THERMO FISHER SCIENTIFIC INC. 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) July 2, December 31, (In millions except share and per share amounts) 2022 2021 Assets Current assets: Cash and cash equivalents $ 1,888 $ 4,477 Accounts receivable, less allowances of $ 177 and $ 150 7,745 7,977 Inventories 5,668 5,051 Contract assets, net 1,147 968 Other current assets 1,652 1,640 Total current assets 18,100 20,113 Property, plant and equipment, net 8,529 8,333 Acquisition-related intangible assets, net 18,578 20,113 Other assets 4,306 4,640 Goodwill 41,066 41,924 Total assets $ 90,579 $ 95,123 Liabilities, redeemable noncontrolling interest and equity Current liabilities: Short-term obligations and current maturities of long-term obligations $ 1,010 $ 2,537 Accounts payable 2,586 2,867 Accrued payroll and employee benefits 1,722 2,427 Contract liabilities 2,722 2,655 Other accrued expenses 2,957 2,950 Total current liabilities 10,997 13,436 Deferred income taxes 3,327 3,837 Other long-term liabilities 4,534 4,540 Long-term obligations 29,250 32,333 Redeemable noncontrolling interest 117 122 Equity: Thermo Fisher Scientific Inc. shareholders’ equity: Preferred stock, $ 100 par value, 50,000 shares authorized; none issued — — Common stock, $ 1 par value, 1,200,000,000 shares authorized; 439,863,357 and 439,154,741 shares issued 440 439 Capital in excess of par value 16,467 16,174 Retained earnings 39,074 35,431 Treasury stock at cost, 48,074,395 and 44,720,112 shares ( 10,964 ) ( 8,922 ) Accumulated other comprehensive items ( 2,724 ) ( 2,329 ) Total Thermo Fisher Scientific Inc. shareholders’ equity 42,293 40,793 Noncontrolling interests 61 62 Total equity 42,354 40,855 Total liabilities, redeemable noncontrolling interest and equity $ 90,579 $ 95,123 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 THERMO FISHER SCIENTIFIC INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions except per share amounts) 2022 2021 2022 2021 Revenues Product revenues $ 7,003 $ 7,214 $ 15,020 $ 15,070 Service revenues 3,967 2,059 7,768 4,109 Total revenues 10,970 9,273 22,788 19,179 Costs and operating expenses: Cost of product revenues 3,516 3,352 7,071 6,679 Cost of service revenues 2,855 1,397 5,654 2,767 Selling, general and administrative expenses 2,209 1,899 4,486 3,725 Research and development expenses 365 343 729 663 Restructuring and other costs 24 119 26 133 Total costs and operating expenses 8,969 7,110 17,966 13,967 Operating income 2,001 2,163 4,822 5,212 Interest income 36 11 54 23 Interest expense ( 148 ) ( 122 ) ( 284 ) ( 247 ) Other income/(expense) 28 ( 3 ) ( 135 ) ( 186 ) Income before income taxes 1,917 2,049 4,457 4,802 Provision for income taxes ( 198 ) ( 219 ) ( 499 ) ( 635 ) Equity in earnings/(losses) of unconsolidated entities ( 51 ) ( 1 ) ( 70 ) ( 1 ) Net income 1,668 1,829 3,888 4,166 Less: net income attributable to noncontrolling interests and redeemable noncontrolling interest 4 1 9 1 Net income attributable to Thermo Fisher Scientific Inc. $ 1,664 $ 1,828 $ 3,879 $ 4,165 Earnings per share attributable to Thermo Fisher Scientific Inc. Basic $ 4.25 $ 4.65 $ 9.90 $ 10.58 Diluted $ 4.22 $ 4.61 $ 9.83 $ 10.50 Weighted average shares Basic 392 393 392 394 Diluted 394 396 394 397 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 THERMO FISHER SCIENTIFIC INC. CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Comprehensive income Net income $ 1,668 $ 1,829 $ 3,888 $ 4,166 Other comprehensive items: Currency translation adjustment: Currency translation adjustment (net of tax provision (benefit) of $ 173 , $( 23 ), $ 262 and $ 95 ) ( 386 ) ( 71 ) ( 416 ) 153 Unrealized gains and losses on hedging instruments: Reclassification adjustment for losses included in net income (net of tax benefit of $ 1 , $ 1 , $ 1 and $ 5 ) — 1 1 14 Pension and other postretirement benefit liability adjustments: Pension and other postretirement benefit liability adjustments arising during the period (net of tax (provision) benefit of $( 2 ), $ 0 , $( 3 ) and $( 2 )) 6 ( 2 ) 9 4 Amortization of net loss included in net periodic pension cost (net of tax benefit of $ 1 , $ 1 , $ 2 and $ 2 ) 2 4 4 6 Total other comprehensive items ( 378 ) ( 68 ) ( 402 ) 177 Comprehensive income 1,290 1,761 3,486 4,343 Less: comprehensive income/(loss) attributable to noncontrolling interests and redeemable noncontrolling interest 7 1 2 1 Comprehensive income attributable to Thermo Fisher Scientific Inc. $ 1,283 $ 1,760 $ 3,484 $ 4,342 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 THERMO FISHER SCIENTIFIC INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six months ended July 2, July 3, (In millions) 2022 2021 Operating activities Net income $ 3,888 $ 4,166 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 486 409 Amortization of acquisition-related intangible assets 1,209 872 Change in deferred income taxes ( 601 ) ( 307 ) Loss on early extinguishment of debt 26 197 Stock-based compensation 155 102 Other non-cash expenses, net 291 213 Changes in assets and liabilities, excluding the effects of acquisitions ( 1,724 ) ( 1,447 ) Net cash provided by operating activities 3,730 4,205 Investing activities Acquisitions, net of cash acquired ( 40 ) ( 1,425 ) Purchase of property, plant and equipment ( 1,146 ) ( 1,168 ) Proceeds from sale of property, plant and equipment 14 5 Other investing activities, net 83 ( 36 ) Net cash used in investing activities ( 1,089 ) ( 2,624 ) Financing activities Repayment of debt ( 375 ) ( 2,803 ) Proceeds from issuance of commercial paper 1,032 — Repayments of commercial paper ( 3,490 ) — Purchases of company common stock ( 2,000 ) ( 2,000 ) Dividends paid ( 220 ) ( 190 ) Net proceeds from issuance of company common stock under employee stock plans 51 72 Other financing activities, net ( 48 ) ( 5 ) Net cash used in financing activities ( 5,050 ) ( 4,926 ) Exchange rate effect on cash ( 177 ) 44 Decrease in cash, cash equivalents and restricted cash ( 2,586 ) ( 3,301 ) Cash, cash equivalents and restricted cash at beginning of period 4,491 10,336 Cash, cash equivalents and restricted cash at end of period $ 1,905 $ 7,035 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 THERMO FISHER SCIENTIFIC INC. CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE NONCONTROLLING INTEREST AND EQUITY (Unaudited) Redeemable Noncontrolling Interest Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock Accumulated Other Comprehensive Items Total Thermo Fisher Scientific Inc. Shareholders’ Equity Noncontrolling Interests Total Equity (In millions) Shares Amount Shares Amount Three months ended July 2, 2022 Balance at April 2, 2022 $ 113 440 $ 440 $ 16,292 $ 37,528 48 $ ( 10,961 ) $ ( 2,343 ) $ 40,956 $ 62 $ 41,018 Issuance of shares under employees' and directors' stock plans — — — 98 — — ( 3 ) — 95 — 95 Stock-based compensation — — — 77 — — — — 77 — 77 Dividends declared ($ 0.30 per share) — — — — ( 118 ) — — — ( 118 ) — ( 118 ) Net income 4 — — — 1,664 — — — 1,664 — 1,664 Other comprehensive items 4 — — — — — — ( 381 ) ( 381 ) ( 1 ) ( 382 ) Contributions from (distributions to) noncontrolling interests ( 4 ) — — — — — — — — — — Balance at July 2, 2022 $ 117 440 $ 440 $ 16,467 $ 39,074 48 $ ( 10,964 ) $ ( 2,724 ) $ 42,293 $ 61 $ 42,354 Three months ended July 3, 2021 Balance at April 3, 2021 $ — 438 $ 438 $ 15,684 $ 30,350 45 $ ( 8,852 ) $ ( 2,562 ) $ 35,058 $ 10 $ 35,068 Issuance of shares under employees' and directors' stock plans — — — 91 — — ( 4 ) — 87 — 87 Stock-based compensation — — — 51 — — — — 51 — 51 Dividends declared ($ 0.26 per share) — — — — ( 102 ) — — — ( 102 ) — ( 102 ) Net income — — — — 1,828 — — — 1,828 1 1,829 Other comprehensive items — — — — — — — ( 68 ) ( 68 ) — ( 68 ) Contributions from (distributions to) noncontrolling interests — — — — — — — — — 36 36 Balance at July 3, 2021 $ — 438 $ 438 $ 15,826 $ 32,076 45 $ ( 8,856 ) $ ( 2,630 ) $ 36,854 $ 47 $ 36,901 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 THERMO FISHER SCIENTIFIC INC. CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE NONCONTROLLING INTEREST AND EQUITY (Continued) (Unaudited) Redeemable Noncontrolling Interest Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock Accumulated Other Comprehensive Items Total Thermo Fisher Scientific Inc. Shareholders’ Equity Noncontrolling Interests Total Equity (In millions) Shares Amount Shares Amount Six months ended July 2, 2022 Balance at December 31, 2021 $ 122 439 $ 439 $ 16,174 $ 35,431 45 $ ( 8,922 ) $ ( 2,329 ) $ 40,793 $ 62 $ 40,855 Issuance of shares under employees' and directors' stock plans — 1 1 138 — — ( 42 ) — 97 — 97 Stock-based compensation — — — 155 — — — — 155 — 155 Purchases of company common stock — — — — — 3 ( 2,000 ) — ( 2,000 ) — ( 2,000 ) Dividends declared ($ 0.60 per share) — — — — ( 236 ) — — — ( 236 ) — ( 236 ) Net income 9 — — — 3,879 — — — 3,879 — 3,879 Other comprehensive items ( 7 ) — — — — — — ( 395 ) ( 395 ) — ( 395 ) Contributions from (distributions to) noncontrolling interests ( 7 ) — — — — — — — — ( 1 ) ( 1 ) Balance at July 2, 2022 $ 117 440 $ 440 $ 16,467 $ 39,074 48 $ ( 10,964 ) $ ( 2,724 ) $ 42,293 $ 61 $ 42,354 Six months ended July 3, 2021 Balance at December 31, 2020 $ — 437 $ 437 $ 15,579 $ 28,116 40 $ ( 6,818 ) $ ( 2,807 ) $ 34,507 $ 10 $ 34,517 Issuance of shares under employees' and directors' stock plans — 1 1 145 — 1 ( 38 ) — 108 — 108 Stock-based compensation — — — 102 — — — — 102 — 102 Purchases of company common stock — — — — — 4 ( 2,000 ) — ( 2,000 ) — ( 2,000 ) Dividends declared ($ 0.52 per share) — — — — ( 205 ) — — — ( 205 ) — ( 205 ) Net income — — — — 4,165 — — — 4,165 1 4,166 Other comprehensive items — — — — — — — 177 177 — 177 Contributions from (distributions to) noncontrolling interests — — — — — — — — — 36 36 Balance at July 3, 2021 $ — 438 $ 438 $ 15,826 $ 32,076 45 $ ( 8,856 ) $ ( 2,630 ) $ 36,854 $ 47 $ 36,901 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Fisher Scientific Inc. (the company or Thermo Fisher) enables customers to make the world healthier, cleaner and safer by helping them accelerate life sciences research, solve complex analytical challenges, increase laboratory productivity, and improve patient health through diagnostics and the development and manufacture of life-changing therapies. Markets served include pharmaceutical and biotech, academic and government, industrial and applied, as well as healthcare and diagnostics. Interim Financial Statements The interim condensed consolidated financial statements presented herein have been prepared by the company, are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at July 2, 2022, the results of operations for the three- and six-month periods ended July 2, 2022 and July 3, 2021, and the cash flows for the six-month periods ended July 2, 2022 and July 3, 2021. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet presented as of December 31, 2021, has been derived from the audited consolidated financial statements as of that date. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the company. The condensed consolidated financial statements and notes included in this report should be read in conjunction with the 2021 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). Certain reclassifications of prior year amounts have been made to conform to the current year presentation. Note 1 to the consolidated financial statements for 2021 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the company’s significant accounting policies during the six months ended July 2, 2022. Inventories The components of inventories are as follows: July 2, December 31, (In millions) 2022 2021 Raw materials $ 2,335 $ 1,922 Work in process 699 676 Finished goods 2,634 2,453 Inventories $ 5,668 $ 5,051 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The company’s estimates include, among others, asset reserve requirements as well as the amounts of future cash flows associated with certain assets and businesses that are used in assessing the risk of impairment. The negative impacts associated with the ongoing COVID-19 global pandemic significantly lessened in 2021 and 2022. The extent and duration of negative impacts in the future, which may include inflationary pressures and supply chain disruptions, are uncertain and may require changes to estimates. Actual results could differ from those estimates. Recent Accounting Pronouncements In November 2021, the FASB issued new guidance to require entities to disclose information about certain types of government assistance they receive, including cash grants and tax credits. Among other things, the new guidance requires expanded disclosure regarding the qualitative and quantitative characteristics of the nature, amount, timing, and significant terms and conditions of transactions with a government arising from a grant or other forms of assistance accounted for under a contribution model. The company will adopt this guidance in the fourth quarter of 2022 using a prospective method. The adoption of this guidance is not expected to have a material impact on the company’s disclosures; however, the impact in future periods will be dependent on the extent of transactions of this nature entered into by the company. 9 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 2. Acquisitions The company’s acquisitions have historically been made at prices above the determined fair value of the acquired identifiable net assets, resulting in goodwill, primarily due to expectations of the synergies that will be realized by combining the businesses and the benefits that will be gained from the assembled workforces. These synergies include the elimination of redundant facilities, functions and staffing; use of the company’s existing commercial infrastructure to expand sales of the acquired businesses’ products and services; and use of the commercial infrastructure of the acquired businesses to cost-effectively expand sales of company products and services. Acquisitions have been accounted for using the acquisition method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. 2022 In 2022, the company acquired, within the Analytical Instruments segment, a U.S.-based developer of Fourier-transform infrared gas analysis technologies. 2021 The preliminary allocations of the purchase price for the acquisitions of the Lengnau biologics manufacturing facility, PPD, Inc. and PeproTech, Inc. were based on estimates of the fair values of the net assets acquired and are subject to adjustment upon finalization, largely with respect to acquired intangible assets, lease assets and liabilities, and the related deferred taxes. Measurements of these items inherently require significant estimates and assumptions. During the first six months of 2022, the company adjusted the preliminary allocations of PPD and PeproTech, which among others increased goodwill ($ 95 million) and other liabilities assumed ($ 22 million), and decreased definite-lived intangible assets ($ 43 million), other current assets ($ 34 million), contract liabilities ($ 29 million), equity method investments ($ 23 million), and the fair value of assumed contingent consideration ($ 18 million). The adjustment to amortization expense recorded during the first six months of 2022 was not material. Note 3. Revenues and Contract-related Balances Disaggregated Revenues Revenues by type are as follows: Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Revenues Consumables $ 4,993 $ 5,372 $ 11,103 $ 11,336 Instruments 2,010 1,842 3,917 3,734 Services 3,967 2,059 7,768 4,109 Consolidated revenues $ 10,970 $ 9,273 $ 22,788 $ 19,179 Revenues by geographic region based on customer location are as follows: Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Revenues North America $ 6,032 $ 4,529 $ 12,355 $ 9,630 Europe 2,551 2,695 5,601 5,480 Asia-Pacific 2,042 1,749 4,106 3,458 Other regions 345 300 726 611 Consolidated revenues $ 10,970 $ 9,273 $ 22,788 $ 19,179 Each reportable segment earns revenues from consumables, instruments and services in North America, Europe, Asia-Pacific and other regions. See Note 4 for revenues by reportable segment and other geographic data. 10 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Remaining Performance Obligations The aggregate amount of the transaction price allocated to the remaining performance obligations for all open customer contracts as of July 2, 2022 was $ 27.70 billion. The company will recognize revenues for these performance obligations as they are satisfied, approximately 58 % of which is expected to occur within the next twelve months . Amounts expected to occur thereafter generally relate to contract manufacturing, clinical research and extended warranty service agreements, which typically have durations of three to five years. Contract-related Balances Noncurrent contract assets are included within other assets in the accompanying balance sheet. Noncurrent contract liabilities are included within other long-term liabilities in the accompanying balance sheet. Contract asset and liability balances are as follows: July 2, December 31, (In millions) 2022 2021 Current contract assets, net $ 1,147 $ 968 Noncurrent contract assets, net 10 9 Current contract liabilities 2,722 2,655 Noncurrent contract liabilities 1,237 1,238 In the three and six months ended July 2, 2022, the company recognized revenues of $ 0.71 billion and $ 1.99 billion, respectively, that were included in the contract liabilities balance at December 31, 2021. In the three and six months ended July 3, 2021, the company recognized revenues of $ 0.37 billion and $ 0.93 billion, respectively, that were included in the contract liabilities balance at December 31, 2020. Note 4. Business Segment and Geographical Information Business Segment Information Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Revenues Life Sciences Solutions $ 3,292 $ 3,557 $ 7,523 $ 7,760 Analytical Instruments 1,607 1,481 3,125 2,868 Specialty Diagnostics 1,101 1,235 2,583 2,850 Laboratory Products and Biopharma Services 5,537 3,583 10,979 7,180 Eliminations ( 567 ) ( 583 ) ( 1,422 ) ( 1,479 ) Consolidated revenues 10,970 9,273 22,788 19,179 Segment Income Life Sciences Solutions 1,327 1,718 3,503 3,997 Analytical Instruments 344 280 645 552 Specialty Diagnostics 243 245 596 673 Laboratory Products and Biopharma Services 691 446 1,311 977 Subtotal reportable segments 2,605 2,689 6,055 6,199 Cost of revenues adjustments ( 8 ) — ( 19 ) ( 8 ) Selling, general and administrative expenses adjustments 28 42 21 26 Restructuring and other costs ( 24 ) ( 119 ) ( 26 ) ( 133 ) Amortization of acquisition-related intangible assets ( 600 ) ( 449 ) ( 1,209 ) ( 872 ) Consolidated operating income 2,001 2,163 4,822 5,212 Interest income 36 11 54 23 Interest expense ( 148 ) ( 122 ) ( 284 ) ( 247 ) Other income/(expense) 28 ( 3 ) ( 135 ) ( 186 ) Income before income taxes $ 1,917 $ 2,049 $ 4,457 $ 4,802 11 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Cost of revenues adjustments included in the above table consist of charges for the sale of inventories revalued at the date of acquisition. Selling, general and administrative expenses adjustments included in the above table consist of third-party transaction/integration costs related to recent acquisitions, and charges/credits for changes in estimates of contingent acquisition consideration. Geographical Information Revenues by country based on customer location are as follows: Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Revenues United States $ 5,846 $ 4,355 $ 11,943 $ 9,247 China 1,001 794 1,911 1,569 Other 4,123 4,124 8,934 8,363 Consolidated revenues $ 10,970 $ 9,273 $ 22,788 $ 19,179 Note 5. Income Taxes The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate to income before provision for income taxes due to the following: Six months ended July 2, July 3, (In millions) 2022 2021 Statutory federal income tax rate 21 % 21 % Provision for income taxes at statutory rate $ 936 $ 1,008 Increases (decreases) resulting from: Foreign rate differential ( 138 ) ( 73 ) Income tax credits ( 117 ) ( 173 ) Global intangible low-taxed income 46 50 Foreign-derived intangible income ( 71 ) ( 89 ) Excess tax benefits from stock options and restricted stock units ( 31 ) ( 47 ) Intra-entity transfers ( 18 ) ( 162 ) Valuation allowances ( 175 ) 29 Withholding taxes 33 28 State income taxes, net of federal tax 67 78 Other, net ( 33 ) ( 14 ) Provision for income taxes $ 499 $ 635 The company has operations and a taxable presence in approximately 70 countries outside the U.S. The company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, and foreign taxes that are different than the U.S. federal statutory rate. Unrecognized Tax Benefits As of July 2, 2022 the company had $ 1.10 billion of unrecognized tax benefits substantially all of which, if recognized, would reduce the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: (In millions) 2022 Balance at beginning of year $ 1,124 Additions for tax positions of current year 13 Closure of tax years ( 2 ) Settlements ( 32 ) Balance at end of period $ 1,103 12 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 6. Earnings per Share Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions except per share amounts) 2022 2021 2022 2021 Net income attributable to Thermo Fisher Scientific Inc. $ 1,664 $ 1,828 $ 3,879 $ 4,165 Basic weighted average shares 392 393 392 394 Plus effect of: stock options and restricted stock units 2 3 2 3 Diluted weighted average shares 394 396 394 397 Basic earnings per share $ 4.25 $ 4.65 $ 9.90 $ 10.58 Diluted earnings per share $ 4.22 $ 4.61 $ 9.83 $ 10.50 Antidilutive stock options excluded from diluted weighted average shares 2 1 2 1 Note 7. Debt and Other Financing Arrangements Effective interest rate at July 2, July 2, December 31, (Dollars in millions) 2022 2022 2021 Commercial Paper $ — $ 2,522 Floating Rate (SOFR + 0.35 %) 1.5 -Year Senior Notes, Due 4/18/2023 1,000 1,000 Floating Rate (SOFR + 0.39 %) 2 -Year Senior Notes, Due 10/18/2023 500 500 0.797 % 2 -Year Senior Notes, Due 10/18/2023 1.04 % 1,350 1,350 Floating Rate (EURIBOR + 0.20 %) 2 -Year Senior Notes Due 11/18/2023 (euro-denominated) 0.00 % 1,770 1,933 0.000 % 2 -Year Senior Notes Due 11/18/2023 (euro-denominated) 0.06 % 573 625 0.75 % 8 -Year Senior Notes, Due 9/12/2024 (euro-denominated) 0.93 % 1,041 1,137 1.215 % 3 -Year Senior Notes, Due 10/18/2024 1.42 % 2,500 2,500 Floating Rate (SOFR + 0.53 %) 3 -Year Senior Notes, Due 10/18/2024 500 500 0.125 % 5.5 -Year Senior Notes, Due 3/1/2025 (euro-denominated) 0.40 % 833 910 2.00 % 10 -Year Senior Notes, Due 4/15/2025 (euro-denominated) 2.09 % 666 728 0.000 % 4 -Year Senior Notes, Due 11/18/2025 (euro-denominated) 0.15 % 573 625 3.65 % 10 -Year Senior Notes, Due 12/15/2025 — 350 1.40 % 8.5 -Year Senior Notes, Due 1/23/2026 (euro-denominated) 1.52 % 729 796 1.45 % 10 -Year Senior Notes, Due 3/16/2027 (euro-denominated) 1.65 % 521 568 1.75 % 7 -Year Senior Notes, Due 4/15/2027 (euro-denominated) 1.96 % 625 682 0.50 % 8.5 -Year Senior Notes, Due 3/1/2028 (euro-denominated) 0.76 % 833 910 1.375 % 12 -Year Senior Notes, Due 9/12/2028 (euro-denominated) 1.46 % 625 682 1.750 % 7 -Year Senior Notes, Due 10/15/2028 1.89 % 700 700 1.95 % 12 -Year Senior Notes, Due 7/24/2029 (euro-denominated) 2.07 % 729 796 2.60 % 10 -Year Senior Notes, Due 10/1/2029 2.74 % 900 900 0.80 % 9 -Year Senior Notes, Due 10/18/2030 (euro-denominated) 0.88 % 1,822 1,990 0.875 % 12 -Year Senior Notes, Due 10/1/2031 (euro-denominated) 1.13 % 937 1,023 2.00 % 10 -Year Senior Notes, Due 10/15/2031 2.23 % 1,200 1,200 2.375 % 12 -Year Senior Notes, Due 4/15/2032 (euro-denominated) 2.54 % 625 682 1.125 % 12 -Year Senior Notes, Due 10/18/2033 (euro-denominated) 1.20 % 1,562 1,706 2.875 % 20 -Year Senior Notes, Due 7/24/2037 (euro-denominated) 2.94 % 729 796 1.50 % 20 -Year Senior Notes, Due 10/1/2039 (euro-denominated) 1.73 % 937 1,023 2.80 % 20 -Year Senior Notes, Due 10/15/2041 2.90 % 1,200 1,200 13 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Effective interest rate at July 2, July 2, December 31, (Dollars in millions) 2022 2022 2021 1.625 % 20 -Year Senior Notes, Due 10/18/2041 (euro-denominated) 1.76 % 1,302 1,421 5.30 % 30 -Year Senior Notes, Due 2/1/2044 5.37 % 400 400 4.10 % 30 -Year Senior Notes, Due 8/15/2047 4.23 % 750 750 1.875 % 30 -Year Senior Notes, Due 10/1/2049 (euro-denominated) 1.98 % 1,041 1,137 2.00 % 30 -Year Senior Notes, Due 10/18/2051 (euro-denominated) 2.06 % 781 853 Other 74 76 Total borrowings at par value 30,328 34,971 Unamortized discount ( 107 ) ( 117 ) Unamortized debt issuance costs ( 161 ) ( 184 ) Total borrowings at carrying value 30,060 34,670 Finance lease liabilities 200 200 Less: Short-term obligations and current maturities 1,010 2,537 Long-term obligations $ 29,250 $ 32,333 SOFR - Secured Overnight Financing Rate EURIBOR - Euro Interbank Offered Rate The effective interest rates for the fixed-rate debt include the stated interest on the notes, the accretion of any discounts/premiums and the amortization of any debt issuance costs. See Note 10 for fair value information pertaining to the company’s long-term borrowings. Credit Facilities The company has a revolving credit facility (the Facility) with a bank group that provides for up to $ 5.00 billion of unsecured multi-currency revolving credit. The Facility expires on January 7, 2027. The revolving credit agreement calls for interest at either a Term SOFR, a EURIBOR-based rate (for funds drawn in euro) or a rate based on the prime lending rate of the agent bank, at the company’s option. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The covenants in the Facility include a Consolidated Net Interest Coverage Ratio (Consolidated EBITDA to Consolidated Net Interest Expense), as such terms are defined in the Facility. Specifically, the company has agreed that, so long as any lender has any commitment under the Facility, any letter of credit is outstanding under the Facility, or any loan or other obligation is outstanding under the Facility, it will maintain a minimum Consolidated Interest Coverage Ratio of 3.5 :1.0 as of the last day of any fiscal quarter. As of July 2, 2022, no borrowings were outstanding under the Facility, although available capacity was reduced by immaterial outstanding letters of credit. Commercial Paper Programs The company has commercial paper programs pursuant to which it may issue and sell unsecured, short-term promissory notes (CP Notes). Under the U.S. program, a) maturities may not exceed 397 days from the date of issue and b) the CP Notes are issued on a private placement basis under customary terms in the commercial paper market and are not redeemable prior to maturity nor subject to voluntary prepayment. Under the euro program, maturities may not exceed 183 days and may be denominated in euro, U.S. dollars, Japanese yen, British pounds sterling, Swiss franc, Canadian dollars or other currencies. Under both programs, the CP Notes are issued at a discount from par (or premium to par, in the case of negative interest rates), or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. As of July 2, 2022, there were no outstanding borrowings under these programs. Senior Notes Interest is payable quarterly on the floating rate senior notes, annually on the euro-denominated fixed rate senior notes and semi-annually on all other senior notes. Each of the fixed rate senior notes may be redeemed at a redemption price of 100% of the principal amount plus a specified make-whole premium and accrued interest. Except for the euro-denominated floating rate senior notes, which may not be redeemed early, the floating rate senior notes may be redeemed in whole