THERMO FISHER SCIENTIFIC INC. [TMO] Filings

10-Q 1 tmo-20220702.htm 10-Q tmo-20220702

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended July 2, 2022 or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-8002

THERMO FISHER SCIENTIFIC INC.

(Exact name of Registrant as specified in its charter)


Delaware			04-2209186
(State of incorporation)			(I.R.S. Employer Identification No.)

168 Third Avenue

Waltham, Massachusetts 02451

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (781) 622-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

TMO

New York Stock Exchange

0.750% Notes due 2024

TMO 24A

New York Stock Exchange

0.125% Notes due 2025

TMO 25B

New York Stock Exchange

2.000% Notes due 2025

TMO 25

New York Stock Exchange

1.400% Notes due 2026

TMO 26A

New York Stock Exchange

1.450% Notes due 2027

TMO 27

New York Stock Exchange

1.750% Notes due 2027

TMO 27B

New York Stock Exchange

0.500% Notes due 2028

TMO 28A

New York Stock Exchange

1.375% Notes due 2028

TMO 28

New York Stock Exchange

1.950% Notes due 2029

TMO 29

New York Stock Exchange

0.875% Notes due 2031

TMO 31

New York Stock Exchange

2.375% Notes due 2032

TMO 32

New York Stock Exchange

2.875% Notes due 2037

TMO 37

New York Stock Exchange

1.500% Notes due 2039

TMO 39

New York Stock Exchange

1.875% Notes due 2049

TMO 49

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 2, 2022, the Registrant had 391,788,962 shares of Common Stock outstanding.

THERMO FISHER SCIENTIFIC INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JULY 2, 2022


TABLE OF CONTENTS
		Page
PART I

Item 1.	Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

PART II

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31



Item 6.	Exhibits	31

THERMO FISHER SCIENTIFIC INC.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)


	July 2,		December 31,
(In millions except share and per share amounts)	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	1,888	$	4,477
Accounts receivable, less allowances of $177 and $150	7,745		7,977
Inventories	5,668		5,051
Contract assets, net	1,147		968

Other current assets	1,652		1,640
Total current assets	18,100		20,113
Property, plant and equipment, net	8,529		8,333
Acquisition-related intangible assets, net	18,578		20,113
Other assets	4,306		4,640
Goodwill	41,066		41,924
Total assets	$	90,579	$	95,123

Liabilities, redeemable noncontrolling interest and equity
Current liabilities:
Short-term obligations and current maturities of long-term obligations	$	1,010	$	2,537
Accounts payable	2,586		2,867
Accrued payroll and employee benefits	1,722		2,427
Contract liabilities	2,722		2,655
Other accrued expenses	2,957		2,950
Total current liabilities	10,997		13,436
Deferred income taxes	3,327		3,837
Other long-term liabilities	4,534		4,540
Long-term obligations	29,250		32,333
Redeemable noncontrolling interest	117		122
Equity:
Thermo Fisher Scientific Inc. shareholders’ equity:
Preferred stock, $100 par value, 50,000 shares authorized; none issued	—		—
Common stock, $1 par value, 1,200,000,000 shares authorized; 439,863,357 and 439,154,741 shares issued	440		439
Capital in excess of par value	16,467		16,174
Retained earnings	39,074		35,431
Treasury stock at cost, 48,074,395 and 44,720,112 shares	(10,964)		(8,922)
Accumulated other comprehensive items	(2,724)		(2,329)
Total Thermo Fisher Scientific Inc. shareholders’ equity	42,293		40,793
Noncontrolling interests	61		62
Total equity	42,354		40,855
Total liabilities, redeemable noncontrolling interest and equity	$	90,579	$	95,123

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)


	Three months ended				Six months ended
	July 2,		July 3,		July 2,		July 3,
(In millions except per share amounts)	2022		2021		2022		2021
Revenues
Product revenues	$	7,003	$	7,214	$	15,020	$	15,070
Service revenues	3,967		2,059		7,768		4,109
Total revenues	10,970		9,273		22,788		19,179

