tmoq312.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 September 29, 2012

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 September 29, 2012
Common Stock, $1.00 par value
 
360,214,897
 

 



 
 

 

THERMO FISHER SCIENTIFIC INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 29, 2012

TABLE OF CONTENTS
 
   
Page
 
PART I
 
     
Item 1.
Financial Statements
3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
     
Item 4.
Controls and Procedures
43
     
 
PART II
 
     
Item 1A.
Risk Factors
44
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
50
     
Item 6.
Exhibits
50
     
     

 
2

 

 
THERMO FISHER SCIENTIFIC INC.

PART I          FINANCIAL INFORMATION

Item 1.           Financial Statements
 
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
September 29,
 
December 31,
 
(In millions)
 
2012
 
2011
 
           
Assets
         
Current Assets:
         
Cash and cash equivalents
  $ 832.2   $ 1,016.3  
Short-term investments, at quoted market value (cost of $4.8 and $4.8)
    4.3     4.3  
Accounts receivable, less allowances of $55.5 and $65.8
    1,829.2     1,763.7  
Inventories
    1,517.0     1,330.1  
Deferred tax assets
    197.8     157.8  
Other current assets
    566.8     549.7  
               
      4,947.3     4,821.9  
               
Property, Plant and Equipment, at Cost, Net
    1,669.9     1,611.3  
               
Acquisition-related Intangible Assets, Net
    7,972.2     7,815.9  
               
Other Assets
    554.8     611.3  
               
Goodwill
    12,433.8     11,973.3  
               
    $ 27,578.0   $ 26,833.7  

 
3

 


THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
 
   
September 29,
 
December 31,
 
(In millions except share amounts)
 
2012
 
2011
 
           
Liabilities and Shareholders' Equity
         
Current Liabilities:
         
Short-term obligations and current maturities of long-term obligations
  $ 434.8   $ 1,272.8  
Accounts payable
    684.3     612.3  
Accrued payroll and employee benefits
    378.7     324.4  
Deferred revenue
    208.4     192.5  
Other accrued expenses
    816.3     711.1  
               
      2,522.5     3,113.1  
               
Deferred Income Taxes
    2,009.3     2,229.3  
               
Other Long-term Liabilities
    718.2     698.0  
               
Long-term Obligations
    7,037.5     5,755.2  
               
Shareholders' Equity:
             
Preferred stock, $100 par value, 50,000 shares authorized; none issued
             
Common stock, $1 par value, 1,200,000,000 shares authorized; 410,564,459 and 406,416,940 shares issued
    410.6     406.4  
Capital in excess of par value
    10,352.0     10,152.0  
Retained earnings
    7,374.8     6,716.3  
Treasury stock at cost, 50,349,562 and 35,033,919 shares
    (2,646.6 )   (1,837.1 )
Accumulated other comprehensive items
    (200.3 )   (399.5 )
               
      15,290.5     15,038.1  
               
    $ 27,578.0   $ 26,833.7  

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

 
4

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
 
   
Three Months Ended
 
Nine Months Ended
 
 
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions except per share amounts)
 
2012
 
2011
 
2012
 
2011
 
                   
Revenues
                 
Product revenues
  $ 2,651.0   $ 2,517.4   $ 7,958.5   $ 7,250.8  
Service revenues
    434.7     415.5     1,292.1     1,218.7  
                           
      3,085.7     2,932.9     9,250.6     8,469.5  
                           
Costs and Operating Expenses:
                         
Cost of product revenues
    1,510.6     1,466.0     4,510.5     4,214.4  
Cost of service revenues
    276.7     248.0     830.7     758.9  
Selling, general and administrative expenses
    839.0     804.5     2,498.3     2,281.6  
Research and development expenses
    92.0     86.8     277.9     244.7  
Restructuring and other costs, net
    15.2     11.6     51.7     66.6  
                           
      2,733.5     2,616.9     8,169.1     7,566.2  
                           
Operating Income
    352.2     316.0     1,081.5     903.3  
Other Expense, Net
    (55.8 )   (49.6 )   (155.6 )   (82.6 )
                           
Income from Continuing Operations Before Income Taxes
    296.4     266.4     925.9     820.7  
Benefit from (Provision for) Income Taxes
    3.0     (0.1 )   (53.3 )   (89.8 )
                           
Income from Continuing Operations
    299.4     266.3     872.6     730.9  
(Loss) Income from Discontinued Operations (net of
     income tax (benefit) provision of $(2.7), $(0.7), $(9.9)
     and $3.0)
    (4.1 )   (1.0 )   (15.4 )   4.7  
(Loss) Gain on Disposal of Discontinued Operations, Net
      (net of income tax (benefit) provision of $(11.5),
      $(0.1), $(34.6) and $190.8)
    (4.9 )   0.1     (55.7 )   305.4  
                           
Net Income
  $ 290.4   $ 265.4   $ 801.5   $ 1,041.0  
                           
Earnings per Share from Continuing Operations
                         
Basic
  $ .83   $ .70   $ 2.39   $ 1.91  
Diluted
  $ .82   $ .70   $ 2.37   $ 1.89  
                           
Earnings per Share
                         
Basic
  $ .80   $ .70   $ 2.19   $ 2.72  
Diluted
  $ .79   $ .69   $ 2.18   $ 2.68  
                           
Weighted Average Shares
                         
Basic
    362.6     379.5     365.6     383.3  
Diluted
    365.4     382.7     368.2     387.7  
                           
Cash Dividend Declared per Common Share
  $ .13   $   $ .39   $  


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

 
5

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
   
Three Months Ended
 
Nine Months Ended
 
 
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011
 
                   
Comprehensive Income (Loss)
                 
Net Income
  $ 290.4   $ 265.4   $ 801.5   $ 1,041.0  
                           
Other Comprehensive Items:
                         
Currency translation adjustment
    256.8     (505.7 )   194.7     (289.8 )
Unrealized gains on available-for-sale investments
     (net of tax (benefit) provision of $(0.2), $0.2,
     $(0.1) and $0.6)
        0.8     0.1     2.0  
Unrealized gains (losses) on hedging instruments
     (net of tax provision (benefit) of $0.5, $(25.9),
     $1.5 and $(22.2))
    0.8     (42.1 )   2.4     (36.1 )
Pension and other postretirement benefit liability
     adjustments (net of tax provision of $0.0, $0.5,
     $1.1 and $0.2)
    (0.2 )   1.6     2.0     0.9  
                           
      257.4     (545.4 )   199.2     (323.0 )
                           
    $ 547.8   $ (280.0 ) $ 1,000.7   $ 718.0  

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

 
6

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
   
Nine Months Ended
 
   
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
           
Operating Activities
         
Net Income
  $ 801.5   $ 1,041.0  
Loss (income) from discontinued operations
    15.4     (4.7 )
Loss (gain) on disposal of discontinued operations
    55.7     (305.4 )
               
Income from continuing operations
    872.6     730.9  
               
Adjustments to reconcile income from continuing operations to net cash provided by
   operating activities:
             
Depreciation and amortization
    729.3     614.0  
Change in deferred income taxes
    (243.3 )   (182.3 )
Non-cash stock-based compensation
    57.8     60.6  
Non-cash charges for sale of inventories revalued at the date of acquisition
    40.1     40.5  
Tax benefits from stock-based compensation awards
    (12.8 )   (16.6 )
Other non-cash expenses, net
    29.1     36.6  
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions:
             
Accounts receivable
    (16.2 )   (76.0 )
Inventories
    (132.6 )   (62.3 )
Other assets
    (81.2 )   (66.2 )
Accounts payable
    71.2     29.0  
Other liabilities
    102.9     (54.7 )
Contributions to retirement plans
    (16.3 )   (16.8 )
               
Net cash provided by continuing operations
    1,400.6     1,036.7  
Net cash (used in) provided by discontinued operations
    (21.2 )   17.3  
               
Net cash provided by operating activities
    1,379.4     1,054.0  
               
Investing Activities
             
Acquisitions, net of cash acquired
    (1,072.4 )   (5,691.1 )
Purchase of property, plant and equipment
    (210.7 )   (180.2 )
Proceeds from sale of property, plant and equipment
    11.6     6.2  
Proceeds from sale of businesses, net of cash divested
        13.8  
Other investing activities, net
    1.7     (2.2 )
               
Net cash used in continuing operations
    (1,269.8 )   (5,853.5 )
Net cash provided by discontinued operations
    3.4     784.1  
               
Net cash used in investing activities
  $ (1,266.4 ) $ (5,069.4 )

 
7

 

 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
 
   
Nine Months Ended
 
   
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
           
Financing Activities
         
Net proceeds from issuance of long-term debt
  $ 1,282.3   $ 4,254.4  
(Decrease) increase in commercial paper, net
    (849.3 )   999.3  
Settlement of convertible debt
        (452.0 )
Redemption and repayment of long-term obligations
    (2.0 )   (0.9 )
Purchases of company common stock
    (800.0 )   (987.5 )
Dividends paid
    (95.3 )    
Net proceeds from issuance of company common stock
    131.3     153.7  
Tax benefits from stock-based compensation awards
    12.8     16.6  
Increase in short-term notes payable
    14.4     9.3  
Other financing activities, net
    (4.5 )   4.1  
               
Net cash (used in) provided by financing activities
    (310.3 )   3,997.0  
               
Exchange Rate Effect on Cash
    13.2     (8.4 )
               
Decrease in Cash and Cash Equivalents
    (184.1 )   (26.8 )
Cash and Cash Equivalents at Beginning of Period
    1,016.3     917.1  
               
Cash and Cash Equivalents at End of Period
  $ 832.2   $ 890.3  
 
See Note 12 for supplemental cash flow information.