or in part on or after their applicable call dates at a redemption price of 100% of the principal amount plus accrued interest. The company is subject to certain affirmative and negative covenants under the indentures governing the senior notes, the most restrictive of which 14 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) limits the ability of the company to pledge principal properties as security under borrowing arrangements. The company was in compliance with all covenants at July 2, 2022. In the first quarter of 2022, the company redeemed all of its 3.650% Senior Notes due 2025. In connection with the redemption, the company incurred $ 26 million of losses on the early extinguishment of debt included in other income/(expense) on the accompanying statement of income. Thermo Fisher Scientific (Finance I) B.V. (Thermo Fisher International), a wholly-owned finance subsidiary of the company, issued each of the Floating Rate Senior Notes due 2023, the 0.00% Senior Notes due 2023, the 0.00% Senior Notes due 2025, the 0.80% Senior Notes due 2030, the 1.125% Senior Notes due 2033, the 1.625% Senior Notes due 2041, and the 2.00% Senior Notes due 2051 included in the table above (collectively, the “Euronotes”) in registered public offerings. The company has fully and unconditionally guaranteed all of Thermo Fisher International’s obligations under the Euronotes and all of Thermo Fisher International’s other debt securities, and no other subsidiary of the company will guarantee these obligations. Thermo Fisher International is a “finance subsidiary” as defined in Rule 13-01(a)(4)(vi) of the Exchange Act, with no assets or operations other than those related to the issuance, administration and repayment of the Euronotes and other debt securities issued by Thermo Fisher International from time to time. The financial condition, results of operations and cash flows of Thermo Fisher International are consolidated in the financial statements of the company. Note 8. Commitments and Contingencies Environmental Matters The company is currently involved in various stages of investigation and remediation related to environmental matters. The company cannot predict all potential costs related to environmental remediation matters and the possible impact on future operations given the uncertainties regarding the extent of the required cleanup, the complexity and interpretation of applicable laws and regulations, the varying costs of alternative cleanup methods and the extent of the company’s responsibility. Expenses for environmental remediation matters related to the costs of installing, operating and maintaining groundwater-treatment systems and other remedial activities related to historical environmental contamination at the company’s domestic and international facilities were not material in any period presented. At July 2, 2022, there have been no material changes to the accruals for pending environmental-related matters disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K. While management believes the accruals for environmental remediation are adequate based on current estimates of remediation costs, the company may be subject to additional remedial or compliance costs due to future events such as changes in existing laws and regulations, changes in agency direction or enforcement policies, developments in remediation technologies or changes in the conduct of the company’s operations, which could have a material adverse effect on the company’s financial position, results of operations and cash flows. Litigation and Related Contingencies The company is involved in various disputes, governmental and/or regulatory inspections, inquiries, investigations and proceedings, and litigation matters that arise from time to time in the ordinary course of business. The disputes and litigation matters include product liability, intellectual property, employment and commercial issues. Due to the inherent uncertainties associated with pending litigation or claims, the company cannot predict the outcome, nor, with respect to certain pending litigation or claims where no liability has been accrued, make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. The company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K, nor are material losses deemed probable for such matters. It is reasonably possible, however, that an unfavorable outcome that exceeds the company’s current accrual estimate, if any, for one or more of the matters described below could have a material adverse effect on the company’s results of operations, financial position and cash flows. Product Liability, Workers Compensation and Other Personal Injury Matters The company is involved in various proceedings and litigation that arise from time to time in connection with product liability, workers compensation and other personal injury matters. At July 2, 2022, there have been no material changes to the accruals for pending product liability, workers compensation, and other personal injury matters disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K. Although the company believes that the amounts accrued and estimated insurance recoveries are probable and appropriate based on available information, including actuarial studies of loss estimates, the process of estimating losses and insurance recoveries involves a considerable degree of judgment by management and the ultimate amounts could vary, which could have a material adverse effect on the company’s results of operations, financial position, and cash flows. Insurance contracts do not relieve the company of its primary obligation with respect to any losses incurred. The collectability of amounts due from its insurers is subject to the 15 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) solvency and willingness of the insurer to pay, as well as the legal sufficiency of the insurance claims. Management monitors the payment history as well as the financial condition and ratings of its insurers on an ongoing basis. Note 9. Comprehensive Income Changes in each component of accumulated other comprehensive items, net of tax, are as follows: (In millions) Currency translation adjustment Unrealized losses on hedging instruments Pension and other postretirement benefit liability adjustment Total Balance at December 31, 2021 $ ( 2,065 ) $ ( 35 ) $ ( 229 ) $ ( 2,329 ) Other comprehensive items before reclassifications ( 416 ) — 9 ( 407 ) Amounts reclassified from accumulated other comprehensive items 7 1 4 12 Net other comprehensive items ( 409 ) 1 13 ( 395 ) Balance at July 2, 2022 $ ( 2,474 ) $ ( 34 ) $ ( 216 ) $ ( 2,724 ) Note 10. Fair Value Measurements and Fair Value of Financial Instruments Fair Value Measurements The following tables present information about the company’s financial assets and liabilities measured at fair value on a recurring basis: July 2, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs (In millions) 2022 (Level 1) (Level 2) (Level 3) Assets Cash equivalents $ 173 $ 173 $ — $ — Investments 64 64 — — Warrants 13 — 13 — Insurance contracts 153 — 153 — Derivative contracts 103 — 103 — Total assets $ 506 $ 237 $ 269 $ — Liabilities Derivative contracts $ 1 $ — $ 1 $ — Contingent consideration 216 — — 216 Total liabilities $ 217 $ — $ 1 $ 216 16 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs (In millions) 2021 (Level 1) (Level 2) (Level 3) Assets Cash equivalents $ 2,210 $ 2,210 $ — $ — Investments 298 298 — — Warrants 15 — 15 — Insurance contracts 181 — 181 — Derivative contracts 36 — 36 — Total assets $ 2,740 $ 2,508 $ 232 $ — Liabilities Derivative contracts $ 1 $ — $ 1 $ — Contingent consideration 317 — — 317 Total liabilities $ 318 $ — $ 1 $ 317 The company uses the Black-Scholes model to value its warrants. The company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer. The fair value of derivative contracts is the estimated amount that the company would receive/pay upon liquidation of the contracts, taking into account the change in interest rates and currency exchange rates. The company initially measures the fair value of acquisition-related contingent consideration based on amounts expected to be transferred (probability-weighted) discounted to present value. Changes to the fair value of contingent consideration are recorded in selling, general and administrative expense. In the three and six months ended July 2, 2022, the company recorded $ 17 million and $( 122 ) million, respectively, of net gains (losses) on investments which are included in other income/(expense) in the accompanying statement of income. In the three and six months ended July 3, 2021, the company recorded $ 1 million and $ 2 million, respectively, of net losses on investments which are included in other income/(expense) in the accompanying statement of income. The following table provides a rollforward of the fair value, as determined by level 3 inputs (such as likelihood of achieving production or revenue milestones, as well as changes in the fair values of the investments underlying a recapitalization investment portfolio), of the contingent consideration. Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Contingent consideration Beginning balance $ 261 $ 227 $ 317 $ 70 Acquisitions (including assumed balances) — 17 ( 18 ) 179 Payments ( 2 ) ( 35 ) ( 32 ) ( 42 ) Changes in fair value included in earnings ( 43 ) ( 60 ) ( 51 ) ( 58 ) Ending balance $ 216 $ 149 $ 216 $ 149 Derivative Contracts The following table provides the aggregate notional value of outstanding derivative contracts. July 2, December 31, (In millions) 2022 2021 Notional amount Cross-currency interest rate swaps - designated as net investment hedges $ 900 $ 900 Currency exchange contracts 1,571 2,149 17 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) While certain derivatives are subject to netting arrangements with counterparties, the company does not offset derivative assets and liabilities within the balance sheet. The following tables present the fair value of derivative instruments in the accompanying balance sheet and statement of income. Fair value – assets Fair value – liabilities July 2, December 31, July 2, December 31, (In millions) 2022 2021 2022 2021 Derivatives designated as hedging instruments Cross-currency interest rate swaps (a) $ 98 $ 25 $ — $ — Derivatives not designated as hedging instruments Currency exchange contracts (b) 5 11 1 1 Total derivatives $ 103 $ 36 $ 1 $ 1 (a) The fair value of the cross-currency interest rate swaps is included in the accompanying balance sheet under the caption other assets or other long-term liabilities. (b) The fair value of the currency exchange contracts is included in the accompanying balance sheet under the captions other current assets or other accrued expenses. Gain (loss) recognized Three months ended Six months ended July 2, July 3, July 2, July 3, (In millions) 2022 2021 2022 2021 Fair value hedging relationships Interest rate swaps Hedged long-term obligations - included in other income/(expense) $ — $ — $ — $ 25 Derivatives designated as hedging instruments - included in other income/(expense) — — — ( 3 ) Derivatives designated as cash flow hedges Interest rate swaps Amount reclassified from accumulated other comprehensive items to other income/(expense) ( 1 ) ( 2 ) ( 2 ) ( 19 ) Financial instruments designated as net investment hedges Foreign currency-denominated debt and other payables Included in currency translation adjustment within other comprehensive items 671 ( 90 ) 1,033 376 Cross-currency interest rate swaps Included in currency translation adjustment within other comprehensive items 51 ( 6 ) 74 32 Included in other income/(expense) 4 2 6 4 Derivatives not designated as hedging instruments Currency exchange contracts Included in cost of product revenues 21 ( 11 ) 12 1 Included in other income/(expense) 13 ( 28 ) 12 155 Gains and losses recognized on currency exchange contracts and the interest rate swaps designated as fair value hedges are included in the accompanying statement of income together with the corresponding, offsetting losses and gains on the underlying hedged transactions. The company uses foreign currency-denominated debt, certain foreign-denominated payables, and cross-currency interest rate swaps to partially hedge its net investments in foreign operations against adverse movements in exchange rates. A portion of the company’s euro-denominated senior notes, certain foreign-denominated payables, and its cross-currency interest rate swaps have been designated as, and are effective as, economic hedges of part of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments and certain foreign-denominated payables, and contract fair value changes on the cross-currency interest rate 18 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) swaps, excluding interest accruals, are included in currency translation adjustment within other comprehensive items and shareholders’ equity. See Note 1 to the consolidated financial statements for 2021 included in the company’s Annual Report on Form 10-K for additional information on the company’s risk management objectives and strategies. Fair Value of Other Financial Instruments The carrying value and fair value of the company’s debt instruments are as follows: July 2, 2022 December 31, 2021 Carrying Fair Carrying Fair (In millions) value value value value Senior notes $ 29,986 $ 27,265 $ 32,072 $ 33,449 Commercial paper — — 2,522 2,522 Other 74 74 76 76 $ 30,060 $ 27,339 $ 34,670 $ 36,047 The fair value of debt instruments was determined based on quoted market prices and on borrowing rates available to the company at the respective period ends, which represent level 2 measurements. Note 11. Supplemental Cash Flow Information Six months ended July 2, July 3, (In millions) 2022 2021 Non-cash investing and financing activities Acquired but unpaid property, plant and equipment $ 234 $ 225 Fair value of acquisition contingent consideration — 179 Declared but unpaid dividends 119 104 Issuance of stock upon vesting of restricted stock units 107 97 Cash, cash equivalents and restricted cash is included in the accompanying balance sheet as follows: July 2, December 31, (In millions) 2022 2021 Cash and cash equivalents $ 1,888 $ 4,477 Restricted cash included in other current assets 16 13 Restricted cash included in other assets 1 1 Cash, cash equivalents and restricted cash $ 1,905 $ 4,491 Amounts included in restricted cash represent funds held as collateral for bank guarantees and incoming cash in China awaiting government administrative clearance. 19 THERMO FISHER SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 12. Restructuring and Other Costs In the first six months of 2022, restructuring and other costs primarily included continuing charges for headcount reductions and facility consolidations in an effort to streamline operations. In 2022, severance actions associated with facility consolidations and cost reduction measures affected less than 0.5 % of the company’s workforce. As of August 5, 2022, the company has identified restructuring actions that will result in additional charges of approximately $ 20 million, primarily in 2022, and expects to identify additional actions in future periods which will be recorded when specified criteria are met, such as communication of benefit arrangements or when the costs have been incurred. Restructuring and other costs by segment are as follows: Three months ended Six months ended July 2, July 2, (In millions) 2022 2022 Life Sciences Solutions $ 5 $ 6 Analytical Instruments 2 4 Specialty Diagnostics 2 3 Laboratory Products and Biopharma Services 15 13 $ 24 $ 26 The following table summarizes the changes in the company’s accrued restructuring balance. Other amounts reported as restructuring and other costs in the accompanying statement of income have been summarized in the notes to the table. Accrued restructuring costs are included in other accrued expenses in the accompanying balance sheet. (In millions) Total (a) Balance at December 31, 2021 $ 17 Net restructuring charges incurred in 2022 (b) 22 Payments ( 24 ) Balance at July 2, 2022 $ 15 (a) The movements in the restructuring liability principally consist of severance and other costs such as relocation and moving expenses associated with facility consolidations, as well as employee retention costs which are accrued ratably over the period through which employees must work to qualify for a payment. (b) Excludes $ 4 million of net non-cash charges. The company expects to pay accrued restructuring costs primarily through 2022 . 20 THERMO FISHER SCIENTIFIC INC.