Costs and operating expenses:
Cost of product revenues	3,516		3,352		7,071		6,679
Cost of service revenues	2,855		1,397		5,654		2,767
Selling, general and administrative expenses	2,209		1,899		4,486		3,725
Research and development expenses	365		343		729		663
Restructuring and other costs	24		119		26		133
Total costs and operating expenses	8,969		7,110		17,966		13,967
Operating income	2,001		2,163		4,822		5,212
Interest income	36		11		54		23
Interest expense	(148)		(122)		(284)		(247)
Other income/(expense)	28		(3)		(135)		(186)
Income before income taxes	1,917		2,049		4,457		4,802
Provision for income taxes	(198)		(219)		(499)		(635)
Equity in earnings/(losses) of unconsolidated entities	(51)		(1)		(70)		(1)
Net income	1,668		1,829		3,888		4,166
Less: net income attributable to noncontrolling interests and redeemable noncontrolling interest	4		1		9		1
Net income attributable to Thermo Fisher Scientific Inc.	$	1,664	$	1,828	$	3,879	$	4,165

Earnings per share attributable to Thermo Fisher Scientific Inc.
Basic	$	4.25	$	4.65	$	9.90	$	10.58
Diluted	$	4.22	$	4.61	$	9.83	$	10.50

Weighted average shares
Basic	392		393		392		394
Diluted	394		396		394		397

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended				Six months ended
	July 2,		July 3,		July 2,		July 3,
(In millions)	2022		2021		2022		2021
Comprehensive income
Net income	$	1,668	$	1,829	$	3,888	$	4,166
Other comprehensive items:
Currency translation adjustment:
Currency translation adjustment (net of tax provision (benefit) of $173, $(23), $262 and $95)	(386)		(71)		(416)		153

Unrealized gains and losses on hedging instruments:

Reclassification adjustment for losses included in net income (net of tax benefit of $1, $1, $1 and $5)	—		1		1		14
Pension and other postretirement benefit liability adjustments:
Pension and other postretirement benefit liability adjustments arising during the period (net of tax (provision) benefit of $(2), $0, $(3) and $(2))	6		(2)		9		4
Amortization of net loss included in net periodic pension cost (net of tax benefit of $1, $1, $2 and $2)	2		4		4		6
Total other comprehensive items	(378)		(68)		(402)		177
Comprehensive income	1,290		1,761		3,486		4,343
Less: comprehensive income/(loss) attributable to noncontrolling interests and redeemable noncontrolling interest	7		1		2		1
Comprehensive income attributable to Thermo Fisher Scientific Inc.	$	1,283	$	1,760	$	3,484	$	4,342

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


	Six months ended
	July 2,		July 3,
(In millions)	2022		2021
Operating activities
Net income	$	3,888	$	4,166
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	486		409
Amortization of acquisition-related intangible assets	1,209		872
Change in deferred income taxes	(601)		(307)

Loss on early extinguishment of debt	26		197
Stock-based compensation	155		102
Other non-cash expenses, net	291		213
Changes in assets and liabilities, excluding the effects of acquisitions	(1,724)		(1,447)
Net cash provided by operating activities	3,730		4,205

Investing activities
Acquisitions, net of cash acquired	(40)		(1,425)

Purchase of property, plant and equipment	(1,146)		(1,168)
Proceeds from sale of property, plant and equipment	14		5
Other investing activities, net	83		(36)
Net cash used in investing activities	(1,089)		(2,624)

Financing activities

Repayment of debt	(375)		(2,803)
Proceeds from issuance of commercial paper	1,032		—
Repayments of commercial paper	(3,490)		—
Purchases of company common stock	(2,000)		(2,000)
Dividends paid	(220)		(190)
Net proceeds from issuance of company common stock under employee stock plans	51		72
Other financing activities, net	(48)		(5)
Net cash used in financing activities	(5,050)		(4,926)

Exchange rate effect on cash	(177)		44
Decrease in cash, cash equivalents and restricted cash	(2,586)		(3,301)
Cash, cash equivalents and restricted cash at beginning of period	4,491		10,336
Cash, cash equivalents and restricted cash at end of period	$	1,905	$	7,035

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

(Unaudited)


	Redeemable Noncontrolling Interest		Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Total Thermo Fisher Scientific Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
(In millions)			Shares	Amount						Shares	Amount

			Three months ended July 2, 2022
Balance at April 2, 2022	$	113	440	$	440	$	16,292	$	37,528	48	$	(10,961)	$	(2,343)	$	40,956	$	62	$	41,018
Issuance of shares under employees' and directors' stock plans	—		—	—		98		—		—	(3)		—		95		—		95
Stock-based compensation	—		—	—		77		—		—	—		—		77		—		77

Dividends declared ($0.30 per share)	—		—	—		—		(118)		—	—		—		(118)		—		(118)
Net income	4		—	—		—		1,664		—	—		—		1,664		—		1,664
Other comprehensive items	4		—	—		—		—		—	—		(381)		(381)		(1)		(382)
Contributions from (distributions to) noncontrolling interests	(4)		—	—		—		—		—	—		—		—		—		—
Balance at July 2, 2022	$	117	440	$	440	$	16,467	$	39,074	48	$	(10,964)	$	(2,724)	$	42,293	$	61	$	42,354

			Three months ended July 3, 2021
Balance at April 3, 2021	$	—	438	$	438	$	15,684	$	30,350	45	$	(8,852)	$	(2,562)	$	35,058	$	10	$	35,068

Issuance of shares under employees' and directors' stock plans	—		—	—		91		—		—	(4)		—		87		—		87
Stock-based compensation	—		—	—		51		—		—	—		—		51		—		51

Dividends declared ($0.26 per share)	—		—	—		—		(102)		—	—		—		(102)		—		(102)
Net income	—		—	—		—		1,828		—	—		—		1,828		1		1,829
Other comprehensive items	—		—	—		—		—		—	—		(68)		(68)		—		(68)
Contributions from (distributions to) noncontrolling interests	—		—	—		—		—		—	—		—		—		36		36
Balance at July 3, 2021	$	—	438	$	438	$	15,826	$	32,076	45	$	(8,856)	$	(2,630)	$	36,854	$	47	$	36,901

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE NONCONTROLLING INTEREST AND EQUITY (Continued)

(Unaudited)


	Redeemable Noncontrolling Interest		Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Total Thermo Fisher Scientific Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
(In millions)			Shares	Amount						Shares	Amount
























			Six months ended July 2, 2022
Balance at December 31, 2021	$	122	439	$	439	$	16,174	$	35,431	45	$	(8,922)	$	(2,329)	$	40,793	$	62	$	40,855

Issuance of shares under employees' and directors' stock plans	—		1	1		138		—		—	(42)		—		97		—		97
Stock-based compensation	—		—	—		155		—		—	—		—		155		—		155
Purchases of company common stock	—		—	—		—		—		3	(2,000)		—		(2,000)		—		(2,000)
Dividends declared ($0.60 per share)	—		—	—		—		(236)		—	—		—		(236)		—		(236)

Net income	9		—	—		—		3,879		—	—		—		3,879		—		3,879
Other comprehensive items	(7)		—	—		—		—		—	—		(395)		(395)		—		(395)
Contributions from (distributions to) noncontrolling interests	(7)		—	—		—		—		—	—		—		—		(1)		(1)

Balance at July 2, 2022	$	117	440	$	440	$	16,467	$	39,074	48	$	(10,964)	$	(2,724)	$	42,293	$	61	$	42,354

			Six months ended July 3, 2021
Balance at December 31, 2020	$	—	437	$	437	$	15,579	$	28,116	40	$	(6,818)	$	(2,807)	$	34,507	$	10	$	34,517

Issuance of shares under employees' and directors' stock plans	—		1	1		145		—		1	(38)		—		108		—		108
Stock-based compensation	—		—	—		102		—		—	—		—		102		—		102
Purchases of company common stock	—		—	—		—		—		4	(2,000)		—		(2,000)		—		(2,000)
Dividends declared ($0.52 per share)	—		—	—		—		(205)		—	—		—		(205)		—		(205)
Net income	—		—	—		—		4,165		—	—		—		4,165		1		4,166
Other comprehensive items	—		—	—		—		—		—	—		177		177		—		177
Contributions from (distributions to) noncontrolling interests	—		—	—		—		—		—	—		—		—		36		36
Balance at July 3, 2021	$	—	438	$	438	$	15,826	$	32,076	45	$	(8,856)	$	(2,630)	$	36,854	$	47	$	36,901

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERMO FISHER SCIENTIFIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Thermo Fisher Scientific Inc. (the company or Thermo Fisher) enables customers to make the world healthier, cleaner and safer by helping them accelerate life sciences research, solve complex analytical challenges, increase laboratory productivity, and improve patient health through diagnostics and the development and manufacture of life-changing therapies. Markets served include pharmaceutical and biotech, academic and government, industrial and applied, as well as healthcare and diagnostics.

Interim Financial Statements

The interim condensed consolidated financial statements presented herein have been prepared by the company, are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at July 2, 2022, the results of operations for the three- and six-month periods ended July 2, 2022 and July 3, 2021, and the cash flows for the six-month periods ended July 2, 2022 and July 3, 2021. Interim results are not necessarily indicative of results for a full year.

The condensed consolidated balance sheet presented as of December 31, 2021, has been derived from the audited consolidated financial statements as of that date. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the company. The condensed consolidated financial statements and notes included in this report should be read in conjunction with the 2021 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

Note 1 to the consolidated financial statements for 2021 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the company’s significant accounting policies during the six months ended July 2, 2022.

Inventories

The components of inventories are as follows:


	July 2,		December 31,
(In millions)	2022		2021
Raw materials	$	2,335	$	1,922
Work in process	699		676
Finished goods	2,634		2,453
Inventories	$	5,668	$	5,051

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The company’s estimates include, among others, asset reserve requirements as well as the amounts of future cash flows associated with certain assets and businesses that are used in assessing the risk of impairment. The negative impacts associated with the ongoing COVID-19 global pandemic significantly lessened in 2021 and 2022. The extent and duration of negative impacts in the future, which may include inflationary pressures and supply chain disruptions, are uncertain and may require changes to estimates. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In November 2021, the FASB issued new guidance to require entities to disclose information about certain types of government assistance they receive, including cash grants and tax credits. Among other things, the new guidance requires expanded disclosure regarding the qualitative and quantitative characteristics of the nature, amount, timing, and significant terms and conditions of transactions with a government arising from a grant or other forms of assistance accounted for under a contribution model. The company will adopt this guidance in the fourth quarter of 2022 using a prospective method. The adoption of this guidance is not expected to have a material impact on the company’s disclosures; however, the impact in future periods will be dependent on the extent of transactions of this nature entered into by the company.

THERMO FISHER SCIENTIFIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Acquisitions

The company’s acquisitions have historically been made at prices above the determined fair value of the acquired identifiable net assets, resulting in goodwill, primarily due to expectations of the synergies that will be realized by combining the businesses and the benefits that will be gained from the assembled workforces. These synergies include the elimination of redundant facilities, functions and staffing; use of the company’s existing commercial infrastructure to expand sales of the acquired businesses’ products and services; and use of the commercial infrastructure of the acquired businesses to cost-effectively expand sales of company products and services.

Acquisitions have been accounted for using the acquisition method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition.

2022

In 2022, the company acquired, within the Analytical Instruments segment, a U.S.-based developer of Fourier-transform infrared gas analysis technologies.

2021

The preliminary allocations of the purchase price for the acquisitions of the Lengnau biologics manufacturing facility, PPD, Inc. and PeproTech, Inc. were based on estimates of the fair values of the net assets acquired and are subject to adjustment upon finalization, largely with respect to acquired intangible assets, lease assets and liabilities, and the related deferred taxes. Measurements of these items inherently require significant estimates and assumptions. During the first six months of 2022, the company adjusted the preliminary allocations of PPD and PeproTech, which among others increased goodwill ($95 million) and other liabilities assumed ($22 million), and decreased definite-lived intangible assets ($43 million), other current assets ($34 million), contract liabilities ($29 million), equity method investments ($23 million), and the fair value of assumed contingent consideration ($18 million). The adjustment to amortization expense recorded during the first six months of 2022 was not material.

Note 3. Revenues and Contract-related Balances

Disaggregated Revenues

Revenues by type are as follows:


	Three months ended				Six months ended
	July 2,		July 3,		July 2,		July 3,
(In millions)	2022		2021		2022		2021
Revenues
Consumables	$	4,993	$	5,372	$	11,103	$	11,336
Instruments	2,010		1,842		3,917		3,734
Services	3,967		2,059		7,768		4,109
Consolidated revenues	$	10,970	$	9,273	$	22,788	$	19,179

Revenues by geographic region based on customer location are as follows:

Three months ended

Six months ended

July 2,

July 3,

July 2,

July 3,

(In millions)

2022

2021

2022

2021