What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 77 added, 154 removed, 235 unchanged (50% of the section changed)

29 unchanged sentences

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.”

Certain amounts and percentages reported within this Quarterly Report on Form 10-Q are presented and calculated based on underlying unrounded amounts.

As a result, the sum of components may not equal corresponding totals due to rounding.

Thermo Fisher Scientific Inc.

4 unchanged sentences

Consolidated Results

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

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

Three months ended

March 30, April 1,

(Dollars in millions except per share amounts) 2024 2023 Change

$ 10,345 $ 10,710 (3) %

GAAP operating income 1,663 1,563 6 %

GAAP operating income margin 17.6 % 16.0 % 1.6 pt 15.7 % 19.5 % (3.8) pt

GAAP operating income margin 16.1 % 14.6 % 1.5 pt

Adjusted operating income (non-GAAP measure)

1 unchanged sentence

Adjusted operating income margin (non-GAAP measure)

24.2 % 22.2 % 2.0 pt 22.7 % 25.2 % (2.5) pt

22.0 % 21.8 % 0.2 pt

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

4 unchanged sentences

Organic Revenue Growth

Three months ended Nine months ended

September 30, 2023 September 30, 2023

Three months ended

March 30, 2024

Revenue growth (3) %

2 unchanged sentences

Organic revenue growth (non-GAAP measure)

* 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 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.

Since 2020, the Life Sciences Solutions and Specialty Diagnostics segments as well as the laboratory products business have supported COVID-19 diagnostic testing.

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.

1 unchanged sentence

These positive impacts are expected to continue at much lower levels in 2024 as customer testing as well as therapy and vaccine demand declines.

Sales of products related to COVID-19 testing were $0.05 billion and $0.44 billion in the third quarter of 2023 and 2022, respectively, and $0.27 billion and $2.75 billion in the first nine months of 2023 and 2022, respectively.

During the third quarter of 2023, growth declined slightly from pharma and biotech customers driven by lower demand associated with COVID-19 vaccine and therapies as well as the continued impact on customers from a more challenging macroeconomic environment and low economic activity in China.

We saw very strong growth from academic and government customers, with strong adoption of our high-impact innovation.

The industrial and applied market was flat, driven by more challenging macroeconomic environment and low economic activity in China.

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

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

Sales growth in all regions was impacted by decreased demand in 2023 for COVID-19 related products and the impact on customers from a more challenging macroeconomic environment.

Asia Pacific was impacted by low economic activity in China.

Contributions to organic revenue during the third quarter of 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.

During the first nine months of 2023, we saw slight growth from pharma and biotech customers driven by our trusted partner status, partially offset by the impact on customers from a more challenging macroeconomic environment and low economic activity in China.

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.

Sales of products related to COVID-19 testing were $0.03 billion and $0.14 billion in the first quarter of 2024 and 2023, respectively.

During the first quarter of 2024, revenues from pharma and biotech customers declined due to reduced demand for our products and services that support COVID-19 vaccines and therapies as well as a challenging macroeconomic environment and low economic activity in China, partially offset through strong commercial execution.

Revenues in the academic and government as well as the industrial and applied markets declined due to strong shipments of analytical instruments to customers in these markets in the first quarter of 2023 as we fulfilled backlog that had been caused by pandemic-related supply chain disruptions.

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

During the first nine months of 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 the first nine months 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.

During the first quarter of 2024, 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 the first quarter of 2024 from the Specialty Diagnostics segment was more than offset by declines in the Life Sciences Solutions, Laboratory Products and Biopharma Services and Analytical Instruments segments.

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

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• Our unparalleled commercial engine.

GAAP operating income margin and adjusted operating income margin increased in the third quarter of 2023 due primarily to exceptionally strong productivity improvements and good price realization, partially offset by lower COVID-19 related revenue.

GAAP operating income margin and adjusted operating income margin decreased in the first nine months of 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 the third quarter and first nine months of 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 12).

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,

THERMO FISHER SCIENTIFIC INC.

as well as incentive compensation and recognition for employees.

