What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 132 added, 183 removed, 226 unchanged (58% of the section changed)

3 unchanged sentences

The company refers to various amounts or measures not prepared in accordance with generally accepted accounting principles (non-GAAP measures).

These non-GAAP measures are further described and reconciled to their most directly comparable amount or measure under the section “ N on-GAAP M easures ” later in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

These non-GAAP measures are further described and reconciled to their most directly comparable amount or measure under the section “ Non-GAAP Measures ” later in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Thermo Fisher Scientific Inc.

enables customers to make the world healthier, cleaner and safer by helping them accelerate life sciences research, solve complex analytical challenges, improve patient diagnostics and therapies, and increase laboratory productivity.

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

THERMO FISHER SCIENTIFIC INC.

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.

1 unchanged sentence

Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory Products and Biopharma Services.

Financial Highlights - 2021 Compared With 2020

Consolidated Results

(Dollars in millions except per share amounts) 2022 2021 Change

16 unchanged sentences

* Results may not sum due to rounding.

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, as a result of the pandemic’s impact on various markets, 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 significantly lessened in 2021, but could worsen in 2022 dependent on the success of global efforts to control and unwind from the pandemic and economic activity ramping up.

During 2021, the Life Sciences Solutions and Specialty Diagnostics segments as well as the laboratory products business continued to support COVID-19 diagnostic testing, scaling and evolving their molecular diagnostics solutions and plastic consumables businesses to respond to the on-going COVID-19 pandemic.

The biosciences and bioproduction businesses also expanded their capacity to meet the needs of pharma and biotech customers as they rapidly expanded their own production volumes to meet global vaccine manufacturing requirements.

Additionally, through our pharma services business, we provided our pharma and biotech customers with the services they needed to develop and produce vaccines and therapies globally.

Since 2020, the Life Sciences Solutions and Specialty Diagnostics segments as well as the laboratory products business have supported COVID-19 diagnostic testing, scaling and evolving their molecular diagnostics solutions and plastic consumables businesses to respond to the ongoing COVID-19 pandemic.

The biosciences and bioproduction businesses have expanded their capacity to meet the needs of pharma and biotech customers as they have expanded their own production volumes to meet global vaccine manufacturing requirements.

Additionally, our pharma services business has provided our pharma and biotech customers with the services they needed to develop and produce vaccines and therapies globally.

While these positive impacts are expected to continue through 2023, 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 of products related to COVID-19 response were $9.23 billion and $6.63 billion in 2021 and 2020, respectively.

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

Revenues were particularly strong in pharma and biotech driven by strong market dynamics and the company’s role in supporting customers across a wide range of therapeutic areas, including our role in supporting COVID-19 vaccines and therapies.

Customers in the academic and

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview (continued)

government market increased demand as a result of positive funding trends around the globe and a return to pre-pandemic levels of activity.

Customer activity in the industrial and applied market returned to pre-pandemic levels in 2021.

Revenues from customers in the diagnostics and healthcare market were driven by growth in COVID-19 testing-related products as the company continued to support the societal response to the pandemic.

Sales growth was strong across all geographic regions during 2021.

Sales of products related to COVID-19 testing were $3.11 billion and $7.26 billion in 2022 and 2021, respectively.

During 2022 demand from pharma and biotech customers was very strong, driven by our differentiated customer value proposition and trusted partner status.

We saw good growth in the academic and government market as we remain well positioned to meet customer needs.

The industrial and applied market was strong, driven by robust demand for our analytical instruments serving our semi-conductor and materials science customers.

The diagnostics and healthcare market declined due to decreased demand for COVID-19 testing products.

During 2022, robust sales growth in North America and the Asia Pacific region, including China, was partially offset by a decline in COVID-19 testing demand.

In Europe, strong sales were more than offset during 2022 due to lower COVID-19 testing demand.

Contributions to organic revenue during 2022 were driven by the Laboratory Products and Biopharma Services and Analytical Instruments segments, as offset by the Life Sciences Solutions and Specialty Diagnostics segments.

The company continues to execute its proven growth strategy which consists of three pillars:

2 unchanged sentences

• Delivering a unique value proposition to our customers.

GAAP operating income margin and adjusted operating income margin increased in 2021 due primarily to profit on higher sales and sales mix, offset in part by strategic growth investments to support the company’s near and long-term growth.

GAAP operating income margin and adjusted operating income margin decreased in 2022 due primarily to lower COVID-19 testing volumes, continued strategic growth investments, and the expected impact of incorporating recent acquisitions.

This was partially offset by strong pricing realization across all segments to address higher inflation while also driving strong productivity.

GAAP operating income margin in 2022 was also impacted by higher amortization expense as a result of 2021 acquisitions.

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.

The company’s references throughout this discussion to

THERMO FISHER SCIENTIFIC INC.

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.

Notable Recent Acquisitions

On January 15, 2021, the company acquired, within the Laboratory Products and Biopharma Services segment, the Belgium-based European viral vector manufacturing business of Groupe Novasep SAS for $830 million in net cash consideration.

On January 15, 2021, the company acquired, within the Laboratory Products and Biopharma Services segment, the Belgium-based European viral vector manufacturing business of Groupe Novasep SAS.

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 $407 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.

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

1 unchanged sentence

On September 30, 2021, the company assumed operating responsibility, within the Laboratory Products and Biopharma 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 December 8, 2021, the company acquired, within the Laboratory Products and Biopharma Services segment, PPD, Inc., a U.S.-based global provider of clinical research services to the pharma and biotech industry, for $15.99 billion in net cash consideration and $43 million of equity awards exchanged.

The addition of PPD’s clinical research services enhances our offering to biotech and pharma customers by enabling them to accelerate innovation and increase their productivity within the drug development process.

In 2020, PPD generated revenues of $4.68 billion.

On December 30, 2021, the company acquired, within the Life Sciences Solutions segment, PeproTech, Inc., a U.S.

based developer and manufacturer of recombinant proteins, for $1.86 billion in net cash consideration.

On December 30, 2021, the company acquired, within the Life Sciences Solutions segment, PeproTech, Inc., a U.S.-based developer and manufacturer of recombinant proteins.

PeproTech provides bioscience reagents known as recombinant proteins, including cytokines and growth factors.

The acquisition expands the segment’s bioscience offerings.

Results of Operations

On January 3, 2023, the company acquired, within the Specialty Diagnostics segment, The Binding Site Group, a U.K.-based provider of specialty diagnostic assays and instruments to improve the diagnosis and management of blood cancers and immune system disorders.

The acquisition expands the segment’s portfolio with the addition of pioneering innovation in diagnostics and monitoring for multiple myeloma.

Segment Results

The company’s management evaluates segment operating performance using operating income before certain charges/credits as defined in Note 4.

Accordingly, the following segment data are reported on this basis.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations (continued)

(Dollars in millions) 2022 2021

10 unchanged sentences

Organic* (non-GAAP measure)

(Dollars in millions)

2021 2020 Total

(Dollars in millions) 2022 2021 Total

Change Currency

3 unchanged sentences

Segment income margin 41.2 % 50.0 % (8.8) pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was driven by a combination of increased demand for testing to diagnose COVID-19 with higher sales of biosciences products and strong demand in each of the segment’s businesses.

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

The decrease in organic revenues in 2022 was primarily due to lower revenue in the genetic sciences business, driven by moderation in testing demand to diagnose COVID-19, partially offset by growth in the bioproduction business.

The decrease in segment income margin resulted primarily from business mix and strategic growth investments, partially offset by productivity improvements.

THERMO FISHER SCIENTIFIC INC.

Analytical Instruments

Organic* (non-GAAP measure)

(Dollars in millions)

2021 2020 Total

(Dollars in millions) 2022 2021 Total

Change Currency

3 unchanged sentences

Segment income margin 22.8 % 19.7 % 3.1 pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was due to increased demand for products sold by each of the segment’s primary businesses with particular strength in electron microscopy instruments as well as chromatography and mass spectrometry instruments.

The increase in segment income margin 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 12), offset in part by strategic growth investments.

The increase in organic revenues in 2022 was due to increased demand across all the segment’s businesses, with particular strength in the electron microscopy and chromatography and mass spectrometry businesses.

The increase in segment income margin resulted primarily from profit on higher sales, productivity improvements and business mix, offset in part by strategic growth investments.

Specialty Diagnostics Organic* (non-GAAP measure)

(Dollars in millions)

2021 2020 Total

(Dollars in millions) 2022 2021 Total

Change Currency

3 unchanged sentences

Segment income margin 21.5 % 22.6 % (1.1) pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 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, immunodiagnostics and clinical diagnostics products.

The decrease in segment income margin was primarily due to 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).

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations (continued)

The decrease in organic revenues in 2022 was primarily driven by products addressing diagnosis of COVID-19, partially offset by growth in the immunodiagnostics and transplant diagnostics businesses.

The decrease in segment income margin was primarily due to lower COVID-19 testing volume, largely offset by productivity improvements and positive business mix.

Segment income margin in 2021 was also impacted by a $13 million credit to cost of product revenue as a result of changing the method of accounting for inventories.

Laboratory Products and Biopharma Services Organic* (non-GAAP measure)

(Dollars in millions)

2021 2020 Total

(Dollars in millions) 2022 2021 Total

Change Currency

3 unchanged sentences

Segment income margin 12.8 % 12.4 % 0.4 pt

The increase in organic revenues in 2022 was primarily due to higher sales across each of the segment’s businesses, with particular strength in the pharma services business and research and safety market channel.

PPD, the company’s clinical research business, contributed $7.11 billion of revenue during 2022.

The increase in segment income margin was primarily due to the benefit of recent acquisitions, profit on higher sales, and productivity improvements, offset in part by strategic growth investments.

Segment income margin in 2021 was also impacted by a $20 million credit to cost of product revenue as a result of changing the method of accounting for inventories.

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was primarily due to increased demand in each of the segment’s principal businesses with particular strength in products sold through its pharma services business and research and safety market channel and, to a lesser extent, laboratory products businesses.

The increase in segment income margin was primarily due to profit on higher sales and sales mix, and, to a lesser extent, acquisitions 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.

Non-operating Items

6 unchanged sentences

13.0 % 14.6 %

Net interest expense (interest expense less interest income) increased due primarily to the increase in debt to finance the acquisition of PPD and for general corporate purposes, offset in part by lower average interest rates.

Net interest expense (interest expense less interest income) decreased due primarily to lower average interest rates on debt and higher average interest rates on cash balances, partially offset by the increase in debt to finance the acquisition of PPD and for general corporate purposes.

See additional discussion under the caption “Liquidity and Capital Resources” below.

GAAP other income/(expense) and adjusted other income/(expense) includes currency transaction gains and losses on non-operating monetary assets and liabilities and net periodic pension benefit cost/income, excluding the service cost component.

GAAP other income/(expense) in 2021 also includes $767 million of losses on the early extinguishment of debt (Note 10) and $36 million of financing costs associated with obtaining bridge financing commitments in connection with the agreement to acquire PPD (Note 2), offset in part by $66 million of net gains on investments.

GAAP other income/(expense) in 2020 includes $81 million of financing costs for a terminated acquisition, primarily for loan commitment fees and entering into hedging contracts and $42 million of expense reclassified from accumulated other comprehensive items related to a hedge arrangement (Note 14), offset in part by $10 million of net gains on investments.

The company’s GAAP and adjusted tax rates increased in 2021 compared to 2020, primarily due to higher profits at different marginal rates, offset in part by the benefits of our tax planning initiatives.

GAAP other income/(expense) and adjusted other income/(expense) includes currency transaction gains, losses on non-operating monetary assets and liabilities, and net periodic pension benefit cost/income, excluding the service cost component.

GAAP other income/(expense) in 2022 also includes $160 million of net losses on investments, $26 million of losses on the

THERMO FISHER SCIENTIFIC INC.

early extinguishment of debt (Note 10), partially offset by $67 million of net gains on derivative instruments to address certain foreign currency risks and $2 million of net settlement gains on pension plans.

GAAP other income/(expense) in 2021 also includes $767 million of losses on the early extinguishment of debt and $36 million of financing costs associated with obtaining bridge financing commitments in connection with the agreement to acquire PPD (Note 2), offset in part by $66 million of net gains on investments.

The company’s GAAP and adjusted tax rates decreased in 2022 compared to 2021 primarily due to releases of valuation allowances of $87 million in 2022 in jurisdictions where the deferred tax assets are now expected to be realized.

The company’s 2022 GAAP tax rate was also impacted by changes in tax rates and higher amortization expense as a result of 2021 acquisitions, as well as a net benefit of $208 million resulting from tax audit settlements (see Note 8).

