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x
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended September 26, 2015
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Delaware
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04-2209186
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(State of incorporation or organization)
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(I.R.S. Employer Identification No.)
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81 Wyman Street
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Waltham, Massachusetts
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02451
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(Address of principal executive offices)
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(Zip Code)
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Class
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Outstanding at September 26, 2015
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Common Stock, $1.00 par value
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399,097,699
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Page
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PART I
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Item 1.
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Financial Statements (Unaudited)
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3
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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32
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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46
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Item 4.
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Controls and Procedures
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46
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PART II
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||
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Item 1.
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Legal Proceedings
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47
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Item 1A.
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Risk Factors
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47
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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53
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Item 5.
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Other Events
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53
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Item 6.
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Exhibits
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53
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
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CONSOLIDATED BALANCE SHEET
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||||||||||
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(Unaudited)
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September 26,
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December 31,
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|||||||
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(In millions except share and per share amounts)
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2015
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2014
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||||||
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Assets
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||||||||
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Current Assets:
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||||||||
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Cash and cash equivalents
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$ | 503.4 | $ | 1,343.5 | ||||
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Accounts receivable, less allowances of $77.7 and $74.1
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2,543.9 | 2,473.6 | ||||||
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Inventories
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1,987.2 | 1,859.5 | ||||||
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Deferred tax assets
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263.3 | 303.3 | ||||||
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Other current assets
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728.1 | 559.9 | ||||||
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Total current assets
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6,025.9 | 6,539.8 | ||||||
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Property, Plant and Equipment, Net
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2,392.2 | 2,426.5 | ||||||
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Acquisition-related Intangible Assets, Net
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13,015.1 | 14,110.1 | ||||||
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Other Assets
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967.6 | 933.1 | ||||||
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Goodwill
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18,746.3 | 18,842.6 | ||||||
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Total Assets
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$ | 41,147.1 | $ | 42,852.1 | ||||
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Liabilities and Shareholders' Equity
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||||||||
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Current Liabilities:
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||||||||
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Short-term obligations and current maturities of long-term obligations
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$ | 3,034.0 | $ | 2,212.4 | ||||
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Accounts payable
|
783.3 | 820.7 | ||||||
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Accrued payroll and employee benefits
|
549.3 | 668.9 | ||||||
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Accrued income taxes
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51.4 | 165.1 | ||||||
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Deferred revenue
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320.9 | 311.9 | ||||||
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Other accrued expenses
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996.2 | 1,170.8 | ||||||
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Total current liabilities
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5,735.1 | 5,349.8 | ||||||
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Deferred Income Taxes
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3,031.7 | 3,430.7 | ||||||
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Other Long-term Liabilities
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1,252.2 | 1,171.9 | ||||||
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Long-term Obligations
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10,277.9 | 12,351.6 | ||||||
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Shareholders' Equity:
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||||||||
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Preferred stock, $100 par value, 50,000 shares authorized; none issued
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||||||||
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Common stock, $1 par value, 1,200,000,000 shares authorized; 411,407,252 and
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||||||||
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408,461,670 shares issued
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411.4 | 408.5 | ||||||
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Capital in excess of par value
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11,732.8 | 11,473.6 | ||||||
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Retained earnings
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11,599.7 | 10,406.9 | ||||||
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Treasury stock at cost, 12,309,553 and 7,991,782 shares
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(1,007.3 | ) | (455.9 | ) | ||||
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Accumulated other comprehensive items
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(1,886.4 | ) | (1,285.0 | ) | ||||
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Total shareholders' equity
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20,850.2 | 20,548.1 | ||||||
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Total Liabilities and Shareholders' Equity
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$ | 41,147.1 | $ | 42,852.1 | ||||
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Three Months Ended
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Nine Months Ended
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|||||||||||||||
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September 26,
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September 27,
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September 26,
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September 27,
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|||||||||||||
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(In millions except per share amounts)
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2015
|
2014
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2015
|
2014
|
||||||||||||
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Revenues
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||||||||||||||||
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Product revenues
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$ | 3,570.3 | $ | 3,628.5 | $ | 10,635.1 | $ | 10,781.9 | ||||||||
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Service revenues
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552.9 | 542.9 | 1,677.8 | 1,614.9 | ||||||||||||
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Total revenues
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4,123.2 | 4,171.4 | 12,312.9 | 12,396.8 | ||||||||||||
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Costs and Operating Expenses:
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||||||||||||||||
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Cost of product revenues
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1,853.9 | 1,873.9 | 5,481.7 | 5,920.1 | ||||||||||||
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Cost of service revenues
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386.0 | 363.9 | 1,183.6 | 1,076.6 | ||||||||||||
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Selling, general and administrative expenses
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1,133.3 | 1,228.7 | 3,421.7 | 3,659.5 | ||||||||||||
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Research and development expenses
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171.6 | 175.2 | 512.0 | 508.6 | ||||||||||||
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Restructuring and other costs (income), net
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15.5 | (110.6 | ) | 67.9 | (631.9 | ) | ||||||||||
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Total costs and operating expenses
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3,560.3 | 3,531.1 | 10,666.9 | 10,532.9 | ||||||||||||
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Operating Income
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562.9 | 640.3 | 1,646.0 | 1,863.9 | ||||||||||||
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Other Expense, Net
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(94.8 | ) | (101.1 | ) | (292.3 | ) | (313.8 | ) | ||||||||
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Income from Continuing Operations Before Income Taxes
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468.1 | 539.2 | 1,353.7 | 1,550.1 | ||||||||||||
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Benefit from (Provision for) Income Taxes
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9.2 | (69.3 | ) | 20.3 | (258.6 | ) | ||||||||||
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Income from Continuing Operations
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477.3 | 469.9 | 1,374.0 | 1,291.5 | ||||||||||||
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(Loss) Gain from Discontinued Operations (net of income tax (benefit) provision of
($0.7), $1.0, ($0.7) and $1.0)
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(1.2 | ) | 1.7 | (1.2 | ) | 1.7 | ||||||||||
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Net Income
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$ | 476.1 | $ | 471.6 | $ | 1,372.8 | $ | 1,293.2 | ||||||||
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Earnings per Share from Continuing Operations
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||||||||||||||||
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Basic
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$ | 1.20 | $ | 1.17 | $ | 3.45 | $ | 3.25 | ||||||||
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Diluted
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$ | 1.19 | $ | 1.16 | $ | 3.42 | $ | 3.21 | ||||||||
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Earnings per Share
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||||||||||||||||
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Basic
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$ | 1.19 | $ | 1.18 | $ | 3.45 | $ | 3.25 | ||||||||
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Diluted
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$ | 1.18 | $ | 1.17 | $ | 3.42 | $ | 3.22 | ||||||||
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Weighted Average Shares
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||||||||||||||||
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Basic
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399.0 | 399.9 | 398.4 | 397.5 | ||||||||||||
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Diluted
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402.0 | 403.7 | 401.7 | 401.7 | ||||||||||||
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Cash Dividends Declared per Common Share
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$ | .15 | $ | .15 | $ | .45 | $ | .45 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
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||||||||||||||||
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(Unaudited)
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||||||||||||||||
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Three Months Ended
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Nine Months Ended
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|||||||||||||||
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September 26,
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September 27,
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September 26,
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September 27,
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|||||||||||||
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(In millions)
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2015
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2014
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2015
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2014
|
||||||||||||
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Comprehensive Income (Loss)
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||||||||||||||||
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Net Income
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$ | 476.1 | $ | 471.6 | $ | 1,372.8 | $ | 1,293.2 | ||||||||
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Other Comprehensive Items:
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||||||||||||||||
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Currency translation adjustment
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(263.6 | ) | (619.5 | ) | (605.6 | ) | (655.9 | ) | ||||||||
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Unrealized gains on available-for-sale investments:
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||||||||||||||||
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Unrealized holding (losses) gains arising during the period (net of tax benefit of
$0.2, $0.2, $0.2 and $0.1)
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(0.2 | ) | (0.1 | ) | (0.2 | ) | 1.7 | |||||||||
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Reclassification adjustment for gains included in net income (net of tax provision of $0.0)
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— | — | — | (1.4 | ) | |||||||||||
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Unrealized losses on hedging instruments:
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||||||||||||||||
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Unrealized loss on hedging instruments (net of tax benefit of $17.7 and $3.6)
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(28.7 | ) | — | (5.7 | ) | — | ||||||||||
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Reclassification adjustment for losses included in net income (net of tax benefit of
$0.5, $0.5, $1.1 and $1.4)
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0.6 | 0.7 | 2.5 | 2.2 | ||||||||||||
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Pension and other postretirement benefit liability adjustment:
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||||||||||||||||
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Pension and other postretirement benefit liability adjustments arising during the
period (net of tax (benefit) provision of ($0.2), $2.1, $1.5 and $1.2)
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(1.0 | ) | 4.9 | 2.4 | 2.3 | |||||||||||
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Amortization of net loss and prior service benefit included in net periodic pension
cost (net of tax benefit of $0.7, $0.5, $1.9 and $1.7)
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1.6 | 1.4 | 5.2 | 4.0 | ||||||||||||
| Total other comprehensive items | (291.3 | ) | (612.6 | ) | (601.4 | ) | (647.1 | ) | ||||||||
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Comprehensive Income (Loss)
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$ | 184.8 | $ | (141.0 | ) | $ | 771.4 | $ | 646.1 | |||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
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||||||||
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(Unaudited)
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||||||||
|
Nine Months Ended
|
||||||||
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September 26,
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September 27,
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|||||||
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(In millions)
|
2015
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2014
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||||||
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Operating Activities
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||||||||
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Net income
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$ | 1,372.8 | $ | 1,293.2 | ||||
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Loss (income) from discontinued operations
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1.2 | (1.7 | ) | |||||
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Income from continuing operations
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1,374.0 | 1,291.5 | ||||||
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Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
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Depreciation and amortization
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1,263.7 | 1,256.1 | ||||||
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Change in deferred income taxes
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(285.9 | ) | (583.8 | ) | ||||
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Net gains on sale of businesses
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(7.6 | ) | (894.4 | ) | ||||
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Non-cash stock-based compensation
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91.8 | 86.6 | ||||||
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Tax benefits from stock-based compensation awards
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(55.6 | ) | (61.1 | ) | ||||
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Non-cash charges for sale of inventories revalued at the date of acquisition
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0.7 | 303.1 | ||||||
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Other non-cash expenses, net
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39.5 | 27.8 | ||||||
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Changes in assets and liabilities, excluding the effects of acquisitions and dispositions:
|
||||||||
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Accounts receivable
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(145.9 | ) | (117.3 | ) | ||||
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Inventories
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(175.3 | ) | (109.1 | ) | ||||
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Other assets
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(213.7 | ) | 205.8 | |||||
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Accounts payable
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(26.9 | ) | (3.3 | ) | ||||
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Other liabilities
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(236.3 | ) | 304.8 | |||||
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Contributions to retirement plans
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(25.7 | ) | (37.3 | ) | ||||
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Net cash provided by continuing operations
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1,596.8 | 1,669.4 | ||||||
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Net cash used in discontinued operations
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(8.0 | ) | (3.5 | ) | ||||
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Net cash provided by operating activities
|
1,588.8 | 1,665.9 | ||||||
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Investing Activities
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||||||||
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Acquisitions, net of cash acquired
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(306.0 | ) | (13,056.1 | ) | ||||
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Proceeds from sale of businesses, net of cash divested
|
— | 1,520.0 | ||||||
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Purchase of property, plant and equipment
|
(293.5 | ) | (270.9 | ) | ||||
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Proceeds from sale of property, plant and equipment
|
7.5 | 19.7 | ||||||
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Proceeds from sale of investments
|
9.8 | 84.4 | ||||||
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Decrease in restricted cash
|
7.9 | 50.2 | ||||||
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Other investing activities, net
|
(1.7 | ) | (4.0 | ) | ||||
|
Net cash used in investing activities
|
$ | (576.0 | ) | $ | (11,656.7 | ) | ||
|
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine Months Ended
|
||||||||
|
September 26,
|
September 27,
|
|||||||
|
(In millions)
|
2015
|
2014
|
||||||
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Financing Activities
|
||||||||
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Net proceeds from issuance of long-term debt
|
$ | 542.8 | $ | 4,999.6 | ||||
|
Repayment of long-term obligations
|
(2,481.0 | ) | (3,430.3 | ) | ||||
|
Increase in commercial paper, net
|
725.5 | 212.2 | ||||||
|
Decrease in short-term notes payable
|
— | (28.2 | ) | |||||
|
Purchases of company common stock
|
(500.0 | ) | — | |||||
|
Dividends paid
|
(180.7 | ) | (174.8 | ) | ||||
|
Net proceeds from issuance of company common stock
|
— | 2,942.0 | ||||||
|
Net proceeds from issuance of company common stock under employee stock plans
|
96.6 | 132.7 | ||||||
|
Tax benefits from stock-based compensation awards
|
55.6 | 61.1 | ||||||
|
Other financing activities, net
|
(5.9 | ) | (7.5 | ) | ||||
|
Net cash (used in) provided by financing activities
|
(1,747.1 | ) | 4,706.8 | |||||
|
Exchange Rate Effect on Cash
|
(105.8 | ) | (7.7 | ) | ||||
|
Decrease in Cash and Cash Equivalents
|
(840.1 | ) | (5,291.7 | ) | ||||
|
Cash and Cash Equivalents at Beginning of Period
|
1,343.5 | 5,826.0 | ||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 503.4 | $ | 534.3 | ||||
|
See Note 13 for supplemental cash flow information.
|
||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
|
|
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, 2013
|
369.6 | $ | 369.6 | $ | 8,222.6 | $ | 8,753.3 | (7.6 | ) | $ | (412.2 | ) | $ | (77.2 | ) | $ | 16,856.1 | |||||||||||||||
|
Issuance of shares under employees'
and directors' stock plans
|
3.5 | 3.5 | 139.0 | — | (0.4 | ) | (43.2 | ) | — | 99.3 | ||||||||||||||||||||||
|
Issuance of shares
|
34.9 | 34.9 | 2,907.4 | — | — | — | — | 2,942.3 | ||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 86.6 | — | — | — | — | 86.6 | ||||||||||||||||||||||||
|
Tax benefit related to employees'
and directors' stock plans
|
— | — | 60.9 | — | — | — | — | 60.9 | ||||||||||||||||||||||||
|
Dividends declared
|
— | — | — | (180.5 | ) | — | — | — | (180.5 | ) | ||||||||||||||||||||||
|
Net income
|
— | — | — | 1,293.2 | — | — | — | 1,293.2 | ||||||||||||||||||||||||
|
Other comprehensive items
|
— | — | — | — | — | — | (647.1 | ) | (647.1 | ) | ||||||||||||||||||||||
|
Other
|
— | — | (0.2 | ) | — | — | — | — | (0.2 | ) | ||||||||||||||||||||||
|
Balance at September 27, 2014
|
408.0 | $ | 408.0 | $ | 11,416.3 | $ | 9,866.0 | (8.0 | ) | $ | (455.4 | ) | $ | (724.3 | ) | $ | 20,510.6 | |||||||||||||||
|
Balance at December 31, 2014
|
408.5 | $ | 408.5 | $ | 11,473.6 | $ | 10,406.9 | (8.0 | ) | $ | (455.9 | ) | $ | (1,285.0 | ) | $ | 20,548.1 | |||||||||||||||
|
Issuance of shares under employees'
and directors' stock plans
|
2.9 | 2.9 | 112.6 | — | (0.4 | ) | (51.4 | ) | — | 64.1 | ||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 91.8 | — | — | — | — | 91.8 | ||||||||||||||||||||||||
|
Tax benefit related to employees'
and directors' stock plans
|
— | — | 54.8 | — | — | — | — | 54.8 | ||||||||||||||||||||||||
|
Purchases of company common
stock
|
— | — | — | — | (3.9 | ) | (500.0 | ) | — | (500.0 | ) | |||||||||||||||||||||
|
Dividends declared
|
— | — | — | (180.0 | ) | — | — | — | (180.0 | ) | ||||||||||||||||||||||
|
Net income
|
— | — | — | 1,372.8 | — | — | — | 1,372.8 | ||||||||||||||||||||||||
|
Other comprehensive items
|
— | — | — | — | — | — | (601.4 | ) | (601.4 | ) | ||||||||||||||||||||||
|
Balance at September 26, 2015
|
411.4 | $ | 411.4 | $ | 11,732.8 | $ | 11,599.7 | (12.3 | ) | $ | (1,007.3 | ) | $ | (1,886.4 | ) | $ | 20,850.2 | |||||||||||||||
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Unaudited)
|
|
|
|
Nature of Operations
|
|
Thermo Fisher Scientific Inc. (the company or Thermo Fisher) 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.
|
|
The interim consolidated financial statements presented herein have been prepared by the company, are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at September 26, 2015, the results of operations for the three- and nine-month periods ended September 26, 2015, and September 27, 2014, and the cash flows for the nine-month periods ended September 26, 2015, and September 27, 2014. Interim results are not necessarily indicative of results for a full year.
|
|
The consolidated balance sheet presented as of December 31, 2014, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the company. The consolidated financial statements and notes included in this report should be read in conjunction with the 2014 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
|
|
Note 1 to the consolidated financial statements for 2014 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 26, 2015.
|
|
|
|
Product warranties are included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of standard product warranty obligations are as follows:
|
|
Nine Months Ended
|
||||||||
|
September 26,
|
September 27,
|
|||||||
|
(In millions)
|
2015
|
2014
|
||||||
|
Beginning Balance
|
$ | 57.5 | $ | 49.8 | ||||
|
Provision charged to income
|
59.9 | 57.6 | ||||||
|
Usage
|
(59.0 | ) | (58.0 | ) | ||||
|
Acquisitions
|
0.5 | 7.1 | ||||||
|
Adjustments to previously provided warranties, net
|
(2.1 | ) | 1.0 | |||||
|
Currency translation
|
(2.2 | ) | (1.3 | ) | ||||
|
Ending Balance
|
$ | 54.6 | $ | 56.2 | ||||
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
The components of inventories are as follows:
|
|
September 26,
|
December 31,
|
|||||||
|
(In millions)
|
2015
|
2014
|
||||||
|
Raw Materials
|
$ | 460.8 | $ | 441.6 | ||||
|
Work in Process
|
241.2 | 207.6 | ||||||
|
Finished Goods
|
1,285.2 | 1,210.3 | ||||||
|
Inventories
|
$ | 1,987.2 | $ | 1,859.5 | ||||
|
Property, plant and equipment consists of the following:
|
|
September 26,
|
December 31,
|
|||||||
|
(In millions)
|
2015
|
2014
|
||||||
|
Land
|
$ | 278.9 | $ | 281.8 | ||||
|
Buildings and Improvements
|
987.3 | 955.1 | ||||||
|
Machinery, Equipment and Leasehold Improvements
|
2,765.7 | 2,632.0 | ||||||
|
Property, Plant and Equipment, at Cost
|
4,031.9 | 3,868.9 | ||||||
|
Less: Accumulated Depreciation and Amortization
|
1,639.7 | 1,442.4 | ||||||
|
Property, Plant and Equipment, Net
|
$ | 2,392.2 | $ | 2,426.5 | ||||
|
Acquisition-related intangible assets are as follows:
|
|
September 26, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
|
(In millions)
|
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
||||||||||||||||||
|
Definite Lived:
|
||||||||||||||||||||||||
|
Customer relationships
|
$ | 11,783.0 | $ | (3,917.6 | ) | $ | 7,865.4 | $ | 11,866.8 | $ | (3,340.6 | ) | $ | 8,526.2 | ||||||||||
|
Product technology
|
4,825.2 | (1,728.2 | ) | 3,097.0 | 4,898.1 | (1,501.3 | ) | 3,396.8 | ||||||||||||||||
|
Tradenames
|
1,312.1 | (526.0 | ) | 786.1 | 1,333.0 | (448.7 | ) | 884.3 | ||||||||||||||||
|
Other
|
33.6 | (33.2 | ) | 0.4 | 34.2 | (33.3 | ) | 0.9 | ||||||||||||||||
| 17,953.9 | (6,205.0 | ) | 11,748.9 | 18,132.1 | (5,323.9 | ) | 12,808.2 | |||||||||||||||||
|
Indefinite Lived:
|
||||||||||||||||||||||||
|
Tradenames
|
1,234.8 | — | 1,234.8 | 1,234.8 | — | 1,234.8 | ||||||||||||||||||
|
In-process research
and development
|
31.4 | — | 31.4 | 67.1 | — | 67.1 | ||||||||||||||||||
| 1,266.2 | — | 1,266.2 | 1,301.9 | — | 1,301.9 | |||||||||||||||||||
|
Acquisition-related
Intangible Assets
|
$ | 19,220.1 | $ | (6,205.0 | ) | $ | 13,015.1 | $ | 19,434.0 | $ | (5,323.9 | ) | $ | 14,110.1 | ||||||||||
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
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 fair value of acquired intangible assets (Note 2) and the ultimate loss from abandoning leases at facilities being exited (Note 14). Actual results could differ from those estimates.
|
|
Recent Accounting Pronouncements
|
|
In September 2015, the FASB issued new guidance which eliminates the requirement for an acquirer in a business combination to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance also sets forth new disclosure requirements related to the adjustments. The guidance is effective for the company in 2017. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the company’s consolidated financial statements.
|
|
In July 2015, the FASB issued new guidance which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance does not apply to inventory that is measured using last-in, first-out (LIFO). The guidance is effective for the company in 2017. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the company’s consolidated financial statements.
|
|
In April 2015, the FASB issued new guidance which requires the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability, consistent with the current treatment of debt discounts. The guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. Adoption of this standard will not have a material impact on the company’s consolidated balance sheet.
|
|
In January 2015, the FASB issued new guidance to simplify income statement classification by removing the concept of extraordinary items from U.S. GAAP. As a result, items that are both unusual and infrequent will no longer be separately reported net of tax after continuing operations. The company adopted this guidance effective January 2015. The adoption of this standard in 2015 did not have a material impact on the company’s consolidated financial statements.
|
|
In May 2014, the FASB issued new revenue recognition guidance which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is currently effective for the company in 2018. Early adoption is permitted in 2017. The company is currently evaluating the impact the standard will have on its consolidated financial statements.
|
|
In April 2014, the FASB issued new guidance on reporting discontinued operations and disclosures of disposals. Under the new guidance, only disposals representing a strategic shift that has or will have a major effect on operations will be presented as discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of the company that does not qualify for discontinued operations reporting. The company adopted this guidance effective January 2015. The adoption of this standard in 2015 did not have a material impact on the company’s consolidated financial statements.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
The company’s acquisitions have historically been made at prices above the determined 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 as incurred.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
The components of the purchase price and net assets acquired for 2015 acquisitions completed prior to September 26, 2015 are as follows:
|
||||||||||||
|
(In millions)
|
Advanced
Scientifics
|
Other
|
Total
|
|||||||||
|
Purchase Price
|
||||||||||||
|
Cash paid
|
$ | 289.1 | $ | 18.5 | $ | 307.6 | ||||||
|
Purchase price payable
|
— | 1.3 | 1.3 | |||||||||
|
Cash acquired
|
(0.3 | ) | (1.3 | ) | (1.6 | ) | ||||||
| $ | 288.8 | $ | 18.5 | $ | 307.3 | |||||||
|
Net Assets Acquired
|
||||||||||||
|
Current assets
|
$ | 27.8 | $ | 4.6 | $ | 32.4 | ||||||
|
Property, plant and equipment
|
10.6 | 0.1 | 10.7 | |||||||||
|
Definite-lived intangible assets:
|
||||||||||||
|
Customer relationships
|
90.0 | 7.9 | 97.9 | |||||||||
|
Product technology
|
36.5 | — | 36.5 | |||||||||
|
Tradenames and other
|
2.3 | — | 2.3 | |||||||||
|
Goodwill
|
125.1 | 8.9 | 134.0 | |||||||||
|
Other assets
|
0.2 | — | 0.2 | |||||||||
|
Liabilities assumed
|
(3.7 | ) | (3.0 | ) | (6.7 | ) | ||||||
| $ | 288.8 | $ | 18.5 | $ | 307.3 | |||||||
|
The weighted-average amortization periods for definite-lived intangible assets acquired in 2015 are 16 years for customer relationships, 10 years for product technology and 10 years for tradenames and other. The weighted average amortization period for all definite-lived intangible assets acquired in 2015 is 14 years.
|
|
Nine
Months
Ended
|
|||||
|
September 27,
|
|||||
|
(In millions except per share amounts)
|
2014
|
||||
|
Revenues
|
$
|
12,675.0
|
|||
|
Net Income
|
$
|
1,592.6
|
|||
|
Earnings per Share:
|
|||||
|
Basic
|
$
|
3.99
|
|||
|
Diluted
|
$
|
3.95
|
|||
|
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future.
|
|
The company’s results would not have been materially different from its pro forma results had the company’s other 2014 or 2015 acquisitions occurred at the beginning of 2013 or 2014, respectively.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
The company’s financial performance is reported in four segments. A description of each segment follows.
|
|
Life Sciences Solutions: provides an extensive portfolio of reagents, instruments and consumables used in biological and medical research, discovery and production of new drugs and vaccines as well as diagnosis of disease. These products and services are used by customers in pharmaceutical, biotechnology, agricultural, clinical, academic, and government markets.
|
|
Analytical Instruments: provides a broad offering of instruments, 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 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.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
Business Segment Information
|
|||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||
|
September 26,
|
September 27,
|
September 26,
|
September 27,
|
||||||||||||||
|
(In millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Revenues
|
|||||||||||||||||
| Life Sciences Solutions | $ | 1,080.4 | $ | 1,071.9 | $ | 3,229.6 | $ | 3,010.5 | |||||||||
| Analytical Instruments | 778.5 | 786.5 | 2,282.9 | 2,349.8 | |||||||||||||
| Specialty Diagnostics | 776.9 | 811.8 | 2,379.2 | 2,480.6 | |||||||||||||
| Laboratory Products and Services | 1,638.2 | 1,628.7 | 4,844.9 | 4,918.6 | |||||||||||||
| Eliminations | (150.8 | ) | (127.5 | ) | (423.7 | ) | (362.7 | ) | |||||||||
| Consolidated revenues | 4,123.2 | 4,171.4 | 12,312.9 | 12,396.8 | |||||||||||||
|
Segment Income (a)
|
|||||||||||||||||
| Life Sciences Solutions | 332.7 | 306.3 | 954.9 | 850.0 | |||||||||||||
| Analytical Instruments | 146.5 | 137.8 | 407.8 | 399.1 | |||||||||||||
| Specialty Diagnostics | 204.9 | 224.3 | 646.2 | 681.7 | |||||||||||||
| Laboratory Products and Services | 249.6 | 246.6 | 731.7 | 738.3 | |||||||||||||
| Subtotal reportable segments (a) | 933.7 | 915.0 | 2,740.6 | 2,669.1 | |||||||||||||
| Cost of revenues charges | (0.8 | ) | (2.1 | ) | (2.5 | ) | (326.7 | ) | |||||||||
| Selling, general and administrative charges, net | (24.6 | ) | (20.3 | ) | (35.4 | ) | (118.0 | ) | |||||||||
| Restructuring and other (costs) income, net | (15.5 | ) | 110.6 | (67.9 | ) | 631.9 | |||||||||||
| Amortization of acquisition-related intangible assets | (329.9 | ) | (362.9 | ) | (988.8 | ) | (992.4 | ) | |||||||||
| Consolidated operating income | 562.9 | 640.3 | 1,646.0 | 1,863.9 | |||||||||||||
| Other expense, net (b) | (94.8 | ) | (101.1 | ) | (292.3 | ) | (313.8 | ) | |||||||||
| Income from continuing operations before incometaxes | $ | 468.1 | $ | 539.2 | $ | 1,353.7 | $ | 1,550.1 | |||||||||
|
Depreciation
|
|||||||||||||||||
| Life Sciences Solutions | $ | 38.4 | $ | 37.1 | $ | 106.7 | $ | 97.4 | |||||||||
| Analytical Instruments | 9.9 | 9.4 | 28.6 | 29.0 | |||||||||||||
| Specialty Diagnostics | 18.8 | 19.4 | 54.6 | 57.4 | |||||||||||||
| Laboratory Products and Services | 30.7 | 26.9 | 85.0 | 79.9 | |||||||||||||
| Consolidated depreciation | $ | 97.8 | $ | 92.8 | $ | 274.9 | $ | 263.7 | |||||||||
| (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. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
The components of other expense, net, in the accompanying statement of income are as follows:
|
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 26,
|
September 27,
|
September 26,
|
September 27,
|
|||||||||||||
|
(In millions)
|
2015
|
2014
|
2015
|
2014
|
||||||||||||
|
Interest Income
|
$ | 7.2 | $ | 10.5 | $ | 21.9 | $ | 38.4 | ||||||||
|
Interest Expense
|
(100.6 | ) | (116.8 | ) | (311.9 | ) | (363.7 | ) | ||||||||
|
Other Items, Net
|
(1.4 | ) | 5.2 | (2.3 | ) | 11.5 | ||||||||||
|
Other Expense, Net
|
$ | (94.8 | ) | $ | (101.1 | ) | $ | (292.3 | ) | $ | (313.8 | ) | ||||
|
In the first nine months of 2015, other items, net includes costs of $7.5 million associated with entering into interest rate swap arrangements and losses of $6 million on the early extinguishment of debt. In the first nine months of 2014, other items, net includes $9 million of gains from investments.
|
|
The components of stock-based compensation expense are primarily included in selling, general and administrative expenses and include the following:
|
||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 26, | September 27, | September 26, | September 27, | |||||||||||||
|
(In millions)
|
2015 | 2014 | 2015 | 2014 | ||||||||||||
|
Stock Option Awards
|
$ | 11.1 | $ | 11.7 | $ | 32.4 | $ | 34.1 | ||||||||
|
Restricted Unit Awards
|
21.4 | 18.9 | 59.4 | 52.5 | ||||||||||||
|
Total Stock-based Compensation Expense
|
$ | 32.5 | $ | 30.6 | $ | 91.8 | $ | 86.6 | ||||||||
|
As of September 26, 2015, there was $84 million of total unrecognized compensation cost related to unvested stock options granted. The cost is expected to be recognized through 2019 with a weighted average amortization period of 2.4 years.
|
|
As of September 26, 2015, there was $140 million of total unrecognized compensation cost related to unvested restricted stock unit awards. The cost is expected to be recognized through 2019 with a weighted average amortization period of 2.2 years.
|
|
During the first nine months of 2015, the company made equity compensation grants to employees consisting of 0.9 million service- and performance-based restricted stock units and options to purchase 1.8 million shares.
|
|
Certain pre-acquisition equity awards of Life Technologies were converted to rights to receive future cash payments over the remaining vesting period. In addition to stock-based compensation, which is included in the above table, in the third quarter of 2015 and 2014 and first nine months of 2015 and 2014, the company recorded expense for cash-in-lieu of equity of $4.2 million, $9.2 million, $18.1 million and $26.3 million, respectively, related to these arrangements.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
Net periodic benefit costs for the company’s defined benefit pension plans include the following components:
|
||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 26, | September 27, | September 26, | September 27, | |||||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
|
Service Cost-Benefits Earned
|
$ | 7.7 | $ | 8.0 | $ | 20.0 | $ | 17.6 | ||||||||
|
Interest Cost on Benefit Obligation
|
19.4 | 23.6 | 58.1 | 67.2 | ||||||||||||
|
Expected Return on Plan Assets
|
(23.4 | ) | (25.0 | ) | (70.0 | ) | (71.2 | ) | ||||||||
|
Amortization of Actuarial Net Loss
|
2.3 | 1.9 | 7.0 | 5.9 | ||||||||||||
|
Other
|
(0.1 | ) | 0.2 | (0.1 | ) | 0.1 | ||||||||||
|
Net Periodic Benefit Cost
|
$ | 5.9 | $ | 8.7 | $ | 15.0 | $ | 19.6 | ||||||||
|
The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 35% to income from continuing operations before provision for income taxes due to the following:
|
||||||||
|
Nine Months Ended
|
||||||||
|
September 26,
|
September 27,
|
|||||||
|
(In millions)
|
2015
|
2014
|
||||||
|
Provision for Income Taxes at Statutory Rate
|
$ | 473.8 | $ | 542.5 | ||||
|
Increases (Decreases) Resulting From:
|
||||||||
|
Foreign rate differential
|
(148.9 | ) | (187.6 | ) | ||||
|
Income tax credits
|
(241.4 | ) | (122.5 | ) | ||||
|
Manufacturing deduction
|
(27.2 | ) | (26.6 | ) | ||||
|
Singapore tax holiday
|
(11.5 | ) | (10.3 | ) | ||||
|
Impact of change in tax laws and apportionment on deferred taxes
|
(13.5 | ) | (26.0 | ) | ||||
|
Nondeductible expenses
|
6.9 | 9.6 | ||||||
|
Provision (reversal) of tax reserves, net
|
— | 25.3 | ||||||
|
Basis difference on disposal of businesses
|
— | 26.3 | ||||||
|
Tax return reassessments
|
(51.0 | ) | (1.5 | ) | ||||
|
State income taxes, net of federal tax
|
(4.8 | ) | 27.7 | |||||
|
Other, net
|
(2.7 | ) | 1.7 | |||||
|
Provision for (benefit from) income taxes
|
$ | (20.3 | ) | $ | 258.6 | |||
|
In 2015, the company implemented tax planning initiatives related to non-U.S. subsidiaries. As a result of these initiatives, the company generated U.S. foreign tax credits of $112 million, offset in part by additional U.S. income taxes of $39 million on the related foreign income which reduced the benefit from the foreign tax rate differential in 2015.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(Unaudited)
|
|
In 2015, the company recorded discrete benefits totaling $51 million related to additional prior year foreign tax and other credits as well as restructuring and other costs associated with the 2014 acquisition of Life Technologies.
|
|
The company has significant activities in Singapore and has received considerable tax incentives. The local taxing authority granted the company pioneer company status which provides an incentive encouraging companies to undertake activities that have the effect of promoting economic or technological development in Singapore. This incentive equates to a tax exemption on earnings associated with most of the company’s manufacturing activities in Singapore and continues through December 31, 2021. The impact of this tax holiday decreased the annual effective tax rate by 0.8% and increased diluted earnings per share by approximately $0.03 in the first nine months of 2015.
|
|
The company’s unrecognized tax benefits increased to $274.4 million at September 26, 2015, from $214.1 million at December 31, 2014. Of the total increase, $70.0 million resulted from the utilization of deferred tax assets, offset in part by a reduction of $9.7 million from a resolution of an IRS audit of Life Technologies for which a reserve had previously been established.
|
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 26,
|
September 27,
|
September 26,
|
September 27,
|
|||||||||||||
|
(In millions except per share amounts)
|
2015
|
2014
|
2015
|
2014
|
||||||||||||
|
Income from Continuing Operations
|
$ | 477.3 | $ | 469.9 | $ | 1,374.0 | $ | 1,291.5 | ||||||||
|
(Loss) Income from Discontinued Operations
|
(1.2 | ) | 1.7 | (1.2 | ) | 1.7 | ||||||||||
|
Net Income
|
$ | 476.1 | $ | 471.6 | $ | 1,372.8 | $ | 1,293.2 | ||||||||
|
Basic Weighted Average Shares
|
399.0 | 399.9 | 398.4 | 397.5 | ||||||||||||
|
Plus Effect of:
|
||||||||||||||||
|
Equity forward arrangement
|
— | — | — | 0.2 | ||||||||||||
|
Stock options and restricted units
|
3.0 | 3.8 | 3.3 | 4.0 | ||||||||||||
|
Diluted Weighted Average Shares
|
402.0 | |||||||||||||||