GAAP operating income margin and adjusted operating income margin increased in the first quarter of 2024 due primarily to exceptionally strong productivity improvements, partially offset by unfavorable business mix and strategic investments.

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.

The company’s references to strategic 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.

4 unchanged sentences

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.

THERMO FISHER SCIENTIFIC INC.

Segment Results

1 unchanged sentence

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

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

Three months ended

March 30, April 1,

(Dollars in millions) 2024 2023

2 unchanged sentences

Analytical Instruments

1,754 1,621 5,226 4,746

Specialty Diagnostics

1,083 1,065 3,300 3,648

Laboratory Products and Biopharma Services

5,728 5,585 17,322 16,564

(424) (556) (1,385) (1,978)

Consolidated revenues

2 unchanged sentences

Three months ended Organic (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 2,433 $ 2,962 (18) % 1 % 0 % (19) %

Segment income 872 1,039 (16) %

Segment income margin 35.9 % 35.1 % 0.8 pt

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

The increase in segment income margin resulted primarily from exceptionally strong productivity improvements, good price realization, and favorable effects of currency translation, partially offset by significantly lower COVID-19 related revenue and business mix.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

(Dollars in millions) March 30,

2024 April 1,

Change Currency

3 unchanged sentences

Segment income margin 36.8 % 32.0 % 4.8 pt

The decrease in organic revenues in the first nine months of 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 business mix, partially offset by very strong productivity improvements and good price realization.

THERMO FISHER SCIENTIFIC INC.

The decrease in organic revenues in the first quarter of 2024 was primarily due to moderation in COVID-19 related revenue, as well as lower levels of activity in the bioproduction business.

The increase in segment income margin resulted primarily from exceptionally strong productivity improvements and strong pricing realization, partially offset by unfavorable volume pull-through.

Analytical Instruments

Three months ended Organic (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 1,754 $ 1,621 8 % 1 % 0 % 8 %

Segment income 468 386 21 %

Segment income margin 26.7 % 23.8 % 2.9 pt

The increase in organic revenues in the third quarter of 2023 was led by the electron microscopy business.

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

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

(Dollars in millions) March 30,

2024 April 1,

Change Currency

3 unchanged sentences

Segment income margin 23.7 % 24.4 % (0.7) pt

The increase in organic revenues in the first nine months of 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 very strong productivity improvements, strong volume, strong pricing realization to address higher inflation, offset in part by the effects of currency translation and strategic growth investments.

The decrease in organic revenues in the first quarter of 2024 was primarily due to the impact of strong instrument shipments in the first quarter of 2023, largely offset by very strong growth in the electron microscopy business.

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

Specialty Diagnostics

Three months ended Organic (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 1,083 $ 1,065 2 % 1 % 6 % (6) %

Segment income 283 220 29 %

Segment income margin 26.1 % 20.6 % 5.5 pt

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

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

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

(Dollars in millions) March 30,

2024 April 1,

Change Currency

3 unchanged sentences

Segment income margin 26.5 % 25.3 % 1.2 pt

The decrease in organic revenues in the first nine months of 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 and very strong productivity improvements, partially offset by the impact of lower COVID-19 testing volume.

Organic revenues in the first quarter of 2024 were flat when compared to the first quarter of 2023, with strong underlying growth in the transplant diagnostics, immunodiagnostics, and healthcare market channel businesses, offset by decreased demand for products addressing diagnosis of COVID-19.

The increase in segment income margin was due to favorable business mix and good productivity improvements, partially offset by strategic investments.

THERMO FISHER SCIENTIFIC INC.

1 unchanged sentence

Three months ended Organic (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

Translation Acquisitions/ Divestitures

Revenues $ 5,728 $ 5,585 3 % 1 % 0 % 1 %

Segment income 937 725 29 %

Segment income margin 16.4 % 13.0 % 3.4 pt

The increase in organic revenues in the third 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 exceptionally strong productivity improvements and favorable business mix, partially offset by effects of currency translation.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

(Dollars in millions) March 30,

2024 April 1,

Change Currency

3 unchanged sentences

Segment income margin 13.0 % 13.8 % (0.8) pt

The increase in organic revenues in the first nine months 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 very strong productivity improvements.

