THERMO FISHER SCIENTIFIC INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Commission File Number 1-8002
(Exact name of Registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) | ||||
(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 | ||||||||||||
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 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 during the preceding 12 months. 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.
Smaller reporting company ☐ Emerging growth company ☐
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 April 2, 2022, the Registrant had 391,462,000 shares of Common Stock outstanding.
THERMO FISHER SCIENTIFIC INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 2022
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| PART I | ||||||||
| PART II | ||||||||
2
THERMO FISHER SCIENTIFIC INC.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| April 2, | December 31, | |||||||||||||
| (In millions except share and per share amounts) | 2022 | 2021 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Accounts receivable, less allowances of $ | ||||||||||||||
| Inventories | ||||||||||||||
| Contract assets, net | ||||||||||||||
| Other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Acquisition-related intangible assets, net | ||||||||||||||
| Other assets | ||||||||||||||
| Goodwill | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities, redeemable noncontrolling interest and equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term obligations and current maturities of long-term obligations | $ | $ | ||||||||||||
| Accounts payable | ||||||||||||||
| Accrued payroll and employee benefits | ||||||||||||||
| Contract liabilities | ||||||||||||||
| Other accrued expenses | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Long-term obligations | ||||||||||||||
| Redeemable noncontrolling interest | ||||||||||||||
| Equity: | ||||||||||||||
| Thermo Fisher Scientific Inc. shareholders’ equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Capital in excess of par value | ||||||||||||||
| Retained earnings | ||||||||||||||
Treasury stock at cost, | ( | ( | ||||||||||||
| Accumulated other comprehensive items | ( | ( | ||||||||||||
| Total Thermo Fisher Scientific Inc. shareholders’ equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
THERMO FISHER SCIENTIFIC INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions except per share amounts) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
Product revenues | $ | $ | ||||||||||||
Service revenues | ||||||||||||||
Total revenues | ||||||||||||||
| Costs and operating expenses: | ||||||||||||||
Cost of product revenues | ||||||||||||||
Cost of service revenues | ||||||||||||||
Selling, general and administrative expenses | ||||||||||||||
Research and development expenses | ||||||||||||||
Restructuring and other costs | ||||||||||||||
Total costs and operating expenses | ||||||||||||||
| Operating income | ||||||||||||||
| Interest income | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
Other income/(expense) | ( | ( | ||||||||||||
Income before income taxes | ||||||||||||||
Provision for income taxes | ( | ( | ||||||||||||
| Equity in earnings/(losses) of unconsolidated entities | ( | |||||||||||||
| Net income | ||||||||||||||
| Less: net income attributable to noncontrolling interests and redeemable noncontrolling interest | ||||||||||||||
| Net income attributable to Thermo Fisher Scientific Inc. | $ | $ | ||||||||||||
| Earnings per share attributable to Thermo Fisher Scientific Inc. | ||||||||||||||
| Basic | $ | $ | ||||||||||||
| Diluted | $ | $ | ||||||||||||
| Weighted average shares | ||||||||||||||
| Basic | ||||||||||||||
| Diluted | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
THERMO FISHER SCIENTIFIC INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Comprehensive income | ||||||||||||||
| Net income | $ | $ | ||||||||||||
Other comprehensive items: | ||||||||||||||
Currency translation adjustment: | ||||||||||||||
Currency translation adjustment (net of tax provision (benefit) of $ | ( | |||||||||||||
Unrealized gains and losses on hedging instruments: | ||||||||||||||
Reclassification adjustment for losses included in net income (net of tax benefit of $ | ||||||||||||||
Pension and other postretirement benefit liability adjustments: | ||||||||||||||
Pension and other postretirement benefit liability adjustments arising during the period (net of tax (provision) benefit of $( | ||||||||||||||
Amortization of net loss included in net periodic pension cost (net of tax benefit of $ | ||||||||||||||
Total other comprehensive items | ( | |||||||||||||
Comprehensive income | ||||||||||||||
Less: comprehensive income/(loss) attributable to noncontrolling interests and redeemable noncontrolling interest | ||||||||||||||
Comprehensive income attributable to Thermo Fisher Scientific Inc. | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
THERMO FISHER SCIENTIFIC INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Operating activities | ||||||||||||||
Net income | $ | $ | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation of property, plant and equipment | ||||||||||||||
Amortization of acquisition-related intangible assets | ||||||||||||||
Change in deferred income taxes | ( | |||||||||||||
| Loss on early extinguishment of debt | ||||||||||||||
Stock-based compensation | ||||||||||||||
Other non-cash expenses, net | ||||||||||||||
| Changes in assets and liabilities, excluding the effects of acquisitions | ( | ( | ||||||||||||
Net cash provided by operating activities | ||||||||||||||
| Investing activities | ||||||||||||||
Acquisitions, net of cash acquired | ( | ( | ||||||||||||
Purchase of property, plant and equipment | ( | ( | ||||||||||||
Proceeds from sale of property, plant and equipment | ||||||||||||||
Other investing activities, net | ( | |||||||||||||
Net cash used in investing activities | ( | ( | ||||||||||||
| Financing activities | ||||||||||||||
Repayment of debt | ( | ( | ||||||||||||
Proceeds from issuance of commercial paper | ||||||||||||||
Repayments of commercial paper | ( | |||||||||||||
Purchases of company common stock | ( | ( | ||||||||||||
Dividends paid | ( | ( | ||||||||||||
Net proceeds from issuance of company common stock under employee stock plans | ||||||||||||||
Other financing activities, net | ( | |||||||||||||
Net cash used in financing activities | ( | ( | ||||||||||||
| Exchange rate effect on cash | ( | |||||||||||||
Decrease in cash, cash equivalents and restricted cash | ( | ( | ||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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 April 2, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares under employees' and directors' stock plans | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of company common stock | — | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive items | ( | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from (distributions to) noncontrolling interest | ( | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 2, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended April 3, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | — | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares under employees' and directors' stock plans | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of company common stock | — | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive items | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 3, 2021 | $ | — | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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, improve patient health through diagnostics and the development and manufacture of life-changing therapies, and increase laboratory productivity. 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 April 2, 2022, the results of operations for the three-month periods ended April 2, 2022 and April 3, 2021, and the cash flows for the three-month periods ended April 2, 2022 and April 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 three months ended April 2, 2022.
Inventories
The components of inventories are as follows:
| April 2, | December 31, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work in process | ||||||||||||||
| Finished goods | ||||||||||||||
| Inventories | $ | $ | ||||||||||||
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.
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 subsequent to the date of adoption.
8
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2. Acquisitions
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 quarter of 2022, the company adjusted the preliminary allocations of PPD and PeproTech, which among others increased goodwill by $59 million, decreased definite-lived intangible assets by $43 million, decreased equity method investments by $23 million and decreased the fair value of assumed contingent consideration by $18 million. The adjustment to amortization expense recorded during the first quarter of 2022 was not material.
Note 3. Revenues and Contract-related Balances
Disaggregated Revenues
Revenues by type are as follows:
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
Consumables | $ | $ | ||||||||||||
Instruments | ||||||||||||||
Services | ||||||||||||||
| Consolidated revenues | $ | $ | ||||||||||||
Revenues by geographic region based on customer location are as follows:
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
North America | $ | $ | ||||||||||||
Europe | ||||||||||||||
Asia-Pacific | ||||||||||||||
Other regions | ||||||||||||||
| Consolidated revenues | $ | $ | ||||||||||||
Each reportable segment earns revenues from consumables, instruments and services in North America, Europe, Asia-Pacific and other regions. See Note 4 for revenues by reportable segment and other geographic data.
9
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Remaining Performance Obligations
The aggregate amount of the transaction price allocated to the remaining performance obligations for all open customer contracts as of April 2, 2022 was $28.84 billion. The company will recognize revenues for these performance obligations as they are satisfied, approximately 59 % of which is expected to occur within the next twelve months . Amounts expected to occur thereafter generally relate to contract manufacturing, clinical research and extended warranty service agreements, which typically have durations of three to five years.
Contract-related Balances
| April 2, | December 31, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Current contract assets, net | $ | $ | ||||||||||||
| Noncurrent contract assets, net | ||||||||||||||
| Current contract liabilities | ||||||||||||||
| Noncurrent contract liabilities | ||||||||||||||
In the three months ended April 2, 2022, the company recognized revenues of $1.28 billion, that were included in the contract liabilities balance at December 31, 2021. In the three months ended April 3, 2021, the company recognized revenues of $566 million that were included in the contract liabilities balance at December 31, 2020.
Note 4. Business Segment and Geographical Information
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
Life Sciences Solutions | $ | $ | ||||||||||||
Analytical Instruments | ||||||||||||||
Specialty Diagnostics | ||||||||||||||
Laboratory Products and Biopharma Services | ||||||||||||||
Eliminations | ( | ( | ||||||||||||
Consolidated revenues | ||||||||||||||
Segment Income | ||||||||||||||
Life Sciences Solutions | ||||||||||||||
Analytical Instruments | ||||||||||||||
Specialty Diagnostics | ||||||||||||||
Laboratory Products and Biopharma Services | ||||||||||||||
Subtotal reportable segments | ||||||||||||||
Cost of revenues adjustments | ( | ( | ||||||||||||
Selling, general and administrative expenses adjustments | ( | ( | ||||||||||||
Restructuring and other costs | ( | ( | ||||||||||||
Amortization of acquisition-related intangible assets | ( | ( | ||||||||||||
Consolidated operating income | ||||||||||||||
| Interest income | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
Other income/(expense) | ( | ( | ||||||||||||
Income before income taxes | $ | $ | ||||||||||||
10
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Geographical Information
Revenues by country based on customer location are as follows:
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
United States | $ | $ | ||||||||||||
China | ||||||||||||||
Other | ||||||||||||||
Consolidated revenues | $ | $ | ||||||||||||
Note 5. Income Taxes
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Statutory federal income tax rate | % | % | ||||||||||||
Provision for income taxes at statutory rate | $ | $ | ||||||||||||
Increases (decreases) resulting from: | ||||||||||||||
Foreign rate differential | ( | ( | ||||||||||||
Income tax credits | ( | ( | ||||||||||||
Global intangible low-taxed income | ||||||||||||||
Foreign-derived intangible income | ( | ( | ||||||||||||
Excess tax benefits from stock options and restricted stock units | ( | ( | ||||||||||||
Valuation allowance | ( | ( | ||||||||||||
Withholding taxes | ||||||||||||||
State income taxes, net of federal tax | ||||||||||||||
Other, net | ( | ( | ||||||||||||
Provision for income taxes | $ | $ | ||||||||||||
The company has operations and a taxable presence in approximately 70 countries outside the U.S. The company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, and foreign taxes that are different than the U.S. federal statutory rate.
Unrecognized Tax Benefits
As of April 2, 2022 and December 31, 2021, the company had $1.12
11
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 6. Earnings per Share
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions except per share amounts) | 2022 | 2021 | ||||||||||||
| Net income attributable to Thermo Fisher Scientific Inc. | $ | $ | ||||||||||||
| Basic weighted average shares | ||||||||||||||
| Plus effect of: stock options and restricted stock units | ||||||||||||||
| Diluted weighted average shares | ||||||||||||||
| Basic earnings per share | $ | $ | ||||||||||||
| Diluted earnings per share | $ | $ | ||||||||||||
Antidilutive stock options excluded from diluted weighted average shares | ||||||||||||||
Note 7. Debt and Other Financing Arrangements
| Effective interest rate at April 2, | April 2, | December 31, | ||||||||||||||||||
| (Dollars in millions) | 2022 | 2022 | 2021 | |||||||||||||||||
| Commercial Paper | % | $ | $ | |||||||||||||||||
Floating Rate (SOFR + | ||||||||||||||||||||
Floating Rate (SOFR + | ||||||||||||||||||||
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12
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| Effective interest rate at April 2, | April 2, | December 31, | ||||||||||||||||||
| (Dollars in millions) | 2022 | 2022 | 2021 | |||||||||||||||||
| % | ||||||||||||||||||||
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| Other | ||||||||||||||||||||
Total borrowings at par value | ||||||||||||||||||||
Unamortized discount | ( | ( | ||||||||||||||||||
Unamortized debt issuance costs | ( | ( | ||||||||||||||||||
Total borrowings at carrying value | ||||||||||||||||||||
Finance lease liabilities | ||||||||||||||||||||
Less: Short-term obligations and current maturities | ||||||||||||||||||||
| Long-term obligations | $ | $ | ||||||||||||||||||
SOFR - Secured Overnight Financing Rate
EURIBOR - Euro Interbank Offered Rate
The effective interest rates for the fixed-rate debt include the stated interest on the notes, the accretion of any discounts/premiums and the amortization of any debt issuance costs.
See Note 10 for fair value information pertaining to the company’s long-term borrowings.
Credit Facilities
The company has a revolving credit facility (the Facility) with a bank group that provides for up to $5.00 billion of unsecured multi-currency revolving credit. The Facility expires on January 7, 2027. The revolving credit agreement calls for interest at either a Term SOFR, a EURIBOR-based rate (for funds drawn in euro) or a rate based on the prime lending rate of the agent bank, at the company’s option. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The covenants in the Facility include a Consolidated Net Interest Coverage Ratio (Consolidated EBITDA to Consolidated Net Interest Expense), as such terms are defined in the Facility. Specifically, the company has agreed that, so long as any lender has any commitment under the Facility, any letter of credit is outstanding under the Facility, or any loan or other obligation is outstanding under the Facility, it will maintain a minimum Consolidated Interest Coverage Ratio of 3.5 :1.0 as of the last day of any fiscal quarter. As of April 2, 2022, no borrowings were outstanding under the Facility, although available capacity was reduced by approximately $4 million as a result of outstanding letters of credit.
Commercial Paper Programs
The company has commercial paper programs pursuant to which it may issue and sell unsecured, short-term promissory notes (CP Notes). Under the U.S. program, a) maturities may not exceed 397 days from the date of issue and b) the CP Notes are issued on a private placement basis under customary terms in the commercial paper market and are not redeemable prior to maturity nor subject to voluntary prepayment. Under the euro program, maturities may not exceed 183 days and may be denominated in euro, U.S. dollars, Japanese yen, British pounds sterling, Swiss franc, Canadian dollars or other currencies. Under both programs, the CP Notes are issued at a discount from par (or premium to par, in the case of negative interest rates), or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. As of April 2, 2022, outstanding borrowings under these programs were $1.85 billion.
Senior Notes
Interest is payable quarterly on the floating rate senior notes, annually on the euro-denominated fixed rate senior notes and semi-annually on all other senior notes. Each of the fixed rate senior notes may be redeemed at a redemption price of 100% of the principal amount plus a specified make-whole premium and accrued interest. Except for the euro-denominated floating rate senior notes, which may not be redeemed early, the floating rate senior notes may be redeemed in whole or in part on or after their applicable call dates at a redemption price of 100% of the principal amount plus accrued interest. The company is subject to certain affirmative and negative covenants under the indentures governing the senior notes, the most restrictive of which
13
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
limits the ability of the company to pledge principal properties as security under borrowing arrangements. The company was in compliance with all covenants at April 2, 2022.
In February 2022, the company redeemed all of its 3.650% Senior Notes due 2025. In connection with the redemption, the company incurred $26 million of losses on the early extinguishment of debt.
Thermo Fisher Scientific (Finance I) B.V. (Thermo Fisher International), a wholly-owned finance subsidiary of the company, issued each of the Floating Rate Senior Notes due 2023, the 0.00% Senior Notes due 2023, the 0.00% Senior Notes due 2025, the 0.80% Senior Notes due 2030, the 1.125% Senior Notes due 2033, the 1.625% Senior Notes due 2041, and the 2.00% Senior Notes due 2051 included in the table above (collectively, the “Euronotes”) in registered public offerings. The company has fully and unconditionally guaranteed all of Thermo Fisher International’s obligations under the Euronotes and all of Thermo Fisher International’s other debt securities, and no other subsidiary of the company will guarantee these obligations. Thermo Fisher International is a “finance subsidiary” as defined in Rule 13-01(a)(4)(vi) of the Exchange Act, with no assets or operations other than those related to the issuance, administration and repayment of the Euronotes and other debt securities issued by Thermo Fisher International from time to time. The financial condition, results of operations and cash flows of Thermo Fisher International are consolidated in the financial statements of the company.
Note 8. Commitments and Contingencies
Environmental Matters
The company is currently involved in various stages of investigation and remediation related to environmental matters. The company cannot predict all potential costs related to environmental remediation matters and the possible impact on future operations given the uncertainties regarding the extent of the required cleanup, the complexity and interpretation of applicable laws and regulations, the varying costs of alternative cleanup methods and the extent of the company’s responsibility. Expenses for environmental remediation matters related to the costs of installing, operating and maintaining groundwater-treatment systems and other remedial activities related to historical environmental contamination at the company’s domestic and international facilities were not material in any period presented. At April 2, 2022, there have been no material changes to the accruals for pending environmental-related matters disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K. While management believes the accruals for environmental remediation are adequate based on current estimates of remediation costs, the company may be subject to additional remedial or compliance costs due to future events such as changes in existing laws and regulations, changes in agency direction or enforcement policies, developments in remediation technologies or changes in the conduct of the company’s operations, which could have a material adverse effect on the company’s financial position, results of operations and cash flows.
Litigation and Related Contingencies
The company is involved in various disputes, governmental and/or regulatory inspections, inquiries, investigations and proceedings, and litigation matters that arise from time to time in the ordinary course of business. The disputes and litigation matters include product liability, intellectual property, employment and commercial issues. Due to the inherent uncertainties associated with pending litigation or claims, the company cannot predict the outcome, nor, with respect to certain pending litigation or claims where no liability has been accrued, make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. The company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K, nor are material losses deemed probable for such matters. It is reasonably possible, however, that an unfavorable outcome that exceeds the company’s current accrual estimate, if any, for one or more of the matters described below could have a material adverse effect on the company’s results of operations, financial position and cash flows.
Product Liability, Workers Compensation and Other Personal Injury Matters
The company is involved in various proceedings and litigation that arise from time to time in connection with product liability, workers compensation and other personal injury matters. At April 2, 2022, there have been no material changes to the accruals for pending product liability, workers compensation, and other personal injury matters disclosed in the company’s 2021 financial statements and notes included in the company’s Annual Report on Form 10-K. Although the company believes that the amounts accrued and estimated insurance recoveries are probable and appropriate based on available information, including actuarial studies of loss estimates, the process of estimating losses and insurance recoveries involves a considerable degree of judgment by management and the ultimate amounts could vary, which could have a material adverse effect on the company’s results of operations, financial position, and cash flows. Insurance contracts do not relieve the company of its primary obligation with respect to any losses incurred. The collectability of amounts due from its insurers is subject to the
14
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9. Comprehensive Income and Shareholders' Equity
| (In millions) | Currency translation adjustment | Unrealized losses on hedging instruments | Pension and other postretirement benefit liability adjustment | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Other comprehensive items before reclassifications | ( | — | ( | |||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive items | — | |||||||||||||||||||||||||
Net other comprehensive items | ( | ( | ||||||||||||||||||||||||
| Balance at April 2, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Note 10. Fair Value Measurements and Fair Value of Financial Instruments
Fair Value Measurements
The following tables present information about the company’s financial assets and liabilities measured at fair value on a recurring basis:
| April 2, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||
| (In millions) | 2022 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Cash equivalents | $ | $ | $ | — | $ | — | ||||||||||||||||||||
Investments | — | — | ||||||||||||||||||||||||
Warrants | — | — | ||||||||||||||||||||||||
Insurance contracts | — | — | ||||||||||||||||||||||||
Derivative contracts | — | — | ||||||||||||||||||||||||
Total assets | $ | $ | $ | $ | — | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Derivative contracts | $ | $ | — | $ | $ | — | ||||||||||||||||||||
Contingent consideration | — | — | ||||||||||||||||||||||||
Total liabilities | $ | $ | — | $ | $ | |||||||||||||||||||||
15
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||
| (In millions) | 2021 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Cash equivalents | $ | $ | $ | — | $ | — | ||||||||||||||||||||
Investments | — | — | ||||||||||||||||||||||||
Warrants | — | — | ||||||||||||||||||||||||
Insurance contracts | — | — | ||||||||||||||||||||||||
Derivative contracts | — | — | ||||||||||||||||||||||||
Total assets | $ | $ | $ | $ | — | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Derivative contracts | $ | $ | — | $ | $ | — | ||||||||||||||||||||
Contingent consideration | — | — | ||||||||||||||||||||||||
Total liabilities | $ | $ | — | $ | $ | |||||||||||||||||||||
The company uses the Black-Scholes model to value its warrants. The company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer. The fair value of derivative contracts is the estimated amount that the company would receive/pay upon liquidation of the contracts, taking into account the change in interest rates and currency exchange rates. The company initially measures the fair value of acquisition-related contingent consideration based on amounts expected to be transferred (probability-weighted) discounted to present value. Changes to the fair value of contingent consideration are recorded in selling, general and administrative expense.
In the first quarter of 2022 and 2021 the company recorded $139 million and $1 million, respectively, of net losses on investments which are included in other income/(expense) in the accompanying statement of income.
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Contingent consideration | ||||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| Acquisitions (including assumed balances) | ( | |||||||||||||
| Payments | ( | ( | ||||||||||||
| ( | ||||||||||||||
| Ending balance | $ | $ | ||||||||||||
Derivative Contracts
| April 2, | December 31, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Notional amount | ||||||||||||||
Cross-currency interest rate swaps - designated as net investment hedges | $ | $ | ||||||||||||
Currency exchange contracts | ||||||||||||||
16
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| Fair value – assets | Fair value – liabilities | |||||||||||||||||||||||||
| April 2, | December 31, | April 2, | December 31, | |||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||||||||
Cross-currency interest rate swaps (a) | $ | $ | $ | — | $ | — | ||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||
Currency exchange contracts (b) | ||||||||||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | ||||||||||||||||||||||
(a) The fair value of the cross-currency interest rate swaps is included in the accompanying balance sheet under the caption other assets or other long-term liabilities.
(b) The fair value of the currency exchange contracts is included in the accompanying balance sheet under the captions other current assets or other accrued expenses.
| Gain (loss) recognized | ||||||||||||||
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Fair value hedging relationships | ||||||||||||||
Interest rate swaps | ||||||||||||||
Hedged long-term obligations - included in other income/(expense) | $ | — | $ | |||||||||||
Derivatives designated as hedging instruments - included in other income/(expense) | — | ( | ||||||||||||
Derivatives designated as cash flow hedges | ||||||||||||||
Interest rate swaps | ||||||||||||||
Amount reclassified from accumulated other comprehensive items to other income/(expense) | ( | ( | ||||||||||||
Financial instruments designated as net investment hedges | ||||||||||||||
Foreign currency-denominated debt | ||||||||||||||
Included in currency translation adjustment within other comprehensive items | ||||||||||||||
Cross-currency interest rate swaps | ||||||||||||||
Included in currency translation adjustment within other comprehensive items | ||||||||||||||
Included in other income/(expense) | ||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||
Currency exchange contracts | ||||||||||||||
Included in cost of product revenues | ( | |||||||||||||
Included in other income/(expense) | ( | |||||||||||||
Gains and losses recognized on currency exchange contracts and the interest rate swaps designated as fair value hedges are included in the accompanying statement of income together with the corresponding, offsetting losses and gains on the underlying hedged transactions.
The company uses foreign currency-denominated debt and cross-currency interest rate swaps to partially hedge its net investments in foreign operations against adverse movements in exchange rates. A portion of the company’s euro-denominated senior notes and its cross-currency interest rate swaps have been designated as, and are effective as, economic hedges of part of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments and contract fair value changes on the cross-currency interest rate swaps, excluding interest accruals, are included in currency translation adjustment within other comprehensive items and shareholders’ equity.
See Note 1 to the consolidated financial statements for 2021 included in the company’s Annual Report on Form 10-K for additional information on the company’s risk management objectives and strategies.
17
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Fair Value of Other Financial Instruments
The carrying value and fair value of the company’s debt instruments are as follows:
| April 2, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||
| (In millions) | value | value | value | value | ||||||||||||||||||||||
Senior notes | $ | $ | $ | $ | ||||||||||||||||||||||
Commercial paper | ||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
The fair value of debt instruments was determined based on quoted market prices and on borrowing rates available to the company at the respective period ends, which represent level 2 measurements.
Note 11. Supplemental Cash Flow Information
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Non-cash investing and financing activities | ||||||||||||||
Acquired but unpaid property, plant and equipment | $ | $ | ||||||||||||
Fair value of acquisition contingent consideration | — | |||||||||||||
Declared but unpaid dividends | ||||||||||||||
Issuance of stock upon vesting of restricted stock units | ||||||||||||||
| April 2, | December 31, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||||||||
Amounts included in restricted cash represent funds held as collateral for bank guarantees and incoming cash in China awaiting government administrative clearance.
Note 12. Restructuring and Other Costs
In the first three months of 2022, restructuring and other costs primarily included continuing charges for headcount reductions and facility consolidations in an effort to streamline operations. In 2022, severance actions associated with facility consolidations and cost reduction measures affected less than 0.1 % of the company’s workforce.
As of May 6, 2022, the company has identified restructuring actions that will result in additional charges of approximately $15 million, primarily in 2022, and expects to identify additional actions in future periods which will be recorded when specified criteria are met, such as communication of benefit arrangements or when the costs have been incurred.
18
THERMO FISHER SCIENTIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Restructuring and other costs by segment are as follows:
| Three months ended | ||||||||
| April 2, | ||||||||
| (In millions) | 2022 | |||||||
Life Sciences Solutions | $ | |||||||
Analytical Instruments | ||||||||
Specialty Diagnostics | ||||||||
Laboratory Products and Biopharma Services | ( | |||||||
| $ | ||||||||
The following table summarizes the changes in the company’s accrued restructuring balance. Other amounts reported as restructuring and other costs in the accompanying statement of income have been summarized in the notes to the table. Accrued restructuring costs are included in other accrued expenses in the accompanying balance sheet.
| (In millions) | Total (a) | |||||||
| Balance at December 31, 2021 | $ | |||||||
Net restructuring charges incurred in 2022 (b) | ||||||||
Payments | ( | |||||||
| Balance at April 2, 2022 | $ | |||||||
(a)The movements in the restructuring liability principally consist of severance and other costs such as relocation and moving expenses associated with facility consolidations, as well as employee retention costs which are accrued ratably over the period through which employees must work to qualify for a payment.
The company expects to pay accrued restructuring costs primarily through 2022 .
19
THERMO FISHER SCIENTIFIC INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, improve patient health through diagnostics and the development and manufacture of life-changing therapies, and increase laboratory productivity. 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.
Financial Highlights - First Quarter 2022 Compared with First Quarter 2021
| Three months ended | ||||||||||||||||||||
| April 2, | April 3, | |||||||||||||||||||
| (Dollars in millions except per share amounts) | 2022 | 2021 | Change | |||||||||||||||||
Revenues | $ | 11,818 | $ | 9,906 | 19 | % | ||||||||||||||
| GAAP operating income | 2,821 | 3,049 | (7) | % | ||||||||||||||||
| GAAP operating income margin | 23.9 | % | 30.8 | % | (6.9) | pt | ||||||||||||||
Adjusted operating income (non-GAAP measure) | 3,450 | 3,510 | (2) | % | ||||||||||||||||
Adjusted operating income margin (non-GAAP measure) | 29.2 | % | 35.4 | % | (6.2) | pt | ||||||||||||||
| GAAP diluted earnings per share attributable to Thermo Fisher Scientific Inc. | 5.61 | 5.88 | (5) | % | ||||||||||||||||
Adjusted earnings per share (non-GAAP measure) | 7.25 | 7.21 | 1 | % | ||||||||||||||||
20
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview (continued)
Organic Revenue Growth
| Three months ended | ||||||||
| April 2, 2022 | ||||||||
| Revenue growth | 19 | % | ||||||
| Impact of acquisitions | 18 | % | ||||||
| Impact of currency translation | (2) | % | ||||||
Organic revenue growth* (non-GAAP measure) | 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 $1.68 billion and $2.45 billion in the first quarter of 2022 and 2021, respectively.
During the first quarter 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 due to a positive funding environment. The industrial and applied market was particularly 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 first quarter of 2022, sales growth was strong in the Asia Pacific region, particularly China, modest in North America, and flat in Europe. The company continues to execute its proven growth strategy which consists of three pillars:
•A commitment to high-impact innovation,
•Scale in high-growth and emerging markets, and
•A unique value proposition to our customers.
GAAP operating income margin and adjusted operating income margin decreased in the first quarter 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 and productivity improvements to address inflation. GAAP operating income margin was also impacted by higher amortization expense as a result of 2021 acquisitions.
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 $830 million 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 $407 million in net cash consideration and contingent consideration with an initial fair value of $65 million 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.
21
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview (continued)
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 $555 million (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 $43 million 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 | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (Dollars in millions) | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||
Life Sciences Solutions | $ | 4,231 | $ | 4,203 | ||||||||||
Analytical Instruments | 1,518 | 1,387 | ||||||||||||
Specialty Diagnostics | 1,482 | 1,615 | ||||||||||||
Laboratory Products and Biopharma Services | 5,442 | 3,597 | ||||||||||||
Eliminations | (855) | (896) | ||||||||||||
Consolidated revenues | $ | 11,818 | $ | 9,906 | ||||||||||
Life Sciences Solutions
| Three months ended | Organic* (non-GAAP measure) | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | April 2, 2022 | April 3, 2021 | Total Change | Currency Translation | Acquisitions/ Divestitures | |||||||||||||||||||||||||||||||||
| Revenues | $ | 4,231 | $ | 4,203 | 1 | % | (2) | % | 3 | % | (1) | % | ||||||||||||||||||||||||||
| Segment income | 2,176 | 2,279 | (5) | % | ||||||||||||||||||||||||||||||||||
| Segment income margin | 51.4 | % | 54.2 | % | -2.8 pt | |||||||||||||||||||||||||||||||||
* Results may not sum due to rounding
The decrease in organic revenues in the first quarter of 2022 was primarily due to lower revenue in the genetic sciences business, driven by lower demand for testing to diagnose COVID-19, largely offset by strong growth in bioproduction and biosciences products. The decrease in segment income margin resulted primarily from sales mix and strategic growth investments, offset in part by productivity improvements.
Analytical Instruments
| Three months ended | Organic* (non-GAAP measure) | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | April 2, 2022 | April 3, 2021 | Total Change | Currency Translation | Acquisitions/ Divestitures | |||||||||||||||||||||||||||||||||
| Revenues | $ | 1,518 | $ | 1,387 | 9 | % | (2) | % | — | % | 12 | % | ||||||||||||||||||||||||||
| Segment income | 301 | 272 | 10 | % | ||||||||||||||||||||||||||||||||||
| Segment income margin | 19.8 | % | 19.6 | % | 0.2 pt | |||||||||||||||||||||||||||||||||
* Results may not sum due to rounding
22
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
The increase in organic revenues in the first quarter of 2022 was due to increased demand across all of the segment’s primary businesses, with particular strength in electron microscopy instruments and, to a lesser extent, chromatography and mass spectrometry. The increase in segment income margin resulted primarily from profit on higher sales and, to a lesser extent, sales mix, offset by strategic growth investments.
Specialty Diagnostics
| Three months ended | Organic* (non-GAAP measure) | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | April 2, 2022 | April 3, 2021 | Total Change | Currency Translation | Acquisitions/ Divestitures | |||||||||||||||||||||||||||||||||
| Revenues | $ | 1,482 | $ | 1,615 | (8) | % | (1) | % | — | % | (7) | % | ||||||||||||||||||||||||||
| Segment income | 353 | 428 | (17) | % | ||||||||||||||||||||||||||||||||||
| Segment income margin | 23.9 | % | 26.5 | % | -2.6 pt | |||||||||||||||||||||||||||||||||
* Results may not sum due to rounding
The decrease in organic revenues in the first quarter of 2022 was due to decreased demand, primarily driven by products addressing treatment of COVID-19, partially offset by growth in the healthcare markets channel, transplant diagnostics and clinical diagnostics businesses. The decrease in segment income margin was primarily due to sales mix and, to a lesser extent, strategic growth investments, partially offset by productivity improvements.
Laboratory Products and Biopharma Services
| Three months ended | Organic* (non-GAAP measure) | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | April 2, 2022 | April 3, 2021 | Total Change | Currency Translation | Acquisitions/ Divestitures | |||||||||||||||||||||||||||||||||
| Revenues | $ | 5,442 | $ | 3,597 | 51 | % | (2) | % | 47 | % | 6 | % | ||||||||||||||||||||||||||
| Segment income | 620 | 531 | 17 | % | ||||||||||||||||||||||||||||||||||
| Segment income margin | 11.4 | % | 14.8 | % | -3.4 pt | |||||||||||||||||||||||||||||||||
* Results may not sum due to rounding
The increase in organic revenues in the first quarter of 2022 was primarily due to higher sales in the research and safety market channel and, to a lesser extent, laboratory product business. The acquisition of PPD, the company’s clinical research business, contributed $1.66 billion of revenue during the first quarter. The decrease in segment income margin was primarily due to strategic growth investments and sales mix, partially offset by profit on higher sales.
Non-operating Items
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (Dollars in millions) | 2022 | 2021 | ||||||||||||
Net interest expense | $ | 118 | $ | 113 | ||||||||||
| GAAP other income/(expense) | (163) | (183) | ||||||||||||
Adjusted other income/(expense) (non-GAAP measure) | 4 | 14 | ||||||||||||
| GAAP tax rate | 11.9 | % | 15.1 | % | ||||||||||
Adjusted tax rate (non-GAAP measure) | 14.1 | % | 16.0 | % | ||||||||||
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, offset in part 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 2022 also includes $141 million of net losses on investments and $26 million of losses on the early extinguishment of debt (Note 7). GAAP other income/(expense) in 2021 also includes $197 million of losses on the early extinguishment of debt.
The company’s GAAP and adjusted tax rates decreased in 2022 compared to 2021 primarily due to the benefits of our tax planning initiatives, including the release of the valuation allowance in a jurisdiction where the deferred tax assets are now expected to be realized. The company’s GAAP tax rate was also impacted by changes in tax rates and higher amortization expense as a result of 2021 acquisitions.
23
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
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.
| April 2, | December 31, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Cash and cash equivalents | $ | 2,752 | $ | 4,477 | ||||||||||
| Total debt | 33,255 | 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 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 April 2, 2022, the company’s short-term debt totaled $1.87 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 April 2, 2022, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by approximately $4 million as a result of outstanding letters of credit.
24
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Net cash provided by operating activities | $ | 2,202 | $ | 1,978 | ||||||||||
Net cash used in investing activities | (670) | (1,998) | ||||||||||||
Net cash used in financing activities | (3,145) | (4,850) | ||||||||||||
Free cash flow (non-GAAP measure) | 1,564 | 1,355 | ||||||||||||
Operating Activities
During the first three months of 2022, cash provided by income was offset in part by investments in working capital. An increase in inventories used cash of $499 million, primarily to support growth in sales. Changes in other assets and other liabilities used cash of $358 million primarily due to the timing of payments for compensation. Cash payments for income taxes were $303 million during the first three months of 2022.
During the first three months of 2021, cash provided by income was offset in part by investments in working capital. A decrease in accounts receivable provided $149 million of cash. An increase in inventories used cash of $352 million, primarily to support growth in sales. Changes in other assets and other liabilities used cash of $1.20 billion primarily due to the timing of payments for compensation. Cash payments for income taxes were $542 million during the first three months of 2021.
Investing Activities
During the first three months of 2022, acquisitions used cash of $40 million. The company’s investing activities also included the purchase of $640 million of property, plant and equipment for capacity and capability investments.
During the first three months of 2021, acquisitions used cash of $1.34 billion. The company’s investing activities also included the purchase of $628 million of property, plant and equipment for capacity and capability investments.
Financing Activities
During the first three months of 2022, repayment of senior notes and net commercial paper activity used cash of $375 million and $633 million, 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 $103 million 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 May 6, 2022, authorization remained for $1.00 billion of future repurchases of the company’s common stock.
During the first three 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 $87 million 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 April 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.
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:
25
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-GAAP Measures (continued)
•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 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.
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (Dollars in millions except per share amounts) | 2022 | 2021 | ||||||||||||
| Reconciliation of adjusted operating income | ||||||||||||||
GAAP operating income | $ | 2,821 | $ | 3,049 | ||||||||||
Cost of revenues adjustments (a) | 11 | 8 | ||||||||||||
Selling, general and administrative expenses adjustments (b) | 7 | 16 | ||||||||||||
Restructuring and other costs (c) | 2 | 14 | ||||||||||||
| Amortization of acquisition-related intangible assets | 609 | 423 | ||||||||||||
Adjusted operating income (non-GAAP measure) | $ | 3,450 | $ | 3,510 | ||||||||||
| Reconciliation of adjusted operating income margin | ||||||||||||||
| GAAP operating income margin | 23.9 | % | 30.8 | % | ||||||||||
| Cost of revenues adjustments (a) | 0.1 | % | 0.1 | % | ||||||||||
| Selling, general and administrative expenses adjustments (b) | 0.0 | % | 0.1 | % | ||||||||||
| Restructuring and other costs (c) | 0.0 | % | 0.1 | % | ||||||||||
| Amortization of acquisition-related intangible assets | 5.2 | % | 4.3 | % | ||||||||||
Adjusted operating income margin (non-GAAP measure) | 29.2 | % | 35.4 | % | ||||||||||
26
THERMO FISHER SCIENTIFIC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-GAAP Measures (continued)
| Three months ended | ||||||||||||||
| April 2, | April 3, | |||||||||||||
| (Dollars in millions except per share amounts) | 2022 | 2021 | ||||||||||||
| Reconciliation of adjusted other income/(expense) | ||||||||||||||
| GAAP other income/(expense) | $ | (163) | $ | (183) | ||||||||||
| Adjustments (d) | 167 | 197 | ||||||||||||
Adjusted other income/(expense) (non-GAAP measure) | $ | 4 | $ | 14 | ||||||||||
| Reconciliation of adjusted tax rate | ||||||||||||||
| GAAP tax rate | 11.9 | % | 15.1 | % | ||||||||||
| Adjustments (e) | 2.2 | % | 0.9 | % | ||||||||||
Adjusted tax rate (non-GAAP measure) | 14.1 | % | 16.0 | % | ||||||||||
| Reconciliation of adjusted earnings per share | ||||||||||||||
| GAAP diluted earnings per share (EPS) attributable to Thermo Fisher Scientific Inc. | $ | 5.61 | $ | 5.88 | ||||||||||
| Cost of revenues adjustments (a) | 0.03 | 0.02 | ||||||||||||
| Selling, general and administrative expenses adjustments (b) | 0.02 | 0.04 | ||||||||||||
| Restructuring and other costs (c) | 0.01 | 0.04 | ||||||||||||
| Amortization of acquisition-related intangible assets | 1.54 | 1.06 | ||||||||||||
| Other income/expense adjustments (d) | 0.42 | 0.50 | ||||||||||||
| Provision for income taxes adjustments (e) | (0.43) | (0.33) | ||||||||||||
| Equity in earnings/losses of unconsolidated entities | 0.05 | — | ||||||||||||
Adjusted EPS (non-GAAP measure) | $ | 7.25 | $ | 7.21 | ||||||||||
| Reconciliation of free cash flow | ||||||||||||||
| GAAP net cash provided by operating activities | $ | 2,202 | $ | 1,978 | ||||||||||
| Purchases of property, plant and equipment | (640) | (628) | ||||||||||||
| Proceeds from sale of property, plant and equipment | 2 | 5 | ||||||||||||
Free cash flow (non-GAAP measure) | $ | 1,564 | $ | 1,355 | ||||||||||
(a) Adjusted results in 2022 and 2021 exclude charges for the sale of inventories revalued at the date of acquisition. | ||
(b) Adjusted results in 2022 and 2021 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 2022 and 2021 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 2021 also exclude $13 million of charges for compensation due to employees at recently acquired businesses at the date of acquisition. | ||
(d) Adjusted results in 2022 and 2021 exclude net gains/losses on investments and losses on the early extinguishment of debt. | ||
(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 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 three months of 2022.
Recent Accounting Pronouncements
A description of recently issued accounting standards is included under the heading “Recent Accounting Pronouncements” in Note 1.
27
THERMO FISHER SCIENTIFIC INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company’s exposure to market risk from changes in interest rates and currency exchange rates has not changed materially from its exposure discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
The company’s management, with the participation of the company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, the company’s chief executive officer and chief financial officer concluded that, as of the end of such period, the company’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended April 2, 2022, that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.
28
THERMO FISHER SCIENTIFIC INC.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are various lawsuits and claims against the company involving product liability, intellectual property, employment and commercial issues. See “Note 8 to our Condensed Consolidated Financial Statements – Commitments and Contingencies.”
Item 1A. Risk Factors
The risks that we believe are material to our investors are discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2021 under the caption “Risk Factors,” which is on file with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
A summary of the share repurchase activity for the company’s first quarter of 2022 follows:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs (1) | Maximum dollar amount of shares that may yet be purchased under the plans or programs (1) (in millions) | ||||||||||||||||||||||
| Fiscal January (Jan. 1 - Feb. 5) | 3,278,186 | $ | 610.09 | 3,278,186 | $ | 1,000 | ||||||||||||||||||||
| Fiscal February (Feb. 6 - Mar. 5) | — | $ | — | — | 1,000 | |||||||||||||||||||||
| Fiscal March (Mar. 6 - Apr. 2) | — | $ | — | — | 1,000 | |||||||||||||||||||||
| Total first quarter | 3,278,186 | $ | 610.09 | 3,278,186 | $ | 1,000 | ||||||||||||||||||||
(1) On September 23, 2021, the Board of Directors authorized the repurchase of up to $3.00 billion of the company’s common stock. All of the shares of common stock repurchased by the company during the first quarter of 2022 were purchased under this program.
Item 5. Other Information
Disclosure Pursuant to Section 13(r) of the Exchange Act
In March 2021, the Russian Federal Security Service (the FSB) was designated as a blocked party under Executive Order 13382. During the quarter ended April 2, 2022, one of our Russian affiliates responded to an official inquiry from FSB regarding the manufacture of a certain instrument registered as a medical device in Russia. This interaction did not result in any revenue or otherwise contribute to our net income for the quarter and all such dealings were legal and authorized by General License 1B issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control. We expect our Russian affiliate to respond to similar regulatory inquiries in the future, as necessary and to the extent permitted by applicable U.S. sanctions laws and regulations.
29
THERMO FISHER SCIENTIFIC INC.
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document. | |||||||
| 101.DEF | XBRL Taxonomy Definition Linkbase Document. | |||||||
| 101.LAB | XBRL Taxonomy Label Linkbase Document. | |||||||
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
| The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission, upon request, a copy of each instrument with respect to long-term debt of the Registrant or its consolidated subsidiaries. | ||||||||
_______________________
* Indicates management contract or compensatory plan, contract or arrangement.
** Certification is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such certification is not deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | May 6, 2022 | THERMO FISHER SCIENTIFIC INC. | ||||||
| /s/ Stephen Williamson | ||||||||
| Stephen Williamson | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| /s/ Joseph R. Holmes | ||||||||
| Joseph R. Holmes | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
31
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1. Nature Of Operations and Summary Of Significant Accounting PoliciesNote 2. AcquisitionsNote 3. Revenues and Contract-related BalancesNote 4. Business Segment and Geographical InformationNote 5. Income TaxesNote 6. Earnings Per ShareNote 7. Debt and Other Financing ArrangementsNote 8. Commitments and ContingenciesNote 9. Comprehensive Income and Shareholders' EquityNote 10. Fair Value Measurements and Fair Value Of Financial InstrumentsNote 11. Supplemental Cash Flow InformationNote 12. Restructuring and Other CostsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits