Thermo Fisher Scientific : Q2 GAAP/Non-GAAP Reconciliation & Financial Information

GAAP/Non-GAAP Reconciliation and Financial Package

July 28, 2021

Serving

science.

Serving

society.

The world leader in serving science

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted EPS, adjusted operating income and adjusted operating margin, which exclude certain acquisition-related costs, such as charges for the sale of inventories revalued at the date of acquisition and significant transaction costs; restructuring and other costs/income; and amortization of acquisition-related intangible assets. Adjusted EPS also excludes certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, tax provisions/benefits related to the previous items, the impact of significant tax audits or events and the results of discontinued operations. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods. We also use a non-GAAP measure, free cash flow, which is cash flow from continuing operations, less 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. We believe that the use of non-GAAP 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 performance, especially when comparing such results to previous periods or forecasts.

For example:

We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.

We exclude certain acquisition-related costs, including charges for the sale of inventories revalued at the date of acquisition and significant transaction costs. We exclude these costs because we do not believe they are indicative of our normal operating costs.

We exclude the expense and tax effects 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.

We also exclude certain gains/losses and related tax effects and the impact of significant tax audits or events (such as changes in deferred taxes from enacted tax rate changes or the impacts of tax reform legislation in the U.S.), which are either isolated or cannot be expected to occur again with any predictability and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business or real estate, significant litigation-related matters, curtailments of pension plans, the early retirement of debt and discontinued operations.

We also report free cash flow, which is cash flow from continuing operations, less 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.

Thermo Fisher Scientific's management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the company's core operating performance and comparing such performance to that of prior periods 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.

The non-GAAP financial measures of Thermo Fisher Scientific's results of operations and cash flows included herein 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 in the accompanying tables.

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Table of Contents

Page

4. Annual Reconciliation of GAAP to Adjusted P&L (2017 - 2020)

6. Quarterly Reconciliation of GAAP to Adjusted P&L (2020 - 2021)

1. Free Cash Flow, Return on Invested Capital and Return on Equity (2017 - 2021)
2. COVID-19Response and Base Business Revenue Data (2021)

10. Segment Data (2020 - 2021)

11. Balance Sheet and Leverage Ratios (2016 - 2021)

1. Debt (2018 - 2021)
2. Significant Acquisitions/Divestitures (2018 - 2021)
3. Capital Deployment (2018 - 2021)
4. Fiscal Calendar (2021)

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Annual Reconciliation of GAAP to Adjusted P&L

(Dollars in millions except EPS)	2017			2018			2019			2020
GAAP Consolidated Revenues	20,918		24,358		25,542		32,218
Revenue Growth	14%		16%		5%		26%
Acquisitions net of Divestitures	9%		7%		1%		0%
Currency Translation		0%			1%			-2%			1%
Organic Revenue Growth		5%			8%			6%			25%
		$	%		$	%		$	%		$	%
GAAP Gross Margin	9,448	45.2%	10,857	44.6%	11,328	44.3%	16,004	49.7%
Cost of Revenues Charges (a)	123	0.6%	12	0.1%	17	0.1%	6	0.0%
Amortization of Acquisition-related Intangible Assets		512	2.4%		507	2.0%		499	2.0%		501	1.5%
Adjusted Gross Margin		10,083	48.2%		11,376	46.7%		11,844	46.4%		16,511	51.2%
GAAP SG&A Expense	5,504	26.3%	6,057	24.9%	6,144	24.1%	6,930	21.5%
Selling, General and Administrative (Charges) Credits (b)	(78)	-0.4%	(29)	-0.1%	(62)	-0.2%	10	0.0%
Amortization of Acquisition-related Intangible Assets		(1,082)	-5.1%		(1,234)	-5.1%		(1,214)	-4.8%		(1,166)	-3.6%
Adjusted SG&A Expense		4,344	20.8%		4,794	19.7%		4,868	19.1%		5,774	17.9%
GAAP R&D Expense	887	4.2%	967	4.0%	1,003	3.9%	1,181	3.7%
GAAP Operating Income	2,960	14.2%	3,783	15.5%	4,594	18.0%	7,794	24.2%
Cost of Revenues Charges (a)	123	0.6%	12	0.1%	17	0.1%	6	0.0%
Selling, General and Administrative Charges (Credits) (b)	78	0.4%	29	0.1%	62	0.2%	(10)	0.0%
Restructuring and Other Costs (Income) (c)	97	0.4%	50	0.2%	(413)	-1.6%	99	0.3%
Amortization of Acquisition-related Intangible Assets		1,594	7.6%		1,741	7.2%		1,713	6.7%		1,667	5.2%
Adjusted Operating Income		4,852	23.2%		5,615	23.1%		5,973	23.4%		9,556	29.7%
Add back Depreciation Expense		439	2.1%		526	2.1%		564	2.2%		658	2.0%
Adjusted EBITDA		5,291	25.3%		6,141	25.2%		6,537	25.6%		10,214	31.7%

1. The excluded items from cost of revenues include inventory charges, principally for the sale of inventories revalued at the date of acquisition; accelerated depreciation on assets to be abandoned as a result of real estate consolidation; and charges/credits to conform the accounting policies of recently acquired businesses to the company's accounting policies.
2. The excluded items from selling, general and administrative charges (credits) include significant transaction/integration costs (including reimbursements thereof) related to recent/terminated acquisitions and a divestiture; charges/credits for changes in estimates of contingent acquisition consideration; charges/income associated with product liability litigation; accelerated depreciation on fixed assets to be abandoned due to integration synergies and facility consolidations; and in 2017, charges to conform the accounting policies of recently acquired businesses to the company's accounting policies.
3. Restructuring and other costs (income) consist principally of severance and retention costs; abandoned facility and other expenses of real estate consolidation; impairments of long-lived assets; significant gains and losses on litigation-related matters; gains on the sale of businesses, product lines and property; in 2017, curtailments/settlements of pension plans; in 2018, environmental remediation costs; and in 2017 and 2018, hurricane response costs.

(Annual P&L Reconciliation continued on the next page)

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Annual Reconciliation of GAAP to Adjusted P&L

(Dollars in millions except EPS)		2017			2018			2019			2020
	$			%		$		%		$		%		$		%
GAAP Tax Provision	201		8.3%	324		9.9%	374		9.2%	850		11.8%
Tax Effect of Adjusted Items (e)			364		4.7%		284		2.0%		244		1.8%		448		2.5%
Adjusted Tax Provision			565		13.0%		608		11.9%		618		11.0%		1,298		14.3%
GAAP Other (Expense) Income	(20)			9			(72)			(81)
Adjustments (d)			(19)				(25)				(144)				(121)
Adjusted Other (Expense) Income			(1)				34				72				40
GAAP Net Income	2,225			2,938			3,696			6,375
Cost of Revenues Charges (a)	123			12			17			6
Selling, General and Administrative Charges (Credits) (b)	78			29			62			(10)
Restructuring and Other Costs (Income) (c)	97			50			(413)			99
Amortization of Acquisition-related Intangible Assets	1,594			1,741			1,713			1,667
Other Expense (d)	19			25			144			121
Income Tax Benefit (e)	(364)			(284)			(244)			(448)
Loss from Discontinued Operations, Net of Tax			3				-				-				-
Adjusted Net Income			3,775				4,511				4,975				7,810
GAAP Diluted EPS	5.59			7.24			9.17			15.96
GAAP Diluted EPS Growth			10%				30%				27%				74%
Cost of Revenues Charges, Net of Tax (a)	0.21			0.02			0.03			0.01
Selling, General and Administrative Charges (Credits), Net of Tax (b)	0.17			0.06			0.12			(0.02)
Restructuring and Other Costs (Income), Net of Tax (c)	0.18			0.09			(0.56)			0.19
Amortization of Acquisition-related Intangible Assets, Net of Tax	2.86			3.34			3.30			3.24
Other Expense, Net of Tax (d)	0.03			0.05			0.27			0.23
Income Tax Provision (Benefit) (e)	0.44			0.32			0.02			(0.06)
Loss from Discontinued Operations, Net of Tax			0.01				0.00				0.00				0.00
Adjusted Diluted EPS			9.49				11.12				12.35				19.55
Adjusted Diluted EPS Growth			15%				17%				11%				58%

1. The excluded items from cost of revenues include inventory charges, principally for the sale of inventories revalued at the date of acquisition; accelerated depreciation on assets to be abandoned as a result of real estate consolidation; and charges/credits to conform the accounting policies of recently acquired businesses to the company's accounting policies.
2. The excluded items from selling, general and administrative charges (credits) include significant transaction/integration costs (including reimbursements thereof) related to recent/terminated acquisitions and a divestiture; charges/credits for changes in estimates of contingent acquisition consideration; charges/income associated with product liability litigation; accelerated depreciation on fixed assets to be abandoned due to integration synergies and facility consolidations; and in 2017, charges to conform the accounting policies of recently acquired businesses to the company's accounting policies.
3. Restructuring and other costs (income) consist principally of severance and retention costs; abandoned facility and other expenses of real estate consolidation; impairments of long-lived assets; significant gains and losses on litigation-related matters; gains on the sale of businesses, product lines and property; in 2017, curtailments/settlements of pension plans; in 2018, environmental remediation costs; and in 2017 and 2018, hurricane response costs.
4. The excluded items from other expense represent gains and losses on investments; losses on the extinguishment of debt; in 2020, charges related to terminated interest rate swaps; in 2017 and 2020, costs to obtain short-term financing commitments related to acquisitions; and in 2018 and future years, curtailments/settlements of pension plans.
5. The excluded items from income tax benefit/provision include the tax benefits/provisions related to the above excluded items, the impact of the resolution of significant tax audits, the tax effects from adjusting the company's deferred tax balances as a result of tax rate changes, and in 2017, 2018 and 2019, adjustments to the impacts of U.S. tax reform legislation.

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