* Results may not sum due to rounding

The decrease in organic revenues in the first quarter of 2024 was primarily due to decreased demand in COVID-19 vaccines and therapies, partially offset by strong growth in the clinical research business.

The decrease in segment income margin was primarily due to unfavorable business mix and strategic investments, partially offset by strong productivity improvements.

Non-operating Items

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

Three months ended

March 30, April 1,

(Dollars and shares in millions) 2024 2023

Net interest expense

$ 113 $ 105 $ 415 $ 335

GAAP other income/(expense) 10 (46)

4 unchanged sentences

Weighted average diluted shares 384 388

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).

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

In the third quarter and first nine months of 2023, the company’s net interest expense was reduced by approximately $34 million and $62 million, respectively, as a result of its interest rate swap and cross-currency interest rate swap arrangements (Note 10).

Net interest expense (interest expense less interest income) decreased due primarily to higher cash, and cash equivalents and short-term investments balances, as well as higher interest rates on these balances when compared to the first quarter of 2023.

In the first quarter of 2024 and 2023, the company’s net interest expense was reduced by approximately $65 million and $17 million, respectively, as a result of its interest rate swap and cross-currency interest rate swap arrangements (Note 10).

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 2023 also includes $10 million and $(33) million of net gains/(losses) on investments, respectively.

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 first nine months of 2022 also includes $26 million of losses on the early extinguishment of debt (Note 7).

The GAAP and adjusted tax rates in 2023 were impacted by the release of a valuation allowance of $183 million in the third quarter of 2023 in jurisdictions 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 $91 million, net of related tax expenses, from a foreign exchange loss on an intercompany debt refinancing transaction in the second quarter of 2023, as well as a $144 million tax benefit resulting from a capital loss generated in the first quarter of 2023 as part of an intra-entity transaction.

The company’s GAAP and adjusted tax rates in 2022 were impacted by 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 a net benefit of $208 million resulting from tax audit settlements in the third quarter of 2022 (Note 5).

THERMO FISHER SCIENTIFIC INC.

GAAP other income/(expense) in the first quarter of 2024 and 2023 also includes $10 million and $(43) million, respectively, of net gains/(losses) on investments.

The company’s GAAP tax rate increased in the first quarter of 2024 compared to 2023 due to $176 million of expense, net, primarily for a provision associated with a tax audit recorded in the first quarter of 2024.

The company’s 2024 and 2023 GAAP and adjusted tax rates were also impacted by $102 million and $144 million, respectively, of tax benefits resulting from capital losses generated as part of intra-entity transactions (Note 5).

The effective tax rates in both 2024 and 2023 were also affected by relatively significant earnings in lower tax jurisdictions.

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

(In millions) September 30, 2023 December 31, 2022

THERMO FISHER SCIENTIFIC INC.

(In millions) March 30, 2024 December 31, 2023

Cash and cash equivalents $ 5,499 $ 8,077

Short-term investments 1,751 3

Total debt 35,608 34,917

4 unchanged sentences

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.

2 unchanged sentences

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 September 30, 2023, the company’s short-term debt totaled $4.80 billion.

As of March 30, 2024, the company’s short-term obligations and current maturities of long-term obligations totaled $4.45 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 September 30, 2023, 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) September 30, 2023 October 1, 2022

As of March 30, 2024, 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) March 30, 2024 April 1, 2023

Net cash provided by operating activities

6 unchanged sentences

Operating Activities

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

During the first three months of 2024, cash provided by income was offset in part by investments in working capital.

Changes in other assets and other liabilities used cash of $0.57 billion primarily due to the timing of payments for compensation and income taxes.

A decrease in accounts payable used cash of $0.74 billion.

Cash payments for income taxes were $1.17 billion during the first nine months of 2023.

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

An increase in inventories used cash of $1.12 billion, primarily to support growth in sales.

Changes in other assets and other

THERMO FISHER SCIENTIFIC INC.

liabilities used cash of $0.73 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.

Cash payments for income taxes were $0.65 billion during the first three months of 2024.

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 $1.31 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.

Investing Activities

During the first nine months of 2023, acquisitions used cash of $3.66 billion.

During the first three months of 2024, purchases of short-term investments used cash of $1.76 billion.

The company’s investing activities also included purchases of $0.35 billion of property, plant and equipment for capacity and capability investments.

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

During the first three months of 2023, the acquisition of The Binding Site Group used cash of $2.70 billion.

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

1 unchanged sentence

Financing Activities

During the first nine months of 2023, repayment of senior notes and net commercial paper activity used cash of $2.00 billion and $0.32 billion, respectively.

Issuance of debt provided $3.47 billion of cash.

During the first three months of 2024, issuance of debt provided $1.20 billion of cash.

The company’s financing activities also included the repurchase of $3.00 billion of the company’s common stock (5.5 million shares) and the payment of $0.14 billion in cash dividends.

On November 10, 2022, the Board of Directors authorized the repurchase of up to $4.00 billion 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.

All of the shares of common stock repurchased by the company during the first quarter of 2024 were under this program.

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.

At May 3, 2024, authorization remained for $1.00 billion of future repurchases of the company’s common stock.

THERMO FISHER SCIENTIFIC INC.

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.

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially subsequent to September 30, 2023, except for the agreement to acquire Olink (Note 2).

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments, including the agreement to acquire Olink (Note 2), did not change materially subsequent to March 30, 2024.

Non-GAAP Measures

2 unchanged sentences

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.

We report adjusted operating income, adjusted operating income margin, adjusted other income/(expense), adjusted tax rate, and adjusted EPS.

We report adjusted operating income, adjusted operating margin, adjusted other income/(expense), adjusted tax rate, and adjusted EPS.

We believe that the use of these non-GAAP financial measures, in addition to GAAP financial measures, helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company’s core operating performance, especially when comparing such results to previous periods, forecasts, and to the performance of our competitors.

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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.

THERMO FISHER SCIENTIFIC INC.

• 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.

4 unchanged sentences

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.

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

THERMO FISHER SCIENTIFIC INC.

Three months ended

March 30, April 1,

(Dollars in millions except per share amounts) 2024 2023

4 unchanged sentences

Selling, general and administrative expenses adjustments (b)

14 11 28 (10)

Restructuring and other costs (c)

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

$ 5 $ 10 $ 4 $ 24

Reconciliation of adjusted tax rate

13 unchanged sentences

Equity in earnings/losses of unconsolidated entities (0.06) 0.06

Noncontrolling interests adjustments (f) (0.05) 0.00 (0.05) 0.00

Adjusted EPS (non-GAAP measure)

$ 5.11 $ 5.03

THERMO FISHER SCIENTIFIC INC.

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

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

Reconciliation of free cash flow

3 unchanged sentences

Free cash flow (non-GAAP measure)

$ 2,148 $ 1,394 $ 3,685 $ 3,992

(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 the third quarter and first nine months of 2023 also exclude $5 million and $10 million, respectively, 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, abandoned facility and other expenses of headcount reductions and real estate consolidations.

Adjusted results in the third quarter of 2023 also exclude $5 million of net gains on the sale of real estate.

Adjusted results in the first nine months of 2023 also exclude $26 million of contract termination costs associated with facility closures, $18 million of net charges for pre-acquisition litigation and other matters, and $8 million of net gains on the sale of real estate.

(a) Adjusted results in 2024 and 2023 exclude charges for inventory write-downs associated with large-scale abandonment of product lines.

Adjusted results in 2023 exclude $10 million of charges for the sale of inventory revalued at the date of acquisition.

(b) Adjusted results in 2024 and 2023 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 2024 and 2023 exclude restructuring and other costs consisting principally of severance, impairments of long-lived assets, abandoned facilities, 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 2024 and 2023 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 (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.

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

(e) Adjusted results in 2024 and 2023 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.

THERMO FISHER SCIENTIFIC INC.

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 2023 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 2023.

There have been no significant changes in the company’s critical accounting policies during the first three months of 2024.

Recent Accounting Pronouncements

3 unchanged sentences

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