UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended June 29, 2019 or

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

Commission File Number 1-8002

THERMO FISHER SCIENTIFIC INC.

(Exact name of Registrant as specified in its charter)

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

168 Third Avenue

Waltham, Massachusetts 02451

(Address of principal executive offices) (Zip Code)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	TMO	New York Stock Exchange
Floating Rate Notes due 2020	TMO /20A	New York Stock Exchange
1.500% Notes due 2020	TMO 20A	New York Stock Exchange
2.150% Notes due 2022	TMO 22A	New York Stock Exchange
0.750% Notes due 2024	TMO 24A	New York Stock Exchange
2.000% Notes due 2025	TMO 25	New York Stock Exchange
1.400% Notes due 2026	TMO 26A	New York Stock Exchange
1.450% Notes due 2027	TMO 27	New York Stock Exchange
1.375% Notes due 2028	TMO 28	New York Stock Exchange
1.950% Notes due 2029	TMO 29	New York Stock Exchange
2.875% Notes due 2037	TMO 37	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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.

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

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 June 29, 2019, the Registrant had 400,475,744 shares of Common Stock outstanding.

THERMO FISHER SCIENTIFIC INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2019

	TABLE OF CONTENTS
		Page
	PART I
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40
	PART II
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	46

2

THERMO FISHER SCIENTIFIC INC.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEET

(Unaudited)

	June 29,			December 31,
(In millions except share and per share amounts)	2019			2018
Assets
Current Assets:
Cash and cash equivalents	$	2,288		$	2,103
Accounts receivable, less allowances of $113 and $117	4,129			4,136
Inventories	3,209			3,005
Other current assets	1,597			1,381
Total current assets	11,223			10,625
Property, Plant and Equipment, Net	4,394			4,165
Acquisition-related Intangible Assets, Net	14,863			14,978
Other Assets	1,733			1,117
Goodwill	25,757			25,347
Total Assets	$	57,970		$	56,232
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term obligations and current maturities of long-term obligations	$	2,377		$	1,271
Accounts payable	1,391			1,615
Accrued payroll and employee benefits	809			982
Contract liabilities	1,062			809
Other accrued expenses	1,870			1,470
Total current liabilities	7,509			6,147
Deferred Income Taxes	1,936			2,265
Other Long-term Liabilities	3,133			2,515
Long-term Obligations	16,663			17,719
Shareholders' Equity:
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 1,200,000,000 shares authorized; 433,358,204 and 431,566,561 shares issued	433			432
Capital in excess of par value	14,887			14,621
Retained earnings	20,482			18,696
Treasury stock at cost, 32,882,460 and 29,444,882 shares	(4,443		)	(3,665		)
Accumulated other comprehensive items	(2,630		)	(2,498		)
Total shareholders' equity	28,729			27,586
Total Liabilities and Shareholders' Equity	$	57,970		$	56,232

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

3

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	June 29,			June 30,			June 29,			June 30,
(In millions except per share amounts)	2019			2018			2019			2018
Revenues
Product revenues	$	4,827		$	4,708		$	9,547		$	9,236
Service revenues	1,489			1,370			2,894			2,695
Total revenues	6,316			6,078			12,441			11,931
Costs and Operating Expenses:
Cost of product revenues	2,478			2,390			4,892			4,715
Cost of service revenues	1,015			950			2,019			1,898
Selling, general and administrative expenses	1,565			1,542			3,093			3,057
Research and development expenses	246			242			494			476
Restructuring and other (income) costs, net	(484		)	17			(473		)	62
Total costs and operating expenses	4,820			5,141			10,025			10,208
Operating Income	1,496			937			2,416			1,723
Other Expense, Net	(103		)	(131		)	(206		)	(283		)
Income Before Income Taxes	1,393			806			2,210			1,440
Provision for Income Taxes	(274		)	(54		)	(276		)	(109		)
Net Income	$	1,119		$	752		$	1,934		$	1,331
Earnings per Share
Basic	$	2.80		$	1.87		$	4.84		$	3.31
Diluted	$	2.77		$	1.85		$	4.80		$	3.28
Weighted Average Shares
Basic	400			403			400			402
Diluted	403			406			403			406

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

4

THERMO FISHER SCIENTIFIC INC.

 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	June 29,			June 30,			June 29,			June 30,
(In millions)	2019			2018			2019			2018
Comprehensive Income
Net Income	$	1,119		$	752		$	1,934		$	1,331
Other Comprehensive Items:
Currency translation adjustment (net of tax provision (benefit) of ($30), $94, $15 and $47)	(116		)	(462		)	(131		)	(415		)
Unrealized gains and losses on hedging instruments:
Reclassification adjustment for losses included in net income (net of tax benefit of $1, $1, $2 and $2)	3			2			5			4
Pension and other postretirement benefit liability adjustments:
Pension and other postretirement benefit liability adjustments arising during the period (net of tax provision (benefit) of ($4), $2, ($4) and $1)	(12		)	5			(11		)	3
Amortization of net loss included in net periodic pension cost (net of tax benefit of $1, $2, $2 and $3)	4			6			5			8
Total other comprehensive items	(121		)	(449		)	(132		)	(400		)
Comprehensive Income	$	998		$	303		$	1,802		$	931

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

5

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 29,			June 30,
(In millions)	2019			2018
Operating Activities
Net income	$	1,934		$	1,331
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	275			261
Amortization of acquisition-related intangible assets	851			885
Change in deferred income taxes	(392		)	(99		)
Gain on sale of business	(505		)	—
Non-cash stock-based compensation	96			91
Other non-cash expenses, net	48			63
Changes in assets and liabilities, excluding the effects of acquisitions and disposition:
Accounts receivable	5			(97		)
Inventories	(273		)	(195		)
Other assets	(179		)	(296		)
Accounts payable	(202		)	(20		)
Other liabilities	319			(359		)
Contributions to retirement plans	(34		)	(43		)
Net cash provided by operating activities	1,943			1,522
Investing Activities
Acquisitions, net of cash acquired	(1,686		)	(59		)
Proceeds from sale of business, net of cash divested	1,126			—
Purchase of property, plant and equipment	(421		)	(301		)
Proceeds from sale of property, plant and equipment	12			3
Other investing activities, net	19			(7		)
Net cash used in investing activities	(950		)	(364		)
Financing Activities
Repayment of debt	(3		)	(1,353		)
Proceeds from issuance of commercial paper	1,895			2,761
Repayments of commercial paper	(1,855		)	(2,655		)
Purchases of company common stock	(750		)	—
Dividends paid	(144		)	(129		)
Net proceeds from issuance of company common stock under employee stock plans	122			78
Other financing activities	—			(50		)
Net cash used in financing activities	(735		)	(1,348		)
Exchange Rate Effect on Cash	(61		)	(215		)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	197			(405		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	2,117			1,361
Cash, Cash Equivalents and Restricted Cash at End of Period	$	2,314		$	956

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

6

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited)

	Common Stock			Capital in Excess of Par Value		Retained Earnings			Treasury Stock				Accumulated Other Comprehensive Items			Total Shareholders' Equity
(In millions)	Shares	Amount							Shares	Amount
	Three Months Ended June 29, 2019
Balance at March 30, 2019	433	$	433	$	14,771	$	19,439		33	$	(4,441	)	$	(2,509	)	$	27,693
Issuance of shares under employees' and directors' stock plans	—	—		64		—			—	(2		)	—			62
Stock-based compensation	—	—		52		—			—	—			—			52
Dividends declared ($0.19 per share)	—	—		—		(76		)	—	—			—			(76		)
Net income	—	—		—		1,119			—	—			—			1,119
Other comprehensive items	—	—		—		—			—	—			(121		)	(121		)
Balance at June 29, 2019	433	$	433	$	14,887	$	20,482		33	$	(4,443	)	$	(2,630	)	$	28,729
	Three Months Ended June 30, 2018
Balance at March 31, 2018	429	$	429	$	14,319	$	16,542		27	$	(3,125	)	$	(2,042	)	$	26,123
Issuance of shares under employees' and directors' stock plans	1	1		41		—			—	(3		)	—			39
Stock-based compensation	—	—		48		—			—	—			—			48
Dividends declared ($0.17 per share)	—	—		—		(68		)	—	—			—			(68		)
Net income	—	—		—		752			—	—			—			752
Other comprehensive items	—	—		—		—			—	—			(449		)	(449		)
Balance at June 30, 2018	430	$	430	$	14,408	$	17,226		27	$	(3,128	)	$	(2,491	)	$	26,445
	Six Months Ended June 29, 2019
Balance at December 31, 2018	432	$	432	$	14,621	$	18,696		29	$	(3,665	)	$	(2,498	)	$	27,586
Cumulative effect of accounting change	—	—		—		4			—	—			—			4
Issuance of shares under employees' and directors' stock plans	1	1		170		—			1	(28		)	—			143
Stock-based compensation	—	—		96		—			—	—			—			96
Purchases of company common stock	—	—		—		—			3	(750		)	—			(750		)
Dividends declared ($0.38 per share)	—	—		—		(152		)	—	—			—			(152		)
Net income	—	—		—		1,934			—	—			—			1,934
Other comprehensive items	—	—		—		—			—	—			(132		)	(132		)
Balance at June 29, 2019	433	$	433	$	14,887	$	20,482		33	$	(4,443	)	$	(2,630	)	$	28,729
	Six Months Ended June 30, 2018
Balance at December 31, 2017	428	$	428	$	14,177	$	15,914		27	$	(3,103	)	$	(2,003	)	$	25,413
Cumulative effect of accounting changes	—	—		—		118			—	—			(88		)	30
Issuance of shares under employees' and directors' stock plans	2	2		113		—			—	(25		)	—			90
Stock-based compensation	—	—		91		—			—	—			—			91
Dividends declared ($0.34 per share)	—	—		—		(137		)	—	—			—			(137		)
Net income	—	—		—		1,331			—	—			—			1,331
Other comprehensive items	—	—		—		—			—	—			(400		)	(400		)
Other	—	—		27		—			—	—			—			27
Balance at June 30, 2018	430	$	430	$	14,408	$	17,226		27	$	(3,128	)	$	(2,491	)	$	26,445

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

7

THERMO FISHER SCIENTIFIC INC.

NOTES TO 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 diagnostics, deliver medicines to market 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 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 June 29, 2019, the results of operations for the three- and six-month periods ended June 29, 2019 and June 30, 2018, and the cash flows for the six-month periods ended June 29, 2019 and June 30, 2018. Interim results are not necessarily indicative of results for a full year.

The consolidated balance sheet presented as of December 31, 2018, has been derived from the audited consolidated financial statements as of that date. The 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 consolidated financial statements and notes included in this report should be read in conjunction with the 2018 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).

Note 1 to the consolidated financial statements for 2018 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. Except for the accounting for leases, as noted below, there have been no material changes in the company’s significant accounting policies during the six months ended June 29, 2019.

Leases

The company determines whether an arrangement is, or contains, a lease at inception. Prior to 2019, the company generally accounted for operating lease payments by charging them to expense as incurred. Beginning in 2019, operating leases that have commenced are included in other assets, other accrued expenses and other long-term liabilities in the consolidated balance sheet. Classification of operating lease liabilities as either current or noncurrent is based on the expected timing of payments due under the company’s obligations.

Right-of-use (ROU) assets represent the company’s right to use an underlying asset for the lease term and lease liabilities represent the company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The company recognizes lease expense for these leases on a straight-line basis over the lease term.

Because most of the company’s leases do not provide an implicit rate, the company estimates incremental borrowing rates based on the information available at the commencement date in determining the present value of lease payments. The company uses the implicit rate when readily determinable. Lease terms may include the effect of options to extend or terminate the lease when it is reasonably certain that the company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.

As a lessee, the company accounts for the lease and non-lease components as a single lease component.

See Note 9 additional information about the company's leases.

Contract-related Balances

Current contract assets and noncurrent contract assets are included within other current assets and other assets, respectively, in the accompanying balance sheet. Noncurrent contract liabilities are included within other long-term liabilities in the accompanying balance sheet. Contract asset and liability balances are as follows:

8

THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	June 29,		December 31,
(In millions)	2019		2018
Current Contract Assets, Net	$	646	$	459
Noncurrent Contract Assets, Net	13		15
Current Contract Liabilities	1,062		809
Noncurrent Contract Liabilities	532		355

In the first six months of 2019, the company recognized revenue of $532 million that was included in the contract liabilities balance at December 31, 2018. Contract assets increased in the first six months of 2019 due to the timing of billing. Contract liabilities increased during the first six months of 2019 primarily due to an advance payment from a customer and an acquisition.

Warranty Obligations

The liability for warranties is included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of standard product warranty obligations are as follows:

	Six Months Ended
	June 29,			June 30,
(In millions)	2019			2018
Beginning Balance	$	92		$	87
Provision charged to income	53			58
Usage	(55		)	(53		)
Adjustments to previously provided warranties, net	(1		)	(2		)
Currency translation	—			(2		)
Ending Balance	$	89		$	88

Inventories

The components of inventories are as follows:

	June 29,		December 31,
(In millions)	2019		2018
Raw Materials	$	923	$	812
Work in Process	495		430
Finished Goods	1,791		1,763
Inventories	$	3,209	$	3,005

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. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In August 2018, the FASB issued new guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The company expects to adopt the guidance when it is effective in 2020 using a retrospective method. The adoption of this guidance is not expected to have a material impact on the company’s disclosures.

In August 2018, the FASB issued new guidance to modify the disclosure requirements on fair value measurements. The company expects to adopt the guidance when it is effective in 2020 with some items requiring a prospective method and others

9

THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

requiring a retrospective method. The adoption of this guidance is not expected to have a material impact on the company’s disclosures.

In June 2016, the FASB issued new guidance to require a financial asset measured at amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. During 2018 and 2019, the FASB issued additional guidance and clarification. The company expects to adopt the guidance when it is effective in 2020 using a modified retrospective method. The adoption of this guidance is not expected to have a material impact on the company’s consolidated financial statements.

In February 2016, the FASB issued new guidance which requires lessees to record most leases on their balance sheets as lease liabilities, initially measured at the present value of the future lease payments, with corresponding right-of-use assets. The new guidance also sets forth new disclosure requirements related to leases. During 2017 - 2019, the FASB issued additional guidance and clarification. The guidance became effective for the company in 2019. The company has elected to adopt the guidance using a modified retrospective method, by applying the transition approach as of the beginning of the period of adoption. Comparative periods have not been restated. As permitted upon transition, the company did not reassess whether any expired or existing contracts were or contained embedded leases, the lease classification for any expired or existing leases, initial direct costs for any leases, or whether land easements met the definition of a lease if they were not accounted for as leases under the prior guidance. Adoption of the new guidance impacted the company’s Consolidated Balance Sheet as follows:

(In millions)	December 31, 2018 as Reported		Impact of Adopting New Lease Guidance		January 1, 2019 As Adopted
Other Assets	$	1,117	$	641	$	1,758
Other Accrued Expenses	1,470		132		1,602
Other Long-term Liabilities	2,515		505		3,020
Retained Earnings	18,696		4		18,700

Note 2. Acquisitions and Dispositions

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

Acquisitions have been accounted for using the acquisition method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Acquisition transaction costs are recorded in selling, general and administrative expenses as incurred.

On April 30, 2019, the company acquired, within the Laboratory Products and Services segment, Brammer Bio for approximately $1.67 billion in cash. Brammer Bio is a leading viral vector contract development and manufacturing organization for gene and cell therapies. The acquisition expands the segment's contract manufacturing capabilities. Revenues of Brammer Bio were approximately $140 million in 2018. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $952 million was allocated to goodwill, $411 million of which is tax deductible.

In addition, in 2019 the company acquired, within the Analytical Instruments segment, a Slovakia-based provider of mass spectrometry software used for identification of compounds, for an aggregate purchase price of $14 million.

10

THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIA