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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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
 
 
 

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

 
 
 
 
 
Beginning Balance
 
$
92