -0.4 pt
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: 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
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THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 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. Some of these countries have lower tax rates than the U.S. The
company's ability to obtain a benefit from lower tax rates outside the U.S. is
dependent on its relative levels of income in countries outside the U.S. and on
the statutory tax rates in those countries. Based on the dispersion of the
company's non-U.S. 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 Nine Months of 2021 Compared With First Nine Months of 2020
Nine Months Ended
October 2, September 26, Total Currency Acquisitions/
(In millions) 2021 2020 Change Translation Divestitures Operations
Revenues
Life Sciences Solutions $ 11,481 $ 7,800 $ 3,681 $ 300 $ 185 $ 3,196
Analytical Instruments 4,344 3,488 856 110 - 746
Specialty Diagnostics 4,212 3,376 836 76 - 760
Laboratory Products and
Services 10,667 8,629 2,038 228 156 1,654
Eliminations (2,195) (1,625) (570) (23) - (547)
Consolidated Revenues $ 28,509 $ 21,668 $ 6,841 $ 691 $ 341 $ 5,809
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. The first quarter of 2021 had three extra selling days compared to the
first quarter of 2020. 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 $3.34 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 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 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 .
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THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
Segment Results
Nine Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues
Life Sciences Solutions $ 11,481 $ 7,800 47 %
Analytical Instruments 4,344 3,488 25 %
Specialty Diagnostics 4,212 3,376 25 %
Laboratory Products and Services 10,667 8,629 24 %
Eliminations (2,195) (1,625) 35 %
Consolidated Revenues $ 28,509 $ 21,668 32 %
Segment Income
Life Sciences Solutions $ 5,818 $ 3,788 54 %
Analytical Instruments 816 477 71 %
Specialty Diagnostics 983 848 16 %
Laboratory Products and Services 1,360 931 46 %
Subtotal Reportable Segments 8,977 6,044 49 %
Cost of Revenues Charges (8) (5)
Selling, General and Administrative Charges (33) 7
Restructuring and Other Costs (151) (67)
Amortization of Acquisition-related Intangible Assets (1,295) (1,256)
Consolidated Operating Income $ 7,490 $ 4,723 59 %
Reportable Segments Income Margin 31.5 % 27.9 %
Consolidated Operating Income Margin 26.3 % 21.8 %
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
Nine Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 11,481 $ 7,800 47 %
Operating Income Margin 50.7 % 48.6 % 2.1 pt
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 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.
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THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
Analytical Instruments
Nine Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 4,344 $ 3,488 25 %
Operating Income Margin 18.8 % 13.7 % 5.1 pt
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. The favorable effects of currency translation resulted
in an increase in revenues of $110 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, 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
Nine Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 4,212 $ 3,376 25 %
Operating Income Margin 23.3 % 25.1 % -1.8 pt
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, 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
Nine Months Ended
October 2, September 26,
(Dollars in millions) 2021 2020 Change
Revenues $ 10,667 $ 8,629 24 %
Operating Income Margin 12.8 % 10.8 % 2.0 pt
Sales in the Laboratory Products and Services segment increased $2.04 billion to
$10.67 billion in 2021. Sales increased $1.65 billion (19%) due to higher
revenues at existing businesses and $156 million due to an acquisition. The
favorable effects of currency translation resulted in an increase in revenues of
$228 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 and, to a lesser extent, its laboratory products business and pharma
services business.
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.
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THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
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 $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. income tax expense.
Recent Accounting Pronouncements A description of recently issued accounting standards is included under the heading "Recent Accounting Pronouncements" in Note 1.
Liquidity and Capital Resources Consolidated working capital (current assets less current liabilities) was$16.97 billion atOctober 2, 2021 , compared with$11.65 billion atDecember 31, 2020 . Included in working capital were cash and cash equivalents of$12.03 billion atOctober 2, 2021 and$10.33 billion atDecember 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. A decrease in accounts receivable provided$111 million of cash. 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$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$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. OnNovember 5, 2020 , the Board of Directors authorized the repurchase of up to$2.50 billion of the company's common stock. OnSeptember 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. AtNovember 4, 2021 , authorization remained for$3.00 billion of future repurchases of the company's common stock. As discussed in Note 7, early inOctober 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 betweenDecember 31, 2020 andOctober 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 ofOctober 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 ofOctober 2, 2021 , no borrowings were outstanding 31 --------------------------------------------------------------------------------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 theU.S. The company uses its non-U.S. cash for needs outside of theU.S. including acquisitions and repayment of acquisition-related intercompany debt to theU.S. In addition, the company also transfers cash to theU.S. using non-taxable returns of capital as well as dividends where the relatedU.S. dividend received deduction or foreign tax credit equals any tax cost arising from the dividends. As a result of using such means of transferring cash to theU.S. , the company does not expect any material adverse liquidity effects from its significant non-U.S. cash balances for the foreseeable future. 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$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 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.
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