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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 96 added, 105 removed, 253 unchanged (44% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reference is made throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations to Notes to the Consolidated Financial Statements , which begin on page F-1 of this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for 2021 is included in Item 7 of the company’s 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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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, increase laboratory productivity, and improve patient health through

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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.

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$ 21.55 $ 23.24 (7) %

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Organic Revenue Growth

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* Results may not sum due to rounding.

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.

Since the company’s acquisition of PPD in December 2021, the clinical research business has continued to play a leading role in supporting the clinical trials for COVID-19 vaccines and therapies.

These positive impacts continued at much lower levels in 2023 as customer testing as well as therapy and vaccine demand declined.

Sales of products related to COVID-19 testing were $0.33 billion and $3.11 billion in 2023 and 2022, 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.

During 2023, growth from pharma and biotech customers slightly declined.

Over the past few years, the company has played a meaningful role in the production of COVID-19 vaccines and therapies.

In 2023, reduced demand for our products and services that support COVID-19 vaccines and therapies was partially offset through strong commercial execution as a result of our trusted partner status with customers in this market.

We saw broad based strength across the academic and government market as we saw the benefits of our accelerated investments into high impact innovation with great customer adoption and strong demand globally.

The industrial and applied market was strong, driven by the relevance of our analytical instrument technologies serving our semiconductor 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.

During 2023, sales growth in all major regions declined due to decreased demand for COVID-19 related products, as well as a challenging macroeconomic environment and low economic activity in China.

Contributions to organic revenue during 2023 from the Analytical Instruments and Laboratory Products and Biopharma Services 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:

• Developing high-impact, innovative new products,

• Leveraging our scale in high-growth and emerging markets, and

• Delivering a unique value proposition to our customers.

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.

• High-impact innovation,

• Our trusted partner status with customers, and

• Our unparalleled commercial engine.

GAAP operating income margin and adjusted operating income margin decreased in 2023 due primarily to lower COVID-19 related revenue.

This was partially offset by strong productivity improvements and strong pricing realization to address higher inflation.

GAAP operating income margin in 2023 was also impacted by restructuring and other charges incurred for headcount reductions and facility consolidations in an effort to streamline operations and limit the impact of expected lower revenue (Note 16).

We estimate that restructuring actions resulting in charges of approximately $0.2 billion in 2023 will realize annual cost savings of approximately $0.5 billion, primarily due to reduced employee expenses.

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

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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.

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.

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.

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.

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.

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.

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.

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.

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.

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On August 14, 2023, the company acquired, within the Laboratory Products and Biopharma Services segment, CorEvitas, LLC, a U.S.-based provider of regulatory-grade, real-world evidence for approved medical treatments and therapies.

The acquisition expands the segment’s portfolio with the addition of highly complementary real-world evidence solutions to enhance decision-making as well as the time and cost of drug development.

Segment Results

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Segment income margin 34.3 % 41.2 % (6.9) pt

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.

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The decrease in organic revenues in 2023 was primarily due to moderation in COVID-19 related revenue.

The decrease in segment income margin resulted primarily from significantly lower COVID-19 related revenue and unfavorable volume pull-through, partially offset by exceptionally strong productivity improvements and favorable price realization.

Analytical Instruments

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The increase in organic revenues in 2023 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.

The increase in segment income margin resulted primarily from strong productivity, strong pricing realization to address higher inflation and strong volume pull-through, offset in part by the effects of currency translation and strategic growth investments.

Specialty Diagnostics Organic* (non-GAAP measure)

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Segment income margin 25.5 % 21.5 % 4.0 pt

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.

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

The increase in segment income margin was due to favorable business mix, strong pricing realization to address higher inflation, and strong productivity improvements, partially offset by the impact of lower COVID-19 testing volume.

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

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Segment income margin 14.6 % 12.8 % 1.8 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.

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

The increase in segment income margin was primarily due to very strong productivity improvements and strong pricing realization to address higher inflation.

* Results may not sum due to rounding

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10.0 % 13.0 %

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.

Weighted average diluted shares 388 394

Net interest expense (interest expense less interest income) increased due primarily to the increase in debt for general corporate purposes and the company’s capital deployment initiatives, which included financing stock buybacks, paying dividends and acquiring The Binding Site Group and CorEvitas, LLC (Note 2).

These increases were partially offset by higher cash and cash equivalents balances as well as higher interest rates on these balances when compared to 2022.

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

In 2023 and 2022 the company’s net interest expense was reduced by approximately $116 million and $16 million, respectively, as a result of its interest rate swap and cross-currency interest rate swap arrangements (Note 14).

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

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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.

The effective tax rate in both 2022 and 2021 was 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 were higher than its income tax expense for financial reporting purposes and totaled $1.23 billion and $2.18 billion in 2022 and 2021, respectively.

GAAP other income/(expense) in 2023 also includes $45 million of net losses on investments.

GAAP other income/(expense) in 2022 also includes $160 million of net losses on investments and $26 million of losses on the early extinguishment of debt (Note 10), partially offset by $67 million of net gains on derivative instruments to address certain foreign currency risks.

The GAAP and adjusted tax rates in 2023 were impacted by changes in valuation allowances, including a $183 million release in a jurisdiction where the deferred tax assets are now expected to be realized, and, to a lesser extent, by a decrease in pre-tax earnings compared to 2022.

The company’s GAAP and adjusted tax rates in 2023 were also impacted by tax planning initiatives, including a tax benefit of $127 million for U.S.

tax credits and the revaluation of net operating loss carryforwards due to higher tax rates as a result of its tax return resubmissions, a tax benefit of $91 million, net of related tax expenses, from a foreign exchange loss on an intercompany debt refinancing transaction, and $233 million of tax benefits resulting from intra-entity transactions.

The company’s GAAP and adjusted tax rates in 2022 were impacted by releases of valuation allowances of $189 million in jurisdictions where the deferred tax assets are now expected to be realized.

The company’s 2022 GAAP tax rate was also impacted by a net benefit of $208 million resulting from tax audit settlements (Note 8).

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

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

The company expects its GAAP effective tax rate in 2024 will be between 4% and 6% based on currently forecasted rates of profitability in the countries in which the company conducts business and expected generation of foreign tax credits.

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and on the statutory tax rates in those countries.

Based on the dispersion of the company’s non-U.S.

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dispersion of the company’s non-U.S.

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

Weighted average diluted shares decreased in 2023 compared to 2022 due to share repurchases, net of option dilution.

Liquidity and Capital Resources

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In addition, the company also transfers cash to the U.S.

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

using non-taxable intercompany transactions, including loans and returns of capital, as well as dividends where the related U.S.

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

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As of December 31, 2023, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

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(In millions) 2023 2022

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(5,142) (2,159)

Net cash (used in) provided by financing activities

Net cash used in financing activities

(3,622) (2,810)

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During 2023, cash provided by income was offset in part by investments in working capital.

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.

A decrease in inventories provided cash of $0.60 billion.

A decrease in accounts payable used cash of $0.50 billion, and changes in other assets and other liabilities used cash of $0.80 billion primarily due to the timing of payments for compensation and income taxes.

Cash payments for income taxes were $1.48 billion during 2023.

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An increase in accounts payable provided cash of $0.65 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 $1.23 billion during 2022.

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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.

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Investing Activities

During 2022, acquisitions used cash of $0.04 billion.

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.

During 2023, acquisitions of The Binding Site Group and CorEvitas, LLC used cash of $2.70 billion and $0.91 billion, respectively.

The company’s investing activities also included purchases of $1.48 billion of property, plant and equipment for capacity and capability investments.

During 2022 the company’s investing activities were principally for the purchase of property, plant and equipment for capacity and capability investments.

The company expects that for all of 2024, expenditures for property, plant and equipment, net of disposals, will be between $1.3 billion and $1.5 billion.

Financing Activities

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

During 2023, issuance of senior notes provided $5.94 billion of cash.

Repayment of senior notes and net commercial paper activity used cash of $5.78 billion and $0.32 billion, respectively.

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 $0.52 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.

On November 14, 2023, the Board of Directors announced that it replaced the existing authorization to repurchase the company’s common stock, of which $1.00 billion was remaining, with a new authorization to repurchase up to $4.00 billion of the company’s common stock.

Early in the first quarter of 2024, the company repurchased $3.00 billion (5.5 million shares) of the company's common stock.

At February 22, 2024, $1.00 billion was available for future repurchases of the company’s common stock under this authorization.

During 2022, issuance of senior notes provided $3.19 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.

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.

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).

In addition to the obligations on the balance sheet at December 31, 2023, which include, but are not limited to pension obligations (Note 7), unrecognized tax benefits (Note 8), debt (Note 10), operating leases (Note 11), and contingent consideration (Note 14), the company has also entered into an agreement to acquire Olink (Note 2).

The company also has unconditional purchase obligations in the ordinary course of business that include agreements to purchase goods, services or fixed assets, pay royalties, and fund capital commitments pursuant to investments held by the company (Note 12).

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/divestitures and foreign currency translation on

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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.

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impairments of long-lived assets;

and certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, including gains/losses on investments, the sale of businesses, product lines, and real estate, significant litigation-related matters, curtailments/settlements of pension plans, and the early retirement of debt.

and certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, including gains/losses on

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investments, the sale of businesses, product lines, and real estate, significant litigation-related matters, curtailments/settlements of pension plans, and the early retirement of debt.

We exclude these items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.

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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.

• The noncontrolling interest and 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.

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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.

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

(Dollars in millions except per share amounts) 2023 2022

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

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(Dollars in millions except per share amounts) 2022 2021

Reconciliation of adjusted tax rate

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Equity in earnings/losses of unconsolidated entities 0.15 0.44

Noncontrolling interests adjustments (f) (0.12) —

Adjusted EPS (non-GAAP measure)

$ 21.55 $ 23.24

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(Dollars in millions except per share amounts) 2023 2022

Reconciliation of free cash flow

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$ 7,014 $ 6,935

(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.

(a) Adjusted results in 2023 and in 2022 exclude charges for the sale of inventories revalued at the date of acquisition and charges for inventory write-downs associated with large-scale abandonment of product lines.

Adjusted results in 2023 also exclude $13 million of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations.

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

Adjusted results in 2023 also exclude $26 million of contract termination costs associated with facility closures, $19 million of net charges for pre-acquisition litigation and other matters, and $11 million of gains on the sale of real estate.

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).

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

Adjusted results in 2022 also exclude $67 million of net gains on derivative instruments to address certain foreign currency risks and $26 million of losses on the early extinguishment of debt.

(e) Adjusted results in 2023 and 2022 exclude 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 2023 also exclude $14 million of charges for pre-acquisition matters.

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

(f) Adjusted results exclude the incremental impacts for the reconciling items between GAAP and adjusted net income attributable to noncontrolling interests.

Critical Accounting Policies and Estimates

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

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

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

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Goodwill and Indefinite-lived Intangible Assets

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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.

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

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 2023, the date of the company’s annual impairment testing.

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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.

During its annual 2023 goodwill impairment assessments, the company determined that the excess of fair value over carrying value for one of the clinical research business’s reporting units had increased to 4%.

Despite this favorable increase, given that the fair value of the reporting unit was not substantially in excess of its carrying value as of the annual 2023 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 unit had $3.95 billion of goodwill, and an overall carrying value of $5.54 billion as of December 31, 2023.

Definite-lived Intangible Assets

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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).

In these situations, the company considers the asset groups to be the units of account for impairment testing.

The company recorded definite-lived intangible asset impairments of $0.01 billion and $0.12 billion in 2023 and 2021, respectively (Note 16).

Unrecognized Tax Benefits

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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 $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’s liability for these unrecognized tax benefits totaled $0.54 billion at December 31, 2023, compared to $0.57 billion at December 31, 2022, primarily as a result of an audit settlement (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.

tax authorities, as well as to tax agreements and treaties among these governments.

Determination of taxable income in any jurisdiction requires the company to interpret the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits.

THERMO FISHER SCIENTIFIC INC.

revenue recognition methods under the tax law and the sources and character of income and tax credits.

Changes in tax laws, regulations, agreements and treaties, currency exchange restrictions or the company’s level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and hence the company’s net income.

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

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).

The company’s tax valuation allowance totaled $1.32 billion at both December 31, 2023 and December 31, 2022 (Note 8).

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

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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-K

Item 7. Management’s Discussion and Analysis