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 September 28, 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
2.150% Notes due 2022	TMO 22A	New York Stock Exchange
0.750% Notes due 2024	TMO 24A	New York Stock Exchange
0.125% Notes due 2025	TMO 25B	New York Stock Exchange
2.000% Notes due 2025	TMO 25	New York Stock Exchange
1.400% Notes due 2026	TMO 26A	New York Stock Exchange
1.450% Notes due 2027	TMO 27	New York Stock Exchange
0.500% Notes due 2028	TMO 28A	New York Stock Exchange
1.375% Notes due 2028	TMO 28	New York Stock Exchange
1.950% Notes due 2029	TMO 29	New York Stock Exchange
0.875% Notes due 2031	TMO 31	New York Stock Exchange
2.875% Notes due 2037	TMO 37	New York Stock Exchange
1.500% Notes due 2039	TMO 39	New York Stock Exchange
1.875% Notes due 2049	TMO 49	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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 September 28, 2019, the Registrant had 400,991,227 shares of Common Stock outstanding.

THERMO FISHER SCIENTIFIC INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 28, 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	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
	PART II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	47

2

THERMO FISHER SCIENTIFIC INC.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEET

(Unaudited)

	September 28,			December 31,
(In millions except share and per share amounts)	2019			2018
Assets
Current Assets:
Cash and cash equivalents	$	1,273		$	2,103
Accounts receivable, less allowances of $106 and $117	4,384			4,136
Inventories	3,308			3,005
Other current assets	1,549			1,381
Total current assets	10,514			10,625
Property, Plant and Equipment, Net	4,420			4,165
Acquisition-related Intangible Assets, Net	14,311			14,978
Other Assets	1,860			1,117
Goodwill	25,624			25,347
Total Assets	$	56,729		$	56,232
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term obligations and current maturities of long-term obligations	$	661		$	1,271
Accounts payable	1,659			1,615
Accrued payroll and employee benefits	883			982
Contract liabilities	943			809
Other accrued expenses	1,698			1,470
Total current liabilities	5,844			6,147
Deferred Income Taxes	2,001			2,265
Other Long-term Liabilities	3,137			2,515
Long-term Obligations	16,392			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; 434,028,435 and 431,566,561 shares issued	434			432
Capital in excess of par value	14,964			14,621
Retained earnings	21,165			18,696
Treasury stock at cost, 33,037,208 and 29,444,882 shares	(4,486		)	(3,665		)
Accumulated other comprehensive items	(2,722		)	(2,498		)
Total shareholders' equity	29,355			27,586
Total Liabilities and Shareholders' Equity	$	56,729		$	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						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
(In millions except per share amounts)	2019			2018			2019			2018
Revenues
Product revenues	$	4,798		$	4,571		$	14,345		$	13,807
Service revenues	1,474			1,349			4,368			4,044
Total revenues	6,272			5,920			18,713			17,851
Costs and Operating Expenses:
Cost of product revenues	2,471			2,357			7,363			7,072
Cost of service revenues	1,038			948			3,057			2,846
Selling, general and administrative expenses	1,539			1,490			4,632			4,547
Research and development expenses	247			240			741			716
Restructuring and other costs (income), net	31			(27		)	(442		)	35
Total costs and operating expenses	5,326			5,008			15,351			15,216
Operating Income	946			912			3,362			2,635
Other Expense, Net	(124		)	(102		)	(330		)	(385		)
Income Before Income Taxes	822			810			3,032			2,250
Provision for Income Taxes	(62		)	(101		)	(338		)	(210		)
Net Income	$	760		$	709		$	2,694		$	2,040
Earnings per Share
Basic	$	1.89		$	1.76		$	6.73		$	5.07
Diluted	$	1.88		$	1.75		$	6.68		$	5.03
Weighted Average Shares
Basic	401			402			400			402
Diluted	404			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						Nine Months Ended
	September 28,			September 29,			September 28,			September 29,
(In millions)	2019			2018			2019			2018
Comprehensive Income
Net Income	$	760		$	709		$	2,694		$	2,040
Other Comprehensive Items:
Currency translation adjustment:
Currency translation adjustment (net of tax provision of $77, $13, $92 and $60)	(91		)	(32		)	(222		)	(447		)
Reclassification adjustment for losses included in net income	30			—			30			—
Unrealized gains and losses on hedging instruments:
Unrealized losses on hedging instruments (net of tax benefit of $12, $0, $12 and $0)	(38		)	—			(38		)	—
Reclassification adjustment for losses included in net income (net of tax benefit of $1, $1, $3 and $3)	2			2			7			6
Pension and other postretirement benefit liability adjustments:
Pension and other postretirement benefit liability adjustments arising during the period (net of tax provision (benefit) of $2, $0, ($2) and $1)	2			—			(9		)	3
Amortization of net loss included in net periodic pension cost (net of tax benefit of $0, $0, $2 and $3)	3			2			8			10
Total other comprehensive items	(92		)	(28		)	(224		)	(428		)
Comprehensive Income	$	668		$	681		$	2,470		$	1,612

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

5

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 28,			September 29,
(In millions)	2019			2018
Operating Activities
Net income	$	2,694		$	2,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	416			393
Amortization of acquisition-related intangible assets	1,285			1,316
Change in deferred income taxes	(356		)	(317		)
Gain on sales of businesses	(486		)	—
Non-cash stock-based compensation	138			137
Other non-cash expenses, net	123			77
Changes in assets and liabilities, excluding the effects of acquisitions and disposition:
Accounts receivable	(321		)	(64		)
Inventories	(449		)	(333		)
Other assets	(186		)	(185		)
Accounts payable	70			(45		)
Other liabilities	172			(199		)
Contributions to retirement plans	(40		)	(78		)
Net cash provided by operating activities	3,060			2,742
Investing Activities
Acquisitions, net of cash acquired	(1,687		)	(59		)
Proceeds from sale of business, net of cash divested	1,128			—
Purchase of property, plant and equipment	(637		)	(474		)
Proceeds from sale of property, plant and equipment	18			6
Other investing activities, net	30			(5		)
Net cash used in investing activities	(1,148		)	(532		)
Financing Activities
Net proceeds from issuance of debt	—			690
Repayment of debt	(1,702		)	(2,048		)
Proceeds from issuance of commercial paper	2,581			3,378
Repayments of commercial paper	(2,578		)	(3,842		)
Purchases of company common stock	(750		)	(250		)
Dividends paid	(221		)	(198		)
Net proceeds from issuance of company common stock under employee stock plans	115			97
Other financing activities	(49		)	(51		)
Net cash used in financing activities	(2,604		)	(2,224		)
Exchange Rate Effect on Cash	(120		)	(236		)
Decrease in Cash, Cash Equivalents and Restricted Cash	(812		)	(250		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	2,117			1,361
Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,305		$	1,111

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 September 28, 2019
Balance at June 29, 2019	433	$	433	$	14,887	$	20,482		33	$	(4,443	)	$	(2,630	)	$	28,729
Issuance of shares under employees' and directors' stock plans	1	1		35		—			—	(43		)	—			(7		)
Stock-based compensation	—	—		42		—			—	—			—			42
Dividends declared ($0.19 per share)	—	—		—		(77		)	—	—			—			(77		)
Net income	—	—		—		760			—	—			—			760
Other comprehensive items	—	—		—		—			—	—			(92		)	(92		)
Balance at September 28, 2019	434	$	434	$	14,964	$	21,165		33	$	(4,486	)	$	(2,722	)	$	29,355
	Three Months Ended September 29, 2018
Balance at June 30, 2018	430	$	430	$	14,408	$	17,226		27	$	(3,128	)	$	(2,491	)	$	26,445
Issuance of shares under employees' and directors' stock plans	1	1		72		—			—	(36		)	—			37
Stock-based compensation	—	—		46		—			—	—			—			46
Purchases of company common stock	—	—		—		—			1	(250		)	—			(250		)
Dividends declared ($0.17 per share)	—	—		—		(69		)	—	—			—			(69		)
Net income	—	—		—		709			—	—			—			709
Other comprehensive items	—	—		—		—			—	—			(28		)	(28		)
Balance at September 29, 2018	431	$	431	$	14,526	$	17,866		28	$	(3,414	)	$	(2,519	)	$	26,890
	Nine Months Ended September 28, 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	2	2		205		—			1	(71		)	—			136
Stock-based compensation	—	—		138		—			—	—			—			138
Purchases of company common stock	—	—		—		—			3	(750		)	—			(750		)
Dividends declared ($0.57 per share)	—	—		—		(229		)	—	—			—			(229		)
Net income	—	—		—		2,694			—	—			—			2,694
Other comprehensive items	—	—		—		—			—	—			(224		)	(224		)
Balance at September 28, 2019	434	$	434	$	14,964	$	21,165		33	$	(4,486	)	$	(2,722	)	$	29,355
	Nine Months Ended September 29, 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	3	3		185		—			—	(61		)	—			127
Stock-based compensation	—	—		137		—			—	—			—			137
Purchases of company common stock	—	—		—		—			1	(250		)	—			(250		)
Dividends declared ($0.51 per share)	—	—		—		(206		)	—	—			—			(206		)
Net income	—	—		—		2,040			—	—			—			2,040
Other comprehensive items	—	—		—		—			—	—			(428		)	(428		)
Other	—	—		27		—			—	—			—			27
Balance at September 29, 2018	431	$	431	$	14,526	$	17,866		28	$	(3,414	)	$	(2,519	)	$	26,890

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 September 28, 2019, the results of operations for the three- and nine-month periods ended September 28, 2019 and September 29, 2018, and the cash flows for the nine-month periods ended September 28, 2019 and September 29, 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 nine months ended September 28, 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)

	September 28,		December 31,
(In millions)	2019		2018
Current Contract Assets, Net	$	609	$	459
Noncurrent Contract Assets, Net	14		15
Current Contract Liabilities	943		809
Noncurrent Contract Liabilities	562		355

In the first nine months of 2019, the company recognized revenue of $654 million that was included in the contract liabilities balance at December 31, 2018. Contract assets increased in the first nine months of 2019 due to the timing of billing. Contract liabilities increased during the first nine 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:

	Nine Months Ended
	September 28,	September 29,
(In millions)	2019	2018