What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 89 added, 178 removed, 230 unchanged (54% of the section changed)

34 unchanged sentences

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

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Consolidated Results

Three months ended Nine months ended

October 1, October 2, October 1, October 2,

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

Three months ended

April 1, April 2,

(Dollars in millions except per share amounts) 2023 2022 Change

$ 10,710 $ 11,818 (9) %

GAAP operating income 1,563 2,821 (45) %

GAAP operating income margin 16.0 % 24.4 % (8.4) pt 19.5 % 26.3 % (6.8) pt

GAAP operating income margin 14.6 % 23.9 % (9.3) pt

Adjusted operating income (non-GAAP measure)

1 unchanged sentence

Adjusted operating income margin (non-GAAP measure)

22.2 % 29.8 % (7.6) pt 25.2 % 31.5 % (6.3) pt

21.8 % 29.2 % (7.4) pt

GAAP diluted earnings per share attributable to Thermo Fisher Scientific Inc.

2 unchanged sentences

5.03 7.25 (31) %

THERMO FISHER SCIENTIFIC INC.

Organic Revenue Growth

Three months ended Nine months ended

October 1, 2022 October 1, 2022

Three months ended

April 1, 2023

Revenue growth (9) %

6 unchanged sentences

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 2022, 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 testing were $0.44 billion and $1.57 billion in the third quarter of 2022 and 2021, respectively, and $2.75 billion and $5.44 billion in the first nine months of 2022 and 2021, respectively.

During the third quarter and first nine months of 2022, demand from pharma and biotech customers was very strong, driven by our unique value proposition and trusted partner status.

We saw 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.

These positive impacts are expected to continue at much lower levels in 2023 as customer testing as well as therapy and vaccine demand declines.

Sales of products related to COVID-19 testing were $141 million and $1.68 billion in the first quarter of 2023 and 2022, respectively.

During the first quarter of 2023, we saw good demand from pharma and biotech customers driven by our trusted partner status.

We saw broad based strength across the academic and government market.

The industrial and applied market was strong, driven by continued strong demand for our analytical instruments serving our semiconductor and materials science customers.

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

During the third quarter and first nine months of 2022, strong 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, sales declined during the third quarter and first nine months of 2022 due to lower COVID-19 testing demand.

Contributions to organic revenue during the third quarter and first nine months of 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.

During the first quarter of 2023, sales growth in North America and Europe declined, while Asia Pacific grew slightly.

Sales growth in all regions was impacted by decreased demand in 2023 for COVID-19 related products.

Contributions to organic revenue during the first quarter of 2023 from the Laboratory Products and Biopharma Services and Analytical Instruments segments were more than offset by declines in 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 decreased in the third quarter and first nine months of 2022 due primarily to lower COVID-19 testing volumes, continued strategic growth investments, and the expected impact of incorporating recent acquisitions.

GAAP operating income margin and adjusted operating income margin decreased in the first quarter of 2023 due primarily to lower COVID-19 related volumes, unfavorable business mix and strategic growth investments.

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.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GAAP operating income margin in the first quarter of 2023 was also impacted by restructuring and other charges incurred for headcount reductions and facility consolidations in an effort to streamline operations (Note 9), as well as the impact of fixed intangible amortization expense on lower revenues.

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.

1 unchanged sentence

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 $0.83 billion in net cash consideration.

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

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

On February 25, 2021, the company acquired, within the Life Sciences Solutions segment, Mesa Biotech, Inc., a U.S.-based molecular diagnostic company, for $0.41 billion in net cash consideration and contingent consideration with an initial fair value of $0.06 billion due upon the completion of certain milestones.

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

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

On September 30, 2021, the company assumed operating responsibility, within the Laboratory Products and 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 $0.56 billion (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 $0.04 billion 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.

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

The acquisition expands the segment’s bioscience offerings.

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.

THERMO FISHER SCIENTIFIC INC.

Segment Results

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

Three months ended Nine months ended

October 1, October 2, October 1, October 2,

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April 1, April 2,

(Dollars in millions) 2023 2022

2 unchanged sentences

Analytical Instruments

1,621 1,476 4,746 4,344

Specialty Diagnostics

1,065 1,362 3,648 4,212

Laboratory Products and Biopharma Services

5,585 3,487 16,564 10,667

(556) (716) (1,978) (2,195)

Consolidated revenues

$ 10,710 $ 11,818

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Life Sciences Solutions

Three months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 2,962 $ 3,721 (20) % (4) % 1 % (17) %

Segment income 1,039 1,821 (43) %

Segment income margin 35.1 % 48.9 % -13.8 pt

The decrease in organic revenues in the third quarter of 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 very strong growth in the bioproduction business.

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

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

(Dollars in millions) April 1,

2023 April 2,

Change Currency

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Segment income margin 32.0 % 51.4 % -19.4 pt

The decrease in organic revenues in the first nine months of 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 very strong 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.

The decrease in organic revenues in the first quarter of 2023 was primarily due to lower revenue in the genetic sciences and biosciences businesses, driven by moderation in COVID-19 related revenue.

The decrease in segment income margin resulted primarily from unfavorable business mix and significantly lower COVID-19 related revenue.

These decreases were partially offset by strong productivity.

Analytical Instruments

Three months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 1,621 $ 1,476 10 % (6) % — % 16 %

Segment income 386 264 47 %

Segment income margin 23.8 % 17.8 % 6.0 pt

The increase in organic revenues in the third quarter of 2022 was driven by increased demand across each of the segment’s businesses, with particular strength in the chromatography and mass spectrometry and electron microscopy businesses.

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

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

(Dollars in millions) April 1,

2023 April 2,

Change Currency

3 unchanged sentences

Segment income margin 24.4 % 19.8 % 4.6 pt

The increase in organic revenues in the first nine months of 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.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The increase in organic revenues in the first quarter of 2023 was driven by increased demand across each of the segment’s businesses, with particular strength in the chromatography and mass spectrometry and electron microscopy businesses.

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

Specialty Diagnostics

Three months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 1,065 $ 1,362 (22) % (3) % — % (19) %

Segment income 220 310 (29) %

Segment income margin 20.6 % 22.7 % -2.1 pt

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

The impact of lower COVID-19 testing volume on segment income margin was partially offset by positive business mix and productivity improvements.

Segment income margin in the third quarter of 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.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

(Dollars in millions) April 1,

2023 April 2,

Change Currency

3 unchanged sentences

Segment income margin 25.3 % 23.9 % 1.4 pt

The decrease in organic revenues in the first nine months of 2022 was due to decreased demand, 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 the first nine months of 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.

The decrease in organic revenues in the first quarter of 2023 was due to decreased demand, primarily driven by products addressing diagnosis of COVID-19, partially offset by growth in the immunodiagnostics and transplant diagnostics businesses.

The impact of lower COVID-19 testing volume on segment income margin was partially offset by favorable business mix and strong productivity improvements.

THERMO FISHER SCIENTIFIC INC.

Laboratory Products and Biopharma Services

Three months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 5,585 $ 3,487 60 % (5) % 53 % 12 %

Segment income 725 383 89 %

Segment income margin 13.0 % 11.0 % 2.0 pt

The increase in organic revenues in the third quarter of 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.

The acquisition of PPD, the company’s clinical research business, contributed $1.82 billion of revenue during the third quarter of 2022.

The increase in segment income margin was primarily due to favorable business mix, productivity improvements, and the benefit of recent acquisitions, partially offset by strategic growth investments.

Segment income margin in the third quarter of 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.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) October 1,

2022 October 2,

(Dollars in millions) April 1,

2023 April 2,

Change Currency

3 unchanged sentences

Segment income margin 13.8 % 11.4 % 2.4 pt

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

The acquisition of PPD, the company’s clinical research business, contributed $5.20 billion of revenue during the first nine months of 2022.

The decrease in segment income margin was primarily due to strategic growth investments and business mix, offset in part by the benefit of recent acquisitions.

Segment income margin in the first nine months of 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.

The increase in organic revenues in the first quarter of 2023 was primarily due to higher sales in the pharma services and clinical research businesses.

The increase in segment income margin was primarily due to profit on higher sales and productivity improvements, partially offset by strategic growth investments.

* Results may not sum due to rounding

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Non-operating Items

Three months ended Nine months ended

October 1, October 2, October 1, October 2,

Three months ended

April 1, April 2,

(Dollars in millions) 2023 2022

Net interest expense

$ 105 $ 119 $ 335 $ 343

GAAP other income/(expense) (46) (163)

3 unchanged sentences

10.0 % 14.1 %

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.

Net interest expense (interest expense less interest income) increased due primarily to the company’s capital deployment initiatives, which included financing stock buybacks and the acquisition of The Binding Site Group (Note 2).

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

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 the third quarter and first nine months of 2022 also includes $12 million and $135 million, respectively, of net losses on investments.

GAAP other income/(expense) in the third quarter and first nine months of 2021 also includes $25 million and $23 million, respectively, of net gains on investments.

In the first nine months of 2022 and 2021 GAAP other income/(expense) also includes $26 million and $197 million, respectively, of losses on the early extinguishment of debt (Note 7).

The company’s GAAP and adjusted tax rates decreased in 2022 compared to 2021 primarily due to releases of valuation allowances of $189 million in the first nine months of 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 in the third quarter of 2022 (see Note 5).

During the third quarter and first nine months of 2021 the company recorded income tax benefits on intra-entity transactions of $96 million and $258 million, respectively.

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

GAAP other income/(expense) in the first quarter of 2023 and 2022 also includes $43 million and $141 million, respectively, of net losses on investments.

GAAP other income/expense in 2022 also includes $26 million of losses on the early extinguishment of debt (Note 7).

The company’s GAAP and adjusted tax rates decreased in the first quarter of 2023 compared to 2022 primarily due to tax planning initiatives, which included a $144 million tax benefit resulting from a capital loss generated as part of an intra-entity transaction in the first quarter of 2023.

The company’s 2022 GAAP and adjusted tax rates were impacted by the release of an $82 million valuation allowance in a jurisdiction where the deferred tax assets are now expected to be realized.

The effective tax rates in both the first quarter of 2023 and 2022 were also affected by relatively significant earnings in lower tax jurisdictions.

Due primarily to the non-deductibility of intangible asset amortization for tax purposes, the company’s cash payments for income taxes are higher than its income tax expense for financial reporting purposes and are expected to total approximately $1.40 billion in 2023.

1 unchanged sentence

The effective tax rate can vary significantly from period to period as a result of discrete income tax factors and events.

The company expects its adjusted tax rate will be between 13% and 13.5% in 2022.

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

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

8 unchanged sentences

The company deploys its capital primarily via mergers and acquisitions and secondarily via share buybacks and dividends.

(In millions) October 1, 2022 December 31, 2021

THERMO FISHER SCIENTIFIC INC.

(In millions) April 1, 2023 December 31, 2022

Cash and cash equivalents $ 3,482 $ 8,524

6 unchanged sentences

using non-taxable returns of capital as well as dividends where the related U.S.

dividend received deduction or foreign tax credit equals any tax

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

cost arising from the dividends.

dividend received deduction or foreign tax credit equals any tax cost arising from the dividends.

As a result of using such means of transferring cash to the U.S., the company does not expect any material adverse liquidity effects from its significant non-U.S.

1 unchanged sentence

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

As of October 1, 2022, the company’s short-term debt totaled $1.01 billion.

As of April 1, 2023, the company’s short-term debt totaled $6.12 billion.

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 7).

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

As of October 1, 2022, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

Nine months ended

(In millions) October 1, 2022 October 2, 2021

As of April 1, 2023, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

Three months ended

(In millions) April 1, 2023 April 2, 2022

Net cash provided by operating activities

6 unchanged sentences

Operating Activities

During the first nine months of 2022, cash provided by income was offset in part by investments in working capital.

During the first three months of 2023, cash provided by income was offset in part by investments in working capital.

Changes in other assets and other liabilities used cash of $1.32 billion primarily due to the timing of payments for compensation and income taxes.

Cash payments for income taxes were $0.57 billion during the first three months of 2023.

During the first three months of 2022, cash provided by income was offset in part by investments in working capital.

An increase in inventories used cash of $0.50 billion, primarily to support growth in sales.

Changes in other assets and other liabilities used cash of $0.36 billion primarily due to the timing of payments for compensation.

Cash payments for income taxes were $1.05 billion during the first nine months of 2022.

During the first nine months of 2021, cash provided by income was offset in part by investments in working capital.

An increase in inventories used cash of $0.92 billion, primarily to support growth in sales.

Changes in other assets and other liabilities used cash of $0.58 billion primarily due to the timing of payments for compensation and income taxes.

Cash payments for income taxes were $1.56 billion during the first nine months of 2021.

Cash payments for income taxes were $0.30 billion during the first three months of 2022.

Investing Activities

During the first nine months of 2022, acquisitions used cash of $0.04 billion.

During the first three months of 2023, acquisitions used cash of $2.70 billion.

The company’s investing activities also included the purchase of $0.46 billion of property, plant and equipment for capacity and capability investments.

During the first nine months of 2021, acquisitions used cash of $1.52 billion.

During the first three months of 2022, acquisitions used cash of $0.04 billion.

The company’s investing activities also included the purchase of $0.64 billion of property, plant and equipment for capacity and capability investments.

Financing Activities

During the first nine months of 2022, repayment of senior notes and net commercial paper activity used cash of $0.38 billion and $2.46 billion, respectively.

During the first three months of 2023 net commercial paper activity used cash of $0.50 billion.

The company’s financing activities also included the repurchase of $3.00 billion of the company’s common stock (5.2 million shares) and the payment of $0.12 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.

In the fourth quarter of 2022, the company repurchased $1.00 billion of the company’s common stock (2.0 million shares), depleting the 2021 authorization.

As discussed in Note 7, in October 2022 the company issued senior notes for net proceeds of $735 million.

During the first nine months of 2021 repayment of senior notes used cash of $2.80 billion.

Issuance of debt provided $3.12 billion of cash.

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

All of the shares of common stock repurchased by the company during the first quarter of 2023 were under this program.

At May 5, 2023, authorization remained for $1.00 billion of future repurchases of the company’s common stock.

During the first three months of 2022 repayment of senior notes and net commercial paper activity used cash of $0.38 billion and $0.63 billion, respectively.

The company’s financing activities also included the repurchase of $2.00 billion of the company’s common stock (3.3 million shares) and the payment of $0.10 billion in cash dividends.

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially subsequent to December 31, 2021, except for the agreement to acquire The Binding Site Group.

The company expects that for all of 2022, expenditures for property, plant and equipment, net of disposals, will be between $2.3 and $2.5 billion.

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially subsequent to April 1, 2023.

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

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Non-GAAP Measures

22 unchanged sentences

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.

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Three months ended Nine months ended

October 1, October 2, October 1, October 2,

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April 1, April 2,

(Dollars in millions except per share amounts) 2023 2022

4 unchanged sentences

Selling, general and administrative expenses adjustments (b)

11 59 (10) 33

Restructuring and other costs (c)

2 unchanged sentences

$ 2,330 $ 3,450

THERMO FISHER SCIENTIFIC INC.

Three months ended

April 1, April 2,

(Dollars in millions except per share amounts) 2023 2022

Reconciliation of adjusted operating income margin

10 unchanged sentences

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

$ 10 $ 13 $ 24 $ 32

Reconciliation of adjusted tax rate

21 unchanged sentences

$ 277 $ 1,564

THERMO FISHER SCIENTIFIC INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(a) Adjusted results in 2022 and 2021 exclude charges for the sale of inventories revalued at the date of acquisition.

Adjusted results in the third quarter of 2022 also exclude $22 million of charges for 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, impairment of long-lived assets, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations.

Adjusted results in the third quarter of 2021 also exclude $4 million of credits for the settlement of environmental-related matters, offset in part by $3 million of net charges for pre-acquisition related matters.

Adjusted results in the first nine months of 2021 also exclude $13 million of charges for compensation due to employees at recently acquired businesses at the date of acquisition and $110 million of charges for impairment of acquired technology.

(d) Adjusted results exclude net gains/losses on investments.

Adjusted results in the first nine months of 2022 and 2021 also exclude $26 million and $197 million, respectively, of losses on the early extinguishment of debt.

Adjusted results in the third quarter of and first nine months of 2021 also exclude $20 million and $26 million, respectively, of amortization of bridge loan commitment fees related to a pending acquisition.

(e) Adjusted provision for income taxes in 2022 and 2021 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 the third quarter of 2022).

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

(a) Adjusted results in 2023 and in 2022 exclude charges for the sale of inventories revalued at the date of acquisition.

Adjusted results in 2023 also exclude $31 million of inventory write-downs associated with large-scale abandonment of product lines.

(b) Adjusted results in 2023 and 2022 exclude certain third-party expenses, principally transaction/integration costs related to recent acquisitions and charges/credits for changes in estimates of contingent acquisition consideration.

(c) Adjusted results in 2023 and 2022 exclude restructuring and other costs consisting principally of severance, impairments of long-lived assets, abandoned facility and other expenses of headcount reductions and real estate consolidations.

Adjusted results in 2023 also exclude $18 million of net charges for pre-acquisition litigation and other matters.

(d) Adjusted results in 2023 and 2022 exclude net gains/losses on investments.

Adjusted results in 2022 also exclude $26 million of losses on the early extinguishment of debt.

(e) Adjusted provision for income taxes in 2023 and 2022 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.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements of the company’s Annual Report on Form 10-K for 2021 describe the significant accounting estimates and policies used in preparation of the consolidated financial statements.

There have been no significant changes in the company’s critical accounting policies during the first nine months of 2022.

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements of the company’s Annual Report on Form 10-K for 2022 describe the significant accounting estimates and policies used in preparation of the consolidated

THERMO FISHER SCIENTIFIC INC.

financial statements.

There have been no significant changes in the company’s critical accounting policies during the first three months of 2023.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis