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THERMO FISHER SCIENTIFIC

(TMO)
  Report
Delayed Nyse  -  04:00 2022-09-28 pm EDT
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THERMO FISHER SCIENTIFIC INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2022 | 12:39pm EDT
Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934 (the Exchange Act), are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements, including without limitation statements
regarding: projections of revenues, expenses, earnings, margins, tax rates, tax
provisions, cash flows, pension and benefit obligations and funding
requirements, and our liquidity position; cost reductions, restructuring
activities, new product and service developments, competitive strengths or
market position, acquisitions or divestitures; growth, declines and other trends
in markets we sell into; new or modified laws, regulations and accounting
pronouncements; outstanding claims, legal proceedings, tax audits and
assessments and other contingent liabilities; foreign currency exchange rates
and fluctuations in those rates; general economic and capital markets
conditions; the timing of any of the foregoing; assumptions underlying any of
the foregoing; the expected impact of the COVID-19 pandemic on the company's
business; and any other statements that address events or developments that
Thermo Fisher intends or believes will or may occur in the future. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
"seeks," "estimates," and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements are
accompanied by such words. While the company may elect to update forward-looking
statements in the future, it specifically disclaims any obligation to do so,
even if the company's estimates change, and readers should not rely on those
forward-looking statements as representing the company's views as of any date
subsequent to the date of the filing of this report.

A number of important factors could cause the results of the company to differ
materially from those indicated by such forward-looking statements, including
those detailed under the caption "Risk Factors" in the company's   Annual Report
on Form 10-K   for the year ended December 31, 2021 (which is on file with the
SEC). Important factors that could cause actual results to differ materially
from those indicated by forward-looking statements include risks and
uncertainties relating to: the duration and severity of the COVID-19 pandemic;
the need to develop new products and adapt to significant technological change;
implementation of strategies for improving growth; general economic conditions
and related uncertainties; dependence on customers' capital spending policies
and government funding policies; the effect of economic and political conditions
and exchange rate fluctuations on international operations; use and protection
of intellectual property; the effect of changes in governmental regulations; any
natural disaster, public health crisis or other catastrophic event; and the
effect of laws and regulations governing government contracts, as well as the
possibility that expected benefits related to recent or pending acquisitions may
not materialize as expected.

The company refers to various amounts or measures not prepared in accordance
with generally accepted accounting principles (non-GAAP measures). These
non-GAAP measures are further described and reconciled to their most directly
comparable amount or measure under the section "  Non-GAAP Measures  " later in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Overview

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 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. The company's operations fall into four segments (Note 4): Life
Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory
Products and Biopharma Services.

                                       21

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                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview (continued)

Financial Highlights

                                                          Three months ended                                        Six months ended
                                               July 2,          July 3,                                July 2,           July 3,
(Dollars in millions except per
share amounts)                                    2022             2021               Change              2022              2021               Change
Revenues                                   $ 10,970          $ 9,273                 18    %       $ 22,788          $ 19,179                 19    %
GAAP operating income                         2,001            2,163                 (7)   %          4,822             5,212                 (7)   %
GAAP operating income margin                   18.2  %          23.3  %            (5.1)  pt           21.2  %           27.2  %            (6.0)  pt
Adjusted operating income (non-GAAP
measure)                                      2,605            2,689                 (3)   %          6,055             6,199                 (2)   %
Adjusted operating income margin
(non-GAAP measure)                             23.7  %          29.0  %            (5.3)  pt           26.6  %           32.3  %            (5.7)  pt
GAAP diluted earnings per share
attributable to Thermo Fisher
Scientific Inc.                                4.22             4.61                 (8)   %           9.83             10.50                 (6)   %
Adjusted earnings per share
(non-GAAP measure)                             5.51             5.60                 (2)   %          12.76             12.81                  -    %


Organic Revenue Growth
                                                 Three months ended      Six months ended
                                                        July 2, 2022          July 2, 2022
Revenue growth                                                 18  %                 19  %
Impact of acquisitions                                         19  %                 19  %
Impact of currency translation                                 (4) %                 (3) %
Organic revenue growth* (non-GAAP measure)                      3  %                  3  %


*  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 2022, the duration and extent of future revenues from such sales are
uncertain and dependent primarily on customer testing as well as therapy and
vaccine demand. Sales of products related to COVID-19 testing were $0.63 billion
and $1.42 billion in the second quarter of 2022 and 2021, respectively, and
$2.31 billion and $3.87 billion in the first six months of 2022 and 2021,
respectively.

During the second quarter and first six months of 2022, demand from biotech and
pharma customers was very strong, driven by our unique value proposition and
trusted partner status. We saw growth in the academic and government market as
we remain well positioned to meet customer needs. The industrial and applied
market was strong, led by robust demand from semiconductor and materials
sciences customers. The diagnostics and healthcare market declined due to
decreased demand for COVID-19 testing products. During the second quarter and
first six months of 2022, sales growth was strong in the Asia Pacific region,
particularly China, and in North America. Sales declined in Europe during the
second quarter and first six months of 2022 due to lower COVID-19 testing
demand. 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
the second quarter and first six months of 2022 due primarily to the expected
impact of incorporating recent acquisitions, lower COVID-19 testing volumes, and
strategic growth investments. This was partially offset by strong pricing
realization across all segments to address higher inflation. GAAP operating
income margin in 2022 was also impacted by higher amortization expense as a
result of 2021 acquisitions. In the second quarter of 2021, GAAP operating
income margin was impacted by an impairment of acquired technology.

                                       22

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                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview (continued)


The company's references to strategic growth investments generally refer to
targeted spending for enhancing commercial capabilities, including expansion of
geographic sales reach and e-commerce platforms, marketing initiatives, expanded
service and operational infrastructure, research and development projects and
other expenditures to enhance the customer experience, as well as incentive
compensation and recognition for employees. The company's references throughout
this discussion to productivity improvements generally refer to improved cost
efficiencies from its Practical Process Improvement (PPI) business system
including reduced costs resulting from implementing continuous improvement
methodologies, global sourcing initiatives, a lower cost structure following
restructuring actions, including headcount reductions and consolidation of
facilities, and low cost region manufacturing.

Notable Recent Acquisitions


On January 15, 2021, the company acquired, within the Laboratory Products and
Biopharma Services segment, the Belgium-based European viral vector
manufacturing business of Groupe Novasep SAS for $0.83 billion in net cash
consideration. The European viral vector manufacturing business provides
manufacturing services for vaccines and therapies to biotechnology companies and
large biopharma customers. The acquisition expands the segment's capabilities
for cell and gene vaccines and therapies.

On February 25, 2021, the company acquired, within the Life Sciences Solutions
segment, Mesa Biotech, Inc., a U.S.-based molecular diagnostic company, for
$0.41 billion in net cash consideration and contingent consideration with an
initial fair value of $0.06 billion due upon the completion of certain
milestones. Mesa Biotech has developed and commercialized a PCR based rapid
point-of-care testing platform available for detecting infectious diseases
including COVID-19. The acquisition enables the company to accelerate the
availability of reliable and accurate advanced molecular diagnostics at the
point of care.

On September 30, 2021, the company assumed operating responsibility, within the
Laboratory Products and Biopharma Services segment, of a new state-of-the-art
biologics manufacturing facility in Lengnau, Switzerland from CSL Limited to
perform pharma services for CSL with capacity to serve other customers as well.
The company expects to make fixed lease payments aggregating to $0.56 billion
(excluding renewals) from 2021 to 2041, with additional amounts dependent on the
extent of revenues from customers of the facility other than CSL.

On December 8, 2021, the company acquired, within the Laboratory Products and
Biopharma Services segment, PPD, Inc., a U.S.-based global provider of clinical
research services to the pharma and biotech industry, for $15.99 billion in net
cash consideration and $0.04 billion of equity awards exchanged. The addition of
PPD's clinical research services enhances our offering to biotech and pharma
customers by enabling them to accelerate innovation and increase their
productivity within the drug development process. In 2020, PPD generated
revenues of $4.68 billion.

On December 30, 2021, the company acquired, within the Life Sciences Solutions
segment, PeproTech, Inc., a U.S. based developer and manufacturer of recombinant
proteins, for $1.86 billion in net cash consideration. PeproTech provides
bioscience reagents known as recombinant proteins, including cytokines and
growth factors. The acquisition expands the segment's bioscience offerings.

Results of Operations


The company's management evaluates segment operating performance using operating
income before certain charges/credits as defined in Note 4 to the Consolidated
Financial Statements of the company's   Annual Report on Form 10-K   for 2021.
Accordingly, the following segment data are reported on this basis.

                                                     Three months ended            Six months ended
                                                       July 2,      July 3,       July 2,       July 3,
(Dollars in millions)                                     2022         2021          2022          2021
Revenues
Life Sciences Solutions                          $     3,292      $ 3,557      $  7,523      $  7,760
Analytical Instruments                                 1,607        1,481         3,125         2,868
Specialty Diagnostics                                  1,101        1,235         2,583         2,850
Laboratory Products and Biopharma Services             5,537        3,583        10,979         7,180
Eliminations                                            (567)        (583)       (1,422)       (1,479)
Consolidated revenues                            $    10,970      $ 9,273      $ 22,788      $ 19,179



                                       23
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                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Results of Operations (continued)

Life Sciences Solutions

                                           Three months ended                                                                                                   Organic*
                                          July 2,           July 3,                  Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                        2022              2021                 Change               Translation                Divestitures                measure)
Revenues                             $   3,292          $  3,557                     (7) %                     (3) %                        1  %                   (5) %
Segment income                           1,327             1,718                    (23) %
Segment income margin                     40.3  %           48.3  %                -8.0 pt


The decrease in organic revenues in the second quarter of 2022 was primarily due
to lower revenue in the genetic sciences business, driven by moderation in
testing demand to diagnose COVID-19, partially offset by strong growth in the
bioproduction business. The decrease in segment income margin resulted primarily
from unfavorable business mix and strategic growth investments, partially offset
by productivity improvements.


                                           Six months ended                                                                                                    Organic*
                                         July 2,           July 3,                  Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                       2022              2021                 Change               Translation                Divestitures                measure)
Revenues                             $  7,523          $  7,760                     (3) %                     (2) %                        2  %                   (3) %
Segment income                       $  3,503          $  3,997                    (12) %
Segment income margin                    46.6  %           51.5  %                -4.9 pt


The decrease in organic revenues in the first six months of 2022 was driven by a
combination of moderation in testing demand to diagnose COVID-19 with lower
sales of genetic sciences products, largely offset by strong demand in the
bioproduction and biosciences businesses. The decrease in segment income margin
resulted primarily from business mix and strategic growth investments, partially
offset by productivity improvements.

Analytical Instruments

                                           Three months ended                                                                                                  Organic*
                                          July 2,           July 3,                 Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                        2022              2021                Change               Translation                Divestitures                measure)
Revenues                             $   1,607          $  1,481                     9  %                     (4) %                        -  %                   13  %
Segment income                             344               280                    23  %
Segment income margin                     21.4  %           18.9  %                2.5 pt

The increase in organic revenues in the second quarter of 2022 was due to increased demand in the electron microscopy and chromatography and mass spectrometry businesses. The increase in segment income margin resulted primarily from strong volume pull through and productivity improvements, offset in part by strategic growth investments.


                                           Six months ended                                                                                                   Organic*
                                         July 2,           July 3,                 Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                       2022              2021                Change               Translation                Divestitures                measure)
Revenues                             $  3,125          $  2,868                     9  %                     (3) %                        -  %                   12  %
Segment income                            645               552                    17  %
Segment income margin                    20.6  %           19.3  %                1.3 pt

The increase in organic revenues in the first six months of 2022 was due to increased demand in the electron microscopy and chromatography and mass spectrometry businesses. The increase in segment income margin resulted primarily from strong volume pull through, productivity improvements and business mix, offset in part by strategic growth investments.

                                       24

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                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Results of Operations (continued)

Specialty Diagnostics

                                           Three months ended                                                                                                  Organic*
                                          July 2,           July 3,                 Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                        2022              2021                Change               Translation                Divestitures                measure)
Revenues                             $   1,101          $  1,235                   (11) %                     (3) %                        -  %                   (8) %
Segment income                             243               245                    (1) %
Segment income margin                     22.1  %           19.9  %                2.2 pt


The decrease in organic revenues in the second quarter of 2022 was due to
decreased demand, primarily driven by products addressing diagnosis of COVID-19,
partially offset by growth in the immunodiagnostics and microbiology businesses,
as well as our healthcare market channel. The impact of lower COVID-19 testing
volume on segment income margin was more than offset by strong productivity
improvements and positive business mix.


                                           Six months ended                                                                                                    Organic*
                                         July 2,           July 3,                  Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                       2022              2021                 Change               Translation                Divestitures                measure)
Revenues                             $  2,583          $  2,850                     (9) %                     (2) %                        -  %                   (7) %
Segment income                            596               673                    (11) %
Segment income margin                    23.1  %           23.6  %                -0.5 pt


The decrease in organic revenues in the first six months of 2022 was due to
decreased demand, primarily driven by products addressing diagnosis of COVID-19,
partially offset by growth in the immunodiagnostics and transplant diagnostics
businesses. The decrease in segment income margin was primarily due to lower
COVID-19 testing volume, largely offset by productivity improvements.

Laboratory Products and Biopharma Services

                                           Three months ended                                                                                                  Organic*
                                          July 2,           July 3,                 Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                        2022              2021                Change               Translation                Divestitures                measure)
Revenues                             $   5,537          $  3,583                    55  %                     (4) %                       48  %                   10  %
Segment income                             691               446                    55  %
Segment income margin                     12.5  %           12.4  %                0.1 pt


The increase in organic revenues in the second quarter of 2022 was primarily due
to higher sales across each of the segment's businesses, with particular
strength in the research and safety market channel and pharma services business
and, to a lesser extent, the laboratory products business. The acquisition of
PPD, the company's clinical research business, contributed $1.72 billion of
revenue during the second quarter. The increase in segment income margin was
primarily due to strong productivity and the benefit of recent acquisitions,
largely offset by strategic growth investments and unfavorable business mix.


                                           Six months ended                                                                                                    Organic*
                                         July 2,           July 3,                  Total                  Currency               Acquisitions/               (non-GAAP
(Dollars in millions)                       2022              2021                 Change               Translation                Divestitures                measure)
Revenues                             $ 10,979          $  7,180                     53  %                     (3) %                       48  %                    8  %
Segment income                          1,311               977                     34  %
Segment income margin                    11.9  %           13.6  %                -1.7 pt


The increase in organic revenues in the first six months of 2022 was primarily
due to higher sales across each of the segment's businesses, with particular
strength in the research and safety market channel and pharma services business
and, to a lesser extent, the laboratory products business. The acquisition of
PPD, the company's clinical research business, contributed $3.38 billion of
revenue during the first six months of 2022. The decrease in segment income
margin was primarily due to business mix and strategic growth investments,
offset in part by the benefit of recent acquisitions.

* Results may not sum due to rounding

                                       25

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                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Results of Operations (continued)

Non-operating Items
                                                              Three months ended                         Six months ended
                                                           July 2,                 July 3,             July 2,            July 3,
(Dollars in millions)                                         2022                    2021                2022               2021
Net interest expense                                 $     112                $     111          $     230           $     224
GAAP other income/(expense)                                 28                       (3)              (135)               (186)
Adjusted other income/(expense) (non-GAAP
measure)                                                    10                        5                 14                  19
GAAP tax rate                                             10.4   %                 10.7  %            11.2   %            13.2  %
Adjusted tax rate (non-GAAP measure)                      13.0   %                 14.0  %            13.6   %            15.1  %


Net interest expense (interest expense less interest income) increased due primarily to the increase in debt to finance the acquisition of PPD and for general corporate purposes, largely offset by lower average interest rates. See additional discussion under the caption "Liquidity and Capital Resources" below.


GAAP other income/(expense) and adjusted other income/(expense) includes
currency transaction gains, losses on non-operating monetary assets and
liabilities, and net periodic pension benefit cost/income, excluding the service
cost component. GAAP other income/(expense) in the second quarter and first six
months of 2022 includes $18 million of net gains and $123 million of net losses
on investments, respectively. In the first six months of 2022 and 2021 GAAP
other income/(expense) also includes $26 million and $197 million, respectively,
of losses on the early extinguishment of debt (Note 7).

The company's GAAP and adjusted tax rates decreased in 2022 compared to 2021
primarily due to releases of valuation allowances of $88 million and $175
million for the three and six months ended July 2, 2022, respectively, 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. In the second
quarter of 2021 the company recorded a $162 million income tax benefit on an
intra-entity transfer of fixed assets.

The effective tax rates in both 2022 and 2021 were also affected by relatively
significant earnings in lower tax jurisdictions. Due primarily to the
non-deductibility of intangible asset amortization for tax purposes, the
company's cash payments for income taxes are higher than its income tax expense
for financial reporting purposes and are expected to total approximately $1.35
billion in 2022.

The company expects its GAAP effective tax rate in 2022 will be between 10% and
12% based on currently forecasted rates of profitability in the countries in
which the company conducts business and expected generation of foreign tax
credits. The effective tax rate can vary significantly from period to period as
a result of discrete income tax factors and events. The company expects its
adjusted tax rate will be between 13% and 13.5% in 2022.

The company has operations and a taxable presence in approximately 70 countries
outside the U.S. Some of these countries have lower tax rates than the U.S. The
company's ability to obtain a benefit from lower tax rates outside the U.S. is
dependent on its relative levels of income in countries outside the U.S. and on
the statutory tax rates in those countries. Based on the 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.

Liquidity and Capital Resources


The company's proven growth strategy has enabled it to generate free cash flow
as well as access the capital markets. The company deploys its capital primarily
via mergers and acquisitions and secondarily via share buybacks and dividends.

                                   July 2,       December 31,
(In millions)                         2022               2021
Cash and cash equivalents        $ 1,888      $       4,477
Total debt                        30,260             34,870


Approximately half of the company's cash balances and cash flows from operations
are from outside the U.S. The company uses its non-U.S. cash for needs outside
of the U.S. including acquisitions, capacity expansion, and repayment of
third-party foreign debt by foreign subsidiaries. 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. dividend received deduction or foreign tax
credit equals any tax

                                       26

--------------------------------------------------------------------------------

                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (continued)


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

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 July 2, 2022, the company's short-term debt totaled $1.01 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 July 2, 2022, no
borrowings were outstanding under the company's revolving credit facility,
although available capacity was reduced by immaterial outstanding letters of
credit.

                                                   Six months ended
                                                   July 2,      July 3,
(In millions)                                         2022         2021

Net cash provided by operating activities $ 3,730 $ 4,205 Net cash used in investing activities

             (1,089)      (2,624)
Net cash used in financing activities             (5,050)      (4,926)
Free cash flow (non-GAAP measure)                  2,598        3,042


Operating Activities


During the first six months of 2022, cash provided by income was offset in part
by investments in working capital. An increase in inventories used cash of $0.87
billion, primarily to support growth in sales. Changes in other assets and other
liabilities used cash of $0.74 billion primarily due to the timing of payments
for compensation. Cash payments for income taxes were $0.83 billion during the
first six months of 2022.

During the first six months of 2021, cash provided by income was offset in part
by investments in working capital. A decrease in accounts receivable provided
$0.25 billion of cash. An increase in inventories used cash of $0.62 billion,
primarily to support growth in sales. Changes in other assets and other
liabilities used cash of $1.06 billion primarily due to the timing of payments
for compensation and income taxes. Cash payments for income taxes were $1.27
billion during the first six months of 2021.

Investing Activities


During the first six months of 2022, acquisitions used cash of $0.04 billion.
The company's investing activities also included the purchase of $1.15 billion
of property, plant and equipment for capacity and capability investments.

During the first six months of 2021, acquisitions used cash of $1.43 billion.
The company's investing activities also included the purchase of $1.17 billion
of property, plant and equipment for capacity and capability investments.

Financing Activities


During the first six months of 2022, repayment of senior notes and net
commercial paper activity used cash of $0.38 billion and $2.46 billion,
respectively. The company's financing activities also included the repurchase of
$2.00 billion of the company's common stock (3.3 million shares) and the payment
of $0.22 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. At August 5, 2022, authorization remained for $1.00 billion of
future repurchases of the company's common stock.

During the first six months of 2021 repayment of senior notes used cash of $2.80
billion. The company's financing activities also included the repurchase of
$2.00 billion of the company's common stock (4.1 million shares) and the payment
of $0.19 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 between December 31, 2021 and July 2, 2022. The company expects that for all of 2022, expenditures for property, plant and equipment, net of disposals, will be between $2.5 and $2.7 billion.

                                       27

--------------------------------------------------------------------------------

                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

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 revenues. 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 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. Such measures are also used by management in their financial and
operating decision-making and for compensation purposes. To calculate these
measures we exclude, as applicable:

•Certain acquisition-related costs, including charges for the sale of
inventories revalued at the date of acquisition, significant
transaction/acquisition-related costs, including changes in estimates of
contingent acquisition-related consideration, and other costs associated with
obtaining short-term financing commitments for pending/recent acquisitions. We
exclude these costs because we do not believe they are indicative of our normal
operating costs.

•Costs/income associated with restructuring activities, such as reducing
overhead and consolidating facilities. We exclude these costs because we believe
that the costs related to restructuring activities are not indicative of our
normal operating costs.

•Equity in earnings/losses of unconsolidated entities; 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. 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.

•The expense associated with the amortization of acquisition-related intangible
assets because a significant portion of the purchase price for acquisitions may
be allocated to intangible assets that have lives of up to 20 years. Exclusion
of the amortization expense allows comparisons of operating results that are
consistent over time for both our newly acquired and long-held businesses and
with both acquisitive and non-acquisitive peer companies.

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

We report free cash flow, which is operating cash flow excluding net capital
expenditures, to provide a view of the continuing operations' ability to
generate cash for use in acquisitions and other investing and financing
activities. The company also uses this measure as an indication of the strength
of the company. Free cash flow is not a measure of cash available for
discretionary expenditures since we have certain non-discretionary obligations
such as debt service that are not deducted from the measure.

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

                                       28

--------------------------------------------------------------------------------

                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Non-GAAP Measures (Continued)


                                                          Three months ended                     Six months ended
                                                         July 2,            July 3,            July 2,            July 3,
(Dollars in millions except per share
amounts)                                                    2022               2021               2022               2021
Reconciliation of adjusted operating income
GAAP operating income                              $    2,001          $   2,163          $   4,822          $   5,212
Cost of revenues adjustments (a)                            8                  -                 19                  8
Selling, general and administrative expenses
adjustments (b)                                           (28)               (42)               (21)               (26)
Restructuring and other costs (c)                          24                119                 26                133
Amortization of acquisition-related
intangible assets                                         600                449              1,209                872

Adjusted operating income (non-GAAP measure) $ 2,605 $ 2,689 $ 6,055 $ 6,199


Reconciliation of adjusted operating income
margin
GAAP operating income margin                             18.2  %            23.3  %            21.2  %            27.2  %
Cost of revenues adjustments (a)                          0.1  %             0.0  %             0.1  %             0.0  %
Selling, general and administrative expenses
adjustments (b)                                          (0.3) %            (0.4) %            (0.1) %            (0.1) %
Restructuring and other costs (c)                         0.2  %             1.3  %             0.1  %             0.7  %
Amortization of acquisition-related
intangible assets                                         5.5  %             4.8  %             5.3  %             4.5  %
Adjusted operating income margin (non-GAAP
measure)                                                 23.7  %            29.0  %            26.6  %            32.3  %

Reconciliation of adjusted other
income/(expense)
GAAP other income/(expense)                        $       28          $      (3)         $    (135)         $    (186)
Adjustments (d)                                           (18)                 8                149                205
Adjusted other income/(expense) (non-GAAP
measure)                                           $       10          $    

5 $ 14 $ 19


Reconciliation of adjusted tax rate
GAAP tax rate                                            10.4  %            10.7  %            11.2  %            13.2  %
Adjustments (e)                                           2.6  %             3.3  %             2.4  %             1.9  %
Adjusted tax rate (non-GAAP measure)                     13.0  %            14.0  %            13.6  %            15.1  %

Reconciliation of adjusted earnings per
share
GAAP diluted earnings per share (EPS)
attributable to Thermo Fisher Scientific
Inc.                                               $     4.22          $    4.61          $    9.83          $   10.50
Cost of revenues adjustments (a)                         0.02                  -               0.05               0.02
Selling, general and administrative expenses
adjustments (b)                                         (0.07)             (0.10)             (0.05)             (0.07)
Restructuring and other costs (c)                        0.06               0.30               0.06               0.34
Amortization of acquisition-related
intangible assets                                        1.52               1.13               3.06               2.20
Other income/expense adjustments (d)                    (0.05)              0.02               0.38               0.51
Provision for income taxes adjustments (e)              (0.32)             (0.36)             (0.75)             (0.69)
Equity in earnings/losses of unconsolidated
entities                                                 0.13                  -               0.18                  -
Adjusted EPS (non-GAAP measure)                    $     5.51          $    

5.60 $ 12.76 $ 12.81


Reconciliation of free cash flow
GAAP net cash provided by operating
activities                                         $    1,528          $   2,227          $   3,730          $   4,205
Purchases of property, plant and equipment               (506)              (540)            (1,146)            (1,168)
Proceeds from sale of property, plant and
equipment                                                  12                  -                 14                  5
Free cash flow (non-GAAP measure)                  $    1,034          $   1,687          $   2,598          $   3,042


                                       29
--------------------------------------------------------------------------------

                         THERMO FISHER SCIENTIFIC INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Non-GAAP Measures (Continued)


(a) Adjusted results exclude charges for the sale of inventories revalued at the date of
acquisition.
(b) Adjusted results 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 exclude restructuring and other costs consisting principally of severance,
abandoned facility and other expenses of headcount reductions within several businesses and real
estate consolidations. Adjusted results in Q1 2021 and Q2 2021 also exclude $13 million of
charges for compensation due to employees at recently acquired businesses at the date of
acquisition and $110 million of charges for impairment of acquired technology, respectively.
(d) Adjusted results exclude net gains/losses on investments and losses on the early
extinguishment of debt. Adjusted results in Q2 2021 also exclude amortization of bridge loan
commitment fees related to a pending acquisition.
(e) Adjusted provision for income taxes in 2022 and 2021 excludes incremental tax impacts for
the pre-tax reconciling items and incremental tax impacts as a result of tax rate/law changes.


Critical Accounting Policies and Estimates


Management's Discussion and Analysis and Note 1 to the Consolidated Financial
Statements of the company's   Annual Report on Form 10-K   for 2021 describe the
significant accounting estimates and policies used in preparation of the
consolidated financial statements. There have been no significant changes in the
company's critical accounting policies during the first six months of 2022.

Recent Accounting Pronouncements

A description of recently issued accounting standards is included under the heading "Recent Accounting Pronouncements" in Note 1.

© Edgar Online, source Glimpses

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