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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reference is made throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations to Notes to the Consolidated Financial Statements, which begin on page F-1 of this report. Management's discussion and analysis of financial condition and results of operations for 2019 is included in Item 7 of the company’s 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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 diagnostics and 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 - 2021 Compared With 2020

(Dollars in millions except per share amounts) 2021 2020 Change

GAAP operating income margin 25.6 % 24.2 % 1.4 pt

Adjusted operating income (non-GAAP measure) $ 12,138 $ 9,556 27 %

Adjusted operating income margin (non-GAAP measure) 31.0 % 29.7 % 1.3 pt

Adjusted earnings per share (non-GAAP measure) $ 25.13 $ 19.56 28 %

Organic Revenue Growth

Revenue growth 22 %

Impact of acquisitions 3 %

Impact of currency translation 2 %

Organic revenue growth* (non-GAAP measure) 17 %

* Results may not sum due to rounding.

The company mobilized in early 2020 to support the COVID-19 pandemic response with products and services that help analyze, diagnose and protect from the virus. However, as a result of the pandemic’s impact on various markets, the company saw a significant reduction in customer activity in several businesses by late March 2020 that materially adversely affected primarily the 2020 results of the Analytical Instruments segment and, to a lesser extent, some businesses within the company’s other three segments. The negative impact significantly lessened in 2021, but could worsen in 2022 dependent on the success of global efforts to control and unwind from the pandemic and economic activity ramping up. During 2021, the Life Sciences Solutions and Specialty Diagnostics segments as well as the laboratory products business continued to support COVID-19 diagnostic testing, scaling and evolving their molecular diagnostics solutions and plastic consumables businesses to respond to the on-going COVID-19 pandemic. The biosciences and bioproduction businesses also expanded their capacity to meet the needs of pharma and biotech customers as they rapidly expanded their own production volumes to meet global vaccine manufacturing requirements. Additionally, through our pharma services business, we 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 response were $9.23 billion and $6.63 billion in 2021 and 2020, respectively.

Conditions were strong in each of the company’s end markets during 2021. Revenues were particularly strong in pharma and biotech driven by strong market dynamics and the company’s role in supporting customers across a wide range of therapeutic areas, including our role in supporting COVID-19 vaccines and therapies. Customers in the academic and

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Overview (continued)

government market increased demand as a result of positive funding trends around the globe and a return to pre-pandemic levels of activity. Customer activity in the industrial and applied market returned to pre-pandemic levels in 2021. Revenues from customers in the diagnostics and healthcare market were driven by growth in COVID-19 testing-related products as the company continued to support the societal response to the pandemic. Sales growth was strong across all geographic regions during 2021. The company continues to execute its proven growth strategy which consists of three pillars:

•Developing high-impact, innovative new products,

•Leveraging our scale in high-growth and emerging markets, and

•Delivering a unique value proposition to our customers.

GAAP operating income margin and adjusted operating income margin increased in 2021 due primarily to profit on higher sales and sales mix, offset in part by strategic growth investments to support the company’s near and long-term growth.

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. Productivity improvements are calculated net of inflationary cost increases.

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.

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. Accordingly, the following segment data are reported on this basis.

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Results of Operations (continued)

Revenues

Laboratory Products and Biopharma Services 14,862 12,245

Life Sciences Solutions Organic* (non-GAAP measure)

Segment income margin 50.0 % 50.2 % -0.2 pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was driven by a combination of increased demand for testing to diagnose COVID-19 with higher sales of biosciences products and strong demand in each of the segment’s businesses. The decrease in segment income margin resulted primarily from strategic growth investments, offset in part by profit on higher sales.

Analytical Instruments Organic* (non-GAAP measure)

Segment income margin 19.7 % 15.8 % 3.9 pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was due to increased demand for products sold by each of the segment’s primary businesses with particular strength in electron microscopy instruments as well as chromatography and mass spectrometry instruments. The increase in segment income margin was primarily due to profit on higher sales and, to a lesser extent, a $108 million charge in 2020 related to a long-term supply contract (discussed in Note 12), offset in part by strategic growth investments.

Specialty Diagnostics Organic* (non-GAAP measure)

Segment income margin 22.6 % 25.6 % -3.0 pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was due to higher demand primarily driven by products addressing treatment of COVID-19, with particular strength in sales of products sold through the segment's healthcare market channel, immunodiagnostics and clinical diagnostics products. The decrease in segment income margin was primarily due to sales mix and strategic investments, offset in part by profit on higher sales and, to a lesser extent, a $13 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1).

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Results of Operations (continued)

Laboratory Products and Biopharma Services Organic* (non-GAAP measure)

Segment income margin 12.4 % 10.4 % 2.0 pt

* Results may not sum due to rounding

The increase in segment revenues at existing businesses in 2021 was primarily due to increased demand in each of the segment’s principal businesses with particular strength in products sold through its pharma services business and research and safety market channel and, to a lesser extent, laboratory products businesses. The increase in segment income margin was primarily due to profit on higher sales and sales mix, and, to a lesser extent, acquisitions and a $20 million credit to cost of product revenue as a result of changing the method of accounting for inventories (discussed in Note 1), offset in part by strategic growth investments.

Non-operating Items

Net interest expense $ 493 $ 488

GAAP other income/(expense) (694) (76)

Adjusted other income/(expense) (non-GAAP measure) 38 45

Adjusted tax rate (non-GAAP measure) 14.6 % 14.3 %

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 and 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 2021 also includes $767 million of losses on the early extinguishment of debt (Note 10) and $36 million of financing costs associated with obtaining bridge financing commitments in connection with the agreement to acquire PPD (Note 2), offset in part by $66 million of net gains on investments. GAAP other income/(expense) in 2020 includes $81 million of financing costs for a terminated acquisition, primarily for loan commitment fees and entering into hedging contracts and $42 million of expense reclassified from accumulated other comprehensive items related to a hedge arrangement (Note 14), offset in part by $10 million of net gains on investments.

The company’s GAAP and adjusted tax rates increased in 2021 compared to 2020, primarily due to higher profits at different marginal rates, offset in part by the benefits of our tax planning initiatives. The company’s 2021 GAAP and adjusted tax rates were also impacted by income tax benefits on intra-entity transactions totaling $284 million. In 2020, the company’s GAAP and adjusted tax rates were impacted by foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S. income tax expense; a net income tax benefit of $51 million from a domestication transaction involving the transfer of non-U.S. subsidiaries to the U.S.; and a $47 million income tax benefit related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements. Additionally, the 2020 GAAP tax rate included a $27 million tax benefit from tax audit settlements.

The effective tax rate in both 2021 and 2020 was 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 were higher than its income tax expense for financial reporting purposes and totaled $2.18 billion and $1.32 billion in 2021 and 2020, respectively.

The company expects its GAAP effective tax rate in 2022 will be between 9% and 11% 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 approximately 13% in 2022.

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Results of Operations (continued)

The company has operations and a taxable presence in approximately 50 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.

December 31, December 31,

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 December 31, 2021, the company’s short-term debt totaled $2.54 billion. On January 7, 2022, the company replaced its prior credit facility with a new revolving credit facility with a bank group that provides up to $5.00 billion of unsecured multi-currency revolving credit (Note 10). 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 December 31, 2021, 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.

Net cash provided by operating activities $ 9,312 $ 8,289

Net cash used in investing activities (21,932) (1,510)

Net cash provided by financing activities 6,581 959

Free cash flow (non-GAAP measure) 6,809 6,823

During 2021, cash provided by income was offset in part by investments in working capital. Increases in accounts receivable and inventories used cash of $204 million and $1.07 billion, respectively, primarily to support growth in sales. An increase in accounts payable provided cash of $479 million. Changes in other assets and other liabilities used cash of $724 million primarily due to the timing of tax and incentive compensation payments. Cash payments for income taxes were $2.18 billion during 2021.

During 2020, cash provided by income was offset in part by investments in working capital. Increases in accounts receivable and inventories used cash of $1.30 billion and $508 million, respectively, primarily to support growth in sales. Changes in other assets and other liabilities provided cash of $1.45 billion primarily due to the timing of incentive compensation payments and, to a lesser extent, customer billings. Cash payments for income taxes were $1.32 billion during 2020.

During 2021, acquisitions used cash of $19.40 billion. The company's investing activities also included the purchase of $2.52 billion of property, plant and equipment for capacity and capability investments. During 2020, the company’s investing activities were principally for the purchase of property, plant and equipment.

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Liquidity and Capital Resources (continued)

During 2021, issuance of senior notes provided $18.14 billion of cash. A net increase in commercial paper obligations provided cash of $2.51 billion. Repayment of debt used cash of $11.74 billion, including $4.30 billion to repay the debt assumed in the acquisition of PPD. 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 $395 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. Early in the first quarter of 2022, the company repurchased $2.00 billion of the company's common stock (3.3 million shares). At February 24, 2022, authorization remained for $1.00 billion of future repurchases of the company’s common stock. As discussed in Note 10, in the first quarter of 2022 the company redeemed its 3.650% Senior Notes due 2025 for a total cash outlay of $375 million.

During 2020, issuance of senior notes provided cash of $3.46 billion. Repayment of senior notes used cash of $710 million. The company’s financing activities also included the repurchase of $1.50 billion of the company’s common stock (4.5 million shares) and the payment of $337 million in cash dividends.

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.

In addition to the obligations on the balance sheet at December 31, 2021, which include, but are not limited to, debt (Note 10), unrecognized tax benefits (Note 8), operating leases (Note 11) pension obligations (Note 7) and contingent consideration (Note 14), the company has entered into unconditional purchase obligations, in the ordinary course of business, that include agreements to purchase goods, services or fixed assets and to pay royalties (Note 12).

The company is contingently liable with respect to certain legal proceedings and related matters. An unfavorable outcome that differs materially from current accrual estimates, if any, for one or more of the matters described under the heading “Product Liability, Workers Compensation and Other Personal Injury Matters,” in Note 12 could have a material adverse effect on the company’s financial position as well as its results of operations and cash flows.

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 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:

•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 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

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Non-GAAP Measures (continued)

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 uses this measure as an indication of the strength of the company and its ability to generate cash for use in acquisitions and other investing and financing activities. 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-K 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.

(Dollars in millions except per share amounts) 2021 2020

Reconciliation of adjusted operating income and adjusted operating income margin

Cost of revenues charges (a) 8 0.0 % 6 0.0 %

Selling, general and administrative charges (credits) (b) 144 0.4 % (10) 0.0 %

Restructuring and other costs (c) 197 0.5 % 99 0.3 %

Amortization of acquisition-related intangible assets 1,761 4.5 % 1,667 5.2 %

Reconciliation of adjusted other income/(expense)

GAAP other income/(expense) $ (694) $ (76)

Adjusted other income/(expense) (non-GAAP measure) $ 38 $ 45

Reconciliation of adjusted tax rate

Adjustments (e) 2.1 % 2.5 %

Adjusted tax rate (non-GAAP measure) 14.6 % 14.3 %

Reconciliation of adjusted earnings per share

Cost of revenues charges (a) 0.02 0.01

Selling, general and administrative charges (credits) (b) 0.36 (0.02)

Restructuring and other costs (c) 0.50 0.25

Amortization of acquisition-related intangible assets 4.43 4.17

Other income/expense adjustments (d) 1.84 0.30

Benefit from income taxes (e) (1.49) (1.12)

Equity in losses of unconsolidated entities 0.01 0.01

Adjusted EPS (non-GAAP measure) $ 25.13 $ 19.56

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Non-GAAP Measures (continued)

(Dollars in millions except per share amounts) 2021 2020

Reconciliation of free cash flow

GAAP net cash provided by operating activities $ 9,312 $ 8,289

Purchases of property, plant and equipment (2,523) (1,474)

Proceeds from sale of property, plant and equipment 20 8

Free cash flow (non-GAAP measure) $ 6,809 $ 6,823

(a) Adjusted results in 2021 exclude charges for the sale of inventories revalued at the date of acquisition. Adjusted results in 2020 exclude $4 million of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations and $2 million of charges to conform the accounting policies of recently acquired businesses with the company’s accounting policies.

(b) Adjusted results in 2021 and 2020 exclude certain third-party expenses (credits), principally transaction/integration costs (including reimbursement thereof) related to recent/terminated acquisitions; credits from changes in estimates of contingent acquisition consideration; and charges associated with product liability litigation.

(c) Adjusted results in 2021 and 2020 exclude restructuring and other costs consisting principally of severance, abandoned facility and other expenses of headcount reductions within several businesses and real estate consolidations, and charges for impairment of acquired technology. Adjusted results in 2021 exclude $35 million of charges for compensation due to employees of recently acquired businesses at the date of acquisition.

(d) Adjusted results in 2021 and 2020 exclude net gains on investments and charges for amortization of bridge loan commitment fees and entering hedging contracts for recent/terminated acquisitions. Adjusted results in 2021 exclude $767 million of losses on the early extinguishment of debt. Adjusted results in 2020 exclude $42 million of charges related to terminated interest rate swaps and $8 million of net charges for the settlement/curtailment of pension plans.

(e) Adjusted provision for income taxes in 2021 and 2020 excludes the incremental tax benefit for the pre-tax reconciling items between GAAP and adjusted net income, incremental tax impacts from audit settlements and incremental tax impacts from adjusting the company's non-U.S. deferred tax balances as a result of tax rate changes.

Critical Accounting Policies and Estimates

The company’s discussion and analysis of its financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to acquisition-related measurements and income taxes. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management bases its estimates on historical experience, current market and economic conditions and other assumptions that management believes are reasonable. The results of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The company believes the following represent its critical accounting policies and estimates used in the preparation of its financial statements:

Acquisition-related Measurements

Business Combinations

The company uses assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets, which represent a significant portion of the purchase price in many of the company’s acquisitions, requires the use of significant judgment with regard to (i) the fair value and (ii) whether such intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. The company estimates the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which include estimates of customer attrition and technology obsolesce rates. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition. See Note 2 for additional information about our recent business combinations.

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Critical Accounting Policies and Estimates (continued)

Goodwill and Indefinite-lived Intangible Assets

The company evaluates goodwill and indefinite-lived intangible assets for impairment annually and when events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount. Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts. Goodwill and indefinite-lived intangible assets totaled $41.92 billion and $1.24 billion, respectively, at December 31, 2021 (see Note 1 for additional information). Estimates of discounted future cash flows require assumptions related to revenue and operating income growth rates, discount rates and other factors. For the goodwill impairment tests, the company considers (i) peer revenues and earnings trading multiples from companies that have operational and financial characteristics that are similar to the respective reporting units and (ii) estimated weighted average costs of capital. Different assumptions from those made in the company’s analysis could materially affect projected cash flows and the company’s evaluation of goodwill and indefinite-lived intangible assets for impairment.

The company performed the quantitative goodwill impairment test for all of its reporting units and indefinite-lived intangible assets. Indications of fair value based on projections of cash flows, which increased over the prior year projections at higher rates than the increases in carrying values, and on peer revenues, earnings trading multiples and discount rates, which were relatively consistent with the prior year, were sufficient to conclude that no impairment of goodwill or indefinite-lived intangible assets existed at the end of the tenth fiscal month of 2021, the date of the company’s annual impairment testing. There were no interim impairments of goodwill or indefinite-lived intangible assets in 2021. There can be no assurance, however, that an economic downturn will not materially adversely affect peer trading multiples and the company’s businesses such that they do not achieve their forecasted profitability and these assets become impaired. Should the fair value of the company’s goodwill or indefinite-lived intangible assets decline because of reduced operating performance, market declines, or other indicators of impairment, or as a result of changes in the discount rate, charges for impairment may be necessary.

Definite-lived Intangible Assets

Definite-lived intangible assets totaled $18.88 billion at December 31, 2021 (see Note 1 for additional information). The company reviews definite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset. The company recorded impairments of $0.12 billion in 2021 (see Note 16 for additional information).

Contingent Consideration

The fair value of contingent consideration liabilities, which were initially exchanged for control of businesses or assumed from acquired businesses, was $0.32 billion at December 31, 2021. At each reporting period, the fair value of contingent consideration is determined using either discounted cash flow analyses, Monte Carlo simulations, or fair values of an underlying recapitalization investment portfolio. Changes in the fair value of contingent consideration liabilities can result from changes in estimates of revenue or operating results or in the timing or likelihood of achieving milestones, as well as changes in the fair values of the investments underlying the recapitalization investment portfolio. These changes resulted in (benefits)/charges of $(0.05) billion during 2021 (see Note 14 for additional information).

Income Taxes

Unrecognized Tax Benefits

In the ordinary course of business there is inherent uncertainty in quantifying the company’s income tax positions. The company assesses income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the company has recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Should tax return positions that the company expects are sustainable not be sustained upon audit, the company could be required to record an incremental tax provision for such taxes. The company’s liability for these unrecognized tax benefits totaled $1.12 billion at December 31, 2021 (see Note 8 for additional information).

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AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates (continued)

The company operates in numerous countries under many legal forms and, as a result, is subject to the jurisdiction of numerous domestic and non-U.S. tax authorities, as well as to tax agreements and treaties among these governments. Determination of taxable income in any jurisdiction requires the company to interpret the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, currency exchange restrictions or the company’s level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and hence the company’s net income.

Valuation Allowances

The company estimates the degree to which tax assets will result in a benefit, after consideration of all positive and negative evidence, and provides a valuation allowance for tax assets that it believes will more likely than not go unused. In situations in which the company has been able to determine that its deferred tax assets will be realized, that determination generally relies on future reversals of taxable temporary differences and expected future taxable income. If it becomes more likely than not that a tax asset will be used, the company reverses the related valuation allowance. Any such reversals are recorded as a reduction of the company’s tax provision. The company’s tax valuation allowance totaled $0.97 billion at December 31, 2021 (see Note 8 for additional information). Should the company’s actual future taxable income by tax jurisdiction vary from estimates, additional allowances or reversals thereof may be necessary.

Undistributed Earnings

The company has not provided U.S. state income taxes or additional non-U.S. taxes on certain of its non-U.S. subsidiaries’ undistributed earnings, as such amounts are intended to be reinvested outside the United States indefinitely in the respective jurisdictions based on specific business plans and tax strategies (see Note 8 for additional information). These business plans and tax strategies consider: short-term and long-term forecasts and budgets of the U.S. parent and non-U.S. subsidiaries; working capital and other needs in locations where earnings are generated; the company’s past practices regarding non-U.S. subsidiary dividends; sources of financing by the U.S. parent, such as issuing debt or equity; and uses of cash by the U.S. parent that are more discretionary in nature, such as business combinations and share repurchase programs. However, should the company change its business plans and tax strategies in the future and decide to repatriate a portion of these earnings to one of its U.S. subsidiaries, including cash maintained by these non-U.S. subsidiaries, the company would recognize additional tax liabilities. It is not practicable to estimate the amount of additional U.S. state income tax and non-U.S. tax liabilities that the company would incur. The company’s intent is to only make distributions from non-U.S. subsidiaries in the future when they can be made at no net tax costs.

Recent Accounting Pronouncements

A description of recently issued accounting standards is included under the heading “Recent Accounting Pronouncements” in Note 1.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The company is exposed to market risk from changes in interest rates and currency exchange rates, which could affect its future results of operations and financial condition. The company manages its exposure to these risks through its regular operating and financing activities. The company has periodically hedged interest rate risks of fixed-rate instruments with offsetting interest rate swaps. Additionally, the company uses short-term forward and option contracts primarily to hedge certain balance sheet and operational exposures resulting from changes in currency exchange rates. Such exposures result from purchases, sales, cash and intercompany loans that are denominated in currencies other than the functional currencies of the respective operations. The currency-exchange contracts principally hedge transactions denominated in euro, Swiss franc, British pounds sterling, Canadian dollars, Czech koruna, Japanese yen and Hong Kong dollars. Income and losses arising from these derivative contracts are recognized as offsets to losses and income resulting from the underlying exposure being hedged. The company does not enter into speculative derivative agreements.

Interest Rates

The company is exposed to changes in interest rates while conducting normal business operations as a result of ongoing investing and financing activities, which affect the company’s debt as well as cash and cash equivalents. As of December 31, 2021, the company’s debt portfolio was comprised primarily of fixed rate borrowings. The fair market value of the company’s

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THERMO FISHER SCIENTIFIC INC.

Quantitative and Qualitative Disclosures About Market Risk (continued)

fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The total estimated fair value of the company’s debt at December 31, 2021 was $36.05 billion (Note 14). Fair values were determined from available market prices using current interest rates and terms to maturity. If interest rates were to decrease by 100 basis points, the fair value of the company’s debt at December 31, 2021 would increase by approximately $2.51 billion. If interest rates were to increase by 100 basis points, the fair value of the company’s debt at December 31, 2021 would decrease by approximately $2.52 billion.

In addition, interest rate changes would result in a change in the company’s interest expense due to variable-rate debt instruments including swap arrangements. In 2021, a 100 basis point increase in interest rates on the swap arrangements and variable-rate debt would have increased the company’s annual pre-tax interest expense by approximately $6 million.

Currency Exchange Rates

The company views its investment in international subsidiaries with a functional currency other than the U.S. dollar as permanent. The company’s investment in international subsidiaries is sensitive to fluctuations in currency exchange rates. The functional currencies of the company’s international subsidiaries are principally denominated in euro, British pounds sterling, Swedish kronor, Canadian dollars, Norwegian kroner and Danish kroner. The effect of a change in the period ending currency exchange rates on the company’s net investment in international subsidiaries is reflected in the “accumulated other comprehensive items” component of shareholders’ equity. The company also uses foreign currency-denominated debt to partially hedge its net investments in foreign operations against adverse movements in exchange rates. A 10% depreciation in year-end 2021 functional currencies, relative to the U.S. dollar, would result in a reduction of shareholders’ equity of approximately $1.23 billion.

The fair value of forward currency-exchange contracts is sensitive to changes in currency exchange rates. The fair value of forward currency-exchange contracts is the estimated amount that the company would pay or receive upon termination of the contract, taking into account the change in currency exchange rates. A 10% depreciation in year-end 2021 non-functional currency exchange rates related to the company’s contracts would result in an additional unrealized loss on forward currency-exchange contracts of $71 million. A 10% appreciation in year-end 2021 non-functional currency exchange rates related to the company’s contracts would result in an unrealized gain on forward currency-exchange contracts of $71 million. The unrealized gains or losses on forward currency-exchange contracts resulting from changes in currency exchange rates are expected to approximately offset losses or gains on the exposures being hedged.

Certain of the company’s cash and cash equivalents are denominated in currencies other than the functional currency of the depositor and are sensitive to changes in currency exchange rates. A 10% depreciation in the related year-end 2021 non-functional currency exchange rates applied to such cash balances would result in a negative impact of $27 million on the company’s net income.

Item 8. Financial Statements and Supplementary Data

This data is submitted as a separate section to this report. See Item 15 “Exhibits and Financial Statement Schedules.”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. 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.

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THERMO FISHER SCIENTIFIC INC.

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 December 31, 2021, that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

The company’s management, including the company’s chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company’s management conducted an assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2021 based on criteria established in “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, the company’s management concluded that, as of December 31, 2021, the company’s internal control over financial reporting was effective. Management’s assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2021, excluded PPD, Inc., Mesa Biotech, Inc. and PeproTech, Inc., which were acquired by the company in 2021 in separate purchase business combinations. These entities, whose total assets and total revenues were excluded from the company’s assessment, represented approximately 5% and 2%, respectively, of the related consolidated amounts as of and for the year ended December 31, 2021. Based upon Securities and Exchange Commission staff guidance, companies are allowed to exclude certain acquisitions from their assessments of internal control over financial reporting during the first year of an acquisition while integrating the acquired companies.

The company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the company’s internal control over financial reporting as of December 31, 2021, as stated in their report that appears on page F-2 of this Annual Report on Form 10-K.

Item 9B. Other Information

On February 24, 2022, the company and Mark P. Stevenson entered into a consulting agreement relating to ongoing services that Mr. Stevenson will provide to the company following his last day as an employee on March 18, 2022. Under the consulting agreement, which has a term ending March 1, 2023, Mr. Stevenson will serve on the company’s Scientific Advisory Board and will also provide ongoing advice and services relating to COVID-19 research and products. During the term of the consulting agreement, Mr. Stevenson’s outstanding and unvested equity awards granted in fiscal year 2021 will continue to vest in accordance with their original terms based on his continued service to the company and, if he provides consulting services through March 1, 2023, his outstanding and unvested equity awards granted in fiscal year 2021 will vest to the same extent as if he had retired as an employee on March 1, 2023 and the post-termination exercise period of all of Mr. Stevenson’s stock options, to the extent vested and exercisable on March 1, 2023, will be extended until the original maximum term of such stock options. The agreement also contains provisions that restrict Mr. Stevenson’s ability during the term of the consulting agreement, and (i) for a period of twelve months thereafter, to work for or provide consulting services to, any competitor of the company, and (ii) for a period of eighteen months thereafter, to solicit for hire employees or consultants of the company or to solicit customers or clients of the company.

The foregoing summary of the consulting agreement is subject to, and qualified in its entirety by, the full text of such agreement, which is filed as an exhibit to this Annual Report on Form 10-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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THERMO FISHER SCIENTIFIC INC.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information with respect to directors required by this Item will be contained in our definitive proxy statement to be filed with the SEC not later than 120 days after the close of business of the fiscal year (2022 Definitive Proxy Statement) including under “Corporate governance—Board of directors—selection, skills and experience—Director nominee skills, experience, and background,” and “Corporate governance—Board of directors—selection, skills and experience—Nominees and incumbent directors,” and is incorporated in this report by reference.

The information with respect to executive officers required by this Item is included in Item 1 of Part I of this report.

The other information required by this Item will be contained in our 2022 Definitive Proxy Statement including under “Corporate governance—Board practices, policies and processes —Corporate Governance Guidelines” and “Corporate Governance—Board leadership structure—Board committees,” and is incorporated in this report by reference.

Item 11. Executive Compensation

The information required by this Item will be contained in our 2022 Definitive Proxy Statement including under “Corporate governance—Compensation of directors,” and “Executive compensation,” and is incorporated in this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be contained in our 2022 Definitive Proxy Statement including under “Information about stock ownership—Equity compensation plan information” and “Information about stock ownership—Security ownership of certain beneficial owners and management,” and is incorporated in this report by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be contained in our 2022 Definitive Proxy Statement including under “Corporate governance—Board practices, policies and processes—Related person transactions,” and “Corporate governance—Board leadership structure—How we assess director independence,” and is incorporated in this report by reference.

Item 14. Principal Accountant Fees and Services

The information required by this Item will be contained in our 2022 Definitive Proxy Statement including under “Audit matters—Independent auditor fees” and “Audit matters—Audit Committee’s pre-approval policies and procedures,” and is incorporated in this report by reference.

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THERMO FISHER SCIENTIFIC INC.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) Consolidated Financial Statements (see Index on page F-1 of this report)

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Statement of Cash Flows

Consolidated Statement of Redeemable Noncontrolling Interest and Equity

Notes to Consolidated Financial Statements

(2) All schedules are omitted because they are not applicable or not required, or because the required information is included either in the consolidated financial statements or in the notes thereto.

(b) Exhibits

See the Exhibit Index on page 41.

Item 16. Form 10-K Summary

None.

39

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: February 24, 2022 THERMO FISHER SCIENTIFIC INC.

By: /s/ Marc N. Casper

Marc N. Casper

Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of February 24, 2022.

By: /s/ Marc N. Casper By: /s/ Thomas J. Lynch

Marc N. Casper Thomas J. Lynch

Chairman, President and Chief Executive Officer Lead Director

(Principal Executive Officer)

By: /s/ Stephen Williamson By: /s/ Jim P. Manzi

Stephen Williamson Jim P. Manzi

Senior Vice President and Chief Financial Officer Director

(Principal Financial Officer)

By: /s/ Joseph R. Holmes By: /s/ James C. Mullen

Joseph R. Holmes James C. Mullen

Vice President and Chief Accounting Officer Director

(Principal Accounting Officer)

By: /s/ Nelson J. Chai By: /s/ Lars R. Sørensen

Nelson J. Chai Lars R. Sørensen

Director Director

By: /s/ C. Martin Harris By: /s/ Debora L. Spar

C. Martin Harris Debora L. Spar

Director Director

By: /s/ Tyler E. Jacks By: /s/ Scott M. Sperling

Tyler E. Jacks Scott M. Sperling

Director Director

By: /s/ R. Alexandra Keith By: /s/ Dion J. Weisler

R. Alexandra Keith Dion J. Weisler

Director Director

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THERMO FISHER SCIENTIFIC INC.

EXHIBIT INDEX

Exhibit Number Description of Exhibit

41

THERMO FISHER SCIENTIFIC INC.

EXHIBIT INDEX

Exhibit Number Description of Exhibit

4.17 Description of the Registrant’s Securities

10.5 Summary of 2021 Annual Cash Incentive Plan*

42

THERMO FISHER SCIENTIFIC INC.

EXHIBIT INDEX

Exhibit Number Description of Exhibit

43

THERMO FISHER SCIENTIFIC INC.

EXHIBIT INDEX

Exhibit Number Description of Exhibit

21 Subsidiaries of the Registrant.

22 Subsidiary Issuer of Guaranteed Securities.

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.

_______________________

*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.

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THERMO FISHER SCIENTIFIC INC.

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS

The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 15:

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 238) F-2

Consolidated Balance Sheet as of December 31, 2021 and 2020 F-6

Notes to Consolidated Financial Statements F-11

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Thermo Fisher Scientific Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Thermo Fisher Scientific Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of redeemable noncontrolling interest and equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and

F-2

significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded PPD, Inc., Mesa Biotech, Inc. and PeproTech, Inc. from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company in purchase business combinations during 2021. We have also excluded PPD, Inc., Mesa Biotech, Inc. and PeproTech, Inc. from our audit of internal control over financial reporting. PPD, Inc., Mesa Biotech, Inc. and PeproTech, Inc. are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 5% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Income taxes

As described in Note 8 to the consolidated financial statements, the Company’s provision for income taxes for the year ended December 31, 2021 was $1,109 million. The Company has

F-3

deferred tax liabilities, net, of $2,829 million (including a valuation allowance of $968 million) and unrecognized tax benefits of $1,124 million as of December 31, 2021. As disclosed by management, the Company operates in numerous countries under many legal forms and, as a result, is subject to the jurisdiction of numerous domestic and non-U.S. tax authorities, as well as to tax agreements and treaties among these governments. Determination of taxable income in any jurisdiction requires management to interpret the related tax laws and regulations and to use estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Management assesses income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, management has recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Management estimates the degree to which tax assets will result in a benefit, after consideration of all positive and negative evidence, and provides a valuation allowance for tax assets that it believes will more likely than not go unused. In situations in which management has been able to determine that the Company’s deferred tax assets will be realized, that determination generally relies on future reversals of taxable temporary differences and expected future taxable income. If it becomes more likely than not that a tax asset will be used, management reverses the related valuation allowance.

The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are (i) the significant judgment by management when interpreting the numerous and complex tax laws and regulations as it relates to determining the provision for income taxes, deferred tax assets and liabilities, including the valuation allowance, and liabilities for unrecognized tax benefits, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the provision for income taxes, deferred tax assets and liabilities, including the valuation allowance, and liabilities for unrecognized tax benefits, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the provision for income taxes, deferred tax assets and liabilities, including the valuation allowance, and liabilities for unrecognized tax benefits. These procedures also included, among others (i) testing the accuracy of the provision for income taxes, including the rate reconciliation and permanent and temporary differences, (ii) evaluating whether the data utilized in the calculations of the provision for income taxes, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits were appropriate and consistent with evidence obtained in other areas of the audit, (iii) evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional basis, (iv) evaluating the identification of liabilities for unrecognized tax benefits and the reasonableness of the more likely than not determination in consideration of court decisions, legislative actions, statutes of limitations, and developments in tax examinations by jurisdiction, (v) testing the calculation of the liability for unrecognized tax benefits by jurisdiction, including estimates of the amount of income tax benefit expected to be sustained, and (vi) evaluating the adequacy of the Company’s disclosures. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of management’s judgments and estimates related to the application of foreign and domestic tax laws and regulations.

F-4

Acquisition of PPD, Inc. - Valuation of Customer Relationships Intangible Assets

As described in Note 2 to the consolidated financial statements, on December 8, 2021, the Company acquired PPD, Inc. for $15.99 billion in net cash consideration and $43 million of equity awards exchanged, which resulted in $6,264 million of customer relationships intangible assets being recorded. As disclosed by management, assumptions and estimates are used in determining the fair value of the customer relationships intangible assets acquired in a business combination. Management estimates the fair value of acquisition-related customer relationships intangible assets principally based on projections of cash flows that will arise from the customer relationships of PPD, Inc., which include estimates of customer attrition rates. The projected cash flows are discounted to determine the present value of the assets at the date of the acquisition.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired customer relationships intangible assets from the acquisition of PPD, Inc. is a critical audit matter are (i) the significant judgment by management when determining the fair value of the acquired customer relationships intangible assets, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projections of cash flows and discount rates, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships intangible assets. These procedures also included, among others (i) reading the purchase agreement, (ii) testing management’s process for determining the fair values of the acquired customer relationships intangible assets, (iii) evaluating the appropriateness of the valuation methodology utilizing discounted projected cash flows, (iv) testing the completeness and accuracy of the underlying data used in the discounted projected cash flows, and (v) evaluating the reasonableness of the significant assumptions used by management related to projections of cash flows and discount rates. Evaluating management’s significant assumption related to projections of cash flows involved evaluating whether the significant assumption used by management was reasonable considering (i) the current and past performance of PPD, Inc., (ii) the consistency with external market and industry data, and (iii) whether the significant assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the valuation methodology utilizing discounted projected cash flows and (ii) the reasonableness of the discount rate significant assumption.

/s/PricewaterhouseCoopers LLP

Boston, Massachusetts

February 24, 2022

We have served as the Company’s auditor since 2002.

F-5

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED BALANCE SHEET

December 31, December 31,

(In millions except share and per share amounts) 2021 2020

Assets

Current assets:

Property, plant and equipment, net 8,333 5,912

Acquisition-related intangible assets, net 20,113 12,685

Liabilities, redeemable noncontrolling interest and equity

Current liabilities:

Accrued payroll and employee benefits 2,427 1,916

Commitments and contingencies (Note 12)

Redeemable noncontrolling interest 122 —

Equity:

Thermo Fisher Scientific Inc. shareholders’ equity:

Preferred stock, $100 par value, 50,000 shares authorized; none issued

Accumulated other comprehensive items (2,329) (2,807)

Total Thermo Fisher Scientific Inc. shareholders’ equity 40,793 34,507

Noncontrolling interests 62 10

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

F-6

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF INCOME

Year Ended

December 31, December 31, December 31,

Revenues

Costs and operating expenses:

Selling, general and administrative expenses 8,007 6,930 6,144

Restructuring and other costs (income) 197 99 (413)

Other income/(expense) (694) (76) (70)

Equity in (losses) earnings of unconsolidated entities (4) (3) —

Net income attributable to Thermo Fisher Scientific Inc. $ 7,725 $ 6,375 $ 3,696

Earnings per share attributable to Thermo Fisher Scientific Inc.

Weighted average shares

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

F-7

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year Ended

December 31, December 31, December 31,

Comprehensive income

Other comprehensive items:

Currency translation adjustment:

Reclassification adjustment for losses included in net income — — 30

Unrealized gains and losses on hedging instruments:

Pension and other postretirement benefit liability adjustments:

Total other comprehensive items 478 (128) (180)

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

F-8

THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended

December 31, December 31, December 31,

Operating activities

Depreciation of property, plant and equipment 831 658 564

Amortization of acquisition-related intangible assets 1,761 1,667 1,713

Change in deferred income taxes (647) (552) (302)

Gain on sales of businesses — — (482)

Loss on early extinguishment of debt 767 — 184

Contributions to retirement plans (34) (96) (50)

Investing activities

Acquisitions, net of cash acquired (19,395) (38) (1,843)

Proceeds from sale of business, net of cash divested — — 1,128

Purchase of property, plant and equipment (2,523) (1,474) (926)

Proceeds from sale of property, plant and equipment 20 8 36

Other investing activities, net (34) (6) 118

Financing activities

Proceeds from issuance of commercial paper 2,512 383 2,781

Repayments of commercial paper — (387) (3,464)

Other financing activities, net (91) (150) (74)

Net cash provided by (used in) financing activities 6,581 959 (3,118)

Exchange rate effect on cash 194 176 (63)

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

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THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

(In millions) Shares Amount Shares Amount

Cumulative effect of accounting changes — — — — 4 — — — 4 — 4

Stock-based compensation — — — 181 — — — — 181 — 181

Purchases of company common stock — — — — — 6 (1,500) — (1,500) — (1,500)

Dividends declared ($0.76 per share) — — — — (304) — — — (304) — (304)

Other comprehensive items — — — — — — — (181) (181) 1 (180)

Cumulative effect of accounting changes — — — — (1) — — — (1) — (1)

Stock-based compensation — — — 196 — — — — 196 — 196

Purchases of company common stock — — — — — 4 (1,500) — (1,500) — (1,500)

Dividends declared ($0.88 per share) — — — — (350) — — — (350) — (350)

Other comprehensive items — — — — — — — (128) (128) — (128)

Stock-based compensation — — — 230 — — — — 230 — 230

Purchases of company common stock — — — — — 4 (2,000) — (2,000) — (2,000)

Dividends declared ($1.04 per share) — — — — (410) — — — (410) — (410)

Recognition upon acquisition 122 — — — — — — — — — —

Other comprehensive items (1) — — — — — — 478 478 — 478

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and therapies, and increase laboratory productivity. Markets served include pharmaceutical and biotech, academic and government, industrial and applied, as well as healthcare and diagnostics.

Principles of Consolidation

The accompanying financial statements include the accounts of the company and its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. The company accounts for investments in businesses using the equity method when it has the ability to exercise significant influence but not control (generally between 20% and 50% ownership), is not the primary beneficiary and has not elected the fair value option. At December 31, 2021 and 2020, the company had such investments with carrying amounts of $576 million and $32 million, respectively. The company has elected the fair value option of accounting for certain of its investments with readily determinable fair values that would otherwise be accounted for under the equity method. At December 31, 2021, the fair value of such investments was $217 million.

Redeemable Noncontrolling Interest

The company owns 60% of its consolidated subsidiary PPD-SNBL K.K. The 40% ownership interest held by a third party is classified as a redeemable noncontrolling interest on the consolidated balance sheet due to certain put options under which the third party may require the company to purchase the remaining ownership interest at its pre-acquisition fair value.

Presentation

Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

Revenue Recognition

Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues (primarily clinical research, pharmaceutical, and instrument and enterprise services) are recognized over time as customers receive and consume the benefits of such services. For revenues recognized over time, the company generally uses costs accumulated relative to total estimated costs to measure progress as this method approximates satisfaction of the performance obligation. For contracts that contain multiple performance obligations, the company allocates the consideration to which it expects to be entitled (i.e., the transaction price) to each performance obligation based on relative standalone selling prices and recognizes the related revenues when or as control of each individual performance obligation is transferred to customers. The company exercises judgment in determining the timing of revenue by analyzing the point in time or the period over which the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the asset. The company immediately expenses contract costs that would otherwise be capitalized and amortized over a period of less than one year.

Changes to the scope of services contracts generally also include changes in the transaction price. Typically, these contract modifications are not distinct from existing services provided under the contract, and result in cumulative adjustments to revenue on the modification date.

Payments from customers for most instruments and consumables are typically due in a fixed number of days after shipment or delivery of the product. Service arrangements commonly call for payments in advance of performing the work (e.g., extended service contracts), upon completion of the service (e.g., pharmaceutical services) or a mix of both. Some arrangements include variable amounts of consideration that arise from discounts, rebates, and other programs and practices. In such arrangements, the company estimates the amount by which to reduce the stated contract amount to reflect the transaction price. The company records reimbursement for third-party pass-through and out-of-pocket costs as revenues and the related expenses as costs of revenues.

Contract-related Balances

Accounts receivable include unconditional rights to consideration from customers, which generally represent billings that do not bear interest. The company maintains allowances for doubtful accounts for estimates of expected losses resulting from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the inability of its customers to pay amounts due. The allowance for doubtful accounts is the company’s best estimate of the amount of probable credit losses in existing accounts receivable. The company determines the allowance based on history of similarly aged receivables, the creditworthiness of the customer, reasons for delinquency, current economic conditions, expectations associated with future events and circumstances where reasonable and supportable forecasts are available and any other information that is relevant to the judgment. Receivables from academic and government customers as well as large, well-capitalized commercial customers have historically experienced less collectability risk. Account balances are charged off against the allowance when the company believes it is probable the receivable will not be recovered. The company does not have any off-balance-sheet credit exposure related to customers.

Contract assets include revenues recognized in advance of billings where the company’s right to bill includes something other than the passage of time. Such amounts are recorded net of estimated losses resulting from the inability to invoice customers, which is primarily due to risk associated with the company’s performance. Contract assets are classified as current or noncurrent based on the amount of time expected to lapse until the company's right to consideration becomes unconditional.

Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenues on service contracts. Contract liabilities are classified as current or noncurrent based on the periods over which remaining performance obligations are expected to be transferred to customers. Contract assets and liabilities are presented on a net basis in the consolidated balance sheet if they arise from different performance obligations in the same contract.

Warranty Obligations

The company provides for the estimated cost of standard product warranties, primarily from historical information, in cost of product revenues at the time product revenues are recognized. The liability for warranties is included in other accrued expenses in the accompanying balance sheet. Extended warranty agreements are considered service contracts, which are discussed above. Costs of service contracts are recognized as incurred.

Leases

Operating leases that have commenced are included in other assets, other accrued expenses and other long-term liabilities in the consolidated balance sheet. Finance leases that have commenced are included in property, plant and equipment, net, current maturities of long-term obligations and long-term obligations in the consolidated balance sheet. Classification of 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. 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 operating lease expense on a straight-line basis over the lease term. Finance lease expense includes depreciation, which is recognized on a straight-line basis over the expected life of the leased asset, and an immaterial amount of interest expense.

Because most of the company’s leases do not provide an implicit interest 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 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.

Research and Development

The company conducts research and development activities to increase its depth of capabilities in technologies, software and services. Research and development costs include employee compensation and benefits, consultants, facilities related costs, material costs, depreciation and travel. Research and development costs are expensed as incurred.

Restructuring Costs

Accounting for the timing and amount of termination benefits provided by the company to employees is determined based on whether: (a) the company has a substantive plan to provide such benefits, (b) the company has a written employment contract with the affected employees that includes a provision for such benefits, (c) the termination benefits are due to the occurrence of an event specified in an existing plan or agreement, or (d) the termination benefits are a one-time benefit. In certain circumstances, employee termination benefits may meet more than one of the characteristics listed above and therefore, may have individual elements that are subject to different accounting models.

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From time to time when executing a restructuring or exit plan, the company also incurs costs other than termination benefits, such as lease termination costs, that are not associated with or will not be incurred to generate revenues. These include costs that represent amounts under contractual obligations that exist prior to the restructuring plan communication date and will either continue after the restructuring plan is completed with no economic benefit or result in a penalty to cancel a contractual obligation. Such costs are recognized when incurred, which generally occurs at the contract termination or over the period from when a plan to abandon a leased facility is approved through the cease-use date but charges may continue over the remainder of the original contractual period.

Income Taxes

The company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. A valuation allowance is provided for tax assets that will more likely than not go unused.

The financial statements reflect expected future tax consequences of uncertain tax positions that the company has taken or expects to take on a tax return presuming the taxing authorities’ full knowledge of the positions and all relevant facts, but without discounting for the time value of money.

Earnings per Share

Basic earnings per share has been computed by dividing net income attributable to Thermo Fisher Scientific Inc. by the weighted average number of shares outstanding during the year. Except where the result would be antidilutive to net income attributable to Thermo Fisher Scientific Inc., diluted earnings per share has been computed using the treasury stock method for outstanding stock options and restricted units.

Cash and Cash Equivalents

Cash equivalents consists principally of money market funds, commercial paper and other marketable securities purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value.

Inventories

Inventories are valued at the lower of cost or net realizable value, cost being determined by the first-in, first-out (FIFO) method. As discussed below, prior to the third quarter of 2021 certain of the company's businesses utilized the last-in, first-out (LIFO) method. The company periodically reviews quantities of inventories on hand and compares these amounts to the expected use of each product or product line. In addition, the company has certain inventory that is subject to fluctuating market pricing. The company records a charge to cost of sales for the amount required to reduce the carrying value of inventory to net realizable value. Costs associated with the procurement of inventories, such as inbound freight charges, purchasing and receiving costs, and internal transfer costs, are included in cost of revenues in the accompanying statement of income.The components of inventories are as follows:

December 31, December 31,

Prior to the third quarter of 2021, certain of the company’s businesses utilized the LIFO method of accounting for inventories. During the third quarter of 2021, these businesses, which comprised approximately 5% of consolidated inventories, changed from the LIFO method to the FIFO method. The company believes this change is preferable as it will provide a consistent, uniform costing method for all inventories across the company, better reflect the current value of inventories, and improve comparability with peers. Prior financial statements have not been retrospectively adjusted due to immateriality. The cumulative pre-tax effect of this change in accounting principle of $33 million was recorded as an increase to inventories and a decrease to cost of product revenues in the third quarter of 2021. This change was recorded in the Laboratory Products and Biopharma Services ($20 million) and Specialty Diagnostics ($13 million) segments.

The value of inventories maintained using the LIFO method was $274 million at December 31, 2020, which was below estimated replacement cost by $49 million. Reductions to cost of revenues as a result of the liquidation of LIFO inventories were nominal during 2019, 2020 and the first half of 2021.

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Property, Plant and Equipment

Property, plant and equipment are recorded at cost. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The company generally provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 25 to 40 years; machinery and equipment (including software), 3 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is reflected in the accompanying statement of income.Property, plant and equipment consists of the following:

December 31, December 31,

Machinery, equipment and leasehold improvements 9,587 6,975

Property, plant and equipment, at cost 12,593 9,577

Less: Accumulated depreciation and amortization 4,260 3,665

Property, plant and equipment, net $ 8,333 $ 5,912

Acquisition-related Intangible Assets

Acquisition-related intangible assets include the costs of acquired customer relationships, product technology, tradenames, backlog and other specifically identifiable intangible assets, and are being amortized using the straight-line method over their estimated useful lives, which range up to 20 years. The company reviews these intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. When impairment indicators exist, the company determines whether the carrying value of its intangible assets exceeds the related undiscounted cash flows. In these situations, the carrying value is written down to fair value.

In addition, the company has tradenames and in-process research and development that have indefinite lives and which are not amortized. Intangible assets with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate they may be impaired. The company may perform an optional qualitative assessment. If the company determines that the fair value of the indefinite-lived intangible asset is more likely than not greater than its carrying amount, no additional testing is necessary. If not, or if the company bypasses the optional qualitative assessment, it writes the carrying value down to the fair value, if applicable.

Acquisition-related intangible assets are as follows:

Definite lived:

Indefinite lived:

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The estimated future amortization expense of acquisition-related intangible assets with definite lives is as follows:

(In millions)

Other Assets

Other assets in the accompanying balance sheet include operating lease right-of-use assets, investments, deferred tax assets, pension assets, cash surrender value of life insurance, insurance recovery receivables related to product liability matters, certain intangible assets and other assets.

At December 31, 2021 and 2020, the company had $33 million and $43 million, respectively, of intangible assets not derived from acquisitions, net of accumulated amortization, which are being amortized using the straight-line method over their estimated useful lives, which range up to 20 years.

Equity investments that do not have readily determinable fair values and are not eligible for the net asset value (NAV) practical expedient are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. The company performs qualitative assessments to identify impairments of these investments. At December 31, 2021 and 2020, the company had such investments with carrying amounts of $22 million and $28 million, respectively, and investments measured at NAV of $16 million and $0 million, respectively, which are included in other assets.

Goodwill

The company assesses goodwill for impairment at the reporting unit level annually and whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Such events or circumstances generally include the occurrence of operating losses or a significant decline in earnings associated with one or more of the company’s reporting units. The company is permitted to first assess qualitative factors to determine whether the quantitative goodwill impairment test is necessary. If the qualitative assessment results in a determination that the fair value of a reporting unit is more likely than not less than its carrying amount, the company performs a quantitative goodwill impairment test. The company may bypass the qualitative assessment for the reporting unit in any period and proceed directly to the goodwill impairment test. The company estimates the fair value of its reporting units by using forecasts of discounted future cash flows and peer market multiples. The company would record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (limited to the amount of goodwill). The company determined that no impairments existed in 2021, 2020 or 2019.

The changes in the carrying amount of goodwill by segment are as follows:

Acquisition 35 — — — 35

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Loss Contingencies

Accruals are recorded for various contingencies, including legal proceedings, environmental, workers’ compensation, product, general and auto liabilities, self-insurance and other claims that arise in the normal course of business. The accruals are based on management’s judgment, historical claims experience, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarial estimates. Additionally, the company records receivables from third-party insurers up to the amount of the loss when recovery has been determined to be probable. Certain liabilities acquired in acquisitions have been recorded at readily determinable fair values and, as such, were discounted to present value at the dates of acquisition.

Currency Translation

All assets and liabilities of the company’s subsidiaries operating in non-U.S. dollar currencies are translated at period-end exchange rates. Resulting translation adjustments are reflected in the “accumulated other comprehensive items” component of shareholders’ equity. Revenues and expenses are translated at average exchange rates for the period. Currency transaction gains are included in the accompanying statement of income and in aggregate were $25 million, $24 million and $52 million in 2021, 2020 and 2019, respectively.

Derivative Contracts

The company is exposed to certain risks relating to its ongoing business operations including changes to interest rates and currency exchange rates. The company uses derivative instruments primarily to manage currency exchange and interest rate risks. The company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive items until the hedged item is recognized in earnings. Derivatives that are not designated as hedges are recorded at fair value through earnings.

The company uses short-term forward and option currency exchange contracts primarily to hedge certain balance sheet and operational exposures resulting from changes in currency exchange rates, predominantly intercompany loans and cash balances that are denominated in currencies other than the functional currencies of the respective operations. The currency-exchange contracts principally hedge transactions denominated in euro, Swiss franc, British pounds sterling, Canadian dollars, Czech koruna, Japanese yen and Hong Kong dollars. The company does not hold or engage in transactions involving derivative instruments for purposes other than risk management.

Cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive items and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item.

Fair value hedges. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in earnings.

Net investment hedges. 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.

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.

The company’s estimates include, among others, asset reserve requirements as well as the amounts of future cash flows associated with certain assets and businesses that are used in assessing the risk of impairment. Risks and uncertainties associated with the ongoing COVID-19 global pandemic materially adversely affected certain of the company’s businesses in 2020, particularly in the Analytical Instruments segment and, to a lesser extent, some businesses within the other three segments. The negative impacts significantly lessened in 2021. The extent and duration of negative impacts in the future, which

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may include inflationary pressures and supply chain disruptions, are uncertain and may require changes to estimates. Actual results could differ from those estimates.

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 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 will be dependent on the extent of transactions of this nature entered into by the company in periods subsequent to the date of adoption.

In October 2021, the FASB amended guidance to recognize and measure contract assets and contract liabilities acquired in a business combination. Generally, this new guidance will result in the company recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The company adopted this guidance in the fourth quarter of 2021 retrospectively to all business combinations completed in the first three quarters of 2021 and prospectively to all future business combinations. The adoption of this guidance did not have a material impact on the company’s consolidated financial statements for acquisitions that closed in 2021; however, the impact in future periods will be dependent on the contract assets and contract liabilities acquired in future business combinations.

In July 2021, the FASB amended guidance to require lessors to classify leases as operating leases if they have certain variable lease payment structures and would have selling losses if they were classified as sales-type or direct financing leases. The company adopted the guidance in the third quarter of 2021 using a prospective method. The adoption of this guidance did not have a material impact on the company’s consolidated financial statements.

In January 2020, the FASB issued new guidance to clarify the interaction of the accounting for certain equity securities, equity method investments, and certain forward contracts and purchased options. Among other things, the new guidance clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying measurement principles for certain equity securities immediately before applying or discontinuing the equity method. The company adopted this guidance in 2020 using a prospective method. The adoption of this guidance did not have a material impact on the company’s consolidated financial statements.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. Among other things, the new guidance requires the effects of enacted changes in tax laws or rates to be reflected in the annual effective tax rate computation in the interim period that includes the enactment date. The company adopted this guidance in 2021 using a prospective method. The adoption of this guidance did not have a material impact on the company’s consolidated financial statements; however, the impact in future periods will be dependent on the extent of future events or conditions that would be affected such as enacted changes in tax laws or rates.

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 adopted the guidance in 2020 using a retrospective method. The adoption of this guidance did not 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 adopted the guidance in 2020 with some items requiring a prospective method and others requiring a retrospective method. The adoption of this guidance did not 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 adopted the guidance in 2020 using a modified retrospective method. The adoption of this guidance reduced accounts receivable and retained earnings by $1 million on January 1, 2020.

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 company adopted this guidance in January 2019. The company 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

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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. The adoption of this guidance increased retained earnings by $4 million on January 1, 2019.

Note 2. Acquisitions and Disposition

The company’s acquisitions have historically been made at prices above the determined fair value of the acquired identifiable net assets, resulting in goodwill, primarily due to expectations of the synergies that will be realized by combining the businesses and the benefits that will be gained from the assembled workforce. 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.

2021

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. The goodwill recorded as a result of this business combination is not tax deductible.

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 polymerase chain reaction (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. The goodwill recorded as a result of this business combination is not tax deductible.

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. The goodwill recorded as a result of this business combination is not tax deductible.

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. The goodwill recorded as a result of this business combination is not tax deductible.

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. The goodwill recorded as a result of this business combination is not tax deductible.

In addition, in 2021, the company acquired, within the Life Sciences Solutions segment, cell sorting technology assets, an Ireland-based life sciences distributor and a developer of a digital PCR platform; within the Analytical Instruments segment, a Belgium-based developer of micro-chip based technology for liquid chromatography columns; and within the Specialty Diagnostics segment, a transplant diagnostics information system provider.

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The components of the purchase price and net assets acquired for 2021 acquisitions are as follows:

Purchase price

Fair value of equity awards exchanged 43 — — — — —

Fair value of contingent consideration — — — 65 1 117

Net assets acquired

Definite-lived intangible assets:

Backlog 1,060 — — — — —

Contract liabilities (1,570) — (59) — — (1)

Finance lease liabilities (86) — (24) — (82) —

Debt assumed (4,299) — — — — —

Redeemable noncontrolling interest (122) — — — — —

The weighted-average amortization periods for definite-lived intangible assets acquired in 2021 are 17 years for customer relationships, 11 years for product technology, 7 years for tradenames and 3 years for backlog. The weighted average amortization period for all definite-lived intangible assets acquired in 2021 is 14 years.

The preliminary allocations of the purchase price for the acquisitions of the Lengnau biologics manufacturing facility, PPD and PeproTech were based on estimates of the fair value 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.

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Unaudited Pro Forma Information

The following unaudited pro forma information provides the effect of the company's 2021 acquisition of PPD as if the acquisition had occurred on January 1, 2020:

Year Ended

December 31, December 31,