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

 
8

 
 
 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
 
                           
Accumulated
     
           
Capital in
             
Other
 
Total
 
   
Common Stock
 
Excess of
 
Retained
 
Treasury Stock
 
Comprehensive
 
Shareholders'
 
(In millions)
 
Shares
 
Amount
 
Par Value
 
Earnings
 
Shares
 
Amount
 
Items
 
Equity
 
                                   
Balance at December 31, 2010
  401.8   $ 401.8   $ 10,019.7   $ 5,386.4   10.4   $ (490.5 ) $ 43.6   $ 15,361.0  
                                               
Issuance of shares under
    employees' and directors' stock
    plans
  4.5     4.5     156.1       0.2     (8.9 )       151.7  
Settlement of convertible debt
          (122.8 )                 (122.8 )
Stock-based compensation
          60.7                   60.7  
Tax benefit related to employees'
    and directors' stock plans
          14.8                   14.8  
Purchases of company common stock
                17.4     (987.5 )       (987.5 )
Net income
              1,041.0               1,041.0  
Other comprehensive items
                        (323.0 )   (323.0 )
                                               
Balance at October 1, 2011
  406.3   $ 406.3   $ 10,128.5   $ 6,427.4   28.0   $ (1,486.9 ) $ (279.4 ) $ 15,195.9  
                                               
                                               
Balance at December 31, 2011
  406.4   $ 406.4   $ 10,152.0   $ 6,716.3   35.0   $ (1,837.1 ) $ (399.5 ) $ 15,038.1  
Issuance of shares under
    employees' and directors' stock
    plans
  4.2     4.2     134.9       0.2     (9.5 )       129.6  
Stock-based compensation
          57.8                   57.8  
Tax benefit related to employees'
    and directors' stock plans
          9.8                   9.8  
Purchases of company common stock
                15.1     (800.0 )       (800.0 )
Dividends declared
              (143.0 )             (143.0 )
Net income
              801.5               801.5  
Other comprehensive items
                        199.2     199.2  
Other
          (2.5 )                 (2.5 )
                                               
Balance at September 29, 2012
  410.6   $ 410.6   $ 10,352.0   $ 7,374.8   50.3   $ (2,646.6 ) $ (200.3 ) $ 15,290.5  

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

 
9

 

 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.
Nature of Operations and Summary of Significant Accounting Policies
 
Nature of Operations
 
Thermo Fisher Scientific Inc. (the company) enables customers to make the world healthier, cleaner and safer by providing analytical instruments, equipment, reagents and consumables, software and services for research, manufacturing, analysis, discovery and diagnostics. Markets served include pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies, as well as environmental and industrial process control settings.
 
Interim Financial Statements
 
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 September 29, 2012, the results of operations for the three- and nine-month periods ended September 29, 2012, and October 1, 2011, and the cash flows for the nine-month periods ended September 29, 2012, and October 1, 2011. Interim results are not necessarily indicative of results for a full year.
 
The consolidated balance sheet presented as of December 31, 2011, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all 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 2011 financial statements and notes included in the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on August 10, 2012.
 
Note 1 to the consolidated financial statements for 2011 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the company’s significant accounting policies during the nine months ended September 29, 2012.
 
Presentation
 
The results of the company’s laboratory workstations business have been classified and presented as discontinued operations in the accompanying financial statements (Note 14). Prior period results have been adjusted to conform to this presentation. The discontinued operations have been excluded from the following notes unless they were material. In such instances, the amounts related to the discontinued operations have been separately disclosed.
 
Certain reclassifications of prior year amounts have been made to conform to the current year presentation.
 
 
 
10

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
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:
 
   
Nine Months Ended
 
   
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
           
Beginning Balance
  $ 42.2   $ 41.7  
Provision charged to income
    48.7     39.5  
Usage
    (42.5 )   (41.3 )
Acquisitions
        3.0  
Adjustments to previously provided warranties, net
    (0.4 )   (1.5 )
Other, net
    (0.2 )   0.5  
               
Ending Balance
  $ 47.8   $ 41.9  

Inventories
 
The components of inventories are as follows:
 
   
September 29,
 
December 31,
 
(In millions)
 
2012
 
2011
 
           
Raw Materials
  $ 380.5   $ 335.2  
Work in Process
    163.4     129.3  
Finished Goods
    973.1     865.6  
               
    $ 1,517.0   $ 1,330.1  

Property, Plant and Equipment
 
Property, plant and equipment consists of the following:
 
   
September 29,
 
December 31,
 
(In millions)
 
2012
 
2011
 
           
Land
  $ 213.8   $ 179.9  
Buildings and Improvements
    789.1     747.4  
Machinery, Equipment and Leasehold Improvements
    1,750.8     1,647.6  
               
      2,753.7     2,574.9  
Less: Accumulated Depreciation and Amortization
    1,083.8     963.6  
               
    $ 1,669.9   $ 1,611.3  
 
 
 
11

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Acquisition-related Intangible Assets
 
Acquisition-related intangible assets are as follows:
 
   
September 29, 2012
 
December 31, 2011
 
       
Accumulated
         
Accumulated
     
(In millions)
 
Gross
 
Amortization
 
Net
 
Gross
 
Amortization
 
Net
 
                           
Definite Lives
  $ 10,362.9   $ (3,738.7 ) $ 6,624.2   $ 9,637.2   $ (3,169.3 ) $ 6,467.9  
Indefinite Lives
    1,348.0         1,348.0     1,348.0         1,348.0  
                                       
    $ 11,710.9   $ (3,738.7 ) $ 7,972.2   $ 10,985.2   $ (3,169.3 ) $ 7,815.9  
 
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. In addition, significant estimates were made in estimating future cash flows to assess potential impairment of assets, and in determining the ultimate loss from selling discontinued operations and abandoning leases at facilities being exited (Note 13). Actual results could differ from those estimates.
 
Recent Accounting Pronouncements
 
In July 2012, the FASB modified existing rules to allow entities to use a qualitative approach to test indefinite-lived intangible asset for impairment. The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. This guidance will be effective for the company in 2013, however, early adoption is permitted. Adoption of this standard will not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In December 2011, the FASB issued new guidance which requires enhanced disclosures on offsetting amounts within the balance sheet, including disclosing gross and net information about instruments and transactions eligible for offset or subject to a master netting or similar agreement. The guidance is effective for the company beginning January 1, 2013 and is to be applied retrospectively. The adoption of this guidance, which is related to disclosure only, will not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In September 2011, the FASB modified existing rules to allow entities to use a qualitative approach to test goodwill for impairment. The revised guidance permits an entity to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If impairment is deemed more likely than not, management would perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance was effective for the company on January 1, 2012. Adoption of this standard did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In June 2011, the FASB issued new guidance pertaining to the presentation of comprehensive income. The new rule eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The standard is intended to provide a more consistent method of presenting non-owner transactions that affect the company’s equity. Under the new guidance, an entity can present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The new guidance was effective for the company on January 1, 2012 and did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
 
 
12

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
In May 2011, the FASB amended existing rules covering fair value measurement and disclosure to clarify guidance and minimize differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The new guidance requires entities to provide information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and provide a narrative description of the sensitivity of Level 3 measurements to changes in unobservable inputs. The guidance was effective for the company on January 1, 2012 and did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
Note 2.
Acquisitions and Dispositions
 
On September 13, 2012, the Specialty Diagnostics segment acquired One Lambda, a provider of transplant diagnostics, for approximately $884 million, net of cash acquired, including related real estate and subject to a post-closing adjustment, plus up to $25 million of additional contingent consideration based upon the achievement of specified operating results in the year following the acquisition. The company recorded $13 million as the fair value of contingent consideration at the acquisition date. The acquisition of One Lambda enhances the segment’s presence in specialty in vitro diagnostics and adds new capabilities to the company’s transplant-testing workflow. Revenues of One Lambda were $182 million in 2011. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $274 million was allocated to goodwill, all of which is tax deductible.
 
On May 1, 2012, the Laboratory Products and Services segment acquired Doe & Ingalls Management, LLC, a North Carolina-based channel for specialty production chemicals and provider of customized supply-chain services to the life sciences and microelectronics industries, for $175 million plus up to $3 million of contingent consideration. The acquisition expands the segment’s products and services that address the production market. Revenues of Doe & Ingalls totaled approximately $110 million in 2011. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $81 million was allocated to goodwill, $53 million of which is tax deductible.
 
In addition, in the first nine months of 2012, the Analytical Technologies segment acquired a manufacturer and supplier of radioactive isotope identifiers, x-ray and gamma-ray detectors and spectroscopy systems used to detect radioactive and other nuclear materials in security and environmental settings and the Specialty Diagnostics segment acquired a business that holds proprietary technology for tests to diagnose pre-eclampsia and eclampsia. The aggregate consideration for these acquisitions was $15 million plus contingent consideration of up to $5 million.
 
The company made contingent purchase price and post closing adjustment payments totaling $5 million in the first nine months of 2012, for acquisitions completed prior to 2012. The contingent purchase price payments were contractually due to the sellers upon achievement of certain performance criteria at the acquired businesses.
 
The company’s acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in goodwill, due to expectations of the synergies that will be realized by combining the businesses. These synergies include the elimination of redundant facilities, functions and staffing; use of the company’s existing commercial infrastructure to expand sales of the acquired businesses’ products; and use of the commercial infrastructure of the acquired businesses to cost-effectively expand sales of company products.
 
Acquisitions have been accounted for using the purchase 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. The net assets acquired have been recorded based on estimates of fair value and, for acquisitions completed within the past year, are subject to adjustment upon finalization of the valuation process. The company is not aware of any information that indicates the final valuations will differ materially from preliminary estimates.
 
 
 
13

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    The components of the purchase price and net assets acquired for 2012 acquisitions are as follows:
 
(In millions)
 
One Lambda
 
Doe & Ingalls
 
Other
 
Total
 
                   
Purchase Price
                 
Cash paid
  $ 878.8   $ 174.8   $ 15.4   $ 1,069.0  
Purchase price payable
    6.7             6.7  
Fair value of contingent consideration
    12.9     1.5     1.4     15.8  
Cash acquired
    (1.2 )           (1.2 )
                           
    $ 897.2   $ 176.3   $ 16.8   $ 1,090.3  
                           
Net Assets Acquired
                         
Current assets
  $ 111.3   $ 21.7   $ 1.8   $ 134.8  
Property, plant and equipment
    30.3     11.6     0.1     42.0  
Intangible assets:
                         
Customer relationships
    335.4     68.2     3.1     406.7  
Product technology
    172.5     1.1     7.1     180.7  
Tradenames and other
    17.2     16.8         34.0  
Goodwill
    274.4     81.3     8.8     364.5  
Other assets
        0.4         0.4  
Liabilities assumed
    (43.9 )   (24.8 )   (4.1 )   (72.8 )
                           
    $ 897.2   $ 176.3   $ 16.8   $ 1,090.3  

The weighted-average amortization periods for intangible assets acquired in 2012 are 13 years for customer relationships, 11 years for product technology and 13 years for tradenames and other. The weighted average amortization period for all intangible assets acquired in 2012 is 13 years.
 
The company acquired Dionex Corporation in May 2011, the Phadia group in August 2011 and One Lambda in September 2012. Had the acquisitions of Dionex and Phadia been completed as of the beginning of 2010, and the acquisition of One Lambda been completed as of the beginning of 2011, the company’s pro forma results for 2012 and 2011 would have been as follows:
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions except per share amounts)
 
2012
 
2011
 
2012
 
2011
 
                   
Revenues
  $ 3,122.6   $ 3,053.5   $ 9,383.7   $ 9,158.5  
                           
Income from Continuing Operations
  $ 318.8   $ 289.0   $ 920.6   $ 816.9  
                           
Net Income
  $ 309.8   $ 288.1   $ 849.5   $ 1,127.0  
                           
Earnings per Share from Continuing Operations:
                         
Basic
  $ 0.88   $ 0.76   $ 2.52   $ 2.12  
Diluted
  $ 0.87   $ 0.75   $ 2.50   $ 2.09  
                           
Earnings per Share:
                         
Basic
  $ 0.85   $ 0.75   $ 2.32   $ 2.93  
Diluted
  $ 0.85   $ 0.75   $ 2.31   $ 2.89  

Pro forma results include non-recurring pro forma adjustments that were directly attributable to the business combinations. Acquisition-related transaction costs incurred by the company and One Lambda of $12.8 million and $15.0 million in the three and nine months ended September 29, 2012, respectively, recorded in 2012 have been assumed to have occurred in 2011 for pro forma purposes.
 
 
 
14

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Additionally, the following non-recurring pro forma adjustments relating to charges recorded in 2011 have been assumed to have occurred in 2010 for pro forma purposes:
 
·  
Pre-tax increase in income of $21.6 million for the nine months ended October 1, 2011, relating to monetizing equity awards held by Dionex employees at the date of acquisition.
 
·  
Pre-tax increase in income of $24.4 million and $39.0 million for the three and nine months ended October 1, 2011, respectively, for the sale of Dionex and Phadia inventories revalued at the date of acquisition.
 
·  
Pre-tax increase in income of $17.7 million and $80.6 million in the three and nine months ended October 1, 2011, respectively, for acquisition-related transaction costs incurred by the company, Dionex and Phadia.
 
The company’s results would not have been materially different from its pro forma results had the company’s other 2012 and 2011 acquisitions occurred at the beginning of 2011 or 2010, respectively.
 
Dispositions
 
On October 22, 2012, the company sold its laboratory workstations business and on April 4, 2011, the company sold its Athena Diagnostics business and its Lancaster Laboratories business (See Note 14).
 
Note 3.
Business Segment and Geographical Information
 
The company’s continuing operations fall into three business segments as follows:
 
Analytical Technologies: provides a broad offering of instruments, reagents, consumables, software and services that are used for a range of applications in the laboratory, on the production line and in the field. These products and services are used by customers in pharmaceutical, biotechnology, academic, government and other research and industrial markets, as well as the clinical laboratory.
 
Specialty Diagnostics: provides a wide range of diagnostic test kits, reagents, culture media, instruments and associated products used to increase the speed and accuracy of diagnoses. These products are used primarily by customers in healthcare, clinical, pharmaceutical, industrial and food safety laboratories.
 
Laboratory Products and Services: provides virtually everything needed for the laboratory, including a combination of self-manufactured and sourced products and an extensive service offering. These products and services are used by customers in pharmaceutical, biotechnology, academic, government and other research and industrial markets, as well as the clinical laboratory.
 
The company’s management evaluates segment operating performance based on operating income before certain charges/credits to cost of revenues and selling, general and administrative expenses, principally associated with acquisition accounting; restructuring and other costs/income including costs arising from facility consolidations such as severance and abandoned lease expense and gains and losses from the sale of real estate and product lines; and amortization of acquisition-related intangible assets. The company uses this measure because it helps management understand and evaluate the segments’ core operating results and facilitates comparison of performance for determining compensation.
 
 
 
15

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Business Segment Information
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011
 
                   
Revenues
                 
Analytical Technologies
  $ 1,012.2   $ 1,006.5   $ 3,017.9   $ 2,765.9  
Specialty Diagnostics
    706.7     615.8     2,170.5     1,763.7  
Laboratory Products and Services
    1,510.1     1,441.1     4,490.2     4,327.6  
Eliminations
    (143.3 )   (130.5 )   (428.0 )   (387.7 )
                           
Consolidated revenues
    3,085.7     2,932.9     9,250.6     8,469.5  
                           
Segment Income
                         
Analytical Technologies (a)
    191.7     195.9     551.9     491.9  
Specialty Diagnostics (a)
    170.0     150.3     556.2     429.0  
Laboratory Products and Services (a)
    214.0     200.9     634.2     614.5  
                           
Subtotal reportable segments (a)
    575.7     547.1     1,742.3     1,535.4  
                           
Cost of revenues charges
    (3.1 )   (24.3 )   (42.5 )   (42.6 )
Selling, general and administrative charges, net
    (19.0 )   (20.6 )   (13.1 )   (61.7 )
Restructuring and other costs, net
    (15.2 )   (11.6 )   (51.7 )   (66.6 )
Amortization of acquisition-related intangible assets
    (186.2 )   (174.6 )   (553.5 )   (461.2 )
                           
Consolidated operating income
    352.2     316.0     1,081.5     903.3  
Other expense, net (b)
    (55.8 )   (49.6 )   (155.6 )   (82.6 )
                           
Income from continuing operations before income taxes
  $ 296.4   $ 266.4   $ 925.9   $ 820.7  
                           
Depreciation
                         
Analytical Technologies
  $ 15.5   $ 15.9   $ 48.3   $ 44.5  
Specialty Diagnostics
    18.2     13.0     53.8     32.7  
Laboratory Products and Services
    25.3     25.3     73.7     75.6  
                           
Consolidated depreciation
  $ 59.0   $ 54.2   $ 175.8   $ 152.8  
 
(a) Represents operating income before certain charges to cost of revenues and selling, general and administrative expenses; restructuring and other costs, net; and
      amortization of acquisition-related intangibles.
(b) The company does not allocate other expense, net to its segments.
 
 
 
16

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 4.
Other Expense, Net
 
The components of other expense, net, in the accompanying statement of income are as follows:
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011
 
                   
Interest Income
  $ 5.9   $ 6.8   $ 19.0   $ 18.4  
Interest Expense
    (60.3 )   (49.5 )   (175.4 )   (116.2 )
Other Items, Net
    (1.4 )   (6.9 )   0.8     15.2  
                           
    $ (55.8 ) $ (49.6 ) $ (155.6 ) $ (82.6 )

Other Items, Net
 
In the three-month period ended October 1, 2011, other items, net includes $5 million of losses on currency exchange contracts associated with the acquisition of Phadia. In the nine months ended October 1, 2011, other items, net includes $28 million of gains on currency exchange contracts associated with the acquisition of Phadia, offset in part by $10 million of fees associated with a short-term financing commitment to fund the Phadia acquisition.
 
Note 5.           Stock-based Compensation Expense
         
    The components of pre-tax stock-based compensation expense for the company’s continuing operations are as follows:
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
   2012    2011    2012    2011  
                   
Stock Option Awards
  $ 9.8   $ 12.0   $ 30.0   $ 37.3  
Restricted Share/Unit Awards
    10.5     6.7     27.8     23.3  
                           
Total Stock-based Compensation Expense
  $ 20.3   $ 18.7   $ 57.8   $ 60.6  
 
    Stock-based compensation expense is included in the accompanying statement of income as follows:
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011
 
                   
Cost of Revenues
  $ 1.2   $ 1.4   $ 3.8   $ 4.3  
Selling, General and Administrative Expenses
    18.6     16.8     52.6     54.8  
Research and Development Expenses
    0.5     0.5     1.4     1.5  
                           
Total Stock-based Compensation Expense
  $ 20.3   $ 18.7   $ 57.8   $ 60.6  
 
 
 
17

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    As of September 29, 2012, there was $85 million of total unrecognized compensation cost related to unvested stock options granted. The cost is expected to be recognized through 2016 with a weighted average amortization period of 2.5 years.
 
As of September 29, 2012, there was $66 million of total unrecognized compensation cost related to unvested restricted stock unit awards. The cost is expected to be recognized through 2015 with a weighted average amortization period of 2.1 years.
 
During the first nine months of 2012, the company made equity compensation grants to employees consisting of  1.0 million restricted stock units and options to purchase 2.8 million shares.
 
Note 6.
Pension and Other Postretirement Benefit 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 maintains postretirement healthcare programs at several acquired businesses where certain employees are eligible to participate. The costs of the postretirement healthcare programs are funded on a self-insured and insured-premium basis.
 
Net periodic benefit costs for the company’s defined benefit pension plans include the following components:
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011
 
                   
Service Cost - Benefits Earned
  $ 2.9   $ 3.0   $ 8.9   $ 9.1  
Interest Cost on Benefit Obligation
    12.7     13.6     38.2     40.7  
Expected Return on Plan Assets
    (13.8 )   (14.4 )   (41.4 )   (43.1 )
Amortization of Net Loss
    1.7     0.8     5.1     2.3  
Amortization of Prior Service Benefit
    (0.1 )       (0.1 )    
Settlement/Curtailment Loss
    0.1              
Special Termination Benefits
            0.5     0.1  
                           
Net Periodic Benefit Cost
  $ 3.5   $ 3.0   $ 11.2   $ 9.1  
 
    Net periodic benefit costs for the company's other postretirement benefit plans include the following components:
 
    Three Months Ended   Nine Months Ended  
      September 29,     October 1,      September 29,     October 1,  
(In millions)      2012     2011     2012     2011  
                           
Service Cost - Benefits Earned
  $ 0.1   $ 0.1   $ 0.5   $ 0.5  
Interest Cost on Benefit Obligation
    0.4     0.4     1.4     1.4  
Amortization of Net Gain
    (0.1 )       (0.1 )   (0.2 )
                           
Net Periodic Benefit Cost
  $ 0.4   $ 0.5   $ 1.8   $ 1.7  
 
 
 
18

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 7.           Earnings per Share
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions except per share amounts)
 
2012
 
2011
 
2012
 
2011
 
                   
Income from Continuing Operations
  $ 299.4   $ 266.3   $ 872.6   $ 730.9  
(Loss) Income from Discontinued Operations
    (4.1 )   (1.0 )   (15.4 )   4.7  
(Loss) Gain on Disposal of Discontinued Operations, Net
    (4.9 )   0.1     (55.7 )   305.4  
                           
Net Income
  $ 290.4   $ 265.4   $ 801.5   $ 1,041.0  
                           
                           
Basic Weighted Average Shares
    362.6     379.5     365.6     383.3  
Plus Effect of:
                         
Convertible debentures
                0.7  
Stock options and restricted units
    2.8     3.2     2.6     3.7  
                           
Diluted Weighted Average Shares
    365.4     382.7     368.2     387.7  
                           
Basic Earnings per Share:
                         
Continuing operations
  $ .83   $ .70   $ 2.39   $ 1.91  
Discontinued operations
    (.02 )       (.19 )   .81  
                           
    $ .80   $ .70   $ 2.19   $ 2.72  
                           
Diluted Earnings per Share:
                         
Continuing operations
  $ .82   $ .70   $ 2.37   $ 1.89  
Discontinued operations
    (.02 )       (.19 )   .80  
                           
    $ .79   $ .69   $ 2.18   $ 2.68  

Options to purchase 6.4 million, 5.5 million, 8.6 million and 5.8 million shares of common stock were not included in the computation of diluted earnings per share for the third quarter of 2012 and 2011 and the first nine months of 2012 and 2011, respectively, because their effect would have been antidilutive.
 
Note 8.
Debt and Other Financing Arrangements
 
Senior Notes
 
On August 15, 2012, the company issued $500 million principal amount of 1.85% senior notes due 2018 and $800 million principal amount of 3.15% senior notes due 2023 to fund its acquisition of One Lambda and for other general corporate purposes. Interest on each of the senior notes is payable semi-annually. Each of the notes may be redeemed at any time at a redemption price of 100% of the principal amount plus a specified make-whole premium plus accrued interest. The company is subject to certain affirmative and negative covenants under the indentures governing the senior notes, the most restrictive of which limits the ability of the company to pledge principal properties as security under borrowing arrangements.
 
Credit Facilities
 
On April 11, 2012, the company terminated both of its prior revolving credit agreements and entered into new revolving credit facilities with a bank group that provide for up to $2.0 billion of unsecured multi-currency revolving credit. The new credit facilities include a $1 billion 5-year credit agreement, with an optional $500 million increase, plus a $500 million 364-day credit agreement. The agreements call for interest at either a LIBOR-based rate or a rate based on the prime lending rate of the agent bank, at the company’s option. The agreements contain affirmative, negative and financial covenants, and events of default customary for financings of this type. The financial covenant requires the company to maintain a Consolidated Leverage Ratio of debt to EBITDA (as defined in the agreements) below 3.5 to 1.0. The credit agreements permit the company to use the facilities for working capital; acquisitions; repurchases of common stock, debentures and other securities; the refinancing of debt; and general corporate purposes. The 5-year credit agreement allows for the issuance of letters of credit, which reduces the amount available for borrowing. If the company borrows under these facilities, it intends to leave undrawn an amount equivalent to outstanding commercial paper ($50 million at September 29, 2012) to provide a source of funds in the event that commercial paper markets are not available. As of September 29, 2012, no borrowings were outstanding under either facility, although available capacity was reduced by approximately $49 million as a result of outstanding letters of credit.

 
 
19

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 9.
Commitments and Contingencies
 
There are various lawsuits and claims pending against the company involving product liability, contract, commercial and other issues. In view of the company’s financial condition and the accruals established for these matters, management does not believe that the ultimate liability, if any, related to these matters will have a material adverse effect on the company’s financial condition, results of operations or cash flows.
 
The company establishes a liability that is an estimate of amounts needed to pay damages in the future for events that have already occurred. The accrued liabilities are based on management’s judgment as to the probability of losses for asserted and unasserted claims and, where applicable, actuarially determined estimates. The reserve estimates are adjusted as additional information becomes known or payments are made.
 
For product liability, workers compensation and other personal injury matters, the company accrues the most likely amount or at least the minimum of the range of probable loss when a range of probable loss can be estimated. The company records estimated amounts due from insurers as an asset. Although the company believes that the amounts reserved and estimated recoveries are probable and appropriate based on available information, including actuarial studies of loss estimates, the process of estimating losses and insurance recoveries involves a considerable degree of judgment by management and the ultimate amounts could vary materially. Insurance contracts do not relieve the company of its primary obligation with respect to any losses incurred. The collectability of amounts due from its insurers is subject to the solvency and willingness of the insurer to pay, as well as the legal sufficiency of the insurance claims. Management monitors the financial condition and ratings of its insurers on an ongoing basis.
 
The company is currently involved in various stages of investigation and remediation related to environmental matters. The company cannot predict all potential costs related to environmental remediation matters and the possible impact on future operations given the uncertainties regarding the extent of the required cleanup, the complexity and interpretation of applicable laws and regulations, the varying costs of alternative cleanup methods and the extent of the company’s responsibility. Expenses for environmental remediation matters related to the costs of permit requirements and installing, operating and maintaining groundwater-treatment systems and other remedial activities related to historical environmental contamination at the company’s domestic and international facilities were not material in any period presented. The company records accruals for environmental remediation liabilities, based on current interpretations of environmental laws and regulations, when it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated. The company calculates estimates based upon several factors, including reports prepared by environmental specialists and management’s knowledge of and experience with these environmental matters. The company includes in these estimates potential costs for investigation, remediation and operation and maintenance of cleanup sites.
 
Management believes that its reserves for environmental matters are adequate for the remediation costs the company expects to incur. As a result, the company believes that the ultimate liability with respect to environmental remediation matters will not have a material adverse effect on the company’s financial position, results of operations or cash flows. However, the company may be subject to additional remedial or compliance costs due to future events, such as changes in existing laws and regulations, changes in agency direction or enforcement policies, developments in remediation technologies or changes in the conduct of the company’s operations, which could have a material adverse effect on the company’s financial position, results of operations or cash flows. Although these environmental remediation liabilities do not include third-party recoveries, the company may be able to bring indemnification claims against third parties for liabilities relating to certain sites.
 
 
 
20

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 10.
Comprehensive Income and Shareholders’ Equity
 
Comprehensive Income
 
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.
 
Accumulated other comprehensive items in the accompanying balance sheet consist of the following:
 
   
September 29,
 
December 31,
 
(In millions)
 
2012
 
2011
 
           
Cumulative Translation Adjustment
  $ (11.6 ) $ (206.3 )
Net Unrealized Gain on Available-for-sale Investments, Net of Tax
    7.1     7.0  
Net Unrealized Losses on Hedging Instruments, Net of Tax
    (33.8 )   (36.2 )
Pension and Other Postretirement Benefit Liability Adjustments, Net of Tax
    (162.0 )   (164.0 )
               
    $ (200.3 ) $ (399.5 )

The unrealized losses on hedging instruments relate to the company’s 5% Senior Notes due 2015 and 3.60% Senior Notes due 2021. The losses are being amortized as an increase in interest expense over the term of the related debt. The after-tax charges recognized in net income were $2.4 million and $0.5 million in the first nine months of 2012 and 2011, respectively.
 
The after-tax pension and other postretirement benefit liability adjustments recognized in net income in the first nine months of 2012 and 2011 were $3.3 million and $1.9 million, respectively.
 
Note 11.         Fair Value Measurements and Fair Value of Financial Instruments
 
Fair Value Measurements
 
The company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2012. 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 and interest rate risks and other investments in unit trusts and insurance contracts held as assets to satisfy outstanding retirement liabilities.
 
The fair value accounting guidance 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.
 
 
 
21

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
         
    The following table presents information about the company’s financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2012:
 
   
September 29,
 
Quoted
Prices in
 Active
 Markets
 
Significant
 Other
 Observable
 Inputs
 
Significant Unobservable Inputs
 
(In millions)
 
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
                   
Assets
                 
Cash equivalents
  $ 61.3   $ 61.3   $   $  
Investments in mutual funds, unit trusts and other similar instruments
    35.7     35.7          
Insurance contracts
    60.2         60.2      
Auction rate securities
    4.3             4.3  
Derivative contracts
    0.3         0.3      
                           
Total Assets
  $ 161.8   $ 97.0   $ 60.5   $ 4.3  
                           
Liabilities
                         
Derivative contracts
  $ 0.5   $   $ 0.5   $  
Contingent consideration
    16.8             16.8  
                           
Total Liabilities
  $ 17.3   $   $ 0.5   $ 16.8  
 
    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, 2011:
 
   
December 31,
 
Quoted
Prices in
Active
Markets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
(In millions)
 
2011
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
                   
Assets
                 
Cash equivalents
  $ 377.1   $ 377.1   $   $  
Investments in mutual funds, unit trusts and other similar instruments
    35.6     35.6          
Insurance contracts
    56.7         56.7      
Auction rate securities
    4.3             4.3  
Derivative contracts
    0.9         0.9      
                           
Total Assets
  $ 474.6   $ 412.7   $ 57.6   $ 4.3  
                           
Liabilities
                         
Derivative contracts
  $ 1.2   $   $ 1.2   $  
Contingent consideration
    1.7             1.7  
                           
Total Liabilities
  $ 2.9   $   $ 1.2   $ 1.7  

The company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer. The fair value of derivative contracts is the estimated amount that the company would receive/pay upon liquidation of the contracts, taking into account the change in currency exchange rates. The company determines the fair value of the auction rate securities by obtaining indications of value from brokers/dealers. The company determines the fair value of acquisition-related contingent consideration based on assessment of the probability that the company would be required to make such future payment. Changes to the fair value of contingent consideration are recorded in selling, general and administrative expense. The following tables provide a rollforward of the fair value, as determined by Level 3 inputs, of the auction rate securities and contingent consideration.
 
 
 
22

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
   
Three Months Ended
 
Nine Months Ended
 
   
September 29,
 
October 1,
 
September 29,
 
October 1,
 
(In millions)
 
2012
 
2011
 
2012
 
2011