tmoq209.htm
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
____________________________________________________

FORM 10-Q

x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended June 27, 2009

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

Commission File Number 1-8002

THERMO FISHER SCIENTIFIC INC.
(Exact name of Registrant as specified in its charter)

Delaware
04-2209186
(State of incorporation or organization)
(I.R.S. Employer Identification No.)
   
81 Wyman Street
  
Waltham, Massachusetts
02451
(Address of principal executive offices)
(Zip Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes x  No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x  Accelerated filer o  Non-accelerated filer o  Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
 
Class
  
Outstanding at June 27, 2009
Common Stock, $1.00 par value
  
408,152,517

 

 

 
 
 
PART I — FINANCIAL INFORMATION

Item 1.            Financial Statements

THERMO FISHER SCIENTIFIC INC.

Consolidated Balance Sheet
(Unaudited)

   
June 27,
  
December 31,
  
(In millions)
  
2009
  
2008
  
           
Assets
          
Current Assets:
          
      Cash and cash equivalents
   $ 1,417.4   $ 1,280.5  
          Short-term investments, at quoted market value (amortized cost of $10.0 and $8.5)
     9.3     7.5  
      Accounts receivable, less allowances of $46.9 and $43.1
     1,470.4     1,478.1  
      Inventories:
              
            Raw materials
     315.3     310.6  
            Work in process
     127.1     120.3  
            Finished goods
     742.7     740.5  
      Deferred tax assets
     161.3     161.7  
      Other current assets
     223.5     246.7  
               
      4,467.0     4,345.9  
               
Property, Plant and Equipment, at Cost
     1,935.6     1,854.8  
Less: Accumulated depreciation and amortization
     (663.9 )   (579.5 )
               
      1,271.7     1,275.3  
               
Acquisition-related Intangible Assets, net of Accumulated Amortization of $1,745.4 and $1,433.2
     6,259.0     6,423.2  
               
Other Assets
     387.8     367.9  
               
Goodwill
     8,770.1     8,677.7  
               
    $ 21,155.6   $ 21,090.0  

 
2
 
THERMO FISHER SCIENTIFIC INC.

Consolidated Balance Sheet (continued)
(Unaudited)

   
June 27,
  
December 31,
  
(In millions except share amounts)
  
2009
  
2008
  
           
Liabilities and Shareholders’ Equity
          
Current Liabilities:
          
Short-term obligations and current maturities of long-term obligations
   $ 16.3   $ 14.8  
Accounts payable
     589.1     539.5  
Accrued payroll and employee benefits
     246.3     296.2  
Accrued income taxes
     45.5     32.9  
Deferred revenue
     148.6     135.3  
Other accrued expenses
     477.8     521.5  
               
      1,523.6     1,540.2  
               
Deferred Income Taxes
     1,921.2     1,994.2  
               
Other Long-term Liabilities
     606.2     601.7  
               
Long-term Obligations
     2,017.0     2,003.2  
               
               
Incremental Convertible Debt Obligation
     11.2         24.2  
               
Shareholders’ Equity:
              
Preferred stock, $100 par value, 50,000 shares authorized; none issued
              
Common stock, $1 par value, 1,200,000,000 shares authorized; 422,566,405 and 421,791,009 shares issued
     422.6     421.8  
Capital in excess of par value
     11,363.8     11,301.3  
Retained earnings
     3,856.3     3,500.5  
Treasury stock at cost, 14,413,888 and 3,825,245 shares
     (570.4 )   (151.3 )
Accumulated other comprehensive items
     4.1     (145.8 )
               
      15,076.4     14,926.5  
               
    $ 21,155.6   $ 21,090.0  

 

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

 
3
 
THERMO FISHER SCIENTIFIC INC.

Consolidated Statement of Income
(Unaudited)

   
Three Months Ended
  
   
June 27,
  
June 28,
  
(In millions except per share amounts)
  
2009
  
2008
  
           
Revenues
          
Product revenues
   $ 2,090.7   $ 2,285.3  
Service revenues
     393.4     424.3  
               
      2,484.1     2,709.6  
               
Costs and Operating Expenses:
              
Cost of product revenues
     1,272.3     1,377.1  
Cost of service revenues
     223.5     244.4  
Selling, general and administrative expenses
     660.9     698.9  
Research and development expenses
     58.1     64.4  
Restructuring and other costs (income), net
     10.3     (5.4 )
               
      2,225.1     2,379.4  
               
Operating Income
     259.0     330.2  
Other Expense, Net
     (26.9 )   (28.1 )
               
Income from Continuing Operations Before Provision for Income Taxes
     232.1     302.1  
Provision for Income Taxes
     (25.2 )   (59.2 )
               
Income from Continuing Operations
     206.9     242.9  
    Gain on Disposal of Discontinued Operations (net of income tax provision of $1.9 in 2008)
     —     3.2  
               
Net Income
   $ 206.9   $ 246.1  
               
Earnings per Share from Continuing Operations
              
Basic
   $ .50   $ .58  
               
Diluted
   $ .49   $ .55  
                   
Earnings per Share
              
Basic
   $ .50   $ .59  
               
Diluted
   $ .49   $ .56  
               
Weighted Average Shares
              
Basic
     415.3     418.0  
               
Diluted
     423.7     437.1  



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

 
4
 
THERMO FISHER SCIENTIFIC INC.

Consolidated Statement of Income
(Unaudited)

   
Six Months Ended
  
   
June 27,
  
June 28,
  
(In millions except per share amounts)
  
2009
  
2008
  
           
Revenues
          
Product revenues
   $ 3,989.3   $ 4,445.5  
Service revenues
     749.9     818.1  
               
      4,739.2     5,263.6  
               
Costs and Operating Expenses:
              
Cost of product revenues
     2,432.0         2,669.3  
Cost of service revenues
     432.0     487.8  
Selling, general and administrative expenses
     1,285.9     1,360.0  
Research and development expenses
     116.3     126.4  
Restructuring and other costs (income), net
     23.9     (0.5 )
               
      4,290.1     4,643.0  
               
Operating Income
     449.1     620.6  
Other Expense, Net
     (49.8 )   (46.3 )
               
Income from Continuing Operations Before Provision for Income Taxes
     399.3     574.3  
Provision for Income Taxes
     (43.5 )   (101.3 )
               
Income from Continuing Operations
     355.8     473.0  
    Gain on Disposal of Discontinued Operations (net of income tax provision of $1.9 in 2008)
     —     2.8  
               
Net Income
   $ 355.8   $ 475.8  
               
Earnings per Share from Continuing Operations
              
Basic
   $ .85   $ 1.13  
               
Diluted
   $ .84   $ 1.08  
               
Earnings per Share
              
Basic
   $ .85   $ 1.14  
               
Diluted
   $ .84   $ 1.09  
               
Weighted Average Shares
              
Basic
     416.5     417.8  
               
Diluted
     424.5     436.6  



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

 
5
 
THERMO FISHER SCIENTIFIC INC.

Consolidated Statement of Cash Flows
(Unaudited)

   
Six Months Ended
  
   
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
           
Operating Activities
          
Net income
   $ 355.8   $ 475.8  
Gain on disposal of discontinued operations
     —     (2.8 )
                   
Income from continuing operations
     355.8     473.0  
               
          Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
              
            Depreciation and amortization
     384.6     398.6  
            Change in deferred income taxes
     (117.6 )   (64.2 )
            Non-cash stock-based compensation
     35.8     27.7  
            Non-cash interest expense on convertible debt
     11.3     10.8  
                Non-cash charges for sale of inventories revalued at the date of acquisition
     0.4     0.4  
            Tax benefits from stock-based compensation awards
     (1.3 )   (12.2 )
            Other non-cash expenses, net
     27.7     6.4  
        Changes in assets and liabilities, excluding the effects of acquisitions and dispositions:
              
                  Accounts receivable
     41.4     (101.3 )
                  Inventories
     20.5     (64.1 )
                  Other assets
     34.6     (20.3 )
                  Accounts payable
     34.6     (36.9 )
                  Other liabilities
     (85.0 )   (19.1 )
                  Contributions to retirement plans
     (8.1 )   (8.5 )
               
                        Net cash provided by continuing operations
     734.7     590.3  
                        Net cash used in discontinued operations
     (0.7 )   (0.8 )
               
                        Net cash provided by operating activities
     734.0     589.5  
               
Investing Activities
              
Acquisitions, net of cash acquired
     (146.0 )   (43.0 )
Purchases of property, plant and equipment
     (83.0 )   (109.3 )
Proceeds from sale of property, plant and equipment
     7.6     5.5  
Purchases of available-for-sale investments
     —     (0.1 )
Proceeds from sale of available-for-sale investments
     0.4     0.6  
          Proceeds from sale of businesses, net of cash divested
     2.7     3.5  
      Increase in other assets
     (0.3 )   (5.2 )
               
                        Net cash used in continuing operations
     (218.6 )   (148.0 )
                        Net cash provided by discontinued operations
     —     0.4  
               
                        Net cash used in investing activities
   $ (218.6 ) $ (147.6 )

 
6
 
THERMO FISHER SCIENTIFIC INC.

Consolidated Statement of Cash Flows (continued)
(Unaudited)

   
Six Months Ended
  
   
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
               
Financing Activities
          
Increase (decrease) in short-term notes payable
   $ 0.4   $ (13.4 )
Purchases of company common stock
     (414.6 )       (102.0 )
Net proceeds from issuance of company common stock
     11.9     49.1  
Tax benefits from stock-based compensation awards
     1.3     12.2  
Borrowings (redemption and repayment) of long-term obligations
     4.0     (2.2 )
               
                        Net cash used in financing activities
     (397.0 )   (56.3 )
               
Exchange Rate Effect on Cash of Continuing Operations
     18.5     (3.8 )
               
Increase in Cash and Cash Equivalents
     136.9     381.8  
Cash and Cash Equivalents at Beginning of Period
     1,280.5     625.1  
               
Cash and Cash Equivalents at End of Period
   $ 1,417.4   $ 1,006.9  
               
Supplemental Cash Flow Information
              
Fair value of assets of acquired businesses
   $ 171.4   $ 53.7  
Cash paid for acquired businesses
     (137.2 )   (31.5 )
               
            Liabilities assumed of acquired businesses
   $ 34.2   $ 22.2  
               
Issuance of restricted stock
   $ 1.1   $ 21.3  
               
Issuance of stock upon vesting of restricted stock units
   $ 7.0   $ 19.3  


 


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

 
7
 
THERMO FISHER SCIENTIFIC INC.

Notes to Consolidated Financial Statements
(Unaudited)

1.
General

The interim consolidated financial statements presented herein have been prepared by Thermo Fisher Scientific Inc. (the company or Thermo Fisher), are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at June 27, 2009, the results of operations for the three- and six-month periods ended June 27, 2009, and June 28, 2008, and the cash flows for the six-month periods ended June 27, 2009, and June 28, 2008. The company has evaluated events and transactions occurring after the balance sheet date through July 31, 2009 for recognition or disclosure in the consolidated financial statements and notes. Interim results are not necessarily indicative of results for a full year.

The consolidated balance sheet presented as of December 31, 2008, has been derived from the audited consolidated financial statements as of that date, as adjusted for adoption of a new accounting pronouncement, discussed below. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all of the information that is included in the annual financial statements and notes of the company. The consolidated financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission (SEC).

In May 2008, the FASB issued FSP APB No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB No. 14-1 requires the issuers of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP ABP No. 14-1 was effective for the company beginning January 1, 2009. The rule required adjustment of prior periods to conform to current accounting. The company’s cash payments for interest have not been affected, but the adoption of FSP APB No. 14-1 has increased the company’s reported interest expense for all periods presented in a manner that reflects interest rates of similar non-convertible debt.

The incremental effects of applying FSP APB No. 14-1 on individual line items in the consolidated balance sheet at December 31, 2008, were as follows:

(Dollars in millions)
  
Before
Adoption
of FSP APB
No. 14-1
  
Cumulative
Effect of
Adopting
FSP APB
No. 14-1
  
As Adjusted
  
               
Deferred Income Taxes
   $ 1,978.0   $ 16.2   $ 1,994.2  
Long-term Obligations
     2,043.5     (40.3 )   2,003.2  
Incremental Convertible Debt Obligation
     —     24.2     24.2  
Capital in Excess of Par Value
     11,273.2     28.1     11,301.3  
Retained Earnings
     3,528.7     (28.2 )   3,500.5  

When any of the convertible debt instruments are convertible at the balance sheet date, the excess of the amount of cash required to be paid to the holder upon conversion over the current carrying amount of the long-term obligation is classified on the balance sheet as temporary equity under the caption “incremental convertible debt obligation.”

 
8
 
THERMO FISHER SCIENTIFIC INC.

1.
General (continued)

The debt, temporary equity and equity components recognized for the company’s convertible debt are as follows:

(In millions)
  
June 27, 2009
  
Dec. 31, 2008
  
           
Principal Amount of Convertible Debt
   $ 969.0   $ 969.1  
Unamortized Discount
     29.0     40.3  
Net Carrying Amount
     940.0     928.8  
Incremental Convertible Debt Obligation (Temporary Equity)
     11.2     24.2  
Capital in Excess of Par Value
     41.1     28.1  

At June 27, 2009, the unamortized discount had a remaining weighted average recognition period of 1.4 years, to the respective first redemption dates of the convertible debt. The amount of interest expense on the convertible debt recognized in the accompanying statement of income is as follows:
 
     Three Months Ended   Six Months Ended   
(In millions)  
 June 27,
2009
  
June 28,
2008 
  
June 27,
2009 
  
 June 28,
2008
  
                   
Contractual Coupon Interest
   $ 4.6   $ 5.9   $ 9.6   $ 13.4  
Amortization of Discount on Convertible Debt
     5.7     5.4     11.3     10.8  
                           
Interest Expense
   $ 10.3   $ 11.3   $ 20.9   $ 24.2  
                           
Effective Interest Rate
     4.4%     4.9%     4.5%     5.3%  

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities. FSP EITF 03-6-1 was effective for the company beginning January 1, 2009. The rule required adjustment of prior periods to conform to current accounting. Adoption had a nominal effect on the numerator and, for diluted presentation, the denominator in the calculation of earnings per share for all periods presented.

 
9
 
THERMO FISHER SCIENTIFIC INC.

1.
General (continued)

The incremental effects of applying FSP APB No. 14-1 and FSP EITF 03-6-1 on individual line items in the consolidated statements of income for the three- and six-month periods ended June 28, 2008, were as follows:

(Dollars in millions except per share amounts)
  
Before
Adoption
of FSP APB No. 14-1 and FSP EITF 03-6-1
  
Effect of
Adopting
FSP APB
No. 14-1 and FSP EITF 03-6-1
  
As Adjusted
  
               
Three Months Ended June 28, 2008
              
Other Expense, Net
   $ 22.7   $ 5.4   $ 28.1  
Provision for Income Taxes
     61.2     (2.0 )   59.2  
Income from Continuing Operations
     246.3     (3.4 )   242.9  
Net Income
     249.5     (3.4 )   246.1  
Earnings per Share from Continuing Operations
                    
      Basic
   $ .59   $ (.01 ) $ .58  
      Diluted
   $ .56   $ (.01 ) $ .55  
Earnings per Share
                    
      Basic
   $ .60   $ (.01 ) $ .59  
      Diluted
   $ .57   $ (.01 ) $ .56  
Diluted Weighted Average Shares
     437.2     (0.1 )   437.1  
                     
Six Months Ended June 28, 2008
                    
Other Expense, Net
   $ 35.5   $ 10.8   $ 46.3  
Provision for Income Taxes
     105.4     (4.1 )   101.3  
Income from Continuing Operations
     479.7     (6.7 )   473.0  
Net Income
     482.5     (6.7 )   475.8  
Earnings per Share from Continuing Operations
                    
      Basic
   $ 1.15   $ (.02 ) $ 1.13  
      Diluted
   $ 1.10   $ (.02 ) $ 1.08  
Earnings per Share
                    
      Basic
   $ 1.15   $ (.01 ) $ 1.14  
      Diluted
   $ 1.10   $ (.01 ) $ 1.09  
Diluted Weighted Average Shares
     436.7     (0.1 )   436.6  

2.
Acquisitions

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R does the following: requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose certain information to enable users to understand the nature and financial effect of the business combination. The statement requires that cash outflows such as transaction costs and post-acquisition restructuring be charged to expense instead of capitalized as a cost of the acquisition. Contingent purchase price will be recorded at its initial fair value and then re-measured as time passes through adjustments to net income. SFAS No. 141R was effective for the company, on a prospective basis, beginning January 1, 2009. The company applied this standard to the acquisitions discussed below. There was no material impact upon adoption of the standard; however, this statement may materially affect the accounting for any future business combinations.

 
10
 
THERMO FISHER SCIENTIFIC INC.

2.
Acquisitions (continued)

In April 2009, the Laboratory Products and Services segment acquired Biolab, an Australia-based provider of analytical instruments, life science consumables and laboratory equipment, for AUD 180 million (USD $130 million), net of cash acquired. The purchase price was paid in cash except for a post-closing adjustment of $5 million that was accrued at June 27, 2009. The acquisition broadened the geographic reach of the company’s customer channels. Revenue of Biolab totaled AUD 178 million in its fiscal year ended May 2009. The purchase price exceeded the fair value of the acquired net assets and, accordingly, $61 million was allocated to goodwill, none of which is tax deductible.

In addition, in the first six months of 2009, the Analytical Technologies segment acquired a culture media manufacturer and distributor in Malaysia and Singapore and the Laboratory Products and Services segment acquired a Spain-based distributor of laboratory instrumentation and equipment. The aggregate consideration for these acquisitions was $11 million.

The company paid contingent purchase price obligations of $10 million in the first six months of 2009, for several acquisitions completed prior to 2009.

The company’s acquisitions have historically been made at prices above the fair value of the acquired assets, resulting in goodwill, due to expectations of synergies of combining the businesses. These synergies include 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 purchase method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Allocation of the purchase price for acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions recently completed, is subject to adjustment upon finalization of the purchase price allocation. The company is not aware of any information that indicates the final purchase price allocations will differ materially from the preliminary estimates.

(In millions)
  
Biolab
  
Other
  
Total
  
               
Purchase Price
              
Cash paid
   $ 127.0   $ 10.2   $ 137.2  
Debt assumed
     —     0.5     0.5  
Purchase price payable
     4.8     0.6     5.4  
Cash acquired
     (1.3 )   —     (1.3 )
                     
    $ 130.5   $ 11.3   $ 141.8  

 
11
 
THERMO FISHER SCIENTIFIC INC.

2.
Acquisitions (continued)

(In millions)
  
Biolab
  
Other
  
Total
  
               
Allocation
              
Current assets
   $ 38.6   $ 3.6   $ 42.2  
Property, plant and equipment
     3.4     0.4     3.8  
Customer relationships
     51.4     3.8     55.2  
Product technology
     0.9     —     0.9  
Tradenames and other
     1.3     —     1.3  
Goodwill
     60.7     6.0     66.7  
Liabilities assumed
     (25.8 )   (2.5 )   (28.3 )
                     
    $ 130.5   $ 11.3   $ 141.8  

The weighted-average amortization periods for intangible assets acquired in 2009 are 10 years for customer relationships, 9 years for product technology and 5 years for tradenames and other. The weighted average amortization period for all intangible assets in the above table is 10 years.

The company’s results for 2008 or 2009 would not have been materially different from its reported results had the company’s 2008 and 2009 acquisitions occurred at the beginning of 2008.

Dispositions

The company sold three small business units in the first six months of 2009 and recorded gains aggregating $1.2 million, included in restructuring and other costs, net, in the accompanying statement of income. The net cash proceeds were $2.7 million. Operating results of the businesses were not material.


 
12
 
THERMO FISHER SCIENTIFIC INC.

3.
Business Segment Information

The company’s continuing operations fall into two business segments: Analytical Technologies and Laboratory Products and Services. During the first quarter of 2009, the company transferred management responsibility and the related financial reporting and monitoring for a small product line between segments. The company has historically moved a product line between segments when a shift in strategic focus of either the product line or a segment more closely aligns the product line with a segment different than that in which it had previously been reported. Prior period segment information has been reclassified to reflect these transfers.

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Revenues
                  
      Analytical Technologies
   $ 1,003.3   $ 1,159.9   $ 1,942.1   $ 2,246.7  
      Laboratory Products and Services
     1,599.3     1,656.9     3,022.3     3,225.7  
      Eliminations
     (118.5 )   (107.2 )   (225.2 )   (208.8 )
                           
            Consolidated revenues
   $ 2,484.1   $ 2,709.6   $ 4,739.2   $ 5,263.6  
                           
Operating Income
                          
Analytical Technologies (a)
   $ 201.4   $ 244.6   $ 374.9   $ 472.9  
Laboratory Products and Services (a)
     217.2     232.0     392.7     450.8  
                           
            Subtotal reportable segments (a)
     418.6     476.6     767.6     923.7  
                           
      Cost of revenues charges
     (0.9 )   (0.2 )   (0.9 )   (0.8 )
      Acquisition-related transaction costs
     (1.3 )   —     (1.3 )   —  
      Restructuring and other (costs) income, net
     (10.3 )   5.4     (23.9 )   0.5  
      Amortization of acquisition-related intangible assets
     (147.1 )   (151.6 )   (292.4 )   (302.8 )
                           
            Consolidated operating income
     259.0     330.2     449.1     620.6  
Other expense, net (b)
     (26.9 )   (28.1 )   (49.8 )   (46.3 )
                           
      Income from continuing operations before provision for income taxes
   $ 232.1   $ 302.1   $ 399.3   $ 574.3  
                           
Depreciation
                          
Analytical Technologies
   $ 21.4   $ 22.5   $ 41.7   $ 44.3  
Laboratory Products and Services
     25.8     25.7     50.5     51.5  
                           
            Consolidated depreciation
   $ 47.2   $ 48.2   $ 92.2   $ 95.8  

(a)
Represents operating income before certain charges to cost of revenues; selling, general and administrative expenses; restructuring and other costs, net and amortization of acquisition-related intangibles.
(b)
The company does not allocate other income and expenses to its segments.

 
13
 
THERMO FISHER SCIENTIFIC INC.

4.
Other Expense, Net

As discussed in Note 1, although the company’s cash interest payments have not been affected, the adoption of FSP APB No. 14-1 has increased the company’s reported interest expense in a manner that reflects interest rates of similar non-convertible debt. The rule required adjustment of prior periods to conform to current accounting.

The components of other expense, net, in the accompanying statement of income are as follows:

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Interest Income
   $ 4.7   $ 15.1   $ 10.0   $ 25.2  
Interest Expense
     (29.6 )   (42.0 )   (59.8 )   (77.8 )
Other Items, Net
     (2.0 )   (1.2 )   —     6.3  
                           
    $ (26.9 ) $ (28.1 ) $ (49.8 ) $ (46.3 )

5.
Earnings per Share

Basic and diluted earnings per share were calculated as follows:

   
Three Months Ended
  
Six Months Ended
  
(In millions except per share amounts)
  
June 27, 2009
  
June 28, 2008
  
June 27, 2009
  
June 28, 2008
  
                   
Income from Continuing Operations
   $ 206.9   $ 242.9   $ 355.8   $ 473.0  
Gain on Disposal of Discontinued Operations
     —     3.2     —     2.8  
                           
Net Income
     206.9     246.1     355.8     475.8  
                           
Income Allocable to Participating Securities
     (0.2 )   (0.4 )   (0.3 )   (0.7 )
                           
Net Income for Earnings per Share
   $ 206.7   $ 245.7   $ 355.5   $ 475.1  
                           
Basic Weighted Average Shares
     415.3     418.0     416.5     417.8  
Effect of:
                          
      Convertible debentures
     7.0     15.5     6.7     15.1  
      Stock options, restricted stock awards and warrants
     1.4     3.6     1.3     3.7  
                           
Diluted Weighted Average Shares
     423.7     437.1     424.5     436.6  
                           
Basic Earnings per Share:
                          
Continuing operations
   $ .50   $ .58   $ .85   $ 1.13  
Discontinued operations
     —     .01     —     .01  
                           
    $ .50   $ .59   $ .85   $ 1.14  
                           
Diluted Earnings per Share:
                          
Continuing operations
   $ .49   $ .55   $ .84   $ 1.08  
Discontinued operations
     —     .01     —     .01  
                           
    $ .49   $ .56   $ .84   $ 1.09  

 
14
 
THERMO FISHER SCIENTIFIC INC.

5.
Earnings per Share (continued)

Options to purchase 15.7 million, 0.8 million, 16.2 million and 2.3 million shares of common stock were not included in the computation of diluted earnings per share for the second quarter of 2009 and 2008 and the first six months of 2009 and 2008, respectively, because their effect would have been antidilutive.

6.
Comprehensive Income and Shareholders’ Equity

Comprehensive income combines net income and other comprehensive items. Other comprehensive items represent certain amounts that are reported as components of shareholders’ equity in the accompanying balance sheet, including currency translation adjustments; unrealized gains and losses, net of tax, on available-for-sale investments and hedging instruments; and pension and other postretirement benefit liability adjustments. During the second quarter of 2009 and 2008, the company had comprehensive income of $469 million and $239 million, respectively. During the first six months of 2009 and 2008, the company had comprehensive income of $506 million and $591 million, respectively. The second quarter and first six months of 2009 were favorably affected by an increase in the cumulative translation adjustment of $264 million and $151 million, respectively, due to movements in currency exchange rates, the effects of which are recorded in shareholders’ equity.

7.
Stock-based Compensation Expense

The components of pre-tax stock-based compensation are as follows:

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Stock Option Awards
   $ 13.3   $ 9.3   $ 23.4   $ 16.0  
Restricted Share/Unit Awards
     7.3     7.4     12.4     11.7  
                           
Total Stock-based Compensation Expense
   $ 20.6   $ 16.7   $ 35.8   $ 27.7  

Stock-based compensation expense is included in the accompanying statement of income as follows:

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Cost of Revenues
   $ 1.9   $ 0.9   $ 3.4   $ 2.0  
Selling, General and Administrative Expenses
     18.0     15.3     31.2     24.9  
Research and Development Expenses
     0.7     0.5     1.2     0.8  
                           
Total Stock-based Compensation Expense
   $ 20.6   $ 16.7   $ 35.8   $ 27.7  

No stock-based compensation expense has been capitalized in inventories due to immateriality.

Unrecognized compensation cost related to unvested stock options and restricted stock totaled approximately $103.8 million and $39.3 million, respectively, as of June 27, 2009, and is expected to be recognized over weighted average periods of 2.4 years and 2.3 years, respectively.

During the first six months of 2009, the company made equity compensation grants to employees consisting of 1.0 million restricted shares/units and options to purchase 6.4 million shares.

 
15
 
THERMO FISHER SCIENTIFIC INC.

8.
Defined Benefit Pension Plans

Employees of a number of the company’s non-U.S. and certain U.S. subsidiaries participate in defined benefit pension plans covering substantially all full-time employees at those subsidiaries. Some of the plans are unfunded, as permitted under the plans and applicable laws. The company also has a postretirement healthcare program in which certain employees are eligible to participate. The costs of the healthcare program are funded on a self-insured and insured-premium basis. Net periodic benefit costs for the company’s pension plans include the following components:

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Service Cost
   $ 2.5   $ 3.4   $ 5.0   $ 7.7  
Interest Cost on Benefit Obligation
     12.4     14.3     24.4     28.8  
Expected Return on Plan Assets
     (12.6 )   (15.9 )   (24.9 )   (31.7 )
Amortization of Net Loss
     0.5     0.4     0.8     0.8  
Amortization of Prior Service Benefit
     —     —     0.1     —  
Settlement/Curtailment Gain
     (0.2 )   (18.5 )   (0.2 )   (18.5 )
Special Termination Benefits
     0.1     0.2     0.3     0.2  
                           
Net Periodic Benefit Cost (Income)
   $ 2.7   $ (16.1 ) $ 5.5   $ (12.7 )

Net periodic benefit costs for the company’s other postretirement benefit plans include the following components:

   
Three Months Ended
  
Six Months Ended
  
   
June 27,
  
June 28,
  
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
2009
  
2008
  
                   
Service Cost
   $ 0.1   $ 0.2   $ 0.2   $ 0.4  
Interest Cost on Benefit Obligation
     0.4     0.5     0.8     1.0  
                           
Net Periodic Benefit Cost
   $ 0.5   $ 0.7   $ 1.0   $ 1.4  

9.
Fair Value Measurements

The company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the six months ended June 27, 2009. The company’s financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds, mutual funds holding publicly traded securities, derivative contracts used to hedge the company’s currency risk and other investments in unit trusts and insurance contracts held as assets to satisfy outstanding retirement liabilities.

SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves.

Level 3: Inputs are unobservable data points that are not corroborated by market data.

 
16
 
THERMO FISHER SCIENTIFIC INC.

9.
Fair Value Measurements (continued)

The following table presents information about the company’s financial assets and liabilities measured at fair value on a recurring basis as of June 27, 2009:

(In millions)
  
June 27, 2009
  
Quoted Prices in
Active Markets
(Level 1)
  
Significant Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
                   
Assets
                  
  Cash equivalents
   $ 818.5   $ 818.5   $ —   $ —  
  Investments in mutual funds, unit trusts and other similar instruments
     29.5     29.5     —     —  
  Cash surrender value of life insurance
     22.3     —     22.3     —  
  Auction rate securities
     6.0     —     —     6.0  
  Derivative contracts
     0.4     —     0.4     —  
                           
  Total Assets
   $ 876.7   $ 848.0   $ 22.7   $ 6.0  
                           
Liabilities
                          
  Derivative contracts
   $ 1.9   $ —   $ 1.9   $ —  
                           
  Total Liabilities
   $ 1.9   $ —   $ 1.9   $ —  



 
17
 
THERMO FISHER SCIENTIFIC INC.

9.
Fair Value Measurements (continued)

The following table presents information about the company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008:
 
(In millions)   
 December 31,
2008
  
 Quoted Prices in
Active Markets
(Level 1)
  
 Significant Other
Observable
Inputs
(Level 2)
  
 Significant
Unobservable
Inputs
(Level 3)
  
                   
Assets
                  
      Cash equivalents
   $ 560.8   $ 560.8   $ —   $ —  
      Investments in mutual funds, unit trusts and other similar instruments
     24.0     24.0     —     —  
      Cash surrender value of life insurance
     21.3     —     21.3     —  
      Auction rate securities
     5.7     —     —     5.7  
      Marketable equity securities
     1.0     1.0     —     —  
      Derivative contracts
     3.3     —     3.3     —  
                           
            Total Assets
   $ 616.1   $ 585.8   $ 24.6   $ 5.7  
                           
Liabilities
                          
      Derivative contracts
   $ 4.0   $ —   $ 4.0   $ —  
                           
            Total Liabilities
   $ 4.0   $ —   $ 4.0   $ —  

The following table is a rollforward of the fair value, as determined by Level 3 inputs, of our auction rate securities, which are included in short-term investments on the consolidated balance sheet.

(In millions)
  
Three
Months
 Ended
June 27,
2009
  
Six
Months
Ended
June 27,
2009
  
           
Beginning Balance
   $ 6.3   $ 5.7  
Total unrealized (losses) gains included in other comprehensive income
     (0.3 )   0.3  
               
Balance at June 27, 2009
   $ 6.0   $ 6.0  

The company determines the fair value of the auction rate securities by obtaining indications of value from broker/dealers.

 
18
 
THERMO FISHER SCIENTIFIC INC.

9.
Fair Value Measurements (continued)

Fair Value of Other Financial Instruments

The carrying amount and fair value of the company’s notes receivable and long-term obligations are as follows:

   
June 27, 2009
  
December 31, 2008
  
(In millions)
  
Carrying
Amount
  
Fair
Value
  
Carrying
Amount
  
Fair
Value
  
                   
Notes Receivable
   $ 3.9   $ 3.9   $ 2.7   $ 2.7  
                           
Long-term Obligations:
                          
   Convertible obligations
   $ 940.0   $ 1,424.9   $ 928.8   $ 1,227.7  
   Senior notes
     250.0     247.5     250.0     209.3  
   Senior subordinated notes
     805.9     814.9     806.3     675.9  
   Other
     21.1     21.1     18.1     18.1  
                           
    $ 2,017.0   $ 2,508.4   $ 2,003.2   $ 2,131.0  

The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the company at the respective period ends.

10.
Warranty Obligations

Product warranties are included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of warranty obligations are as follows:
 
    Six Months Ended  
   
June 27,
  
June 28,
  
(In millions)
  
2009
  
2008
  
           
Beginning Balance
   $ 44.1   $ 50.6  
Provision charged to income
     15.9     19.2  
Usage
     (20.9 )   (19.5 )
Acquisitions/divestitures
     0.1     —  
Adjustments to previously provided warranties, net
     0.9     (0.9 )
Other, net (a)
     —     1.8  
               
Ending Balance
   $ 40.1   $ 51.2  

(a)
Primarily represents the effects of currency translation.

11.
Restructuring and Other Costs, Net

Restructuring costs in the six months of 2009 in both segments primarily included charges for actions in response to the downturn in the economy and reduced revenues in several businesses, as well as abandoned facility costs at businesses that have been or are being consolidated. As of July 31, 2009, the company has identified restructuring actions that will result in additional charges of approximately $34 million, primarily in the remainder of 2009 and early 2010.


 
19
 
THERMO FISHER SCIENTIFIC INC.

11.
Restructuring and Other Costs, Net (continued)

During the second quarter of 2009, the company recorded net restructuring and other costs by segment as follows:

(In millions)
  
Analytical
Technologies
  
Laboratory
Products and
Services
  
Corporate
  
Total
  
                   
Cost of Revenues
   $ 0.5   $ 0.4   $ —   $ 0.9  
Selling, General and Administrative Expenses
     —     1.3     —     1.3  
Restructuring and Other Costs, Net
     4.8     4.6     0.9     10.3  
                           
    $ 5.3   $ 6.3   $ 0.9   $ 12.5  

During the first six months of 2009, the company recorded net restructuring and other costs by segment as follows:

(In millions)
  
Analytical
Technologies
  
Laboratory
Products and
Services
  
Corporate
  
Total
  
                   
Cost of Revenues
   $ 0.5   $ 0.4   $ —   $ 0.9  
Selling, General and Administrative Expenses
     —     1.3     —     1.3  
Restructuring and Other Costs, Net
     13.1     9.0     1.8     23.9  
                           
    $ 13.6   $ 10.7   $ 1.8   $ 26.1  

The components of net restructuring and other costs by segment are as follows:

Analytical Technologies

The Analytical Technologies segment recorded $5.3 million of net restructuring and other charges in the second quarter of 2009. The segment recorded charges to cost of revenues of $0.5 million for accelerated depreciation at facilities closing due to real estate consolidation, and $4.8 million of other costs, net. These other costs consisted of $12.3 million of cash costs, primarily associated with headcount reductions and facility consolidations in an effort to streamline operations, including $8.7 million of severance for approximately 300 employees across all functions; $2.6 million of abandoned facility costs; and $1.0 million of other cash costs, primarily moving expenses associated with facility consolidations as well as other costs associated with restructuring actions. The segment also recorded $7.5 million of income, net, primarily due to a gain on the settlement of a litigation-related matter assumed as part of the merger with Fisher Scientific in 2006.

In the first quarter of 2009, this segment recorded $8.3 million of net restructuring and other charges. These costs consisted of $8.4 million of cash costs, principally associated with headcount reductions and facility consolidations in an effort to streamline operations, including $6.3 million of severance for approximately 230 employees primarily in manufacturing and sales and service functions; $1.2 million of abandoned-facility costs; and $0.9 million of other cash costs, primarily relocation and moving expenses associated with facility consolidations as well as other costs associated with restructuring actions. The segment also recorded non-cash income of $0.1 million, including a gain on sale of a small business unit of $0.9 million, largely offset by other restructuring-related charges.

 
20
 
THERMO FISHER SCIENTIFIC INC.

11.
Restructuring and Other Costs, Net (continued)

In addition to reducing headcount in several businesses due to a downturn in results, the principal restructuring actions in 2009 in the Analytical Technologies segment, detailed above, include the consolidation of production operations at a plant in the United Kingdom with plants in the U.S. and Germany, the consolidation of operations at a plant in the Netherlands with plants in the United Kingdom and the U.S., and integrating operations in Switzerland with existing operations in Hungary and the U.S.

Laboratory Products and Services

The Laboratory Products and Services segment recorded $6.3 million of net restructuring and other charges in the second quarter of 2009. The segment recorded charges to cost of revenues of $0.4 million for the sale of inventories revalued at the date of acquisition; charges to selling, general and administrative expenses of $1.3 million for transaction costs related to the Biolab acquisition; $2.5 million in cash costs described below; and $2.1 million in other costs, net. The cash costs, which were associated with headcount reductions and facility consolidations in an effort to streamline operations, included $2.1 million of severance for approximately 60 employees primarily in administrative, manufacturing, and sales and service functions; $0.1 million of abandoned facility costs; and $0.3 million of other cash costs, primarily retention expenses. The $2.1 million in other costs, net, related primarily to a loss on an abandoned facility held for sale that was sold in July 2009.

In the first quarter of 2009, this segment recorded $4.4 million of net restructuring and other charges. The segment recorded $4.5 million of cash costs, which consisted of $3.6 million of severance for approximately 330 employees primarily in manufacturing and administrative functions; $0.3 million of abandoned-facility costs; and $0.6 million of other cash costs, primarily for moving and relocation expenses associated with abandoned facilities as well as other costs associated with restructuring actions.

In addition to reducing headcount in several businesses due to a downturn in results, the principal restructuring action in 2009 in the Laboratory Products and Services segment, detailed above, was completion of the relocation of a manufacturing site in France to an existing site in Germany.

Corporate

In the second quarter of 2009, the company recorded $0.9 million of restructuring and other charges at its corporate office, $1.1 million of which were cash costs partially offset by a $0.2 million gain on the sale of a building that had previously been written down to estimated disposal value. The cash costs were primarily abandoned facility costs and, to a lesser extent, severance.

The company recorded $0.9 million in restructuring and other income at its corporate office in the first quarter of 2009, all of which were cash charges, primarily for abandoned facility costs and, to a lesser extent, severance.

General

The following table summarizes the cash components of the company’s restructuring plans. The noncash components and other amounts reported as restructuring and other costs, net, in the accompanying statement of income for the first six months of 2009 have been summarized in the notes to the table. Accrued restructuring costs are included in other accrued expenses in the accompanying balance sheet.

 
21
 
THERMO FISHER SCIENTIFIC INC.

11.
Restructuring and Other Costs, Net (continued)

 
 
(In millions)
  
Severance
  
Employee
Retention (a)
  
Abandonment
of Excess
Facilities
  
Other
  
Total
  
                       
Pre-2008 Restructuring Plans
                      
      Balance at December 31, 2008
   $ 5.4   $ 0.8   $ 4.4   $ 0.7   $ 11.3  
 Costs incurred in 2009 (b)
     1.4     0.2     1.9     0.6     4.1  
 Reserves reversed
     —     (0.1 )   —     —     (0.1 )
 Payments
     (6.4 )   (0.9 )   (2.8 )   (0.8 )   (10.9 )
 Currency translation
     (0.1 )   —     —     —     (0.1 )
                                 
 Balance at June 27, 2009
   $ 0.3   $ —   $ 3.5   $ 0.5   $ 4.3  
                                 
2008 Restructuring Plans
                                
 Balance at December 31, 2008
   $ 7.0   $ 0.4   $ 1.8   $ 0.3   $ 9.5  
 Costs incurred in 2009 (b)
     1.7     0.2     0.5     0.4     2.8  
 Reserves reversed
     (0.1 )   —     —     —     (0.1 )
 Payments
     (4.7 )   (0.3 )   (0.7 )   (0.6 )   (6.3 )
 Currency translation
     (0.2 )   —     0.1     —     (0.1 )
                                 
 Balance at June 27, 2009
   $ 3.7   $ 0.3   $ 1.7   $ 0.1   $ 5.8  
                                 
2009 Restructuring Plans
                                
 Costs incurred in 2009 (b)
   $ 18.4   $ 0.4   $ 3.1   $ 1.1   $ 23.0  
 Payments
     (9.8 )   —     (0.5 )   (0.9 )   (11.2 )
 Currency translation
     0.2     —     —     —     0.2  
                                 
 Balance at June 27, 2009
   $ 8.8   $ 0.4   $ 2.6   $ 0.2   $ 12.0  

(a)
Employee-retention costs are accrued ratably over the period through which employees must work to qualify for a payment.
(b)
Excludes non-cash items including principally a $7.4 million gain on settlement of a litigation-related matter assumed as part of the merger with Fisher, a $2.5 million loss on an abandoned facility held for sale that was sold in July 2009 and a $0.9 million gain on sale of a small business.

The company expects to pay accrued restructuring costs as follows: severance, employee-retention obligations and other costs, primarily through 2009; and abandoned-facility payments, over lease terms expiring through 2015.

12.
Litigation and Related Contingencies

On September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS Scientific Instruments filed a lawsuit against the company in U.S. federal court. These plaintiffs allege that the company’s mass spectrometer systems, including its triple quadrupole and certain of its ion trap systems, infringe a patent of the plaintiffs. The plaintiffs seek damages, including treble damages for alleged willful infringement, attorneys’ fees, prejudgment interest and injunctive relief. In the opinion of management, an unfavorable outcome of this matter could have a material adverse effect on the company’s financial position as well as its results of operations and cash flows.

 
22
 
THERMO FISHER SCIENTIFIC INC.

12.
Litigation and Related Contingencies (continued)

On Dec