tmoq213.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 29, 2013

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 29, 2013
Common Stock, $1.00 par value
 
360,515,888

 
 


 

 
 

 

 
THERMO FISHER SCIENTIFIC INC.
 
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 29, 2013
 
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
31  
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
44  
       
Item 4.
Controls and Procedures
45  
       
 
PART II
   
       
Item 1A.
Risk Factors
45  
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
53  
       
Item 6.
Exhibits
53  

 
2

 

 
THERMO FISHER SCIENTIFIC INC.
 
PART I         FINANCIAL INFORMATION

Item 1.          Financial Statements
 
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
   
June 29,
 
December 31,
 
(In millions)
 
2013
 
2012
 
           
Assets
         
Current Assets:
         
Cash and cash equivalents
  $ 1,408.9   $ 851.0  
Short-term investments, at quoted market value (cost of $4.6 and $4.8)
    4.2     4.3  
Accounts receivable, less allowances of $54.1 and $55.5
    1,901.5     1,804.9  
Inventories
    1,487.1     1,443.3  
Deferred tax assets
    180.3     182.0  
Other current assets
    659.5     549.3  
               
      5,641.5     4,834.8  
               
Property, Plant and Equipment, at Cost, Net
    1,688.8     1,726.4  
               
Acquisition-related Intangible Assets, Net
    7,330.2     7,804.5  
               
Other Assets
    578.8     604.4  
               
Goodwill
    12,390.2     12,474.5  
               
    $ 27,629.5   $ 27,444.6  

 
3

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
 
 
   
June 29,
 
December 31,
 
(In millions except share amounts)
 
2013
 
2012
 
           
Liabilities and Shareholders' Equity
         
Current Liabilities:
         
Short-term obligations and current maturities of long-term obligations
  $ 393.3   $ 93.1  
Accounts payable
    648.9     641.4  
Accrued payroll and employee benefits
    317.1     388.0  
Deferred revenue
    215.2     196.5  
Other accrued expenses
    788.4     774.3  
               
      2,362.9     2,093.3  
               
Deferred Income Taxes
    1,945.8     2,047.2  
               
Other Long-term Liabilities
    796.9     808.2  
               
Long-term Obligations
    6,721.1     7,031.2  
               
Shareholders' Equity:
             
Preferred stock, $100 par value, 50,000 shares authorized; none issued
             
Common stock, $1 par value, 1,200,000,000 shares authorized; 418,108,447 and 413,491,691 shares issued
    418.1     413.5  
Capital in excess of par value
    10,744.0     10,501.1  
Retained earnings
    8,202.6     7,697.3  
Treasury stock at cost, 57,592,559 and 56,047,926 shares
    (3,105.9 )   (2,996.8 )
Accumulated other comprehensive items
    (456.0 )   (150.4 )
               
      15,802.8     15,464.7  
               
    $ 27,629.5   $ 27,444.6  

 


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
 
Six Months Ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions except per share amounts)
 
2013
 
2012
 
2013
 
2012
 
                   
Revenues
                 
Product revenues
  $ 2,786.8   $ 2,678.7   $ 5,510.3   $ 5,307.5  
Service revenues
    453.3     429.4     921.3     857.4  
                           
      3,240.1     3,108.1     6,431.6     6,164.9  
                           
Costs and Operating Expenses:
                         
Cost of product revenues
    1,572.5     1,497.9     3,105.6     2,999.9  
Cost of service revenues
    304.4     288.9     626.5     554.0  
Selling, general and administrative expenses
    869.6     835.0     1,699.1     1,659.3  
Research and development expenses
    96.7     94.2     194.9     185.9  
Restructuring and other costs, net
    21.5     24.3     43.0     36.5  
                           
      2,864.7     2,740.3     5,669.1     5,435.6  
                           
Operating Income
    375.4     367.8     762.5     729.3  
Other Expense, Net
    (95.4 )   (49.4 )   (139.6 )   (99.8 )
                           
Income from Continuing Operations Before Income Taxes
    280.0     318.4     622.9     629.5  
Provision for Income Taxes
    (2.4 )   (26.0 )   (4.5 )   (56.3 )
                           
Income from Continuing Operations
    277.6     292.4     618.4     573.2  
Loss from Discontinued Operations (net of income tax benefit of $0.1, $4.9, $0.3 and $7.2)
    (0.2 )   (7.5 )   (0.6 )   (11.3 )
Loss on Disposal of Discontinued Operations, Net  (net of income tax benefit of $0.0, $23.3,
      $2.8 and $23.1)
        (51.1 )   (4.2 )   (50.8 )
                           
Net Income
  $ 277.4   $ 233.8   $ 613.6   $ 511.1  
                           
Earnings per Share from Continuing Operations
                         
Basic
  $ .77   $ .80   $ 1.72   $ 1.56  
Diluted
  $ .76   $ .79   $ 1.71   $ 1.55  
                           
Earnings per Share
                         
Basic
  $ .77   $ .64   $ 1.71   $ 1.39  
Diluted
  $ .76   $ .63   $ 1.69   $ 1.38  
                           
Weighted Average Shares
                         
Basic
    360.0     367.0     359.0     367.1  
Diluted
    363.5     369.2     362.6     369.6  
                           
Cash Dividends Declared per Common Share
  $ .15   $ .13   $ .30   $ .26  




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
 
Six Months Ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Comprehensive Income (Loss)
                 
     Net Income
  $ 277.4   $ 233.8   $ 613.6   $ 511.1  
                           
     Other Comprehensive Items:
                         
     Currency translation adjustment
    (135.7 )   (310.6 )   (315.0 )   (62.1 )
     Unrealized gains and losses on available-for-sale
           investments:
                         
     Unrealized holding gains (losses) arising
             during the period (net of tax provision
             (benefit) of $(0.1), $0.1, $0.3 and $0.1)
    (0.1 )   0.1     1.1     0.1  
     Reclassification adjustment for gains included
             in net income (net of tax provision of $0.0,
             $0.0, $2.5 and $0.0)
            (8.0 )    
     Unrealized gains and losses on hedging
           instruments:
                         
     Unrealized gains on hedging instruments (net
             of tax provision of $4.1, $0.0, $4.1 and $0.0)
    6.7         6.7      
     Reclassification adjustment for losses included
             in net income (net of tax benefit of $0.5,
             $0.5, $1.0 and $1.0)
    0.8     0.8     1.6     1.6  
     Pension and other postretirement benefit liability
           adjustment:
                         
     Pension and other postretirement benefit
             liability adjustments arising during the
             period (net of tax provision (benefit) of
             $(0.1), $0.6, $1.5 and $(0.1))
    (0.3 )   1.8     4.2      
     Amortization of net loss and prior service
             benefit included in net periodic pension
             cost (net of tax benefit of $0.9, $0.6, $1.8
             and $1.2)
    1.9     1.1     3.8     2.2  
                           
      (126.7 )   (306.8 )   (305.6 )   (58.2 )
                           
    $ 150.7   $ (73.0 ) $ 308.0   $ 452.9  


 

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

 
6

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
 
   
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
           
Operating Activities
         
     Net Income
  $ 613.6   $ 511.1  
     Loss from discontinued operations
    0.6     11.3  
     Loss on disposal of discontinued operations
    4.2     50.8  
               
     Income from continuing operations
    618.4     573.2  
               
     Adjustments to reconcile income from continuing operations to net cash
           provided by operating activities:
             
             Depreciation and amortization
    500.2     484.1  
             Change in deferred income taxes
    (65.0 )   (115.2 )  
             Non-cash stock-based compensation
    43.7     37.5  
             Non-cash charges for sale of inventories revalued at the date of acquisition
    23.9     37.9  
             Tax benefits from stock-based compensation awards
    (30.6 )   (8.2 )
             Other non-cash expenses, net
    13.4     19.9  
             Changes in assets and liabilities, excluding the effects of acquisitions
                  and dispositions:
             
              Accounts receivable
    (139.0 )   (11.7 )
              Inventories
    (97.6 )   (103.3 )
              Other assets
    (107.1 )   (61.2 )
              Accounts payable
    33.3     47.9  
              Other liabilities
    7.4     19.4  
              Contributions to retirement plans
    (22.6 )   (11.6 )
               
                Net cash provided by continuing operations
    778.4     908.7  
                Net cash used in discontinued operations
    (1.7 )   (9.2 )
               
                Net cash provided by operating activities
    776.7     899.5  
               
Investing Activities
             
     Acquisitions, net of cash acquired
    (4.7 )   (178.7 )
     Purchase of property, plant and equipment
    (131.6 )   (134.7 )
     Proceeds from sale of property, plant and equipment
    3.6     7.7  
     Other investing activities, net
    0.3     1.0  
               
                Net cash used in investing activities
  $ (132.4 ) $ (304.7 )

 
7

 

 
 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
 
   
Six Months Ended
 
   
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
           
Financing Activities
         
 Decrease in commercial paper, net
  $   $ (499.5 )
 Purchases of company common stock
    (89.8 )   (400.0 )
 Dividends paid
    (107.9 )   (47.7 )
 Net proceeds from issuance of company common stock
    172.3     63.8  
 Tax benefits from stock-based compensation awards
    30.6     8.2  
 (Decrease) increase in short-term notes payable
    (1.6 )   15.2  
 Other financing activities, net
    (1.5 )   (9.0 )
               
            Net cash provided by (used in) financing activities
    2.1     (869.0 )
               
Exchange Rate Effect on Cash
    (88.5 )   (9.8 )
               
Increase (Decrease) in Cash and Cash Equivalents
    557.9     (284.0 )
Cash and Cash Equivalents at Beginning of Period
    851.0     1,016.3  
               
Cash and Cash Equivalents at End of Period
  $ 1,408.9   $ 732.3  
 
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, 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
  2.3     2.3     65.0       0.2     (9.1 )       58.2  
Stock-based compensation
          37.5                   37.5  
Tax benefit related to employees'
    and directors' stock plans
          6.0                   6.0  
Purchases of company common
    stock
                8.0     (400.0 )       (400.0 )
Dividends declared
              (95.8 )             (95.8 )
Net income
              511.1               511.1  
Other comprehensive items
                        (58.2 )   (58.2 )
Other
          (2.5 )                 (2.5 )
                                               
Balance at June 30, 2012
  408.7   $ 408.7   $ 10,258.0   $ 7,131.6   43.2   $ (2,246.2 ) $ (457.7 ) $ 15,094.4  
                                               
                                               
Balance at December 31, 2012
  413.5   $ 413.5   $ 10,501.1   $ 7,697.3   56.0   $ (2,996.8 ) $ (150.4 ) $ 15,464.7  
Issuance of shares under employees'
    and directors' stock plans
  4.6     4.6     171.6       0.3     (19.3 )       156.9  
Stock-based compensation
          43.7                   43.7  
Tax benefit related to employees'
    and directors' stock plans
          28.4                   28.4  
Purchases of company common
    stock
                1.3     (89.8 )       (89.8 )
Dividends declared
              (108.3 )             (108.3 )
Net income
              613.6               613.6  
Other comprehensive items
                        (305.6 )   (305.6 )
Other
          (0.8 )                 (0.8 )
                                               
Balance at June 29, 2013
  418.1   $ 418.1   $ 10,744.0   $ 8,202.6   57.6   $ (3,105.9 ) $ (456.0 ) $ 15,802.8  



 


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 June 29, 2013, the results of operations for the three- and six-month periods ended June 29, 2013, and June 30, 2012, and the cash flows for the six-month periods ended June 29, 2013, and June 30, 2012. Interim results are not necessarily indicative of results for a full year.
 
The consolidated balance sheet presented as of December 31, 2012, 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 2012 financial statements and notes included in the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on May 3, 2013.
 
Note 1 to the consolidated financial statements for 2012 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 six months ended June 29, 2013.
 
Presentation
 
Certain reclassifications of prior year amounts have been made to conform to the current year presentation.
 
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 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
           
Beginning Balance
  $ 48.7   $ 42.2  
Provision charged to income
    34.8     29.6  
Usage
    (37.1 )   (28.4 )
Adjustments to previously provided warranties, net
    0.3      
Other, net
    (0.5 )   (0.9 )
               
Ending Balance
  $ 46.2   $ 42.5  
 

 
10

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Inventories
 
The components of inventories are as follows:
 
   
June 29,
 
December 31,
 
(In millions)
 
2013
 
2012
 
           
Raw Materials
  $ 365.4   $ 362.0  
Work in Process
    169.5     149.7  
Finished Goods
    952.2     931.6  
               
    $ 1,487.1   $ 1,443.3  

Property, Plant and Equipment
 
Property, plant and equipment consists of the following:
 
   
June 29,
 
December 31,
 
(In millions)
 
2013
 
2012
 
           
Land
  $ 211.7   $ 216.6  
Buildings and Improvements
    798.5     805.5  
Machinery, Equipment and Leasehold Improvements
    1,888.2     1,829.9  
               
      2,898.4     2,852.0  
Less: Accumulated Depreciation and Amortization
    1,209.6     1,125.6  
               
    $ 1,688.8   $ 1,726.4  

Acquisition-related Intangible Assets
 
Acquisition-related intangible assets are as follows:
 
   
June 29, 2013
 
December 31, 2012
 
       
Accumulated
         
Accumulated
     
(In millions)
 
Gross
 
Amortization
 
Net
 
Gross
 
Amortization
 
Net
 
                           
Definite Lives
  $ 10,256.2   $ (4,266.6 ) $ 5,989.6   $ 10,403.1   $ (3,939.2 ) $ 6,463.9  
Indefinite Lives
    1,340.6         1,340.6     1,340.6         1,340.6  
                                       
    $ 11,596.8   $ (4,266.6 ) $ 7,330.2   $ 11,743.7   $ (3,939.2 ) $ 7,804.5  
 

 
11

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  
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 February 2013, the FASB issued new guidance which requires disclosure of information about significant reclassification adjustments from accumulated other comprehensive income in a single note or on the face of the financial statements. This guidance became effective for the company in 2013. Adoption of this standard, which is related to disclosure only, did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In July 2012, the FASB modified existing rules to allow entities to use a qualitative approach to test indefinite-lived intangible assets 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 became effective for the company in 2013. Adoption of this standard did 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. This guidance became effective for the company in 2013. Adoption of this standard, which is related to disclosure only, did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
Note 2.          Acquisitions and Dispositions
 
On April 14, 2013, the company entered into an agreement to acquire Life Technologies Corporation for $76.00 in cash per fully diluted common share, or approximately $13.6 billion, plus the assumption of net debt at close ($2.1 billion as of March 31, 2013) (the “Life Technologies Acquisition”). The transaction, which is expected to close in early 2014, is subject to a vote by Life Technologies shareholders on August 21, 2013 and satisfaction of certain other customary closing conditions, including the receipt of certain regulatory approvals. In connection with the planned acquisition of Life Technologies, the company entered into a bridge credit agreement and a term loan agreement (Note 8). The bridge credit agreement is a 364-day unsecured committed bridge facility in the principal amount of $3.56 billion as of August 2, 2013. The term loan agreement is a 3-year unsecured $5 billion term loan facility. The company currently expects to fund the $13.6 billion cash purchase price with up to $3.25 billion of equity financing, including $2.5 billion of its common stock sold in June 2013 under equity forward agreements (Note 10) and up to a maximum of $750 million of equity or equity-linked securities, with the remaining purchase price to be financed with the term loan facility, new debt and cash on hand. Life Technologies provides innovative products and services to customers conducting scientific research and genetic analysis, as well as those in applied markets, such as forensics and food safety testing. Life Technologies’ revenues totaled $3.8 billion in 2012.
 
During the first six months of 2013, the company made contingent purchase price and post closing adjustment payments totaling $5 million for acquisitions completed prior to 2013. 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.
 

 
12

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Unaudited Pro Forma Information
 
The company acquired One Lambda in September 2012. Had the acquisition of One Lambda been completed as of the beginning of 2011, the company’s pro forma results for 2012 would have been as follows:
 
   
Three Months Ended
 
Six Months Ended
 
   
June 30,
 
June 30,
 
(In millions except per share amounts)
 
2012
 
2012
 
           
Revenues
  $ 3,153.8   $ 6,261.2  
               
Income from Continuing Operations
  $ 306.4   $ 601.8  
               
Net Income
  $ 247.7   $ 539.6  
               
Earnings per Share from Continuing Operations:
             
Basic
  $ 0.83   $ 1.64  
Diluted
  $ 0.83   $ 1.63  
               
Earnings per Share:
             
Basic
  $ 0.67   $ 1.47  
Diluted
  $ 0.67   $ 1.46  

The company’s results would not have been materially different from its pro forma results had the company’s other 2012 acquisitions occurred at the beginning of 2011.
 
Dispositions
 
On October 22, 2012, the company sold its laboratory workstations 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, environmental 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.
 

 
13

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
In February 2013, in connection with a change in management responsibility for two product lines, the company transferred its water analysis and research serum and media product lines to the Laboratory Products and Services segment from the Analytical Technologies segment. 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.
 
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.
 

 
14

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Business Segment Information
 
   
Three Months Ended
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Revenues
                 
Analytical Technologies
  $ 1,006.5   $ 972.4   $ 1,984.3   $ 1,952.4  
Specialty Diagnostics
    793.6     731.9     1,599.2     1,463.8  
Laboratory Products and Services
    1,583.2     1,535.0     3,127.5     3,010.8  
Eliminations
    (143.2 )   (131.2 )   (279.4 )   (262.1 )
                           
Consolidated revenues
    3,240.1     3,108.1     6,431.6     6,164.9  
                           
Segment Income
                         
Analytical Technologies (a)
    177.9     169.0     354.0     347.8  
Specialty Diagnostics (a)
    216.9     199.3     438.6     386.2  
Laboratory Products and Services (a)
    229.0     221.8     446.3     432.6  
                           
Subtotal reportable segments (a)
    623.8     590.1     1,238.9     1,166.6  
                           
Cost of revenues charges
    (13.1 )   (12.8 )   (26.3 )   (39.4 )
Selling, general and administrative (charges) income,
      net
    (22.6 )   (1.8 )   (23.9 )   5.9  
Restructuring and other costs, net
    (21.5 )   (24.3 )   (43.0 )   (36.5 )
Amortization of acquisition-related intangible assets
    (191.2 )   (183.4 )   (383.2 )   (367.3 )
                           
Consolidated operating income
    375.4     367.8     762.5     729.3  
Other expense, net (b)
    (95.4 )   (49.4 )   (139.6 )   (99.8 )
                           
Income from continuing operations before income
      taxes
  $ 280.0   $ 318.4   $ 622.9   $ 629.5  
                           
Depreciation
                         
Analytical Technologies
  $ 15.0   $ 15.8   $ 30.3   $ 32.2  
Specialty Diagnostics
    18.0     17.9     36.5     35.6  
Laboratory Products and Services
    25.0     24.5     50.2     49.0  
                           
Consolidated depreciation
  $ 58.0   $ 58.2   $ 117.0   $ 116.8  
 
(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.
 

 
15

 

 
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
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Interest Income
  $ 7.1   $ 6.7   $ 14.3   $ 13.1  
Interest Expense
    (64.4 )   (57.4 )   (128.8 )   (115.1 )
Other Items, Net
    (38.1 )   1.3     (25.1 )   2.2  
                           
    $ (95.4 ) $ (49.4 ) $ (139.6 ) $ (99.8 )

Other Items, Net
 
In the second quarter and first six months of 2013, other items, net includes $41 million of charges related to amortization of fees paid to obtain bridge financing commitments related to the Life Technologies Acquisition, offset in part by a $2 million gain from additional proceeds from the 2012 sale of an equity investment.
 
In the first quarter of 2013, the company irrevocably contributed appreciated available-for-sale investments that had a fair value of $27 million to two of its U.K. defined benefit plans, resulting in realization of a previously unrecognized gain of $11 million.
 

 
16

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
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    Six Months Ended   
    June 29,   June 30,   June 29,   June 30,  
(In millions)
   2013    2012    2013    2012  
                   
Stock Option Awards
  $ 10.6   $ 10.1   $ 20.2   $ 20.2  
Restricted Share/Unit Awards
    12.7     10.2     23.5     17.3  
                           
Total Stock-based Compensation Expense
  $ 23.3   $ 20.3   $ 43.7   $ 37.5  
 
    Stock-based compensation expense is included in the accompanying statement of income as follows:
 
   
Three Months Ended
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Cost of Revenues
  $ 1.9   $ 1.4   $ 3.4   $ 2.6  
Selling, General and Administrative Expenses
    20.5     18.5     38.7     34.0  
Research and Development Expenses
    0.9     0.4     1.6     0.9  
                           
Total Stock-based Compensation Expense
  $ 23.3   $ 20.3   $ 43.7   $ 37.5  
 
As of June 29, 2013, there was $86 million of total unrecognized compensation cost related to unvested stock options granted. The cost is expected to be recognized through 2017 with a weighted average amortization period of 2.5 years.
 
As of June 29, 2013, there was $91 million of total unrecognized compensation cost related to unvested restricted stock unit awards. The cost is expected to be recognized through 2016 with a weighted average amortization period of 2.3 years.
 
During the first six months of 2013, the company made equity compensation grants to employees consisting of 0.8 million service- and performance-based restricted stock units and options to purchase 1.8 million shares.
 

 
17

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
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
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Service Cost - Benefits Earned
  $ 5.8   $ 2.9   $ 9.4   $ 6.0  
Interest Cost on Benefit Obligation
    11.9     12.7     23.9     25.5  
Expected Return on Plan Assets
    (13.2 )   (13.8 )   (26.4 )   (27.6 )
Amortization of Net Loss
    2.9     1.7     5.7     3.4  
Amortization of Prior Service Benefit
    (0.1 )       (0.2 )    
Settlement/Curtailment Loss
        (0.1 )       (0.1 )
Special Termination Benefits
    0.4     0.3     0.5     0.5  
                           
Net Periodic Benefit Cost
  $ 7.7   $ 3.7   $ 12.9   $ 7.7  
 
    Net periodic benefit costs for the company's other postretirement benefit plans include the following components:
 
   
Three Months Ended
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions)
 
2013
 
2012
 
2013
 
2012
 
                   
Service Cost - Benefits Earned
  $ 0.1   $ 0.2   $ 0.3   $ 0.4  
Interest Cost on Benefit Obligation
    0.5     0.5     0.9     1.0  
Amortization of Net Loss
            0.1      
                           
Net Periodic Benefit Cost
  $ 0.6   $ 0.7   $ 1.3   $ 1.4  
 

 
18

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 7.         Earnings per Share
 
   
Three Months Ended
 
Six Months Ended
 
   
June 29,
 
June 30,
 
June 29,
 
June 30,
 
(In millions except per share amounts)
 
2013
 
2012
 
2013
 
2012
 
                   
Income from Continuing Operations
  $ 277.6   $ 292.4   $ 618.4   $ 573.2  
Loss from Discontinued Operations
    (0.2 )   (7.5 )   (0.6 )   (11.3 )
Loss on Disposal of Discontinued Operations, Net
        (51.1 )   (4.2 )   (50.8 )
                           
Net Income
  $ 277.4   $ 233.8   $ 613.6   $ 511.1  
                           
Basic Weighted Average Shares
    360.0     367.0     359.0     367.1  
Plus Effect of:
                         
Stock options and restricted units
    3.5     2.2     3.6     2.5  
                           
Diluted Weighted Average Shares
    363.5     369.2     362.6     369.6  
                           
Basic Earnings per Share:
                         
Continuing operations
  $ .77   $ .80   $ 1.72   $ 1.56  
Discontinued operations
        (.16 )   (.01 )   (.17 )
                           
    $ .77   $ .64   $ 1.71   $ 1.39  
                           
Diluted Earnings per Share:
                         
Continuing operations
  $ .76   $ .79   $ 1.71   $ 1.55  
Discontinued operations
        (.16 )   (.01 )   (.17 )
                           
    $ .76   $ .63   $ 1.69   $ 1.38  

Options to purchase 1.8 million, 10.0 million, 1.8 million and 9.6 million shares of common stock were not included in the computation of diluted earnings per share for the second quarter of 2013 and 2012 and the first six months of 2013 and 2012, respectively, because their effect would have been antidilutive. Dilution from the equity forward agreements (Note 10) was not material in any period presented.
 
Note 8.         Debt and Other Financing Arrangements
 
Credit Facilities
 
The company had a revolving credit facility with a bank group that provided for up to $1.5 billion of unsecured multi-currency revolving credit consisting of a $1 billion 5-year credit agreement, with the ability to request an additional $500 million. The facility was due to expire in April 2017, however, the company negotiated a new revolving credit facility in July 2013 which replaced the previously existing credit facility (Note 15). As of June 29, 2013, no borrowings were outstanding under the then existing facility, although available capacity was reduced by approximately $49 million as a result of outstanding letters of credit.
 
In connection with the planned acquisition of Life Technologies, the company entered into a bridge credit agreement and a term loan agreement. The bridge credit agreement is a 364-day unsecured committed bridge facility in the principal amount of $3.56 billion as of August 2, 2013. The term loan agreement is a 3-year unsecured $5 billion term loan facility. Borrowing under both agreements is conditioned on, among other things, the consummation of the Life Technologies Acquisition. 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 covenants require the company to maintain a Consolidated Leverage Ratio of debt to EBITDA (as defined in the agreements) below 5.5 to 1.0 during the first six months after the borrowing date and decreasing, based on the passage of time, to 3.5 to 1.0, beginning 18 months after the borrowing date. The company must also maintain a minimum interest coverage ratio of 3.0 to 1.0. The company expects to issue long-term debt to replace the bridge facility.
 

 
19

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Cash Flow Hedge Arrangements
 
During the second quarter of 2013, the company entered into forward starting pay fixed interest rate swap agreements to mitigate the risk of interest rates rising prior to completion of a debt offering. Based on the company’s conclusion that a debt offering is probable as a result of debt maturing in 2014 and that such debt would carry semi-annual interest payments over a 10-year term, the swaps hedge the cash flow risk for each of the semi-annual fixed-rate interest payments on $200 million of principal amount of the planned 10-year fixed-rate debt issue. The increase in the fair value of the hedges, $7 million, net of tax, as of June 29, 2013, was classified as an increase to accumulated other comprehensive items within shareholder’s equity. As of August 1, 2013, the company had entered such agreements for an aggregate of $375 million of principal amount.
 
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.
 

 
20

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   
    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.
 
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.
 
Changes in each component of accumulated other comprehensive items, net of tax are as follows:
 
(In millions)
 
Currency
Translation
Adjustment
 
Unrealized
 Gains
(Losses) on
Available-for-
Sale
Investments
 
Unrealized
Gains
(Losses) on
Hedging
Instruments
 
Pension and
Other
Postretirement
Benefit
 Liability
 Adjustment
 
Total
 
                       
Balance at December 31, 2012
  $ 87.4   $ 7.7   $ (32.9 ) $ (212.6 ) $ (150.4 )
Other comprehensive income (loss)
      before reclassifications
    (315.0 )   1.1     6.7     4.2     (303.0 )
Amounts reclassified from
      accumulated other
      comprehensive items
        (8.0 )   1.6     3.8     (2.6 )
                                 
Net other comprehensive items
    (315.0 )   (6.9 )   8.3     8.0     (305.6 )
                                 
Balance at June 29, 2013
  $ (227.6 ) $ 0.8   $ (24.6 ) $ (204.6 ) $ (456.0 )
 

 
21

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
The amounts reclassified out of accumulated other comprehensive items are as follows:
 
           
Six Months Ended
       
Affected Line Item in the
 
June 29,
June 30,
(In millions)
 
 Statement of Income
 
2013
 
2012
                     
Amounts Reclassified From Accumulated Other
      Comprehensive Items
               
 
Unrealized gains and losses on available-for-sale
      investments
               
   
Realized (gain) loss on sale or transfer of
      available-for-sale investments
 
Other Expense, Net
 
$
 (10.5)
 
$
 — 
   
Tax provision (benefit)
 
Provision for Income Taxes
   
 2.5 
   
 — 
                     
           
$
 (8.0)
 
$
 — 
                     
 
Unrealized gains and losses on hedging instruments
               
   
Realized loss on interest rate swaps and locks
 
Other Expense, Net
 
$
 2.6 
 
$
 2.6 
   
Tax provision (benefit)
 
Provision for Income Taxes
   
 (1.0)
   
 (1.0)
                     
           
$
 1.6 
 
$
 1.6 
                     
 
Pension and other postretirement benefit liability
      adjustment
               
   
Amortization of actuarial losses
 
Net Periodic Benefit Cost -
 
$
 5.8 
 
$
 3.4 
   
Amortization of prior service benefit
 
see Note 6 for details
   
 (0.2)
   
 — 
                     
   
     Total before tax
       
 5.6 
   
 3.4 
   
Tax provision (benefit)
 
Provision for Income Taxes
   
 (1.8)
   
 (1.2)
                     
           
$
 3.8 
 
$
 2.2 
                     
   
     Total reclassifications
     
$
 (2.6)
 
$
 3.8 

Shareholders’ Equity
 
In June 2013, in anticipation of the planned acquisition of Life Technologies, the company entered into equity forward agreements in connection with a public offering of 29.6 million shares of its common stock. The use of the equity forward agreements substantially eliminates future equity market price risk by fixing a common equity offering sales price under the then existing market conditions, while mitigating share dilution from the offering by postponing the actual issuance of common stock until the funds are needed for the Life Technologies Acquisition.
 
Under the terms of the agreements, the counterparties borrowed shares of the company’s common stock and sold them for $85.50 per share. Upon settlement of the agreements, to the extent that the agreements are physically settled, the company would be required to issue and deliver shares of its common stock at the then applicable forward sale price. The forward price was initially $83.2770 per share, net of underwriting fees, and is subject to adjustment in accordance with the terms of the agreements including fixed reductions related to cash dividends. The forward price was $83.1031 per share on June 29, 2013. The equity forward agreements must be settled fully within 14 months of the date of the agreements. Although the company expects to physically settle the forward sale agreements by delivering shares of its common stock in exchange for cash proceeds, it may elect cash or net share settlement for all or a portion of its obligations under the forward agreements.
 

 
22

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    The equity forward agreements had no initial fair value as they were entered into at the then market price of the common stock. The company will not receive any proceeds from the sale of common stock until the equity forward agreements are settled, and at that time it will record the proceeds, if any, in equity.
 
At June 29, 2013, the equity forward agreements could have been settled with physical delivery of the shares to the forward counterparties in exchange for cash of $2.46 billion. At June 29, 2013, the equity forward agreements could also have been cash settled, with delivery of cash of approximately $45.2 million to the forward counterparties, or net share settled with delivery of approximately 0.5 million shares of common stock to the forward counterparties.
 
Prior to their settlement, to the extent that the equity forward agreements are dilutive, they will be reflected in the company’s diluted earnings per share calculations using the treasury stock method.
 
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 2013. The company’s financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds; derivative contracts, insurance contracts, mutual funds holding publicly traded securities and other investments in unit trusts held as assets to satisfy outstanding deferred compensation and retirement liabilities; and acquisition-related contingent consideration.
 
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.
 

 
23

 

 
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 June 29, 2013:
 
   
June 29,
 
Quoted
Prices in
Active
 Markets
 
Significant
 Other
Observable
 Inputs
 
Significant
Unobservable
Inputs
 
(In millions)
 
2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
                   
Assets
                 
Cash equivalents
  $ 667.2   $ 667.2   $   $  
Investments in mutual funds, unit trusts and other
    similar instruments
    9.4     9.4          
Insurance contracts
    67.4         67.4      
Auction rate securities
    4.2             4.2  
Derivative contracts
    13.1         13.1      
                           
Total Assets
  $ 761.3   $ 676.6   $ 80.5   $ 4.2  
                           
Liabilities
                         
Derivative contracts
  $ 0.5   $   $ 0.5   $  
Contingent consideration
    33.7             33.7  
                           
Total Liabilities
  $ 34.2   $   $ 0.5   $ 33.7  
 
    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, 2012:
 
   
December 31,
 
Quoted
Prices in
Active Markets
 
Significant
Other
Observable
 Inputs
 
Significant
Unobservable
Inputs
 
(In millions)
 
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
                   
Assets
                 
Cash equivalents
  $ 73.6   $ 73.6   $   $  
Investments in mutual funds, unit trusts and other
    similar instruments
    36.6     36.6          
Insurance contracts
    62.5         62.5      
Auction rate securities
    4.3             4.3  
Derivative contracts
    1.6         1.6      
                           
Total Assets
  $ 178.6   $ 110.2   $ 64.1   $ 4.3  
                           
Liabilities
                         
Derivative contracts
  $ 0.8   $   $ 0.8   $  
Contingent consideration
    20.1             20.1  
                           
Total Liabilities
  $ 20.9   $   $ 0.8   $ 20.1  
 

 
24

 

 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
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 interest rates and 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.