The company’s 2021 GAAP and adjusted tax rates were also impacted by income tax benefits on intra-entity transactions totaling $284 million.

In 2020, the company’s GAAP and adjusted tax rates were impacted by foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S.

income tax expense;

a net income tax benefit of $51 million from a domestication transaction involving the transfer of non-U.S.

subsidiaries to the U.S.;

and a $47 million income tax benefit related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements.

Additionally, the 2020 GAAP tax rate included a $27 million tax benefit from tax audit settlements.

The effective tax rate in both 2022 and 2021 was also affected by relatively significant earnings in lower tax jurisdictions.

3 unchanged sentences

The company expects its adjusted tax rate will be approximately 11% in 2023.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations (continued)

The company has operations and a taxable presence in approximately 70 countries outside the U.S.

23 unchanged sentences

As of December 31, 2022, the company’s short-term debt totaled $5.58 billion.

On January 7, 2022, the company replaced its prior credit facility with a new revolving credit facility with a bank group that provides up to $5.00 billion of unsecured multi-currency revolving credit (Note 10).

The company has a revolving credit facility with a bank group that provides up to $5.00 billion of unsecured multi-currency revolving credit (Note 10).

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 December 31, 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 December 31, 2022, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

THERMO FISHER SCIENTIFIC INC.

(In millions) 2022 2021

3 unchanged sentences

(2,159) (21,932)

Net cash provided by financing activities

Net cash (used in) provided by financing activities

(2,810) 6,581

Free cash flow (non-GAAP measure)

Operating Activities

During 2022, cash provided by income was offset in part by investments in working capital.

Increases in accounts receivable and inventories used cash of $204 million and $1.07 billion, respectively, primarily to support growth in sales.

An increase in accounts payable provided cash of $479 million.

Changes in other assets and other liabilities used cash of $724 million primarily due to the timing of tax and incentive compensation payments.

Increases in accounts receivable and inventories used cash of $0.43 billion and $0.83 billion, respectively, primarily to support growth in sales.

An increase in accounts payable provided cash of $0.65 billion.

Cash payments for income taxes were $1.23 billion during 2022.

During 2021, cash provided by income was offset in part by investments in working capital.

Increases in accounts receivable and inventories used cash of $1.30 billion and $508 million, respectively, primarily to support growth in sales.

Changes in other assets and other liabilities provided cash of $1.45 billion primarily due to the timing of incentive compensation payments and, to a lesser extent, customer billings.

Increases in accounts receivable and inventories used cash of $0.20 billion and $1.07 billion, respectively, primarily to support growth in sales.

An increase in accounts payable provided cash of $0.48 billion.

Changes in other assets and other liabilities used cash of $0.72 billion primarily due to the timing of tax and incentive compensation payments.

Cash payments for income taxes were $2.18 billion during 2021.

The company is contingently liable with respect to certain legal proceedings and related matters.

An unfavorable outcome that differs materially from current accrual estimates, if any, for one or more of the matters described under the heading “ Product Liability, Workers Compensation and Other Personal Injury Matters, ” in Note 12 could have a material adverse effect on the company’s financial position as well as its results of operations and cash flows.

Investing Activities

During 2022, acquisitions used cash of $0.04 billion.

The company's investing activities also included the purchase of $2.52 billion of property, plant and equipment for capacity and capability investments.

During 2020, the company’s investing activities were principally for the purchase of property, plant and equipment.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (continued)

During 2021, issuance of senior notes provided $18.14 billion of cash.

A net increase in commercial paper obligations provided cash of $2.51 billion.

Repayment of debt used cash of $11.74 billion, including $4.30 billion to repay the debt assumed in the acquisition of PPD.

The company’s financing activities also included the repurchase of $2.00 billion of the company's common stock (4.1 million shares) and the payment of $395 million in cash dividends.

The company’s investing activities were principally for the purchase of property, plant and equipment for capacity and capability investments.

During 2021, acquisitions used cash of $19.40 billion.

The company’s investing activities also included the purchase of $2.52 billion of property, plant and equipment.

The company expects that for all of 2023, expenditures for property, plant and equipment, net of disposals, will be approximately $2.0 billion.

Financing Activities

During 2022, issuance of senior notes provided $3.19 billion in cash.

Repayment of senior notes and net commercial paper activity used cash of $0.38 billion and $2.16 billion, respectively.

The company’s financing activities also included the repurchase of $3.00 billion of the company’s common stock (5.3 million shares) and the payment of $0.46 billion in cash dividends.

On September 23, 2021, the Board of Directors authorized the repurchase of up to $3.00 billion of the company’s common stock.

All of the shares of common stock repurchased by the company during the fourth quarter of 2022 were purchased under this program, depleting the 2021 authorization.

On November 10, 2022, the Board of Directors authorized the repurchase of up to $4.00 billion of the company’s common stock.

Early in the first quarter of 2023, the company repurchased $3.00 billion of the company's common stock (5.2 million shares).

At February 23, 2023, authorization remained for $1.00 billion of future repurchases of the company’s common stock.

As discussed in Note 10, in the first quarter of 2022 the company redeemed its 3.650% Senior Notes due 2025 for a total cash outlay of $375 million.

During 2020, issuance of senior notes provided cash of $3.46 billion.

Repayment of senior notes used cash of $710 million.

The company’s financing activities also included the repurchase of $1.50 billion of the company’s common stock (4.5 million shares) and the payment of $337 million in cash dividends.

The company expects that for all of 2022, expenditures for property, plant and equipment, net of disposals, will be between $2.5 and $2.7 billion.

During 2021, issuance of senior notes provided $18.14 billion of cash.

A net increase in commercial paper obligations provided cash of $2.51 billion.

Repayment of debt used cash of $11.74 billion, including $4.30 billion to repay the debt assumed in the acquisition of PPD.

The company’s financing activities also included the repurchase of $2.00 billion of the company's common stock (4.1 million shares) and the payment of $0.40 billion in cash dividends.

In addition to the obligations on the balance sheet at December 31, 2022, which include, but are not limited to, debt (Note 10), unrecognized tax benefits (Note 8), operating leases (Note 11), pension obligations (Note 7) and contingent consideration (Note 14), the company has entered into unconditional purchase obligations, in the ordinary course of business, that include agreements to purchase goods, services or fixed assets and to pay royalties (Note 12).

The company is contingently liable with respect to certain legal proceedings and related matters.

Non-GAAP Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures such as organic revenue growth, which is reported revenue growth, excluding the impacts of revenues from acquired/divested businesses and the effects of currency translation.

We report organic revenue growth because Thermo Fisher management believes that in order to understand the company’s short-term and long-term financial trends, investors may wish to consider the impact of acquisitions and foreign currency translation on revenues.

THERMO FISHER SCIENTIFIC INC.

Thermo Fisher management uses organic revenue growth to forecast and evaluate the operational performance of the company as well as to compare revenues of current periods to prior periods.

5 unchanged sentences

We exclude these costs because we do not believe they are indicative of our normal operating costs.

• Costs/income associated with restructuring activities, such as reducing overhead and consolidating facilities.

We exclude these costs because we believe that the costs related to restructuring activities are not indicative of our normal operating costs.

• Equity in earnings of unconsolidated entities;

• Costs/income associated with restructuring activities and large-scale abandonments of product lines, such as reducing overhead and consolidating facilities.

We exclude these costs because we believe that the costs related to restructuring activities and large-scale abandonment of product lines are not indicative of our normal operating costs.

• Equity in earnings/losses of unconsolidated entities;

impairments of long-lived assets;

2 unchanged sentences

• The expense associated with the amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of up to 20 years.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Non-GAAP Measures (continued)

the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.

• The tax impacts of the above items and the impact of significant tax audits or events (such as changes in deferred taxes from enacted tax rate changes), the latter of which we exclude because they are outside of our normal operations and difficult to forecast accurately for future periods.

Exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.

• The tax impacts of the above items and the impact of significant tax audits or events (such as changes in deferred taxes from enacted tax rate/law changes), the latter of which we exclude because they are outside of our normal operations and difficult to forecast accurately for future periods.

We report free cash flow, which is operating cash flow excluding net capital expenditures, to provide a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities.

The company uses this measure as an indication of the strength of the company and its ability to generate cash for use in acquisitions and other investing and financing activities.

The company also uses this measure as an indication of the strength of the company.

Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.

The non-GAAP financial measures of Thermo Fisher Scientific’s results of operations and cash flows included in this Form 10-K are not meant to be considered superior to or a substitute for Thermo Fisher Scientific’s results of operations prepared in accordance with GAAP.

The non-GAAP financial measures of the company’s results of operations and cash flows included in this Form 10-K are not meant to be considered superior to or a substitute for the company’s results of operations prepared in accordance with GAAP.

Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth within the “Overview” and “Results of Operations” sections and below.

2 unchanged sentences

GAAP operating income $ 8,393 18.7 % $ 10,028 25.6 %

Cost of revenues charges (a)

Cost of revenues adjustments (a)

46 0.1 % 8 0.0 %

Selling, general and administrative charges (credits) (b)

Selling, general and administrative expenses adjustments (b)

37 0.1 % 144 0.4 %

8 unchanged sentences

Adjusted other income/(expense) (non-GAAP measure)

THERMO FISHER SCIENTIFIC INC.

(Dollars in millions except per share amounts) 2022 2021

Reconciliation of adjusted tax rate

6 unchanged sentences

$ 17.63 $ 19.46

Cost of revenues charges (a) 0.02 0.01

Selling, general and administrative charges (credits) (b) 0.36 (0.02)

Cost of revenues adjustments (a) 0.12 0.02

Selling, general and administrative expenses adjustments (b) 0.09 0.36

Restructuring and other costs (c) 0.29 0.50

1 unchanged sentence

Other income/expense adjustments (d) 0.30 1.84

Benefit from income taxes (e) (1.49) (1.12)

Equity in losses of unconsolidated entities 0.01 0.01

Provision for income taxes adjustments (e) (1.70) (1.49)

Equity in earnings/losses of unconsolidated entities 0.44 0.01

Adjusted EPS (non-GAAP measure)

$ 23.24 $ 25.13

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Non-GAAP Measures (continued)

(Dollars in millions except per share amounts) 2021 2020

Reconciliation of free cash flow

4 unchanged sentences

$ 6,935 $ 6,809

(a) Adjusted results in 2021 exclude charges for the sale of inventories revalued at the date of acquisition.

Adjusted results in 2020 exclude $4 million of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations and $2 million of charges to conform the accounting policies of recently acquired businesses with the company’s accounting policies.

(b) Adjusted results in 2021 and 2020 exclude certain third-party expenses (credits), principally transaction/integration costs (including reimbursement thereof) related to recent/terminated acquisitions;

credits from changes in estimates of contingent acquisition consideration;

and charges associated with product liability litigation.

(c) Adjusted results in 2021 and 2020 exclude restructuring and other costs consisting principally of severance, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations, and charges for impairment of acquired technology.

Adjusted results in 2021 exclude $35 million of charges for compensation due to employees of recently acquired businesses at the date of acquisition.

(d) Adjusted results in 2021 and 2020 exclude net gains on investments and charges for amortization of bridge loan commitment fees and entering hedging contracts for recent/terminated acquisitions.

Adjusted results in 2021 exclude $767 million of losses on the early extinguishment of debt.

Adjusted results in 2020 exclude $42 million of charges related to terminated interest rate swaps and $8 million of net charges for the settlement/curtailment of pension plans.

(e) Adjusted provision for income taxes in 2021 and 2020 excludes the incremental tax benefit for the pre-tax reconciling items between GAAP and adjusted net income, incremental tax impacts from audit settlements and incremental tax impacts from adjusting the company's non-U.S.

deferred tax balances as a result of tax rate changes.

(a) Adjusted results exclude charges for the sale of inventories revalued at the date of acquisition.

Adjusted results in 2022 also exclude $27 million of inventory write-downs associated with large-scale abandonment of product lines.

(b) Adjusted results exclude certain third-party expenses, principally transaction/integration costs related to recent acquisitions, charges/credits for changes in estimates of contingent acquisition consideration, and charges associated with product liability litigation.

(c) Adjusted results exclude restructuring and other costs consisting principally of severance, impairments of long-lived assets, charges/credits for environmental-related matters, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations.

Adjusted results in 2022 also exclude $14 million of gain on the sale of intellectual property.

Adjusted results in 2021 also exclude $122 million of charges for impairments of acquired intangible assets and $35 million of charges for compensation due to employees at recently acquired businesses at the date of acquisition.

(d) Adjusted results exclude net gains/losses on investments and losses on the early extinguishment of debt.

Adjusted results in 2022 also exclude $67 million of net gains on derivative instruments to address certain foreign currency risks and $2 million of net settlement gains for pension plans.

Adjusted results in 2021 also exclude $36 million of charges for amortization of bridge loan commitment fees related to a pending acquisition.

(e) Adjusted provision for income taxes excludes incremental tax impacts for the reconciling items between GAAP and adjusted net income, incremental tax impacts as a result of tax rate/law changes and the tax impacts from audit settlements (including a $658 million benefit from an audit settlement in 2022).

Adjusted results in 2022 also exclude a $423 million charge for the impact of deferred tax realizability assessments as a result of audit settlements.

Critical Accounting Policies and Estimates

6 unchanged sentences

Actual results may differ from these estimates under different assumptions or conditions.

THERMO FISHER SCIENTIFIC INC.

The company believes the following represent its critical accounting policies and estimates used in the preparation of its financial statements:

3 unchanged sentences

The determination of the fair value of intangible assets, which represent a significant portion of the purchase price in many of the company’s acquisitions, requires the use of significant judgment with regard to (i) the fair value and (ii) whether such intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized.

The company estimates the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which include estimates of customer attrition and technology obsolesce rates.

The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition.

See Note 2 for additional information about our recent business combinations.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates (continued)

Goodwill and Indefinite-lived Intangible Assets

The company evaluates goodwill and indefinite-lived intangible assets for impairment annually and when events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount.

Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts.

Goodwill and indefinite-lived intangible assets totaled $41.20 billion and $1.24 billion, respectively, at December 31, 2022 (see Note 1 for additional information).

Estimates of discounted future cash flows require assumptions related to revenue and operating income growth rates, discount rates and other factors.

For the goodwill impairment tests, the company considers (i) peer revenues and earnings trading multiples from companies that have operational and financial characteristics that are similar to the respective reporting units and (ii) estimated weighted average costs of capital.

For the goodwill impairment tests, the company also considers (i) peer revenues and earnings trading multiples from companies that have operational and financial characteristics that are similar to the respective reporting units and (ii) estimated weighted average costs of capital.

Different assumptions from those made in the company’s analysis could materially affect projected cash flows and the company’s evaluation of goodwill and indefinite-lived intangible assets for impairment.

The company performed the quantitative goodwill impairment test for all of its reporting units and indefinite-lived intangible assets.

Indications of fair value based on projections of cash flows, which increased over the prior year projections at higher rates than the increases in carrying values, and on peer revenues, earnings trading multiples and discount rates, which were relatively consistent with the prior year, were sufficient to conclude that no impairment of goodwill or indefinite-lived intangible assets existed at the end of the tenth fiscal month of 2021, the date of the company’s annual impairment testing.

Except as described below, the company performed the quantitative goodwill impairment test for all of its reporting units and indefinite-lived intangible assets.

Determinations of fair value based on projections of discounted cash flows, which decreased from the prior year projections primarily due to higher discount rates, and based on peer revenues and earnings trading multiples, which also decreased from the prior year, were sufficient to conclude that no impairments of goodwill or indefinite-lived intangible assets existed at the end of the tenth fiscal month of 2022, the date of the company’s annual impairment testing.

There were no interim impairments of goodwill or indefinite-lived intangible assets in 2022.

There can be no assurance, however, that an economic downturn will not materially adversely affect peer trading multiples and the company’s businesses such that they do not achieve their forecasted profitability and these assets become impaired.

Should the fair value of the company’s goodwill or indefinite-lived intangible assets decline because of reduced operating performance, market declines, or other indicators of impairment, or as a result of changes in the discount rate, charges for impairment may be necessary.

There can be no assurance, however, that adverse events or conditions will not cause the fair values of these assets to decline.

Should the fair values of the company’s reporting units or indefinite-lived intangible assets decline because of reduced operating performance, market declines, or other indicators of impairment, or as a result of changes in the discount rates, charges for impairment may be necessary.

With the completion of the PPD acquisition in December 2021, the company established two new reporting units that solely consist of the legacy PPD businesses, the book carrying values of which equaled their fair values as of the acquisition date.

During its annual 2022 goodwill impairment assessments, the company performed qualitative assessments of these reporting units and determined that no events had occurred and no circumstances had changed that would more-likely-than-not reduce the fair values of the reporting units below their carrying amounts.

As a result, the company did not perform the quantitative goodwill impairment tests for these reporting units.

Given that the fair values of the reporting units were unlikely to be substantially in excess of their carrying values as of the annual 2022 assessment date, relatively small decreases in future cash flows versus anticipated results, decreases in peer trading multiples and/or increases in weighted average costs of capital could result in impairment of goodwill.

The reporting units consisting of the legacy PPD businesses had $13.41 billion of goodwill, and an overall carrying value of $19.30 billion as of December 31, 2022.

Definite-lived Intangible Assets

Definite-lived intangible assets totaled $16.21 billion at December 31, 2022 (see Note 1 for additional information).

The company reviews definite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Certain definite-lived intangible assets have largely independent cash flows.

The company reviews these definite-lived intangible assets for impairment individually when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Actual cash flows arising from a particular intangible asset could vary from projected cash flows, which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset.

The company recorded impairments of $0.12 billion in 2021 (see Note 16 for additional information).

Contingent Consideration

The fair value of contingent consideration liabilities, which were initially exchanged for control of businesses or assumed from acquired businesses, was $0.32 billion at December 31, 2021.

At each reporting period, the fair value of contingent consideration is determined using either discounted cash flow analyses, Monte Carlo simulations, or fair values of an underlying recapitalization investment portfolio.

Changes in the fair value of contingent consideration liabilities can result from changes in estimates of revenue or operating results or in the timing or likelihood of achieving milestones, as well as changes in the fair values of the investments underlying the recapitalization investment portfolio.

These changes resulted in (benefits)/charges of $(0.05) billion during 2021 (see Note 14 for additional information).

Most of the company’s definite-lived intangible assets are used in conjunction with other assets, such as property, plant and equipment and operating lease right-of-use assets.

In these situations, the company considers

THERMO FISHER SCIENTIFIC INC.

the asset groups to be the units of account for impairment testing.

The company recorded impairments of $0.12 billion in 2021 (see Note 16).

Unrecognized Tax Benefits

4 unchanged sentences

Should tax return positions that the company expects are sustainable not be sustained upon audit, the company could be required to record an incremental tax provision for such taxes.

The company’s liability for these unrecognized tax benefits totaled $1.12 billion at December 31, 2021 (see Note 8 for additional information).

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates (continued)

The company’s liability for these unrecognized tax benefits totaled $0.57 billion at December 31, 2022, compared to $1.12 billion at December 31, 2021, primarily as a result of an audit settlement (see Note 8).

The company operates in numerous countries under many legal forms and, as a result, is subject to the jurisdiction of numerous domestic and non-U.S.

7 unchanged sentences

Any such reversals are recorded as a reduction of the company’s tax provision.

The company’s tax valuation allowance totaled $0.97 billion at December 31, 2021 (see Note 8 for additional information).

The company’s tax valuation allowance totaled $1.32 billion at December 31, 2022, compared to $0.97 billion at December 31, 2021, primarily driven by the assessment of additional tax assets resulting from an audit settlement during the year (see Note 8).

Should the company’s actual future taxable income by tax jurisdiction vary from estimates, additional allowances or reversals thereof may be necessary.

Undistributed Earnings

The company has not provided U.S.

state income taxes or additional non-U.S.

taxes on certain of its non-U.S.

subsidiaries’ undistributed earnings, as such amounts are intended to be reinvested outside the United States indefinitely in the respective jurisdictions based on specific business plans and tax strategies (see Note 8 for additional information).

These business plans and tax strategies consider:

short-term and long-term forecasts and budgets of the U.S.

parent and non-U.S.

subsidiaries;

working capital and other needs in locations where earnings are generated;

the company’s past practices regarding non-U.S.

subsidiary dividends;

sources of financing by the U.S.

parent, such as issuing debt or equity;

and uses of cash by the U.S.

parent that are more discretionary in nature, such as business combinations and share repurchase programs.

However, should the company change its business plans and tax strategies in the future and decide to repatriate a portion of these earnings to one of its U.S.

subsidiaries, including cash maintained by these non-U.S.

subsidiaries, the company would recognize additional tax liabilities.

It is not practicable to estimate the amount of additional U.S.

state income tax and non-U.S.

tax liabilities that the company would incur.

The company’s intent is to only make distributions from non-U.S.

subsidiaries in the future when they can be made at no net tax costs.

Recent Accounting Pronouncements

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis